Ryan v. Ward

Marbury, C. J., delivered the opinion of the Court. On April 16, 1928, John R. Ward of Baltimore City executed and delivered a deed of trust to the Baltimore Trust Company conveying to the latter certain personal property consisting of stocks and bonds. The record does not show the value of this personal property at the date of the deed of trust, but it appears that the corpus of the estate, as of September 26, 1945, was approximately $32,500. John R. Ward died on October 27, 1928 and Frank R. Ward, who was given a life estate by the terms of the deed of trust, died on September 26, 1945, as of which date the estate was valued as above set out.

In 1934 the Baltimore Trust Company was removed as trustee by an order of the Circuit Court No. 2 of Baltimore City, and the Baltimore National Bank was appointed substituted trustee. The latter filed its bill of complaint in the Circuit Court of Baltimore City in ³⁴⁶ 1946, asking for a construction of the deed of trust, and naming as parties all the living parties who might possibly have an interest in the matter, as well as the administratrix d. b. n. c. t. a. of the estate of John R. Ward. By the will of John R. Ward, all of his estate and property was left to his son, Frank R. Ward, if the latter survived him, which was the case. Frank R. Ward, who was a resident of New Jersey, left a will by which all of his estate was left to his wife, Olive Maria Ward, provided she survived him, which was the case.

He also left three children, Ruth E. Ward, David E. Ward, and John F. Ward. Olive M. Ward is the executrix of the estate of Frank R. Ward and also the administratrix d. b. n. c. t. a. of the estate of John F. Ward. James J. Ryan was appointed by the court as guardian ad litem for all persons not in being whose interests might be affected by the proceedings. Answers were filed by the guardian ad litem, and the parties in being, and testimony was taken, after which the chancellor filed his decree holding some of the future interests good and some void.

From this decree the guardian ad litem appeals here, and cross appeals were filed by all other parties. The deed of trust gives the trustee full and complete power to manage, sell, reinvest, and otherwise deal with the trust estate, and to collect the dividends and profits and to pay .over the entire net income in monthly installments to the grantor, John R. Ward, during the term of his natural life. It is further provided that “* * * during the life of the Grantor he shall have the right by one or more instruments in writing, personally signed by him and delivered to the Trustee, to withdraw from the operation of this Deed of Trust such sum or sums as he may in his absolute discretion see fit, such withdrawals, however, shall not be in excess of the sum of Fifteen Hundred Dollars ($1500.00) per annum during his lifetime, and to the extent of any sum or sums so withdrawn, the principal of the trust hereby created shall be reduced accordingly, or expended entirely.” It is further provided by the deed of trust: ³⁴⁷ “From and after the death of the Grantor, the Trustee shall pay over the net income derived therefrom in monthly instalments unto FRANK R. WARD, son of the Grantor, during his lifetime, and upon the death of the Grantor’s said son, FRANK R. WARD, or from and after the Grantor’s death in case his said son should predecease him, the Trustee shall pay the net income derived from the trust fund unto the lineal descendants, per stirpes, from time to time living, of the Grantor’s said son until the death of the last surviving child of the Grantor’s said son, who shall be living at the time of the Grantor’s death, and upon the death of the last surviving child of the Grantor’s said son, who shall be living at the time of the death of the Grantor, the trust hereby created shall terminate, and the corpus or principal thereof shall be by the Trustee conveyed, delivered and paid over absolutely free, clear and discharged of any further trust, in equal and even shares unto the then living children of the Grantor’s said son, and unto the issue then living of each then deceased child of the Grantor’s said son, so that each then living child of the Grantor’s said son shall take and receive, absolutely, one equal share thereof, and the issue then living of each then deceased child of the Grantor’s said son shall take and receive, per stirpes and not per capita, one equal share thereof absolutely.” There is a spendthrift provision for both principal and income, applicable after the death of the grantor, and it is also provided that the Trustee shall have authority to receive any other funds granted, devised, or bequeathed by the grantor or any other person for the uses of the trust created, with a proviso that during the life of the grantor, at his written request, the Trustee is directed to pay over to him the principal of any funds or property, or any part thereof, which may be received by the Trustee as an addition to the original principal of the trust. This right of withdrawal is limited to the additions to the trust fund. ³⁴⁸ The question before the court is whether any of the estates attempted to be created by this deed of trust are in violation of the rule against perpetuities.

