Shriners Hospitals for Crippled Children v. Maryland Nat. Bank, 94

• Decision Date: 07 December 1973
• Docket Number: No. 94,94
• Citation: 312 A.2d 546,270 Md. 564
• Parties: , 74-1 USTC P 12,987 SHRINERS HOSPITALS FOR CRIPPLED CHILDREN v. MARYLAND NATIONAL BANK, personal representative and trustee u/w of Harry Clinton et al.
• Court: Maryland Court of Appeals

Page 564

270 Md. 564

312 A.2d 546, 74-1 USTC P 12,987

SHRINERS HOSPITALS FOR CRIPPLED CHILDREN v. MARYLAND NATIONAL BANK, personal representative and trustee u/w of Harry Clinton et al.

No. 94.

Court of Appeals of Maryland.

Dec. 7, 1973.

William J. Lehrfeld (John M. Bray, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D. C. and Mahlon W. Hessey and Hessey & Hessey, Baltimore, on the brief), for appellant.

A. MacDonough Plant (William A. Fisher, Jr., William R. Dorsey, III and Semmes, Bowen & Semmes, Baltimore, on the brief), for Mary L. Schleupner, one of appellees; by John B. Powell, Jr., Baltimore (Wright, Robertson p Dowell, Baltimore, on the brief), for Maryland National Bank, another appellee; submitted on brief by J. Richard O'Connell and Miles & Stockbridge, Baltimore, for Gladys K. Moore and Helen Crossley, other appellees.

Argued before MURPHY, C. J., and BARNES, McWILLIAMS, SINGLEY, DIGGES and LEVINE, JJ.

SINGLEY, Judge.

This case, on appeal from the Circuit Court No. 2 of Baltimore City (Ross, J.), is concerned with two problems: First, the proper construction of that portion of a testator's will which directed that the income of a residuary trust created by the will be paid to three beneficiaries; and second, the extent to which a court of equity, either in the exercise of its traditional jurisdiction, or in pursuance of a statute, may reform the language of a decedent's will to insure that a remainder interest created by that will can qualify as a charitable deduction for federal estate tax purposes.

The problems surfaced when Harry Edward Clinton, a successful investor, died domiciled in Baltimore on 6 February 1970, leaving an estate of approximately $1,500,000.00, disposed of by a holographic will dated 30 December 1969, which he had apparently drawn himself. The provision with which we are principally concerned is that contained in Item Eight of the will:

'Item Eight: I hereby give, devise, and bequeath the residue of my estate unto the Maryland 'My Trustee shall collect the income arising from the principal of the Trust Estate arising from this item Eight (8) and after paying all expenses incident to the trust estate, including the usual commissions to the Trustee, shall distribute the income and principal as follows:

National Bnak, its successor or successors, Trustee for the uses and purposes set forth:

'My Trustee shall pay the entire net income from this Trust estate in equal shares unto such of Mrs. Gladys K. Moore, Mrs. Helen Crossley, Miss Mary L. Schleupner as shall be qualified to receive the same from time to time. By 'qualified to receive the same' I mean until their respective deaths as to Mrs. Moore and Mrs. Crossley and to her death or marriage as to Miss Schleupner. This Trust shall terminate when the last person qualified to receive the net income dies or marries, as the case may be, at which time my Trustee shall pay over and deliver the accumulated income and principal as then constituted unto The Shriner's Crippled Children Hospitals to be used by the said hospital to endow a memorial to be known as the Harry Clinton Memorial, the selection and form of the memorial to be in the sole discretion of the then Imperial (Potentate) of the Ancient Arabic Order, Nobles of the Mystic Shrine, (whose) headquarters are in Chicago and the then Potentate of Osiris Temple, Wheeling, West Virginia, of which Temple I have been a member in good standing for over fifty seven (57) years-this selection shall (embody(?)) all the remainder interest of my estate and should qualify as a deduction under Section 2055(a) (2) of 1954 Internal Revenue Code or the corresponding Charity section of the Internal Revenue Code in effect at my death.' (Emphasis supplied.)

While Mr. Clinton exhibited not inconsiderable skill as a draftsman, and clearly demonstrated that he had both the As a consequence, Maryland National Bank (Maryland National) as personal representative of Mr. Clinton, and as trustee under his will, filed a petition in equity in the Circuit Court No. 2 of Baltimore City seeking a construction of the will and such modification of it as might be necessary to bring its provisions into conformity with the Internal Revenue Code. Joined as respondents were the three income beneficiaries, Gladys K. Moore (born in 1899), Helen Crossley (born in 1896), sisters of Mr. Clinton, and Mary L. Schleupner (born in 1925), together with the holder of the vested remainder, Shriners Hospitals for Crippled Children (the Hospitals). Answers were filed by the several parties, admitting the allegations of the petition and concurring in the granting of the relief prayed. ⁴

