Opinion ID: 2300977
Heading Depth: 1
Heading Rank: 3

Heading: Valuation and Appreciation of Elective Share Assets

Text: The Court of Special Appeals held that the date on which elective share assets are valued depends on whether the legatees pay the spouse with cash or in kind: [Nassif's] interest in any undistributed in kind assets should be valued as of the time of distribution or, if cash is paid, valued as of the date of election. Ultimately, the amount to be distributed will be determined after ascertaining the net estate, after payment of expenses and claims. Nassif, 198 Md.App. at 733, 18 A.3d at 1026. Thus, the court held that an elective spouse shares in the appreciation of assets used to pay the statutory share in kind, but does not share in the appreciation of assets subject to a legatee's decision to pay cash under Section 3-208(b). Id. The Court of Special Appeals observed that, in the typical case, the option to pay cash is exercised early. Nevertheless, it held that, although the Legislature did not contemplate that [the cash option] would be applied many years after the estate had been opened[, the] statute does not contain a time limit for exercising the cash out option, and we will not write one into the statute. Id. Nassif argues that the Court of Special Appeals erred by not implying a reasonable time limit on the legatees' decision to pay cash under Section 3-208(b). She contends that the legatees' choice in this case was unreasonably late and should not be allowed. The legatees did not even attempt to invoke Section 3-208(b) until October of 2006, she says, when Green filed a motion titled Election to Pay Surviving Spouse in Cash. The motion stated that the legatees hereby elect to pay [Nassif] in cash as her elective share of the net estate an amount equal to the fair market value of her interest in the specific property of the Estate valued as of the date the surviving spouse made the election to take an intestate share (May 3, 1993). She cites a number of cases in which this Court has implied a reasonable time for performance under a statute that does not contain a time limit. See, e.g., Crystal v. West Callahan, Inc., 328 Md. 318, 340, 614 A.2d 560, 571 (1992) (Absent any clear legislative direction as to the duration of the right ... it is a traditional exercise of judicial power to fill the statutory interstices by implying a reasonable time within which to act.); Parker v. Bd. of Election Supervisors, 230 Md. 126, 130, 186 A.2d 195, 197 (1962) ([The statute] states no time limit within which the complaint by a qualified voter to the Election Board must be made, but certainly it is implicit in that statute that the action pursuant thereto must be taken within a reasonable time[.] (citations and quotation marks omitted)). Thirteen years after the decedent's death is unreasonable, she says, because it would allow the legatees to select the assets that have appreciated the most and pay Nassif in cash an amount equal to their lower, 1993 values. This would prejudice the elective spouse, she maintains, because if the assets were distributed in kind, they would be valued as of the date of distribution, including their appreciation during the long administration of the estate. As she says, Green's interpretation would allow the legatees to enjoy a risk free investment, at the spouse's expense, throughout the administration of the estate. Green, on the other hand, argues that the Court of Special Appeals rightly declined to imply a time limit. He also points out that the legatees exercised the cash option in 1999, not 2006, only six years after the decedent's death. The legatees' timing was reasonable, he says, because they exercised the option shortly after all the outstanding claims had been satisfied. He also challenges the other part of the Court of Special Appeals' holding, arguing that even if the legatees must pay Nassif's share in kind, the assets should still be valued as of the date of her election. Thus, under Green's interpretation, a delay by the legatees could not prejudice the spouse, no matter how long, because regardless of whether a spouse's share is paid with cash or in kind, the assets would be valued as of the date of the spouse's election. First of all, it is clear that the legatees did not exercise the cash option in 1999. Green points to an August 1999 filing titled Petition to Authorize Partial Distribution, in which he requested permission to distribute certain specific bequests and pay Nassif in cash ... representing [her] statutory share. He states that the Orphans' Court approved this petition in February of 2000. Yet the petition only requested authorization to make a partial distribution of certain specific bequests that are not before us. As the Court of Special Appeals observed, the February 2000 order had no binding effect beyond the specific bequests, and neither party appealed from it. Nassif, 198 Md.App. at 737-38, 18 A.3d at 1029. [19] The petition also did not mention Section 3-208(b). Thus, Green's