Gen. 253] 253

TAXATION

INHERITANCE TAX ) DEDUCTION OF EXPENSES FROM NONPROBATE TRUST ESTATES

February 21, 1996

The Honorable W. Patricia Dauenhauer

Register of Wills for Montgomery County

You have requested our opinion whether certain expenses are

deductible from non-probate estates in determining the value of the

estate for inheritance tax purposes. More specifically, you asked

about the continuing validity of a prior Attorney General’s opinion,

44 Opinions of the Attorney General 337 (1959), in which this

Office opined that expenses ordinarily deductible from probate

estates are deductible from non-probate trust estates when the trust

instrument expressly so provides. 

Our opinion is that the conclusion in the 1959 opinion remains

valid. At the same time, we acknowledge that this conclusion leads

to inconsistent treatment of probate and non-probate estates in

certain respects. Further, this conclusion results in a potential loss

of State revenue. Whether these problems suggest the need for

legislative change is a policy issue meriting careful study.

I

Background

A. General Scope of Inheritance Tax

The Maryland inheritance tax is imposed on the privilege of

receiving property that passes from a decedent and has a taxable

situs in this State. Section 7-202 of the Tax-General (“TG”) Article,

Maryland Code. The tax applies to probate and non-probate

property alike and is imposed on the “clear value” of the property

passing. TG §7-204. “Clear value” is defined in TG §7-204(a) as

“the fair market value minus expenses.” The term “expenses” is not

defined.
254 [81 Op. Att’y

1

 Prior to 1941, a long line of Attorney General opinions concluded,

in instances involving joint bank accounts, that funeral expenses and debts

of the decedent could be deducted from the account balance passing to the

surviving owner if the existence of a parole trust on the account for

payment of such expenses was established as a matter of fact. See 21

Opinions of the Attorney General 765 (1936); 22 Opinions of the Attorney

General 719 (1937); 23 Opinions of the Attorney General 589 (1938); 24

Opinions of the Attorney General 837 (1939). However, these opinions

were effectively overruled with the passage of Chapter 790 of the Laws

of Maryland 1941; this enactment, now codified at TG §7-201(d)(2),

provided that the written form of title of the account is controlling,

notwithstanding a parole agreement to the contrary. See 26 Opinions of

the Attorney General 475 (1941).

B. The 1959 Opinion

In 44 Opinions of the Attorney General 337, Attorney General

 Sybert was asked whether certain expenses ordinarily deductible

from a decedent’s probate estate could be deducted from a nonprobate trust. The trust instrument addressed in the 1959 opinion

expressly provided for the trustee to pay the following: debts of the

decedent that the trustee concluded to be valid; the expenses of the

decedent’s last illness and burial; all inheritance and succession

taxes; reasonable compensation to the trustee; and all costs,

expenses, and attorneys’ fees. The decedent’s probate estate was

insufficient to pay all of the traditional debts and expenses of

administration.

The 1959 opinion concluded that such expenses were

deductible from a non-probate trust in calculating inheritance tax.

This conclusion reflects an unelaborated application of the reasoning

of prior opinions that dealt with application of a parole trust for

payment of funeral expenses and debts from joint tenancy property.1

These earlier opinions relied on the equitable argument that since the

expenses would be deductible if there were a probate estate, there

appeared to be no good reason to apply a different rule if the

expenses were to be paid out of non-probate assets. See, e.g., 22

Opinions of the Attorney General 719, 720 (1937). 

These opinions are thinly reasoned at best. If the issue were

newly presented, we might have reached a different result. Yet,

“[w]e do not overrule a prior opinion simply because we might have

resolved a close question the other way, were we first presented with

it.” 72 Opinions of the Attorney General 200, 202 (1987). In this
Gen. 253] 255

instance, as we explain in Part II below, the conclusion in the 1959

opinion is bolstered by subsequent legislative acquiescence. 

II

Legislative Acquiescence

At the time of the 1959 opinion, the inheritance tax was

codified in various sections of former Article 81. For example, the

tax on collaterals was 7.5 percent “of the clear value of any and all

property ... passing at the death of any ... decedent ....” Former

Article 81, §150.

Between 1959 and a major recodification in 1988, the

inheritance tax was the subject of periodic legislative attention. For

example, the General Assembly amended former Article 81, §150 a

half-dozen times. Yet the General Assembly left undisturbed the

Attorney General’s 1959 interpretation. 

In Chapter 2 of the Laws of Maryland 1988, the General

Assembly recodified the inheritance tax as TG Title 7, Subtitle 2.

