United Bank v. Richard Buckingham, et al.
Misc. No. 1
IN THE COURT OF APPEALS OF MARYLAND
March 9, 2021
Opinion by Getty, J.
September Term, 2020
United Bank v. Richard Buckingham, et al., Misc. No. 1, September Term, 2020. Opinion by Getty, J.
COMMERCIAL LAW – MARYLAND UNIFORM FRAUDULENT CONVEYANCE ACT – CHANGE IN LIFE INSURANCE BENEFICIARY CONSTITUTES CONVEYANCE – Court of Appeals held that a change in a life insurance beneficiary constitutes a “conveyance” under the Maryland Uniform Fraudulent Conveyance Act, Maryland Code, Commercial Law Article (“CL“) §§ 15-201 to 15-214 (1975, 2013 Repl. Vol.). Court of Appeals concluded that a change in a life insurance beneficiary falls within the meaning of “conveyance” as defined in CL § 15-201(c).
ESTATES & TRUSTS – GUARDIANSHIP – CHANGE IN LIFE INSURANCE BENEFICIARY – Court of Appeals held that a guardian of property does not have the authority to change a beneficiary of a life insurance policy of the ward under Maryland Code, Estates & Trusts Article (“ET“) § 15-102 (1974, 2017 Repl. Vol.).
U.S. District Court for the District of Maryland
Case No. 8:13-cv-03227-PX
Argued: October 30, 2020
IN THE COURT OF APPEALS OF MARYLAND
Misc. No. 1
September Term, 2020
UNITED BANK v. RICHARD BUCKINGHAM, ET AL.
Barbera, C.J.,
McDonald
Watts
Hotten
Getty
Booth
Biran
JJ.
Opinion by Getty, J.
Filed: March 9, 2021
Pursuant to Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic.
Suzanne C. Johnson, Clerk
Before us are two questions of law certified by the United States District Court for the District of Maryland (“District Court“) that arise in the context of a decade-long dispute between the adult children of the Buckingham family and United Bank (“the Bank“). Through the opportune formation of various trusts, the children successfully diverted hundreds of thousands of dollars in life insurance proceeds away from the declining family business and to their personal use. In an elaborate web of procedural history, federal and state courts both have attempted to conclusively determine whether this diversion of life insurance proceeds was an appropriate use of familial resources to assist ailing parents, or instead an act undertaken by the Buckingham children to intentionally defraud the Bank.
The first question before us is whether a change of the beneficiary designation of a life insurance policy amounts to a “conveyance” under the Maryland Uniform Fraudulent Conveyance Act (“MUFCA“),2 particularly in light of
The second question is whether, under
BACKGROUND
In accordance with
This clash between the Buckingham family and the creditors of the family‘s deceased patriarch, John Buckingham, has now lasted more than a decade, and has played out in both state and federal court. The crux of the dispute before this Court concerns whether diversion of the proceeds from several life insurance policies, which are among the sole remaining assets of John Buckingham and the family company, Sun Control Systems (“SCS“), was done to defraud the Bank and other creditors. Although the background of this case has been repeated and reframed time and again, the Court summarizes the matter here to aid the Maryland Court of Appeals.
John Buckingham founded SCS in 1979 and acted as President and as a Director on its board until 2009. John was married to Elizabeth “Betty” Buckingham, and together they had five children: David, Susan, Thomas, Daniel, and Richard Buckingham.
In 2008, John was diagnosed with dementia and, in 2009, this diagnosis was confirmed to be both progressive and terminal. Around this time, Thomas Buckingham was designated to succeed John as President of SCS, although John stayed on as a Director and was never removed from the Board.
