Carrier v. Crestar Bank, N.A.

MURPHY, Chief Judge. Maryland Code (1974, 1988 Cum.Supp.) § 7-501(a) of the Estates and Trusts Article provides that unless waived by the orphans’ court for good cause shown, the personal representative for an estate “shall give written notice to all interested persons of the filing of an account with the court.” Section 7-501(b) provides that “[ejxceptions to an ⁷⁰⁴ account must be filed with the register [of wills] within 20 days of the approval of the account by the court.” 1 Similarly, § 9-104(e) provides that “[a]fter the probable charges against the estate are known, the personal representative may mail or deliver a proposal for distribution to all persons who have a right to object to the proposed distribution” and that “the right of a distributee to object to the proposed distribution terminates if he fails to object in writing received by the personal representative within 30 days after mailing or delivery of the proposal.” In this case, we consider whether under these statutes an individual who is both a beneficiary of a testamentary trust per autre vie (during the life of another person) and a remainderman of the corpus of that trust has standing to object to the account and the proposed schedule of distribution filed by the personal representatives. Victor 0. Schinnerer, a resident of Anne Arundel County, died on October 18, 1985.

He was survived by his widow, Muriel J. Schinnerer, his children, William R. Schinnerer, Sally S. Fant, and the appellant, Sandra S. Carrier, and by his grandchildren, Jeffrey R. Schinnerer, Kimberly A. Schinnerer, Thomas D. Fant, Jr., Terrence V. Fant, and John J. Younger, Jr. Prior to his death, Victor executed a Last Will and Testament, dated October 8, 1982, a first codicil dated April 5,1984, a second codicil dated August 17, 1984, and a third codicil dated March 8, 1985. In his will, Victor provided for the division of his property between his wife, his three children, and his five grandchildren. He bequeathed all of his personal property, including household goods, automobiles and watercraft to his wife, Muriel. In the succeeding paragraphs, Victor provided for the disposition of the remainder of his estate.

In Item 3, he discharged all first or second mortgages, deed of trust ⁷⁰⁵ notes, and promissory notes, which were secured by mortgages or deeds of trust, owed to him by any of his children, noting that at the time of the will’s execution, he had made such loans to William and Sally. Victor also directed the Personal Representatives to forgive any future loans made to his children which were secured by mortgages. In addition, he discharged the indebtedness of William and his wife, Marguerite, under an unsecured demand note in the original amount of $75,000 dated August 17, 1982. Item 4 of the Will established a “Marital Trust” for the benefit of Muriel Schinnerer.

Victor directed the Personal Representatives to fund the trust by setting aside out of Victor’s estate “property equal in value to the maximum marital deduction allowable in the determination of the Federal estate tax upon my estate.” The Will directed the Trustees for the Marital Trust to pay the net income from the trust to Muriel quarterly during her life and to pay her part or all of the principal, upon receiving a written request from her. Muriel also received a testamentary power of appointment over the residue of the income and principal, and the Will provided that if Muriel should fail to exercise this power then the residue of the Marital Trust should be paid to the Residuary Trust created in the succeeding paragraphs. In Item 5 of the Will, Victor provided that the remainder of his property be distributed to a trust fund, designated as the “Residuary Trust.” He directed the Trustees to pay the net income from this trust quarterly to his three children in varying percentages. Specifically, Sally Fant would receive thirty percent of the net income, Sandra Carrier would receive twenty percent of the net income, and William Schinnerer would receive fifty percent of the net income.

Item 5 also provided that upon Muriel’s death, “the Trustees shall allocate and distribute the Residuary Trust as then constituted in the manner as hereinafter set forth:” A. DISTRIBUTION OF SIXTY PERCENT (60%) My Trustees shall allocate sixty percent (60%) of the principal and undistributed income of the Residuary Trust ⁷⁰⁶ and I direct that they pay over such part or portion as follows: (a) Forty-five percent (45%) thereof unto my son, WILLIAM REID SCHINNERER, if he survives me, free of trust____ (b) Thirty-Five percent (35%) thereof unto my daughter, SALLY SCHINNERER FANT, if she survives me, free of trust____ (c) The remaining twenty percent (20%) thereof unto my daughter, SANDRA SCHINNERER CARRIER, if she survives me, free of trust____ The second part of Item 5, entitled “B. Distribution to Subtrusts,” directed the Personal Representatives to divide the remaining forty percent of the corpus among three subtrusts. Forty-five percent of the forty percent of the corpus was to be held in trust for the benefit of Jeffrey and Kimberly Schinnerer, until the death of William Schinnerer, or when either of these two grandchildren reached their thirtieth birthday, at which time the corpus was to be distributed to them. Forty percent of the original forty percent of the corpus was distributed to a similar subtrust for the benefit of Thomas Fant, Jr. and Terrence Fant, and fifteen percent of the original forty percent was distributed to a subtrust for the benefit of John Younger, Jr. Item 8 of the Will sets forth the powers of the Trustees, authorizing them “to retain, invest, reinvest and exchange the funds in the Trust Estates in such manner and in such ... property of any nature, whether real or personal, as the Trustees may from time to time see fit in the exercise of their best judgment.” And that “[f]or the purpose of dividing said Trust into separate subtrusts or dividing any subtrust into parts or shares, my Trustees shall not be required to convert any property into money but may allow or allot to any part or share or subtrust any property of the trust or undivided interest therein and the judgment and decisions of my Trustees shall be conclusive and binding upon the beneficiaries of said trust, subtrust, part or share.” ⁷⁰⁷ Finally, in Item 12 of the Will, the decedent designated Muriel Sehinnerer and National Savings and Trust Company of Washington, D.C., now known as Crestar Bank, N.A., as Personal Representatives of the estate and as Trustees under the Will. This section also gave the Personal Representatives “full power and discretion in the management and control” of the estate.

