Back to Missives
George F. Bearup, J.D. Senior Legal Trust Advisor

29-May-18

Probate Elective Shares and Allowances for 2018

Take-Away: The amounts that an heir or surviving spouse may claim under the Michigan Estates and Protected Individuals Code increase each year to reflect cost of living adjustments. Some of those increased amounts for 2018 are described below. Reviewing intestate shares, elective rights, and probate court allowances is often a helpful reminder that it is better for a client to use a trust, or if not a trust, it is better for a client to adopt a Will than have the Legislature write their estate plan for them.

Surviving Spouse’s Share of Intestate Estate: The base amount of the surviving spouse’s share in most intestate estates is $229,000. If a spouse dies without a Will, the surviving spouse takes the first $229,000 of the deceased spouse’s estate. [MCL 700.2202(1)(a).] The balance of the decedent’s estate is then divided dependent on the relationship among the surviving spouse and the decedent’s descendants.

  • Example: I die without a Will. My probate estate is worth $400,000. My wife receives the first $229,000. Our two children and my wife equally divide (50%-50%) the balance of my estate, or $171,000. Consequently my wife takes $314,500 of my $400,000 estate, and my two children divide the $85,500 balance, or $42,750 possess to each child. If a child gives his/her share back to my wife, my child will have made a taxable gift to their mother to ‘fix’ the problem caused by intestate succession, i.e. I died without a Will.

Surviving Spouse’s Share of Intestate Estate, but No Common Descendants: The base amount in the deceased spouse’s intestate estate is $153,000 where there are surviving descendants as well as a surviving spouse, but the descendants are not the survivor’s  descendants, e.g. a second marriage situation.

  • Example: I die without a Will. My probate estate is worth $400,000. My wife from my second marriage gets the first $153,000. She and my children from my prior marriage equally divide (50%-50%) the balance of $247,000. Consequently,  my wife receives $276,500 of my $400,000 estate,  and my two children divide the $124,000 balance, or $62,000 passes to each child.

Surviving Spouse’s Elective Share: The surviving spouse’s share of an intestate estate also ‘dictates’ the surviving spouse’s elective share if he/she chooses to elect against the deceased spouse’s Will. That elective share, if the survivor chooses to not abide by the deceased spouse’s Will, is one-half (50%) of the sum or share that would have passed to the survivor had their spouse died intestate, reduced by one-half (50%) of the value of all property derived by the survivor from the deceased spouse by any means other than by Will or intestate succession upon the deceased spouse’s death. [MCL 700.2202(2)(b).]

  • Example: I die with a Will in which I leave all of my entire estate to our children, and nothing to my wife. My surviving spouse elects against my Will (under which she would receive nothing) and instead she takes her elective share of my probate estate. I had no other assets, like life insurance,  IRAs, 401(k) accounts,  jointly owned real estate, or TOD/POD arrangements that pass wealth to my surviving spouse. The $400,000 is the sum total of my estate. My wife’s elective share is 50% of what she would have received from my intestate estate. If I had died intestate, my surviving spouse would receive $314,500. But her elective share of my estate, electing against my Will because I left all of my estate to my two children,  is only 50% of that amount, or $157,250. My two children then divide, per my Will, the balance of my estate; each child would receive $121,375 of my estate ($242,750 divided by 2= $121,375.)
  • Note: While Michigan adopted in large part the Uniform Probate Code, one of that Code’s provisions that Michigan chose to not adopt was the concept of an augmented estate against which the elective right is exercised by a surviving spouse. Under the augmented estate concept followed by a majority of other states which adopted the Uniform Probate Code, non-probate assets are included in the decedent’s estate when calculating the surviving spouse’s elective share. Even among the states which have formally adopted the augmented estate concept, each is a bit different with regard to what is, or what is not, included in the augmented estate against which the survivor’s elective right is calculated. What is important to remember is that most of the augmented estate states include a funded revocable trust as part of the augmented estate against which the election is made; that is NOT the case with Michigan’s elective share statute which is tied solely to the probate estate, off-set by non-probate transfers to the surviving spouse.
  • Example of Augmented Estate: I died with a Will and $800,000 probate estate. I named my two children from my first marriage as he beneficiaries of my entire estate under my Will. I also owned another $500,000 in an IRA for which I named my two children as the beneficiaries of that IRA. [Apparently I did not like my wife!] Accordingly my augmented estate is $1,300,000 [not $800,000 under Michigan’s version] against which my surviving spouse’s elective share would be calculated [the first $153,000 plus 50% of the balance of $1,150,000 (or $575,000) for a total of $728,000 of a $1,300,000 gross estate.] Under Michigan’s version of a surviving spouse’s elective share my surviving spouse would take only $514,500 by electing against my Will, or a difference of $213,500 between the two approaches using this second marriage example.

