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Vito v. Grueff

Court of Appeals of Maryland

May 22, 2017

MICHAEL VITO ET AL.
v.
CANDACE GRUEFF

          Argued: March 31, 2017

         Circuit Court for Montgomery County Case No. 380035-V

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

          OPINION

          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 misallocating funds from both trusts. Candace requested that the circuit court remove Michael and Judith as trustees of the irrevocable trust and appoint a successor trustee. Candace also sought, among other things, to require Michael and Judith to provide a full accounting of any funds taken from the trusts.

         On October 21, 2013, subsequent to the filing of Candace's complaint, pursuant to the modification provision of the irrevocable trust-Item Tenth-Judith, Michael, and Timothy executed the amendment to the irrevocable trust purporting to remove Candace as a beneficiary under the irrevocable trust. This was the fifth amendment ("Amendment V") to the irrevocable trust, which provides:

Pursuant to Article [(Item)] Tenth[5] of the JAMES B. VITO FAMILY TRUST, dated September 16, 1983, as amended by Amendment I to the James B. Vito Family Trust dated March 8, 1995, and as further amended by Amendment II to the James B. Vito Family Trust dated September 1, 1999, Amendment III to the James B. Vito Family Trust dated June 16, 2003, and a fourth amendment incorrectly identified as Amendment III to the James B. Vito Family Trust dated May 21, 2012 (collectively, the "Trust"), the undersigned, being seventy-five percent (75%) of the beneficial owners of the Trust, hereby amend the Trust as follows:
1. [Item] Sixth is hereby deleted in its entirety and replaced as follows:
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:
JUDITH VITO SEAL
33 1/3%
MICHAEL A. VITO
33 1/3%
JOHN T. VITO
33 1/3%
All other terms and conditions of the Trust shall remain unchanged and continue in full force and effect.
This Amendment may be executed in counterparts, each of which, when so executed, will be deemed an original, and all of which, taken together, shall constitute one instrument.

         Less than two weeks later, on November 1, 2013, Judith and Michael filed in the circuit court a "Motion to Dismiss and/or For Summary Judgment" as to Counts I and V, which pertained to removal of Michael and Judith as trustees of the irrevocable trust and the request for an accounting of their dealings with regard to the irrevocable trust. In the motion, Michael and Judith claimed that Candace lacked standing to challenge their appointment as trustees because she was no longer a beneficiary of the irrevocable trust, contending:

Finally, pursuant to Amendment V to the James B. Vito Family Trust ("Amendment"), attached hereto as Exhibit 1, [Candace] is no longer a beneficiary, income or otherwise, of the [irrevocable] Trust. The Amendment amended [Item] Sixth of the Family Trust, which controls the disbursement of current income and proceeds upon the termination of the [irrevocable] Trust. Although when suit was filed, [Candace] was an income beneficiary and a one-fourth (1/4) remainder beneficiary, on October 21, 2013, pursuant to [Item] Tenth of the [irrevocable] Trust, three-fourths (3/4) of the beneficial owners agreed to modify [Item] Sixth, replacing it with a new [Item] Sixth. [Candace] is not an income beneficiary under the new [Item] Sixth as of October 21, 2013. Thus, since she is no longer a current income beneficiary of the [irrevocable] Trust nor a residual beneficiary, she lacks standing to bring her request for removal of Michael and Judith as Trustees.

(Bolding in original). Similarly, Michael and Judith argued that Candace lacked standing to request an accounting of any transaction involving the irrevocable trust that occurred after October 21, 2013, the date on which Amendment V was executed. In addition to the motion to dismiss and/or for summary judgment that Michael and Judith filed, there were two other motions to dismiss Candace's complaint filed: one by Timothy and MFV Annuity Fund, LLC, and a second by Mary and Brennan.

         On December 19, 2013, the circuit court conducted a hearing on the motions. On January 27, 2014, the circuit court issued an opinion and order granting all of the motions to dismiss, including Michael's and Judith's motion to dismiss and/or for summary judgment. In ruling on Michael's and Judith's motion, the circuit court found that Candace lacked standing to bring her claims. Specifically, the circuit court concluded that Item Tenth could be used to remove a beneficiary from the irrevocable trust; thus, by virtue of Amendment V, Candace was no longer a beneficiary with standing to seek removal of Michael and Judith as trustees of the irrevocable trust, and to seek an accounting for transactions that occurred after October 21, 2013. The circuit court also found Item Tenth "to be a valid and enforceable contractual provision."

