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In re Donald Edwin Williams Revocable Trust

Court of Special Appeals of Maryland

November 1, 2017

IN THE MATTER OF THE DONALD EDWIN WILLIAMS REVOCABLE TRUST AND THE INDIVIDUAL BENEFICIARY TRUST OF LINDA L. SLACUM

         Circuit Court for Wicomico Count Case No. 22-C-15-001419

          Eyler, Deborah S., Leahy, Harrell, Glenn T., Jr. (Senior Judge, Specially Assigned), JJ.

          OPINION

          Eyler, Deborah S., J.

         This appeal is taken by the Donnie Williams Foundation, Inc. ("the Foundation") from an order of the Circuit Court for Wicomico County dismissing its petition for the court to assume jurisdiction over the Donald Edwin Williams Revocable Trust ("the Trust") and the Individual Beneficiary Trust of Linda L. Slacum ("the IBT") and to remove Linda L. Slacum, Kevin Myers, and William Smith, Esq., as trustees of those trusts ("the Trustees") (hereinafter "the Removal Action"). The Removal Action had been consolidated with a second action, also filed by the Foundation, asserting claims for constructive fraud, breach of fiduciary duty, negligence, an accounting, and unjust enrichment against the Trust, the IBT, and the Trustees, the appellees (hereinafter "the Damages Action"). The cases remained consolidated at the time the court dismissed the Removal Action.

         The Foundation presents six questions for review, which we have condensed and rephrased as two:

I. Did the circuit court err by ruling that a mutual release entered into between the parties (and others) concerning other litigation barred the Foundation from raising claims arising before April 22, 2014?
II. Did the circuit court err by finding that removing the Trustees was not warranted by their making principal distributions to Slacum before funding the IBT; by their taking more than two years to fund the IBT; by the delays in distributions to the Foundation; by the delays in disclosures to the Foundation; or by their taking large commissions?

         As a threshold matter, the Trustees have moved to dismiss the appeal, arguing that there is not a final, appealable judgment. The Foundation has opposed that motion. For the following reasons, we shall grant the motion to dismiss the appeal.

         FACTS AND PROCEEDINGS

         Donald E. Williams ("Williams" or "Settlor") committed suicide on May 17, 2012, when he was 59 years old. He had been a successful real estate developer in Salisbury and died with assets valued at nearly $40 million. He was divorced and had no children. Both his mother, Loretta Williams ("Loretta"), and his father predeceased him in the year before his death. He had two brothers. Slacum was his companion for more than a decade.

         a.

         The Estate Plan

         About eighteen months before his death, Williams engaged the services of an attorney to design an estate plan. On June 9, 2011, he executed his will ("Will"); established the Trust; and signed Articles of Incorporation ("Articles") creating the Foundation.

         The Will named Debra Hall, a longtime employee and friend, as Williams's personal representative ("PR"); and, if she could not serve, it named Myers, a certified public accountant ("CPA") who also had worked for Williams for many years, as substitute PR. After Williams's debts and liabilities were paid, the Will was to "pour over" all of his remaining assets into the Trust.

         The Trust was an inter vivos revocable trust to be "managed for Settlor's benefit during [his] lifetime and distributed to the beneficiaries . . . upon [his] death." § 1.03. As we shall discuss, the Trust beneficiaries were the Foundation and Slacum. During Williams's lifetime, he would serve as the Trustee unless and until he became incapacitated. He was authorized to pay himself from the net income or principal of the Trust assets, "even to the extent of exhausting principal, " for any expenses he deemed necessary or desirable. § 3.01.

         Upon Williams's death, the Trustees were to "follow any directions of the [PR]" regarding the payment of funeral expenses and other debts, § 4.02, and were authorized to pay any tax liabilities and any "other costs incurred in administering the deceased Settlor's estate." § 4.03. Certain motor vehicles and watercraft were to be distributed to Loretta, free of trust, but as mentioned, she predeceased Williams. After the payment of expenses, taxes, and any other debts, and the distribution of the assets to Loretta, the Trustees were to "pay the remaining principal and undistributed income (collectively the "Residuary Assets") as hereafter provided." § 4.06. The Trustees were directed to set aside assets in "an amount equal to the unified credit applicable to the Settlor's estate pursuant to Section 2010 of the Internal Revenue Code of 1986, as amended, and the state death tax credit (provided use of the state death tax credit does not require an increase in the state death taxes paid) . . . ." § 4.07. These assets were denoted the "[IBT] Assets."[1]

         The Trustees were to "divide the remaining [IBT] Assets . . . into . . . separate trusts" for the benefit of individual beneficiaries "in accordance" with certain percentage interests set forth in the Trust. § 4.11. At the time of Williams's death, the individual beneficiaries were Slacum (80%) and Loretta (20%).[2] Each individual beneficiary of an IBT was entitled to be paid the "net income earned" by her IBT at least quarterly until the IBT terminated upon her qualifying for Medicaid or dying, whichever occurred first. § 4.13. At the termination of the IBT, the principal balance and any remaining undistributed income was to be distributed outright and free of trust to the Foundation. § 4.15.