In April 1984, Victor executed a first codicil to his Will, adding an additional paragraph to Item 8 of the Will. It provided: I have guaranteed certain loans of my son, William Reid Sehinnerer, and his wife, Marguerite R. Sehinnerer, from NS & T Bank, N.A. and in connection therewith I have executed a Hypothecation Agreement to that lender covering United States Government Bonds and other securities having a value in excess of $600,000.00. Notwithstanding anything to the contrary contained elsewhere in this Last Will and Testament I hereby direct that my Personal Representatives deduct and reduce from any gift, devise or bequest to my son or in trust for his benefit or the benefit of his children, the total amount of all claims, charges, judgments or demands hereafter called upon me or my estate to pay resulting from my aforesaid guarantee or pledge of assets. If those United States Government Bonds and other securities or any substituted properties are not returned to me prior to my death free of such pledge or Hypothecation Agreement, then my Personal Representatives shall reduce those gifts, devises, bequests or other benefits described above by the amount of such assets not returned.

All decisions and computations of any deductions made by my Personal Representatives and their decisions in connection therewith shall be conclusive and binding upon all beneficiaries under this Will. Victor subsequently executed two other codicils. The second codicil dated August 17, 1984 added an additional paragraph at the end of Item 2 of the Will. In this paragraph, Victor devised a townhouse on Brandywine ⁷⁰⁸ Street in Philadelphia, Pennsylvania, to his daughter, Sally Fant, and ordered the Personal Representatives to satisfy and fully discharge all mortgages or similar encumbrances which might be attached to the property at his death.

In the third codicil dated March 8, 1985, Victor ordered that that part of his will devising the townhouse in Philadelphia to Sally be deleted from Item 2. Instead, Victor devised a condominium in Ocean City, New Jersey to Sally with the same provision for the satisfaction of any mortgages remaining on the property at the time of his death. At the time of Victor’s death on October 18,1985, William and Marguerite Schinnerer had not repaid the loans owed NS & T Bank which were guaranteed by the Hypothecation Agreement, nor had they returned the pledged collateral to Victor free of this encumbrance. Following Victor’s death, the Personal Representatives petitioned for probate of Victor’s Will and the three codicils.

Accompanying the petition was a “List of All Interested Persons,” which included Muriel J. Schinnerer, William Reid Schinnerer, Sally Schinnerer Fant, Sandra Schinnerer Carrier, and NS & T Bank, N.A. as interested parties. The will and the three codicils were admitted to probate in the Orphans’ Court for Anne Arundel County on October 29, 1985. The Personal Representatives filed the initial Inventory for the Estate on February 26,1986, reporting $1,210,435.19 in assets; among the listed assets were the government bonds which Victor had pledged as security against William and Marguerite’s loan. In the inventory, the Personal Representatives noted that the bonds were “held in NS & T Bank Investment Management Account 35081721: pledged as collateral.” The inventory also listed two notes of William and Marguerite payable to Victor in the amounts of $37,500.00 and $75,000.00.

The first figure of $37,500 represented the balance remaining on the original loan of $75,000 made by Victor to William and Marguerite under the unsecured demand note dated August 17, 1982, and mentioned in Item 3 of Victor’s will. The second figure of ⁷⁰⁹ $75,000 represented the balance remaining under an unsecured demand note originally in the amount of $100,000, which according to the inventory, was issued to “NS & T Bank and William R. Schinnerer, Trustees, Under Agreement dated June 20, 1988, makers.” This unsecured demand note appears to have been issued subsequent to the execution of the Will and thus is not mentioned therein. The inventory entry on the first note bore the notation “discharged per terms of Will.” The inventory entry on the second note did not bear this notation. The inventory also listed a Deed of Trust dated July 26, 1978 in the amount of $85,000.00 due to be paid by William and Marguerite Schinnerer by July 26, 2008.

