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In re Albert G. Aaron Living Trust

Court of Appeals of Maryland

March 26, 2018

IN THE MATTER OF THE ALBERT G. AARON LIVING TRUST

          Argued: November 2, 2017

          Circuit Court for Baltimore City Case No. 24-C-15-003610

          Barbera, C.J., Greene, Adkins, McDonald, Hotten, Getty, Rodowsky, Lawrence F. (Senior Judge, Specially Assigned), JJ.

          OPINION

          Barbera, C.J.

         This appeal reaches us from a dispute between Petitioners, certain interested parties and beneficiaries of a trust created by Albert G. Aaron, and Respondents, the Trustees appointed to execute and oversee the trust. One term of the trust agreement provided that a charitable foundation would be created unless Mr. Aaron was survived by his wife, in which case the foundation would not come into existence. Mr. Aaron's first wife predeceased him, but Mr. Aaron remarried. The parties dispute to which wife the provision should apply. Resolution of that dispute determines whether the charitable foundation survives.

         I.

         Facts and Procedural History

         The Trust

         During his life, Albert G. Aaron ("Mr. Aaron") transferred most of his assets to a revocable trust, the Albert G. Aaron Living Trust (the "Trust" or, when appropriate, the "Trust Agreement"). He created the Trust on August 27, 2008, restated it in full on August 10, 2009, and amended it eleven times between 2009 and 2013. Mr. Aaron was married to Eileen Aaron ("Eileen") for many years, but they were separated for the last several. Eileen died on November 1, 2012. On or about November 6, 2012, Mr. Aaron married Myrna Kaplan ("Myrna"), his long-time girlfriend.

         On January 10, 2013, Mr. Aaron executed the Eleventh Amendment to the Trust. It was the only amendment made after Eileen's death and Mr. Aaron's marriage to Myrna. At the time of that amendment, Mr. Aaron was battling esophageal cancer. On January 26, 2013, sixteen days after making the Eleventh Amendment, Mr. Aaron died at the age of 85. Myrna survived Mr. Aaron.

         Mr. Aaron and Eileen had one child together, Jonathan P. Aaron ("Jonathan"). Jonathan is married to Cheryl Aaron ("Cheryl"). Jonathan and Cheryl have two daughters, Theda R. Aaron ("Theda") and Lena S. Aaron ("Lena"). Myrna, Jonathan, Cheryl, Theda, Lena, and Frances A. Rossi ("Frances, " Mr. Aaron's long-time assistant) are beneficiaries of the Trust. All beneficiaries, aside from Myrna and several charitable organizations who are not parties to this appeal, are Petitioners here (hereinafter, collectively, the "Beneficiaries"). Upon Mr. Aaron's death, Respondents, Steven G. Albert and Howard E. Goldman, became the Trustees and Trust Advisors of the Trust.

         The various Articles of the Trust Agreement lay out the terms of the Trust. Article Two, "Family Information, " was never amended. It provided the following:

I am married to Eileen Aaron. Any reference in this agreement to "my wife" is a reference to Eileen Aaron.
* * *
I have also provided for the following individuals in this agreement:
Name Relationship

Myrna Kaplan Friend[.]

         Articles Six through Twelve provide for specific distributions of property and create several trusts: the "Marital Deduction Trust, " the "Exempt Marital Deduction Trust, " the "Non-Exempt Marital Deduction Trust, " the "Myrna Kaplan Trust, " the "Frances A. Rossi Trust, " and the "Grandchildren's Trusts." Article Thirteen of the Trust Agreement, Section 13.01, provides for the creation of a Consolidated Residuary Trust. The Consolidated Residuary Trust was created to hold the residuary of the trust property, so long as either Myrna or Frances was living. The beneficiaries of the Consolidated Residuary Trust are Myrna, Frances, Jonathan, Cheryl, and Jonathan's descendants (Theda and Lena). The Trustees were authorized to make distributions to those beneficiaries and to use it as a source of payment for obligations created under other Articles of the Trust Agreement. Section 13.02 directed that, on the death of both Myrna and Frances, the Consolidated Residuary Trust be terminated and its assets distributed in accordance with the subsequent sections of Article Thirteen. Once the Consolidated Residuary Trust was terminated, Section 13.03 directed the Trustees to designate 25% of the remaining trust property as the "Foundation Share" and the balance of 75% as the "Family Share."

         Section 13.04 directed the Trustees to use the Foundation Share to create the Aaron Family Foundation ("Foundation"), a private organization within the meaning of § 509(a) of the Internal Revenue Code and treated as tax-exempt under § 501(c)(3) of that Code. Section 13.04 contained the following contingent clause at issue:

If my wife survives me, this distribution shall lapse and the property subject to this distribution shall instead be distributed under the other provisions of this agreement.

(Emphasis added). Consequently, if Mr. Aaron outlived his wife, the Foundation would be created. But if his wife survived him, the distribution to the Foundation would lapse and Mr. Aaron's other beneficiaries-i.e., Jonathan, Cheryl, Theda, and Lena-would receive the remaining 25% of the Consolidated Residuary Trust. The next five pages of Section 13.04 stated the purpose of the Foundation, established an Advisory Committee to control its charitable activities, and detailed specific recurring distributions that the Foundation was to make, among other things.

