Source: http://fredfranke.com/articles/5-2-disclaimer/
Timestamp: 2017-12-14 17:12:07
Document Index: 716846570

Matched Legal Cases: ['§ 9', '§ 2518', '§ 2518', 'art, 116', '§ 9', '§ 2518', '§ 2518', 'art, 116']

Property Disclaimer | Estate & Trust Attorneys | Annapolis, MD
Under the Maryland Uniform Disclaimer Property Interests Act a person is entitled to disclaim property that would otherwise go to that person by reason of a devise or by reason of titling. Md. Code Ann., Est. & Trusts §§ 9-201 – 9-216. Under the federal Internal Revenue Code, a “qualified disclaimer” will be treated as if the property came directly from the decedent to the person who takes by reason of this disclaimer rather than be viewed as a gift from the person disclaiming. 26 USCS § 2518(b). Obviously, this is a useful tool to enable post-mortem adjustments to estate planning. The pre-October 1, 2004, Maryland law tracked the federal scheme and provided that the disclaimer must be made within nine months after the death of the deceased owner of the property. Now, the Act has no time deadline for an effective disclaimer. To qualify for federal law treatment, however, the time limits under § 2518 must be followed (within nine months with some exceptions). Section 9-202(f) provides that a disclaimer is not a transfer, assignment or release and that “Creditors of the disclaimant have no interest in the property disclaimed.” In Troy v. Hart, 116 Md. App. 468, 697 A.2d 113 (1997), (a case decided before the 2004 Act) the court focused on whether the disclaimant had any rights to the property. In that case, the disclaimant was receiving Medicaid payments and disclaimed property that would otherwise pass to him from his sister’s estate. The court used a public policy approach in analyzing the effect of the disclaimer: “[w]hat is ludicrous, if not repugnant, to public policy is that one who is able to regain the ability to be financially self-sufficient, albeit for a temporary or even brief period of time, may voluntarily relinquish his windfall.” Id. at 478. The court went on to use a New York case to support the proposition that the disclaimer of the asset was “the functional equivalent of a transfer of an asset since by refusing to accept it herself, she effectively funneled it to other familiar distributees.” Id. at 479 (quoting Molloy v. Bane, 214 A.D.2d 171, 175 (N.Y. 1995)). The Maryland Court of Special Appeals ultimately held that the property disclaimed was an available resource for Medicaid purposes and that a constructive trust should be the remedy employed by the courts to convert the holder of the legal title to the property (the person who received the property due to the exercise of the disclaimer) into a trustee. The lesson of Troy v. Hart is probably that the disclaimed property will be seen as an available resource for Medicaid disqualifications purposes. Using a different approach, the Supreme Court of the United States held that a disclaimer would not defeat a tax lien against the disclaimant. See Drye v. United States, 528 U.S. 49 (1999). Specifically, the Court held that the government tax lien attaches to the debtor’s interest in an estate even though it is later disclaimed. The case turned on the broad scope of the definition of property and property rights for tax lien purposes. See id. at 58-59. Generally, state law governs the property rights in federal tax law disputes. Nevertheless, given the Supreme Court case law above, it seems that for federal tax liens, the lien will attach regardless of the Maryland statute.
Under the Maryland Uniform Disclaimer Property Interests Act a person is entitled to disclaim property that would otherwise go to that person by reason of a devise or by reason of titling. Md. Code Ann., Est. & Trusts §§ 9-201 – 9-216. Under the federal Internal Revenue Code, a “qualified disclaimer” will be treated as if the property came directly from the decedent to the person who takes by reason of this disclaimer rather than be viewed as a gift from the person disclaiming. 26 USCS § 2518(b). Obviously, this is a useful tool to enable post-mortem adjustments to estate planning. The pre-October 1, 2004, Maryland law tracked the federal scheme and provided that the disclaimer must be made within nine months after the death of the deceased owner of the property. Now, the Act has no time deadline for an effective disclaimer. To qualify for federal law treatment, however, the time limits under § 2518 must be followed (within nine months with some exceptions).
Section 9-202(f) provides that a disclaimer is not a transfer, assignment or release and that “Creditors of the disclaimant have no interest in the property disclaimed.” In Troy v. Hart, 116 Md. App. 468, 697 A.2d 113 (1997), (a case decided before the 2004 Act) the court focused on whether the disclaimant had any rights to the property. In that case, the disclaimant was receiving Medicaid payments and disclaimed property that would otherwise pass to him from his sister’s estate. The court used a public policy approach in analyzing the effect of the disclaimer: “[w]hat is ludicrous, if not repugnant, to public policy is that one who is able to regain the ability to be financially self-sufficient, albeit for a temporary or even brief period of time, may voluntarily relinquish his windfall.” Id. at 478. The court went on to use a New York case to support the proposition that the disclaimer of the asset was “the functional equivalent of a transfer of an asset since by refusing to accept it herself, she effectively funneled it to other familiar distributees.” Id. at 479 (quoting Molloy v. Bane, 214 A.D.2d 171, 175 (N.Y. 1995)). The Maryland Court of Special Appeals ultimately held that the property disclaimed was an available resource for Medicaid purposes and that a constructive trust should be the remedy employed by the courts to convert the holder of the legal title to the property (the person who received the property due to the exercise of the disclaimer) into a trustee. The lesson of Troy v. Hart is probably that the disclaimed property will be seen as an available resource for Medicaid disqualifications purposes.
Using a different approach, the Supreme Court of the United States held that a disclaimer would not defeat a tax lien against the disclaimant. See Drye v. United States, 528 U.S. 49 (1999). Specifically, the Court held that the government tax lien attaches to the debtor’s interest in an estate even though it is later disclaimed. The case turned on the broad scope of the definition of property and property rights for tax lien purposes. See id. at 58-59.
Generally, state law governs the property rights in federal tax law disputes. Nevertheless, given the Supreme Court case law above, it seems that for federal tax liens, the lien will attach regardless of the Maryland statute.