Source: http://fredfranke.com/heirs-legatees-related-issues-judicial-institute-maryland-2013/
Timestamp: 2017-10-18 05:44:15
Document Index: 507166658

Matched Legal Cases: ['§ 8', '§ 3', '§ 2518', '§ 2518', '§ 9', '§ 2518', '§ 9', '§ 9', '§ 9', '§ 1', 'art, 116', '§ 4', '§ 5', '§ 2', '§ 5', '§ 2', '§ 14', '§ 4']

Heirs, Legatees & Related Issues – Judicial Institute of Maryland (2013) - Law Office of Frederick R. Franke, Jr. LLC
Heirs, Legatees & Related Issues – Judicial Institute of Maryland (2013)
THE SLAYER’S RULE
1.1 Introduction. The Slayer’s Rule arose from common law based on the principle that one should not profit from his or her wrongful act. Although fairly straightforward in theory, the operation and effect of the Slayer’s Rule has not been easy to implement.
The vast majority of jurisdictions have a statutory Slayer’s Rule. The Restatement (Third) Prop.: Wills and other Donative Transfers § 8.4 (2003) (hereafter the “Restatement Third”) counts 46 such statutes. Historically, Maryland has relied upon the common law for its rule.
1.2 Background – the Common Law: the Nature of the Act. Under the common law in Maryland, a person was disqualified to inherit if he or she “feloniously” kills the person from whom he or she would otherwise inherit. Not all killings trigger the rule. Thus, a husband who killed his wife through gross negligence could inherit. Schifanelli v. Wallace, 271 Md. 177, 315 A.2d 513 (1974).
1.3 Background – the Common Law: The Operation of the Slayer’s Rule. Obviously, the slayer does not inherit. Who, however, does inherit? Under the common law, two basic approaches were recognized. One approach imposed the disqualification to the slayer but permitted the moral intestacy statutes to operate. The other approach, which Maryland adopted, precluded the slayer and his or her heirs and personal representatives from taking. In Price v. Hitaffer, 164 Md. 505, 165 A.2d 470 (1933) a husband murdered his wife and then committed suicide. The wife died childless. The issue was whether the husband’s sister and brother inherited the husband’s one-half of the estate. The Court of Appeals held that the act of murder meant that the husband never acquired an interest in his wife’s estate. Thus, her entire estate went to her parents. [Not incidentally, this holding side-stepped the issue of the Maryland constitutional (and statutory) prohibition against “corruption of blood” and forfeiture by conviction of a felony because the husband never acquired an interest to forfeit.]
CODIFICATION OF SLAYER’S RULE
2.1 The Codification in General. In 2013, the Maryland General Assembly considered a Bill to codify the Slayer’s Rule. Basically, it followed the Uniform Probate Code model to treat the slayer as having disclaimed his or her intestate share or bequest under a Will or Trust.
For intestacy, it would effectively reverse the holding of Cook v. Grierson. If the Bill controlled, the son would have been treated as disclaiming his intestate share and that share would pass to the grandchildren. The widow would receive her share ($15,000 plus 1/3) per the statute (§ 3-102).
2.2 Codification of the Slayer’s Rule. As these materials were being prepared, the outcome of the Bill is not known.
2.3 Codification and Joint Property. The Maryland proposal if adopted, would terminate any survivorship provisions for joint property held by the decedent and the slayer (“severed at the time of the death”). This proposal states that the property then passes as if the decedent and the slayer have no rights of survivorship. The Uniform Probate Code version states that such property reverts to being held equally as tenants in common. Comments to that Act, however, point to a change between the pre- and post-1990 versions of the UPC. The current version excludes joint and multiple bank accounts and other forms of co-ownership with rights of survivorship from inclusion in this provision. Those accounts are treated as giving the slayer a general or non-general power of appointment that is revoked by the felonious killing. The effect of this decision is that the underlying ownership of each party is in proportion to that party’s contribution to the account. By using disclaimer treatment generally, the Maryland rule would arguably yield the same result.
3.1 Introduction. A disclaimer is a refusal to accept property otherwise passing to you by intestacy, by Will or by non-probate transfer. Generally (with one exception described below) the disclaimer makes the property pass directly from the original transferor to the person who would receive the property if the disclaimant had predeceased the transferor. It does not mean that the transferee/disclaimant is making the transfer.
