64 A.2d 258 | Md. | 1949
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 administratrixd.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 adlitem 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.
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 AgainstPerpetuities, 3rd Ed., Paragraph 231, p. 205; 4th Ed., Paragraph 231, p. 235. Where the interest or estate is created by deed, its effectiveness vel non is determined as of the time "when the deed became operative." Bowerman v. Taylor,
The appellant Ryan suggests (without any citation of authority) that since there is an element of revocability in the deed, 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,
In the case of Hillyard v. Miller,
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 Universityof 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 application *353 of the rule stated in Section 373 can exist when the power of disposition (or revocation) is not presently exercisable at the time of its creation, provided that the period, during which the exercise of such power is postponed, does not invalidate all interests created by the exercise of such power, and thus, in effect, invalidate the power itself.
These cases and statements from recognized authorities amply sustain the proposition that, where a settlor has power during his lifetime to revoke or destroy the trust estate, the question whether interests, or any of them, created by a deed of trust are void because in violation of the rule against perpetuities, is to be determined as of the date of the settlor's death, and not as of the date when the deed of trust takes effect. It will be observed, however, that the cases cited involve situations where the trust is revocable at will, or could be destroyed by a single act of the settlor such as a change of beneficiary in an insurance policy, or a sale of the trust property and the use of the proceeds. It is stated in the article in 51 Harvard LawReview, already referred to, at p. 663:
"The situation is analagous to future interests after an estate tail, where the period of perpetuities is computed from the date of expiration of the estate tail; the power to disentail makes the tenant in tail the substantial owner and causes interests after the estate tail to be in substance gifts by the last tenant in tail at the time of expiration of his estate. The situation is also analagous to gifts in default of the exercise of a general power by deed or will, the period of perpetuities being computed from the expiration of the power — i.e., the death of the donee."
There is no case, so far as we have been able to find, which deals with a strictly limited power of withdrawal which can be exercised only over a period of years, and which cannot be used to destroy the entire estate until a number of years has elapsed. In the case before us, as we have shown, the estate could not be entirely destroyed during the first twenty-two years of its existence. *354 There is some difference of opinion among the text writers whether the power to encroach upon the corpus is the same as the power to revoke. Professor Scott thinks it is. Trusts, Paragraph 330.-11. Bogert thinks not. Vol. 4, Bogert on Trustand Trustees, Part 2, § 994. The cases we have cited indicate that it is not the method of destruction but the destructibility which is the controlling factor. That being so, we are unable to say that in a case such as the one before us, the trust estate is destructible, as that word is used in connection with the Rule against Perpetuities. There is a possibility of ultimate destruction, but the estate is not destructible at the time of its creation, or at any one time thereafter. Any destruction must be by a gradual diminishing of the corpus, until, at the last, there is left only a balance equal to the amount which can be withdrawn in any year. At that time, the grantor can destroy the trust, but his right to do so is contingent upon the previous withdrawals, and does not become absolute until he has completed all such withdrawals, over a period of years. What would be the situation if the settlor were given power to revoke after twenty-two years, or power to withdraw the entire trust estate at that time, need not be decided, because we have no such situation here. It is our conclusion, therefore, that the rule against perpetuities operates upon the estates created, as of the date of the execution and delivery of the deed of trust.
There is, of course, no question that the beneficial life estate of Frank R. Ward, son of the grantor, was valid. Thereafter, the net income is to be paid unto the linealdescendants per stirpes from time to time living of Frank R. Ward until the death of the last surviving child of said Frank R. Ward who shall be living at the time of the death of the grantor. At that time, the trust is to terminate, and the residuary estates are to commence. It is apparent that Frank R. Ward could have had a son born prior to the death of John R. Ward, who could have been living at the death of John R. Ward, and who could have lived more than twenty-one years after the death *355 of Frank R. Ward. The death of such child, if he were the last survivor of the children of Frank R. Ward, would fix the date of the ending of the trust estate and the commencement of the estates in remainder created by the deed of trust. It was quite within the bounds of possibility, at the time of the creation of the trust, that this date might be beyond a life and lives then in being and twenty-one years thereafter, plus the usual period of gestation. Consequently, it is agreed by everyone, and the court so held, that the remainders, after the termination of the trust estate, were void.
