GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1999

H	2 

HOUSE BILL 979
Committee Substitute Favorable 4/20/99

Short Title:  Modify Rights of Decedent's Spouse.	(Public)

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Sponsors:

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Referred to: 

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April 12, 1999

A BILL TO BE ENTITLED
AN ACT TO MODIFY THE RIGHTS OF A DECEDENT'S SPOUSE.
The General Assembly of North Carolina enacts:
Section 1.  Article 1 of Chapter 30 of the General Statutes is repealed.
Section 2.  Chapter 30 of the General Statutes is amended by adding a new Article to read:
"ARTICLE 1A.
"Elective Share.
"§ 30-3.1.  Right of elective share.
(a)	Elective Share. – The surviving spouse of a decedent who dies domiciled in this State has a right to claim an 'elective share', which means an amount equal to (i) the applicable share of the Total Net Assets, as defined in G.S. 30-3.2(c), less (ii) the value of Property Passing to Surviving Spouse, as defined in G.S. 30-3.3(a).  The applicable share of the Total Net Assets is as follows:
(1)	If the decedent is not survived by any lineal descendants, one-half of the Total Net Assets.
(2)	If the decedent is survived by one child, or lineal descendants of one deceased child, one-half of the Total Net Assets.
(3)	If the decedent is survived by two or more children, or by one or more children and the lineal descendants of one or more deceased children, or by the lineal descendants of two or more deceased children, one-third of the Total Net Assets.
(b)	Reduction of Applicable Share. – In those cases in which the surviving spouse is a second or successive spouse, and the decedent has one or more lineal descendants surviving by a prior marriage but there are no lineal descendants surviving by the surviving spouse, the applicable share as determined in subsection (a) of this section shall be reduced by one-half.
(c)	Death Taxes. – Death taxes shall be taken into account as a claim against the estate in determining Total Net Assets only to the extent that such taxes are increased because the assets received by the surviving spouse do not qualify for the federal estate tax marital deduction pursuant to section 2056 of the Code or similar provisions under the laws of any other applicable taxing jurisdiction.
"§ 30-3.2.  Definitions.
(a)	'Code' means the Internal Revenue Code in effect at the time of the decedent's death.
(b)	'Death taxes' means any estate, inheritance, succession, and similar taxes imposed by any taxing authority, reduced by any applicable credits against those taxes.
(c)	'Nonadverse trustee' means a trustee who would be deemed nonadverse under section 672 of the Code.
(d)	'Total Net Assets' means, after the payment or provision for payment of the decedent's funeral expenses, year's allowances to persons other than to the surviving spouse, debts, claims, and administration expenses, the sum of the following:
(1)	All property to which the decedent had legal and equitable title immediately prior to death;
(2)	All property received by the decedent's personal representative by reason of the decedent's death, other than wrongful death proceeds;
(3)	All proceeds of insurance on the life of the decedent of which the decedent is the owner, or which is payable to the surviving spouse;
(4)	One-half of the value of any property held by the decedent and the surviving spouse as tenants by the entirety, or as joint tenants with rights of survivorship;
(5)	The entire value of any property held by the decedent and another person, other than the surviving spouse, as joint tenants with right of survivorship, except to the extent that contribution can be proven by clear and convincing evidence;
(6)	The value of any property which would be included in the taxable estate of the decedent pursuant to sections 2033, 2035, 2036, 2037, 2038, 2039, 2040, or 2042 of the Code;
(7)	Any donative transfers of property made by the decedent to donees other than the surviving spouse within three years of the decedent's death, excluding:
a.	Any gifts within the annual exclusion provisions of section 2503 of the Code; and
b.	Any gifts to which the surviving spouse consented.  A signing of a deed, or income or gift tax return reporting such gift shall be considered consent;
(8)	Any proceeds of any individual retirement account, pension or profit-sharing plan, or any private or governmental retirement plan or annuity of which the decedent controlled the designation of beneficiary, excluding any benefits under the federal social security system;
(9)	Any other Property Passing to Surviving Spouse under G.S. 30-3.3; and
(10)	In case of overlapping application of the same property under more than one provision, the property shall be included only once under the provision yielding the greatest value.
