Kentucky has just updated its estate and trust laws, and it could have serious effects for certain people. For most people, state laws may be the only governing body worth paying attention to for estate distributions, since each state generally determines its own probate process and recognition of documents like wills, trusts, beneficiary forms, and so on. Notably, though, the rules have changed in Kentucky, all with an emphasis on helping the surviving spouse. While this could be great for many situations, it can also create serious negative changes to already existing estate plans.
Key Takeaways
- Earlier this year, Kentucky passed Senate Bill 50 (SB 50), making significant changes to its estate and trust law concerning surviving spouses. This could mean your estate plan may no longer work as you intended.
- SB 50’s biggest impact is on those who pass away without a will, as it moves surviving spouses from fourth in line to receive an inheritance to first in line. There is one exception to this change: if either person in a couple has a child who is not shared, then the surviving spouse receives half the inheritance.
- For those with wills in place, SB 50 helps ensure that it is extremely unlikely the surviving spouse could be disinherited.
Senate Bill 50
Earlier this year, Kentucky passed Senate Bill 50 (SB 50), which made significant changes to its estate and trust law. After it was signed on April 13th, many of the provisions have since become active, starting on July 15th of this year. This means that if any of these changes negatively affect where you want your assets to go, your existing estate plan may no longer work the way you intended. Many of these provisions are still so new and novel that many attorneys do not have all the answers yet.
Passing Away Without A Will
Probably one of the most frequent conversations I have with clients is the need to get or update their will. Without a will, Kentucky law determines an inheritance under predetermined distribution rules. These rules are carried out in the probate process to systematically (to the best of the government’s ability) pass wealth on. Until this new bill, surviving spouses were fourth in line to receive an inheritance (first to kids, then parents, then siblings, then to a spouse). That has now been updated so the surviving spouse is first in line. For all the changes, this one seems relatively reasonable. Many couples want their share to go to their surviving spouse before distributing elsewhere, but some do not.
There is a caveat to spouses getting preferential treatment now, and it has to do with blended families. Specifically, if there are children involved who are not from the surviving spouse. The spouse receives everything when either the couple has no descendants or the couple shares all descendants. If either person has a child that is not shared, then the surviving spouse receives half the inheritance. For example, assume Jim dies before Sally. They have three children together, and Sally also has two children from a previous relationship. In this scenario, Sally would receive 50%, and their 3 shared kids would receive the other 50%.
Remember, this is for those who pass without a will. This can become incredibly complicated if you don’t think it through clearly. Many people put off getting a will, and now it could be more difficult, depending on your family dynamics, to make sure what you want happens is what happens. To make matters worse, SB 50 also increased a spouse’s ability to dictate inheritances even if you have a will. This means more planning may be required besides simply drafting a will that directs the flow of money.
Passing Away with A Will
Kentucky has long-standing laws that allow spouses to receive some inheritance automatically, even if a will governs distributions. This has been referred to as Dower and Curtesy laws and was recently expanded in SB 50 as well. Surviving spouses who don’t agree with the will’s distribution can renounce the will and instead elect to take the dower and curtesy share. The calculation for this share can get complicated because different rules apply to different types of property, including real estate and ‘surplus personalty.’ For illustration, this essentially means it is extremely unlikely that a surviving spouse could be disinherited completely. I’m overgeneralizing, but they can elect to renounce the will and potentially receive up to 50% of the “total” inheritance. What defines “total” is now an incredibly important topic; here is why.
It used to be, in Kentucky, that any asset with a beneficiary form, like a 401k, IRA, TOD, and so on, would bypass probate and the will. For many of our clients, the beneficiaries we have set on their accounts supersede any will or other direction for those specific accounts. While that is still true, spouses now have the potential to pull in those assets if they elect the dower and curtesy share. Again, there is a lot of detailed work to figure out how much they are entitled to and from which accounts, but the possibility now exists.
This also applies to recently created trusts as well. Certain assets gifted or placed into a trust within the last two years could also potentially count towards the spouse’s dower and curtesy share. Generally, trusts are meant to help direct assets after a person is gone. When people worry that family members may cause perceived harm during or after inheritance, a trust is usually a great place to start. This is still valid, but now it must come with an understanding that within two years of death, even the trust may not be immune.
Other Changes
There were some other notable changes as well, some of which are already in effect and some that come into effect in the near future. They may not necessarily change the inheritance structure much, but they could genuinely make some parts of passing on wealth easier. Kentucky created the ability to add a Transfer on Death (TOD) status for vehicles (starting in 2028). Probate is no longer a completely public process. Electronic wills can be recognized. New updated trust laws. And there are likely to be some more changes as well.
This blog summarizes the major changes that occurred this year in Kentucky’s estate and trust laws, not legal advice. Laws constantly change, and you need to adapt your plans to them. If anything here has caused you to question whether your specific situation will be impacted, it is crucial to call your attorney and/or advisor. Get specific advice tailored to your needs, so you know whether these new changes matter to you. For some, nothing should change. For others, their estate plan may need to be reworked.
