This office was involved in a case a few years ago in which the Maryland Court of Special Appeals ruled that a Personal Representative (who was not also an estate beneficiary) may not pursue a legal action in Circuit Court without a lawyer. The Appellate Court ruled that doing so constitutes the unauthorized practice of law. The Court ruled also that an estate is not a person who can pursue a legal action “pro se”.

When an individual goes to court without a lawyer, such person is said to be acting “pro se”. Only individuals are allowed to pursue legal actions in court on a pro se basis. Parties who are not individuals, such as corporations, may not do this, but rather, must be represented by a lawyer.

According to the Court of Special Appeals in this unpublished opinion, an estate likewise must have a lawyer to pursue a legal action in Circuit Court.

You may click here to read the case.

Deed to Trust Must Name Trustee
Under current Maryland law, such a deed would be effective to convey the property to the trust. However, at the time the deed was signed, Maryland law required that the trustee of the trust (i.e. an actual person) be listed as the grantee in order for the deed to be effective. Listing the trust itself as grantee without also listing the trustee by name was ineffectual. Consequently the client’s deeds were not effective and there was a “cloud on title”, meaning that the property could not be sold until the problem was resolved.

In this case, because the original deeds to the trusts were not effective, we needed husband and wife to sign confirmatory deeds that included the name of the trustee as grantee. However, because husband had died, he could no longer sign a confirmatory deed. And even though his wife held his power of attorney, a power of attorney is no longer effective when the principal dies.

Ancillary Probate
To complicate matters further, while the real property is located in Maryland, the couple had since moved to another state. Since all of their other property had effectively been conveyed to the trusts, no probate proceeding was necessary in such other state even though their wills were on file with the court in that state.

Typically, in cases were an individual is domiciled in another state and dies owning real property in Maryland, one first opens an estate in the state of residence and then undertakes a streamlined “ancillary administration” in the Maryland probate court.

No Clear Procedure
While our office resolved this matter some time ago, it is evident from inquiries by other probate lawyers in an email discussion forum that some lawyers wonder whether a Maryland probate can be opened to address such an issue if there is no probate in the state of domicile.

In fact, Maryland’s rules of procedure and the statutes addressing the jurisdiction of Maryland’s probate court do allow a family member to open a probate estate in Maryland in such circumstance. On that basis, we were able to have a Personal Representative appointed in Maryland for husband’s estate for the sole purpose of executing the confirmatory deed which wife also signed. In this way, we were able to remove the cloud on title that affected the marketability of the properties.

This is one example of the type of complex situation we are called upon to resolve on behalf of our clients on a day to day basis.

That rule, however has been changed by the Maryland legislature, such change to be effective October 1, 2010. The new legislation changes the Annotated Code of Maryland, Estates and Trusts Section 13–214(c)(3).

After October 1, 2010, the relevant statutory provision will read as follows:

When a minor or disabled person dies, the guardian shall deliver to the appropriate probate court for safekeeping any will of the deceased person in his possession, pay from the [guardianship] estate all commissions, fees, and expenses shown on the court-approved final guardianship account, inform the personal representative or a beneficiary named in [the will] that he has done so, and retain the balance of the estate for delivery to an appointed personal representative of the decedent or other person entitled to it.

In the meantime, the strictures of Battley v. Banks shall apply.

Recently, the Gatesman Law Office had been assisting a family in revising the distribution pattern under their estate plan. Husband and wife each had a revocable trust, which trusts held property in further trust for one of their children after both husband and wife died. The share for their other child was to be given to him outright, free of trust.

However, as time passed, the conditions that prompted the desire to hold property in trust for the couple’s now adult child no longer existed and they were in the process of revising their revocable trusts to eliminate the trust for such adult child.

Then, suddenly and unexpectedly, husband died. As a consequence, husband could no longer amend his revocable trust. While wife, who survived her husband, was now the trustee and beneficiary of husband’s trust, she did not have the power to amend the trust to change how trust assets would be distributed after her death.

Nevertheless, because legal counsel had been working with this family for years and knew the estate planning objectives of both husband and wife, and because husband had been in the process of revising his trust when he died, legal counsel devised a plan to validate that old saw, “there is more than one way to skin a cat.”

The plan worked like this. In addition to amending the distribution of his trust, husband was in the process of changing the designated successor trustees so that his children would serve as such successors. So, legal counsel prepared a contract between wife, acting as Trustee of husband’s trust, and the two children, whereby the two children would agree to serve as successor trustees under the trust should wife cease to serve, in exchange for which, the trust would distribute the property to the children at wife’s death in the manner that husband desired.