reliance on that petition to show that the legatees exercised the option to pay Nassif's entire elective share in cash is misplaced. Green points to no other attempt to exercise the cash option until October of 2006, when he filed the motion titled Election to Pay Surviving Spouse in Cash. We shall decide if such attempt was unreasonably late as a matter of law. We have traditionally implied time limits when failing to do so would cause injustice or absurdity. See Crystal, 328 Md. at 340, 614 A.2d at 571 (Implying a reasonable time ... avoid[s] the injustices and potential absurdity of a perpetual right to cancel.); D & Y, Inc. v. Winston, 320 Md. 534, 538, 578 A.2d 1177, 1180 (1990) (observing that failing to imply a reasonable time limit would produce[] an absurd and unjust result.); Parker, 230 Md. at 130, 186 A.2d at 197 (What amounts to `prejudice,' such as will bar the right to assert a claim after the passage of time, depends upon the facts and circumstances of each case[.]). Green argues that no injustice or absurdity will result from allowing a legatee to elect to pay cash at a later date, because both cash and in kind assets are valued as of the date of the spouse's election. Indeed, he contends that this is what the Court of Special Appeals held: that the date of valuation of the elective share... is the date of election. The Court of Special Appeals, however, clearly held that in kind assets should be valued as of the time of distribution or, if cash is paid, valued as of the date of election. Nassif, 198 Md.App. at 733, 18 A.3d at 1026. Thus, although Green does not believe he is challenging the holding below, his contention that elective share assets are valued as of the date of the spouse's election, even if paid in kind, is clearly contrary to the Court of Special Appeals' decision. [20] Green argues that assets used to pay a spouse's elective share in kind should be valued as of the date of the spouse's election. He points to a law review article written by two members of the commission that drafted the statutory scheme in 1969 (the Henderson Commission [21] ). See Shale D. Stiller & Roger D. Redden, Statutory Reform in the Administration of Maryland Decedents, Minors, and Incompetents, 29 Md. L.Rev. 85 (1969). The authors, he says, state that elective share assets are valued as of the date of the spouse's election. He also points to pre-1969 practice, in which heirs and legatees held title to elective share assets during the administration of the estate. [22] Green argues that, because the 1969 statute changed this scheme so that the PR holds title during administration, [23] the Legislature could not have intended for spouses to share in the appreciation of such assets. [24] Regarding the law review article, the portions cited by Green do not support the interpretation he puts forth. Although the article mentions a spouse's right to share in the appreciation of estate assets, it does so in the context of certain types of bequests contained in the will, not a spouse's election against the will. See 29 Md. L.Rev. at 99-100. Thus, its discussion of a spouse's right to share in the appreciation of assets has nothing to do with a spouse who elects against the will. Moreover, the portion of the article that does deal with an elective spouse simply explains the cash option, stating that the spouse will no longer be entitled to a proportionate interest, in kind, of each item of property in the estate, because the legatees have the option to pay her share in cash instead. See id. at 92. Thus, the law review article does not support Green's position that estate assets, used to pay a spouse's elective share in kind, are valued as of the date of election. Nor does the statutory scheme, adopted in 1969, according the PR title to the decedent's property during administration, suggest anything about a spouse's right to share in the appreciation of estate assets. The comments of the Henderson Commission on Maryland Code (1957, 1969 Repl. Vol.), Article 93, Section 1-301 explain precisely why the change was made: [D]uring the early stages of administration, the heirs or legatees of real estate are frequently not ready to assume the responsibility of managing their property, and as a practical matter, the personal representative is often required to collect the rents, pay taxes and expenses, make repairs, prevent waste and provide insurance coverage for the property. Yet, the personal representative has no ownership interest and may not have even an insurable interest. Furthermore, where the personal representative must take active control of real estate which will pass to heirs or legatees, how are these items to be handled in probate accounting?    Another set of problems arises where real estate must be allocated by the personal representative among various outright and trust gifts created under a will. Until the personal representative makes the allocation, the title to real estate really stands in limbo, and there is no way of determining responsibility for its management.    