By January 2010, John‘s condition had worsened. He was sometimes found wandering his neighborhood or in his neighbors’ homes eating from their refrigerators. In August 2010, Betty Buckingham filed a petition for guardianship in the Circuit Court for Montgomery County. Betty was appointed guardian of John‘s person, and David was appointed both temporary co-guardian of John‘s person and sole guardian of John‘s property. In December 2010, the guardianship order was amended to make David solely the guardian of the property and Betty the temporary guardian of John‘s person. In January 2011, the Circuit Court issued a final guardianship order that announced David and Betty as the co-guardians of John‘s person and maintained David‘s status as sole guardian of the property. This order governing the guardianship of the property states that the guardian shall have “all powers and duties set forth in
Md. Code Ann., Est. & Trusts § 13-214 and§ 15-102 .”As John‘s mental health declined, so did SCS‘s financial health. SCS‘s revenues fell from $15.4 million in 2006 to $8.5 million in 2009. As of mid-2009, SCS had defaulted on loans it had secured with Virginia Commerce Bank (“VCB“), the Bank‘s predecessor, and owed over $5 million to VCB. John and Betty were also personally indebted to VCB as they had on occasion guaranteed loans to SCS and had also taken out loans in their personal capacity through a home equity line of credit.
In May of 2009, SCS entered into a forbearance agreement with VCB. In the forbearance agreement, VCB agreed to refrain from collection and to increase SCS‘s line of credit by $750,000 in exchange for SCS‘s commitment to meet a specified schedule of payments. SCS‘s financial situation did not improve, however, and by 2010, SCS had defaulted on the forbearance agreement as well. VCB, now fearful it would lose millions of dollars through its loans to SCS, began looking to SCS‘s remaining assets, among them the death benefits on eight life insurance policies in John‘s name that are the subject of this litigation.
These life insurance policies generally fall into three groups : (1) two policies
from Northwestern Mutual (the “JDB policies“) that John had purchased and for which he paid the premiums; (2) four policies purchased by SCS from Northwestern Mutual (the “split dollar policies“) under a “split dollar” arrangement where John named the beneficiaries but SCS “owned” the policies, paid the premiums, and upon John‘s death stood to recoup the premiums from the death benefits, with the remainder being paid to John‘s designated beneficiary; and (3) two policies from John Hancock (the “John Hancock Policies“) purchased and owned by SCS and operated under a similar split dollar arrangement, with SCS recouping the premiums upon John‘s death. In June 2010, as John‘s health declined, VCB entered into a second forbearance agreement in which VCB obtained a secured interest in death benefits payable under the JDB and split dollar policies. The effect of this agreement was to give VCB a superior position to any SCS funds, including the life insurance benefits, upon John‘s death.
Prior to executing the second forbearance agreement, VCB had learned of John‘s dementia. Outside counsel advised VCB that before entering into a second forbearance agreement, John should undergo a competency evaluation. VCB did not heed this advice. Instead, VCB entered into a fully executed second forbearance agreement. It eventually came to light that some of John‘s signatures on this agreement were forged. VCB, for its part, denies having any knowledge about the forgeries.
David contends he first learned of the second forbearance agreement in February 2011 when, after much back and forth, VCB provided to David the underlying documentation. David realized that the second forbearance agreement was executed when John was suffering acutely from dementia. David also recognized certain of the signatures as forgeries.
The next month, in March 2011, David, in his capacity as guardian of the property, changed beneficiaries on the eight life insurance policies to the newly-created John D. Buckingham Life Insurance Trust (“JDB Trust“) with David, Susan, and Richard as Co-Trustees. David contends that he created the JDB Trust to fund the care necessary for Betty once John died. David also made Betty the primary beneficiary and the Buckingham children contingent beneficiaries of the JDB Trust.
David next took steps to obtain accelerated death benefits to be paid from the John Hancock policies into another new trust, the “Osprey Trust,” “to provide funds for [his] mother‘s support and meet the extraordinary cost of [John‘s] care.” However, SCS still was owed the amount it had paid in premiums under the split dollar arrangement, which at the time totaled $280,000. Thus, if David were to obtain accelerated benefits, they could be subject to SCS‘s creditors such as VCB. David and Thomas knew as much; contemporaneous email correspondence between the brothers reflects their concern “[t]he bank or other creditors w[ould] end up with those funds.”
SCS‘s Directors at the time—Thomas, Betty and David—next agreed on behalf of SCS to sell the John Hancock policies to the newly-created Osprey Trust. They approved the sale of the policies for $110,000 payable to SCS. Then David, as Trustee of the Osprey Trust, promptly obtained accelerated death benefits on the John Hancock policies for roughly seven times the amount paid to the corporation, or $709,128.65.
