Increased life expectancy, together with a high divorce rate, has resulted in a record number of eligible second-marriage candidates. For many contemplating taking the plunge again, the idea of a prenuptial agreement has become mainstream.
One feature of prenuptial agreements that can have a surprising effect on long-term care planning is the waiver of one’s “right of election.”
New York’s Right of Election Law (EPTL §5-1.1) exists to prevent husbands and wives from either intentionally or unintentionally disinheriting each other.
For the surviving spouse of a New York domiciliary who dies on or after Sept. 1, 1992, the statutory elective share is the greater of $50,000 plus one-third of the net estate (the probate estate less certain debts and expenses) plus one-third of all testamentary substitutes (See EPTL §5-1.1-A). A surviving spouse’s right of election can be exercised whether or not the decedent left a will.
The spouse of a New York domiciliary decedent without a will is provided for under EPTL §4-1.1. A surviving spouse’s intestate share is the first $50,000 plus one-half the residuary estate. The decedent’s children receive the remaining half. Where the decedent is not survived by children, the surviving spouse receives the entire residuary estate.
Although the intestate share is usually greater than the elective share, a surviving spouse may be left with no alternative but to pursue the elective share. This is the case when the decedent’s estate planning consists of nothing more than “pay on death” designations for all assets. With “in-trust for,” 401k, and life insurance beneficiaries in place, it is not uncommon for an individual to conclude that they have no need for a will. New York’s right of election law seeks to protect surviving spouses from being left with nothing where the entire estate passes by operation of law to other persons.
One’s right of election is routinely waived in the context of executing a prenuptial agreement. This is especially true in second marriages so that property accumulated during the first marriage passes to issue of that marriage as opposed to the new spouse. Practitioners can attest to the persuasive powers of adult children in urging these waivers.
To be valid, a waiver of one’s right of election must be in writing, signed, and acknowledged. It can be executed either before or during the marriage. The waiver can be unilateral, and need not be in exchange for consideration. Note that these rules apply only to the actual waiver rather than the ante- or post-nuptial agreement that often serves as the vehicle for the waiver.
People often do not realize that this waiver can be treated as a transfer of property for Medical Assistance (Medicaid) eligibility purposes. This is so even though the individual never had an actual ownership interest in the property in question. Marital share rights are necessarily dependent upon the existence of a marriage—which may never have taken place had one party refused to sign the waiver.
Current Medicaid (institutional) eligibility rules provide that uncompensated transfers of property to third parties (defined as anyone other than a spouse) within five years of an application will subject the applicant to a penalty period (during which Medicaid benefits are unavailable). The penalty period is calculated by dividing the amount transferred by the average regional cost of nursing home care ($10,957 in New York City).
Here is an example of how the right of election can come up in the context of Medicaid. Mary and John executed waivers of their rights to elect against the other’s estate before marrying in January 2008. John passed away in December 2012 and Mary had a stroke necessitating her admission to a skilled nursing facility in January 2013.
Even if Mary is otherwise financially eligible for Medicaid, she will be subject to a penalty period based on the value of her previously waived elective share. If the elective share is valued at $100,000, this figure will be divided by $10,957, resulting in 9.13. Mary is then ineligible for nursing home Medicaid for 9.13 months.
This harsh result occurs under current law because the imputed transfer is dated not from the date that the waiver was executed (January 2008) but from the date of death of the spouse (December 2012).
Several elder law practitioners have pointed out that this result is unfair because although a numerical value cannot be placed on the elective share until the spouse’s date of death, the transfer should be dated when the waiver was signed because this is the date the surviving spouse irrevocably parted with her property rights in the elective share.
New York State Assembly Bill No. A.2013, sponsored by David Weprin, would remedy this situation. The bill previously passed unanimously in the Assembly and is awaiting Senate sponsorship.
The exercise and waiver of a client’s right to elect against his or her spouse’s estate has the potential for unintended consequences in the long-term care and elder law arenas. Unless or until this is remedied through legislation those embarking upon second marriages may wish to add long-term care insurance to their wedding registries.
Ann Margaret Carrozza is a practicing elder law and trusts and estates attorney. She previously served as a New York State Assemblywoman.