Hastings v. PNC Bank, NA
| Decision Date | 27 September 2012 |
| Docket Number | No. 109,109 |
| Parties | BARBARA HASTINGS, ET AL. v. PNC BANK, NA |
| Court | Court of Special Appeals of Maryland |
Barbara Hastings, et al. v. PNC Bank, NA, No. 109, September Term 2011
ESTATES AND TRUSTS S TRUSTEES S REQUESTS FOR WAIVERS OF LIABILITY AND INDEMNIFICATION AGREEMENTS S A trustee who requests from the trust beneficiaries execution of an agreement that protects and indemnifies the trustee against all losses, claims, and costs does not violate the duty of loyalty. A request for consent to a course of action cannot constitute a breach. Moreover, the terms of the requested waiver in this case were not so one-sided as to constitute a placing of the trustee's interest before the trust beneficiaries' interest.
TAX S INHERITANCE TAX S EXEMPTION FROM INCOME ON PROBATE ASSETS S APPLICABILITY TO TRUST ASSETS S The assets of a testamentary trust, after passing through administration and being contributed to fund the trust, are not "probate assets" within the ambit of Maryland Code, Tax-General Article, § 7-203(j). The value of income that accrues on those assets, therefore, is not exempt from the calculation of inheritance tax. The tax is paid on the value of the trust assets at the time that the taxpayer makes payment.
Case No. 03-C-08-004985
Opinion by Barbera, J.
Petitioners, Barbara Hastings, R. Cort Kirkwood, and Ann K. Robinson are beneficiaries of a testamentary trust who have sued the trustee, Respondent PNC Bank, NA (PNC). Petitioners allege that PNC improperly demanded that each beneficiary execute a broad release agreement prior to distribution and misapplied the provisions of the Maryland Code, Tax-General Article,1 in calculating the amount of inheritance tax owed on the trust's assets and the amount of commission to which PNC was entitled as trustee. The Circuit Court for Baltimore County granted summary judgment in PNC's favor, finding no legal impropriety in PNC's distribution plan or its calculation of the tax and commission. Petitioners appealed and the Court of Special Appeals affirmed the Circuit Court in an unreported opinion. We granted certiorari to decide whether PNC's actions are in accord with Maryland law and, for the reasons that follow, hold that they are. We therefore affirm.
In 1995, Marion W. Bevard executed a Last Will and Testament that directed the disposition of his estate by, in part, providing for the establishment of a trust. The will appointed Mercantile Safe Deposit and Trust Company (Mercantile) to serve as trustee and mandated that the trust be divided into four equal shares. The will granted one of those shares to Marion's sister, Rebecca "Reba" Bevard, for the duration of her life (the Trust). Following Marion's death in February 2002, his estate was probated in the Orphans' Court for Baltimore County. Pursuant to the terms of the will, the personal representative of the estate established the Trust and funded it with a $450,450.98 contribution. Under the termsof the Trust, Reba was to receive income from the Trust as well as discretionary distributions of the Trust principal, for life. Upon her death, the remainder of the Trust was to be distributed to Robert B. Kirkwood and, if he died before Reba, the remainder was to be distributed in equal shares to his descendants. The Trust, therefore, had two components: the life estate created for the benefit of Reba, see § 7-201(c)(2)(i), and the remainder interest, which qualifies as a "subsequent interest" for tax purposes, created for the benefit of Robert B. Kirkwood or his descendants, see § 7-201(e)(1).
