In October 2020, Maryland expanded the state’s “elective share” law. If your current estate plan provides for beneficiaries in addition to your spouse, then you may need to update your planning.
What is the elective share? It’s the right of a surviving spouse to receive a certain share of their deceased spouse’s estate, no matter what the deceased spouse’s Will (or, if the deceased spouse dies without a Will, the law of intestacy) provides. Before the new law, the surviving spouse was entitled (unless properly waived in a valid pre-nuptial or post-nuptial agreement) to receive one-third of the deceased spouse’s estate if the deceased spouse had surviving issue (children or other descendants), or one-half if the deceased spouse died without surviving issue.
What constitutes the deceased spouse’s estate? Under the prior law, the deceased spouse’s “estate” consisted of everything that passed under his or her Will (or, if s/he died without a Will, everything that passed by intestate succession.) It did not include assets that were jointly owned, assets that had a beneficiary designation (such as life insurance policies or retirement accounts), or assets that were held in a trust.
This meant that with some careful planning, it was possible to effectively disinherit the surviving spouse, even with a Will that left “everything” to him or her, by ensuring that all assets passed outside of the Will. The surviving spouse’s share of an estate with little to no assets was, effectively, reduced to zero, defeating the intent of the elective share law.
What changed in the new law? Recognizing this inequity, the Maryland courts began to chip away at the definition of “estate.” In a number of rulings, the Courts expanded the estate to include other assets of the decedent, including some transfers made before death, and created a multi-part test to try and determine whether or not there was an actual intent to disinherit a spouse. This hodge-podge of Court rulings and tests interpreting the old law created a great deal of ambiguity, so the Maryland legislature amended the elective share law. This new law now provides that a surviving spouse’s elective share applies to the deceased spouse’s “augmented estate.”
What is an augmented estate? In addition to the assets passing by Will or intestacy, the augmented estate now includes any revocable trusts established by the deceased spouse, any “qualifying joint interests” held by the deceased spouse (whether with the surviving spouse or someone else), any “qualifying lifetime transfers” made by the deceased spouse, and any property over which the deceased spouse had a “qualifying power of disposition” immediately before his/her death. Once the value of these interests are all determined, the augmented estate is then reduced by certain expenses and permitted transfers (things like transfers for college savings accounts, funeral and administration expenses, some transfers made before the marriage, etc.) What’s left is the “estate subject to election” – the amount against which the surviving spouse can claim his or her elective share.
How does this impact YOUR estate plan? Frequently, married clients make provisions in their estate planning and/or beneficiary designations for other family members, in addition to their spouse. It could be children from a previous marriage, siblings or parents, or even a favorite charity. If you’re married and unsure whether you have left “enough” for your spouse to satisfy the newly revised elective share, you should meet with your estate planning attorney to review the impact of the new law and ensure your planning still achieves your estate planning goals.
Cheryl A. Jones is a Member in the firm’s Wealth Preservation Group. The scope of Cheryl’s practice includes the preparation of estate planning and trust documents, powers of attorney and health care directives, estate and trust administration, asset protection planning, and certain family law matters, including negotiation and drafting of prenuptial and postnuptial agreements, guardianship proceedings, and second parent adoptions. In addition, Cheryl advises families on elder law issues, particularly planning for the costs of long term care and Medical Assistance (“Medicaid”). Cheryl also advises on charitable tax matters such as structuring complex charitable gifts, preparing charitable remainder trusts and charitable lead trusts, and forming and administering non-profits and 501(c)(3) charities. She can be reached at firstname.lastname@example.org, or 410-769-6141.