         Aside from the IBT Assets, all of the remaining Residuary Assets were to be distributed to the Foundation outright and free of trust. § 4.16. If the Foundation was no longer in existence or otherwise failed to qualify as a section 501(c)(3) organization, the Trustees were to distribute the remaining assets to other nonprofit organizations serving similar purposes as the Foundation. § 4.17.

         To administer the Trust, the Trustees were accorded "all powers, authorities and discretions granted by common law, statute, and under any rule of court." § 5.01. They further were "expressly authorized and empowered" in their "sole and absolute discretion" without prior court approval to, inter alia, invest and reinvest assets; dispose of property owned by the Trust; pay, compromise, or settle any claims or demands lodged against the Trust; and make, execute, acknowledge and deliver deeds or other transfers of property. Id. The Trustees could not be held liable for "any loss or depreciation in the value of any trust, created herein, " occasioned by investments or reinvestments of Trust assets made in good faith while exercising due care. § 5.02. Decisions concerning distributions to the individual beneficiaries who also were Trustees were to be made by the independent Trustees. § 5.03.

         Pursuant to a "Spendthrift Provisions and Facility of Payments" section of the Trust, the Trustees were to "make . . . payments . . . directly to the beneficiary entitled to them and not to any other person" except as otherwise specified. § 6.01. The Trustees were granted

the further power to make payments of any income or principal for a beneficiary (i) directly to the beneficiary; (ii) to the individual who is, in the judgment of the Trustee, in proper charge of such person, regardless of whether there is a court order to that effect; (iii) in the case of a minor, to a custodian for the minor named by the Trustee, to held [sic] as a gift under the Maryland Uniform Transfers to Minors Act, with the custodial arrangement continuing until the beneficiary reaches twenty-one (21) years of age; or (iv) by paying or applying any part or all thereof for a beneficiary's benefit or on a beneficiary's behalf . . . .

§ 6.02. These powers could be exercised "without any necessity of obtaining . . . approval of any court, and such payments made in good faith shall be deemed proper and shall be a complete release and acquittance of the Trustee therefor." Id. The Trustees were further empowered to "make discretionary payments of income or principal to any person after taking into consideration, or without taking into consideration, as the Trustee deems appropriate, any other income or financial resources reasonably available to said beneficiary." § 6.03.

         Loretta, Hall, and Myers were named as successor co-Trustees. § 7.03. Williams later amended the Trust to name Slacum as a successor co-Trustee in place of Hall and Loretta. See July 27, 2011 Amendment.[3] He did not name a third successor co-Trustee, but also did not delete the provision of the Trust stating that there "shall always be at least three (3) individual Trustees . . . ." § 7.03. The successor Trustees were granted all the powers possessed by the Settlor as the initial Trustee. § 7.09.

         The Articles of Incorporation for the Foundation established it for "educational and charitable purposes." Specifically, it was to support the schools in Wicomico, Worcester, and St. Mary's Counties by furnishing tutoring programs, after school homework assistance, and after school activities to provide a safe environment and to encourage physical activity. The Foundation would have as many as seven directors, but never less than three. The Articles named Williams, Hall, Myers, and four other individuals-Gregory Johnson, Mark Granger, Kimberly Granger, and Kirk Kinnamon- as the directors.

         b.

         The Administration of the Estate and the Trust

         At the time of his death on May 17, 2012, Williams's estate ("the Estate") was valued at approximately $3, 500, 000 in assets and his Trust held $35, 000, 000 in assets. The Trust assets included five properties leased to CVS stores with complex "mezzanine financing"; two properties leased to Dollar General Stores; 130 unimproved lots; several improved residential lots; stocks; and some cash. Much of the real property was held by LLCs.