This item also bore the notation “discharged per terms of Will.” The Personal Representatives sent a copy of the inventory to Sandra Carrier on February 28, 1986. In May 1986, William and Marguerite Schinnerer repaid the loans owed to NS & T Bank, and the collateral securing these loans was released from the pledge. On December 4, 1986, the Personal Representatives filed the First Administration Account for the estate; they filed the Proposed Schedule of Distribution on July 9, 1987. Upon filing each of these documents, the Personal Representatives sent notice to Carrier, indicating that the account and the schedule of distribution had been filed and informing her that she could file objections to either one.

Carrier subsequently filed Exceptions to the First Administration Account, Exceptions to the Inventory and Proposed Schedule of Distribution, and a Request for Hearing on her Exceptions. In her Exceptions to the First Administration Account, Carrier objected to several items contained in the inventory and administration account, including the Personal Representatives’ reduction of the value of the second unsecured demand note from the original value of $100,000 to $75,000 and their reduction of the total value of Victor’s stocks and bonds. She maintained that these reductions would result in an incorrect valuation of Victor’s estate which would cause “a distribution not in keeping ⁷¹⁰ with the terms of the decedent’s Last Will and Testament as amended by the aforesaid Codicils.” Carrier’s Exceptions to the Inventory and Proposed Schedule of Distribution disputed the Personal Representatives’ allocation of the income earned during the administration period and the appreciation of estate assets to the Residuary Trust. She averred that the Personal Representatives should distribute the unsecured demand note to the Residuary Trust and not the Marital Trust, that they had failed to adequately document the administration expenses, and that they should distribute a specific asset (the so-called Safeway lease) to the Residuary Trust and not the Marital Trust.

On June 30, 1988, Carrier filed Additional Exceptions to the Proposed Schedule of Distribution. They focused upon the provisions in the first codicil which directed the Personal Representatives to reduce the bequests made to William Schinnerer, or in trust for his children, if Victor’s securities were not returned to him prior to his death free of the pledge under the Hypothecation Agreement with the bank. Carrier noted that at the time of Victor’s death, the securities were still held as collateral under the Hypothecation Agreement. Thus, Carrier contended that under the terms of the first codicil, the gifts to William and his children should be reduced by the value of the collateralized securities.

Carrier complained that the Personal Representatives, contrary to Item 8 of Victor’s will did not reduce the gifts. In urging that the orphans’ court direct the Personal Representatives to so reduce the bequests to William and his children, Carrier asserted that “[i]f the amount of such collateralized assets at the time of Mr. Schinnerer’s death exceeded the interests of William Reid Schinnerer or his children in the Residuary Trust ... the cancellation of [William’s] indebtedness ... under Item 3 ... shall be nullified to the extent of such excess and the Personal Representatives shall be instructed to collect upon such indebtedness for the benefit of the Estate.” Initially, the Personal Representatives filed responses to Carrier’s exceptions, disputing her claims. On July 12, ⁷¹¹ 1988, however, the Personal Representatives filed a Motion to Strike Carrier’s pleadings, claiming that under § l-101(g) and (k), she lacked standing to object to the administration account and proposed schedule of distribution. Specifically, they argued that Carrier was not a “legatee” or an “interested person,” as those terms are defined in § 1-101, because she was simply a beneficiary of a testamentary trust.

They contended that under § 7-501(a) only “interested persons” could file objections to an account and that because Carrier was not an interested person her exceptions should be stricken. On July 21, 1988, after hearing arguments from the parties, the orphans’ court issued an order, finding that Carrier was not a “legatee” under Victor’s will, as that term is defined in § l-101(k). The court concluded that Carrier was neither an “interested person” under § l-101(g) entitled to file exceptions to the Final Account, nor a “distributee” who may object to the proposed distribution under 9-104(e). Consequently, the court ordered that Carrier’s exceptions be stricken. 2 Carrier appealed to the Court of Special Appeals.

See Maryland Code (1974, 1984 Repl.Vol.) § 12-501 of the Courts and Judicial Proceedings Article. We granted certiorari prior to decision by the intermediate court to consider the significant issues raised in the case.

II

Carrier argues that the orphans’ court’s dismissal of her objections to the first accounting and to the distribution schedule violated her rights under the Fourteenth Amendment by depriving her of property without due process of law. We first must decide whether the orphans’ court correctly interpreted § 7-501 and § 9-104 as prohibiting Carrier from maintaining her objections. Because the pro ⁷¹² visions of § 7-501 for filing exceptions to an account differ from the provisions of § 9-104 for objecting to a final distribution, we will consider each of these statutes seriatim. A. Section 7-501 provides: (a) Filing an account.—Unless waived by the court for good cause shown, the personal representative shall give written notice to all interested persons of the filing of an account with the court.