         On February 5, 2014, Candace filed a motion to alter or amend the circuit court's judgment. On May 8, 2014, the circuit court held a hearing on the motion to alter or amend. During the hearing, the circuit court clarified that its order granting Michael's and Judith's motion to dismiss and/or for summary judgment was partial. On the same day as the hearing, the circuit court issued an Order Amending Opinion and Order docketed on January 29, 2014, in which the circuit court explained "that only partial summary judgment has been entered in favor of the defendants, Michael [] and Judith [], on Count V of [Candace]'s complaint, and [Candace]'s claim for an accounting for the period of time up to October 21, 2013, shall remain pending." On November 3, 2014, the parties filed a line of dismissal, asking that the remaining pending counts of the complaint be dismissed with prejudice. Two days later, on November 5, 2014, Vito died.

         On November 7, 2014, Candace noted an appeal to the Court of Special Appeals. On August 31, 2016, in a reported opinion, the Court of Special Appeals reversed, in part, the circuit court's judgment, by reversing the dismissal of Counts I and V, which pertained to removal of Michael and Judith as trustees of the irrevocable trust and the request for an accounting of their dealings with regard to the irrevocable trust, and otherwise affirmed the circuit court's judgment. See Grueff v. Vito, 229 Md.App. 353, 385, 145 A.3d 86, 104 (2016). The Court of Special Appeals held "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." Id. at 356, 145 A.3d at 87. Specifically, the Court of Special Appeals observed that interpreting the irrevocable trust to allow three of four siblings to divest the fourth would contravene Vito's clearly stated intent, which was to benefit his four children equally. See id. at 373, 145 A.3d at 98. The Court of Special Appeals stated: "When the [irrevocable] trust instrument is considered as a whole, a reading of [the 75% rule] to allow the holders of a 75% interest, i.e., three children, to divest the holder of the remaining 25% interest, i.e., one child, of that interest is inconsistent with [Vito]'s clear intention to benefit all four of his children, and to do so equally." Id. at 373, 145 A.3d at 98. Thus, the Court of Special Appeals reversed the circuit court's judgment as to Counts I and V with respect to Michael and Judith. See id. at 385, 145 A.3d at 104.

         On October 14, 2016, Michael and Judith filed in this Court a petition for a writ of certiorari, posing the following question:

Whether the [Court of Special Appeals] erred in reversing the Circuit Court and ignored the intent of the settlor, as expressed in the plain and unambiguous language of the Trust instrument, by holding an amendment clause cannot be used to modify the beneficiary section of the Trust, even though the amendment complied with the plain language of the amendment clause?

         On December 2, 2016, we granted the petition. See Vito v. Grueff, 450 Md. 664, 150 A.3d 819 (2016).

         DISCUSSION

         The Parties' Contentions

         Michael and Judith contend that the Court of Special Appeals's decision, reversing the judgment of the circuit court as to Counts I and V, was not based on established Maryland law, but rather was fashioned to avoid an "undesirable result"-the divestment of Candace. Michael and Judith argue that the Court of Special Appeals failed to give the language of Item Tenth its plain meaning, which, in their view, grants the beneficiaries broad discretion to modify the irrevocable trust, including the authority to divest a beneficiary. Relying on principles of contract interpretation, Michael and Judith assert that the Court of Special Appeals was prohibited from considering provisions outside of Item Tenth unless the Court determined that the language of Item Tenth was ambiguous. Michael and Judith maintain that, in rejecting the use of the 75% rule to amend Item Sixth, the Court of Special Appeals substituted its judgment for Vito's clearly stated intent.

         Candace responds that the Court of Special Appeals correctly determined that Michael's and Judith's interpretation of Item Tenth contravened Vito's intent, which was to have the irrevocable trust benefit his four children equally. Candace contends that the Court of Special Appeals properly considered the language of the irrevocable trust in its entirety in determining the scope of Item Tenth. According to Candace, language throughout the irrevocable trust demonstrates that Vito intended the irrevocable trust to benefit all four children and, thus, any amendment divesting one child would contravene that intent. Candace argues that Amendment V violates well-established Maryland law regarding testamentary power of appointment, which prohibits beneficiaries from unilaterally taking a greater share of trust property for themselves.

         In reply, Michael and Judith contend that Vito's intent, as expressed in the irrevocable trust, comports with their interpretation of Item Tenth. Michael and Judith argue that, considering the irrevocable trust as a whole, nothing contained therein contradicts the validity of the divestment of Candace under Item Tenth. Michael and Judith assert that Item Tenth provides for broad amendment authority that is to be exercised by 75% of the beneficiaries. Michael and Judith maintain that any amendment to the irrevocable trust, including the first four amendments, would alter its original intent. Michael and Judith contend that Candace's objection to ...


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