SECTION
2-207. SURVIVING SPOUSE’S PROPERTY AND NONPROBATE TRANSFERS TO OTHERS.
(a) [Included Property.] Except to the extent included in the augmented estate under Section 2-204 or 2-206, the value of the augmented estate includes the value of:
(1) property that was owned by the decedent’s surviving spouse at the decedent’s death, including
(A) the surviving spouse’s fractional interest in property held in joint tenancy with the right of survivorship,
(B) the surviving spouse’s ownership interest in property or accounts held
105
in co-ownership registration with the right of survivorship, and
(C) property that passed to the surviving spouse by reason of the
decedent’s death, but not including the spouse’s right to homestead allowance, family allowance, exempt property, or payments under the federal Social Security system; and
(2) property that would have been included in the surviving spouse’s nonprobate transfers to others, other than the spouse’s fractional and ownership interests included under subsection (a)(1)(A) or (B), had the spouse been the decedent.
(b) [Time of Valuation.] Property included under this section is valued at the decedent’s death, taking the fact that the decedent predeceased the spouse into account, but, for purposes of subsection (a)(1)(A) and (B), the values of the spouse’s fractional and ownership interests are determined immediately before the decedent’s death if the decedent was then a joint tenant or a co-owner of the property or accounts. For purposes of subsection (a)(2), proceeds of insurance that would have been included in the spouse’s nonprobate transfers to others under Section 2- 205(1)(D) are not valued as if he [or she] were deceased.
(c) [Reduction for Enforceable Claims.] The value of property included under this section is reduced by enforceable claims against the surviving spouse.
Comment
This section, which in the 1990 version appeared in substance as a paragraph of a single, long section defining the augmented estate, establishes as the fourth component of the augmented estate the value of property owned by the surviving spouse at the decedent’s death plus the value of amounts that would have been includible in the surviving spouse’s nonprobate transfers to others had the spouse been the decedent, reduced by enforceable claims against that property or that spouse, as provided in Sections 2-207(c) and 2-208(b)(1). Property owned by the decedent’s surviving spouse does not include the value of enhancements to the surviving spouse’s earning capacity (e.g., the value of a law, medical, or business degree).
(Note that amounts that would have been includible in the surviving spouse’s nonprobate transfers to others under Section 2-205(1)(D) are not valued as if he or she were deceased. Thus, if, at the decedent’s death, the surviving spouse owns a $1 million life-insurance policy on his or
106
her life, payable to his or her sister, that policy would not be valued at its face value of $1 million, but rather could be valued under the method used in the federal estate tax under Treas. Reg. § 20.2031-8.)
The purpose of combining the estates and nonprobate transfers of both spouses is to implement a partnership or marital-sharing theory. Under that theory, there is a fifty/fifty split of the property acquired by both spouses. Hence the redesigned elective share includes the survivor’s net assets in the augmented-estate entity. (Under a different rationale, no longer appropriate under the redesigned system, the pre-1990 version of Section 2-202 also added the value of property owned by the surviving spouse, but only to the extent the owned property had been derived from the decedent. An incidental benefit of the redesigned system is that this tracing-to-source feature of the pre-1990 version is eliminated.)
Various aspects of Section 2-207 are illustrated by the following examples. Other examples illustrating various aspects of this section are Examples 20, 21, 22, 23, and 25 in the Comment to Section 2-206. In the following examples, as in the examples in the comments to Sections 2-205 and 2-206, above, G is the decedent and S is the decedent’s surviving spouse.
Example 26 – Inter-Vivos Trust Created by Surviving Spouse; Corpus Payable to Spouse at Decedent’s Death. Before G’s death, and during marriage, S created an irrevocable inter- vivos trust, providing for the income to go to G for life, then for the corpus of the trust to go to S. G died, survived by S.
The value of the corpus of the trust at G’s death is included in the augmented estate under Section 2-207(a)(1) as either an interest owned by S at G’s death or as an interest that passed to the spouse by reason of G’s death.
Example 27 – Inter-Vivos Trust Created by Another; Income Payable to Spouse for Life.
Before G’s death, X created an irrevocable inter-vivos trust, providing for the income to go to S for life, then for the income to go to G for life, then for the corpus of the trust to go to Y. G died, survived by S and Y.
The commuted value of S’s income interest as of G’s death is included in the augmented estate under Section 2-207(a), as a property interest owned by the surviving spouse at the decedent’s death.
