Exemption from Transfer and Recordation Tax
The General Assembly revised §9-105 of the Estates & Trusts Article, passed new §14-114 of the Estates & Trusts Article, and added subsections (DD) and (EE) to §12-108 of the Tax-Property Article and subsections (a)(23) and (24) to §13-207 of the Tax-Property Article, to expand the exemption from transfer and recordation tax for transfers of real property from estates and trusts. The statute particularly addresses the circumstance in which recorders of deeds had been assessing tax on transfers of property that was subject to a mortgage. The statutes specifically provide that the assumption of a mortgage by the transferee does not constitute consideration, and that a transfer without consideration shall be free of transfer and recordation tax if either (1) the transfer is made by the personal representative of an estate or (2) the transfer is made either to a trust or from a trust to its beneficiaries if (i) the transfer is made only to persons who would be exempt from tax if the grantor had made the transfer to them directly or (ii) the transfer is made during the lifetime of the grantor and the trust acquired the property for adequate consideration. The revisions take effect on July 1, 2011.
Payment of Contingency Fees Without Court Approval
New §7-604(a)(2) of the Estates & Trusts Article permits the payment of attorneys fees from estate assets without court approval if: (1) the fee is paid pursuant to a contingency fee agreement signed by the decedent or personal representative, (2) the fee is within the terms of the contingency fee agreement, (3) a copy of the agreement is on file with the Register of Wills, and (4) the attorney files a statement with each account that the services covered by this fee do not extend to the administration of the estate. This statute takes effect on October 1, 2011.
Maryland General and Limited Power of Attorney Act
The General Assembly tweaked §17-101 of the Estates & Trusts Article to broaden the definition of “property” and “stocks and bonds,” and also to preclude statutory forms that incorporate by reference other writings into the “Special Instructions” section. The legislature also tweaked the two statutory forms to incorporate some revised language. The statute applies retroactively to all powers of attorney executed on or after May 20, 2010. The tweaks to the statutory form are deemed to be applied automatically to powers of attorney executed after May 20, 2010, and before June 1, 2011.
Transfer of Tenancy by the Entirety Property to Trust
Last year, the General Assembly passed §14-113 of the Estates & Trusts Article, which allows a husband and wife to transfer property that they hold as tenants by the entirety to a trust, while maintaining certain immunities from creditor claims. This year the legislature tweaked that statute: (1) To clarify that the statute applies if the property is transferred to more than one trust (e.g. one revocable trust for the husband and one for the wife); (2) To provide that the statute applies only to transfers of property after the initial effective date (October 1, 2010); and (3)To require that the trust instrument or the deed or other instrument of conveyance provide that §14-113 apply to the conveyance. The revised statute takes effect as of October 1, 2011 (though its effects are largely retroactive to October 1, 2010).
Estate Tax Extension and Deferral for Agricultural Land Conservation Easements
The legislature revised §7-307(e) of the Tax-General Article to allow the Comptroller to extend the period over which Maryland estate tax on real property may be deferred if there is a pending application for a conservation easement with either the Maryland Agricultural Land Preservation Foundation, the Rural Legacy Board, or a similar easement purchase program. This law applies to decedents dying after December 31, 2010.
Orphans’ Court Judges
The legislature proposed a constitutional amendment to require that judges on the Orphans’ Court for Prince George’s County be members in good standing of the Maryland Bar. The amendment will be on the ballot for voters in November 2012. It does not apply to Orphans’ Court judges in other counties; however, it follows on a similar bill (now passed by the voters) that applies to Orphans’ Court judges in Baltimore City. A similar bill for Baltimore County did not pass.
Special Needs Trusts
The General Assembly passed new §14-114 of the Estates & Trusts Article, which provides certain protections for special needs trusts, supplemental needs trusts, and pooled asset special needs trusts. The statute requires each State agency that provides means-tested benefits to disabled individuals to promulgate regulations that allow (1) funding of pooled asset special needs trusts without financial limits, age limits, or transfer penalties, (2) funds in these trusts to be used for the benefit of the beneficiary at the discretion of the trustee, (3) third parties to fund these trusts without financial or age limits and (4) legally assignable income or other resources to be assigned to these trusts. In addition, the statute precludes the State from imposing any additional requirements on non-profit organizations wishing to offer pooled asset special needs trusts. The statute takes effect on October 1, 2011.
