Source: https://fredfranke.com/articles/insolvent-estate-select-topics-maryland-perspective/
Timestamp: 2019-04-24 04:10:38+00:00

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The puzzle in the story of the nonprobate revolution is not that transferors should have sought to avoid probate, but rather that other persons whose interests probate was meant to serve-above all, creditors-should have allowed the protections of the probate system to slip away from them. Probate performs three essential functions: (1) making property owned at death marketable again (title-clearing); (2) paying off the decedent’s debts (creditor protection); and (3) implementing the decedent’s donative intent respecting the property that remains once the claims of creditors have been discharged (distribution).
The other set of changes that underlie the nonprobate revolution concerns another great mission of probate: discharging the decedent’s debts. Many of the details of the American probate procedure, as well as much of its larger structure, would not exist but for the need to identify and pay off creditors. These procedures are indispensable, but-and here I am asserting a proposition that has not been adequately understood-only for the most exceptional cases. In general, creditors do not need or use probate.
Professor Langbein’s proposition is that creditors have not been focused on the non-probate revolution, despite its adverse impact on these creditors, because the impact is seen as nominal. Most of the larger creditors look to other security arrangements or payment modalities (mortgage liens or other security arrangements against specific property, life insurance policies backstopping the debt, medical insurance covering most medical expenses, multiple guarantors, etc.). The “smaller” creditors – basically credit card companies – find that moral suasion and/or professional debt collection efforts work well and those creditors are willing to pursue probate estates, showing little interest to date in non-probate transfers. When probate assets exist for the enforcement of creditor rights, of course, that is the simplest collection method because certainty exists as to the procedure. Creditor’s rights to enforce against non-probate assets, on the other hand, depend on the nature of the asset, the law governing the treatment of that asset, and, in many instances, the fraudulent conveyance act.
 John H. Langbein, “The Nonprobate Revolution and the Future of the Law of Succession,” 97 Harv. L. Rev. 1108, 1116 (1984).
 Langbein, supra n.1, at 1120-5.
In the present case there was no execution by the judgment creditor prior to the conveyance by the joint tenants, nor was there any contract of sale or lease by one joint tenant or other action prior to the conveyance of October 5, 1967, by the joint tenants which might possibly result in a severance of the joint tenancy prior to the conveyance. That conveyance, it is true, terminated the joint tenancy, but simultaneously with the conveyance, title to the subject property vested in the grantees in fee simple. There was never a time, therefore, that Otho and William ever held title to the subject property as tenants in common so that there was no estate in the land which Otho, alone, held in severalty to which the lien of a judgment against him alone could attach. Inasmuch as the judgment is not against any of the grantees in the deed of October 5, the judgment lien obviously does not attach to any of their interests in the subject property.
 See generally Fred Franke, “Asset Protection and Tenancy by the Entirety,” 34 ACTEC J. 210, 219-21 (2009).
 253 Md. 525, 253 A.2d. 367 (1969).
 Eastern Shore Building and Loan Corp. v. Bank of Somerset, 253 Md. 525, 253 A.2d. 367 (1969), at 531/370-1. Similarly, in Chambers v. Cardinal, 177 Md. App. 418, 935 A.2d. 502 (2007), the Court of Special Appeals held that a judgment lien that was not executed upon does not attach and therefore a purchaser of the property will held title to the property clear of such lien.
 Thomas R. Andrews, “Creditors’ Rights Against Nonprobate Assets in Washington: Time for Reform,” 65 Wash. L. Rev. 73, 92-3 (1990).
(b) Rights of Creditors. – This title does not limit the rights of creditors of security owners against beneficiaries and other transferees under the laws of this state.
Except as otherwise provided by statute, a transferee of a nonprobate transfer is subject to liability to any probate estate of the decedent for allowed claims against decedent’s probate that estate and statutory allowances to the decedent’s spouse and children to the extent the estate is insufficient to satisfy those claims and allowances. The liability of a nonprobate transferee may not exceed the value of the nonprobate transfers received or controlled by that transferee.
