2019 Maryland Legislative Review - Estate and Tax Planning

The first year of the four-year cycle for the General Assembly is usually is slower year, a year of learning by all of the new members.  Not this year!  Even with 43 new members of the House and 17 new members in the Senate, this year a total of 867 bills were passed both chambers out of nearly 2500 bills that were filed.  That’s remarkable.

The areas of estate and tax planning, probate, and trust administration did not escape the attention of our lawmakers.  A total of nine bills passed, a few of which will have a substantial impact on estate planning going forward.

ELECTIVE SHARE OF SURVIVING SPOUSE:

By far the most important bill that passed this year is the Elective Share of Surviving Spouse (SB192/HB99).  This bill was passed because the General Assembly was concerned that a surviving spouse should be reasonably provided for during that spouse’s remaining lifetime; so, it was reasoned, the first spouse to die should not be allowed to totally disinherit that second spouse without the consent of that spouse. 

Addressing this concern became a vexing exercise over the issue of attempts to define the estate of the first spouse to die.  Historically, only the “probate estate” of the first spouse to die was available to be apportioned between the surviving spouse and heirs of the deceased spouse.  This meant that retirement accounts, life insurance policies, assets held in a revocable trust and jointly-owned property were exempt.  In other words, if the first spouse to die wanted to disinherit the surviving spouse, it was a pretty easy thing to do.

Under the new law, however, the “taxable estate” of the first spouse to die is the estate that will be made available for division.  The taxable estate includes just about everything a deceased owned or had any type of ownership interest.  There will be no hiding of assets. 

Importantly, the elective share of a surviving spouse when the deceased spouse leaves living descendants is 33.33% of the taxable estate.  If the deceased spouse dies without leaving any descendants, that share increases to 50%.

If a surviving spouse does wish to exercise his or her right to claim an elective share, that share will be reduced by the amount the surviving spouse receives from the deceased spouse, either outright or in trust.

This law raises two concerns.  One concern is whether plans can be devised to minimize the elective share.  One obvious way is for the spouses to come to some written agreement, such as a prenuptial agreement, that addresses this issue.  Another way might be to use marital trusts to provide for the surviving spouse during his or her lifetime, but retain the underlying trust principal for the deceased spouse’s heirs. 

The other concern is implementing the elective share.  The potential for extended litigation over the nature and extent of deceased spouse’s estate could be extensive. 

Fortunately, we have some time to figure the full impact of this new law.  A late amendment postponed the implementation of this law until October 1, 2020.

SB212: EXECUTION OF WILLS OUTSIDE OF STATE:

Of these bills, the bill that addresses the execution of Wills outside of Maryland is important because it is a harbinger of things to come.  The initial concern that the General Assembly wanted to address was the proliferation of online services that offered people the ability to prepare and execute Wills from the comfort of their living room, even though the provider was in Nevada or some other state.  There are numerous practical, legal, and ethical concerns about this arrangement; however, this practice is a sign of things to come.  Fortunately, there is a national organization, the Uniform Law Commission, which is working hard on a model law that will suggest how this issue can be addressed.  The bill that was just passed simply builds a bridge to this more comprehensive approach to managing internet Wills that should be published in the near future.

SB317: SHARE OF INTESTATE ESTATE INHERITED BY SPOUSE:

Also important is SB317 Share of Intestate Estate Inherited by Spouse. Current law leaves a deceased person’s surviving spouse $40,000, plus ½ of the rest of the decedent’s estate, if the decedent died without a Will. The decedent’s parents inherit the remaining ½, if the decedent had no surviving children. SB317 modifies the amount inherited by the decedent’s parents, based on the number of years the decedent and the surviving spouse were married. If they were married for fewer than 5 years, the division of the estate as described above remains in effect. If they were married for more than 5 years, the surviving spouse inherits the entire estate. This only applies if the decedent has no surviving children. If there are surviving children, under Maryland law the children and the surviving spouse divide the estate.

OTHER ESTATE PLANNING AND PROBATE BILLS:

There were a number of other estate planning bills that passed this year.  Two bills made minor adjustments to the Maryland Trust Act (HB898, Methods of Notice, and HB932, Division or Consolidation of Trust); one bill addresses will drafting issues (HB519, Definition of Children); and, two bills address probate issues (HB1305, Waiver of Fees, and HB218, Disposition of Remains).  All of these bills will be effective as of October 1, 2019.

In addition to the above, HB77 passed – this bill decriminalizes attempted suicide.  There was also a massive bill that updated the laws surrounding notary publics (SB678).  Finally, there was an important Medicaid bill passed that limits denials of Medicaid in certain cases when the recipient is still living in the community (SB699).

NEXT YEAR:

There were three important bills that didn’t pass this year.  One was the End-of-Life Options Action, a bill that would have adopted the Oregon approach to allowing persons to have assistance in ending their lives in certain, very limited situations.  Another bill was a proposed to change Maryland’s Inheritance Tax that would have exempted nephews and nieces from having to pay this 10% tax on their bequests.  Finally, there was change proposed that would have dramatically reduced the over 8000-person waiting list for a Medicaid waiver program that promotes aging in the community, rather than in nursing home.

As always, many new bills will be filed for the first time next year.  Until they are actually filed, it is difficult to predict what those bills will be; however, Annapolis seems to have a voracious appetite for new legislation, and next year will be no different.

DISCLAIMER:

This article is intended to provide general, educational information about recent legislative changes, and should not be considered as legal advice upon which you should rely.  Please check with your own attorney if you have any questions or would like follow up on any suggestions made within this article.

For questions about this article or any other Estate Planning matter, please contact an attorney in our Estate Planning group.