Wisconsin's New Deferred Marital Property Election
The new deferred marital property election protects a surviving
spouse from disinheritance in the deceased spouse's unclassified
property - property that was acquired when the Wisconsin Marital
Property Act (WMPA) did not apply to the marriage but which would have
been classified as marital property if the WMPA had applied.
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By Howard S. Erlanger
roperty for each spouse.
upon the death of a spouse, marital property converts into tenancy in
common between surviving spouse and successor to decedent's interest
property.2 Community property systems also
recognize that some property - that is, separate or individual property
- is not a product of the marriage because it was brought to the
marriage or - the income or "fruits" of separate property
are generally shared.5)
A major wrinkle in community or marital property systems is the
treatment of property acquired by spouses during a period when they were
not subject to community property rules. In Wisconsin, property of
spouses acquired when the Wisconsin Marital Property Act (WMPA) did not
apply to the marriage - that is, before the Act's effective date or
while at least one spouse was domiciled outside of the state6 - is unclassified. Some of this property
would have been marital property if the WMPA had applied when
the property was acquired; some of it would have been
individual property. If this property was acquired under a common law
property system, such as existed in Wisconsin before the effective date
of WMPA, then all interest in the property was vested in the acquiring
spouse, regardless of whether the property would have been marital
property under Chapter
766 of the Wisconsin Statutes.
In part to avoid questions of unconstitutional "takings," under WMPA
neither adoption of the Act nor spouses' change of domicile from a
common law property state to Wisconsin causes property to be classified
under the marital property system. Instead, all unclassified property is
treated as individual property during the marriage.7
As a result, the surviving spouse does not have a vested interest in
unclassified property at the death of the spouse who acquired the
property. This is acceptable for property that would have been the
decedent's individual property. But for property that would have been
marital property, the result is to deny the surviving spouse the
ownership benefits of the property, while also failing to provide him or
her the protection of the spousal election available in common law
property regimes. Therefore, unclassified property that would have been
marital property - termed deferred marital property in
Wisconsin - requires a special rule to prevent disinheritance of the
surviving spouse.
One way to determine whether property is deferred marital property is
to use what might be called the "language gambit": One simply tells the
story of the property's acquisition, in relation to the Marital Property
Act.
Example: Facts: A and B were married as
Indiana domiciliaries in 1992 and established a Wisconsin domicile in
1996. In 1993, A purchased a spittoon using funds that cannot be traced.
The spittoon is unclassified property because it was acquired before the
Act applied to A and B's marriage. But had the Act applied, the spittoon
would have been marital property under the presumption that all
property is marital property.8 Thus, the
spittoon is deferred marital property.
The analysis would be identical for a Wisconsin couple married before
Jan. 1, 1986, who became subject to the Marital Property Act on that
date and had previously acquired property.
The Wisconsin deferred marital property elections under prior
law
Under the law in effect through 1998, deferred marital property was
subject to two elections, which derived partly from Wisconsin's old
common law "elective share" and partly from the UPC's augmented estate
election provisions that applied when the Wisconsin provisions were
enacted.9 One of these elections -
which was subject to a bar - related to probate property; the other -
which was subject to a "cutback" - related to nonprobate property. These
elections were difficult to administer and included several
idiosyncratic elements that could lead to inequitable results. The new
probate code replaces these elections with a single election that is
less complex and more consistent with the partnership theory of
marriage.
Wisconsin's new deferred marital property election
The new election, which became effective on Jan. 1, 1999, is modeled
on the elective share provisions for common law property states under
the 1990 UPC.10The major changes from
Wisconsin's prior deferred marital property elections are these:
- The election is based on the total amount of all deferred
marital property in the marriage, not just that owned by the decedent.
The surviving spouse is entitled to half that total, rather than half
the deferred marital property owned by the decedent.
- There no longer are separate elections for probate and nonprobate
deferred marital property.