         Almost immediately upon Williams's death, Hall as PR, on the one hand, and Slacum and Myers, as Trustees, [4] on the other, became embroiled in a series of battles over the payment of expenses and debts; the distribution of assets; and the disclosure of information. One disputed issue concerned the amount of assets to be set aside to fund the IBT (which due to Loretta's death was solely for Slacum's benefit). As noted, section 4.07 of the Trust required that assets with value equivalent to "the unified credit applicable to the Settlor's estate pursuant to Section 2010 of the Internal Revenue Code of 1986" be set aside to fund the IBT. The referenced regulation did not exist when the Trust was executed, however. The Estate took the position that the IBT should be funded with just over $1 million in assets and the Trustees took the position that it should be funded with over $5 million in assets. The parties also disagreed as to whether the value of assets set aside for the IBT should be reduced by 20% to account for Loretta's share in light of her death or whether the IBT should be fully funded.

         In the second half of 2013, five lawsuits concerning the Trust and the Estate were filed. Within the probate case, the Trustees sought to have Hall removed as PR, see Linda L. Slacum et al. v. Debra W. Hall, Case No. 22-C-13-001377, and in a second suit they sued the Estate seeking declaratory relief construing the Trust provisions pertaining to the IBT funding amount, the number of Trustees, and other issues. See Linda L. Slacum, et al. v. Debra W. Hall, et al., Case No. 22-C-13-001669. The Trustees filed two appeals from decisions of the Orphans' Court for Wicomico County in the probate case. See Linda L. Slacum, et al. v. Debra W. Hall, Case No. 22-C-13-001968; Linda L. Slacum, et al. v. Debra W. Hall, Case No. 22-C-13-002102. Hall sued the Trust, also seeking declaratory relief pertaining to the funding of the IBT. See Debra W. Hall v. Donald Edwin Williams Revocable Trust, Case. No. 22-C-13-001496. Hall's suit was voluntarily dismissed that same year. The Foundation was named as an interested party in the lawsuits concerning the amount of the funding of the IBT because until the amount of the IBT set-aside was determined the Foundation could not receive any distributions of Trust assets.[5]

         On March 12, 2014, the Trustees, Hall, the Foundation, Slacum, and Robert Hall participated in mediation with a retired circuit court judge concerning the pending litigation.[6] As a result, on April 22, 2014, they executed a Settlement and Release Agreement and Release ("SAR"). The recitals in the SAR state that

disputes [had] arisen between Ms. Hall, the Trustees and the Trust, and the Foundation with respect to, among other things, the disposition of the assets of the Estate, the disposition of the assets of the Trust, the interpretation of provisions of the Revocable Trust Agreement . . ., Ms. Hall's service as [PR], the Commissions claimed by Ms. Hall as [PR], and the compensation claimed by Ms. Hall's attorneys [and that those disputes had given rise to the lawsuits discussed above].

         The parties wished to "compromise and resolve the claims raised or which could have been raised in [those lawsuits] and any claims relating to, pertaining to or arising out of the subject matter of [those lawsuits] or the administration of the Estate." They agreed to "finally compromise and settle all issues that have been raised or which could have been raised between them in the [lawsuits] or otherwise" in accordance with the following pertinent terms.

         The Foundation agreed to sign a non-disclosure agreement ("NDA"). The Trust and the Estate agreed that, after the NDA was executed, they would furnish the Foundation with copies of federal and state estate tax returns; all fiduciary tax returns with all schedules; and "[s]uch other documents as the Foundation might reasonably require to perform its responsibilities."

         In consideration for these promises, the parties entered into a "Mutual Release" agreeing to "release one another" and their agents, successors, and assigns,

from and against any and all actions, causes of action, suits, . . . controversies, . . . counterclaims, claims, and demands whatsoever, whether known or unknown, that relate to the subject matter of this Agreement, the Estate and/or [the lawsuits] and/or that were or could have been asserted in the Estate and/or [the lawsuits], [excepting claims that could be brought against the drafters of the Will, the Trust, and the Articles.]

         Numerous exhibits were attached to the SAR, including a "Joint Stipulation as to Interpretation of Trust Agreement." As pertinent, the parties stipulated that the IBT should be funded in the "maximum amount that could pass free of federal estate taxes, " which was determined to be $5, 120, 000, and that Loretta's 20% share of those assets "was not intended to remain a part of the Residuary Assets to be distributed to the Foundation."

         After the SAR was fully executed, the Trustees liquidated numerous assets held by the Trust, including the five CVS stores and many unimproved lots. They paid themselves ...


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