Because this was a valid contract, and there was a quid pro quo between the parties, the wife and her children were able to effectively change the distribution pattern in husband’s trust to meet husband’s objectives, even after husband had died. Such method of revising the trust, although unorthodox, is legal and effective.

In this and other ways, the Gatesman Law Office stands ready to provide you with creative solutions to any unusual or unique legal problems you may be facing.

William Gatesman wrote:

One Medicaid asset preservation strategy is to gift assets and wait five years before applying for Medicaid, however, one cannot guarantee donor will not need nursing home care during those five years.

Does anyone see a problem with transferring real property in fee simple, but reserving a right of reversion if within 5 years such transfer would result in Medicaid ineligibility? [Such deed would have to be artfully drafted.]

The effect of such deed would be to make the property non-marketable by the grantees for the five year period. After five years, the reversionary interest will have expired. And if nursing home care is needed within the five year period, the property can be recovered and other planning may be done.

This type of deed would eliminate the risk of Medicaid ineligibility during the five years and not being able to get the property back if necessary.

Another respected Elder Law lawyer responded:

A typically interesting Gatesman plan — but …

My concern would be with illiquidity. What happens if the need for long term care occurs at 55 months? The entire property becomes available even though only five or six months of care have to be paid for. I assume the grantor or agent for the grantor can decide whether to invoke [the right to reacquire the property], or may choose not to do so and pay for care from other resources through to month 61.

OK, but what if long term care is triggered at 45 months — and agent and grantor would both like to borrow against the property rather than liquidate it to pay through to month 60. Would the typical nervous Nelly lender be willing to lend?

Still, on the right facts, sounds pretty interesting.

To which William Gatesman replied:

I suppose the grantees can buy out the reversionary interest using the proceeds from the loan, and that way the lender has only the grantees as holders, no longer encumbered by the reversion, so the loan should not be a problem. And that way the original grantor has the funds to pay for care during the remaining period in the five year term. Better still, he obtained the funds in a transfer for value.

I hadn’t considered this response when I originally floated the idea, which is why I appreciate your observations and the give and take of this forum.

In this way, the Gatesman Law Office strives to promote the evolution of Medicaid asset preservation practice.

Soon after the opinion was issued, this writer posted an article discussing the case, Schoukroun v. Karsenty (Md. App. December 11, 2007), which article you may access by clicking on the case name in this sentence. That article suggests that the court-created augmented estate rule set forth in that opinion might have implications in the Medicaid planning context.

There are other rules that are important for Elder Law Practitioners to bear in mind when considering the implications of Schoukroun.

42 U.S.C. § 1396p, subsection (4) provides the statutory definition of “estate” for recovery purposes under the Federal Medicaid program, as follows:

(4) For purposes of this subsection, the term “estate”, with respect to a deceased individual—

(A) shall include all real and personal property and other assets included within the individual’s estate, as defined for purposes of State probate law; and

(B) may include, at the option of the State . . . any other real and personal property and other assets in which the individual had any legal title or interest at the time of death (to the extent of such interest), including such assets conveyed to a survivor, heir, or assign of the deceased individual through joint tenancy, tenancy in common, survivorship, life estate, living trust, or other arrangement.

Moreover, 42 U.S.C. § 1396p(b)(2) allows for recovery of Medicaid benefits from the estate of a deceased Medicaid recipient only after the death of the Medicaid recipient’s spouse (among other circumstances).

In circumstances where a state may seek recovery from assets passing outside of the decedent’s probate estate for Medicaid purposes, the question arises whether the state would have a right to track the spouse’s assets after the death of the Medicaid recipient in order ultimately to collect from the spouse’s estate.

This issue is addressed in a recent Missouri court case, In the Estate of: Raymond V. Shuh, Deceased, Mo.App. ED89849 (Jan. 29, 2008). That case, the opinion for which you may access by clicking on the case name in this paragraph, reviews the applicable Federal and State rules, and concludes that the Missouri Medicaid program may not ultimately recover from the surviving spouse’s estate for Medicaid benefits paid for the benefit of the first spouse to die.

The Gatesman Law Office assists clients in the appointment of a guardian for persons who become incapacitated and cannot make personal or financial decisions for themselves. Guardians are entitled to be compensated for their services, but they must petition the guardianship court for approval of such compensation.

