Vito v. Grueff

453 Md. 88

160 A.3d 592

Michael VITO, et al.

v.Candace GRUEFF

No. 75, Sept. Term, 2016

Court of Appeals of Maryland.

May 22, 2017

ARGUED BY Glenn C. Etelson (Shulman, Rogers, Gandal, Pordy & Ecker, P.A., Potomac, MD), on brief, for Petitioners

ARGUED BY Damon K. Bernstein (Law Office of Damon K. Bernstein, Rockville, MD; Daniel J. Healy, Anderson Kill, L.L.P., Washington, DC), on brief, for Respondent

Barbera, C.J., Greene, Adkins, McDonald, Watts, Getty, JJ.

Watts, J.

This case involves four siblings who were beneficiaries under an irrevocable trust that was established by their father, the trust's settlor.¹ Three of the four siblings attempted to remove the fourth sibling as a beneficiary of the irrevocable trust by relying on a provision of the irrevocable trust that permitted 75% of the beneficiaries to amend the terms of the trust.

In this context, we are asked to decide whether the modification authority that is granted to the beneficiaries of a trust may be used to divest one of the beneficiaries from benefits of the trust where the trust was explicitly established to benefit all beneficiaries equally. Here, the settlor established an irrevocable trust for the benefit of his four adult children. Included in the trust instrument is a modification provision that provides authority for the beneficiaries to alter, amend, or revoke the terms of the trust if 75% of the beneficiaries vote in favor of such action. The modification provision did not specifically grant authority to remove a beneficiary, but rather allowed 75% of the beneficiaries to alter, amend, or revoke the terms of the trust pursuant to the terms of the modification provision. Thirty years after the trust was created, three of the four beneficiaries executed an amendment under the modification provision purporting to remove the fourth beneficiary as a beneficiary of the trust.

Considering the language of the entire trust instrument, we hold that the plain language of the modification provision does not grant authority for three beneficiaries of the trust to remove the fourth beneficiary, and that the irrevocable trust clearly evinces the settlor's intent for the trust to benefit his four children—the four beneficiaries—equally. An interpretation of the trust instrument that would permit three of the settlor's children to divest the fourth would contravene the settlor's intent and be inconsistent with the plain language of the irrevocable trust. We conclude that the amendment at issue—in which three of the four beneficiaries purported to divest the fourth beneficiary—was impermissible under the terms of the irrevocable trust.

BACKGROUND

On September 16, 1983, James Vito ("Vito") established an irrevocable trust, entitled the "James B. Vito Family Trust" ("the irrevocable trust"), naming his four children, Michael Vito ("Michael"), Judith Vito Seal ("Judith"), John Timothy Vito ("Timothy"), and Candace Vito Grueff ("Candace") (together, "the beneficiaries"), as beneficiaries.² At the time, Vito owned a contract to purchase property improved by a building in Rochester, New York. The preamble of the irrevocable trust states that Vito intended to give the contract to purchase property to the trust as a gift "for the immediate benefit of [Vito's] children, namely, CANDACE VITO GRUEFF, JUDITH A. VITO, MICHAEL A. VITO, and JOHN T. VITO (hereinafter referred to as the 'Beneficial Owners' or 'Beneficiaries') of the fee interest in said property in which [Vito was] the owner of all buildings and improvements thereon[.]" The preamble further provides that Vito granted "all [Vito's] right, title and interest in and to the fee interest in said property ... in equal shares, for [Vito's] children, CANDACE VITO GRUEFF, JUDITH A. VITO, MICHAEL A. VITO, and JOHN T. VITO," thereby establishing "a Trust Fund subject to the terms and conditions [therein] under which the Trustee agree[d] to hold said fund ... for the benefit of and in behalf of [Vito]'s said children[.]"

Following the preamble, the irrevocable trust sets forth fifteen individually numbered items, including, in relevant part:

SECOND : The Settlor shall pay all transfer or recordation taxes and costs of settlement and title insurance on the purchase of the subject property and thereafter the Trustee shall hold the legal title to Trust Property subject to the Bill of Sale, Lease and Memorandum of Gift between the parties and shall collect and receive all payments coming due on account thereof, whether rents, dividends, interest and/or principal in behalf of and for the benefit of the beneficiaries and the Trustee shall pay out of sums collected on such assets, first out of income, and to the extent necessary from principal, all taxes and other proper charges of the administration thereof. In addition, 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.