- The new statute eliminates the "all or nothing" bar in the prior
election regarding probate deferred marital property. The resulting
system is somewhat similar to the "cut back" in the prior election
regarding nonprobate deferred marital property. The cut back includes
any deferred marital property already held by the surviving spouse.
- The election is for a pecuniary amount, rather than for an
item-by-item interest, in contrast to the prior probate election.
- All nonprobate deferred marital property is subject to the election,
in contrast to the prior election, which limited covered nonprobate
property to transfers made on or after April 4, 1984.
The new election only applies to deferred marital property. Under the
new Code, as under previous law, the surviving spouse has no right of
election against the decedent spouse's marital property, individual
property, or deferred individual property.
The basics of the election.11 1) Who is covered? The deferred marital
property election is available to the surviving spouse12of a decedent who was domiciled in Wisconsin at
the time of death.13 There is no
requirement that the surviving spouse be a Wisconsin domiciliary. If a
decedent is not domiciled in Wisconsin but owns property here, the
rights of the surviving spouse are governed by the laws of the state of
the decedent's domicile.14 A special rule
applies if the surviving spouse caused the decedent's death.15
2) What property is covered? The election applies to the
"augmented deferred marital property estate," which is the total
value16 of all the deferred marital
property of both spouses, irrespective of where the property
was acquired or where the property is located, including real property
located in another jurisdiction.17 Wis. Stat.
section 861.02(2)(b) summarizes the categories of deferred marital
property included in the augmented deferred marital property estate:
- probate and nonprobate transfers of the decedent's deferred marital
property, as detailed under Wis. Stat.
sections 861.03(1) to (3);
- various gifts of deferred marital property made by the decedent
during the two years before death, as detailed under Wis. Stat.
section 861.03(4); and
- any deferred marital property held by (or attributed to) the
surviving spouse that would have been included in the above two
categories had the surviving spouse been the one who had died, as
detailed under Wis. Stat.
section 861.04.
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3) Will the surviving spouse be entitled to the election?
The purpose of the election is to ensure that the surviving spouse ends
up with an amount equal to at least half the value of the augmented
deferred marital property estate.18In the
typical situation, the surviving spouse will already hold some deferred
marital property, and the value of the transfers from the decedent
spouse to the surviving spouse during life or at death will easily
exceed the remaining amount. As noted above, in a marital property
system the deferred marital property elective share is the only
obligation that the decedent spouse has to the surviving spouse.19 Thus, in the context of the deferred marital
property election, a transfer from any source - the decedent's interest
in marital property, deferred marital property, individual property, or
deferred individual property - counts towards satisfying the elective
share amount.20 To the extent that these
transfers are not sufficient to satisfy the elective share amount, Wis. Stat.
section 861.06 provides that the remainder is satisfied
proportionally from the decedent's transfer of deferred marital property
to third parties.21
4) Personal liability of "unentitled" recipients. Under Wis. Stat.
section 861.07, the original recipient of the decedent's deferred
marital property transferred to others is liable for his or her share,
irrespective of whether the recipient still has the property or its
proceeds. If an original recipient gratuitously transfers the property
to another person, the subsequent donee also is personally liable for
the share if the donee still has the property or its proceeds, or if the
donee knew or should have known of the liability.22
5) Protection of "innocent third parties." Under Wis. Stat.
section 861.11, if a third party payor - such as an insurance
company - does not have written notice of an actual or intended filing
of the deferred marital property election, it can pay to the named
beneficiary and take other actions in good faith without incurring any
liability. However, if proper notice has been served, then this
exemption from liability is removed for third party payors other than
banks. At that point, the third party payor either may continue to hold
the property pending instructions from the court, or discharge its
obligation by turning the property over to the relevant probate court.
Banks have the same options, but alternatively may distribute the
property to the named beneficiary without liability.
