Karsenty v. Schoukroun

Court of Appeals of Maryland
406 Md. 469, 959 A.2d. 1147 (2008)

ELI5:

Rule of Law:

An inter vivos transfer of property in which a deceased spouse retained lifetime control is not a per se violation of the surviving spouse's statutory elective share. Instead, courts must conduct a fact-intensive, equitable inquiry to determine if the transfer was a mere sham intended to divest ownership in form but not in substance, thus unlawfully frustrating the surviving spouse's rights.

Facts:

Gilles H. Schoukroun divorced his first wife, Bernadette, with whom he had one child, Lauren Schoukroun.
A separation agreement required Gilles to maintain a $150,000 life insurance policy for Lauren, which he failed to purchase.
In 1999, Gilles met Kathleen Sexton and they became engaged.
In the Spring of 2000, prior to their marriage, Gilles purchased a $200,000 life insurance policy naming Kathleen as the beneficiary.
Gilles and Kathleen married on July 3, 2000, and maintained largely separate finances during their four-year marriage.
In January 2004, Gilles was diagnosed with lymphoma.
On June 23, 2004, Gilles created the Gilles H. Schoukroun Trust, a revocable inter vivos trust for the sole benefit of his daughter, Lauren. He named himself trustee and retained the right to amend or terminate it.
On the same day, Gilles transferred assets from three financial accounts into the Trust, and on July 12, 2004, he named the Trust as the beneficiary of two IRA transfer-on-death (TOD) accounts.
Gilles died on October 18, 2004.

Procedural Posture:

After Gilles Schoukroun's death, his surviving spouse, Kathleen, renounced his will and filed an election to take a statutory share of his estate.
Kathleen filed a complaint in the Circuit Court for Anne Arundel County (a trial court) against Maryse Karsenty, as trustee, alleging the trust constituted a fraud on her marital rights.
Following a bench trial, the Circuit Court found for the defendants, concluding that Gilles did not intend to defraud Kathleen and that retained control over the trust was not a per se fraud.
Kathleen, the appellant, appealed to the Court of Special Appeals of Maryland (an intermediate appellate court).
The Court of Special Appeals reversed the trial court, holding as a matter of law that the decedent's retained control over the trust assets rendered the transfer a fraud per se on the surviving spouse's marital rights.
Maryse Karsenty, the petitioner, sought and was granted a writ of certiorari by the Court of Appeals of Maryland (the state's highest court).

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Issue:

Does a deceased spouse's inter vivos transfer of assets into a revocable trust, over which the decedent retained absolute lifetime control, constitute a per se violation of the surviving spouse's statutory right to an elective share of the decedent's estate?

Opinions:

Majority - Harrell, J.

No. A deceased spouse’s retention of absolute control over assets transferred inter vivos does not, in and of itself, constitute a per se violation of the surviving spouse's elective share rights. Such a bright-line rule would improperly impose, by judicial fiat, an 'augmented estate' model that the Maryland legislature has rejected. The proper inquiry is a case-by-case analysis to determine if the transfer was a 'mere device or contrivance'—a sham transaction where the decedent parted with ownership in form but not in substance. The court reframed the doctrine away from 'fraud on marital rights,' which implies a need to prove malicious intent, to an analysis of whether the transfer unlawfully frustrates the statutory marital share. The court found that prior precedent, particularly 'Whittington v. Whittington,' established a multi-factor test, not a per se rule based on control. Because the trial court incorrectly focused on whether there was common law fraud rather than applying the proper multi-factor analysis to determine if the trust was a sham, the case is remanded for further proceedings under the clarified legal standard.

Analysis:

This decision clarifies and effectively rebrands Maryland's 'fraud on marital rights' doctrine, moving it away from the misleading language of 'fraud' and towards a more neutral equitable analysis of whether a transfer 'unlawfully frustrates' a spouse's rights. The court definitively rejects a bright-line rule based on retained control, which had created uncertainty following 'Knell v. Price'. By entrenching a multi-factor, fact-intensive test, the ruling reinforces the legitimacy of common estate planning tools like revocable trusts against spousal elective share claims, so long as they are not deemed to be mere 'shams.' This increases judicial discretion and makes the outcome of such challenges less predictable, requiring a thorough examination of the decedent's circumstances and intent in structuring the transfer.

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