As before, the recodified statute imposed the tax on the “clear value”

of property. TG §7-204(b) and (c). The term “clear value” was

defined as “fair market value minus expenses.” TG §7-204(a). The

Revisor’s Note following TG §7-204 indicates that subsection (a) is

new language added to clarify the term of art “clear value” and

refers to Bouse v. Hutzler, 180 Md. 682, 686, 26 A. 2d 767 (1942)

“[f]or a discussion of ‘clear value.’” 

While the term “clear value” is defined in the statute and

discussed in the cited case, the General Assembly did not separately

define the term “expenses” as used in TG §7-204(a). In other words,

the General Assembly did not take the occasion to change the

interpretation of “expenses” in the 1959 opinion.

Nor has the Court of Appeals done so in the exercise of its

rule-making authority. The reference to “expenses,” without

definition or discussion, has been carried over into the Application

to Fix Inheritance Tax on Non-probate Asset set forth in Rule 6-405,

adopted by the Court of Appeals by order dated June 28, 1990. 

Although opinions of the Attorney General are non-binding

interpretations of the law, the General Assembly is deemed to be
256 [81 Op. Att’y

2

 Costs and expenses of administration include such items as

appraisers’ fees under ET §7-202(d).

aware of the opinions when enacting subsequent revisions or

recodifications. The General Assembly, observed the Court in State

v. Crescent Cities Jaycees, 330 Md. 460, 470, 624 A.2d 955 (1993),

“is presumed to have known of the Attorney General’s statutory

interpretation and to have acquiesced in that construction absent

change in the statutory language ....” This rule of construction

applies to the term “expenses,” as used in the statutory definition of

“clear value.” In light of the legislative acquiescence, the term

“expenses” is best construed as including the expenses that 44

Opinions of the Attorney General 337 opined are deductible from

non-probate assets.

III

Deductible Expenses

The Estates and Trusts (“ET”) Article contains several

provisions governing debts and expenses that are deductible from

probate assets. Under ET §8-105, which establishes a priority of

payment if the estate assets are insufficient to cover all obligations,

the allowable expenses are itemized as follows:

(1) Fees due to the register;

(2) Costs and expenses of administration;[2]

(3) Funeral expenses as provided in [ET] §8-

106 ...; 

(4) Compensation of personal representative

as provided in [ET] §7-601 ..., for legal

services as provided in [ET] §7-602 ... , and

commissions of licensed real estate brokers;

(5) Family allowance as provided in [ET]

§3-201 ...; 

(6) Taxes due by decedent;
Gen. 253] 257

(7) Reasonable medical, hospital, and nursing

expenses of the last illness of decedent;

(8) Rent payable by decedent for not more

than three months in arrears;

(9) Wages, salaries, or commissions for

services performed for the decedent within

three months prior to death of the decedent;

(10) Old age assistance claims under Article

88A, §77 of the Code; and

(11) All other claims.

Under ET §7-304, all these expenses are chargeable against the

principal of the estate. 

These provisions in the Estates and Trust Article apply to the

administration of probate estates, not to non-probate estates; the

provisions of the Tax-General Article applicable to the imposition

of inheritance tax on non-probate assets do not expressly refer to

these deductions. However, as stated in Part II above, the term

“expenses” as used in TG §7-204(a) and Rule 6-405 is deemed to

include these obligations. 

IV

Inconsistencies and Potential Revenue Loss

Application of the deductions to non-probate assets, for

purposes of determining clear value for imposition of inheritance

tax, causes certain inconsistencies in treatment and a potential

reduction in the amount of tax imposed. In identifying the problems,

however, we do not wish to be understood as commenting on

whether the result is wise as a matter of public policy. That issue

must be left to the General Assembly, which has authority to set the

public policy with regard to the imposition of taxes and the

applicable deductions.

One inconsistency relates to the reasonableness of the amount

of the expenses deducted. With respect to the expenses deducted

from probate estates, the court has authority to determine the
258 [81 Op. Att’y

3

 While TG §7-225(a) requires property (probate or non-probate) to

(continued...)

reasonableness of the amount of certain costs and fees. For example,

the court has authority to determine reasonableness of appraisal fees,

ET §7-202(d); funeral expenses, ET §8-106(b); compensation of the

personal representative, ET §7-601(b); and attorney’s fees, ET §7-

602. Moreover, the court has authority in the context of the probate

estate to determine the reasonableness of the aggregate

compensation paid to the personal representative and attorney. ET

§7-602(c). 