1. Added to the Code in 1998, this section extends protections for family exemption beneficiaries and creditors of decedents to new categories of non-probate transferees of decedents. However, unlike conventional and cumbersome probate protections, the remedy contemplated by this section is to enforce a duty placed on nonprobate transferees to contribute as necessary to satisfy family exemptions and duly allowed creditors’ claims remaining unpaid because of inadequate probate estate values. The maximum liability for a single nonprobate transferee is the value of the transfer. Values are determined under (b) as of the time when the benefits are “received or controlled by the transferee.” This would be the date of the decedent’s death for nonprobate transfers via a revocable trust, and date of receipt for other nonprobate transfers. Two or more transferees are severally liable for proportions of the liability based on the value of transfers received by each.
If there are no probate assets, a creditor or other person seeking to use this section would need to secure appointment of a personal representative to invoke Code procedures for establishing a creditor’s claim as “allowed.” The use of regular probate proceedings as a prerequisite to gaining rights for creditors against nonprobate transferees has been a feature of UPC Article VI since original promulgation in 1969. It works well in practice inasmuch as Article III procedures for opening estates, satisfying probate exemptions, and presenting claims are extremely efficient.
As stated, the Maryland Act does not include a special remedy for creditors on transfer of death accounts. Presumably, such creditors would need to base its claim on the fraudulent conveyance act.
 Estates & Trusts Article § 16-109(b).
 Uniform Nonprobate Transfers on Death Act § 102(b).
Maryland has yet to adopt the Uniform Trust Code and the rule as to the availability of trust assets for probate creditors is unclear. Presumably, creditors would need to rely on the fraudulent conveyance statute to assert a post death claim against the trust or on a theory that creditors are entitled to reach the assets because the settler held a general power of appointment.
Generally, of course, a revocable trust is a completed transfer and upon formation and funding the trustee, not the settler, has a present interest in the property. This would seem to present a barrier to prevailing on the theory that the transfer at death of the assets of a revocable trust constitutes the fraudulent transfer. In a different setting, however, the Court of Appeals treated the revocable trust as a mere will substitute.
A revocable trust, of course, is one where the settler retains the right to revoke – in effect, where the settler retains a general power of appointment. At the moment of death, of course, this power disappears. It is unknown whether a Maryland court would make appointive property subject to probate creditor claims. Generally, “The common law provides that creditors cannot reach appointive property as long as a general power remains unexercised.” Nevertheless, a Massachusetts case uses this theory to hold the assets of the revocable trust liable for probate estate creditors even when that general power is unexercised.
Under the Uniform Trust Code, however, the assets held by a revocable trust would be subject to creditor claims to the extent that the probate asset is inadequate to satisfy such claims, including administrative expenses and statutory shares or allowances. This is a “pure” will substitute approach.
 See Martin J. Placke, “Creditors’ Rights in Nonprobate Assets in Texas,” 42 Baylor L. Rev. 141, 142-9 (1990).
 Karsenty v. Schoukroun, 406 Md. 469, 495, 959 A.2d 1147 (2008), Brown v. Fidelity Trust Co., 126 Md. 175, 94 A. 523 (1915), Brown v. Mercantile Trust & Deposit Co., 87 Md. 377, 40 A. 256 (1898).
 See In re Granwell, 20 N.Y.2d 91, 228 N.E.2d 779, 281 N.Y.S.2d 783 (1967) where the fraudulent transfer act generally applied when the assets held by the decedent in a revocable trust were gratuitously transferred at his demise thereby causing his estate to be insolvent.
 Upman v. Clarke, 359 Md. 32, 48, 753 A.2d 4, 12 (2000)(Holding that the testamentary rule, not the one governing lifetime gifts, applied for the presumption of undue influence when a confidential relationship exists) (“The trust here…is clearly more akin to a testamentary instrument than to an inter vivos gift…”).
