Maryland Bar Bulletin
Publications : Bar Bulletin : May 2008

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Generally, a testator has liberal discretion in the disposition of his wealth upon death. However every common law jurisdiction, other than Georgia, limits the testator’s ability to disinherit his surviving spouse. Maryland’s elective share statute provides “instead of property left to [her] by will, the surviving spouse may elect to take one-third share of the net estate if there is also a surviving issue or one-half of the net estate if there is no surviving issue. The ‘net estate’ is specifically defined to mean property of the decedent passing by testate succession…” (Md. Code Ann., Est. & Trust §3-203). The Maryland statute protects the surviving spouse with a percentage of probate assets. This method of protection is herein referred to as a Traditional Method, which was the original approach taken by most jurisdictions. However, Maryland is now one of only 19 jurisdictions adhering to the Traditional Method as a means of spousal protection against disinheritance.

What was once adequate protection for the surviving spouse has proved to be grossly inadequate, because property ownership has taken new formats. The inadequacies of Maryland’s elective share statute was brought to the attention of many estate planners with the 1990 Court of Appeals decision Knell v. Price, 569 A.2d 636. In Knell, the deceased spouse and his spouse had been separated 22 years when he transferred real property through his attorney, acting as a straw man, to himself retaining powers and naming his girlfriend as the remainder person. The Court of Appeals, using a fraud on marital rights theory, stated that Mr. Knell’s conveyance of the remainder interest was not complete, absolute and unconditional, and the Court “pronounced this to be a fraud on [Mrs. Knell’s] marital rights”. Id. The Court held that Mr. Knell’s reluctance to relinquish control over the disposition of property during his life defeated his intention. Id. At 641.

For the many years following Knell, practitioners disagreed as to what Knell really meant. Was the decedent’s obvious intent to disinherit Mrs. Knell a significant component to the Court’s holding, or was Mr. Knell’s retained dominion and control all that mattered?

Legislative efforts to clarify the ramifications of Knell were met with rejection. The statutory alternatives like the Augmented Estate proved too complicated to fix what the General Assembly perceived to be no real problem. Statutory clarification amongst the practicing bar was also met with opposition. Some practitioners welcomed the uncertainty of Knell. The Traditional statute with a common law modification placed an incredible burden on the surviving spouse to prove fraud on marital rights and required suit be filed in Circuit Court to reach non-probate assets.

For 17 years, practitioners lived with Knell and its uncertainty. However, recently in Schoukroun v. Karensky, 937 A.2d 262 (2007), the Court of Special Appeals clarified that the decedent’s fraudulent intent was irrelevant. The decedent’s retention of dominion and control over the asset at the time of death is the essential factor. The Intermediate Appellate Court held that the decedent’s revocable trust should be brought back into the estate for the purpose of calculating the surviving spouse’s elective share.

In Schoukroun, the decedent was divorced from his first wife and remarried. The decedent’s estate plan included a revocable trust benefiting his daughter from his first marriage. Unlike Knell, the decedent’s estate planning to include his daughter was not done with the “intent to defraud” his wife. The Circuit Court stated “there is no fraud on the part of … Schoukroun in the creation of the trust”. Schoukroun at 626. Agreeing that “the Circuit Court was not clearly erroneous in finding that Mr. Schoukroun had not acted with the intent to defraud his widow,” the Court held that the lack of fraudulent intent was “not of dispositive consequence”. Id. at 634. The retention of dominion and control over the revocable trust was sufficient for this asset to be brought back into the estate for purpose of calculating and satisfying the elective share.

Schoukroun clarifies that the decedent’s intent is of no consequence. Yet Maryland’s Traditional elective share statute with common law modifications warrants statutory elective share reform. A piecemeal approach to Maryland’s elective share does not provide protection and imposes financial burdens on the surviving spouse. Schoukroun’s dominion and control test does away with the need to weigh equitable factors, but it fails to provide needed guidance which can only be flushed out with legislative reform.

Although Schoukroun clarified that fraudulent intent is not needed, it further demonstrates Maryland’s elective share statute is in need of statutory reform. Maryland legislators must recognize the need to overhaul Maryland’s Traditional elective share method and replace it with a statute that is consistent with property ownership in the 21St century. One option is for Maryland to enact an Augmented Estate Method. The UPC’s Augmented Estate Method pools probate and non-probate assets from the decedent and surviving spouse and then protects the surviving spouse with a percentage based on the number of years of marriage. Although this method has some overreaching characteristics, it provides the practicing bar with clear ground rules for the application of the elective share.

The MSBA Estates & Trusts Section will hold a program, “Will Maryland Ever See Statutory Reform?”, at the MSBA Annual Meeting in June. Judge Murphy will discuss the existing law in light of Schoukroun and members of the Estates & Trusts, Elder Law and Family Law Sections will discuss the pros and cons of the UPC’s Augmented Estate.

Angela Vallario is an Associate Professor of Law at the University of Baltimore School of Law.

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Publications : Bar Bulletin: May 2008

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