3.2 Effective October 1, 2004, Maryland adopted the Uniform Disclaimer of Property Interests Act (“MUDOPIA”). It largely tracks the uniform act promulgated by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) in 1999, as amended in 2002. The uniform act “was drafted to allow the full range of disclaimers recognized under the Internal Revenue Service Code (“IRC)” Section 2518.” William P. LaPiana, “Some Property Law Issues in the Land of Disclaimers,” 38 Real Prop. Prob. & Tr. J., 207, 209 (Summer 2002) (hereinafter “LaPiana”).
3.2.1 Although designed to take advantage of all of the possibilities under IRC § 2518, it purposefully “decoupled” the statute from the nine-month requirement of IRC § 2518 and, of course, prior Maryland law. See Md. Code Ann., Est. & Trusts § 9-202 of the pre-October 1, 2004 statute. The decoupling was “designed to reduce confusion” by signaling that a tax qualified disclaimer had to qualify under the § 2518 rules which, in the case of disclaimers of future interests, had to be made within nine months of the creation of the interest. The earlier versions of the uniform acts (including Est. & Trusts § 9-202) authorized disclaimers within nine months of when the contingent interest was finally ascertained and the disclaimant’s right to possession or enjoyment became indefeasibly vested. “The removal of all mention of time limits will clearly signal the practitioner that the requirements for a tax qualified disclaimer are set by different law.” Comment, Prefatory Note, UDOPIA (2002).
3.2.1.1 Other than for federal tax liens[1], a disclaimer is not a transfer for fraudulent conveyance purposes in most jurisdictions. Essen v. Gilmore, 607 N.W.2d 829, 835 (Neb. 2000) (“A review of the jurisprudence of other states shows that it is the majority view that a renunciation under the applicable state probate code is not treated as a fraudulent transfer of assets under the Uniform Fraudulent Transfer Act (“UFTA”), and creditors of the person making the renunciation cannot claim any rights to the renounced property in the absence of an express statutory provision to the contrary.”). Also see, Pauw v. Agee, 2000 U.S. Dist. LEXIS 22323 (U.S. Dist. Ct. for S.C. 2000), which permitted a debtor to disclaim his inheritance then rent the property back from his brother who received the property due to the operation of the disclaimer: “This view (that a disclaimer will defeat the judgment against the debtor/disclaimant) corresponds with the majority view that a creditor cannot prevent a debtor from disclaiming an inheritance.” Id. at 19.
3.2.1.2 One court permitted a creditor’s lien to bar the disclaimer because the property was encumbered before the decedent’s death. That decision, Pennington v. Bigham, 512 So. 2d 1344 (Ala. 1987), turned on the direct interest an heir has in estate property. In Alabama, as in Maryland, for decedents dying before January 1, 1970, real estate directly passes to intestate heirs. “When John Thomas Bigham died intestate …, the legal title to a one-half interest in his real property vested in Bobby Bigham (the disclaimant); however, it vested subject to the statutory power of the administratrix to take possession of it and obtain an order to have it sold for payment of the debts of his father’s estate.” Pennington at 1345-46. In Pennington, a judgment creditor had perfected her lien against all of the disclaimant’s property before the disclaimant’s father died. Thus, the lien acted as an encumbrance of the disclaimant’s share. The Supreme Court of Alabama held that a disclaimer after the lien attached under the circumstances of that case constituted a fraudulent conveyance.
3.2.1.3 There is no decision in Maryland (other than for Medicaid purposes, discussed below) that addresses the operation of the “relation back” provision under prior law, or the “not a transfer, assignment, or release” provisions under the current act. MUDOPIA § 9-203(f)(1); prior act § 9-205; Comment, Section 5, UDOPIA: “Subsection (f) restates the long standing rule that a disclaimer is a true refusal to accept and not an act by which the disclaimant transfers, assigns, or releases the disclaimed interest. This subsection states the effect and meaning of the traditional ‘relation back’ doctrine of prior Acts.”
3.2.2 Like in Pennington, Maryland has a provision barring disclaimers if the property to be disclaimed is encumbered.[2] Unlike Pennington, Md. Code Ann., Est. & Trusts § 1-301(a) reversed the common law rule passing real property directly to the heirs by providing that: “All property of a decedent shall be subject to the estates of decedent’s law, and upon the person’s death shall pass directly to the personal representative, who shall hold legal title for administration and distribution, without any distinction, preference, or priority between real and personal property.” This is the Maryland rule for all decedents dying on or after January 1, 1970. An existing lien operating against the disclaimant of a Maryland estate would therefore not attach to the disclaimed property unless the property was actually distributed to him/her.
