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One of the things we have not discussed in awhile is the issue of “elective share” here in the State of Maryland. As faithful readers may recall, elective share is the notion that a surviving spouse is automatically entitled to a certain percentage or share of the deceased spouse’s assets. This can be thought of as a “default” share, something which will necessarily or invariably be transferred to surviving spouses in all cases, even if the decedent passed away intestate.
What happens when a settlor spouse transfers property out of his or her will into a revocable trust which has a non-spouse as the beneficiary, and the settlor spouse retains control or dominion over the trust assets even in the event of death? Will such a transfer of assets to a revocable trust be considered a form of per se or automatic fraud against the surviving spouse? This exact issue came up in the case of Karsenty v. Schoukroun (2009), a widely cited case which is considered foundational in modern Maryland estate law.
Let’s review this case in detail.
Facts of the Case
The husband in this case was diagnosed with terminal cancer, and in response he developed a will prior to his death. In addition to the will, he also established an inter vivos revocable trust prior to his passing; he maintained control over the trust assets, and named his daughter from a previous marriage (his current wife’s stepdaughter) as the primary beneficiary. Because the husband transferred substantial assets to this newly created trust, an issue arose as to whether the wife would inherit her full elective share following the husband’s passing. In other words, because enough assets had been transferred to the revocable trust, the wife would inherit a lesser portion of the estate than the elective share ordinarily guarantees, and so the issue of whether she had been effectively defrauded arose.
When the husband ultimately passed away, the wife renounced her claim to the assets which would have been transferred to her through the husband’s will and chose to sue for the full elective share. She argued that the husband’s transfer of the assets to the revocable trust constituted a per se fraud against her elective share.
At the trial court level, the wife lost, as the court ruled that the asset transfer did not constitute either a constructive or actual fraud against the wife’s elective share as the surviving spouse. At the intermediate appellate court level, the wife succeeded as the appellate division overturned the original ruling and held that the wife had in fact been improperly deprived of her full share. The case then went before the state’s highest court.
Ruling & Analysis
At the Supreme Court level, the wife lost as the court determined that what had occurred did not constitute a per se fraud against the wife’s elective share. The wife’s primary argument focused on the control exercised and retained by the husband with respect to the trust assets; in other words, she argued that a “bright line rule” should be invoked which would find the transfers improper because of this level of retained control. The Supreme Court rejected this argument, determining instead that subjective intent (i.e. “intent to defraud”) should instead be the governing principle, and intent is dependent on the various facts and circumstances of each case. Hence, the court’s analysis focused on whether the husband actually intended to deprive his wife of her fair marital share by way of those asset transfers, not on a bright line rule having to do with his level of control over the assets. The case was remanded for further analysis consistent with the court’s opinion.
It is easy to see why this determination was of such importance in Maryland estate law. This subjective “intent to defraud” test provides useful guidance for estate planning attorneys moving forward, and so knowing the essential points of this case is imperative. Now, practitioners have a practical guidepost when assisting clients with the likely implications in this area of estate planning.
Contact the Murphy Law Firm for More Information
Readers who want more resources on surviving spouses, disinherited beneficiaries, the rights of beneficiaries to receive information, the basic structure of wills, or any other estate planning matter, contact one of the estate planning attorneys at the Murphy Law Firm today by calling 240-219-1187.
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