The court does not have concomitant authority to determine the

reasonableness of the amount of the expenses deducted from the

value of non-probate estates for purposes of imposing inheritance

tax. Thus, funeral expenses, attorney’s fees, and the like, in amounts

not checked for reasonableness, may be deducted from the fair

market value of non-probate assets to determine clear value for

imposition of inheritance tax. This results in disparate treatment

between probate and non-probate estates and potentially reduces the

amount of tax imposed on the non-probate assets.

Additionally, while costs incurred after the death of the

decedent to maintain the probate assets during administration of the

estate are deductible expenses of administration, thereby reducing

the “clear value” of the assets for purposes of imposing inheritance

tax, that reduction in clear value may be offset by a revision in the

appraised value of the assets if there is a significant increase in the

fair market value of the assets during administration. The law

expressly allows probate assets to be revalued, if appropriate, at any

time before the estate is closed. ET §7-204. See Downs v. Safe

Deposit & Trust Co., 164 Md. 293, 300, 164 A. 874 (1933); Bouse

v. Hull, 168 Md. 1, 8, 176 A. 645 (1935); 51 Opinions of the

Attorney General 198, 199-200 (1966). This is so because probate

assets pass to the personal representative upon the decedent’s death,

pursuant to ET §1-301; they do not pass to the legatee or devisee

until distribution by the personal representative. For that reason, the

law requires the inheritance tax to be determined and paid when the

personal representative accounts for and distributes the assets. TG

§7-217(a). 

By contrast, there is no provision for revaluation of nonprobate assets.3

 This is so because non-probate assets vest in
Gen. 253] 259

3

 (...continued)

be “appraised in the manner provided in Title 7, Subtitle 2 of the Estates

and Trusts Article,” this language does not make the revision of value

provision in TG §7-204 of that subtitle applicable to non-probate assets.

The language itself refers only to “appraisal” and does not refer to

“revision of value” or reappraisal. Moreover, the Revisor’s Note

accompanying TG §7-225(a) states that subsection (a) “is new language

derived without substantive change from the first sentence of former

Article 81, §169(b).” The former law simply provided that the nonprobate property reported in the inventory was to be appraised for the

purpose of determining the amount of tax then due and payable; the

former law did not provide for reevaluation.

4

 “Vest in possession” is a term of art referring to the vesting of the

right to receive, not actual receipt of the property. See Polhaus v. Register

of Wills, 248 Md. 625, 630-31, 238 A.2d 91 (1968); Shaughnessy v.

Perlman, 198 Md. 619, 85 A.2d 38 (1951); Lilly v. State, 156 Md. 94, 143

A.2d 661 (1928); 40 Opinions of the Attorney General 501, 504 (1955);

25 Opinions of the Attorney General 625, 628 (1940); 21 Opinions of the

Attorney General 720, 721 (1936). 

possession in the beneficiary at the time of the decedent’s death.4

The “clear value” for inheritance tax purposes and the responsibility

for payment of the tax are fixed when the appraisal is made and the

register determines the amount of tax due. TG §7-217(b); Mercantile

Safe Deposit & Trust Co. v. State ex rel. Shaughnessy, 264 Md. 455,

287 A.2d 502 (1972). Therefore, there is no possibility of offsetting

the reduction in clear value that results in the deduction of expenses

of administration, even when those expenditures may result in an

increase in the fair market value of the assets.

Another inconsistency arises with respect to the compensation

to the register of wills for the work of reviewing documentation

submitted to support the expenses deducted. Under ET §2-206, the

register is entitled to fees for the work performed in connection with

the administration of probate estates. There is no provision for

compensation to the register for the work performed under TG §7-

214 in determining the amount of inheritance tax due in connection

with non-probate assets. Were the determination limited to

reviewing the inventory and appraisal, the amount of uncompensated

work would not be great. However, when determination of the tax

requires review of documentation supporting a myriad of expenses

that are being deducted from the appraised value to ascertain clear

value, the amount of uncompensated work becomes substantial. An
260 [81 Op. Att’y

increase in use of inter vivos trusts has necessitated the hiring of

additional personnel in the register’s office.

V

Conclusion

In summary, it is our opinion that expenses ordinarily

deductible from probate assets to determine clear value for

imposition of inheritance tax are likewise deductible from nonprobate assets when the instrument creating the non-probate estate

expressly provides for the payment of such expenses. We adhere to

the conclusion to that effect in 44 Opinions of the Attorney General

337. Any inconsistencies or effect on tax revenue resulting from

application of the deductions to non-probate property are issues for

the General Assembly to address.

J. Joseph Curran, Jr.

Attorney General

Susan P. Whiteford

Assistant Attorney General

Julia M. Freit

Assistant Attorney General

Jack Schwartz

Chief Counsel

Opinions and Advice