Robert B. Kirkwood predeceased Reba, who died on October 11, 2007. Therefore, upon Reba's death, the remainder of the Trust—the subsequent interest—passed to Robert B. Kirkwood's four children: Petitioners Barbara Hastings, R. Cort Kirkwood, and Ann K. Robinson; and their brother, Robert Garth Kirkwood. Because Reba was the testator's sister, the income and principal she received through the Trust was not subject to inheritance tax. See § 7-203(b)(2)(vii). Petitioners and their brother, however, inherited as collateral heirs, so they were obligated to pay ten percent (10%) of the value of the assets on the subsequent interest in the Trust.2 The inheritance tax was owed, prior to distribution of the assets to Petitioners and their brother, because the personal representative had not opted to prepay thetax on the subsequent interest, as authorized by § 7-219, at the time the Trust was created.3
Thus PNC, as the successor trustee to Mercantile, filed an Application to Fix Inheritance Tax on Non-Probate Assets with the Register of Wills for Baltimore County on December 8, 2007. In its filing, PNC reported that the Trust had a fair market value of $261,306.72 on the date of Reba's death, October 11, 2007. Of that amount, approximately $218,100.00constituted the remainder of the original $450,450.98 principal contributed by Marion's estate, and the remaining approximate $42,200.00 was income earned on that principal. To calculate the necessary inheritance tax and commission it was entitled to draw as trustee, PNC used the fair market value of the Trust—$261,306.72. PNC first subtracted a one-half percent final-distribution commission ($1306.53), to which it was statutorily entitled according to § 14-103(e) of the Maryland Code (2001, 2011 Repl. Vol.), Estates and Trusts Article (ET),4 as well as a separate trustee fee ($366.69). From the resultant difference of $259,633.50, PNC applied the ten percent inheritance tax rate. Consequently, PNC tendered a $25,963.35 check to pay the inheritance tax, drawn from the Trust account, that was accepted and recorded by the Register of Wills on December 17, 2007.
With the inheritance tax paid, PNC began the task of distributing the Trust's assets to the beneficiaries. To that end, PNC sent to each Petitioner and Robert Kirkwood a letter that included, among other things, an accounting of the entire Trust and a "Waiver, Receipt, Release and Indemnification Agreement" (Release Agreement). The letter directed that, if the beneficiaries approved of the accounting, they should sign the attached Release Agreement and return it to PNC. The letter further explained that, "[u]pon receipt of theexecuted Releases from all of the [beneficiaries], we will be in a position to have the cash disbursed."
The Release Agreement provided that "the Trust has terminated; and . . . the parties in interest have requested that PNC distribute the Trust assets . . . without the filing, audit and adjudication of an account of PNC's administration of the Trust with a court of competent jurisdiction." In consideration of terminating the Trust by "settl[ing] PNC's administration of the Trust on an informal basis without having an accounting filed with [a] Court," the Release Agreement requested, among a number of items, that the beneficiaries: (1) acknowledge that they had consulted with an attorney (or had chosen affirmatively not to do so); (2) declare that they had reviewed the books, records, and statements of the Trust, and; (3) approve of PNC's handling and administration of the Trust. Pertinent to this appeal, the Release Agreement contained a clause releasing PNC from liability and requiring the beneficiaries to indemnify PNC for certain expenses attached to the termination of the Trust (release and indemnity clause). That clause read:
[E]ach of the undersigned hereby: . . . Releases, indemnifies and holds PNC, in its corporate capacity and as Trustee, harmless from and against any and all losses, claims, demands, surcharges, causes of action, costs and expenses (including legal fees), which may arise from its administration of the Trust, including, but not limited to, the overall investment strategy of the Trustee, all decisions made and actions taken or not taken with regard to the administration of the Trust, and PNC's distribution of the assets to the Beneficiaries as set forth on the attached schedule.
By letter dated January 2, 2008, John M. Robinson, an attorney and the husband of one of the Petitioners, Ann K. Robinson, objected on behalf of all four beneficiaries to PNC'splan for distribution of the Tru st assets. The objection touched off a flurry of correspondence between Mr. Robinson and PNC during the subsequent four months. Mr. Robinson voiced two major objections on behalf of the beneficiaries: (1) the release and indemnity clause was far too favorable to PNC and the beneficiaries could not be required to execute it before receiving their distributions; and (2) PNC misinterpreted provisions of the Tax-General Article, which caused it to over-calculate its commission and the inheritance tax owed on the Trust assets. The beneficiaries therefore demanded an immediate distribution of the Trust assets and the return of overpaid monies paid to the Register of Wills on the Trust's behalf.
In response, PNC defended its calculation of the inheritance tax and explained that execution of the Release Agreem ent, including execution of the release and indemnity clause, was not a required step towards obtaining a distribution. PNC advised that, instead of utilizing a private agreement, under Maryland law it could petition a court for a final accounting and termination of the Trust to obtain the protection it had sought in the release and indemnity clause. The agreement and clause were offered to the beneficiaries as a matter of industry practice, "since the majority of beneficiaries prefer to terminate their trust via private agreement instead of petitioning a court." Nonetheless, PNC released a partial distribution of $33,319.97 to each of the beneficiaries, seemingly in response to their objections, while predicatingfinal distributions upon the execution of the appropriate Receipt and Release Agreement or court...
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