According to the Bank, the sale of the policies to the Osprey Trust for a fraction of the policies’ value amounted to a fraudulent ploy to shield the assets from John‘s creditors. As evidence of the fraud, the Bank emphasizes the disparity between the $110,000 sale price and the $709,000 in valuable accelerated benefits obtained. David Buckingham, Susan Buckingham and Richard Buckingham (collectively “the Buckinghams“) maintain that this sale was simply designed to provide funds to care for John and Betty. And as to the disparity between the sale price and the value of the accelerated death benefits, the Buckinghams counter that because SCS had stopped paying the premiums, the policies had a negative surrender value and were in danger of lapsing. Thus, the Buckinghams claim, it was fair and appropriate to use a well-established U.S. Treasury Formula to arrive at the $110,000 sale price. On December 7, 2011, Betty passed away unexpectedly. The JDB Trust—which again was the beneficiary of all eight life insurance policies—was now at least partially obsolete as the vehicle to provide for Betty‘s care upon John‘s death. Thus, David, in his role as John‘s guardian of the property, changed the beneficiary of the insurance policies, again naming another newly created trust, the Blue Heron Trust.
Shortly after, in May 2012, David sued VCB in Montgomery County Circuit Court seeking to invalidate the assignment of the JDB and split dollar policies on the grounds that VCB entered into the second forbearance agreement knowing that John was incompetent. After a five-day bench trial in May 2013, the Honorable [Joseph] Dugan invalidated the assignments, finding that John lacked the capacity to enter the second forbearance agreement and VCB, acting contrary to counsel‘s advice, knew it. The court additionally found that certain of John‘s signatures on the second forbearance agreement were forged. VCB‘s priority interest in the JDB and the split dollar policies were thus voided.
On October 17, 2012, John passed away and the remainder of death benefits on the policies were distributed. The John Hancock policies had already been paid down fully as accelerated death benefits. Northwestern paid the death benefits on the split dollar policies into the Blue Heron Trust, and the death benefits on the JDB policies into the registry of the Circuit Court in light of the pending action against VCB. In the end, no funds were available to satisfy any of VCB‘s sizable, outstanding loans.
(Citations omitted.)
In the memorandum opinion accompanying the certification order, the District Court provided this summary of the procedural background:
On October 30, 2013, the Bank brought suit in this Court against each of the Buckingham children individually, Susan and Richard in their capacities as representative for John‘s estate, and David in his capacity as trustee for the Osprey and Blue Heron Trusts. The Bank sought to invalidate both the sale of the John Hancock polices from SCS to the Osprey Trust, and the change in beneficiaries on the JDB and split dollar policies to David as Trustee of the Osprey and Blue Heron Trusts.
Counts I through III pertain to the sale of the John Hancock policies. Count I alleges that SCS, through its Directors and David as guardian of John‘s property, fraudulently conveyed both its ownership and beneficiary interest in the Osprey Trust in violation of the
Maryland Uniform Fraudulent Conveyance (“MUFCA“). In Count II, the Bank alleges that David fraudulently requested and received accelerated death benefits on the John Hancock policies and, as a result, caused those benefits to be paid into the Osprey Trust, also in violation of MUFCA. And in Count III, the Bank alleges that David‘s change of the beneficiary of the John Hancock policies from Betty to the Osprey Trust constituted yet another violation of MUFCA.Act, Md. Code Ann., §§ 15-201, et seq. Counts IV through V concern changes of beneficiaries on the other two sets of policies also under MUFCA. In Count IV, the Bank alleges that David fraudulently changed the beneficiary status of the split dollar policies from SCS—to which the beneficiary status lapsed upon Betty‘s death—to the Blue Heron Trust. In Count V, the Bank alleges that David fraudulently changed the beneficiary status on the JDB policies from John‘s estate to the Blue Heron Trust. Finally, in Count VI the Bank alleges David breached his fiduciary duty to SCS‘s creditors, and in Counts VII and VIII the Bank sought a declaratory judgment that the Osprey and Blue Heron Trusts and the John Hancock policy transfers were void as beyond David‘s authority as guardian of the property.
