Mahan v. Mahan

• Decision Date: 02 August 1990
• Docket Number: No. 21,21
• Citation: 320 Md. 262,577 A.2d 70
• Parties: Archie Harvin MAHAN, et al., v. Lillie G. MAHAN. Sept. Term 1989.
• Court: Maryland Court of Appeals

Page 262

320 Md. 262

577 A.2d 70

Archie Harvin MAHAN, et al., v. Lillie G. MAHAN.

No. 21 Sept. Term 1989.

Court of Appeals of Maryland.

Aug. 2, 1990.

Stanard T. Klinefelter and Roger D. Redden (Kurt J. Fischer, Richard J. Dumais, Piper & Marbury, all on brief), Baltimore, for petitioner.

Joseph Kenary (Kenary & Clarke, both on brief) Rockville, for respondent.

Argued before MURPHY, C.J., and ELDRIDGE, COLE, RODOWSKY, McAULIFFE, ADKINS and BLACKWELL ^*, JJ.

McAULIFFE, Judge.

On 8 September 1942, Frances Mahan (Frances) established an inter vivos trust. On 6 May 1978, she executed her will, and on 26 June 1978, she died. Persons claiming various interests under the trust asked the Circuit Court for Montgomery County to clarify and define their rights. Displeased with the determination of that court, and subsequently with that of the Court of Special Appeals, petitioners seek further consideration. We now answer certain threshold questions involving the exercise of a power of appointment established by Frances's trust, and involving the attempted modification of the trust by those claiming to be the sole beneficiaries thereunder. We then direct the remand of this case for consideration of the remaining issues that were not addressed by the circuit court because of the initial view it took of the case.

Pertinent parts of the four paragraphs of Frances's Deed of Trust that are significant for purposes of this case are as follows:

2. In the event of the death of the Grantor leaving children, the Trustee is directed to pay one-half of the income to the surviving husband of the Grantor and to expend the remaining one-half of the income upon the support, maintenance and education of any child or children of the Grantor. In the event of the death of the Grantor leaving no children surviving her, the entire income of the trust estate shall be payable to her surviving husband until his death or re-marriage, whichever shall first occur.... In the event of the death of the Grantor and her said husband, the entire income is to be applied to education, support and maintenance of any surviving child or children.

3. In the event that there shall be neither a surviving husband or children of the Grantor, the income shall thereafter be payable to the parents of the Grantor and the survivor of them during their lifetime, and upon the death of said parents and the survivor (there being neither surviving husband or child or children surviving) this trust shall terminate and the principal be paid over to the brother of the Grantor, his heirs and assigns, free, clear and discharged of the trust.

4. The Grantor specifically reserves the right to appoint by her Last Will and Testament both the principal and income of the trust estate hereby created and such testamentary disposition shall supersede any disposition made by this deed. The Grantor specifically reserves the right to revoke the trust hereby created with the consent of her parents or the survivor of them during the first ten years of the trust.

* * * * * * 7. The said Grantor does hereby declare that the said Trust Estates, both principal and income, are to be for the proper use and benefit of the beneficiaries, as hereinabove set forth, and that both the income and principal payments hereunder shall be paid into the hands of the respective beneficiaries and not into the hands of another whether by their direction or otherwise, so that neither the income nor principal thereof shall be liable to be assigned, transferred, anticipated or hypothecated, and shall not be taken in execution or attachment or in any other manner.

The residuary clause of Frances's will, which became effective when she was survived by her husband, Archie I. Mahan (Archie), provided:

THIRD: In the event that I am survived by husband, ARCHIE I. MAHAN, I give, devise and bequeath my entire estate of whatever character and where situate, unto him, to be his absolutely. In the event that my said husband is not living at the time of my death, then I give my said entire estate unto my son, ARCHIE HARVIN MAHAN, to be his absolutely.

In addition to her husband, Frances was survived by their only child, Archie Harvin Mahan (Harvin).

In February of 1980, Maryland National Bank, as trustee of Frances's trust, joined with Archie and Harvin in executing an agreement that purported to terminate the trust, and to transfer most of the corpus ¹ to a new trust to be established by Archie. The agreement recited the mutual concerns of the parties about the proper interpretation of certain provisions of Frances's trust, and reflected their uncertainty about whether Frances's will validly exercised the power of appointment. The avowed purpose of the agreement was, therefore, to create a new trust that everyone could agree properly reflected Frances's intent.