Medical Orders for Life-Sustaining Treatment
Revisions to §§5-602, 608, 608.1, 609, 617, and 619 of the Health-General Article provide for the creation of a new “Medical Orders for Life-Sustaining Treatment” form by the Attorney General, State Board of Nursing, and State Advisory Council on Quality Care at the End of Life, and generally requires health care facilities (which are defined very broadly) to honor the terms of such form. The statute permits an individual or his health care agent or surrogate to complete the form.
Maryland passed a revised version of the Uniform Anatomical Gift Act. It addresses the gift of, amendment to, revocation of, or refusal to make an anatomical gift from all or part of a decedent’s body for the purpose of transplantation, therapy, research or education. An adult, an emancipated minor, or a minor with a driver’s license may elect during their lifetime to make an anatomical gift. A gift also may be authorized by an agent, guardian, or parent of an unemancipated minor. A donor may make such a gift through an indication on her driver’s license, in her will, or by listing with a donor registry. A donor also may authorize a gift during a terminal illness or injury by stating her wish to at least two adults, one of whom must be disinterested. After a person’s death, unless he made a contrary direction during life, an anatomical gifts may be authorized by a duly authorized agent or by (in order of priority) a spouse or domestic partner, adult children, parents, adult siblings, adult grandchildren, grandparents, or an adult who exhibited special care and concern for the decedent. An anatomical gift may be made to a hospital, educational institution, organ procurement organization, State Anatomy Board, or a nontransplant tissue bank for research, training or education. A gift may also be made to a specific individual. If the individual is not available, or if the gift does not specify a location but rather a purpose, the gift goes to the appropriate institution or tissue bank as outlined in the statute. When death is believed to be imminent, emergency personnel, law enforcement officers, or firefighters are directed to make a reasonable search of the individual for a document or other information that may identify the individual as a donor. A hospital is directed to search any donor registry that the hospital knows exists for the geographical area in which the individual resides. The procurement agency has the right to a reasonable examination of the body or part to ensure medical suitability.
Bills That Did Not Pass
The General Assembly declined to pass some proposed bills of interest to estates and trusts practitioners. Probably the most significant is the Maryland Trust Act, which is a modified version of the Uniform Trust Code. Given the size and importance of the Trust Act, it is not surprising that it did not pass on its first introduction. The bill was assigned for Summer Study; it is possible that it will pass next year.
Other notable bills that failed to pass include (1) a bill to require that Baltimore County Orphans’ Court judges be lawyers (as noted above), (2) a bill removing the requirement that only Orphans’ Courts whose presiding judge is a lawyer may exercise jurisdiction over guardianships (the second year in a row that this bill failed – it passed the House this year), and (3) a bill that would increase the exemption from Maryland estate tax to $4 million by 2014 (and another that would repeal the Maryland estate tax entirely). Some of these bills might be introduced again next year.
Constructive Trust; Right of Contribution
The Court of Special Appeals considered the doctrine of constructive trusts in Meyer v. Meyer, 193 Md.App. 640, 998 A.2d 921 (2010). The Court held that when a transfer is made to a person who is the natural object of the transferor’s bounty, there is a presumption that the transfer was intended to be a gift, and the burden rests on the transferor to show otherwise by clear and convincing evidence. The case involved a house that had been owned by William Meyer and his wife Kimberly O’Neill. After their separation, Mr. Meyer and Ms. O’Neill executed a deed that conveyed title to their marital home to Mr. Meyer and their two children, as joint tenants with rights of survivorship. At the time the children were ages six and three. For more than fifteen years, Mr. Meyer made all mortgage payments and paid all taxes and insurance on the property from his own assets. During this period, there apparently was a falling out between Mr. Meyer and his children. In 2007, Mr. Meyer and the children filed competing complaints to force a sale of the property. As part of his complaint, Mr. Meyer sought to reduce the children’s share of the sale proceeds, on the grounds that the children were required to contribute towards the mortgage, tax, and insurance payments he had made over the years. The children argued that these payments were gifts from their father, and therefore that they had no obligation to repay them. The Circuit Court granted Mr. Meyer’s petition, and ordered the children to contribute to the various payments that Mr. Meyer had made. The Court of Special Appeals reversed, and refused to impose a constructive trust to enforce contribution. Citing the Restatement (Second) of Trusts and Maryland caselaw, the Court held that a transfer to children is presumed to be a gift. The transferor can rebut this presumption by showing that he intended to retain a beneficial interest (such as the right to impose a constructive trust for contribution towards property expenses). The Court noted that the evidence must show the transferor’s intent at the time of transfer; events subsequent to transfer (such as a falling out between parties) are irrelevant. In the present case, the Court found that Mr. Meyer had not produced sufficient evidence to show that he intended that his children be obliged to contribute towards the property expenses. The Court of Special Appeals also remanded the case to the Circuit Court for reconsideration of whether Ms. O’Neill was entitled to part of the sales proceeds pursuant to her Separation Agreement with Mr. Meyer.