When the disabled person, called the “ward” of the court, dies, the guardian must prepare a final account of the ward’s assets. That account should include the guardian’s final request for compensation.

Whether the guardian may pay such compensation to himself out of the guardianship assets before the ward’s assets are turned over the personal representative of the ward’s probate estate depended on the county in which the ward resided. The courts in different counties applied different rules.

Now, however, the rule is clear. The Maryland Court of Special Appeals in Robert Battley, Personal Representative of the Estate of Dorothy Battley v. Michael G. Banks, has ruled that as soon as the ward dies, the ward’s assets become the property of the personal representative of the ward’s probate estate, or if none is appointed immediately, that the guardian must hold the property to be transferred to such personal representative when appointed. The guardian may not pay himself compensation for services even after the guardianship court approves such compensation.

Instead, the guardian must make a claim for the court approved compensation in the estate of the deceased ward. Such claim will be subject to the probate rules regarding payment of claims in the event the probate estate is insufficient to pay all claims.

This ruling imposes a uniform rule throughout the state of Maryland, effectively eliminating the differing treatment of the issue by the various local courts throughout Maryland.

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.

When a homeowner executes a deed retaining for himself a life estate, such action will be considered a transfer of resources for Medicaid eligibility purposes. However, the homeowner has not given away the entire property. What the homeowner has given away is a remainder interest, that is, the right to own the property after the homeowner dies.

The value of the transferred remainder interest depends on the age of the homeowner who retains the life estate. Maryland uses a table, Schedule MA-7, to assign value both to the transferred remainder interest and to the retained life estate. You may view that table by clicking here: Life Estate and Remainder Interest Table.

Another lawyer called recently and asked me how to resolve a problem faced by one of his clients. When I told him what to do, he remarked: “You’re making that up!” He was right about my “making that up” because my solution involved employing a fiction to obtain the desired result.

There are two ways an asset preservation planner may use fiction to help a client to qualify for Medicaid benefits. The first is getting a court order nunc pro tunc, and the second is to use a special power of attorney.

When to Employ a Legal Fiction

Sometimes people forget to take all the steps needed to set up their affairs to obtain Medical Assistance benefits. For example, a disabled person under age 65 can put all of her assets into a special type of trust and then qualify for SSI and Medicaid benefits in the following month. If, however, that person fails to transfer all the assets in the first month, there will be no Medicaid eligibility in the second month.

Obtaining a Court Order

In that instance, the individual can go to court in the second month seeking a court order transferring the property into the trust, which transfer by necessity will occur in the second month, but having the court order state that the transfer is nunc pro tunc, which is a Latin phrase meaning “now for then”. The legal effect of such an order is to create the legal fiction that the transfer had occurred in the preceding month.

Fiction to Employ When There is Too Little Time

Other times, an individual may have too little time to transfer assets before the end of the month. For example, if the disabled person under age 65 was prepared to transfer his assets into the special trust discussed above, but there was too little time to do so, he may use a special kind of power of attorney to accomplish the transfer in the first month even though it won’t actually take place until the second month.

Transferring Life Insurance

This often occurs with life insurance. In order to transfer a life insurance policy (which is an asset with value that might cause Medicaid ineligibility), one must obtain a form from the insurance company, fill out and submit the form, and then wait several weeks while the form is processed before the transfer will be effective.

Special Power of Attorney

The tool to create the legal fiction that the transfer in fact occurred in the first month even though the insurance company won’t complete processing the request until the second month is a special power of attorney coupled with an interest.

Coupled with an Interest

A power of attorney coupled with an interest means that the agent under the power of attorney, i.e. the attorney-in-fact, has a legal right to the property that is affected by the power of attorney, and consequently, the power of attorney may not be revoked without the agent’s consent. The special power of attorney should recite that the transfer of the property is effective as of the date the power of attorney is signed.

Power to Indorse Checks

Moreover, the agent should have the express authority to indorse the check if the insurance proceeds will be payed out by check, which indorsement would be “pay to the order of [the trustee of the special trust]“. That way, the funds would go directly to the trustee and not be funneled through the disabled person’s checking account.

Disclosure Required

One important consideration when using any of these strategies is that the nature of the transaction must be fully disclosed to the Medicaid authorities when one presents an application to receive Medical Assistance benefits.

This office has used both of these methods which employ a legal fiction to assist clients in obtaining Medicaid eligibility.