3.2.2.1 Perhaps more telling, however, is the language of the Maryland statute under the current act and its predecessor. Section 9-202(f)(2) of the MUDOPIA states: “Creditors of the disclaimant have no interest in the property disclaimed.” This comports with the prior statute: “Creditors of the disclaimant have no interest in the property or interest disclaimed, whether their claims are based on contract, tort, tax obligations, or otherwise.”
3.3 In a MUDOPIA case, the Court of Special Appeals looked at the propriety of a Medicaid recipient disclaiming an intestate share of an estate. In Troy v. Hart, 116 Md. App. 468, 697 A.2d 113 (1997), cert. denied, 347 Md. 255, 700 A.2d 1215 (1997), the Court first looked at whether excepting benefits after receiving Medicaid benefits constituted “an assignment, conveyance, voluntary encumbrance … ” under the statute. The Court held that a disclaimer was not barred by that Section due to the disclaimant receiving Medicaid payments. The Court held that the disclaimer of benefits, however, would disqualify the disclaimant for Medicaid payments because those assets, in effect, constituted an available resource:
3.3.1 Presumably, to the extent it is still good law under the new statute, Troy v. Hart carves out a narrow exception to the provision that creditors have no interest in the property disclaimed. Generally, the Medicaid override is a policy trumping of the statute. Comment to UDOPIA (at Section 13):
ANTI-LAPSE, VOID AND INOPERABLE LEGACIES
4.1 The common law is grounded on the principal that property cannot be transferred to a deceased person:
The Maryland statute reverses the rule at common law. Md. Code Ann., Est. & Trusts § 4-403. Apparently, this reversal is different from most other state statutes which, rather than simply reversing the common law, re-direct the property to specific classes of substantive takers:
Restatement (Third) of Prop.: Wills and Other Donative Transfers § 5.5 cmt. b.
Unif. Prob. Code § 2-603(b)(3) cmt.
Restatement (Third) of Prop.: Wills and Other Donative Transfers § 5.5 cmt. h.
The Unif. Probate Code § 2-603b(3) states that terms of survivorship (e.g., “if he survives me” or “my surviving children”) are not sufficient indication of intent contrary to the application of the anti-lapse statute in the absence of additional evidence of contrary intent, The rationale for this approach parallels that of the Restatement cited above. Conversely, Maryland case law has found that survivorship language constitutes express indication of contrary intent.
Like the majority of statutes governing wills in the Md. Code Ann., Est. & Trusts Article, the anti-lapse statute does not apply to trusts. See Md. Code Ann., Est. & Trusts § 14-102.
Section 4-404 provides that a void or inoperable legacy not covered by the anti-lapse statute is treated as if the legacy had not existed. A void legacy would be one to a person dead at the time of the execution of the Will and an inoperable legacy would be one conditioned on survivorship with no alternative legatee provided.
5.1 Under the common law, no living person having an heir (therefore no heir) could be seen as having a property interest in an inheritance. Thus, under common law, expectancies could not be transferred. A purported transfer of an expectancy, however, can be enforced in equity if it is for adequate consideration. Keyes v. Keyes, 148 Md. 397, 129 A. 504 (1925). Keyes notes that a transfer of an expectancy, if supported by consideration, is particularly valid as part of a family settlement.
6.1 An agreement among all of the beneficiaries, all of whom are competent, is valid and not subject to approval of the Orphans’ Court. Brewer v. Brewer, 386 Md. 183, 872 A.2d 48 (2005) (An appeal upholding the opinion of the Orphans’ Court for Baltimore County). Brewer held, however, that such agreement should be filed in the estate proceedings for chain of title purposes.
7.1 Md. Code Ann., Est. & Trusts Article § 4-413 contains a statutory restriction on the use of in terrorem clauses: “If probable cause exists for instituting proceedings, a provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings related to the estate is void.” From a practical standpoint, an in terrorem clause is only an effective deterrent if the potential challenger is left a substantial bequest. If the potential challenger is left, for example, $10.00 then he or she would only default $10.00 for bringing suit. Therefore, if one is relying on the in terrorem clause to discourage lawsuits it is usually (and ironically) better to leave a substantial bequest to be forfeited.
[1] The U.S. Supreme Court has held that a disclaimer is not effective to effectuate a transfer of property free of a federal tax lien in place against the disclaimant. Drye v. United States, 528 U.S. 49 (1999). Drye should only apply to federal tax liens. See pages 215-216 of the attached article.
[2] As noted, however, the newer uniform act added voluntarily to the bar.