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Birmingham Bar Association Bulletin Fall 2015

Trusts & Estates Douglas L. McWhorter and Christen D. Butler, Dominick Feld Hyde, P.C. UPDATE: The Effect Of A Divorce Upon A Comprehensive Estate Plan An article appeared in the Spring 2015 edition of the Birmingham Bar Bulletin entitled “The Effect of a Divorce Upon a Comprehensive Estate Plan.”  In that article, it was noted that Alabama law was divided on the effect of a divorce on an estate plan. Probate transfers to a former spouse were automatically revoked in the event of a divorce by statute; but the non-probate transfers, such as life insurance, individual retirement accounts (“IRAs”) and property owned jointly with right of survivorship remained unaffected by a divorce.  Several historical Alabama decisions were cited in that article in which non-probate assets passed to an ex-spouse, irrespective of the probable intent of the decedent or the terms of the divorce decree, as a result of that division of the law. See, for example Flowers v. Flowers, 224 So.2d 590 (Ala. 1969); Pitts v. Vaughn, 435 So.2d 81 (Ala.Civ.App. 1982); Walden v. Walden, 686 So.2d 345 (Ala.1996); and Smith v. Smith, 892 So.2d 384 (Ala.Civ. App. 2003). STATUTORY SOLUTION On June 3, 2015, Governor Robert Bentley signed Act No. 2015-312 into law and ended the distinction under Alabama law between probate and non-probate assets. As adopted, the law reverses the outcome of future cases similar to Flowers, Pitts, Walden and Smith. Act No. 2015-312 unifies the law for both types of transfers. It prescribes that, unless expressly provided otherwise by an agreement between the spouses or a court order, a divorce or annulment of a marriage would: (1) eliminate the former spouse and relatives of the former spouse as beneficiaries of life insurance, retirement plans, and revocable inter vivos trusts; (2) sever any interest owned jointly with right of survivorship between the divorced spouses, thereby creating tenancies in common; and (3) cancel the nomination of the divorced spouse from any fiduciary capacity, such as trustee, agent, guardian or conservator. Practitioners should be aware that there are two noteworthy exceptions to the application of the new statute as it relates to life insurance where the former spouse is listed as a beneficiary: (1) the act does not apply if the former spouse is also the owner of the policy; and (2) the act does not apply if the former spouse makes premium payments after the divorce or annulment. The new statute will be effective on the first day of the third month following its passage and approval by the Governor, which occurred on June 3, 2015.  It represents a substantial change in the effect of a divorce on an estate plan. STATUTORY CHANGES TO THE EFFECT OF MARRIAGE ON AN ESTATE In addition to the change in the effect of a divorce on an estate plan, the legislature has made several amendments that will change the effect marriage has on an estate plan. Previously, Alabama Code §§43-8-110, 111, and 113 allowed the spouse of a deceased person to receive a homestead exemption of $6,000, property exemption of $3,500, and family allowance of $6,000. These amounts have all been increased. Section 43-8-110 will now allow a spouse to receive a $15,000 homestead exemption from the deceased spouse’s estate. Section 43-8-111 gives the surviving spouse a $7,500 property allowance. Section 43-8-113 now provides a $15,000 family allowance. Furthermore, Section 43-8-116 has been added and it allows the State Treasurer to adjust the amounts previously discussed to reflect the cumulative change in the consumer price index on July 1, 2017, and at the end of each three year period thereafter. Although the individual changes are not considerably larger, when you consider the fact that the surviving spouse can petition for all of these allowances, the amount a surviving spouse can receive from the estate of a deceased spouse prior to settling the estate has greatly increased. G Birmingham Bar Bulletin/ Fall 2015 27


Birmingham Bar Association Bulletin Fall 2015
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