Grueff v. Vito

229 Md.App. 353

145 A.3d 86

Candace Grueff

v.Michael Vito, et al.

No. 1878

Sept. Term, 2014

Court of Special Appeals of Maryland.

August 31, 2016

Argued by: Damon K. Bernstein, Rockville, MD, for Appellant.

Argued by: Glenn C. Etelson (Shulman, Rogers, Ganda, Pordy & Ecker, PA, on the brief), Potomac, MD, for Appellee.

Panel: Deborah S. Eyler, Graeff, Hotten,^* JJ.

Deborah S. Eyler, J.

In this appeal, we hold that a broadly worded power to amend in an irrevocable trust instrument cannot be used by a majority of beneficiaries to divest a minority beneficiary of her interest in the trust when doing so would be contrary to the settlor's intent in creating the trust. We also hold that, under Maryland common law, a trustee of a revocable trust does not owe a fiduciary duty to contingent remainder beneficiaries while the settlor is alive.

FACTS AND PROCEEDINGS

This case concerns two trusts created by James B. Vito. James and his wife Mary, one of the appellees, have four children: Candace Grueff, the appellant, and Michael Vito, Judith Seal, and John (“Tim”) Timothy Vito, also appellees.¹ The other appellees are James F. Brennan, III, Esquire, Paul H. Ethridge, Esquire, and the MFV Annuity Fund, LLC (the “Fund”).

The Irrevocable Trust

On September 16, 1983, James established the James B. Vito Family Trust (the “Irrevocable Trust”), naming his four children as income and residuary beneficiaries. The trust instrument was signed by James and by Paul M. Vito, James's brother, whom James named as Trustee. It provides that the trust cannot be “altered, amended, revoked, or terminated, in whole or in part, by” the Settlor (James). James renounced for himself and his estate “any interest, either vested or contingent, including any reversionary right or possibility of reverter, in the principal and income of the Trust[.]”

The trust was funded by a gift “for the immediate benefit” of the four Vito children of the fee simple interest in income-producing real property located in Rochester, New York, that James had contracted to purchase. The trust instrument allows for more assets to be added to the trust estate, and that happened over time. In particular, James, who amassed wealth in commercial real estate, formed various LLCs, which he managed, and made interests in the LLCs part of the trust estate of the Irrevocable Trust (and a Revocable Trust that we shall discuss below). These LLCs were designated “James Properties I,” “James Properties II,” and so forth. Over time, other assets were added to the trust estate as well.

The Irrevocable Trust instrument provides at Item SECOND that “the Trustee shall at least once each year distribute all the net income and any capital gains of the trust to the beneficial owners in the shares set forth in Item SIXTH below in such partial or periodic distributions as he deems appropriate within his discretion.” The shares, as set forth in Item SIXTH, are 25% to each child.

By its terms, the Irrevocable Trust was to terminate after sixteen years from the date of execution, at which time the residuary trust estate would be distributed in equal portions to the four children. Likewise, there would be equal distribution to the beneficiaries if, before the trust terminated, all the trust assets were liquidated and all obligations, liens, and encumbrances on the trust property were satisfied.

Item TENTH of the Irrevocable Trust reads as follows:

This Agreement may be revoked, altered or amended from time to time by an instrument in writing, signed by the holders of not less than seventy-five (75%) interest herein and delivered to the Trustee.

There have been a total of five amendments to the Irrevocable Trust. On March 8, 1995, Michael, Judith, and Tim signed an amendment naming Brennan as Successor Trustee to Paul. On September 1, 1999, all four children signed an amendment extending the termination date for the trust to the earlier of James's death or December 31, 2019. They executed a third amendment on June 16, 2003, further extending the trust termination date to December 31, 2024, removing the alternate provision about James's death, and granting the Trustee authority to enter into certain indemnification agreements on behalf of the trust.

At some point (not specified in the complaint), Paul resigned as Trustee and Brennan took his place.

On June 24, 2011, in the Circuit Court for Montgomery County, Candace filed a petition seeking appointment as guardian of James's property. She alleged that he was mentally incompetent to handle his affairs. The opposing parties included Mary, Judith, Michael, and Tim. In early 2012, the parties settled the guardianship case by an agreement that Mary and Ethridge would be appointed co-guardians of James's property. On March 1, 2012, the court issued an order making those appointments. There was no judicial finding that James was disabled or incompetent.