"§ 30-3.3.  Property Passing to Surviving Spouse.
(a)	Property Passing to Surviving Spouse. –  For purposes of this Article, 'Property Passing to Surviving Spouse' means the sum of the following:
(1)	One-half of the value of any property held by the decedent and the surviving spouse as tenants by the entirety or as joint tenants with rights of survivorship;
(2)	The value of any interest in property (outright or in trust, including any interest subject to a general power of appointment held by the surviving spouse, as defined in section 2041 of the Code) devised by the decedent to the surviving spouse, or which passes to the surviving spouse by intestacy, or by beneficiary designation, or by exercise of or in default of the exercise of the decedent's testamentary general or limited power of appointment, or by operation of law or otherwise by reason of the decedent's death, excluding any benefits under the federal social security system;
(3)	Any year's allowance awarded to the surviving spouse;
(4)	The value of any property renounced by the surviving spouse;
(5)	The value of the surviving spouse's interest, outright or in trust, in any life insurance proceeds on the life of the decedent;
(6)	The value of any interest in property, outright or in trust, transferred from the decedent to the surviving spouse during the lifetime of decedent for which (i) a gift tax return is timely filed reporting such gift, or (ii) the surviving spouse signs a statement acknowledging such a gift.  For purposes of this subdivision, any gift to the surviving spouse by the decedent of the decedent's interest in any property held by the decedent and the surviving spouse as tenants by the entirety or as joint tenants with right of survivorship shall be valued at one-half of the entire value of that property at the time the gift is made; and
(7)	The entire value of any property held in trust for the exclusive benefit of the surviving spouse during the surviving spouse's lifetime, where the trust requires a  Nonadverse Trustee to utilize the principal and income of the trust for the support and maintenance of the surviving spouse.
(b)	Death Taxes. – The value of Property Passing to Surviving Spouse shall be reduced by any death taxes that are a charge against or apportioned against the surviving spouse on property interests included in Property Passing to Surviving Spouse.
(c)	No Duplication. – In case of overlapping application of the same property under more than one provision, the property shall be included only once, under the provision yielding the greatest value.
"§ 30-3.4.  Procedure for determining the elective share.
(a)	Exercisable Only During Lifetime. – The right of the surviving spouse to file a claim for an elective share must be exercised during the lifetime of the surviving spouse, by the surviving spouse, the surviving spouse's agent under a power of attorney, or the guardian of the surviving spouse's estate.  If a surviving spouse dies before the claim for an elective share has been settled, the surviving spouse's personal representative shall succeed to the surviving spouse's rights to an elective share.
(b)	Time Limitations. – A claim for an elective share must be made within six months after the issuance of letters testamentary or letters of administration by (i) filing a petition with the clerk of superior court of the county in which the primary administration of the decedent's estate lies, and (ii) mailing or delivering a copy of that petition to the personal representative of the decedent's estate.  A surviving spouse's incapacity shall not toll the six-month period of limitations.
(c)	Time for Hearing. – Unless waived by the personal representative and the surviving spouse, the clerk shall set the matter for hearing no earlier than two months and no later than six months after the filing of the petition. However, the clerk may extend the time of hearing as the clerk sees fit.  The clerk shall give notice of the hearing to the surviving spouse, personal representative, and to any person described in G.S. 30-3.5 who may be required to contribute toward the satisfaction of the elective share.
(d)	Preparation of Tax Form. – In every case in which a petition to determine an elective share has been filed, and within two months of the filing of the petition, the personal representative shall prepare and submit to the clerk a proposed Form 706, federal estate tax return, for the estate, regardless of whether that form is required to be filed with the Internal Revenue Service.  The clerk may extend the time for submission of the proposed Form 706 as the clerk sees fit.
(e)	Valuation. – The valuation of interests in property for purposes of G.S. 30-3.2 and G.S. 30-3.3 shall be determined as follows:
(1)	Basic principles. – Each interest shall be valued at its fair market value, reduced by all liens, claims, or encumbrances against the interest.  For interests passing at the decedent's death, valuation shall be as of the date of death, and for interests transferred during the decedent's lifetime, valuation shall be as of the date of transfer.
