Opinion ID: 2300977
Heading Depth: 1
Heading Rank: 2

Heading: The Meaning of Enforceable Claims

Text: The amount of Nassif's statutory share depends on the meaning of the statutory term enforceable claims in Section 1-101(n). This is because a spouse's statutory share is one third of the net net estate, which is calculated after all enforceable claims are deducted from the gross estate. See Sections 1-101(n), 3-203(a)(3). The Court of Special Appeals summarized the parties' positions on the meaning of enforceable claims: At the decedent's death, the elective share was one-third of the net estate. ET § 3-203. [N]et estate was defined as the property of the decedent exclusive of the family allowance and enforceable claims against the estate[.] ET § 1-101(n). The issue before us exists because millions of dollars in claims were filed in this estate, but only a small portion were ultimately paid. The circuit court ruled that enforceable claims meant all valid claims that were filed and that were capable of being enforced, i.e., potentially enforceable against the estate. [Nassif], in essence, argues that enforceable claims is the same as allowed claims, meaning claims recognized by the consent of a personal representative or claims which have been reduced to judgment. See ET §§ 8-107 and 8-108. An allowed claim is one that will be paid. [Nassif] points out that the concepts of enforceable claims and net estate first came into being in 1969, as part of the substantial revision of the law relating to the administration of estates. [Nassif] observes that, prior to 1969, orphans' courts did not have the power to enforce claims, and that their later ability to do so was part of the 1969 legislation. [Nassif] notes that the enforcement mechanism contained in ET §§ 8-101, et seq. was consistent with the new orphans' court power. Thus, the use of the term enforceable claims. [Green and the PR] rely heavily on what they regard as the plain meaning of the statutory language. They argue that enforceable must mean something different from allowed or paid. [They] point out that, under the then existing time-lines, [Nassif] could have withdrawn her notice of elective share after the claims were filed, and taken under the will. [They] argue that a spouse electing a statutory share is not a residuary heir, impliedly asserting that the concept of an electing spouse is its own category and different from all other categories, or if not, the electing spouse is in the nature of an intestate heir or a specific legatee. Nassif, 198 Md.App. at 728-29, 18 A.3d at 1023-24. Thus, according to Green, enforceable claims means claims that were filed and capable of being enforced, Id. at 730, 18 A.3d at 1024, not paid or allowed claims. [13] In support of his position, Green reasons that a spouse's one-month window to elect, following the deadline for claims, shows that the Legislature intended for enforceable claims to include all claims capable of being enforced on the date of election. An elective spouse had seven months from the appointment of the PR to elect against the Will, whereas creditors had six months from the decedent's death to file claims, effectively creating a one-month window (sometimes more) for the spouse after the submission of claims. See §§ 3-206, 8-103; Chapter 226 of the Acts of 1992. Spouses had this window, according to Green, to evaluate which claims were capable of being enforced, so that they could make informed decisions about whether to take an elective share, exclusive of those claims, or take under the Will. Green points to the Comments of the Henderson Commission on the original version of this section, Maryland Code (1969), Article 93, Section 3-206, [14] which state that thirty days after the expiration of the time for filing claims ... will provide sufficient time within which the surviving spouse may make an informed determination whether or not the election should be made[.] [15] He also cites Gibber, which provides that [b]efore making an election and, of greater importance, during the extension period, the spouse should be satisfied that he or she has all the relevant information, including the size of the estate, the liabilities against the estate, and the value of his or her share under the will. Allan J. Gibber, Gibber on Estate Administration § 9.35 (3rd ed.1991). Although these sections reference the spouse's window to make a decision, they do not clarify what she is supposed to evaluate during that time. Making an informed determination based on the liabilities against the estate is just as important if enforceable claims means claims that ultimately reduce the estate. The elective spouse would simply need to evaluate the extent to which the claims are likely to reduce the estate. Moreover, under Green's interpretation, spouses would have little to