Example 28 – Inter-Vivos Trust Created by Another; Income Payable to Spouse for Life.
Before G’s death, X created an irrevocable inter-vivos trust, providing for the income to go to G for life, then for the income to go to S for life, then for the corpus of the trust to go to Y. G died, survived by S and Y.
The commuted value of S’s income interest at the decedent’s death is included in the augmented estate under Section 2-207(a)(1), as either a property interest owned by the surviving spouse at the decedent’s death or a property interest that passed to the surviving spouse by reason of the decedent’s death.
107
Example 29 – Life Insurance on Decedent’s Life Owned by Surviving Spouse; Proceeds Payable to Spouse. Before G’s death, S bought a life-insurance policy on G’s life, naming S as the beneficiary. G died, survived by S.
The value of the proceeds of the life-insurance policy is included in the augmented estate under Section 2-207(a)(1), as property owned by the surviving spouse at the decedent’s death.
Example 30 – Life Insurance on Decedent’s Life Owned by Another; Proceeds Payable to Spouse. Before G’s death, X bought a life-insurance policy on G’s life, naming S as the beneficiary. G died, survived by S.
The value of the proceeds of the life-insurance policy is included in the augmented estate under Section 2-207(a)(1)(C), as property that passed to the surviving spouse by reason of the decedent’s death.
Example 31 – Joint Tenancy Between Spouse and Another. S and Y own property in joint tenancy. G died, survived by S and Y.
The value of S’s one-half fractional interest at G’s death is included in the augmented estate under Section 2-207(a)(1)(A). Despite Section 2-205(1)(B), none of S’s fractional interest is included under Section 2-207(a)(2) because that provision does not apply to fractional interests required to be included under Section 2-207(a)(1)(A). Consequently, the value of S’s one-half is included under Section 2-207(a)(1)(A) but not under Section 2-207(a)(2).
Example 32 – Inter-Vivos Trust with Retained Income Interest Created by Surviving Spouse. Before G’s death, and during marriage, S created an irrevocable inter-vivos trust, providing for the income to go to S for life, then for the income to go to G for life, then for the corpus of the trust to go to X. G died, survived by S and X.
The value of the trust corpus at G’s death is included in the augmented estate under Section 2-207(a)(2) because, if S were the decedent, that value would be included in the spouse’s nonprobate transfers to others under Section 2-205(2)(A). Note that property included under Section 2-207 is valued at the decedent’s death, taking the fact that the decedent predeceased the spouse into account. Thus, G’s remainder in income for life is extinguished, and the full value of the corpus is included in the augmented estate under Section 2-207(a)(2). The commuted value of S’s income interest would also be included under Section 2-207(a)(1) but for the fact that Section 2-208(c) provides that when two provisions apply to the same property interest, the interest is not included under both provisions, but is included under the provision yielding the highest value. Consequently, since Section 2-207(a)(2) yields a higher value (the full corpus) than Section 2-207(a)(1) (the income interest), and since the income interest is part of the value of the corpus, and hence both provisions apply to the same property interest, the full corpus is included under Section 2-207(a)(2) and nothing is included under Section 2-207(a)(1).
Example 33 – Inter-Vivos Trust Created by Decedent; Income to Surviving Spouse. More than two years before G’s death, and during marriage, G created an irrevocable inter-vivos trust, providing for the income to go to S for life, then for the corpus of the trust to go to X. G died,
108
survived by S and X.
The commuted value of S’s income interest as of G’s death is included in the augmented estate under Section 2-207. If G had created the trust within the two-year period next preceding G’s death, the commuted value of X’s remainder interest as of the date of the creation of the trust (less $12,000, assuming G made no other gifts to X in that year) would also have been included in the augmented estate under Section 2-205(3)(C).
Example 34 – Inter-Vivos Trust Created by Surviving Spouse; No Retained Interest or Power. More than two years before G’s death, and during marriage, S created an irrevocable inter-vivos trust, providing for the income to go to G for life, then for the corpus of the trust to go to Y. G died, survived by S and Y.
The value of the trust is not included in the augmented estate. If S had created the trust within the two-year period next preceding G’s death, the commuted value of Y’s remainder interest as of the date of the creation of the trust (less $12,000, assuming no other gifts to Y in that year) would have been included in the augmented estate under Section 2-207(a)(2) because if S were the decedent, the value of the remainder interest would have been included in S’s nonprobate transfers to others under Section 2-205(3)(C).