The gift of the beneficial estates pur autre vie, after the death of Frank R. Ward which gift, as we have shown, is to the lineal descendants per stirpes, from time to time living, of the grantor's son, might vest in one of those lineal descendants who was born more than twenty-one years after the death of Frank R. Ward, but before the death of his last surviving child. This is a class gift. In such a case, it is well recognized that if it "is good as to some members of the class, but is within the rule against perpetuities as to other members, the entire gift must fail. The general rule is that if a gift is void as to any of a class, it is void as to all of the class." Miller, Constructionof Wills, Paragraph 328. The reason for this rule is that the courts cannot split into portions the gift to the class, and make these gifts what they were never intended to be by the grantor.Goldsborough v. Martin,
The contention was made in this case, and upheld by the chancellor, that the gifts pur autre vie were not gifts to one class, but were gifts to three classes, since there were two sons and a daughter of Frank R. Ward who survived him and who were living at the time of the execution of the deed of trust. The chancellor said that, therefore, as to each of the classes represented by each of these children, they vested in the living children within the period. This result cannot be reached by considering *356 what actually happened. It must be arrived at, if at all by considering what the grantor intended should happen.
In the case of Albert v. Albert,
In the case of Turner v. Safe Deposit Trust Co.,
In the case of Bowerman v. Taylor, supra, there was a deed of trust for the benefit of the settlor's wife, during his and her joint lives and the lifetime of the survivor, and then to the use of all of the children of the settlor and his wife, those now in being and those who might thereafter be born, and the lawful issue of those children surviving their parents, such issue taking per stirpes, and, upon the death of any such children, their interest should go to their heirs or issue, if any, or, if not, their interest should revert to the common fund. There were seven children living at the time of the execution of this deed and no others were thereafter born. All but one of these children survived the grantor and this one died without issue. The court said the life estates following the death of the settlor and his wife were to vest in beneficiaries in existence at the time of the death of a person in being when the deed of trust took effect. The question was in reference to the remainders to the descendants of the children and issue. The court said that these remainders to the descendants of children who were in being when the deed became operative must necessarily vest within the period of the rule, because they are given to those only who are in existence at the death of the person who was living at the date of the deed. The other remainders sought to be created in favor of the descendants of unborn children and issue were in violation of the rule. This decision was made upon the theory that the final disposition of the estate was not to a single class of persons, some of whom might be incapable of taking, but to distinct classes, because upon the death of each of the secondary life tenants, that is, the children, his or her interest is given to his or her descendants absolutely, regardless of the continuance of the life interest of the other children. The remainders limited upon each life estate were disposed of separately by the terms of the deed, and the question of the capacity to take on the part of the descendants of any particular life tenant did not depend upon the status of others claiming under a similar relationship to a different beneficiary. *358
In the case of Safe Deposit Trust Co. v. Sheehan,
In the case of Vickery v. Maryland Trust Co.,
In the case of Reese v. Reese [Chism v. Reese]
We are unable to find in the case before us, as did the chancellor, that the deed of trust before us created three classes. Even though it is true that there were only three children of Frank R. Ward living at the time of the execution of the deed of trust, the provision in that deed does not divide the estate into shares as was the situation in the Bowerman case,supra. The words "lineal descendants per stirpes from time to time living" do not create three classes. On the contrary, they create one. There is no gift to named children of Frank or even to children of Frank. The gift is to lineal descendants which includes others than children. In the case of Perkins v.Iglehart,
As a result of our conclusion, we hold that the gifts purautrie vie are void and the trust estate has now ended. As John R. Ward, by his will, left all his property to Frank R. Ward, who was his only child, the trust property belongs to the latter's estate. As we said in Perkins v. Iglehart, supra, there is no necessity for the property to be administered through the estate of John R. Ward, thereby multiplying the costs and expenses. Distribution can be made directly by the trustee to Olive M. Ward, Executrix of the estate of Frank R. Ward, and such distribution will relieve the trustee of further responsibility.
Decree reversed and case remanded for the passage of a decreein accordance with this opinion. Costs to be paid out of thetrust estate.