Disinherit Spouse — Elective Share in Transition
September 25, 2015
Sometimes an individual wants to disinherit his or her spouse. This may happen for what some would describe as selfish, inappropriate or dishonorable reasons. At the same time there are circumstances that would lead some to conclude that disinheriting a spouse is not unreasonable. For example a couple may negotiate and implement an informal division of property and financial settlement arrangement. Other couples may voluntarily lead separate lives for decades, sometimes in different states. These arrangements can look from the outside very much like a divorce, and yet it does happen that some couples separate but never enter into a written separation agreement and never take the formal steps necessary to obtain a divorce.
Looking past the reasons why an individual may want to disinherit his or her spouse, there are complex issues associated with implementing such a decision. Some of those issues are discussed below.
Issues Associated With Disinheriting a Spouse
Spouse Can Claim Elective Share
In Maryland, a disinherited spouse is entitled to claim an elective share of one-third or one-half of a deceased spouse’s net estate. The net estate is usually the property that passes under the deceased spouse’s will. This is the deceased spouse’s estate subject to estate administration (also called the probate estate). In Maryland it is possible to dramatically reduce the size of a probate estate (that is the property that passes under the will). But in some cases actions aimed at reducing the size of the probate estate will be ineffective at reducing the size of the net estate for purposes of determining the elective share.
Surviving Spouse Must Claim Elective Share
A surviving spouse must make a claim in the estate for an elective share. It is possible that a disinherited spouse will not take the steps necessary to claim an election against the will.
Eliminate Elective Share Claim
The risk of having a claim of elective share can be effectively eliminated by obtaining a divorce.
Reduce Likelihood of Elective Share Claim
An agreement between spouses whereby each spouse waives his or her right to claim an elective share will dramatically reduce the chances that such a claim will be made. This is sometimes referred to as a postnuptial agreement. And such an agreement will likely prevent the award of an elective share if such a claim is made.
Reduce Net Estate by Various Methods
Maryland recognizes the right of a spouse to do estate planning even when one effect of that estate planning is to reduce the size of a surviving spouse’s elective share. A spouse can use any of a number of estate planning mechanisms that will reduce the size of the probate estate. With careful planning (and subject to the discussion of Current Maryland Law below) these estate planning techniques can generally be relied upon to also reduce the size of a surviving spouse’s elective share. Available techniques include the use of: deeds, trusts, gifts, payable on death provisions, transfer on death provisions and beneficiary designations.
Current Maryland Law
The Maryland Court of Appeals has established a form of analysis to be used to determine whether a transfer is a sham and therefore not effective in removing property from the deceased spouse’s net estate which is used to determine the amount of an elective share. For some circumstances the Court has established a bright line which makes the effect of estate planning decisions clear. (See discussion under Consideration 1 below.) Unfortunately the Court did not establish a bright line for all situations. Instead it established a number of considerations to be evaluated to determine the effect of each transfer. This analysis will be made on a case by case basis at the time the elective share is claimed. In many cases (possibly even the vast majority of cases) the estate planning mechanisms may well survive the challenge to move the property into the net estate. Still the Court’s analysis does have what might be regarded as fuzzy aspects. So if the surviving spouse is litigious, aggressive or for some other reason potentially troublesome, disposition based on established estate planning techniques could still amount to invitation to post-mortem litigation for those enthusiastic about accepting such an invitation.
Analysis by the Court of Appeals
In determining whether a particular transfer is effective in removing property from a deceased spouse’s net estate, the Court of Appeals established a set of three considerations to be used in determining whether a transfer is a sham and therefore not effective in removing property from the deceased spouse’s net estate. Karsenty v. Schoukroun, 959 A.2d 1147, 406 Md. 469 (2008) is the case in which the Court sets out the three considerations.
“Nonetheless, this Court [the Court of Appeals] has held that an inter vivos transfer [a transfer made during life] in which a decedent gives up all control of the transferred property may not be invalidated by a surviving spouse as an unlawful frustration of the spouse’s statutory share. Grove, 285 Md. at 698, 402 A.2d at 896. This is so even if the decedent’s express desire in alienating [selling, transferring, mortgaging, etc.] her or his property was too [sic] deprive the surviving spouse of the property.” Karsenty v. Schoukroun at 1173.
“Second, as a guiding principle, courts should not employ their equity powers to second-guess reasonable and legitimate estate planning arrangements.” Karsenty v. Schoukroun at 1174.
“Third, our case-law offers considerable guidance with respect to what factors are relevant to determining, in this context, whether a decedent intended that an inter vivos transfer [a transfer made during life] be a sham. . . . The extent of the control retained by the decedent probably is the most useful indicator when scrutinizing an inter vivos transfer.” In one case the Court did not set aside a transfer: “Accordingly, we observed that the decedent ‘had a sound business reason,’ which indicated that the transaction was done in good faith.” And the Court reached the same conclusion in another case: “We concluded that the facts indicated that the inter vivos transfer, despite the decedent’s retained right of control, reflected what the decedent regarded as her moral obligation to see that the property go to her daughter from her marriage to her first husband.” Karsenty v. Schoukroun at 1174-76.
Future Maryland Law – The Legislature and Beyond
The net estate is the estate used for determining the amount of an elective share. An enhanced estate is a net estate determined by taking the probate estate and adding to it certain property that is not part of the probate estate. As discussed above the Court of Appeals has established an analysis that will in some instances create enhanced estates. In addition, in 2015 a bill was introduced in the Maryland Legislature that, if enacted, would have included property in revocable trusts as part of an enhanced estate for purposes of determining a surviving spouse’s elective share. That bill did not become law. But it is reasonable to assume that the proponents of expanding enhanced estates in Maryland have not abandoned the project.
It is of course impossible to know what future legislation might be enacted. So it would be prudent for any person concerned with a surviving spouse’s claim of elective share to keep an eye on future changes to Maryland law. Such a person would want to evaluate past estate planning decisions in light of relevant, newly enacted legislation.