 Marie Rolling-Tarbox, “Powers of Appointment Under the Bankruptcy Code: A Focus on General Testamentary Powers,” 72 Iowa L. Rev. 1041, 1046 (1987); John O. Fox, “Estate: A Word To Be Used Cautiously, If At All,” 81 Harv. L. Rev. 992, 1007 (1968) (“Although there are cases to the contrary, as a general rule over which a general power of appointment is exercised may be reached by creditors of the donee of the power, if his or her other assets are insufficient for the payment of his or her debts. But if the surviving spouse (the donee) under a power of appointment fails to exercise the power, her creditors cannot acquire the power to compel its exercise nor can they reach the property covered by the power…”)..
 State St. Bank & Trust Co. v. Reiser, 7 Mass. App. Ct. 633, N.E.2d 768 (1979). This case held that the probate creditors had an equitable right to the property covered by the general power of appointment even though unexercised based on the position of the Restatement of Property § 328 (1940).
By statute, Maryland provides that certain assets are not subject to claims of creditors during the life of the debtor/owner of those assets. These exempt assets would presumably remain exempt upon the death of the debtor. This exception importantly covers 401(k)s, IRAs, etc., life insurance proceeds or proceeds from an annuity contract “on the life of an individual made for the benefit of or assigned to the spouse, child, or dependent relative of the individual … whether or not the right to change named beneficiaries reserved or allowed to the individual.” Additionally, Maryland 529 plans ought to be likewise exempt. In addition, certain joint accounts held by husband and wife even if they are not held tenants by the entirety are exempt from garnishment.
 Courts Article § 11-504(h); In Re Neil Solomon, M.D., 67 F.3d. 1128 (4th Cir. 1995); Rousey v. Jacoway, 544 U.S. 320 (2005).
 Insurance Article § 16-111 (“Proceeds Exempt From Creditors”).
Conveyances made without “fair consideration” if the transferor becomes insolvent due to the transfer or the transferor is placed in the position that he or she will not be able to meet obligations as they come due. Most non-probate maneuvers, of course, do not render the transferor insolvent at the point of transfer. Thus for example if a transferor creates a revocable trust those assets remain the transferor’s assets and reachable by his or her creditors during lifetime. This is true also, of course, with transfer on death accounts and other arrangements of this sort.
Under what circumstances will transfers to APTs be deemed fraudulent under the fraudulent transfer laws? More particularly, if a settler transfers assets to an APT not with a specific creditor in mind, but rather with the general goal of shielding assets from potential future creditors, will the transfer be deemed fraudulent and thus voidable under the UFTA or similar laws? Although the answer to this question is not without doubt, it appears that most courts are unwilling to void transfers whose purpose and effect is to shelter assets from creditors that were unknown at the time of the transfer. Furthermore, the most remote in time the claim of a future creditor, the less likely a court will be to find that an earlier transfer was fraudulent with respect to that creditor. Thus, as long as a person creating an APT does so well in advance of a creditor’s claim, and especially if the creditor was unknown and unforeseeable at the time of the transfer to the trust, it is likely that the transfer will not be deemed fraudulent.  Maryland Uniform Fraudulent Conveyance Act § 15-207. See, the appendix hereto, an overview of the Maryland Act.
 Some transfers could, of course, render the transferor insolvent. This would be true of a transfer of all or most assets to a tenants by the entirety account that would make the assets theoretically “unreachable” by the creditor. Cruickshank-Wallace v. Co. Banking & Trust, Co., 165 Md. App. 300, 885 A.2d 403 (2005). In most instances and for most creditor collections after death establishing a non-probate account does not make the asset unreachable however and would not be the basis for the set aside litigation assuming that the transfer is when the non-probate account is established. Although the creation of a tenants by the entirety account can be a fraudulent conveyance whereas the transfer from an existing tenants by the entirety account to the non-debtor spouse, even on the eve of death, generally should not present a problem. See Watterson v. Edgerly, 40 Md. App. 230 (1979).
 Robert T. Danforth, “Rethinking the Law of Creditors’ Rights in Trusts,” 53 Hastings L.J. 287, 330 (2002).
