In 1990, the Court of Appeals reversed the judgment of the Court of Special Appeals in Knell v. Price, 318 Md. 501 (1990). That case simplified Maryland law on the effect of the spousal election on probate property. The Court of Special Appeals analyzed the facts of the case pursuant to Whittington and its progeny. SeeKnell v. Price, 77 Md. App. 331 (1988). The Knell v. Price litigation “had a cast of three: William A. Knell- the husband, Violet E. Knell- his wife, and Jesse Annabelle Price- the “other woman.” 318 Md. at 502. The Knells lived together as husband and wife for 22 years at which point they separated due to marital difficulties. The Knells remained separated and living apart for the following 27 years although no formal separation agreement was executed nor was a divorce action ever filed. Mrs. Knell continued to live in the marital home that the couple had purchased together during the marriage; Mr. Knell began living with Ms. Price a year after the separation and continued to live with her until Mr. Knell’s death. Sometime during the period when Mr. Knell and Ms. Price were together, Mr. Knell purchased another house with the title in his name. After acquiring the property, Mr. Knell conveyed the property to a straw man who immediately re-conveyed the property to Mr. Knell as life tenant with full powers and the remainder to Ms. Price. After Mr. Knell’s death, his estranged wife elected against the will (which, presumably, left her nothing) and sought to have the spousal election apply to the property. The trial Court and the Court of Special Appeals applied the Whittington test and found that no fraud was committed.
The Court of Appeals took certiorari and reversed the decision of the lower courts. The Court of Appeals held that the elective share extended over non-probate property when a decedent retained substantial control over that property during his or her lifetime.
Knell v. Price established a per se rule when dominion and control is retained over the property by the decedent:
“But here, it is perfectly clear that Mr. Knell retained control of the property during his lifetime by establishing a life estate in himself with unfettered power in him, while living (except by will), to dispose of all interests in the property fee simple. He did not part with the absolute dominion of the property during his life. His conveyance, through a straw man, of the remainder of the property was not complete, absolute, and unconditional. The law pronounces this to be a fraud on the marital rights of Mrs. Knell. His reluctance to relinquish control over the disposition of the property during his lifetime defeated his intention.”
Id. at 512.
The Knell case is consistent with recent decisions rendered by other jurisdictions in interpreting elective share statutes. This trend may reflect the practice of avoiding probate through use of jointly-held accounts, revocable trusts, or similar devices which has made obsolete the use of the probate estate as the sole measurement. Seifert v. So. Nat’l Bank, 305 S.C. 353, 409 S.E.2d 337 (S.C. 1991), held that in giving a spouse an elective share right the legislature did not intend to limit this right to the probate estate when a decedent exercised power over that property:
“Surely, then, it was not the legislature’s intent to allow this substantial right (to the elective share) to be circumvented as respondents urge. Thus, we hold that, where a spouse seeks to avoid payment of the elective share by creating a trust over which he or she exercises substantial control, the trust may be declared invalid as illusory, and the trust assets may be included in the decedent’s estate for the calculation of the elective share.”
Id.; see alsoNewman v. Dore, 275 N.Y. 371, 9 N.E.2d. 966 (N.Y. 1937); Staples v. King, 433 A.2d 407, 409-10 (Me. 1981) (“However, where the married person purports to transfer property out of his estate but in fact retains substantial control over the property for his lifetime, such a transfer will not be effective against claims of the surviving spouse…”).
Similarly, in Sullivan v. Burkin, 390 Mass. 864, 460 N.E.2d. 571 (Mass. 1984), the Massachusetts Supreme Court used non-probate assets to establish a baseline in calculating the elective share when control of the asset was retained by the deceased spouse. The court held that it was proper to extend the elective share beyond the probate estate because of the significant changes happening in the law:
“The interests of one spouse in the property of the other have been substantially increased upon the dissolution of a marriage by divorce. We believe that, when a marriage is terminated by the death of one spouse, the rights of the surviving spouse should not be so restricted as they are by the rule in Kerwin v. Donaghy. It is neither equitable nor logical to extend to a divorced spouse greater rights in the assets of an inter vivos trust created and controlled by the other spouse than are extended to a spouse who remains married until the death of his or her spouse.”
Id. at 577.
In Schoukraun v. Karsenty, 177 Md. App. 615 (2007), the Court extended the principle of Knell v. Price to a revocable trust and pay on death accounts. Because these inter vivos transfers are not “complete, absolute, and unconditional,” the transfers are per se funds on the spousal election. Schoukroun has been granted certiorari at 404 Md. 152 (2008).