In 1925, England solved the problem... by making real estate an asset of the probate estate.... The same approach has now been adopted in Maryland.... Section 1-301 specifically reflects the fact that the personal representative has title to and complete power over all of the property of the estate[.] This reasoning appears again in the Henderson Commission's comments to Maryland Code (1957, 1969 Repl.Vol.), Article 93, Section 3-208: The prior rule frequently operated to the disadvantage of both the surviving spouse and the other legatees since it created awkward co-ownership of property not readily susceptible of division. In addition, it often worked a hardship in cases such as those where a closely held family corporation was involved.    [The new] statutory provision should alleviate the necessity for expensive and time-consuming partition proceedings[.] As the Court of Special Appeals observed, the Henderson Commission's comments make it clear that the 1969 statute gave title to the PR during administration simply to avoid the problem[s] identified in the comment ... not to change the general scheme with respect to the manner of computation of the distributees' respective interests. Nassif, 198 Md.App. at 732, 18 A.3d at 1026. Thus, we agree with the Court of Special Appeals that nothing in the statute suggests that the Legislature intended to change the traditional rule under which an elective spouse, when she receives her statutory share in kind, is entitled to share in the appreciation of the assets she receives. Indeed, the comments of the Henderson Commission explain that the 1969 law was similar to that under prior Maryland law by which the spouse acquired a proportional interest in each item of property of the decedent. See Maryland Code (1957, 1969 Repl.Vol.), Art. 93, § 3-208; see also Maryland Code (1888), Art. 93, § 292 (providing that when a spouse receives her elective share in kind, she is entitled to one third of the estate property which shall remain after payment of ... just claims[,] suggesting that such property was not valued at the time of election, but later, after debts had been paid); Kuykendall, 78 Md. at 542-43, 28 A. at 413 (same). Yet when a legatee makes a timely election to pay the spouse in cash rather than with specific property, pursuant to Section 3-208(b)(2), the assets designated are valued on the date of the spouse's election, and the spouse does not share in their appreciation. See Section 3-208(b) (Instead of contributing an interest in specific property to the intestate share, a legatee may pay the surviving spouse in cash ... an amount equal to the fair market value of the interest in specific property on the date the election to take an intestate share was made by the spouse. (emphasis added)). [25] Nassif argues that, in light of the different valuation dates for assets paid in kind and assets paid in cash, it would be unjust to allow legatees to exercise the cash option many years after the decedent's death. We agree. As Nassif points out, if such a delay were allowed, the legatees could wait to see which assets appreciate the most during administration and use them to determine the amount payable to the spouse. Because the assets would be valued at their previous, lower values, the spouse would receive far less than what the assets are actually worth. The more the assets appreciate during the administration of the estate, the more the legatees would be benefitted by paying the spouse at their previous, lower values. See Gibber, supra, § 9.38 (If ... the value of the stock decreased after the filing of the election, the legatee would find it to his or her advantage to pay the spouse in kind.). This system would effectively allow legatees to pay a spouse less than one-third of the value of the net estate as it exists on the date of distribution. The Legislature may have intended to create such a system, but it certainly did not contemplate that the period of election would last for 13 years. As the Second Report of the Henderson Commission states, the Legislature intended for distribution to occur within six months, in the typical case. It is safe to say, therefore, that the Legislature did not intend to allow legatees to enjoy their risk free investment, at the spouse's expense, for more than a decade. Such a scheme would create an absurd and unjust windfall for the legatees, because property values change more drastically over decades than over the course of six months. As we did in Crystal, Parker, and D & Y, Inc., we shall infer a reasonable time limit to avoid an absurd and unjust result. Thus, although we affirm the Court of Special Appeals regarding the valuation and appreciation of assets in the spouse's elective share, we reverse that court regarding the timeliness of the legatees' decision to pay cash under Section 3-208(b), holding instead that the legatees' 13-year delay in electing to pay Nassif in cash was unreasonable and shall not be allowed. [26]