This rule requires that an interest or an estate, to be good, must vest not later than twenty-one years, plus the usual period of gestation, after some life in being at the time of its creation. In determining its applicability, the court looks forward from the time of the taking effect of the instrument in question to determine whether a possible interest is certain to vest within the prescribed period. Perkins v. Iglehart. 183 Md. 520 , 39 A. 2d 672 . The rule was established by the courts to preserve the freedom of alienation, and to prevent restrictions on the circulation of property.

Safe Deposit & Trust Co. v. Sheehan, 169 Md. 93 , 179 A. 536 . Where an interest or an estate is created by will, the question is determined by looking forward from the date of the taking effect of the will which is, of course, the death, of the testator, and not the date of the will. Gray’s The Rule Against Perpetuities, 3rd Ed., Paragraph 231, p. 205; 4th Ed., Paragraph 231, p. 235. Where the interest pr estate is created by deed, its effectiveness vel non is determined as of the time “when the deed became operative.” Bowerman v. Taylor, 126 Md. 203 at page 212, 94 A. 652, 654 ; Goldberg v. Erich, 142 Md. 544 , at page 548, 121 A. 365 ; Hawkins v. Ghent, 154 Md. 261 , at page 265, 140 A. 212 ; Miller on Construction of Wills, Paragraph 323, p. 914.

The appellant Ryan suggests (without any citation of authority) that since there is an element of revocability in the deéd, the effective date from which we must consider the succeeding estates is not the date of the execution and delivery of the deed, but the date of the death of the grantor. The element of revocability is the right of withdrawal of the original trust fund, not, however, to be “in excess of the sum of $1500.00 per annum during his lifetime” and the unlimited right of withdrawal of any funds or property, or any part thereof which may have been added to the trust estate from- time, to time. ³⁴⁹ The terms of the provision authorizing the withdrawal of the original principal do not clearly indicate whether this right is cumulative or not, that is, whether the right must be exercised each year, if at all, or whether the grantor could withdraw at any time, not only the $1500 allowed during that year, but also $1500 for each previous year in which he had not exercised the right. Since, however, the grantor attempted to put a limitation upon his own actions, and did not reserve to himself the right to withdraw any or all of the original principal at any time he saw fit, while reserving that right as to subsequent additions, we hold that the right should be construed as non-cumulative, and lost as to the amount authorized to be withdrawn in any year, if not exercised during that year. We are not advised what was his age at the time he created it.

No matter what it was, we cannot assume, viewing it prospectively, that he would not live long enough to withdraw the entire principal. Until the grantor actually died, therefore, he had the possible right to destroy the trust estate by withdrawals, although this destruction could be only partial until the end of twenty-two years. Professor Gray, in his work “The Rule Against Perpetuities” (3rd Ed., Paragraph 203, p. 175; 4th Ed., Paragraph 203, p. 193), states that “* * * a future interest, if destructible at the mere pleasure of the present owner of the property, is not regarded as an interest at all and the Rule does not concern itself with it.” This statement is applied to revocable trusts in Paragraph 524.1 of the 4th Edition beginning on page 510. This paragraph is the work of Roland Gray, son of the original author, who died in 1915.

The 4th Edition was prepared in 1942. In paragraph 524.1 a case is suggested where a conveyance is made to A for life, with a power of revocation, A being the settlor, and, in default of exercise, to A’s children at 25. If the period of the rule against perpetuities runs from the date of the conveyance, the ultimate limitation is too remote, but the author states that it seems to be correct to take A’s death as ³⁵⁰ the critical date, because A is at liberty to destroy the future interest. He cites the prevailing doctrine that the remoteness of limitations under a general power to appoint by deed is to be reckoned from the exercise of the power, as a reason why the same construction, by analogy, should be used in a revocable deed.

In that connection he approves the reasoning of the Supreme Court of Hawaii in the case of Manufacturers’ Life Insurance Company v. von Hamm-Young Company, 34 Hawaii 288 . The case, decided in 1937, involves the application of the rule against perpetuities to a life insurance trust agreement. The settlor reserved the right to revoke the trust agreement or change the beneficiary. If the trust became effective at the time of its execution, there was a possibility that the future interest might not vest within the required period after that date.

