Appeals Court Imposes Augmented Estate Rules

3:13 pm Estate Planning, Medicaid, Technical Articles

Schoukroun v. Karsenty (Md. App. December 11, 2007). A Technical Article for Maryland Elder Law and Estate Planning Attorneys

The Maryland Court of Special Appeals, in a seismic shift to the estates and trusts law of Maryland, issued an opinion on December 11, 2007, imposing augmented estate rules on the State of Maryland. This decision has significant consequences affecting Medicaid asset preservation planners, estate planners, family law practitioners and CPAs.

Prior to this decision, the Maryland legislature, despite years long advocacy by some members of the Estates and Trusts section of the Maryland State Bar Association, refused to add augmented estate rules to the estates and trusts law of Maryland.

Under the statutory law of Maryland, property passing outside of probate, by way of a revocable trust or a transfer on death account, for example, is not included in the probate estate, and more importantly, is not counted when determining whether a disinherited spouse may elect to take some of that property. The statutory right of election enables a disinherited surviving spouse (i.e. one to whom his or her deceased partner leaves nothing in the will) the power to take a specified share of the deceased spouse’s estate notwithstanding the attempt at disinheritance.

In Schoukroun v. Karsenty, et. al., the Court of Special Appeals has ruled, under the theory of fraud on the marital rights, that a surviving spouse may elect to take a portion of, not only property passing under the will in a probate estate, but property passing by means of a revocable trust and property passing through a bank account Transfer on Death (TOD) designation. In essence, the court has imposed an augmented estate regime in Maryland. Under an augmented estate regime, the assets subject to the rights of others allowed by the probate code will include assets passing outside of probate.

The Schoukroun case, by imposing augmented estate rules on revocable trusts and TOD accounts, extends the previous Court of Appeals decision in Knell v. Price, which caused property passing by means of a life estate deed to be available for elective share treatment (at least in certain circumstances if not across the board).

While Schoukroun deals specifically with the issue of a surviving spouse’s right to elect to take a portion of the decedent’s estate, this case may have far reaching consequences, making the standard post Medicaid eligibility spousal protection planning obsolete, for example.

Before Schoukroun, it was standard practice for Medicaid asset preservation planners to recommend that a client whose spouse was in a nursing home and receiving Medicaid benefits set up his or her affairs so that assets passed outside of probate. Otherwise, if that person died before the spouse in the nursing home, the nursing home spouse either must take the elective share and thereby become ineligible for Medicaid, or if the spouse (or an agent of the spouse) did not claim elective share, then Medicaid eligibility was terminated in any event.

The Gatesman Law Office and other elder law practitioners employed strategies to prevent the loss of Medicaid benefits in that event. However, those strategies may no longer succeed in light of the Schoukroun decision. Consequently, the Gatesman Law Office has devised a strategy to overcome the constraints of Schoukroun and allow married couples to obtain the benefits of post eligibility asset preservation planning without having to rely on passing property outside of probate.