evaluate. Green offers no further definition of enforceable beyond capable of being enforced, which appears to simply require that the claim be timely and in proper form. If this is all that enforceable means, then there is hardly a need for spouses to evaluate anything during a 30-day window. They would simply need to check to see that the claims are timely and in proper form. [16] Green also cites Winer v. United States, 153 F.Supp. 941, 943 (S.D.N.Y.1957), which interpreted Section 8.12(b)(3) of the former I.R.S. Code and held that enforceable claims, as used in those provisions, includes claims that would have been allowed had other conditions been satisfied. He argues that Winer 's definition fits the facts of this case, because the claims reduced, settled, or recouped during the administration would have been allowed otherwise, and therefore constitute enforceable claims. The same definition of enforceable, he points out, is in Webster's Dictionary of Law. See Merriam-Webster's Dictionary of Law (1996), available at http://dictionary.lp.findlaw.com/dictionary.html (defining enforceable as capable of being enforced esp. as legal or valid). Finally, he observes that a spouse's right to renounce a will has always been strictly construed in Maryland. See Barrett v. Clark, 189 Md. 116, 122, 54 A.2d 128, 131 (1947) (The right of a surviving husband or widow to renounce the will under the laws of this State has always been strictly construed by this Court.), superseded by statute on other grounds, as stated in Downes v. Downes, 158 Md.App. 598, 608, 857 A.2d 1155, 1160 (2004). Nassif counters that it would be unfair and nonsensical to deduct claims that did not ultimately reduce the value of the estate. This is especially true here, she says, because the PR had a personal stake in reducing the amount of the net estate so that he could inherit more as a legatee. Moreover, she argues that under Green's interpretation, the statute's timing would make no sense. If the amount of enforceable claims were set in stone on the date of election, she says, then spouses should elect before any claims are filed, thus avoiding even those claims that ultimately do reduce the estate; yet this cannot have been the Legislature's intent. Nassif also points out that Winer was overruled by the U.S. Court of Appeals for the Second Circuit in Comm'r v. Estate of Shively, 276 F.2d 372, 374-75 (2nd Cir. 1960). That case involved a dispute between a personal representative and the IRS over the amount of Federal estate tax owing. The dispute turned on the interpretation of 26 U.S.C.A., Section 812, which defined the net estate for purposes of determining the appropriate tax. The gross estate was to be valued as of the date of death of the decedent. Shively, 276 F.2d at 374. Subsection (b)(3) of Section 812 directed that claims against the estate be deducted from the value of the gross estate before determining the net estate. [17] The Court framed its task as deciding what effect the events that occurred here subsequent to decedent's death and prior to the filing of the estate tax return have had upon the amount of permissible deduction from the value of decedent's gross estate under Section 812(b)(3)[.] Id. at 374. The Second Circuit held: [ Winer and other cases] stand for the proposition that deductions under Section 812(b)(3) are to be determined without reference to events occurring subsequent to the decedent's death. These cases state that subsequent events are to be ignored even when they render the claim entirely unenforceable in the probate proceeding settling the estate. We disagree with the reasoning of these cases, for we are of the opinion that the rule they announce is incompatible with the purpose Section 812(b) is intended to serve. Section 812 is entitled `Net Estate.' Its purpose is to define that portion of the property of a decedent that is subject to estate tax.... Obviously this purpose would not be served if a deduction were permitted for claims against an estate which, though having vitality as of date of death, could never be enforced as of the date the estate tax return is filed. The property which might have been subject to such a claim were it enforceable is now certain to pass by way of gift taking effect at death. To permit an estate such a deduction under these circumstances would be to prefer fiction to reality[.] Id. at 374-75. Neither Winer nor Shively is directly on point, as we are not interpreting the Federal estate tax law. Yet, we find them analogous because both Section 812(b) of the Internal Revenue Code and Section 3-203 of the Estates and Trusts Article are concerned with deducting claims to arrive at a net estate as of a certain date, and the question is whether events after that date can be considered in determining the amount of such claims. We have reviewed