Examples
Example 1. Facts: Assume that A and B were
married in 1983, and that they were domiciled in Illinois until 1993,
when they moved to Wisconsin. They remained domiciled in Wisconsin until
A's death this year. At A's death, A's share of the couple's marital
property was worth $40,000, and A held $60,000 of individual property,
$100,000 of probate deferred marital property, and $50,000 of nonprobate
deferred marital property. B's share of the marital property of course
also was $40,000, and B held $20,000 of individual property and $30,000
of deferred marital property, $20,000 of which would pass under B's will
and $10,000 of which would pass nonprobate if B were to die. A's will
left $50,000 of individual property to B.
Analysis: The augmented deferred marital property estate
would consist of both A's and B's deferred marital property, totaling
$180,000. (Some is probate property and some is nonprobate, but that is
irrelevant.) B's elective share amount would be one half of that total,
or $90,000. B's elective share amount is then satisfied out of the
$30,000 of deferred marital property that B already holds, and the
$50,000 transfer under A's will. (The source of the transfer is
individual property, but that is irrelevant.) This leaves $10,000 that B
can elect from A's deferred marital property; B can enforce this right
pro rata against A's estate and the recipients of A's nonprobate
deferred marital property.23 Had the
order of deaths been reversed, A would have had no elective right. The
amount subject to election would have been $90,000, calculated the same
way as in the example. However, this amount would be satisfied by the
$150,000 of deferred marital property that A already held. (See
Chart)
The analysis just described would be identical for a couple who were
married and domiciled in Wisconsin prior to Jan. 1, 1986, and continued
to live here after that date until one spouse died.
Howard S. Erlanger is Voss-Bascom Professor of Law
at the U.W. Law School. He teaches in the areas of wills, trusts,
probate, marital property, and estate planning, and is an Academic
Fellow of the American College of Trust and Estate Counsel. Prof.
Erlanger was reporter for the State Bar of Wisconsin committee that
drafted the new Probate Code, and is the author of Wisconsin's New
Probate Code: A Handbook for Practitioners, published by the U.W.
Law School - Continuing Legal Education Wisconsin; this article is based
on Chapter 5 of that volume. He is also coauthor, with Linda Roberson
and Richard Langer, of a recent State Bar CLE Books publication,
Guide to Marital Property Classification in Wisconsin.
Example 2. Facts: Spouses A and B had the
following property upon A's death in 1999. To simplify the example,
assume that all of the assets are deferred marital property. A's will
leaves "all my property" to Child:
- car worth $20,000, titled in A's name alone. B selected the car
under Wis. Stat.
section 861.33(1)(a)2;
- stock worth $100,000, titled in A's name alone; purchased for
$50,000;
- IRA worth $100,000, titled in A's name, payable to B; and
- term life insurance on B's life, $100,000 face amount, payable to
A
Analysis: Since the car was selected by B in satisfaction of
other rights, the statutes provide that it be dropped from the
analysis.24 The term life insurance on B's
life is included in the augmented deferred marital property estate, but
its valuation is to take into account the fact that A died first,25 and may for our purposes be assumed to be valued
at zero. Thus, the augmented deferred marital property estate is
$200,000 - the value of the stocks and the IRA. The maximum deferred
marital property elective share is half that total, or $100,000. B has
received $100,000 from the IRA, and therefore the elective share is
satisfied.26On these facts, the IRA was
deferred marital property, but as far as satisfaction is
concerned, the result would have been the same if the IRA had been
marital, individual, or deferred individual property. (See
Chart)
Conclusion
Many spouses leave all or substantially all of their property to the
surviving spouse. Most of the rest leave a significant amount of
property to the survivor, either outright or in trust. Thus, the
deferred marital property election applies to only a minority of
marriages. But when it does apply, it is important that it operate in an
equitable manner and be relatively easy to administer. The deferred
marital property election in the new probate code makes significant
strides toward achieving those goals.
Endnotes
1 1997
Wis. Act 188. Many of the changes in the Code are reviewed in Howard
S. Erlanger, "The New
Wisconsin Probate Code," 71 Wisconsin Lawyer 6 (Oct.
1998).
2See Wis. Stat.
