NEW MARYLAND SPOUSAL ELECTION LAW – What is the spousal election, and what’s changing?

1.  What is the Spousal Election?

We enjoy considerable freedom in choosing who should and should not benefit from our property at death. We can disinherit children and grandchildren and instead benefit charities, friends, or any other individual or organization. However, the American legal system has historically protected widows and widowers by ensuring that they received certain financial benefits in a deceased spouse’s estate. The archaic concepts of dower and curtesy have evolved into spousal election statutes in many states, including Maryland. These laws allow a surviving spouse to elect to take a statutory share of the estate instead of the benefits provided in the Will.

Maryland’s spousal election law provides a surviving spouse with a 1/3 elective share of the estate if the deceased spouse had children or 1/2 if the deceased spouse did not have children.

The current iteration of the Maryland law has been frequently criticized as inadequate because the elective share is calculated based only on the deceased spouse’s probate estate [1] – meaning simply the assets that pass under the Will. This does not include assets that are jointly owned, beneficiary designated, or in a trust.[2] Thus, non-probate transfers can frustrate the intent of the spousal election law.

To illustrate, let’s say a married woman dies with the following assets at the time of death: $1,000,000 IRA, $20,000 bank account, $400,000 primary residence, and $300,000 vacation cottage that has been in her family for generations. The IRA is beneficiary designated to her husband, and the bank account and residence are owned jointly with her husband. The vacation cottage is in her sole name, and her Will leaves this property to her only child from a prior marriage. Because Maryland’s current law does not charge the husband with the non-probate assets he acquires, he can still elect to take 1/3 of the probate estate, thereby interfering with the child’s inheritance of the family vacation cottage.

For decades, the Maryland courts have wrestled with similar scenarios where many argue that strict application of the statute leads to unfair results. Hamstrung by a statute with little room for interpretation or discretion, however, the courts could muster only a line of cases that brings non-probate property into the elective share calculation under narrow and uncertain circumstances. These cases led to further confusion, uncertainty and inconsistent outcomes in many cases.

 

2.  How is the Spousal Election changing?

Responding the pressure to create more certainty and limit abuses of the spousal election statute, in the spring of 2019, the Maryland General Assembly passed, and Governor Hogan signed, a new law which radically changes the way the elective share is calculated.[3] Instead of valuing just probate property , this new law values the augmented estate. The augmented estate includes the probate estate, revocable trusts, jointly titled accounts, and more. Essentially, the law tries to capture everything that an individual owns, not just the property that passes under the Will at death.

This change goes into effect in October 2020.

 

3.  How does this change affect my estate plan?

This change doesn’t affect married couples who plan to leave all assets to each other. However, there are many circumstances where an individual may want to subvert the spousal election and leave their assets to someone who is not a spouse. Two frequent examples are:

  • Second marriages where one or both spouses want to pass on their wealth to children of the first marriage.
  • Inheritances from a parent that are intended to be passed down the family line.

Previously, leaving those separate assets in a TOD or jointly titled account could bypass the elective share. Not so under the new augmented estate statute.

This new legislation might also have implications for the following probate avoidance technique that we do not recommend to clients but see many incorporate on their own. Parents often add children as joint owners on bank and other accounts to help pay bills and otherwise manage finances. What if the child is married and dies before the parent? Under the new law, the joint account that is really the parent’s money could be included in the elective share of the deceased child’s spouse. This seems contrary to the intent of the law, so it will be interesting to see if the courts somehow address or the legislature amends the statute.

 

4.  What can I do about it?

Proper estate planning can help preserve your intent. A prenuptial or postnuptial agreement can waive a spouse’s elective share. If you are interested in learning more about protecting your assets and ensuring that your intent is recognized, please contact us.

 

 

 

[1] Md. E&T Code Ann. § 3-203

[2] If a court determines that TOD or Revocable Trust assets were titled/designated in that manner to frustrate the elective share and were not transferred in “good faith”, they may determine those assets should be considered part of the estate for purposes of calculating the elective share.

[3] House Bill 99.  See here for the text of the bill: https://legiscan.com/MD/text/HB99/2019