Mountain Law: Cautionary tale about leaving more to kids, than spouse (column)
February 3, 2016
When one spouse dies in Colorado, leaving a will, the other spouse has two basic options: One is to follow the will and take whatever interest in the estate it provides; the other is to take something called the "elective share," which is essentially a default amount that a surviving spouse is entitled to receive by statute. A 2015 decision from the Colorado Supreme Court called Beren v. Beren provides an interesting cautionary tale about the elective share.
Before discussing the case, let me describe the elective share in more detail. The elective share is calculated as a certain percentage times something called the "augmented estate." The percentage is based on the length of the marriage, starting at 5 percent for a one-year marriage and increasing in increments of 5 percent for every year of marriage up to 50 percent. (There are different rules for marriages of less than one year.) For example, the percentage for an eight-year marriage would be 40 percent.
It is complex to determine the assets that are included in the augmented estate. In general, the augmented estate includes all of the assets that pass through a legal process called probate, plus many assets that pass outside of probate (such as property held as joint tenants, payable on death accounts, life insurance policies, etc.) — plus certain items that the deceased spouse may have tried to transfer away from the surviving spouse before death.
With that background, the Beren case involved the estate of Sheldon K. Beren who died in 1996. He was survived by his wife of 28 years, Miriam Beren and a total of seven children. The children consisted of four sons from a previous marriage (the "four sons"), two children from Miriam's previous marriage whom Sheldon had adopted and one child from Sheldon and Miriam's marriage. Sheldon was the founder and sole shareholder of an oil and gas company, Berenergy Corporation.
In his will, he gave most of his assets to Miriam in trust, with the balance of the assets going to the seven children on her death. In lieu of taking the assets in trust, as she could have done under the first option above, Miriam exercised her right to claim an elective share and asked the probate court to determine the value of the augmented estate. (Due to the length of the marriage, Miriam was entitled to a full 50 percent of the augmented estate.) This resulted in litigation between Miriam and the four sons that went on for nine years regarding what assets should be included in the augmented estate. During this time, the value of the total estate appreciated greatly while the value of the elective share (which is determined at the time of death) decreased by comparison.
In the end, the probate court sympathetically increased the amount of the elective share to compensate Miriam for the delay caused by the litigation. The four sons appealed and the appellate court found in their favor, ordering Miriam to repay some $24.5 million with interest. However, the Colorado Supreme Court then reversed the appellate court and held that, while the probate court could not increase the amount of the actual elective share, it could award the surviving spouse certain amounts above the elective share if needed to promote justice.
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In sum, Sheldon tried to put together an estate plan that would benefit both his wife Miriam and his children. However, she was not happy with Sheldon's plan and exercised her right to an elective share. She and the four sons ended up fighting over the elective share for going on twenty years with all the appeals. Perhaps the lesson is to be cautious if you plan to leave less than half of your estate outright to your spouse.
Noah Klug is owner of The Klug Law Firm, LLC, in Summit County, Colorado. He may be reached at 970-468-4953 or Noah@TheKlugLawFirm.com.
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