The parties eventually filed cross motions for summary judgment. After a hearing on November 27, 2017 . . . [the Court] granted summary judgment in the Buckinghams’ favor on all counts. As to the MUFCA counts (Counts I-V), the Court concluded that the unclean hands doctrine barred the Bank from asserting any right to the proceeds of the insurance policies. The Court reasoned that because the Bank had already attempted through “grossly inequitable conduct” to secure priority interests in the insurance policies via the second forbearance agreement, the Bank was precluded from suit to recapture its interest in this Court.
Alternatively, the Court concluded that even if the unclean hands doctrine did not apply, summary judgment in the Buckinghams’ favor was nonetheless warranted on the MUFCA counts. On Count I, the Court found that no reasonable trier of fact could view the sale of the JDB policies as fraudulent because the sale was “done for fair consideration and thus is not a fraudulent conveyance as a matter of law.” On Counts II through V, each as pertaining to a change of beneficiary status, the Court held that the alleged wrongful conduct fell outside the purview of MUFCA. The Court concluded that MUFCA, by its terms, only applied to “conveyances,” defined as “includ[ing] every payment of money, assignment, release, transfer, lease, mortgage, or pledge of tangible or intangible property, and also the creation of any lien or incumbrance.”
Md. Code Ann., Com. Law § 15-201(c) (emphasis added). Looking to the phrase “tangible or intangible property,” the Court reasoned that any “assignment, release, transfer, lease, [or] mortgage” must be a property interest to fall under this definition. Thus, and because Maryland common law suggested that a change in beneficiary status did not amount to a property interest, the Court held that the changes in beneficiary status here could not be a conveyance falling within the ambit of MUFCA. As to Counts VI through VIII, the Court held that the Bank lacked standing to either prosecute a breach of fiduciary duty action against David or seek a declaratory judgment that the transfer of the John Hancock policies, or creation of the Blue Heron and Osprey Trusts were void ab initio.
The Bank appealed the Court‘s decision to the United States Court of Appeals for the Fourth Circuit. On February 21, 2019, the Fourth Circuit reversed and remanded Counts I through V (the MUFCA counts) and affirmed the grant of summary judgment on Counts VI through VIII. As to Counts I through V, the Fourth Circuit rejected the District Court‘s application of the unclean hands doctrine. The Fourth Circuit next concluded that summary judgment was inappropriate as to the sale of the John Hancock policies forming the basis of the MUFCA claim in Count I because the disparity in sale price to the Trust versus the value of the accelerated death benefits created a genuine issue of disputed fact. As to Counts II through V, the Fourth Circuit directed that this Court on remand reconsider the propriety of summary judgment in light of “applicable Maryland estate and trust law and potentially applicable Maryland insurance law,” particularly whether David exceeded the scope of his power as guardian of John‘s property under
Md. Code Ann., Est. & Trusts § 15-102(t) (identifying the powers of a guardian of the property as to life insurance policies) and whetherMd. Code Ann., Ins. § 16-111(d) (changing insurance beneficiary is “valid except for transfer with actual intent to hinder, delay, or defraud creditors“) should bear on the Court‘s interpretation of MUFCA. As to the remaining counts, the Fourth Circuit affirmed the Court‘s grant of summary judgment on Count VI because the Bank waived appellate review on this claim and on Counts VII and VIII which sought unavailable declaratory relief.On remand, both parties renewed their cross motions for summary judgment and briefed the applicability of
Md. Code Ann., Est. & Trusts § 15-102(t) andMd. Code Ann., Ins. § 16-111(d) . This briefing clearly demonstrated to this Court that little, if any, guidance exists as to the applicability of such provisions, and thus, for this Court to follow the Fourth Circuit‘s directive would amount to writing on a clean slate as to questions involving the interpretation of Maryland statutory and common law.
(Citations omitted.)
The District Court, citing the absence of controlling authority and upon the agreement of both parties, certified the following questions of law to this Court:
- Whether the Maryland Uniform Fraudulent Conveyance Act, see
Md. Code Ann., Com. Law §§ 15-201 et seq. , which generally applies to “conveyances” made with the intent to hinder, delay, or defraud creditors, reaches a change in life insurance beneficiary particularly in light ofMd. Code Ann., Ins. § 16-111(d) ? - Whether
Md. Code Ann., Est. & Trusts § 15-102 grants a guardian of property the authority to change the beneficiaries of life insurance policies?
