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Changes To President Biden’s Build Back Better Package

President Biden presented his revised framework for the Build Back Better reconciliation package this morning, eliminating the previously proposed revisions to the Federal Estate Tax laws that were part of the previous versions of the package, including  (1) the accelerated drop in the Federal Estate Tax Exemption from $11.7 million to $6 million beginning as of January 1, 2022, (2) the elimination of Intentionally Defective Grantor Trusts, and (3) the elimination of discounts for lack of control and lack of marketability on certain business interests.

Instead, the new tax reform package focuses on revenue generation through:

  • 15% Corporate Minimum Tax on Large Corporations
  • 1% Surcharge on Corporate Buy-Backs
  • Global Minimum Tax
  • Penalty for Foreign Corporations
  • Surtax on Multi-Millionaires and Billionaires
  • Close Medicare Self-Employment Tax Loophole
  • Continue Limitation on Excess Business Losses
  • Investing in IRS Enforcement

It is unclear whether this revised framework will garner the votes necessary to get through Congress and whether the estate tax is revisited as a target for tax reform in the future.  At least for now, the President’s revised package provides welcome relief to many clients that were working to complete significant gifting transactions prior to the enactment of any new legislation.

The need for planning is still important as the Federal Estate Tax Exemption remains likely to “sunset” in the year 2026, based on current law. Therefore, we will continue to move forward with our strategic planning efforts, although the timing for completion has thankfully been extended.

The Augmented Spousal Elective Share in Maryland

  1. What is the Elective Share?

The Elective Share is a statutory amount of a Decedent’s Estate that a surviving spouse is entitled to receive under Maryland law. The surviving spouse is entitled to the statutorily set amount of the Decedent’s Estate even if the Decedent’s estate planning sought to disinherit the spouse or provided a lesser benefit for the surviving spouse.


  1. What is the surviving spouse entitled to receive if they choose to take the Elective Share?

If the Decedent has surviving descendants, the Elective Share is 1/3 of the Estate Subject to Election. If there are no surviving descendants, the Elective Share is 1/2 of the Estate Subject to Election.


  1. What changes were made in the new Augmented Elective Share Statute that took effect on October 1, 2020?

The new Elective Share statute expanded the assets included in the calculation and subject to election, making it more difficult to disinherit a spouse by keeping assets outside of probate. Previously, only probate assets, those assets in the Decedent’s sole name and administered through the probate process with the Register of Wills, were subject to a surviving spouse’s election to take the Elective Share.

Under Maryland’s prior Elective Share law, a surviving spouse could be entirely disinherited by the Decedent through careful estate planning and asset re-titling. Such planning could cause a dispute that led to litigation when a disinherited surviving spouse attempted to bring non-probate assets back into the probate estate for the purposes of the Elective Share. This often led to long and expensive legal battles while the courts applied a fact specific test to determine if the non-probate assets were removed from the probate estate to undermine the Elective Share and should thus be subject to the Elective Share anyway. In the alternative, a surviving spouse who inherited a large sum of non-probate assets such as joint assets or assets with beneficiary designations, could file an election to take the Elective Share from the probate estate and unfairly reduce distributions to other beneficiaries named in the Decedent’s Last Will and Testament.


  1. What assets are subject to Maryland’s new Augmented Elective Share?

The new Augmented Elective Share captures all the Decedent’s assets, whether they are solely owned, jointly owned, held in trust, transferred shortly before death, or subject to a beneficiary designation. In some cases, assets that may not be owned by the Decedent, but which the Decedent holds a qualifying power of disposition over the property, such that the Decedent controls who receives the property after their death, may be included. Certain assets are specifically excluded including 529 plans, Special Needs Trusts, transfers during lifetime for fair market value, and assets that were distributed during or after life with consent of the surviving spouse. Once all assets are accounted for, the value of the Estate Subject to Election is calculated by subtracting out funeral and administrative expenses, family allowances, enforceable claims and debts, and certain trust assets. Finally, the amount distributable to the surviving spouse pursuant to their election is further reduced based on assets already passing to the surviving spouse via probate, trust, joint ownership, or beneficiary designation.


  1. When did the new Augmented Elective Share go into effect and to which estates does it apply?

The new Augmented Elective Share applies to all Decedents dying on or after October 1, 2020.


  1. When does an election to take the Augmented Elective Share have to be filed?

An election to take the Augmented Elective Share must be filed with the Register of Wills in the County in which the Decedent resided at the time of their death at the later of 9 months after date of death or 6 months after the first appointment of a Personal Representative in the Decedent’s probate estate.


  1. Who can file an election to take the Augmented Elective Share?

The Elective Share is specific to the surviving spouse and cannot be exercised by any other person or transferred to another person. In the event that the surviving spouse is incapacitated, an election may be filed via court order, by a court appointed guardian of the property for the surviving spouse, or by an agent appointed under the surviving spouse’s Power of Attorney. Any election must be filed during the surviving spouse’s lifetime and cannot be filed after the surviving spouse’s death by the personal representative of the surviving spouse’s estate.


  1. Can the Right of Election be waived?

Yes. The right of a surviving spouse to elect against an estate can be waived in a pre-nuptial or post-nuptial agreement, in a separation agreement signed in contemplation of divorce, or any other agreement signed by the surviving spouse. The language waiving the Right of Election need not be specific to the Elective Share and the right is considered waived if the surviving spouse signs a document stating that they are giving up or waiving “all rights” in their spouse’s property.


Bagley & Rhody, P.C. has several practice area groups for which the new Augmented Elective Share Statute has an impact: the estate planning team, estate and trust administration team, and estate and trust litigation team. Click here for a more detailed summary of matters handled by the Firm and the members of the practice area teams.

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