                charitable intent and tax consciousness frequently associated with people of means, he was apparently unaware that the Tax Reform Act of 1969 1 was enacted on the very day that he signed his will, and could not know that the Internal Revenue Code of 1954, § 664 and § 2055(e)(2) (hereinafter IRC), would deny a result-which he had very much in mind-the deduction, for federal estate tax purposes, of the value of the charitable remainder unless the trust which he created could qualify as a charitable remainder annuity trust or a charitable remainder unitrust as described by IRC § 664 and the regulations to be issued thereunder.  2  Unhappily, Mr. Clinton's trust was neither, and a federal estate tax saving of some $90,000.00 would be lost unless something could be done.  3
                

When the case came on for hearing, however, the individuals who were the income beneficiaries, on the one hand, and the Hospitals, as the holder of the vested remainder, on the other, differed in their views as to the proper construction of the will. The individual beneficiaries contended that they, and the survivors of them (subject to the provision in respect to the marriage of Miss Schleupner, which under the will's concept of 'qualified to receive the same' will hereafter be treated as equivalent to her death), would take the entire net income, in equal shares, so long as more than one survived, and that the last survivor would take the whole.

The Hospitals took a different view, relying primarily on the provision of the will which directed, on the termination of the trust, that the trustee should 'pay over and deliver the accumulated income and principal, as then constituted' (emphasis supplied) to the Hospitals, and on Maryland Code (1957, 1972 Repl.Vol.) Art. 50, § 9, ⁵ which dealt with the express provision required to create a joint tenancy. The Hospitals contended that under a proper construction of the will, upon the death or marriage of Miss Schleupner and upon the death of each of the other life tenants, the share of income to which such person was theretofore respectively entitled should be accumulated and ultimately distributed to the Hospitals when the trust terminated, or should be distributed to them currently if tax considerations required.

The Proper Construction of the Income Provision

In disposing of the conflicting contentions regarding the devolution of income, Judge Ross said:

'The language of the will so plainly states the intention of the testator that it is not open to Without intending to question the chancellor's conclusion, we could speculate that Mr. Clinton may well have confused the concept of 'accumulated' income with 'accrued' income-an imprecision utilized by many draftsmen more sophisticated than he. In general, where a will is drawn by a layman, 'the language used may be given the meaning it would commonly have to a person in his situation,' Buchwald v. Buchwald, 175 Md. 103, 111, 199 A. 795, 798 (1938). Whatever his reason for using 'accumulated' as an adjective, it is patent that this does not negate his clear intention as expressed by the will: that the income beneficiaries, and the survivors and survivor of them, were to take the 'entire net income' until 'the last person qualified to receive the net income dies or marries.' (Emphasis supplied.)

construction. It is clear he intended that the surviving qualified income beneficiaries would share 'the entire net income' until the termination of the trust upon the death or marriage of the last qualified income beneficiary. '(P)lay the entire net income * * * unto such * * * as shall be qualified * * * from time to time' can have no other meaning. All that (Code (1957, 1972 Repl.Vol.)) Art. 50, § 9 requires is a clear statement of intention and such is present here. Marshall v. Security Storage Co., 155 Md. 649 (, 652-53, 142 A. 186, 187) (1928). The subsequent use of the term 'accumulated income' in connection with distribution upon termination gives rise to no ambiguity. It undoubtedly refers to income accumulated between the last distribution to the final income beneficiary and her death or marriage, thus avoiding the distribution of such income to her estate.'

It seems to us that the devolution of the trust income is clearly controlled by the intention of the testator, as expressed in the will, Davis v. Mercantile-Safe Deposit & Trust Co., 235 Md. 266, 269, 201 A.2d 373, 374 (1964); Gent v. Kelbaugh, 179 Md. 343, 350-351, 18 A.2d 595, 598 (1941); Furthermore, the rule of our cases is clear: income is not to be accumulated absent an express provision or necessary implication, Green v. Green, 182 Md. 571, 575, 35 A.2d 238, 240 (1944); Burt v. Gill, 89 Md. 145, 151-152, 42 A. 968, 970, 43 A. 177 (1899); see also Restatement of Property § 440 (1944).

Buchwald v. Buchwald, supra, 175 Md. at 111, 199 A. at 798; Chew v. Chew, 1 Md. 163, 168 (1851). We agree with the chancellor, that as expressed in the will, it was Mr. Clinton's intention that such of the income beneficiaries, as were 'qualified' from time to time, were to receive the entire net income.

Elsewhere, in cases where intention was not clearly spelled out, an equal division among income beneficiaries has been justified as a class gift, In re Hicks' Estate, 345 Mich. 448, 75 N.W.2d 819 (1956); Old Colony...