In October 2020, Maryland implemented a significant change to its estate laws with the passage of the new elective share legislation, also known as the “augmented estate” law. This landmark reform aimed to provide greater protection and fairness for surviving spouses, particularly in cases of potential disinheritance. While many commentators provided context on the law at the time of its enactment, we thought that now, several years into its implementation, and after we’ve put the law into practice and drafting processes, we at JDKatz, P.C. have observed how this law has reshaped estate planning practices in Maryland.
Background and Historical Context of the Elective Share Law
Previously, Maryland law allowed a surviving spouse to elect against the deceased spouse’s will to receive either one-third or one-half of the “net estate,” depending on whether there were surviving children. However, this election was limited to probate assets, leaving non-probate assets (such as joint accounts, transfer-on-death designations, and life insurance) outside its scope. This limitation created potential loopholes for disinheritance.
Two significant court cases, Knell v. Price (1990) and Karsenty v. Schoukroun (2008), attempted to address this issue by expanding the concept of the elective share to include some non-probate assets. However, these rulings often led to complex and costly litigation for surviving spouses seeking their fair share.
Key Features of the Elective Share Law
The new elective share law introduced a more comprehensive and formulaic approach to calculating a surviving spouse’s share. Key features include:
- Inclusion of both probate and non-probate assets in the augmented estate.
- A more standardized calculation method, reducing the need for litigation.
- Special provisions for disabled surviving spouses, allowing for the use of special needs trusts.
Impact on Drafting Practices Since Enactment
Since the law’s implementation in 2020, estate planning attorneys in Maryland have had to adapt their drafting practices significantly. Here are some of the key changes we’ve observed:
- Comprehensive Asset Inventory: The new law requires a more thorough accounting of all assets, both probate and non-probate. As a result, estate planners now spend more time with clients creating detailed asset inventories. This process often involves closer collaboration with financial advisors and accountants to ensure all assets are properly accounted for and valued.
- Increased Use of Marital Agreements: There has been a notable uptick in the use of prenuptial and postnuptial agreements. These agreements have become crucial tools for clients who wish to opt out of the elective share provisions, particularly in blended families or second marriages. Drafting these agreements now requires careful consideration of the new law’s provisions to ensure they are enforceable.
- Revisions to Existing Estate Plans: Many clients have needed to revisit and revise their existing estate plans in light of the new law. This has led to a surge in estate plan reviews and updates, particularly for clients with complex family situations or significant non-probate assets.
- Enhanced Focus on Non-Probate Asset Planning: With non-probate assets now included in the augmented estate, there’s been a shift in how these assets are structured and distributed. Beneficiary designations, in particular, have come under increased scrutiny, as they can significantly impact the overall estate distribution.
- More Complex Trust Structures: To navigate the new law while still achieving clients’ goals, estate planners have turned to more sophisticated trust structures. This includes increased use of Qualified Terminable Interest Property (QTIP) trusts and other vehicles that can satisfy the elective share while still maintaining control over ultimate asset distribution.
- Expanded Use of Life Insurance: Life insurance has taken on a new role in estate planning under the new law. It’s increasingly being used as a tool to provide for the elective share without disrupting other aspects of the estate plan.
- Greater Emphasis on Valuation: The new law’s formulaic approach has placed a premium on accurate asset valuation. Estate planners now often work more closely with appraisers and valuation experts to ensure assets are properly valued for elective share calculations.
- Increased Attention to Timing of Transfers: The timing of asset transfers has become more critical under the new law. Planners must now consider how transfers made within a certain timeframe before death might be pulled back into the augmented estate.
- More Detailed Explanations in Estate Planning Documents: To preempt potential challenges, many attorneys have begun including more detailed explanations in wills and trusts about how the documents align with or opt out of the elective share provisions.
- Specialized Planning for Disabled Spouses: The law’s provisions for disabled spouses have led to more tailored planning in these situations, including increased use of special needs trusts integrated with overall estate plans.
Challenges and Opportunities
While the new law has certainly complicated some aspects of estate planning, it has also created opportunities for more comprehensive and fair estate plans. At JDKatz, P.C., we’ve embraced these changes as a chance to provide more robust and thoughtful planning for our clients.
The increased complexity has also underscored the importance of working with experienced estate planning attorneys who stay abreast of legal changes and their practical implications. We’ve invested in additional training and resources to ensure we can navigate these new waters effectively for our clients.
Looking Ahead
As we continue to work within the framework of the new elective share law, we anticipate further refinements in drafting practices. The interplay between federal estate tax laws and Maryland’s elective share provisions will likely be an area of ongoing development and attention.
At JDKatz, P.C., we’re committed to staying at the forefront of these changes and helping our clients navigate this complex landscape. Whether you’re considering marriage, already married, or planning for long-term care, it’s crucial to understand how the elective share law affects your estate planning goals.
We encourage all our clients, both new and existing, to review their estate plans in light of these significant changes. Contact us today to schedule a comprehensive review of your estate plan and discuss how we can help you adapt to Maryland’s evolving estate planning landscape.