Yours, Mine, and Ours: A Lawyer’s Perspective On Estate Planning and Blended Families and Oregon’s New Elective Share Law

Are you or your spouse married, with children of a prior marriage? While “blended families” have become commonplace, the resolution of how to distribute your estate when you pass away remains a difficult question. This article summarizes the law on distributions at death for families with ex-spouses and children of prior marriages and discusses some important and effective suggestions for resolving your concerns.

1. Effect of Dying With No Will. Generally, it is the goal of married couples to see each other through life successfully, leaving the remainder of their assets to their children upon their deaths. This is not what occurs when you have children of a prior marriage and die without a will. When this occurs, a full one-half of your probate estate passes to the children of your prior marriage at the time of your death. If your testamentary desires differ from this outcome in any manner, estate planning is an important issue for you to address.

2. Effect of an Existing Will Naming a Former Spouse; Effect of Second Marriage. Unless your will specifically describes a different intention, all provisions in your existing will in favor of a former spouse are automatically revoked; your former spouse is treated as having predeceased you. However, your will remains effective as to all other bequests until the time that you revoke the will, make a new will, or remarry. When you remarry, the former will is legally revoked at the time of the marriage unless: (i) your will specifically states that it will not be revoked in such an event; or (ii) there is a written agreement in place with your new spouse prior to the new marriage that describes his or her rights with respect to your estate (e.g., a “Prenuptial Agreement”). Accordingly, it is important to remember to review your will if you become divorced and again if you remarry.

3. A Current Spouse’s Right to an “Elective Share.” Even if you strongly desire to leave a limited sum of assets to your current spouse and make arrangements for this outcome, your intentions may be defeated if you do not plan properly. Despite your specific testamentary documents or other arrangements, your spouse may “make an election against your estate” to take a designated share of estate assets. To avoid this outcome, you must have an agreement in place in which your spouse effectively waives his or her right to make this election against your estate.

   Commencing with deaths which occur in the state of Oregon on or after January 1, 2011, we have a new way to determine the elective share rights of surviving spouses which in many ways is far more complex than our former laws. The new law makes it much easier for surviving spouses to make their claims and conversely, it is now much more difficult for spouses to avoid such a claim in their estate planning documents. It does so by basing the election on an augmented estate that includes nonprobate estate assets, thereby eliminating a common method of defeating the surviving spouse’s elective share rights. Under the former law, the surviving spouse had a right to elect to take 25 percent of the net probate estate of the decedent spouse. Under the new laws, the election amount ranges from five percent of the estate to as much as 33 percent, for couples married 15 years or longer. Following is the elective share percentage schedule:

   Duration of Marriage	Elective Share Percentage
   Less than 2 years	5% of the augmented estate
   2 years but less than 3 years	7% of the augmented estate
   3 years but less than 4 years	9% of the augmented estate
   4 years but less than 5 years	11% of the augmented estate
   5 years but less than 6 years	13% of the augmented estate
   6 years but less than 7 years	15% of the augmented estate
   7 year but less than 8 years	17% of the augmented estate
   8 years but less than 9 years	19% of the augmented estate
   9 years but less than 10 years	21% of the augmented estate
   10 years but less than 11 years	23% of the augmented estate
   12 years but less than 13 years	27% of surrender augmented estate
   13 years but less than 14 years	29% of the augmented estate
   14 years but less than 15 years	31% of the augmented estate
   15 years or more	33% of the augmented estate

   Oregon law allows spouses to surrender their elective share rights by an agreement or waiver, entered into before or even after marriage. Notwithstanding, Courts may hold that waivers signed by spouses under the prior law are inapplicable to the new rights granted under our current law. This is because the rights previously waived are far less significant then those which will be waived under the current law.

   A surviving spouse has nine months after the decedent spouse’s death to file a claim for the elective share. This timing will have an adverse impact on estate tax filings and also in the administration of probate estates. Estate tax filings will become more troublesome, because estate and inheritance tax returns are due within nine months of the decedent spouse’s death (indicating that we will be forced to file for extensions in such cases). Another significant issue lies in the fact that a decisions to disclaim assets given to you through an estate proceeding must also be made within nine months of the date of the decedent’s death (and you cannot extend this date), indicating that beneficiaries may become unwilling to make a qualified disclaimer if the surviving spouse can so significantly shift the ultimate asset distribution scheme with a last minute elective share claim. The nine month time period for making an election against an estate will have an adverse effect on the prompt administration of probate estates and will even slow transfers of non probate assets in many cases.