STANDARD OF REVIEW
This Court has the power to “answer a question of law certified to it by a court of the United States . . . if the answer may be determinative of an issue in pending litigation in the certifying court and there is no controlling appellate decision, constitutional provision, or statute of this State.”
DISCUSSION
Under the facts presented, the District Court asked this Court to address two matters of first impression—whether a change in life insurance beneficiary constitutes a conveyance under MUFCA and whether a guardian of property has the authority to make a change of beneficiary for a life insurance policy of the ward. For the following reasons, we answer the first question in the affirmative and the second question in the negative.
A. First Certified Question: A Change of Life Insurance Beneficiary Constitutes a Conveyance Under the Maryland Uniform Fraudulent Conveyance Act.
1. Parties’ Contentions.
The appellant, the Bank, contends that a change in the beneficiary designation of a life insurance policy may constitute a fraudulent conveyance and therefore may support an action under MUFCA. The Bank draws this conclusion in reliance on its interpretation of the text of MUFCA, particularly
The appellees, the Buckinghams, contend that a change of the beneficiary designation of a life insurance policy does not amount to a conveyance and therefore cannot give rise to a claim under MUFCA. The Buckinghams assert that this Court‘s precedent establishes that the status of a beneficiary is merely an expectancy instead of a property interest and thus cannot be reached by a narrower reading of
The parties offer competing interpretations of the definition of “conveyance” found in
Additionally, the Buckinghams argue that “includes,” particularly when followed by the word “every” as provided in the definition of “conveyance” in
2. Plain Language Analysis of CL § 15-201.
In engaging in statutory interpretation, “this Court‘s primary goal is to ascertain the purpose and intention of the General Assembly when they enacted the statutory provisions.” Town of Forest Heights v. Maryland-Nat‘l Capital Park and Planning Comm‘n, 463 Md. 469, 478 (2019) (citing Washington Gas Light Co. v. Maryland Pub. Serv. Comm‘n, 460 Md. 667, 682 (2018)). In determining the General Assembly‘s intent, we must first look to the natural and ordinary meaning of the language. Fangman, 447 Md. at 691. We read the “statute as a whole to ensure that no word, clause, sentence or phrase is rendered surplusage, superfluous, meaningless or nugatory.” Town of Forest Heights, 463 Md. at 478 (quoting Brown v. State, 454 Md. 546, 551 (2017)). “If the words of the statute, construed according to their common and everyday meaning, are clear and unambiguous and express a plain meaning, we will give effect to the statute as it is written.” Fangman, 447 Md. at 691 (citations and brackets omitted in the original). Lastly, “statutory construction is approached from a ‘commonsensical’ perspective. Thus, we seek to avoid constructions that are illogical, unreasonable, or inconsistent with common sense.” Della Ratta v. Dyas, 414 Md. 556, 567 (2010).
The following definitions for the statutory language in MUFCA are provided at
(a) In this subtitle the following words have the meanings indicated.
(b) (1) “Assets” means property of a debtor not exempt from liability for his debts.
(2) “Assets” includes any property to the extent that the property is liable for any debts of a debtor.
(c) “Conveyance” includes every payment of money, assignment, release, transfer, lease, mortgage, or pledge of tangible or intangible property, and also the creation of any lien or incumbrance.
(d) “Creditor” means a person who has any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed, or contingent.
(e) “Debt” includes any legal liability, whether matured or unmatured, liquidated or unliquidated, absolute, fixed, or contingent.
(Emphasis added.)
We begin our plain language analysis by considering the parties’ alternative interpretations of the word “includes” in
Here, we look to the entirety of
this list defined as: “‘[i]ncludes’ or ‘including’ means includes or including by way of illustration and not by way of limitation.”