On the other hand, if the future interest did not come into being until the death of the settlor, no transgression of the rule could occur. The court, on the authority of Gray and of other cases, determined that the effective date from which to view the future interest was the death of the settlor, on the ground that such interest was destructible at his pleasure up until that time. In the case of Hillyard v. Miller, 10 Pa. 326, 334 , the learned Chief Justice Gibson cited Lewis on Perpetuities, Chapter 12, as giving the nearest approach to a perfect definition of a perpetuity. See Graham v. Whitridge, 99 Md. 248 , at page 274, 57 A. 609 ; 58 A. 36 , 66 L. R. A. 408.

This definition included a provision that the future limitation which would not necessarily vest within the prescribed period should not be destructible by the person for the time being entitled to the property, except with the concurrence of the person interested in the contingent event. The Chief Justice said: “It was the indestructibility * * * of future trusts which forced upon the judges the rule against perpetuities, in order to set the bounds to the remoteness of, not only legal, but equitable limitations; and it acts upon perpetuities wherever they appear, except in conveyances in mortmain, or ³⁵¹ to charitable uses.” That decision was used as a basis for holding that a deed of trust with a power to sell in the life tenant and use the proceeds was destructible, and therefore not subject to the rule against perpetuities. Miffiin’s Appeal, 121 Pa. 205 , 15 A. 525 , 1 L. R. A. 453, 6 Am. St. Rep. 781 .

See also Cooper’s Estate, 150 Pa. 576 , 24 A. 1057 , 30 Am. St. Rep. 829 . The Supreme Court of the United States, in the case of Goesele v. Bimeler, 14 How. 589 , 14 L. Ed., 554 , decided that an agreement by members of a religious society called “Separatists,” composed of Germans who had emigrated to the United States, by the terms of which the parties renounced all individual ownership of property, present and future, and transferred such property to three directors, was not a perpetuity because the majority of the members might require sale of the property at any time and therefore, even though the articles of association provided for its continuance for an indefinite period of time, nevertheless it was destructible at any time by the will of the majority. In the case of Pultizer v. Livingston, 89 Me. 359 , 36 A. 635 , the court held that the rule against perpetuities did not apply to future interests which were destructible at the will and pleasure of the present owner.

The deeds in question in that case contained express powers of revocation, and the court held that they were thereby removed from the operation of the rule against perpetuities. In the case of Equitable Trust Co. of New York v. Pratt, 117 Misc. 708 , 193 N. Y. S. 152, the Supreme Court of New York had before it a trust agreement which provided that it was revocable at will. The New York statute, which took the place of the common law rule against perpetuities, provided that the absolute ownership of property should not be suspended for a longer period than two lives in being at the date of the instrument. In the case before it, there was a suspension for three lives on the face of the deed of trust, but the court held that as a result of the revocation clause, absolute ownership was not suspended at all during the life of the settlor, and therefore the New York statute ³⁵² did not commence to operate until after his death.

In Lewis on Law of Perpetuity, Law Library Ed., Ch. XX, p. 483, it is stated that “the great aim of the laws against remoteness is secured in the immediate and unrestrained alienability of the property by means of a power of appointment.” In an article in 45 Harvard Law Review, beginning at p. 896, the effect of the rule against perpetuities on insurance trusts is discussed, and the conclusion is reached that in calculating the period of perpetuity the courts have wisely excluded that period during which the property was subject to the absolute control of a single person. In another article in 51 Harvard Law Review by W. Barton Leach, entitled “Perpetuities in a Nutshell,” at p. 638, it is stated: “So long as one person has the power at any time to make himself the sole owner (of the trust estate) there is no tying-up of the property and no violation of the policy of the rule against perpetuities.” In 86 Univ. of Pa. Law Review 221, the decision of the Hawaii court above quoted is discussed and is stated to be the first decision on the question.

The writer says that “unhampered by precedent, the Hawaiian court has enunciated a salutory rule which should be followed in this country.” A contrary view is taken by a member of the Ohio Bar in an article on “The Rule Against Perpetuities as Applied to Living Trusts and Living Life Insurance Trusts” found in 11 University of Cincinnati Law Review beginning at p. 327. Restatement, Property, Section 373, states “The period of time during which an interest is destructible, pursuant to the uncontrolled volition, and for the exclusive personal benefit of the person having such a power of destruction is not included in determining whether the limitation is invalid under the rule against perpetuities.” Comment d states that the required destructibility exists only when some person possesses a complete power of disposition over the subject matter of the future interests, and can exercise this power of disposition for his own exclusive benefit. The destructibility prerequisite for an ap ³⁵³ plication of the rule stated in Section 373 can exist when the power of disposition