Historical Note. This Comment was added in 1993 and revised in 2008.
(a) [Included Property.] Except to the extent included in the augmented estate under Section 2-204 or 2-206, the value of the augmented estate includes the value of:
(1) property that was owned by the decedent’s surviving spouse at the decedent’s death, including
(A) the surviving spouse’s fractional interest in property held in joint tenancy with the right of survivorship,
(B) the surviving spouse’s ownership interest in property or accounts held
105
in co-ownership registration with the right of survivorship, and
(C) property that passed to the surviving spouse by reason of the
decedent’s death, but not including the spouse’s right to homestead allowance, family allowance, exempt property, or payments under the federal Social Security system; and
(2) property that would have been included in the surviving spouse’s nonprobate transfers to others, other than the spouse’s fractional and ownership interests included under subsection (a)(1)(A) or (B), had the spouse been the decedent.
(b) [Time of Valuation.] Property included under this section is valued at the decedent’s death, taking the fact that the decedent predeceased the spouse into account, but, for purposes of subsection (a)(1)(A) and (B), the values of the spouse’s fractional and ownership interests are determined immediately before the decedent’s death if the decedent was then a joint tenant or a co-owner of the property or accounts. For purposes of subsection (a)(2), proceeds of insurance that would have been included in the spouse’s nonprobate transfers to others under Section 2- 205(1)(D) are not valued as if he [or she] were deceased.
(c) [Reduction for Enforceable Claims.] The value of property included under this section is reduced by enforceable claims against the surviving spouse.
Comment
This section, which in the 1990 version appeared in substance as a paragraph of a single, long section defining the augmented estate, establishes as the fourth component of the augmented estate the value of property owned by the surviving spouse at the decedent’s death plus the value of amounts that would have been includible in the surviving spouse’s nonprobate transfers to others had the spouse been the decedent, reduced by enforceable claims against that property or that spouse, as provided in Sections 2-207(c) and 2-208(b)(1). Property owned by the decedent’s surviving spouse does not include the value of enhancements to the surviving spouse’s earning capacity (e.g., the value of a law, medical, or business degree).
(Note that amounts that would have been includible in the surviving spouse’s nonprobate transfers to others under Section 2-205(1)(D) are not valued as if he or she were deceased. Thus, if, at the decedent’s death, the surviving spouse owns a $1 million life-insurance policy on his or
106
her life, payable to his or her sister, that policy would not be valued at its face value of $1 million, but rather could be valued under the method used in the federal estate tax under Treas. Reg. § 20.2031-8.)
The purpose of combining the estates and nonprobate transfers of both spouses is to implement a partnership or marital-sharing theory. Under that theory, there is a fifty/fifty split of the property acquired by both spouses. Hence the redesigned elective share includes the survivor’s net assets in the augmented-estate entity. (Under a different rationale, no longer appropriate under the redesigned system, the pre-1990 version of Section 2-202 also added the value of property owned by the surviving spouse, but only to the extent the owned property had been derived from the decedent. An incidental benefit of the redesigned system is that this tracing-to-source feature of the pre-1990 version is eliminated.)
Various aspects of Section 2-207 are illustrated by the following examples. Other examples illustrating various aspects of this section are Examples 20, 21, 22, 23, and 25 in the Comment to Section 2-206. In the following examples, as in the examples in the comments to Sections 2-205 and 2-206, above, G is the decedent and S is the decedent’s surviving spouse.
Example 26 – Inter-Vivos Trust Created by Surviving Spouse; Corpus Payable to Spouse at Decedent’s Death. Before G’s death, and during marriage, S created an irrevocable inter- vivos trust, providing for the income to go to G for life, then for the corpus of the trust to go to S. G died, survived by S.
The value of the corpus of the trust at G’s death is included in the augmented estate under Section 2-207(a)(1) as either an interest owned by S at G’s death or as an interest that passed to the spouse by reason of G’s death.
Example 27 – Inter-Vivos Trust Created by Another; Income Payable to Spouse for Life.
Before G’s death, X created an irrevocable inter-vivos trust, providing for the income to go to S for life, then for the income to go to G for life, then for the corpus of the trust to go to Y. G died, survived by S and Y.
The commuted value of S’s income interest as of G’s death is included in the augmented estate under Section 2-207(a), as a property interest owned by the surviving spouse at the decedent’s death.
Example 28 – Inter-Vivos Trust Created by Another; Income Payable to Spouse for Life.