(2)	Valuation of partial and contingent interests in property. – The valuation of interests in property, outright or in trust, which are limited to commence or terminate upon the death of one or more persons, upon the expiration of a period of time, or upon the occurrence of one or more contingencies, shall be determined by computations based upon the mortuary and annuity tables set forth in G.S. 8-46 and G.S. 8-47, and upon the basis of six percent (6%) of the gross value of the underlying property in which those interests are limited. However, in valuing interests passing to the surviving spouse, the following special rules apply:
a.	To the extent that the interest is dependent upon the exercise of discretion by a fiduciary, the interest shall have no value unless the spouse is serving as that fiduciary and the power to distribute the trust property constitutes a general power of appointment held by the spouse, as defined in section 2041 of the Code or the fiduciary is a Nonadverse Trustee required to utilize the income and principal for the exclusive benefit of the surviving spouse during the surviving spouse's lifetime;
b.	To the extent that the interest is dependent upon the occurrence of any contingency that is not subject to the control of the surviving spouse and that is not subject to valuation by reference to the mortuary and annuity tables set forth in G.S. 8-46 and G.S. 8-47, the contingency will be conclusively presumed to result in the lowest possible value passing to the surviving spouse. However, a life estate or income interest  that will terminate only upon the earlier of the surviving spouse's death or remarriage will be valued without regard to the possibility of termination upon remarriage; and
c.	To the extent that the valuation of an interest is dependent upon the life expectancy of the surviving spouse, that life expectancy shall be conclusively presumed to be no less than 10 years, regardless of the actual attained age of the surviving spouse at the decedent's death.
(3)	Determination of fair market value. – The fair market value of each asset comprising Total Net Assets shall be determined as follows:
a.	Probate assets and assets passing to spouse. – The value of each probate asset and Property Passing to Surviving Spouse, other than assets held in trust, shall be established by the good faith agreement of the surviving spouse and the personal representative, unless either (i) the surviving spouse is the personal representative, or (ii) the clerk determines that the personal representative may not be able to represent the estate adversely to the surviving spouse.
b.	Trust assets. – The value of each trust asset shall be established by good faith agreement of the surviving spouse and the trustee, unless either (i) the surviving spouse is the trustee, or (ii) the clerk determines that the trustee may not be able to represent the trust adversely to the surviving spouse.
c.	Other assets. – The value of any other asset shall be established by the good faith agreement of the surviving spouse and each person described in G.S. 30-3.5 who may be required to contribute toward the satisfaction of the elective share because of that person's interest in the asset, unless the clerk determines that valuation under sub-subdivision d. of this subdivision is more appropriate.
d.	Use of disinterested persons. – If the value of any asset is not established by agreement, the clerk shall appoint one or more qualified and disinterested persons to determine a value of each asset.  That determination of the value of an asset shall be final for the exclusive purposes of this Article.
(f)	Findings and Conclusions. – After notice and hearing, the clerk shall determine whether or not the surviving spouse is entitled to an elective share, and if so, the clerk shall then determine the elective share and shall order the personal representative to transfer that amount to the surviving spouse.  The clerk's order shall recite specific findings of fact and conclusions of law in arriving at the decedent's Total Net Assets, Property Passing to Surviving Spouse, and the elective share.
(g)	Appeals. – Any party in interest may appeal from the decision of the clerk to the superior court, and in such event the procedure shall be the same as in other special proceedings as now provided by law.  If an appeal is taken from the decision of the clerk, that appeal shall have the effect of staying the judgment and order of the clerk until the cause is heard and determined by the superior court upon the appeal taken.  Upon an appeal taken from the clerk to the superior court, the judge may review the findings of fact by the clerk and may find the facts or take other evidence, but the facts found by the judge shall be final and conclusive upon any appeal to the Appellate Division.
"§ 30-3.5.  Recovery of assets by personal representative.
