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March 21, 2000: Changing Will without Informing Spouse; Gift Tax Worry

Q: Can I cut my spouse out of my Will without telling him/her and leave everything to a special friend?

A: Well, the holiday spirit created by Thanksgiving, Christmas, and New Years must be about gone, since this same general question has popped up a number of times recently.

As a general rule, a married person can change his or her will anytime and has no legal obligation to inform a spouse. This sort of thing was also happening many centuries ago in merry old England, or so we were told in law school. But the kings were getting tired of having to support impoverished widows left out of the inheritance loop, so a common law rule evolved that a person could disinherit anyone in the whole world, including children, grandchildren, parents, the Church, etc., but could not do so for a spouse. A widow was entitled to receive not less than one-half () of the deceased's property and a widower was entitled to one-third (1/3), regardless of what was done in a Will.

Colorado adopted the common law rules and later codified them through statutory provisions. But certain perceived unfairnesses seemed to occur when after a short (sometimes very, very short) marriage, a new spouse had a right to half (or a third) of the property, making the deceased's children of the first marriage very unhappy.

So Colorado has a relatively new law that gives a spouse the right to 10% during the first year of marriage, increasing 10% for each year of marriage thereafter, until the amount caps at 50% after five years.

Now a nuptial agreement signed by both parties (either pre or post) can eliminate this "spousal elective share" but one spouse can not unilaterally block out this right by doing a Will which either fails to mention a spouse or specifically says that a spouse is being excluded.

Also remember if a spouse is excluded in the Will but the spouse owns assets with the other in joint tenancy, or is named as a beneficiary, those things take precedence over the Will so the surviving spouse receives them, even if in the Will leaves them to another. But if the value of the property received by the spouse as a joint tenant, or "payable on death," or as a beneficiary is more than half of the value of the overall property "owned" by the deceased spouse, then the surviving spouse has no enforceable right to exert this elective share because he or she has received enough assets from the deceased, even though the property did not come through the Will, to fulfill the statutory obligation.

Confusing? Sorry! The bottom line is that you have the power to do it but unless your spouse, through a nuptial agreement, has given up his/her statutory rights, the spouse has a right to receive after five years of marriage the full 50% of the property you own.

Q: My grandmother gives me $10,000 each year but she also gives me expensive presents for almost every holiday, free ski and plane tickets, takes me out to dinner, sponsors a major family vacation, and even bought tires for my car. Do I need to worry about the IRS?

A: No, you do not have to worry about gift taxes as the recipient and you do not have to include the value of the gifts as income, unless you sell an item for more than your grandmother paid for it. Then you would have to report the gain.

But your grandmother has a gift tax worry. She can not give you more than $10,000 of value in all forms during a calendar year. Usually if she happens to go over a little, nothing will happen. But year in and year out she seems to go significantly over the limit, so she certainly has gift tax liability exposure.

I do not mean to frighten her but she needs to be more careful, especially since a number of giftees are involved and given the magnitude of "wealth transfers" that take place each year.

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