   The elective share may be claimed by a surviving spouse or an agent, guardian or conservator for the surviving spouse while he or she is alive. However, if the spouse successfully makes a claim and then becomes deceased before the claim is paid, then his or her personal representative will have the legal right to pursue the claim.

4. Avoiding Conflicts. If you have a “blended family” and you would like to provide some level of inheritance for some or all of its members, the ground is fertile for conflicts to arise at the time of your death. This is true even if you would like to provide for your current spouse during his or her lifetime before dividing the remainder of your estate among your children. Conflicts may be significant if your children of a prior marriage expect to receive a portion of your estate because, in essence, they are “forced” to “wait” for their inheritance. Such conflict may be expressed as general displeasure or may be very specific in nature. For example, children could make an argument that investment assets should be directed to produce more growth than income, causing their “remainder” interest in your estate to grow, rather than to remain stagnant or to diminish. Following are suggestions for minimizing conflicts when dealing with gifts to members of a blended family:

   1. Be Specific about Your Intentions. As a first step, it is important to spend time defining for yourself to whom and in what manner and timing you would like for your assets to be distributed following the event of your death. Understanding that your actual intentions can easily be misconstrued and not observed after your death, you should visit with an attorney who specializes in estate planning and discuss your family situation and desires in detail. He or she can ensure on your behalf that there are no hidden land mines in your estate planning documents.

   2. Consider Alternative Methods for Providing an Inheritance for Children. If your estate is not large enough to make you feel secure that you have provided sufficiently for your current spouse while also providing gifts for your children, consider funding your children’s inheritance with life insurance proceeds. With proper planning, life insurance proceeds can be excluded from the total value of your estate for taxation purposes. One additional benefit of providing for children of a prior marriage in this manner is that you completely separate the interests of your family members in terms of asset distribution, as life insurance proceeds are payable outside the scope of your will. Accordingly, the children of your prior marriage can receive a gift from you on the event of your death and your current spouse can deal effectively with the remainder of your estate for his or her benefit (and for the benefit of your children of that marriage, if any) in an entirely separate setting. One word of caution: estate taxes on life insurance proceeds (if any) are paid from other estate assets if no other effective direction is made. This can have a (potentially devastating) effect on your surviving spouse, if the assets otherwise transferrable to him or her are inadequate to pay for any such tax and to provide for his or her support. This can be avoided with proper planning.

5. Gifts to Children of Differing Ages and Needs. One difficulty that arises in determining how your assets should be distributed when children of your existing marriage are much younger than children of prior marriages is that the younger children will require a much greater proportion of your estate to provide for their safekeeping, health care, and education until the time that they are old enough to provide for themselves. However, it is quite difficult to determine what proportion of your estate should be allocated for this purpose. In this case, consider the use of a “pot trust.” With a pot trust, your assets are held in a single fund and distributions are made to each child according to his or her individual needs. For example, the trustee has the discretion to make distributions to one child who requires medical care or special education in amounts greater than amounts distributed to other children. Then, when the youngest child reaches a specified age (e.g., age 21, the remaining trust assets are divided among all children equally and distributed directly to them. This type of distribution may be the most fair, as your older children have already received a greater share of your estate.

6. Why Agreements with Spouses May be the Best Idea. Even if you have carefully considered your desires and even if your will adequately describes your personal desires, your assets may be diverted to others. For example, you could inadvertently create a “winner takes all” estate plan. You and your spouse may elect to create wills that give everything to the survivor, with any remaining assets among all children of current and prior marriages. In this case, the surviving spouse will have the absolute legal right to: (i) do the right thing and ensure that your children get their inheritance; or (ii) to make an entirely new will upon your death that completely alters the distribution plan. Because this is true, individuals with children of prior marriages must take special care to ensure that their testamentary desires are given full legal effect. This can be accomplished by utilizing trusts, life estates, or other specially designated gifts, and one of a variety of types of agreements between you and your spouse. We can easily guide you through the process of selecting the best method to provide for the members of your family under your particular circumstances.