Before 1998 and the Supreme Court decision of Tulsa Professional Collection Services, Inc. v. Pope, the various states often tied the statute of limitations for claims against the decedent’s estate to the appointment of the Personal Representative or to a notice that the Personal Representative published in a local newspaper. The Supreme Court held that the involvement of the state in the appointment of the Personal Representative was sufficient “state action” to trigger the due process clause of the U.S. Constitution and it struck down this limitation period. Various states changed their statutes (including Maryland) to eliminate the state action. Now the claim period runs from death – regardless of the status of the probate process.
(2) 2 months after the personal representative mails or otherwise delivers to the creditor a copy of a notice in the form required by § 7-103 of this article or other written notice, notifying the creditor that his claim will be barred unless he presents the claim within 2 months from the mailing or other delivery of the notice.
(b) Claim for Slander. – A claim for slander against an estate of a decedent which arose before the death of the decedent is barred even if an action was commenced against and service of process was affected on the decedent before his death.
(c) Conduct of personal representative. – A claim against the estate based on the conduct of or a contract with a personal representative is barred unless an action is commenced against the estate within six months of the date the claim arose.
(d) Liens not affected. – Nothing in this section shall effect or prevent an action or proceeding to enforce a mortgage, pledge, judgment or other lien, or security interest upon property of the estate.
(e) Certain actions for personal injuries and/or damages to property instituted before death. – If the decedent had been duly served with process before his death, nothing in this section shall affect an action for injuries to the person and/or damage to property which was commenced against the decedent.
In order to establish timely notices of their claims under § § 8-103 and 8-104, plaintiffs only need show “substantial compliance” with those statutory requirements. See Lampton v. LaHood, 94 Md. App. 461, 469, 617 A2d 1142 (1993); Lowery v. Hairston, 73 Md. App. 189, 197, 533 A.2d 922 (1987). The Court of Special Appeals of Maryland in Lowery specifically referred to the “forms of presentment” of a claim delineated in § 8-104(b) as “permissive and not mandatory in nature” and reiterated that, even if a claimant fails to comply with the section, such failure “‘may be a basis for disallowance of a claim in the discretion of the court.'” Lowery, 73 Md. App. at 197 n.2, 533 A.2d 922 (quoting § 8-104(b)) (alteration in original).
Where the claim is for the payment of money, that necessarily implies some statement of, or method of calculating, the amount being sought…. Section 8-103, read in conjunction with § 8-104, requires that the claim directed to be presented within the six-month period be sufficiently clear and certain as fairly to apprise the personal representative of what the claimant is seeking…. The personal representative cannot be left to guess what kinds of specific claims might eventually spring forth from … [a general] prayer [for relief] at one or more points in the future.
As with any other statute of limitations, a personal representative may be estopped from using it under certain circumstances.
 Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478 (1988).
 The Pope decision involves a curious creditor – the creditor was the medical facility where Mr. Pope died. Presumably, it was aware of his death and was not prejudiced by the notice requirement. Pope has been criticized as a misreading of the “state action” requirement. Sarajane Love, “Estate Creditors, the Constitution, and the Uniform Probate Code,” 30 U. Rich. L. Rev. 411 (1996).
 Est. & Trusts Article § 8-103(a). Note that the statute bars claims “unless a contrary intent is expressly indicated in the will.” Est. & Trusts Article § 8-102(a). Thus, wills should provide that only “legally enforceable” debts, or the like, are to be paid.
 Est. & Trusts Article § 8-104.
 Chamberlin v. Carter, 835 F.Supp. 869, 874-5 (1993).
 Ohio Cas. Ins. Co. v. Hallowell, 94 Md. App. 449, 617 A.2d. 1134 (1993) (by agreement); Chamberlin v. Carter, 835 F.Supp. 869, 874-5 (1993)(by estoppel).
Claims by the federal government may, of course, trump the state statutory formulation.
 Est. & Trusts Article § 8-105.
