If you change your state of residency without doing your homework, you may have unintended consequences if you have remarried. You may be like many Michigan seniors who have entered into a second (or third or more) marriage. Many widows and widowers remarry.
You both have all of your estate planning documents in place, including revocable living trusts. You both have left your assets to your kids from your first marriage. Since you both had your trusts in place and fully-funded, you never even thought to do a pre-nuptial agreement. You have wintered down south for many years and now are considering changing your state of residency because the lower taxes.
Many states have provisions designed to protect surviving spouses, regardless of whether they are the first, second, or more, spouse. These provisions, depending on the state, can override your instructions in your will, trust, joint ownership or beneficiary designations. If you want to protect your inheritance for your children, research the laws in the state of intended residency before you move.
SURVIVING SPOUSE ELECTIVE SHARE
In Michigan, if you disinherit your spouse and your estate is going through probate, your surviving spouse can elect against your will and get a portion of your estate. However, assets that are jointly owned, have a beneficiary designation or are owned by a trust are not subject to this election.
Your estate is governed by your state of residency. If you are a Michigan resident, Michigan law generally applies to your estate after your death. Even if you have a trust that is governed by other states laws, there may be certain provisions that override those instructions. In Michigan, it is only certain spousal allowances. With a trust that is revocable immediately before your death, surviving spouses are only entitled to certain claims and allowances that typically total less than $100,000. There are no spousal allowances with trusts that were irrevocable before your death, such as an irrevocable life insurance trust or a Michigan domestic asset protection trust.
However in other states, such as Florida and community property states, that is not the case. In such states, surviving spouses have claims against the deceased’s augmented estate. The augmented estate includes all assets owned by the deceased or over which they had control at the time of death. This includes assets held in trust, or with joint owners or beneficiaries. The surviving spouse has a claim against all those assets superior to the trust or asset beneficiary or joint owner.
So part of that life insurance or IRA in which you named the kids as the sole beneficiaries will now go partly to your surviving spouse. The claim by your surviving spouse can be 30%-50%, or more of the value of your assets at your date of death.
Even if you and your spouse have agreed not to make a claim against the others assets, it still may not work out that way. There is always a chance that your surviving spouse is not capable of making decisions at that time and your assets may be needed for their care. I know of one case of a former Michigan resident who remarried and moved to Florida. All of his life insurance, IRAs and other financial accounts, which were still mostly in Michigan, either were joint with his kids or his kids were named as beneficiaries. At the time of his death, his widow was incapacitated in a nursing home in Florida. Since he was a Florida resident, he voluntarily agreed to abide by Florida law. His widow’s kids made a claim on her behalf for all his joint and benficiaried assets in Michigan to help pay for her nursing home care.
HOMESTEAD RIGHTS
Many married couples own their homes as tenants by the entireties, which is basically joint owners with rights of survivorship between spouses. Each of you get the right to live in and use the property during lifetime and the survivor owns the whole thing after the first death. After your first spouse’s death, you may have then named your kids as joint owners of the home or as beneficiaries of your home through your will, trust or transfer on death deed.
In Florida and other states, the laws provide that surviving spouses have certain rights in the family home, even if their name is not on the deed. In Florida, for example, if the homestead goes to someone other than your spouse at your death, such as by joint ownership, will, trust or transfer on death deed, that transfer is disallowed. Your surviving spouse has a life estate in that homestead, and after their death, the home goes to your lineal descendants. It doesn’t matter what your joint ownership, will, trust or transfer on death deed says. Florida laws says who gets it.
THE FIX
So what do you do? If you are a Michigan resident, stay a Michigan resident. In that situation, Michigan law applies at the time of your death, and your Michigan estate planning documents control. If you are going to change your state of residency, find out what the laws are in your new home state. You may be able to do a pre-nuptial or post-nuptial agreement with your new spouse. Some states will only enforce pre-nuptial agreements, while others, such as Michigan, enforce both pre- and post-nuptial agreements after the death of one of the spouses.
With a pre- or post-nuptial agreement, both you and your new spouse or spouse-to-be agree not to make any claims against the other’s estate or assets after death. When your surviving spouse waives these claims, then your assets will go in accordance with your instructions to your joint owners or beneficiaries in your will, trust or beneficiary designation form.
Even if you have a pre-or post-nuptial agreement waiving all rights to each other’s estates and assets, you still can leave some or all of your assets to one another. The pre-or post-nuptial agreement does not prevent such gifts.
When you and your spouse or spouse-to-be do a pre-or post-nuptial agreement, make sure you follow the rules and requirements of the state laws governing the agreement. Most states require that both spouses give fair disclosures of all of their assets to one another before the pre-or post-nuptial agreement is signed. If not, the agreement may not be enforceable after death.
If you have done a pre-or post-nuptial agreement in one state and move to another state, have the agreement reviewed by an attorney in your new home state. If the agreement no longer accomplishes what you want, you may want to revise or replace the agreement.
By Matthew M. Wallace, CPA, JD
Published edited August 5, 2018 in The Times Herald newspaper Port Huron, Michigan as: New spouse in new state could be costly