The Spousal Share, Specific Bequests and Debt (Iowa)

November 18, 2008 | Roger McEowen

 

One of the greatest “privileges” of being a parent is the ability to disinherit a child.  Some have also tried that technique with respect to a spouse.  It used to work by placing assets in a revocable trust and naming someone other than the spouse as the beneficiary.  But, the Iowa courts put the clamps on that technique in recent years.  If one spouse executes a will that doesn’t provide for the surviving spouse (or doesn’t provide a sufficient amount for the survivor), the surviving spouse can claim a share of assets against the will.  In Iowa, the “spousal share” is one-third of the estate’s assets.  The only way around the right of a surviving spouse to claim the spousal share is to execute a pre-marital agreement.  But, in first marriage situations, that may be planning for the divorce before the marriage occurs.  

Here, the testator died which named the surviving spouse as executor.  The spouse claimed the spousal share, entitling her to $650,514 of the $1,830,215 of the gross estate.  The testator’s will specified that his children included his three children with his current wife and two daughters from a previous marriage.  His will also contained specific bequests to his two daughters from a previous marriage, in the amount of $50,000 each. The residue of the estate was given to his wife.  But the estate owed debts of $240,000, and the will stated that debts were to be paid from the estate’s residuary.

In spite of the will language, the surviving spouse sought court approval that the specific gifts to the daughters would be applied to the debt.  The effect of such a move would be to wipe out the gifts to the daughters and preserve more estate assets for the surviving spouse.  The trial court disagreed, noting that the testator intended for his daughters to receive the specific bequests and that the estate’s debts be paid out of the residuary of the estate.  The appellate court agreed, noting that the decedent’s will explicitly stated that the debts be paid out of the residuary estate. In addition, the surviving spouse would still be left with substantial resources, and the children of the marriage would one day inherit assets of the estate from their mother, while the daughters from the previous marriage would not. 

The case raises an important point.  When estate is administered and debt is involved, a general clause that instructs the executor to pay the decedent’s “just debts and taxes” could cause confusion as to whether the debt will end up reducing specific bequests or whether it comes out of the residuary of the estate.  Here, that problem was avoided by specific language in the will.  In re Estate of Wagner, No. 8-487/07-2033 (Iowa Ct. App., Oct. 29, 2008).