On September 13, 2012, Peter W. Sheehan Jr., Esquire, of Whiteford, Taylor & Preston gave Estates and Trust committee members an update on the current status of the spousal share in light of the Court of Appeals’ decision in Karsenty v. Schoukron, 406 Md. 469 (2008).
As background, he said the concept of an elective spousal share dates to common law, like dower. Maryland's elective share statute was passed in 1798, but did not extend to transfers outside of probate. An 1851 case held that transfers by a husband involving realty "were the result of a contrivance, invented...to deprive” the wife of part her husband’s estate. In an 1853 case, the opposite view prevailed. The relevant distinction, Mr. Sheehan said, is between an ostensible transfer with retained possession (nothing changes except how the property is to be distributed at death) and an actual transfer with a retained right to retake possession.
By 1990 Maryland courts had decided 17 marital rights cases, invalidating the transfer in just five, which Mr. Sheehan cogently summarized. Knell v. Price, 318 Md. 501 (1990), became a landmark. In Knell, the estranged husband lived with his companion for 27 years. He deeded realty to a strawman, who deeded it back to husband as a tenant with full powers, remainder in fee simple to the companion, and went on living in the house. The court found the transaction “a fraud on the spouse’s marital election right,” relying on the extent of continued “dominion and control” by the husband.
In Karsenty the husband created a revocable trust, retaining lifetime income with a right to invade principal, remainder to a daughter from a prior marriage. He named the trust as beneficiary of two transfer-on-death accounts, retaining the right to change the beneficiary. After surveying two centuries of case law, the Court held that the proper test is not per se "dominion or control," but whether the transfer was a "mere device or contrivance" - whether it was actually intended to change nothing except how property would be disposed of at death. Karsenty harmonized the "net estate" elective share statute with two centuries of common law precedent recognizing a limited right to claw back certain nonprobate transfers where equity demands it. The Court rejected the term "fraud," preferring "violation" or "frustration.”.
Karsenty held, as a threshold matter, there must be retained interest in, or control of, the property at issue. The factors to be weighed include the decedent’s extent of control and motives, the recipient's motives, probate and non-probate arrangements for the surviving spouse and the overall family situation.
Mr. Sheehan, stressing the difficulty of making a successful Karsenty challenge, offered some observations on practical, planning and litigation considerations. A complete conveyance with no retention of incidents of ownership clearly withstands such a claim. Examine the nature of the interest; e.g., even though the owner/insured of a life insurance policy retains incidents of ownership, she will never enjoy its benefits, which would likely protect it from clawback. Do not use property that has been conveyed, nor impoverish the surviving spouse. Consider stating in the transfer documents the (sustainable) reason for the transfer. A lawsuit, he noted, would lie against the property recipient(s), which could mean multiple actions. This provoked a lively debate as to inclusion of the Personal Representative. Mr. Sheehan said such cases present significant discovery problems and all assets are fair game, requiring an experienced litigator.
This article was originally published in the November 2012 issue of The Advocate, a newsletter of the Baltimore County Bar Association.