Not altogether magnanimously, these three parties further agreed that Frances's brother, L. Claggett Beck, had no interest in the remainder created by Frances's trust. Recognizing, however, that Beck might not agree with their interpretation of the trust, and that he might claim a right to the remainder by virtue of paragraph three of the trust, the parties agreed that the bank would give written notice to Beck of its intention to distribute the corpus of Frances's trust in accordance with the 1980 agreement unless restrained by order of court within 30 days of the giving of notice.

The bank's attorneys wrote to Beck, who was then in California, on 27 February 1980. They apparently enclosed copies of Frances's trust and her will, and informed Beck of their opinion that § 4-407 of the Estates and Trusts Article, Maryland Code (1974) applied so that the residuary clause of Frances's will effectively exercised the power of appointment of the remainder in favor of Archie. The bank's attorneys further informed Beck that, in any event, they were of the opinion that neither he nor his heirs had any claim to the remainder, notwithstanding the provisions of paragraph three of the Deed of Trust. Beck was warned that the bank would therefore proceed to distribute the corpus of Frances's trust to Archie if not restrained by court order within 30 days.

The record does not definitively show whether Beck received the bank's letter, although at a later proceeding before the circuit court, Beck's attorney stated that Beck "did apparently receive notice that something was going on...." In any event, Beck took no action at that time.

The terms of the "new" trust specified by the 1980 agreement, to the extent relevant to this controversy, were: Archie and the bank were to be named trustees; the net income of the trust was to be paid equally to Archie and Harvin, and to the survivor of them; the trustees were empowered to invade the principal on behalf of either life beneficiary for certain purposes; upon the death of Archie with Harvin surviving, the corpus would be distributed to appointees named in Archie's will, or in default of the exercise of the power of appointment the trust would continue for the life of Harvin, with the power of Harvin to appoint the remainder by will to his children and descendants. The new trust was not to contain spendthrift provisions, and was to be revocable during Archie's lifetime, and thereafter, if it continued, to be revocable by Harvin.

The 1980 agreement also required Archie and Harvin to indemnify the bank for any loss resulting from any claim Beck or another might make under the 1942 trust.

The record does not disclose whether Archie executed a new trust document in accordance with the agreement, or whether the assets of the 1942 trust were transferred from the bank as trustee under the initial trust to Archie and the bank as trustees under the "new" trust. That is relatively unimportant at this stage of the proceeding, because it appears that Archie and Harvin continued to receive the same income payments they would have been entitled to under the 1942 trust, and the bank has refused to distribute the principal until the rights of the parties are finally adjudicated.

Following the execution of the 1980 agreement, Archie married Lillie G. Mahan (Lillie), the respondent. Archie died in 1987, apparently domiciled in Florida, where his estate is being administered. By his will, Archie expressly exercised the power of appointment created by the "new" trust in favor of his estate, and named Lillie as personal representative and as sole residuary legatee. Lillie made demand on the bank for distribution of the trust principal to her as personal representative of Archie's estate. Harvin objected, claiming that the 1980 agreement was ineffective, and that he was entitled to receive the income allowed to him by the 1942 trust. Faced with conflicting claims, the bank refused to distribute the principal, and Lillie sued.

In her action for declaratory relief and to compel transfer of the corpus of the trust, Lillie named Harvin and the bank as defendants. The bank did not answer and did not initially participate in the proceedings. Harvin filed an answer and a cross-claim for declaratory relief, contending that the 1942 trust continued in effect, and claiming entitlement to all the income from that trust for the balance of his life. Harvin also moved for summary judgment. Lillie opposed Harvin's motion and filed her own motion for summary judgment.

After a hearing, Judge L. Leonard Ruben granted Lillie's motion for summary judgment, declaring that by operation of § 4-407 of the Estates and Trusts Article, the residuary clause of Frances's will served to exercise the power of appointment over the corpus of the trust estate in favor of Archie, and thus terminated the 1942 trust and the life income interest of Harvin. The court directed that the bank deliver the assets of the trust to Lillie, as personal representative of the estate of Archie.

Within 10 days of the entry of that judgment, Harvin filed a motion to alter or amend the...