Constructive Trust; Resulting Trust
The Court of Special Appeals also considered the doctrine of constructive trusts in Porter v. Zuromski, 195 Md. App. 361, 6 A.3d 372 (2010). The case involved a fact-driven analysis of rights when unmarried cohabitating parties purchase real property. After several years of romantic involvement (including engagement, but with an indefinitely postponed wedding date), Mr. Porter and Ms. Zuromski decided to purchase a house together in 1997. For several reasons, including Ms. Zuromski’s poor credit rating and impending bankruptcy, the parties decided that Mr. Porter would purchase and own the house in his sole name, though Ms. Zuromski would contribute to the down payment and monthly mortgage. Ms. Zuromski made those financial contributions, and Mr. Porter repeatedly represented that she was in effect a co-owner of the house. In January 2007, the parties terminated their engagement; in July they terminated their relationship. Mr. Porter ordered Ms. Zuromski to vacate the house, refused her request to divide the equity in the house, and undertook a refinancing that cashed out most of that equity. Ms. Zuromski filed suit and the Circuit Court imposed a constructive trust. The Court of Special Appeals affirmed the Circuit Court’s action. It noted that a constructive trust is proper when property has been acquired by fraud, misrepresentation, or other improper methods, or where circumstances render it inequitable for the party holding title to retain it. Without necessarily deciding whether there had been misrepresentation or other improper action, the Court agreed that Ms. Zuromski’s significant financial contributions and Mr. Porter’s representations made it inequitable for Mr. Porter to be sole beneficiary of the house’s value. It further noted that there likely was a confidential relationship between the parties, and that a constructive trust also could be imposed based on abuse of that relationship. Ms. Zuromski also asked for imposition of a resulting trust, which is a broad equitable remedy designed to prevent unjust enrichment when a party holds title to property even though another party pays for the property. The Court noted that a resulting trust also might be an appropriate remedy, but declined to decide the question, because the Circuit Court had not considered it (likely because the constructive trust provided adequate relief).
Personal Representative’s Right to Release
In Allen v. Ritter, 196 Md. App 617, 10 A.3d 1183 (2010) (cert. granted), the Court of Special Appeals held that a personal representative may require beneficiaries to execute a release prior to distribution of estate assets. It will come as no surprise that the case arose out of a contentious estate, in which the initial personal representatives had been removed and replaced with an experienced estates and trusts practitioner. The beneficiaries continued to fight even after the new personal representative came on board. Therefore, after the Orphans’ Court approved the Final Account, the personal representative requested that the beneficiaries sign a broad release of her liability prior to distribution of the estate. One beneficiary signed, but the other two refused. The personal representative petitioned the court for release, relying on §9-111 of the Estates & Trusts Article, which permits a personal representative to request a release. Pursuant to that petition, the Orphans’ Court ordered the other two beneficiaries to sign the release. They appealed, arguing first that the personal representative was not entitled to insist on a release, and second that the Orphans’ Court lacked jurisdiction to order them to sign. The Court of Special Appeals affirmed the Orphans’ Court on both grounds. Finding no relevant legislative history to shed light on the meaning of §9-111, the Court held that the plain language of the statute (“a personal representative may…obtain a verified release from the heir or legatee”) confers on a personal representative the right to obtain a release prior to distribution. The Court of Special Appeals found that this construction is in line with other jurisdictions, including D.C. and Delaware. The Court also held that the Orphans’ Court has jurisdiction to order beneficiaries to sign a release. While the Orphans’ Court has limited jurisdiction, the Court of Special Appeals noted that the jurisdiction extends at least to passing orders relating to administration and settlement of estates, and that ordering a release fell within the bounds of that jurisdiction. Note that the Court of Appeals has granted certiorari in this case.