Our interpretation is reinforced by the language defining “conveyance” in
However, we reject the Buckinghams’ reading of
Next, we note the use of the conjunction “or” between “mortgage[]” and “pledge” and the absence of a conjunction between “money[]” and “assignment.” As written, the provision contains one long string of terms leading up to the disjunctive “or,” with no grammatical or structural indication given that a “payment of money” should be held apart from the grouping of “assignment, release, transfer, lease, mortgage, or pledge.” Accordingly, it would be inconsistent to give one meaning to “payment of money” (i.e. it is a stand-alone term) and another meaning to the rest of the terms (i.e. each are subject to the qualifying phrase). Instead, we find the consistent use of commas here without the presence of a conjunction to mean each
Thus, after a detailed review of the plain language of
3. Legislative Intent of MUFCA.
While this Court “begin[s] our analysis by first looking to the normal, plain meaning of the language of the statute,” we sometimes “see fit to examine extrinsic sources of legislative intent merely as a check of our reading of a statute‘s plain language.” Brown v. State, 454 Md. 546, 551 (2017) (quoting Phillips v. State, 451 Md. 180, 196–97 (2017)). More specifically, this Court may analyze “the context of a statute . . . and archival legislative history of relevant enactments.” Town of Forest Heights, 463 Md. at 478 (quoting Brown, 454 Md. at 551). Here, we further clarify the General Assembly‘s intent in enacting MUFCA by reviewing the Act‘s legislative history and considering the caselaw of this Court.
A comprehensive review of MUFCA‘s legislative history reveals Maryland first adopted the
In 1975, as part of Maryland‘s code revision,6 the General Assembly repealed Article 39B in its entirety and reenacted the provisions of MUFCA as §§ 15-201 to 15-214 of the Commercial Law Article. 1975 Md. Laws, ch. 49. In addition to a bill containing the text of the statute to create the Commercial Law Article, the Commission to Revise the Annotated Code of Maryland also submitted a report to the General Assembly that included
section-by-section notes (known as “Revisor‘s Notes“) documenting its work. The report expressed this overall goal for MUFCA: “[t]he Commission has refrained from making many changes to this Act, even of a purely stylistic nature, in accordance with its policy regarding Uniform Acts.
In addition, the 1975 Maryland Chapter Laws contain the Reviser‘s Notes concerning the definitions provided in
In comparing Article 39B § 1 and
Second, a comma was inserted immediately following “mortgage” in subsection (c). Third, the word “means” replaced the word “is” in subsection (d), and lastly a comma was inserted immediately following “fixed” in subsection (e). However, as noted in both the commission‘s report and the Revisor‘s Notes, none of these changes were intended to be substantive. Therefore, these changes do not alter the original legislative intent of MUFCA dating back to its predecessor‘s enactment in 1920.
To discern the intent of the General Assembly in enacting the original Uniform Fraudulent Conveyance Act in 1920, we turn to caselaw for helpful context. This Court has long recognized that the purpose of fraudulent conveyance law is to preserve the rights of creditors. In 1939, this Court concluded that the Maryland fraudulent conveyance statutes “were designed to render null and void conveyances made for the purpose of hindering, delaying and defrauding creditors.” Kennard v. Elkton Banking & Trust Co., 176 Md. 499, 500 (1939). In 1973, this Court again reiterated that in enacting these statutes, the Legislature “was not restricting the legal or equitable remedies already available to the creditor,” and the “objective . . . [was] to enhance and not impair the remedies of the creditor.” Damazo v. Wahby, 269 Md. 252, 256–57 (1973).
In light of this caselaw, we conclude that the Buckinghams’ interpretation of the term “conveyance” in
IN § 16-111(d) .
In the first certified question, the District Court also asks us to interpret
(a) The proceeds of a policy of life insurance or under an annuity contract on the life of an individual made for the benefit of or assigned to the spouse, child, or dependent relative of the individual are exempt from all claims of the creditors of the individual arising out of or based on an obligation created after June 1, 1945, whether or not the right to change the named beneficiary is reserved or allowed to the individual.
(b) For purposes of this section, proceeds include death benefits, cash surrender and loan values, premiums waived, and dividends, whether used to reduce the premiums or used or applied in any other manner, except if the debtor has, after issuance of the policy, elected to receive the dividends in cash.
(c) This section does not prohibit a creditor from collecting a debt out of the proceeds of a life insurance policy pledged by the insured as security for the debt.
(d) A change of beneficiary, assignment, or other transfer is valid except for transfer with actual intent to hinder, delay, or defraud creditors.
(Emphasis added.)
Generally,
Additionally, we find support for our statutory interpretation of
Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud present or future creditors, is fraudulent as to both present and future creditors.
