When planning your estate, you have the right to designate who will receive your assets. At the same time, you are also determining who not to benefit, or perhaps even who to disinherit. As estate planners, we are often asked whether you have to leave anything to your spouse. Historically, statutes have protected the surviving spouse from being disinherited during administration. However, it was argued these laws were fraught with issue, as spouses could easily transfer assets to avoid inclusion in the defined pool of available assets. Effective October 1, 2020, Maryland changed the formula regarding the portion of property against which the surviving spouse may elect. Thus, Maryland law increased the various assets available for election, hence the “augmented estate.”
In order to understand this significant change, it is important to examine different categories of assets and to explain how the old rules worked. First, assets are generally classified as either probate or non-probate upon your death. Probate assets are those in the sole name of a decedent and are distributed according to a Will, or the laws of intestate succession if there was not a Will. Non-probate assets are those that avoid probate as they automatically pass by operation of law, such as tenants by the entirety property, insurance policies with a named beneficiary, or payable on death bank accounts. Also, property held through a revocable living trust or an irrevocable trust would bypass probate.
Under the previous law, a surviving spouse was entitled to elect against the Will of his or her deceased spouse by filing in the probate court. Hence, if a spouse was not provided for under a Will, the spouse could receive one-half of the decedent’s probate assets, or one-third of the assets if the decedent had surviving issue, meaning children, grandchildren, etc. However, note that if the spouses had executed a waiver, pre-nuptial agreement, or post-nuptial agreement, then their rights under statute were unavailable and could not elect against the estate. Of course, an election was not mandatory, but the dissatisfied spouse had to elect within a prescribed time period and meet the requisite formalities.
Over time, we started shifting in how we owned our wealth and how we planned for such wealth. With retirement planning, such assets do not typically pass through probate, and thus, would not be available to elect against. In addition, more people understood the value of trusts, especially with revocable living trusts, as the benefits provided tax planning, control, and flexibility for their families during lifetime and for future generations. As these vehicles were non-probate in nature, the trust assets fell outside a probate election.
Therefore, the Maryland General Assembly enacted legislation, which received overwhelming support, to include not only traditional probate assets but also non-probate assets in the pot of assets against what can be elected by a surviving spouse. What does the augmented estate mean for you? If you thought it was absolute that your assets would go to designated beneficiaries versus a surviving spouse, it may be time to re-visit your planning decisions. The surviving spouse will now be entitled to elect against a broader estate than ever before. The nuances are complex, and with any new law, there will be uncertainty, litigation and changes before we have clarity.
As a spouse planning their estate, it is important to consider your options. For spouses that may be in a second or later marriage, or have children they want to provide for from previous relationships, it is essential to plan ahead to protect your legacy. Therefore, such spouses may want to consider a legal agreement or waiver of rights. Otherwise, your surviving spouse can circumvent the distribution of your assets. Also, if you have a disabled spouse, you may want to explore how a trust can protect their assets from medical assistance claims.
In addition, it should be highlighted that the new law provides that notice must be given to a surviving spouse informing them of their right to elect against the augmented estate. Also, if you have gifted assets prior to death to someone other than your surviving spouse, those may be pulled back in after death and subject to the election. Finally, there are specific calculations and formulas based on asset values used to determine the available amount to elect against and various spousal benefits or exceptions that will offset such amounts.
So what are your next steps? We recommend that you schedule a complimentary appointment because the new augmented estate law has changed estate planning in Maryland. Based on the complexities, you may need to reconfigure your plan to address the augmented estate, or utilize another alternative to sign an agreement to waive elective share rights. With proper planning and asset protection, we will help you preserve your legacy.