(a)	Recovery of Assets. – The personal representative is entitled to recover proportionately from all persons, other than the surviving spouse, receiving or in possession of any of the decedent's Total Net Assets a sufficient amount to enable the personal representative to pay the elective share.  The apportionment shall be made in the proportion that the value of the interest of each person receiving or in possession of any of Total Net Assets bears to Total Net Assets, excluding any Property Passing to Surviving Spouse.  The only persons subject to contribution to make up the elective share are (i) original recipients of property comprising the decedent's Total Net Assets, and subsequent gratuitous inter vivos donees or persons claiming by testate or intestate succession to the extent those persons have the property or its proceeds on or after the date of decedent's death, and (ii) a fiduciary, as to the property under the fiduciary's control at or after the time a fiduciary receives notice that a surviving spouse has claimed an elective share.  A fiduciary shall not be considered to have notice until it receives notice at its address as shown in the decedent's estate papers in the clerk's office or, if there are no such papers or no such address is shown in those papers, at the fiduciary's residence or the office of its registered agent.
The personal representative may withhold from any property of the decedent in his possession, distributable to any person subject to apportionment, the amount of the elective share apportioned to such person.  If the property in possession of the personal representative and distributable to any person subject to apportionment is insufficient to satisfy the proportionate amount of the elective share determined to be due from that person, the personal representative may recover the deficiency from that person.  If the property is not in possession of the personal representative, the personal representative may recover from the person the amount of the elective share apportioned to that person in accordance with this Article.  If the personal representative cannot reasonably collect from any person subject to apportionment the amount of the elective share apportioned to that person, the amount not reasonably recoverable shall, with the approval of the clerk, be apportioned among the other persons who are subject to apportionment.  The apportionment shall be made in the proportion that the value of the interest of each remaining person bears to the total value of the interests of all remaining persons.
(b)	Standstill Order. – After the filing of the petition demanding an elective share, either the personal representative or surviving spouse may request the clerk to issue an order that any recipients not dispose of any of the decedent's Total Net Assets pending the hearing.  The decision to issue such an order shall be in the discretion of the clerk.
(c)	Satisfaction of Liability. – A person receiving or in possession of any of the decedent's Total Net Assets may pay his proportionate elective share liability with respect to that property by any of the following methods:
(1)	Conveyance of the property included in the decedent's Total Net Assets;
(2)	Payment of the value of his liability in cash or, upon agreement of the surviving spouse, other property; or
(3)	Partial conveyance and partial payment under subdivisions (1) and (2) of this subsection, provided the value conveyed and paid is equal to his liability.
(d)	Expenses. – The expenses reasonably incurred by the personal representative in connection with the appraisal or recovery of assets shall be apportioned as provided for the elective share under this Article.  If the personal representative finds that it is inequitable to apportion the expenses because those expenses were incurred because of the fault of one or more persons subject to apportionment, the personal representative may direct other more equitable apportionment, with the approval of the clerk.
(e)	Bond. – If property held by the personal representative is distributed prior to final apportionment of the elective share, the personal representative may require the distributee to provide a bond or other security for the apportionment liability in the form and amount prescribed by the personal representative, with the approval of the clerk.
"§ 30-3.6.  Waiver of rights.
(a)	The right of a surviving spouse to claim an elective share may be waived, wholly or partially, before or after marriage, with or without consideration, by a written waiver signed by the surviving spouse.
(b)	A waiver is not enforceable if the surviving spouse proves that:
(1)	The waiver was not executed voluntarily; or
(2)	The surviving spouse was not provided a fair and reasonable disclosure of the property and financial obligations of the decedent, unless the surviving spouse waived, in writing, the right to that disclosure."
Section 3.  G.S. 29-30 reads as rewritten:
"§ 29-30.  Election of surviving spouse to take life interest in lieu of intestate share provided.
(a)	In lieu of the intestate share provided in G.S. 29-14 or G.S. 29-21, or of the elective share provided in G.S. 30-3.1, the surviving spouse of an intestate or the surviving spouse who has petitioned for an elective share shall be entitled to take as his or her intestate share or elective share a life estate in one third in value of all the real estate of which the deceased spouse was seised and possessed of an estate of inheritance at any time during coverture, except that real estate as to which the surviving spouse:
(1)	Has waived his or her rights by joining with the other spouse in a conveyance thereof, or
(2) 	Has release or quitclaimed his or her interest therein in accordance with G.S. 52-10, or
(3)	Was not required by law to join in conveyance thereof in order to bar the elective life estate, or
(4) 	Is otherwise not legally entitled to the election provided in this section.
