Safe Deposit & Trust Co. v. Sheehan

Offutt, J., delivered the opinion of the Court. Michael Sheehan, late of the City of Baltimore, died on March 5th, 1923, leaving to survive him a son, John M., and five grandchildren, the children of John M., namely, Michael, born October 3rd, 1909, John Marr, bom October 5th, 1911, Mary Chester, born April 28th, 1913, Joseph Chester, born June 17th, 1915, and James Carroll, born October 2nd, 1919, and two sisters, Mary and Johanna. He was also survived by Ellen C., the wife of his son, John M. Sheehan. He left a valid will, which, with two codicils thereto, was admitted to probate in the Orphans’ Court of Baltimore City on May 23rd, 1923.

At the time of his death ⁹⁶ he owned and possessed a large estate, which included real and personal property, which he undertook to dispose of by that will and the codicils thereto. After making the customary provisions for the payment of debts and administration expenses, and after providing for several charitable legacies, the will, in a paragraph designated “Item V,” attempted to dispose of the entire residuum of the estate. The purpose of this proceeding is the construction of that clause or item, mainly to ascertain whether it or any part of it violates the rule against perpetuities. By it he gave the residuum of his estate to the Safe Deposit & Trust Company of Baltimore in trust, and in it, after conferring upon the trustee the powers necessary to execute the trust, and providing for annuities to his sisters and his son, he further directed the trustee: “(4) To pay unto Ellen C. Sheehan, the wife of my said son, John M. Sheehan, the annual sum of twenty-five hundred ($2,500) in equal quarterly installments, to be used by her for the maintenance and support of herself and the children of my said son, living at that time.

From and after her death, to pay the said annual sum of twenty-five hundred dollars ($2,500) unto the children of my said son, John M. Sheehan, living at that time, in equal shares, equally, the child or children of any deceased child or children to stand in loco parentis and take per stirpes and not per capita until the eldest of said children of my son, John, shall have arrived at the age of twenty-five years. “Notwithstanding anything herein contained to the contrary, should my said son, John M. Sheehan, die before his wife, and should she remarry, I hereby authorize and direct my Trustee to expend the said sum of twenty-five hundred dollars ($2,500) to which Ellen C. Sheehan * * * would have been entitled to receive had she not remarried, for the maintenance and support of the children of my said son living at that time, until the eldest of said children shall have arrived at the age of ⁹⁷ twenty-five years, the child or children of any deceased child or children to take the share to which their parents so dying would have been entitled if living, per stirpes and not per capita. “(5) All of the balance of the net annual income, after the payment of the above annuities, shall be by my Trustee invested, and the same shall become and be a part of the corpus of my trust estate. “From and after the death or remarriage of Ellen C. Sheehan, * * * whichever event shall first occur, and upon the arrival of the eldest child of my said son at the age of twenty-five years, I hereby authorize and direct my Trustee to divide the corpus of my trust estate, as the same may then be constituted, into twice as many parts as there may be children of my said son then living, the child or children of any deceased child of my said son to stand in loco parentis per stirpes and not per capita. “(a) To convey, assign, transfer and deliver one of said equal parts unto each child as the same shall arrive at the age of twenty-five years, freed, cleared and discharged from the trust hereby thereon imposed, the child or children of any deceased child or children to stand in loco parentis, per stirpes and not per capita, and to receive the share of their parent when and at the time their parent, so dying would have been entitled to receive the same, if living. “Notwithstanding anything herein contained to the contrary, it is my will and desire, and I hereby authorize and direct my Trustee that during the interval between the time when the eldest child of my said son shall arrive at the age of twenty-five years, and the time when the youngest of said children shall arrive at the age of twenty-five years, each of said children not so having arrived at the age of twenty-five years shall be entitled to receive the income derived from those portions of the corpus of my trust estate which each respective child shall be entitled to receive upon the arrival of each respective child at the age of twenty-five years, as hereinbefore ⁹⁸ provided, the child or children of any deceased child or children, to stand in loco parentis, pier stirpes and not per capita; and should any of the children of my son John depart this life before reaching the age of twenty-five years, without leaving a child or children him or her surviving, then the one equal part which would have been payable to him or her upon arriving at the age of twenty-five years, shall go to and be distributed to my descendants living at his or her death, per stirpes and not per capita,, freed, cleared, and discharged of the trust hereby created. “(b) To hold the remaining portions of my estate in further trust and confidence, however, to pay the net annual income therefrom derived, unto such of the children of my son John and the descendants of his deceased children, per stirpes who may be living from time to time, as such income is received by my trustee; and upon the death of the last surviving child of my said son John in further trust and confidence to divide the corpus of my trust estate, and to convey, assign, transfer and deliver the same, as it may then be constituted, between and among the descendants of my said son, John, living at that time, said division and transfer among said descendants, however, to be made per stirpes and not per capita, and when so made, said descendants shall thenceforth hold the same, freed, cleared and discharged from the trust hereby thereon imposed.” The only effect of the codicils was to increase the amount of the charitable legacies, and to increase the amount of the annuities to his sisters and his son, and they do not affect the consideration of any question presented by the appeal. On June 13th, 1923, John Sheehan and others filed in the Circuit Court of Baltimore City against the trustee named in the will, which was also the executor named therein, the bill of complaint in this case, in which they asked that court to assume jurisdiction of the trusts created by the item just quoted, and to supervise their administration. As the result of further proceedings, ⁹⁹ that court did assume jurisdiction of the trusts, and on March 8th, 1935, the trustee filed in, the case a petition alleging that Ellen C. Sheehan had died April 7th, 1930; that Michael Sheehan, eldest son of John M., had reached the age of twenty-five years; that the other four children of John M., who were all living at the testator’s death, survived; that John M. had not remarried, and had no other children or descendants; and that Michael, the grandson, had demanded that the trustee deliver to him the share bequeathed and devised to him absolutely upon his arrival at the age of twenty-five years. It further alleged that, in the event that Michael Sheehan, the testator, died intestate as to any part of his estate, it would devolve upon John M. Sheehan, his son and sole distributee and heir at law; that on December 31st, 1934, John M. Sheehan, subject to the payment of an annuity of $2,500 to him, by deed of that date granted to the Safe Deposit & Trust Company any and all right, title, and interest which he had or might have in the estate of Michael Sheehan, his father, in trust to set aside a sufficient sum to yield $2,500 per annum during his life and to maintain the Park Avenue property, to permit him to occupy that property, and to pay him the annuity, to set aside $100,000 to pay a possible gift tax, and eventually to distribute the estate as directed in the deed.