On May 4, 2012, Brennan resigned as Trustee. A little over two weeks later, on May 21, 2012, Judith, Michael, and Tim executed a fourth amendment to the trust (“Amendment IV”) appointing Judith and Michael as Trustees in Brennan's place. One more amendment was made to the trust instrument, which we shall discuss infra.

The Revocable Trust

On August 11, 1999, James established the Revocable Trust, naming himself as Trustee. The trust was funded with commercial real estate holdings, including, as noted, interests in the various James Properties, LLCs, and other investments. On December 15, 2004, James executed an amendment to the Revocable Trust that completely restated its terms. In the definition section, it states that “ ‘Trustee’ refers to James B. Vito, Mary F. Vito and John F. Brennan while they is [sic] serving as Trustees, and to such other persons or corporations as may succeed [him/her] from time to time as Trustee pursuant to the provisions of Section 11 of this Agreement.”

(Emphasis omitted.) The amendment is signed by James, as Settlor and Trustee, and by Mary and Brennan, as Trustees.

In the trust instrument (as restated), James expressly reserved the right to alter, amend, or revoke the trust, in whole or in part, at any time. Should he revoke the trust, all trust property covered by the revocation would revert to him. The trust instrument provides that, during James's lifetime, the income and principal from the trust estate are to be distributed to him, as necessary for his support. Upon his death, if Mary survives him, a certain sum of trust assets will be distributed to two marital trusts, for estate tax purposes, with the net income from those trusts, along with discretionary payments from principal, to be paid to Mary. The rest of the trust assets will make up the corpus of a new “Residuary Trust,” the net income from which shall be paid to Mary, the four children, and the descendants of the four children “for and during” their lifetimes, and amounts of the principal may be paid in proportions to them, at the Trustees' discretion. Upon Mary's death, or upon James's death if Mary predeceases him, the principal and any accrued undistributed income of the Residuary Trust shall be held in two trusts, one for estate tax purposes. The assets held in the other trust “shall be allocated among the descendants of the Settlor living at the time of the death of the survivor of the Settlor's spouse and the Settlor, per stirpes .” Each share allocated to a child of the Settlor shall be placed in a separate trust for the benefit of that child, and shall be distributed to that child if the child has attained the age of 21. (The children all have been over the age of 21 for quite some time.)

James executed a third amendment to the Revocable Trust on December 11, 2006. The amendment provided that upon Mary's death, or his death if Mary predeceases him, the Trustees shall distribute the trust's interest in Craig Air Center Corporation to Tim, and shall distribute its interest in the James Properties III, LLC to Michael's children, in equal shares. That amendment was signed by James, as Settlor and Trustee, and Mary and Brennan, as Trustees.

On January 1, 2007, James assigned to Candace's son, outright and free and clear of any trust, a 10% interest in the James Properties II, LLC. Before then, 50% of that asset was held by the Revocable Trust, and the other 50% was held by the Irrevocable Trust. Thus, after the assignment, the Irrevocable Trust held a 50% interest in the asset, the Revocable Trust held a 40% interest in the asset, and Candace's son held a 10% interest in the asset. The assignment was executed by James, as assignor and Trustee, by Brennan, as the only other member of that LLC and Trustee, and by Candace's son, as assignee.

On April 8, 2011, James, as Settlor and Trustee, and Mary and Brennan, as Trustees, executed a fourth amendment to the Revocable Trust (“Amendment Four”). That amendment states that upon Mary's death, or James's death if Mary predeceases him, the 40% interest in the James Properties II, LLC held by that trust will be allocated among the four children so as to include in Candace's 25% share the 10% share assigned to her son. Thus, Candace's three siblings each will receive a 25% interest in the James Properties II, LLC portion held by the Revocable Trust and Candace will receive a 15% interest in that asset, making the combination of her interest and that of her son 25%.

On August 18, 2011, Mary and Brennan, as Trustees, executed assignments of the interests in the James Properties II, LLC and the James Properties VII, LLC held by the Revocable Trust to themselves as Trustees of the Mary F. Vito Revocable Trust. Those interests subsequently were assigned by the latter trust to the Fund.

The Litigation and Post-Suit Amendment to the Irrevocable Trust

On August 9, 2013, in the Circuit Court for Montgomery County, Candace filed an eight count complaint against Michael, Judith, Tim, Mary, Brennan, Ethridge, and the Fund.

Counts I, II, IV, and V name Michael and Judith as defendants and concern the...