§ 861.01(1) and (2). For probate property, the successor in
interest will be the decedent's estate, and eventually the takers of the
estate under a will or intestacy. For nonprobate property, the successor
in interest will usually be a designated beneficiary.
3 "Interitance" is used here in the
colloquial sense to refer to any property received as a consequence of
someone's death. As a technical matter, the term refers only to property
received under the laws of intestacy, and not by any other means.
4See Wis. Stat.
§ 766.31(4).
5In Louisiana and Wisconsin, the
spouse who owns the nonmarital property may execute a unilateral
statement that reclassifies the income on that property as separate or
individual property. See, e.g., Wis. Stat.
§ 766.59.
6See Wis. Stat.
§ 766.01(5) (defining determination date) and §
766.03(1) (applicability of Chapter 766).
7See Wis. Stat.
§§ 766.31(8) and (9).
8 Wis. Stat.
§ 766.31(2). In addition, section 861.02(2)(a)
provides a presumption that any property not classified as marital
property is considered deferred marital property. This latter section is
relocated from prior Wis. Stat. § 858.01(2)
(1995-96).
9 For a detailed explanation of the
prior deferred marital property elections in Wisconsin, see Howard S.
Erlanger and June Miller Weisberger, New Probate and Nonprobate
Property Elections Under Wisconsin's Marital Property Act
(pts. 1 & 2), Wis. B. Bull. 25 (Oct. 1986), 13 (Nov. 1986).
10 For a detailed analysis of the
relationship between the new Wisconsin elective share in deferred
marital property and the UPC elective share in common law property
jurisdictions, see Erlanger and Monday, The Surviving Spouse's Right
to Quasi-Community Property: A Proposal Based on the Uniform Probate
Code, 30 Idaho L. Rev. 671-95 (1994).
11 The basics of the deferred
marital property election are covered in Wis. Stat. section 861.02.
12 Surviving spouse is defined in
new Wis. Stat. section 851.30. The surviving spouse must be living for
the election to be filed, but other parties are authorized to file on
behalf of the spouse. Wis. Stat.
§ 861.09. The rights of the surviving spouse can be waived
under Wis. Stat.
section 861.10.
13 Wis. Stat.
§ 861.02(7).
14 Wis. Stat.
§ 861.20.
15 Wis. Stat.
§ 861.02(8).
16 Valuation of the property is
determined under Wis. Stat.
section 861.05(2).
17 Wis. Stat.
§ 861.02(2)(b). While Wisconsin cannot on its own control the
disposition of real property located in another jurisdiction, many
states will defer to this provision under their own conflict of laws
rules.
18 Wis. Stat.
§ 861.02(1).
19The surviving spouse already
owns a half interest in each item of marital property, and the decedent
has no obligation to share individual or deferred individual property.
Of course, the surviving spouse also has selection, exemption, and
allowance rights under sections
861.31-.41, and a limited homestead protection under section
861.21.
20 Wis. Stat.
§ 861.06(2)(b).
21 Wis. Stat.
§§ 861.06(3), (4) and (5). Proceedings for implementing
the election are detailed in sections
861.08 and 861.09.
22 Wis. Stat.
§ 861.07(2)(b). It is possible that federal law will preempt
the enforcement of the deferred marital property election against some
assets. Wis. Stat.
section 861.07(4) attempts to offset these effects, by treating the
recipient dictated by federal law as an "unentitled" recipient. If the
attempt to overcome federal preemption is unsuccessful, the shares of
other recipients may, under limited circumstances, be adjusted.
23 Wis. Stat.
§ 861.06(3).
24 See Wis. Stat.
§§ 861.05(1), 861.06(2)(b)1.
25 See Wis. Stat.
§ 861.04(2).
26 Arguably, B is at a
disadvantage because distributions from the IRA are likely to be fully
taxable at ordinary-income rates while the stock received new basis.
However, the satisfaction statute has no adjustment for this factor.
Wisconsin
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