Maryland’s new General and Limited Power of Attorney Act – for decades, powers of attorney in Maryland were largely unregulated – evidenced by a dearth of statutory provisions in the Annotated Code of Maryland. Subsequently, among many other problems, banks, brokerage firms, insurance companies, and other financial institutions could refuse to accept or deal with the power of attorney document, thereby leaving the then-disabled person who gave fiduciary authority to his or her appointed agent (a) without any way to privately manage their financial affairs, (b) without significant recourse, and (c) possibly subject to a guardianship proceeding. Now, in summary, Maryland’s statutory powers of attorney allow individuals to appoint their chosen agent(s) with the confidence that a properly executed statutory power of attorney may not be refused by a person without (i) that person being subject to a court order enforcing the acceptance of such power of attorney, and (ii) that person being liable for attorney’s fees and costs incurred in such an action to mandate the acceptance of the power of attorney. Furthermore, all powers of attorney validly executed in Maryland are now enforceable, (even powers of attorney other than statutory powers of attorney) except that attorney’s fees are not recoverable in an action to enforce a non-statutory power of attorney. This is a very positive development and will help fortify planning for incapacity.
Transfers of property held by tenants by the entireties to trust – prior to the passage of Section 14-113 of the Estates and Trust Article of the Maryland Code, married couples who wished to maximize their estate tax planning through the proper use of the marital deduction were faced with the dilemma of transferring tenants by the entireties property (property owned by husband and wife as tenants by the entireties) into trust, thereby losing the creditor protection afforded by tenants by the entireties ownership. Fortunately, thanks to the efforts of many senior members of the Estates and Trusts Section of the Maryland State Bar Association, married couples may now choose to transfer property owned by them as tenants by the entireties into trust and thereafter maintain the same immunity from the claims of their separate creditors that they would have had if they (the same married couple) had continued to hold the property as tenants by the entireties (so long as the husband and wife remain married, the property remains in trust, and the husband and wife are beneficiaries of the trust). With this new law in effect, married couples can now fund their joint trust or separate trusts without the loss of the creditor protection afforded by tenants by the entireties ownership during lifetime.
However, notwithstanding these benefits, a word of caution is in order. The use of a “14-113 trust” is a complex choice that should only be considered with the advice of an estate planning attorney. Although the law provides for obvious creditor protection advantages during the joint lifetimes of spouses, due to the nature of the tenants by the entireties property transferred to the decedent’s trust, upon the death of the first spouse to die the surviving spouse may unfortunately lose certain creditor protections that would otherwise exist, and negative estate tax ramifications may ensue concerning the utilization of the decedent’s estate tax exemption and the failure of any QTIP trust established by the decedent upon his or her death.
What do these new laws mean to you?
(1) All persons should complete a new Maryland Statutory Form Personal Financial Power of Attorney as part of their estate planning documents. This Form will not necessarily replace your current Durable General Financial Power of Attorney or Springing General Financial Power of Attorney document but should act in conjunction with that existing document, subject to the review of an attorney about how best to structure those documents.
(2) Many couples, whether or not they have previously transferred their tenants by the entireties property to their revocable trust or separate revocable trusts, should consult with their attorney about the full scope and ramifications of the new law (14-113) and whether opting into that new law makes sense for them. Further, clients should seek advice about how best to implement 14-113 into their estate planning to obtain the fullest possible benefit of the new law without causing creditor protection or estate tax issues after the death of the first spouse to die. As mentioned above, this new law is complex and should be approached with caution.