.webp)
.png)
One of the issues in estate planning which we haven’t discussed at any considerable length is the issue of removing beneficiaries from trusts. Whenever a trust be established, at least one beneficiary is always selected – this is the case even when the settlor (trust creator) and the beneficiary are one and the same. There are common law rules (i.e. judge made principles derived directly from case opinions) which apply to the removal of beneficiaries, and these rules can supersede private agreements made within trust documents.
The case of Vito v. Grueff (2017) is a well-known Supreme Court of Maryland case which dealt directly with the common law on removing beneficiaries. More specifically, the case handled the question of whether a group of beneficiaries can create an amendment among themselves to remove a beneficiary even when the settlor didn’t intend for such a removal to be possible.
Let’s examine this important case in detail.
Factual Background
The settlor in this case set up a trust to benefit his 4 children. Importantly, when he established the trust, he made it very clear that the purpose of this trust was to benefit all 4 children equally; consistently, the trust agreement stated that the 4 children equally benefit 25% in the trust’s estate. Also, the trust agreement stated that the 4 beneficiaries have the power to make changes provided that at least 3 out of the 4 children agree on the proposed changes.
In 2013, one of the children made allegations against the other 3 beneficiaries, contending that there was financial mismanagement and fiduciary breaches of duty. In response, the 3 beneficiaries targeted by the allegations developed an amendment which removed the other beneficiary altogether. The 3 other beneficiaries argued that this power to remove the other beneficiary stemmed from the “modification clause” which held that changes could be made with 75% approval.
Hence, when the case went before the Maryland SC, the question was as follows: did the settlor grant this removal power when he added the modification clause which allows amendments via 75% approval from the beneficiaries?
Ruling & Analysis
The Maryland Supreme Court ruled that the modification clause didn’t grant such power, ruling in favor of the lone beneficiary and against the 3 beneficiaries who attempted the removal. Again, this case really sets an important precedent in the common law of Maryland on the removal of trust beneficiaries: with this ruling, we now know that a “generic” power to form amendments does not extend automatically to removing beneficiaries. Under these circumstances, where such a power hasn’t been explicitly referenced within the trust agreement, the power to remove beneficiaries in such a manner isn’t necessarily granted.
One of the key aspects of the case boiled down to the settlor’s clear intent: as we stated earlier, the settlor made it known that he intended to benefit all 4 children equally. This was his unequivocal goal, and it was stated within the founding documents. Since this was clearly his intention, the court used this to assist in the interpretation of the modification provision. Because the settlor didn’t intend for the other beneficiaries to have this removal power, interpreting such a power within the modification clause was erroneous.
Subtle precedents such as these are the ones which reveal the critical importance of having a skilled and qualified estate planning attorney in these situations. Now, we know that the settlor’s intent can have a controlling impact, and that such clauses need to be written differently in order to have removal power.
Contact the Murphy Law Firm for More Information
If readers want to learn more about removing beneficiaries from wills, adding beneficiaries, establishing revocable or irrevocable trusts, or any other estate planning matter, contact one of the estate planning attorneys at the Murphy Law Firm today by calling 240-219-1187.
.png)
.png)
.png)