* * *

FOURTH : This Trust shall terminate sixteen (16) years from the date hereof unless sooner terminated as hereinafter provided (unless the Settlor–Tenant exercises his option to renew the Lease for ten (10) years, in which case the term of the Trust shall also be extended). Upon the termination of this Trust, whether at the end of said sixteen (16) years or prior thereto (or after expiration of the option period) the Trust Estate then held by the Trustee shall be paid over, transferred and delivered to the beneficiaries in the shares set forth in Item SIXTH below, free of all Trusts.

* * *

SIXTH : If at any time the assets comprising the Trust estate shall have been liquidated and all of the aforesaid assumed obligations or liens or encumbrances on the Trust property have been satisfied, the Trustee shall, after setting aside an amount which in his judgment will be sufficient to provide for the payment of any taxes and/or costs of administration, pay over and distribute the remaining assets, exclusive of the reserve for taxes and/or costs, to the beneficiaries free of all Trust, in the shares listed below:

CANDACE VITO GRUEFF     25%
JUDITH A. VITO          25%
MICHAEL A. VITO         25%
JOHN T. VITO            25%
                        ____
                        100%

* * *

EIGHTH : In the event of the death of any of the issue of Settlor, prior to the termination of this Trust, the beneficial interest herein of such deceased person shall pass to his or her estate.

* * *

TENTH : 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.

Prior to the amendment at issue in the instant case, the irrevocable trust had been amended four times, pursuant to the protocol set forth in Item Tenth requiring consent of 75% of the beneficiaries to alter, amend, or revoke the terms of the irrevocable trust. Specifically, in 1995, Judith, Michael, and Timothy first amended the irrevocable trust to appoint John F. Brennan, Esquire ("Brennan") as the successor to the original trustee, Paul Vito ("Amendment I"). In 1999, all of the beneficiaries—Judith, Michael, Timothy, and Candace—amended the irrevocable trust to extend its duration until Vito's death or December 31, 2019, whichever occurred first ("Amendment II"); pursuant to Item Fourth, the irrevocable trust was originally intended to expire after sixteen years. In 2003, all of the beneficiaries extended the trust termination date to December 31, 2024 ("Amendment III"). In Amendment III, the beneficiaries empowered the trustee to enter into certain indemnification agreements on behalf of the trust. In 2012, Judith, Michael, and Timothy amended the irrevocable trust to appoint Judith and Michael as successor trustees to Brennan ("Amendment IV").³

In the midst of the amendments, the beneficiaries became embroiled in litigation. In 1999, Vito created a separate, revocable trust ("the revocable trust"), identifying himself, his wife, Mary Vito ("Mary"), and Brennan as the trustees. The revocable trust was funded by Vito's commercial real estate holdings and other property. On December 15, 2004, Vito executed an amendment to the revocable trust restating its terms. The amended revocable trust established a residuary trust, separate from a marital trust, under which Vito's four children had an interest. In April 2011, Vito amended the revocable trust as the settlor, and Vito, Mary, and Brennan amended the revocable trust as trustees, specifying that Candace's 25% interest in an entity known as James Properties II, LLC would be reduced by a 10% interest that had been previously granted to Candace's son. Each of Judith, Timothy, and Michael retained a 25% interest in James Properties II, LLC. Candace subsequently filed a guardianship proceeding, alleging that Vito had dementia, that Michael and Judith had taken advantage of Vito, and that Michael and Judith had convinced Brennan to draft the amendment without informing Vito and Mary of its implications.⁴ The parties settled the guardianship matter with the appointment of Paul H. Ethridge, Esquire ("Ethridge") and Mary as co-guardians of Vito's property.

On August 9, 2013, with respect to both the irrevocable trust and the revocable trust, Candace, Respondent, filed in the Circuit Court for Montgomery County ("the circuit court") a "Complaint to Remove Trustees, For Breach of Fiduciary Duty, to Appoint Successor Trustees, For Negligence, For Monies Had and Received, To Set Aside Improper Conveyances and For an Accounting and Other Relief, Including Money Damages" against Mary in her capacity as a co-guardian of Vito's property, Ethridge in his capacity as a co-guardian of Vito's property, Michael, Judith, Timothy, Brennan, and MFV Annuity Fund, LLC. In the complaint, Candace alleged that Michael and Judith, Petitioners, were...