Straus had a will that created
a testamentary trust for his wife
that would contain one-third of the property he owned at death.
The provision gave the wife
the income from the trust, but not the principle of the trust.
Strauss then executed trust
agreements that made an inter vivos gift of all of his
property to other trusts.
After he did this, Strauss
effectively owned nothing, so therefore his wife would inherit nothing.
Strauss undoubtedly did this
so that his $$$ would pass to other beneficiaries and not his wife.
Under New York State law,
no matter what Strauss said in his will, his surviving spouse had a
right to ignore the will and instead elect to take a straight one-third of the augmented estate.
The augmented estate includes everything in the will, plus
everything that transfers through non-probate means (trusts, insurance,
401k, etc.)
Three days later Strauss died.
Strauss' wife challenged the
validity of the transfer of all his estate to trusts.
Strauss' wife argued that
Strauss' actions were contrary to the intent of New York inheritance
laws.
The Trial Court found that the
inter vivos gift to the trust was
not valid.
The New York Supreme Court
affirmed.
The New York Supreme Court
found that the law does not restrict property transfers while the person
is alive, so, if the property transfer was valid, then Strauss died with
no estate and the wife gets one-third of nothing.
However, if the transfer of
property was only illusory and
Strauss still retained the property in some form, then the transfer is
not valid and the property is still part of the estate.
The New York Supreme Court
found that the transfer was illusory.
Strauss retained not only
the income for life and the power to revoke the trust, but also the
right to control the trustees.
Basically if you transfer
property to a trust but reserve the power to revoke and modify the
trust, and also the power to control the trustee in the administration
of the trust, then the trust remains part of your augmented estate and can be taken as an elective
share by the surviving spouse.
Basically this case said that
the surviving spouse can't get a trust invalidated because the decedent
was trying to diminish the spouse's elective share. However, the surviving spouse can get a trust
invalidated because the wealth wasn't really transferred to the trust, it
was just a sham.
After this case occurred, New
York changed its laws to include absolute gifts in the augmented estate that a surviving spouse a right to
elect against.
Different States calculate elective
share differently.
For example, in New York,
you can choose either $50k or one-third of the augmented estate.
The old UPC gives one-third of the augmented estate.
The new UPC looks at the length of the marriage and
gives a growing % for each year.
The equitable model says
that the spouse would get what they would get in a divorce.