(b) Exceptions.—Exceptions to an account must be filed with the register within 20 days of the approval of the accóunt by the court. Exceptions may not be filed concerning an item which has become final and binding under § 7-502. Copies of exceptions shall be mailed by the exceptant to the personal representative. The orphans’ court construed § 7-501 to mean that only an “interested person,” as defined in § l-101(g), may file an exception to an account.

Section l-101(g) defines an “interested person” as “[a] legatee in being, not fully paid, whether his interest is vested or contingent.” Section 1-101(k) of the statute further defines a “legatee” as “a person who under the terms of a will would receive a legacy,” 3 including “a trustee but not a beneficiary of an interest under the trust.” Because Victor’s will designated Carrier as a beneficiary of the residuary trust, the orphans’ court found that she was not an interested person as defined by § l-101(g). Because under its interpretation of § 7-501 only interested persons could file an objection to an account, the court concluded that Carrier did not have standing to object to the Personal Representatives’ administration account. The or ⁷¹³ phans’ court committed two errors in making this determination. First, it erred in finding that Carrier was not an interested person, and secondly, it erred in interpreting § 7-501 as providing that only interested persons could file exceptions to an account.

As previously noted, § 1-101 does not include a beneficiary of a trust within the definition of interested person. The Explanatory Comment which follows this section, however, states that although the “[b]eneficiaries of a trust are not ‘interested persons’ because under subsection [ (k) ], ‘legatee’ means only the trustees, and not the beneficiaries of the trust____ [nevertheless] [i]n the rare instances where there is a legal future interest, the owners of the future interest will be ‘interested persons.’ ” 4 In Item 5 of his Will, Victor directed that the property remaining after the devise to the Marital Trust be placed in a Residuary Trust for the benefit of his son, William, and his daughters, Sally and Sandra. The Will provided that the Residuary Trust was to last until the death of Victor’s wife, Muriel, and upon her death the Trustees were to distribute sixty percent of the corpus in various shares to Victor’s three children, and place the remaining forty percent into a subtrust for their children’s benefit. These provisions resulted in Carrier receiving two distinct interests in her father’s estate, rather than one.

First, she received a beneficial interest under the Residuary Trust. Because the Residuary Trust was limited in its duration to Muriel’s life, Carrier’s beneficial interest was an interest per autre vie, (i.e. during Muriel’s life). In addition, Carrier received a second interest, namely a legal remainder in twelve percent of the corpus of the Residuary Trust. Ordinarily, a remainder will be created where there is a conveyance of a particular estate, such as a ⁷¹⁴ life estate or an estate per autre vie, followed by a conveyance of a future interest which will become a present possessory interest in someone other than the grantor, immediately upon the natural termination of the preceding particular estate created by the same instrument.

See Chism v. Reese, 190 Md. 311, 321 , 58 A.2d 643 (1948); Myers v. Myers, 185 Md. 210, 221 , 44 A.2d 455 (1945). See also § 14-201, defining the term “remainderman,” in a trust context, as meaning “any person entitled to principal, including income which has been accumulated and added to principal.” Upon Muriel’s death the Residuary Trust terminates, the children’s beneficial interests end, and sixty percent of the corpus will be distributed to Victor’s three children in varying percentages. 5 The twelve percent share of the corpus which Carrier will receive upon Muriel’s death is a remainder because it is a future interest in one other than the grantor which will become a present possessory interest immediately upon the natural termination of the equitable life estate per autre vie established under the Residuary Trust. Carrier’s remainder is a legal future interest because it was conveyed to her outright and not subject to any trust. See Numsen v. Lyon, 87 Md. 31, 40-41 , 39 A. 533 (1898) (holding that where a deed conveyed a life estate in trust to a woman, along with a contingent remainder to her descendants who survived her, and if none survived her then a remainder to her heirs, the remainders so conveyed were legal and not equitable).

As previously noted, the Comment which follows § 1-101 indicates that an individual, who receives a legal future interest under a will, falls within the definition of “interested person.” Thus, Sandra Carrier, being a remainderman under her father’s will, qualifies as an interested person under § 1-101 by virtue of ⁷¹⁵ the legal remainder conveyed to her in Item 5(A) of the Will. B. As Carrier is an “interested person” under § 1-101, we next determine whether the orphans’ court correctly construed the meaning and effect of that term as used in § 7-501(a). This section, as already observed, directs the personal representative to “give written notice to all interested persons of the filing of an account with the court;” it was enacted in 1969 as part of the comprehensive revision of Maryland’s testamentary law. Prior to 1969, the law did not require that the personal representative give heirs, legatees or other interested persons notice of the filing of an account.

See Richardson v. Billingslea, 69 Md. 407, 409 , 16 A. 65 (1888) (noting that under existing Maryland law, the Personal Representative was not required to give interested parties notice of the filing or the