Homestead Allowance: The homestead allowance for a surviving spouse and/or minor children is $23,000. [MCL 700.2402.] This allowance is exempt from and has priority over all claims against the decedent’s estate, except for administrative costs and expenses, and reasonable funeral and burial expenses. Note, too, that this allowance and the exempt property allowance (below) is separate from and in addition to a surviving spouse’s intestate share or elective share of the deceased spouse’s estate.

Exempt Property Allowance: The exempt property allowance for a surviving spouse and/or minor children is $15,000. [MCL 700.2404.] The family allowance is paid first before the exempt property allowance is paid. The property subject to the exempt property allowance has priority over all claims against the estate, but some claims must be paid in full before assets are set-aside to satisfy an exempt property allowance. Those priority claimants include: administration costs and expenses, reasonable funeral and burial expenses,  the homestead allowance and the family allowance. Like the homestead allowance, the exempt property allowance is in addition to a benefit or share that passes to the surviving spouse or the decedent’s children by intestate succession or by elective share. [MCL 700.2040(3).]

Maximum Family Allowance Without Probate Court Order: This allowance is paid from a probate estate to support a surviving spouse and/or family. It is $27,000. [MCL 700.2403 and 2405.] This allowance also has priority over the payment of all claims except administration costs and expenses, funeral and burial expenses, and the homestead allowance. This allowance can be paid in a lump sum or in installments. Part of this allowance can also be paid directly to a minor child (e.g. in college and not living at home) or to a custodian for a minor child who does not live with the surviving spouse. This allowance can only be paid for one year if the decedent’s estate is not large enough to pay all allowed claims against the decedent’s estate.

  • A probate court can order a reasonable amount to the surviving spouse and minor children if the decedent was obligated to support them, but what is reasonable is subject to the opinion of the probate judge who looks at all the facts, circumstances and lifestyle enjoyed by the family. In one reported decision a probate court’s order of $8,000 a month, based upon the surviving spouse’s expenses, was viewed by the Court of Appeals to be an abuse of discretion because the probate judge failed to examine all relevant facts including the decedent’s intent and the other financial resources that were available to the surviving spouse. In re Estate of Seymour, 258 Mich. App. 249 (2003).

Working Around Allowances and Elective Rights:

  • Conditional Bequests: Wills and Trusts can be written to impose conditions on a testamentary gift to a surviving spouse. The Will or Trust makes a bequest or devise to the surviving spouse, or a trust that is established for their benefit,  contingent upon the survivor foregoing their rights to claim a probate court allowance or to exercise their EPIC elective rights against the deceased spouse’s estate. This is often the case in a second marriage situation. The deceased spouse wants a definitive amount to pass to the surviving spouse, not indirectly supplemented by allowances or elective rights.
  • Example: I have a funded Trust that provides for my wife and my children from a prior marriage. I also have a probate estate that holds a copyright interest that I possess, which carries termination rights under federal law that I do not want my immediate family relatives to exercise. I understand that my surviving spouse may elect against my Will (my probate estate) and claim an interest in those intellectual intangible property interests held in my name alone. I do not want my second spouse to exercise her elective rights against my estate. So I add a condition to the Trust that provides a large portion of my trust estate will be held in trust for my surviving spouse’s lifetime benefit, giving her the annual right to withdraw 5% of the trust assets. However, the trust instrument goes on to provide that  if my surviving spouse elects against my Will, or she claims an allowance against my probate estate, then she is treated as having died before me. Alternatively, perhaps I change the terms of the lifetime trust created for her benefit to provide only discretionary distributions from the trust’s income to my widow, if she exercises any of her probate court allowances.
  • Waivers: While there is some question these days as to the effectiveness of a prenuptial agreement if the spouses later find themselves in divorce court, it is clear (I guess it only clear until our appellate courts get involved) that a spouse, either in a prenuptial agreement or a postnuptial agreement, can waive their right to share in an intestate estate,  their right to elect against the decedent’s probate estate, and their right to claim a homestead,  exempt property and family allowances under the probate code. This waiver must be in a written contract or agreement, which can be signed both before, or after, the marriage, after what the statute calls fair disclosure. [MCL 700.2205.] Usually these waivers appear in a prenuptial agreement, less so in a postnuptial agreement. To be expected, our courts often have different ideas of what a fair disclosure entails. See, In re Estate of Waller, No 300426, 2011 Mich. App LEXIS 753 (April 24, 2012, unpublished.)

