Hastings v. PNC Bank, NA

• Decision Date: 15 November 2012
• Docket Number: No. 109,Sept. Term, 2011.,109
• Citation: 429 Md. 5,54 A.3d 714
• Parties: Barbara HASTINGS, et al. v. PNC BANK, NA.
• Court: Maryland Court of Appeals

429 Md. 5

54 A.3d 714

Barbara HASTINGS, et al.

v.PNC BANK, NA.

No. 109, Sept. Term, 2011.

Court of Appeals of Maryland.

Sept. 27, 2012.

Reconsideration Denied Nov. 15, 2012.

John H. Doud, III, Baltimore, MD, for petitioners.

Richard L. Lyon (Law Office of Richard L. Lyon, Bethesda, MD), on brief, for respondent.

Phoebe Papageorgiou, Mathew Street, American Bankers Association, Washington, DC, Brian L. Moffet, Gordon Feinblatt LLC, Baltimore, MD, for amicus curiae brief of American Bankers Association and Maryland Bankers Association in Support of Appellee PNC Bank, NA, Urging Affirmance.

William F. Brockman, Deputy Solicitor General, Douglas F. Gansler, Att'y Gen. of Maryland, Baltimore, MD, for amicus curiae brief of State of Maryland.

Argued before BELL, C.J., BATTAGLIA, GREENE, ADKINS, BARBERA, McDONALD, and IRMA S. RAKER (Retired, Specially Assigned), JJ.

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.

I.

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 terms of 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 the tax 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 $218,100.00 constituted 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 the executed 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's plan for distribution of the Trust 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 Agreement, 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 predicating final distributions upon the execution of the appropriate Receipt and Release Agreement or court approval of a final accounting.

Petitioners, contemporaneous with the partial distribution and therefore without knowledge of it, filed a three-count complaint for declaratory judgment in the Circuit Court for Baltimore County.⁵ In Count I Petitioners alleged that “[n]othing in Maryland law gives PNC the right to demand the Agreement and withhold payment absent its execution.” Petitioners sought a judgment declaring unlawful PNC's “demand” for the execution of the release and indemnity clause prior to the distribution of any funds from the Trust. Count I also prayed...