(b)	Regardless of the value thereof and despite the fact that a life estate therein might exceed the fractional limitation provided for in subsection (a), the life estate provided for in subsection (a) shall at the election of the surviving spouse include a life estate in the usual dwelling house occupied by the surviving spouse at the time of the death of the deceased spouse if such dwelling house were owned by the deceased spouse at the time of his or her death, together with the outbuildings, improvements and easements thereunto belonging or appertaining, and lands upon which situated and reasonably necessary to the use and enjoyment thereof, as well as a fee simple ownership in the household furnishings therein.
(c)	The election provided for in subsection (a) shall be made by the filing of a notice thereof with the clerk of the superior court of the county in which the administration of the estate is pending, or, if no administration is pending, then with the clerk of the superior court of any county in which the administration of the estate could be commenced. Such election shall be made:
(1) 	At any time within one month after the expiration of the time fixed for the filing of the petition for elective share under Article 1A of Chapter 30, or
(2) 	In case of intestacy, then within 12 months after the death of the deceased spouse if letters of administration are not issued within that period, or
(3) 	If letters of administration are issued within 12 months after the date of the death of the deceased spouse, then within one month after the expiration of the time limited for filing claims against the estate, or
(4) 	If litigation that affects the share of the surviving spouse  in the estate is pending, then within such reasonable time as may be allowed by written order of the clerk of the superior  court.
The notice of election shall:
(1) 	Be directed to the clerk with whom filed;
(2) 	State that the surviving spouse making the same elects to take under this section rather than under the provisions of G.S. 29-14,  29-21, or 30-3.1, as applicable;
(3) 	Set forth the names of all heirs, devisees, legatees, personal representatives and all other persons in possession of or claiming an estate or an interest in the property described in subsection (a); and
(4) 	Request the allotment of the life estate provided for in subsection (a).
The notice of election may be in person, or by attorney authorized in a writing executed and duly acknowledged by the surviving spouse and attested by at least one witness. If the surviving spouse is a minor or an incompetent, the notice of election may be executed and filed by a general guardian or by the guardian of the person or estate of the minor or incompetent spouse. If the minor or incompetent spouse has no guardian, the notice of election may be executed and filed by a next friend appointed by the clerk. The notice of election, whether in person or by attorney, shall be filed as a record of the court, and a summons together with a copy of the notice shall be served upon each of the interested persons named in the notice of election.
(d)	In case of election to take a life estate in lieu of an intestate share or elective share, as provided in either G.S. 29-14, 29-21, or 30-3.3(a), the clerk of superior court, with whom the notice of election has been filed, shall summon and appoint a jury of three disinterested persons who being first duly sworn shall promptly allot and set apart to the surviving spouse the life estate provided for in subsection (a) and make a final report of such action to the clerk.
(e)	The final report shall be filed by the jury not more than 60 days after the summoning and appointment thereof, shall be signed by all jurors, and shall describe by metes and bounds the real estate in which the surviving spouse shall have been allotted and set aside a life estate. It shall be filed as a record of court and a certified copy thereof shall be filed and recorded in the office of the register of deeds of each county in which any part of the real property of the  deceased spouse, affected by the allotment, is located.
(f)	In the election and procedure to have the life estate allotted  and set apart provided for in this section, the rules of procedure relating to partition proceedings shall apply except insofar as the same would be inconsistent with the provisions of this section.
(g)	Neither the household furnishings in the dwelling house nor the life estates taken by election under this section shall be subject to the payment of debts due from the estate of the deceased spouse, except those debts secured by such property as follows:
(1) 	By a mortgage or deed of trust in which the surviving spouse has waived his or her rights by joining with the other spouse in the making thereof; or
(2) 	By a purchase money mortgage or deed of trust, or by a conditional sales contract of personal property in which title is retained by the vendor, made prior to or during the  marriage; or
(3) 	By a mortgage or deed of trust made prior to the marriage; or
(4) 	By a mortgage or deed of trust constituting a lien on the property at the time of its acquisition by the deceased spouse either before or during the marriage.
(h)	If no election is made in the manner and within the time provided for in subsection (c) the surviving spouse shall be conclusively deemed to have waived his or her right to elect to take under the provisions of this section, and any interest which the surviving spouse may have had in the real estate of the deceased spouse by virtue of this section shall terminate."