Source of Payment: What happens when there are not enough assets in the probate estate to pay creditors, administration expenses, and EPIC allowances? Some non-probate transfers can be reached after death, in the hands of a third party,  in order to pay claims and allowances when the probate estate is insufficient.

  • Trusts: A decedent’s revocable trust is available to satisfy certain identified claims and allowances when the probate estate is insufficient. Trust assets can be accessed, but only to the extent the settlor’s property that is subject to probate administration is insufficient to satisfy: (i) administration expenses; (ii) timely filed, enforceable claims presented to the estate for payment; and (iii) homestead, family and exempt property allowances. [MCL 700.7605(1).]
  • Non-Probate Transfers: If the decedent’s estate is insufficient to satisfy administration expenses, creditor claims, and probate allowances, then non-probate transfers of the decedent, e.g. a revocable trust, TOD and POD beneficiary arrangements, etc.  will be available to meet these expenses. The statute provides that if the decedent’s personal representative is aware of other non-probate transfers that may be liable for claims and allowances, then, unless the will provides otherwise, the personal representative can proceed to collect the deficiency in a manner that is reasonable under the circumstances so that each non-probate transfer, including those made from the decedent’s trust bears a proportionate share or equitable share of the total burden. [MCL 700.3805(3).] This is an important provision to remember in a world of estate recovery for Medicaid recipients, where estate recovery  for Medicaid benefits previously paid are recoverable from the recipient’s probate estate. [MCL 700.3805(1)(f).]
  • Case Law:  Estate recovery for Medicaid advancements  and accessing non-probate transfers to pay estate administration expenses and claims against a decedent’s estate have been a hot area of the law. What follows is a synopsis of some of the more recent reported decisions on this topic:

Personal representative was entitled to recover assets to be reimbursed from the estate for expenses of probate administration paid by her from POD accounts that she received in her individual capacity. Zack v. Zielinski, 2013 Mich. App LEXIS 580 (2013);

Personal representative has a duty to pursue non-probate assets for the beneficiary of creditors, but that duty does not extend to the trustee of a trust under MCL 700.7605(1). In re Baldwin Trust, 274 Mich. App 387 (2007);

Appellate attorney’s fees incurred by an insolvent estate from non-probate transfers recovered from only one beneficiary whose actions caused the expense was approved as being both proportionate and equitable. In re Awad Estate, 2013 Mich. App LEXIS (2013);

A secured creditor’s claim is superior to the homestead and exempt property allowances to the extent of the amount secured. In re Estate of Lundy, 291 Mich. App 347 (2011); and

A credit union account was accessed by the personal representative to pay claims against the probate estate; the court found that credit union account was a transfer-on-death arrangement and not a trustee-beneficiary arrangement as the beneficiary claimed. In re Estate of Matusinski, 2007 Mich. App LEXIS (2007).

Conclusion: We normally deal with clients who have adopted and funded their trusts, so the exercise of an elective right or probate allowances are something we seldom get concerned about on the death of that client. But it is always helpful to keep both elective rights and statutory allowances in mind when you encourage a client to fully fund their trust to make the exercise of an elective right or allowance (if not previously waived) less of a problem in implementing the client’s wishes, and to caution them that non-probate transfers will not always avoid being depleted in the administration of a probate estate that is insolvent.