Either under the deed of trust or under the will, Michael Sheehan, the grandson, upon arriving at the age of twenty-five years, became entitled to receive one of the ten shares into which the trustee, both by the will and the deed, was required to divide the estate upon the occurrence of that event, and it accordingly apportioned, and was prepared to pay, one of said parts to the grandson Michael. Upon that petition the trustee asked the court (1) to construe the will and codicils of Michael Sheehan to determine whether any provision thereof violated the rule against perpetuities, and to instruct it as to the division of the estate into shares and with respect to the disposition thereof; (2) to ratify its action in setting ¹⁰⁰ aside $100,000 to pay the annuity to John M.; (8) to authorize it to pay to Michael, the grandson, certain cash and securities apportioned to him as the share to which he became entitled when he arrived at the age of twenty-five years, pending the ultimate construction of the will and codicils; (4) to direct it as to the distribution of the income pending such construction; and (5) for general relief. As a result of further proceedings, the court on March 26th, 1935, decreed (1) that the provisions of item V, section (5), subsection (a), were valid; (2) that the provisions of item Y, section (5), subsection (b), violated the rule against perpetuities and were invalid; (3) that the acts of the trustee in setting up a fund for the payment of the annuity to John M. were approved, and the trustee authorized to pay the annuity from income or corpus as might be required; (4) that John M. and his family be permitted to occupy the Park Avenue property; (5) that the act of the trustee in setting aside a fund for the payment of taxes and expenses, one-half of any balance of such fund to be distributed eventually as directed in item V, section (5), subsection (a), and the other half as directed by the deed of trust, be approved; (6) that one-half the corpus of the estate as of October 3rd, 1934, be held and distributed under item V, section (5), subsection (a) of the will; (7) that the other half be distributed as directed by the deed of trust; (8) that the division of the corpus as of October 3rd, 1934, be approved; (9) that under the will the trustee be authorized to pay to Michael, the grandson, the cash and securities apportioned to him under said subsection (a) ; (10) that the trustee under the will be authorized to pay income from the respective shares as fixed by the division, pending an auditor’s account; (11) that the trustee be authorized and directed to enter an appeal from the decree. From that decree the Safe Deposit & Trust Company, trustee under the will, took the appeal in No. 33, and John M. Sheehan, his children, and the Safe Deposit & ¹⁰¹ Trust Company, trustee under the deed, took the appeal in No. 34.