Before G’s death, X created an irrevocable inter-vivos trust, providing for the income to go to G for life, then for the income to go to S for life, then for the corpus of the trust to go to Y. G died, survived by S and Y.
The commuted value of S’s income interest at the decedent’s death is included in the augmented estate under Section 2-207(a)(1), as either a property interest owned by the surviving spouse at the decedent’s death or a property interest that passed to the surviving spouse by reason of the decedent’s death.
107
Example 29 – Life Insurance on Decedent’s Life Owned by Surviving Spouse; Proceeds Payable to Spouse. Before G’s death, S bought a life-insurance policy on G’s life, naming S as the beneficiary. G died, survived by S.
The value of the proceeds of the life-insurance policy is included in the augmented estate under Section 2-207(a)(1), as property owned by the surviving spouse at the decedent’s death.
Example 30 – Life Insurance on Decedent’s Life Owned by Another; Proceeds Payable to Spouse. Before G’s death, X bought a life-insurance policy on G’s life, naming S as the beneficiary. G died, survived by S.
The value of the proceeds of the life-insurance policy is included in the augmented estate under Section 2-207(a)(1)(C), as property that passed to the surviving spouse by reason of the decedent’s death.
Example 31 – Joint Tenancy Between Spouse and Another. S and Y own property in joint tenancy. G died, survived by S and Y.
The value of S’s one-half fractional interest at G’s death is included in the augmented estate under Section 2-207(a)(1)(A). Despite Section 2-205(1)(B), none of S’s fractional interest is included under Section 2-207(a)(2) because that provision does not apply to fractional interests required to be included under Section 2-207(a)(1)(A). Consequently, the value of S’s one-half is included under Section 2-207(a)(1)(A) but not under Section 2-207(a)(2).
Example 32 – Inter-Vivos Trust with Retained Income Interest Created by Surviving Spouse. Before G’s death, and during marriage, S created an irrevocable inter-vivos trust, providing for the income to go to S for life, then for the income to go to G for life, then for the corpus of the trust to go to X. G died, survived by S and X.
The value of the trust corpus at G’s death is included in the augmented estate under Section 2-207(a)(2) because, if S were the decedent, that value would be included in the spouse’s nonprobate transfers to others under Section 2-205(2)(A). Note that property included under Section 2-207 is valued at the decedent’s death, taking the fact that the decedent predeceased the spouse into account. Thus, G’s remainder in income for life is extinguished, and the full value of the corpus is included in the augmented estate under Section 2-207(a)(2). The commuted value of S’s income interest would also be included under Section 2-207(a)(1) but for the fact that Section 2-208(c) provides that when two provisions apply to the same property interest, the interest is not included under both provisions, but is included under the provision yielding the highest value. Consequently, since Section 2-207(a)(2) yields a higher value (the full corpus) than Section 2-207(a)(1) (the income interest), and since the income interest is part of the value of the corpus, and hence both provisions apply to the same property interest, the full corpus is included under Section 2-207(a)(2) and nothing is included under Section 2-207(a)(1).
Example 33 – Inter-Vivos Trust Created by Decedent; Income to Surviving Spouse. More than two years before G’s death, and during marriage, G created an irrevocable inter-vivos trust, providing for the income to go to S for life, then for the corpus of the trust to go to X. G died,
108
survived by S and X.
The commuted value of S’s income interest as of G’s death is included in the augmented estate under Section 2-207. If G had created the trust within the two-year period next preceding G’s death, the commuted value of X’s remainder interest as of the date of the creation of the trust (less $12,000, assuming G made no other gifts to X in that year) would also have been included in the augmented estate under Section 2-205(3)(C).
Example 34 – Inter-Vivos Trust Created by Surviving Spouse; No Retained Interest or Power. More than two years before G’s death, and during marriage, S created an irrevocable inter-vivos trust, providing for the income to go to G for life, then for the corpus of the trust to go to Y. G died, survived by S and Y.
The value of the trust is not included in the augmented estate. If S had created the trust within the two-year period next preceding G’s death, the commuted value of Y’s remainder interest as of the date of the creation of the trust (less $12,000, assuming no other gifts to Y in that year) would have been included in the augmented estate under Section 2-207(a)(2) because if S were the decedent, the value of the remainder interest would have been included in S’s nonprobate transfers to others under Section 2-205(3)(C).
Historical Note. This Comment was added in 1993 and revised in 2008.
No comments:
Post a Comment