Notably, identical language is used to describe both fraudulent conveyances in
1. Parties’ Contentions.
The Bank contends that a guardian of property does not have the power to change life insurance beneficiaries of a ward, especially if such change is for the benefit of someone other than the ward or the ward‘s dependents. The Bank points out that
Specifically,
A fiduciary may exercise options, rights and privileges contained in a life insurance policy, annuity, or endowment contract constituting property of the fiduciary estate, including the right to obtain the cash surrender value, convert a policy to another type of policy, revoke any mode of settlement, and pay any part or all of the premiums on the policy or contract.
The Bank emphasizes that none of the powers listed in
Instead, a guardian‘s powers to distribute or disperse the property of a ward without court authorization are provided for in
Except for the limitations contained in § 13-106 of this title, after appointment of the guardian, the court has all the powers over the property of the minor or disabled person that the person could exercise if not disabled or a minor.
As a result, the Bank argues the only proper course of action for a guardian seeking to change the beneficiary on a life insurance policy of the ward would be to seek permission of the court.
On the other hand, the Buckinghams assert that
For centuries, the common law purpose of guardianship has remained unaltered. A guardian of an incompetent ward has a fiduciary duty to guard and protect the estate of the ward. As the legislative history outlines below, a guardian of the property does not have the ability to change the beneficiary designations of a ward‘s life insurance policy without court approval because the guardian did not have such powers under common law and the General Assembly has not conferred such powers in subsequent statutes addressing the powers of a guardian. “It is a generally accepted rule of law that statutes are not presumed to repeal the common law ‘further than is expressly declared . . . .‘” Robinson v. State, 353 Md. 683, 693 (1999) (quoting Lutz v. State, 167 Md. 12, 15 (1934)).
To comprehensively analyze the role of a guardian of property we must begin with Maryland‘s adoption of English common law under Article 3 of the Declaration of Rights in the Maryland Constitution in 1776. Nickens v. Mount Vernon Realty Grp., LLC, 429 Md. 53, 65 n.11 (2012) (abrogated on other grounds). In 1867, the language of Article 3 was reconstituted as Article 5. Id. Article 5(a) of the Declaration of Rights now provides:
That the Inhabitants of Maryland are entitled to the Common Law of England, and the trial by Jury, according to the course of that Law, and to the benefit of the English statutes as existed on the Fourth day of July, seventeen hundred and seventy-six; and which, by experience, have been found applicable to their local and other circumstances, and have been introduced, used and practiced by the Courts of Law or Equity; and also of all Acts of Assembly in force on the first day of June, eighteen hundred and sixty-seven; except such as may have since expired, or may be inconsistent with the provisions of this Constitution; subject, nevertheless, to the revision of, and amendment or repeal by, the Legislature of this State. And the Inhabitants of Maryland are also entitled to all property derived to them from, or under the Charter granted by His Majesty Charles the First to Caecilius Calvert, Baron of Baltimore.
The statute of Edward II, De Praerogativa Regis, was one of the statutes adopted in Maryland under Art. 5 of the Declaration of Rights. It provided, in effect, that under the King‘s custodianship, the lands and tenements of lunatics should be ‘safely kept without Waste and Destruction, and that they and their Household shall live and be maintained competently with the Profits of the same.’ The declared purposes of the statute were to prevent alienation of the property, and to insure [sic] its return to the incompetent if he should recover, or to his heirs if he should die insane.
Kelly v. Scott, 215 Md. 530, 535 (1958) (emphasis in original) (citations omitted). This reference reveals the long-established English common law principle underlying the concept of guardianship—specifically, that the purpose of guardianship is to ensure the estate of the ward is preserved and not diminished. We now consider any legislative alterations to this principle following its adoption under the Declaration of Rights in 1776.
For many decades, Maryland lawyers and judges operated without an organized or regularly published code. The first official code compiling Maryland state laws was not published until 1860. See Hoang v. Lowery, 469 Md. 95, 108 (2020). However, regular efforts to update the 1860 code quickly ceased, rendering it outdated within a few years. See Alan M. Wilner, Blame it All On Nero: Code Creation and Revision in Maryland (1994), https://msa.maryland.gov/megafile/msa/speccol/sc2900/sc2908/html/history.html [https://perma.cc/F32A-M4A7]. Thus, prior to the publication of the first complete, annotated Maryland Code in 1924, lawyers and courts relied on treatises authored by individual legal scholars to ascertain the current state of law. Id. As a result, scholarly treatises provide pertinent historical insight on the development of law prior to 1924.