The claims statutes do not affect actions or proceedings to by secured creditors to enforce mortgages or other liens that are in place at death. Indeed, the limitation on the presentment of claims statute specifically exempts the enforcement of liens. Also, the prohibition against execution or levy against probate estate property does not extend to the enforcement of pre-death liens. Thus, to the extent a secured creditor has sufficient security, the enforcement of such secured creditor’s claim may be made independent of the probate process.
The Court of Appeals recently clarified that a post-death judgment lien is not afforded the special treatment given to pre-death liens and, in fact, does not create any special status in a decedent’s estate. In that case, a former wife received the marital award before the death of her husband and she was also entitled to receive one-half of the proceeds of the sale of the marital home. The sale of the home never took place but the divorce, of course, converted the holding from by the entireties to in common. The former wife did not reduce her award to a judgment or record it as a judgment lien. Having remarried, the former husband died with only his one-half tenant in common interest in the marital home in his probate estate. Thereupon, the former wife reduced her martial award to a money judgment and recorded it in the county where the property was located.
The Commission (the “Henderson Commission”) has rejected the concept … that title to all property passes directly to the heirs or legatees, subject to the power or control over the property by the personal representative. The Commission felt that this dichotomy between title, on the one hand, and power, on the other, is unworkably vague and unnecessarily inconvenient. On the contrary, the Commission recommends the suggested wording of Section 1-301 in order to make it clear that the title to all property both real and personal, and as to both testate and intestate estates, shall pass directly to the personal representative.
We conclude that the judgment obtained and recorded as a lien against Beales Trail after Mr. Elder’s death based upon a marital award against him two years prior to his death, is not afforded priority under the statutory scheme embodied in the Estates and Trusts Article, because title to real property passes out of a decedent’s hands after death.
Thus, the remedy of a creditor will fall exclusively to the probate claim process unless such creditor is a secured creditor prior to the decedent’s death.
Section 8-111 provides that secured creditors may look to the probate estate for collection. This statute, however, does not require an election of remedies. Instead, it permits a secured creditor three options if it wants to seek payment through the regular probate process: (a) release the lien and become an unsecured creditor in the full amount of its debt (losing, however, any priority in a specific asset and being lumped in with all other general estate creditors), (b) foreclose on the security and receive the deficiency to the extent it has an allowed claim, or (c) receive the difference between the value of the security (as determined by agreement or by the Orphans Court) and the allowed claim. These options require the filing of a claim or protective claim but the filing of such a claim does not waive a creditor’s rights to its security. If a secured creditor, however, wants to seek to redress a deficiency judgment against the estate, that creditor must file a claim, or protective claim, within the statutory period. This may become a more common practice given the sharp decline in property values, especially in beach or vacation home properties. In order to foreclose on its security, however, a secured creditor need not file a claim.
 Est. & Trusts Article § 8-103(d).
 Est. & Trusts Article § 8-114 (b).
 Courts & Judicial Proceedings Article § 11-402 provides that a judgment becomes a lien on all real property of the debtor upon entry if indexed and recorded for property located within that county and upon indexing and recordation in other counties. A judgment, regardless of whether indexed and recorded, does not generally constitute a lien on personal property until execution thereon.
 Elder v. Smith, 412 Md. 288, 987 A.2d 36 (2010).
 A marital award is held, in Maryland, not to be the equivalent to a judgment and it is not an interest in the other spouse’s property. Herget v. Herget, 319 Md. 466, 471, 573 A.2d 798,800 (1990) (“The court may…enter a monetary award against one party and against the other when that action is appropriate to adjust an inequity that would otherwise result from distribution, strictly in accordance with title, of property qualifying as ‘marital property.’ To the extent a monetary award is immediately due and owing, the court may enter a judgment reflecting it, thereby subjecting the property of the indebted party to lien and execution.”).
 Elder v. Smith, 412 Md. 218, 305, 987 A.2d. 36 (2010). In Elder, the Orphans’ Court had also ordered to the former spouse to release her lien from the property to permit the property to be sold to a third party. The Court of Appeals held that the Orphans’ Court did not have such jurisdiction and that only a Circuit Court could effectuate such relief because of the limited jurisdiction of the Orphans’ Court.

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