By: Shannon K. Mumaw – Associate Attorney with Elville and Associates, P.C.
In general, the modified administration process can seem quite tedious and lengthy, especially since it comes at a point in time that is already very difficult for the people involved. As an attempt to simplify this process as much as possible, the Maryland legislature enacted a statute in 1997 to create the abbreviated procedure known as “Modified Administration.” This novel procedure was codified in Estates and Trusts §§ 5-701–5-710 and is one statutory step closer towards limiting the role of the Register of Wills and the Orphans’ Court in the administration of some estates. However, its application is somewhat limited and only applies in the administration of selected estates. When applicable, it is a great tool to expedite the administration process as its focus is on the prompt closure of an estate and distribution of assets.
Everyone’s first question is – “Which estates qualify for modified administration?”
In order to be able to proceed under modified administration, certain qualifications must be met. If the decedent is testate (passes away with a valid will), all of the residuary legatees named under the will must be individuals or entities exempt from inheritance tax. If the decedent is intestate (passes away with no will), all of the heirs at law must be individuals or entities exempt from inheritance tax. Individuals and entities who are exempt from inheritance tax can be found under § 7-203 of the Maryland Tax – General Article. In addition to being exempt from inheritance tax, all residuary legatees and heirs at law must also consent to a modified administration. A notice of consent must be filed with the Register of Wills in order for the estate to qualify.
If a residuary legatee is a trust rather than an individual person, as commonly seen in what is known as a “pour-over will,” under the current law one would look to the beneficiaries of the trust to determine if each individual or entity is exempt from inheritance tax. If each beneficiary under the trust is exempt from inheritance tax, the estate is eligible for modified administration. The identity of the trustee of said trust is not considered and will not hinder the estate’s eligibility for modified administration. This was not always the case, as it was not until the 2013 statutory amendment that the identities of the trustees were left out of the equation.
The personal representative of the estate is not limited to any specific class of persons, as the residuary legatees or heirs at law are. There is no requirement that the personal representative must be a residuary legatee or heir at law, nor is there a requirement that the personal representative be exempt from inheritance tax. Note that under a will, only the residuary legatees must be exempt from inheritance tax. This does not include specific bequests. Thus, the existence of specific bequests to friends or relatives who are subject to inheritance tax will not curtail an estate’s eligibility for modified administration.
Additionally, to qualify for modified administration the estate must be solvent, meaning the estate’s assets exceed the estate’s debts. There must be sufficient assets to satisfy all testamentary gifts under the will of a testate decedent.
Your next question may be – “How and when do I elect modified administration?”
An election for modified administration must be filed by the personal representative of the estate within three months of the date the personal representative is appointed. It does not matter how long after the decedent’s passing the estate is opened. The three-month time period will only begin on the date the personal representative is appointed by the Register of Wills (in other words, the date the Letters of Administration are issued). It is important to note that there are no exceptions to this three-month time period as no extensions of time will be granted. If an election for modified administration is not made by the three-month deadline the election will be barred.
It is a prerequisite that the estate be opened and the personal representative be appointed before the election for modified administration can be made. Thus, the election is not part of the initial petition for probate. However, the election may be filed simultaneously with the petition for probate if so desired.
The election can be viewed as consisting of two separate parts, or rather two separate forms. The election form itself must be filed within the three-month time period, and the consents of all residuary legatees or heirs at law, as mentioned above, must be filed within the three-month time period as well. If the election is made by the three-month deadline, but the consents are not filed by the deadline, the election will not be considered valid. If at any time an interested party objects to the modified administration, it will be revoked and the administration will revert back to the administrative probate process.
Now that you have determined whether an estate qualifies for modified administration and how to make the election, your next question may be – “What do I have to do under modified administration and how long is the process?”
Under a modified administration, the only documentation that is required to be submitted to the Register of Wills is a verified final report. The final report must be filed within 10 months from the date of appointment of the personal representative. Thereafter, final distribution of the estate can occur within 12 months of the appointment of the personal representative. Failure to file the final report by the deadline will result in the revocation of modified administration, and the administration will revert back to the administrative probate process.
The duty to report to the Register of Wills under a modified administration is limited extensively in comparison to the administrative probate of a regular estate. Under the administrative probate of a regular estate, the personal representative is required to file an inventory and an information report with the Register of Wills within three months of the appointment of the personal representative. Thereafter, within six months of the inventory and information report being filed, a first accounting is due to the Register of Wills. The first accounting could be a first and final accounting, or it could be an interim accounting with additional accountings due every six months thereafter. It is not until after the final accounting is submitted to the Register of Wills and approved by the Orphans’ Court that the final distributions of the estate may occur. Modified administration abbreviates this process immensely by substituting the inventory, information report, and accounting(s) with the simple requirement of a final report. Additionally, a final report is not nearly as extensive or detailed as an accounting may be.
However, under a modified administration, an interested party may request that a formal inventory and account be provided to all interested persons. If such a request were made, the formal inventory and account would not be required to be submitted to the Register of Wills, it would only be required to be provided to the requesting interested person. Additionally, such a request would not defeat the modified administration election.
Under a modified administration, it is possible to extend the 10-month deadline for filing the final report if needed. With the consent of the personal representative and each interested party, the 10-month deadline may be extended by 90 days if the extension request is filed within the initial 10-month period.
Now you may be asking – “What is a final report?”
The intention of the final report is to provide the Register of Wills with just enough information necessary to assess the statutory probate fee and the inheritance tax, if any may be due from specific bequests. The final report consists of a Schedule A, Schedule B, and – you guessed it – a Schedule C. Schedule A lists all of the estate assets as of the date of death, along with the corresponding values. Schedule B lists all payments and disbursements, which may include any debts, taxes, funeral expenses, administration expenses, etcetera. Lastly, Schedule C calculates the net estate and lists all final distributions that are to be made.
The underlying basis for modified administration is a sense of trust between the personal representative and the residuary legatees or heirs at law. The parties are essentially agreeing that there is no need for the Register of Wills and the Orphans’ Court to keep a close eye on the administration of the estate as they do under administrative probate. Rather, everyone trusts that the personal representative will administer the estate fairly and accurately. If your estate qualifies for modified administration, I highly recommend utilizing this tool to simplify the administration process to make already difficult times a little easier.