cases interpreting the Federal law which take a different view, [18] but are inclined to agree with the Shively court's analysis that such purpose cannot be served by deducting claims which are ultimately not paid because the PR settles them during administration. To deduct those claims would be to prefer fiction to reality. Id. at 375; see also Estate of Shedd v. Comm'r, 320 F.2d 638, 639 (9th Cir.1963) (Congress did not intend to make events at the date of death invariably determinative in computing the federal estate tax obligation.... And when it appears that the intent of Congress will be served by considering events subsequent to death for this purpose the courts have not hesitated to do so.); Buck v. Helvering, 73 F.2d 760, 762 (9th Cir.1934) (For purposes of appraisement of the estate ... the stockholders' liability should be considered as a potential rather than an actual claim, until it is paid by the estate, or it is reasonably certain that it must be paid.). Here we have poster facts to bolster that reasoning. Green wants to deduct approximately $13,204,136 from the gross estate as claims, most of which were contingent, and reduce Nassif's share by one-third of that ($4,401,378.66) but ultimately pay only $102,869 of the claims, refusing to make any adjustment to the one-third statutory share. Common sense and fair play dictate that we not countenance such machinations. Moreover, Maryland testamentary law has historically provided that unpaid claims are not deducted from a spouse's elective share. Before the 1969 revisions, Maryland Code (1957, 1964 Repl.Vol.), Article 93, Section 329 provided that an elective spouse took one-third of the surplus personal estate, which was defined in the comments as the entire balance of personal estate, principal and income, at the time of distribution[.] See also Gardner v. Mercantile Trust Co., 164 Md. 280, 283, 164 A. 663, 665 (1933) (The words `surplus personal estate' ... mean, we think, the entire balance of personal estate, principal and income, at the time of distribution.). Because the calculation took place at the time of distribution, unpaid claims were not deducted from the elective share, as distribution could not happen until all claims were either paid or allowed. See Maryland Code (1957, 1964 Repl.Vol.), Art. 93, § 133 (Whenever it shall appear ... that all the claims against or debts of the decedent ... have been discharged or allowed ... it shall be [the administrator's] duty to deliver up and distribute the surplus or residue as hereinafter directed[.]); see also Kuykendall v. Devecmon, 78 Md. 537, 542-43, 28 A. 412, 413 (1894) (explaining that an electing widow is entitled to one-third of the personal estate of her husband ... which shall remain after payment of ... just claims against him (emphasis added) (citations and quotation marks omitted)). Thus, before the 1969 statutory revision, unpaid claims were not deducted from a spouse's elective share. The 1969 revision explicitly retained the prior method of calculating the spouse's elective share under former Section 329. The comments to Maryland Code (1957, 1969 Repl.Vol.), Article 93, Section 3-203 provided that, [t]hrough incorporation of the provision of Section 3-102 [`Share of Surviving Spouse'] as determining the amount of the elective share, the proportional interest of the spouse under former law (§ 329) is retained. See also Maryland Code (1957, 1969 Repl.Vol.), Art. 93, § 3-102 (providing the method of calculation for a spouse's share, of which the comment states: This section preserves the proportional distribution to the surviving spouse contained in former §§ 134-137.). Thus, we agree with the Court of Special Appeals that, [i]n pre-1969, based on the statutory provisions above, the intestate spouse and the elective spouse received their share after payment of debts and claims. We see nothing in the law to indicate that a change in that scheme was intended by the creation, in 1969, of the concepts of net estate and enforceable claims in the intestate and statutory share context.... We conclude that enforceable claims means claims that are valid and are required to be paid or paid. Nassif, 198 Md.App. at 731, 18 A.3d at 1025. There is nothing in the statute's text or history to suggest that the Legislature intended to upset the historical practice and create an illogical system in which claims may be deducted from the net estate even though they do not reduce the value of the estate. We therefore hold that enforceable claims means claims that in fact reduce the assets in the estate or are allowed by the court under Section 8-107. We agree with the Court of Special Appeals on this issue and shall remand to that court with directions to remand the case to the Circuit Court for a calculation of enforceable claims consistent with this opinion.