The modern-day family has evolved beyond the traditional model. Blended families are more common and can create unique challenges when it comes to estate planning and inheritance. One challenge with estate planning for blended families can be balancing the needs of a surviving spouse with the inheritance rights of children from previous marriages.
Minnesota’s probate code provides protection for a surviving spouse but has the potential to leave children from previous marriages with nothing from the deceased parent’s estate. Surviving spouses are protected by Minnesota’s elective spousal share statute and can obtain additional assets from their deceased spouse’s estate as exempt property and family allowance. The spousal elective share can impact how assets are distributed after the death of a spouse. QTIP trusts, contracts concerning succession, and special waivers related to spousal rights are invaluable estate planning tools for those that are looking to maintain control and stability over their assets after they pass. By understanding the statutory rights given to surviving spouses you can be prepared to make informed decisions and create an estate plan that fits your desires and meets the needs of your unique family. By understanding the statutory rights given to surviving spouses you can be prepared to make informed decisions and create an estate plan that fits your desires and meets the needs of your unique family.
Minnesota Elective Spousal Share
Minnesota’s elective share statute provides protection for a surviving spouse from being completely disinherited or receiving little under the will if a person attempts to leave their spouse nothing. Under the spousal elective share statute, a surviving spouse has the right to claim a percentage of the deceased spouse’s “augmented estate”. The augmented estate is the total value of a person’s assets, including both probate and non-probate assets. The percentage a surviving spouse is entitled to is dependent on the length of the marriage with the decedent. The amount ranges from 3% for one year of marriage, up to 50% for marriages lasting 15 years or more. The spouse’s own assets are also considered in the calculations. The computations are complex and require a thorough knowledge of the couple’s probate assets and the non-probate assets.
Minnesota’s version of the elective share laws recognizes that marriage is an economic partnership and attempts to balance the interests of children from a previous marriage with that of the surviving spouse. The general effect of the elective-share is to increase the surviving spouse’s share of assets in a long-term marriage where the marital assets were disproportionately titled in the deceased spouse’s name; and to decrease or even eliminate the surviving spouse’s share of such assets in cases in which the marital assets were more or less equally titled or disproportionately titled in the surviving spouse’s name. In the cases of a short-term second marriage where neither spouse has contributed significantly to the other person’s wealth, a surviving spouse may be entitled to little, if any, additional assets under the elective share.
To claim this elective share, the surviving spouse must file within 9 months of the death of the spouse or within 6 months of the probate filing. This protection can be particularly relevant to blended families in a situation where the deceased spouse’s will primarily benefits children from a prior marriage and does not leave much for the surviving spouse. This elective share can ensure that the surviving spouse is not left financially vulnerable.
Example: Jenna and Jack were married to each other more than 15 years. Jenna survives Jack, but Jack’s will left everything to his children from the prior marriage. Jack did not list his surviving spouse as a beneficiary on any non-probate assets, such as life insurance policies, retirement accounts, etc. Jack made certain non-probate transfers at death to his children in the amount of $100,000. How much value will Jenna receive by electing to receive a portion of the augmented estate?
Elective Share
Jack’s Net Probate Estate $300,000
Jack’s Non-Probate Transfers to Children $100,000
Jenna’s indiviudal Assets $200,000
Total Augmented Estate $600,000
Elective Share Amount (50% of Augmented Estate) $300,000
Less Portion of Jenna’s Assets Counted
Against Elective Share ($200,000)
Balanced Owed to Jenna $100,000
Other Spousal Inheritance Rights
If a person passes away without a will, the estate is distributed to their heirs based on Minnesota’s laws of intestate succession. Minnesota’s intestate law provides for a surviving spouse to inherit from the estate if the other spouse dies without having a will. If a person dies intestate, or without a will, the surviving spouse will inherit 100% of the estate if the deceased either does not have children or all the children are from the last marriage. In the case of a blended family, or a decedent with children from a prior marriage, the first $225,000 plus 50% of the remaining estate goes to the surviving spouse and the remaining portion goes to the decedent’s children from the prior marriage.
Surviving spouses also have statutory rights to the family home—referred to as a homestead in the probate code. The surviving spouse will inherit the homestead if there are no descendants from a prior marriage. If there are surviving descendants of a deceased spouse, then the survivor will receive a life estate in the homestead granting him or her the right to use and occupy the home for the remainder of their natural life. On the surviving spouse’s passing, the homestead will go to the other spouse’s surviving descendants.
In addition to the homestead rights, a surviving spouse is entitled to receive payments of $2,300 per month in family allowance (up to a maximum of 18 months), a vehicle of any value, and other personal property collectively valued at $15,000. These laws ensure that a financially vulnerable spouse has adequate assets to provide for his or her care and support; however, the reality is that the surviving spouse is taking a forced share of assets that might otherwise benefit the deceased spouse’s children. Understanding these laws can be particularly important for blended families, where the inheritance rights under the statute may be different than your goals or intentions for distributing your assets.
Tools to Protect Your Legacy
One estate planning tool that can be helpful for blended families is a qualified terminable interest property trust, also known as a QTIP trust. A QTIP trust is a valuable tool that can be used to ensure a surviving spouse is financially supported while also preserving assets for children from a prior marriage. This type of trust allows an individual to maintain control over how their assets are to be distributed once the surviving spouse passes.
A QTIP trust is an irrevocable trust that provides income to the surviving spouse. During the surviving spouse’s life, the spouse receives all the income generated by the trust. The trust can also allow for principal distributions to the surviving spouse, if specified in the terms of the trust. Following the death of the surviving spouse, the remaining trust assets will be distributed to the remainder beneficiaries, most often the deceased’s children. The surviving spouse has no control over the final disposition of the QTIP trust’s assets. It is a helpful tool for spouses that are looking to prevent their surviving spouse from inheriting the deceased’s entire estate and redirecting the assets to their own heirs.
A QTIP trust comes with some tax advantages for the deceased’s estate. The assets in the QTIP trust qualify for the unlimited marital deduction. This deduction reduces the taxable estate of the deceased spouse, but any assets remaining in the trust at the surviving spouse’s death will be subject to tax in the survivor’s estate.
While a QTIP trust is a powerful tool, it is not necessarily right for everyone. This type of trust is most often used in situations where an individual has children from more than one marriage and wants to ensure their children inherit their assets—especially legacy assets like farmland or a family business. However, the remainder beneficiaries of a QTIP trust can be any family member, a friend, or even a charity. If you are not concerned about how your estate will be distributed after you and your spouse pass, then this tool likely wouldn’t be needed for your situation. However, if you want to have more control over how your assets are distributed after your surviving spouse passes, a QTIP trust can ensure you maintain control and your wishes are followed.
It is important to note that the statutory rights discussed above can be used by a surviving spouse to clawback assets that would otherwise be distributed to a QTIP trust. To prevent this result, married couples will sometimes waive their rights to the homestead, exempt property, and family allowance in a separate a written contract. Similar to a pre-nuptial agreement, the waiver must be signed after fair disclosure of each spouse’s assets. Spouses can also make a “contract concerning succession”, which is essentially an agreement not to change their will or revocable trust without the other spouse’s consent. After one of the spouses passes away, the surviving spouse usually cannot amend or modify their estate planning documents.
Conclusion
While Minnesota law offers protection for surviving spouses, these statutory rights can lead to unintended consequences, especially with blended families. Understanding these statutory protections and through implementation of tools such as a QTIP trust waivers, or a carefully drafted will can help minimize risks and ensure financial stability for both a surviving spouse and your children. By taking the time to create an estate plan that is tailored to the unique dynamics of your family, you can provide for your loved ones even after you are gone.