The parties to both appeals apparently agree that the ruling as to subsection (a), section (5), item V, is correct, but the appeal in No. 34 was taken that the legal principles involved in that ruling might be reviewed and stated by this court also, while in No. 33 the trust company suggests that the ruling that subsection (b) of section (5), item V, violates the rule against perpetuities is erroneous. To the extent that the provisions of section (5) are valid, they will be administered under the will; to the extent that they are invalid, they will be administered under the deed of trust. If subsection (b) is invalid, rights of unborn children and grandchildren of John M. Sheehan sought to be created by it fall, and the extent to which the estate disposed of by section (5) will be subject to the federal gift tax is the extent to which it passes under the will, or under the laws of descent and distribution. So that the two questions presented by the appeal are: Do the provisions of subsection (a) or of subsection (b) violate the rule against perpetuities?

Before attempting to state and apply the law affecting the facts out of which those questions arise, the several contingencies which may determine the devolution of the property described in subsection 5 will be noticed in their relation to such lives in being at the testator’s death and for twenty-one years and the ordinary period of gestation after the termination of such lives, as he selected to determine the extent, the commencement, and the end of the estates which he attempted to create. Classification and division of the corpus. Upon the death or remarriage of Ellen C., and upon the arrival of the eldest son of John M. at the age of twenty-five, the trustee was directed by item V to divide the estate into twice as many parts as there were children of John M. then surviving. Since Ellen C. was living at the testator’s death, and the eldest son of John was then more than thirteen years old, that event must of necessity ¹⁰² occur within a life or lives in being at the death of the testator and twenty-one years thereafter.

Distribution under section (5), subsection (a). The trustee was then directed to transfer one of said shares to “each child” as the same should arrive at the age of twenty-five years. It was possible, of course, that the youngest child of John M., alive at the time of the division of the estate into shares, might be born after the death of the testator, but it must of necessity have been born in John’s lifetime or within the ordinary period of gestation thereafter. But if it was born immediately prior to the division of the estate into shares, and John and Ellen C. had both died before or immediately after that event, such child would not reach the age of twenty-five until more than twenty-one years and nine months after the end of those lives.

If, however, the testator intended to limit the class to the children of John living at the time of his death and also living at the time of the division of the estate into shares, the entire five shares would be transferred to the donee within twenty-one years and nine months after the termination of a life or lives in being at the death of the testator, for at that time the youngest child of John M. living at the time of the division of the estate into shares was three years and four months old, and it must reach the age of twenty-five within twenty-one years and nine months after the death of both John M. and Ellen C., whenever those events might occur. Finally the trustee is directed, in the event of the death of “any” child of John before the age of twenty-five without leaving a child or children him surviving, to distribute the “one equal part” which would have been distributable to such child, to the “descendants” of the testator. It was possible that such “descendants” might be born after the death of the testator, and if he intended that the property should be divided among the children of John whether living or not at the testator’s death, it was possible that a child might be born to John who would not reach the age of twenty-five until more than ¹⁰³ twenty-one years and nine months after the death of John, in which case there might be descendants of the testator who would not have been born within a life or lives in being and the usual period of extension. If he intended to divide the estate only among those children of John living at the time the estate was divided into shares, nevertheless, it was possible that one of those children might not reach the age of twenty-five years until more than twenty-one years and nine months after a life or lives in being, and that the testator might have descendants not born within that period.

Distribution under section (5), subsection (b). The trustee was further