Spouse’s Elective Share
The Court of Special Appeals considered several issues relating to calculation of an electing spouse’s statutory share in Nassif v. Green, 198 Md. App. 719, 18 A.3d 1018 (2011). The Court held that an electing spouse’s share must be calculated as of the date of payment and is entitled to a share of income up to the date of payment. The Court also held that only claims that actually are allowed and paid may be considered for purposes of determining the “net estate” subject to the spouse’s elective share. The case involved the estate of Walter Green. Mr. Green’s estate was valued at more than $28 million at the time of his death in 1993. Helen Nassif, Mr. Green’s widow, made a timely election to take her statutory share of one-third. The estate assets comprised extensive real estate and business holdings, and the complicated nature of these assets (as well as the litigious nature of various parties) conspired to draw out administration over more than 13 years. In addition, the estate was subject to extensive claims in excess of more than $13 million; however, most of these were guarantees of loans to other obligors, and those other obligors reimbursed the estate for all but about $120,000 of these claims. When the personal representatives finally were ready to make distribution of the residue of the estate in 2006, they and Ms. Nassif disagreed on the calculation of her share. The personal representatives contended that (1) the net estate should be calculated with a deduction for the total value of claims filed against the estate, even though most of those claims were not actually paid by the estate (because the estate was reimbursed by other obligors), (2) the non-cash assets of the estate should be valued as of the date of election, not the date of distribution, and (3) Ms. Nassif was not entitled to a share of the income earned during the period of administration. The Court of Special Appeals held for Ms. Nassif on all three points. It held that the “enforceable claims” that reduce the “net estate” under §3-203(a) (and therefore that reduce the base off which the statutory share is calculated) did not include all claims that could be enforced (as the personal representatives argued), but only those claims that actually are required to be paid. Therefore, while the estate had more than $13 million in claims that could have been enforced, it only had to pay about $120,000 (after being reimbursed), and the Court held that only those $120,000 could be considered for purposes of calculating the elective share. The Court also found for Ms. Nassif on the other two key issues. In a more current estate, these questions would have been easier to answer, because the legislature has revised ET §§ 3-208 and 3-203. The Court of Special Appeals could not apply these revised statutes, however, and instead had to consider these questions in light of 1993 statutes. Even though the revised statutes did not apply, the Court of Special Appeals reached essentially the same conclusion that the new statutes would have provided, namely that Ms. Nassif’s share of “in kind” assets should be calculated as of the date of distribution (i.e. including the post-death appreciation), and that her share was entitled to its pro rata share of income earned during administration. The personal representatives also had argued that the Maryland Principal and Income Act should not apply, in part because the will stated that it should not apply. While this argument did not end up being critical to the outcome (because the Court already had determined that Ms. Nassif was entitled to a share of income), the Court rejected the argument anyway, reasoning that the provisions of a will could not negate default statutory rules that impact the calculation of a surviving spouse’s statutory share.
Construction of a Will
The United States District Court for the District of Maryland undertook an extensive construction of the will of Charles Austrian inFisher v. PNC Bank, N.A., 769 F.Supp.2d 853 (D. Md. 2011). The case turned on the interpretation of the phrase “at such time,” and determined whether a trust created under Mr. Austrian’s will passed to charities that were beneficiaries under the will and revocable trust of Mr. Austrian’s daughter, Janet Fisher, or whether it passed to the charities selected in Mr. Austrian’s will (both his children died without descendants). As we might expect, the Court’s opinion is very fact specific (and the case involved a fairly unusual set of facts). After extensive parsing of the will and consideration of the facts, the Court found that Mr. Austrian had intended to provide use of the trust assets for his children during their lives, and then if they had no descendants (as was the case) to a group of charitable beneficiaries that he had selected. That is a brief synopsis of the Court’s analysis (a more thorough summary could end up being about as long as the opinion itself). The entire opinion is worth reading to see how a court works through the language of a will to determine a testator’s intent.