         Mr. Aaron amended the Trust Agreement eleven times before his death. The majority of the changes in the first ten amendments concerned distributions to Myrna and Frances. Those amendments did not reference Section 13.04 and are largely irrelevant to the issue we decide.

         The Eleventh Amendment, however, made several significant changes to the Trust Agreement. It amended Section 6.01, which addressed the distribution of Mr. Aaron's automobiles, to add that "[t]he Jaguar is conveyed to Myrna Kaplan Aaron, my current wife." It also altered Section 6.04, which concerned the creation of a Marital Deduction Trust. The Amendment provided that "Section 6.04 originally intended to be relevant for provisions of my past deceased wife, Eileen Aaron, shall now be intended to be for my current wife, Myrna Kaplan Aaron." In addition, the amendment increased from $2 million to $8 million the amount to be allocated to the Marital Deduction Trust and provided that the Marital Deduction Trust should be used first to satisfy all distributions to Myrna. The Eleventh Amendment also "specifically revoke[d] the provisions of the First Amendment which provided that Sections 7.01, 7.02, 7.03, and 7.04 of Article Seven were to be deleted if my spouse survived me" and mandated that "such sections shall apply to Myrna Kaplan Aaron."

         Mr. Aaron made two other changes in the Eleventh Amendment that are worth noting. Mr. Aaron changed the composition of the Advisory Committee. Originally, the members were to be Jonathan, Myrna, Richard G. Wohltman ("Richard"), and Steven G. Albert. Paragraph E of the Eleventh Amendment removed Myrna and Richard from the Committee and provided that "[t]he remaining initial members shall select two other members so that there will be four members in total."[1] Mr. Aaron also amended Section 6.06, which concerned his real property interests, to provide in part that "[i]f Myrna Kaplan Aaron should predecease me, this distribution shall lapse[.]" Mr. Aaron referred either to "Myrna Kaplan Aaron" or "Myrna Kaplan" each time she was mentioned in the Eleventh Amendment.

         The Trust Advisors were authorized under Section 3.10(j) of the Trust Agreement to amend any provision of the agreement to "[c]orrect ambiguities, including scrivener errors, that might otherwise require court construction or reformation[.]" The Trust Advisors were not permitted to "limit or alter the rights of a beneficiary in any trust assets held by the trust before the amendment."

         The Court Proceedings

         Shortly after Mr. Aaron's death, Myrna requested certain payments from the Trustees pursuant to the amended Trust Agreement. The Trustees, believing the requested payment amounts to be excessive, filed for a declaratory judgment pursuant to Section 3-408 of the Courts and Judicial Proceedings Article and Maryland Rules 10-101 and 10-501.[2] The parties reached a settlement, memorialized in a Settlement Agreement. The Trustees then filed in the Circuit Court for Baltimore City a "Petition to Approve Settlement and Modify Trust." The Trustees requested the circuit court to assume jurisdiction over the Trust, approve the Settlement Agreement, and approve the Trustees' proposed restatement of the Trust Agreement (the "2016 restatement"). The intent of the proposed restatement was to simplify the original Trust Agreement and eleven amendments into one unified document that incorporated all of the changes. One change the Trustees proposed was to remove the clause in Section 13.04 containing the language "[i]f my wife survives me, this distribution [to the Foundation] shall lapse and the property subject to this distribution shall instead be distributed under the other provisions of this agreement." The Trustees reasoned that, upon Eileen's death in November 2012, the provision became unnecessary.

         On August 26, 2015, the circuit court issued a Show Cause Order directing the Beneficiaries to show cause why the petition should not be granted. At issue were three contentions raised by the Beneficiaries that are not relevant to this appeal. Then, on February 4, 2016, the Beneficiaries filed a Supplemental Response disputing the propriety of removing the "if my wife survives me" clause in Section 13.04. The Beneficiaries contended that a bequest providing for the creation of the Foundation had lapsed because, they argued, the term "my wife" referred not to Eileen but rather to Mr. Aaron's second wife, Myrna.

         After a hearing, the Honorable Althea M. Handy, ruling from the bench, granted the relief requested by the Trustees and approved the 2016 restatement. The court, reasoning that "once Ms. Eileen Aaron passed away[, ] . . . that was the critical date, " agreed with the Trustees that the reference to "my wife" in Section 13.04 of the Trust Agreement did not transfer automatically from Mr. Aaron's first wife, Eileen, to his second wife, Myrna.

         The Beneficiaries noted an appeal. The sole issue before the Court of Special Appeals, as it is here, was whether the circuit court had erred in approving the 2016 restatement and declaring, in particular, that the words "my wife" in Section 13.04 of the Trust Agreement refer to Eileen, not Myrna.

         The Court of Special Appeals affirmed the judgment of the circuit court. In a soundly reasoned, unreported opinion, the Honorable James R. Eyler, writing for the panel, held that the words "my wife" referred to Eileen; therefore, the distribution to the Foundation did not lapse. In the Matter of the Albert G. Aaron Living Trust, No. 253, slip op. at 4 (Md. Ct. Spec. App. Apr. 14, 2017). ...


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