Section 4.  G.S. 30-15 reads as rewritten:
"§ 30-15. When spouse entitled to allowance.
Every surviving spouse of an intestate or of a testator, whether or not he has petitioned for an elective share, shall, unless he has forfeited his right thereto, as provided by law, be entitled, out of the personal property of the deceased spouse, to an allowance of the value of ten thousand dollars ($10,000) for his support for one year after the death of the deceased spouse.  Such allowance shall be exempt from any lien, by judgment or execution, acquired against the property of the deceased spouse, and shall, in cases of  testacy, be charged against the share of the surviving spouse."
Section 5.  G.S. 31-5.3 reads as rewritten:
"§ 31-5.3. Will not revoked by marriage; dissent from will made prior to marriage.
A will is not revoked by a subsequent marriage of the maker; and the surviving spouse may petition for an elective share when there is a will made prior to the marriage in the same manner, upon the same conditions, and to the same extent, as a surviving spouse may petition for an elective share when there is a will made subsequent to marriage."
Section 6.  G.S. 31A-1(b) reads as rewritten:
"(b)	The rights lost as specified in subsection (a) of this section shall be as follows:
(1)	All rights of intestate succession in the estate of the other spouse;
(2)	All right to claim or succeed to a homestead in the real property of the other spouse;
(3)	All right to petition for an elective share of the estate of the other spouse and take either the elective intestate share provided or the life interest in lieu thereof;
(4)	All right to any year's allowance in the personal property of the other spouse;
(5)	All right to administer the estate of the other spouse; and
(6)	Any rights or interests in the property of the other spouse which by a settlement before or after marriage were settled upon the offending spouse solely in consideration of the marriage."
Section 7.  G.S. 31C-3 reads as rewritten:
"§ 31C-3.  Disposition of community property upon death.
Upon death of a married person, one half of the property to which this Chapter applies is the property of the surviving spouse and is not subject to testamentary disposition by the decedent or distribution under the laws or succession of this State.  One half of that property is the property of the decedent and is subject to testamentary disposition or distribution under the laws of succession of this State.  With respect to property to which this Chapter applies, the one half of the property of the decedent is not subject to the surviving spouse's right to petition for an elective share under the provisions of Article 1A of Chapter 30, and is not subject to the right to elect a life estate under the provisions of Article 8 of Chapter 29."
Section 8.  G.S. 84-5(2) reads as rewritten:
"(2)	When any of the following acts are to be performed in connection with the fiduciary activities of such a corporation, said acts shall be performed for the corporation by a duly licensed attorney, not a salaried employee of the corporation, retained to perform legal services required in connection with the particular estate, trust or other fiduciary matter:
a.	Offering wills for probate.
b.	Preparing and publishing notice of administration to creditors.
c.	Handling formal court proceedings.
d.	Drafting legal papers or giving legal advice to spouses concerning rights to an elective share under Article 1A of Chapter 30 of the General Statutes.
e.	Resolving questions of domicile and residence of a decedent.
f.	Handling proceedings involving year's allowances of widows and children.
g.	Drafting deeds, notes, deeds of trust, leases, options and other contracts.
h.	Drafting instruments releasing deeds of trust.
i.	Drafting assignments of rent.
j.	Drafting any formal legal document to be used in the discharge of the corporate fiduciary's duty.
k.	In matters involving estate and inheritance taxes, gift taxes, and federal and State income taxes:
1.	Preparing and filing protests or claims for refund, except requests for a refund based on mathematical or clerical errors in tax returns filed by it as a fiduciary.
2.	Conferring with tax authorities regarding protests or claims for refund, except those based on mathematical or clerical errors in tax returns filed by it as a fiduciary.
3.	Handling petitions to the tax court.
l.	Performing legal services in insolvency proceedings or before a referee in bankruptcy or in court.
m.	In connection with the administration of an estate or trust:
1.	Making application for letters testamentary or letters or administration.
2.	Abstracting or passing upon title to property.
3.	Handling litigation relating to claims by or against the estate or trust.
4.	Handling foreclosure proceedings of deeds of trust or other security instruments which are in default."
Section 9.  This act becomes effective October 1, 1999, and applies to estates of decedents dying on or after that date.