Of particular relevance to the question at hand, Edward Otis Hinkley wrote a treatise in 1878 entitled The Testamentary Law and the Law of Inheritance and Apprentices in Maryland, that comprehensively surveyed Maryland statutes and caselaw, often quoting this Court. Edward Otis Hinkley, The Testamentary Law and the Law of Inheritance and Apprentices in Maryland (John Murphy & Co., 1878). We find part six—“Guardians and Wards“—and specifically chapter fifty-seven, which closely considers the duties and powers of guardians, to be instructive. At the beginning of this chapter, Hinkley provided a detailed index, similar to modern headnotes, containing twelve references to the 1860 code and twenty-six references to caselaw. Id. at 536–37. Citing both code and caselaw, Hinkley wrote:
As it is the unquestionable province of a guardian, under our laws, to take care of the person of his ward, so it peculiarly belongs to his office to keep together and preserve the property of every kind and description.
Id. at 541. Thus, Hinkley‘s synthesis of the law evidences that the English common law purpose of guardianship, while derived originally from the role of the King, was fully embraced by both the Maryland legislature and this Court as of 1878.
The Buckinghams argue that later provisions provided through guardianship reform gave broad powers to guardians. The Bank counters that these broad powers were granted under the doctrine of substituted judgment, which does not extend to the change of a life insurance beneficiary. This Court addressed the doctrine of substituted
Immediately following the Kelly decision, the Maryland General Assembly passed legislation that codified the substituted judgment doctrine. Scott v. First Nat‘l Bank, 224 Md. 462, 464 (1961); 1958 Md. Laws, ch. 93. The new statute authorized a court in equity to approve of the disbursement of a ward‘s surplus income by a guardian of property in hardship cases. 1958 Md. Laws, ch. 93. These court-authorized additional payments of support and maintenance could be made to “such person, or persons as the incompetent [ward] would reasonably have been expected to make had he been in a sound state of mind and capable of managing his affairs.” Id. While this statutory provision modified the effect of Kelly where facts supporting substituted judgment arise, it did not modify the purpose of guardianship Kelly had so clearly defined from a historical review of English common law. While the General Assembly granted substituted judgment to guardians of property, it did so with limitations that did not extend to changing the beneficiary on a life insurance policy of a ward.
In the years after the Kelly decision and the subsequent legislation adopting the substituted judgment doctrine, guardianship law underwent several phases of statutory and code revision by the Maryland General Assembly. In 1969, the General Assembly entirely overhauled Maryland‘s testamentary law, revising Article 93 and adding Article 93A, in conformance with a report and recommendations produced by a gubernatorially appointed Commission chaired by Judge Henderson and thus known as the “Henderson Commission.” Piper Rudnick LLP v. Hartz, 386 Md. 201, 222 (2005). In its report, the Henderson Commission provided comments following Section 7-401 of Article 93, the statutory provision detailing the powers of guardians including those related to life insurance policies, stating that the commission relied on the 1969 Uniform Probate Code and “substantially adopt[ed] the assumption of the Uniform Trustees’ Powers Act that it is desirable to equip fiduciaries with the authority required for the prudent handling of assets.” Governor‘s Commission to Review and Revise the Testamentary Law of Maryland,
and the General Assembly of Maryland 110–11 (December 5, 1968), http://mdlaw.ptfs.com/awweb/pdfopener?md=1&did=6570 [https://perma.cc/6CH3-H2CW]. This foundational assumption relied upon by the Henderson Commission aligned with the common law purpose of guardianship—preservation and maintenance of a ward‘s estate—provided for in Kelly.
In 1974, as part of Maryland‘s code revision, the General Assembly repealed Articles 93 and 93A and reenacted them as the Estates and Trusts Article. 1974 Md. Laws, ch. 11. The Revisor‘s Notes pertaining to
Looking to other statutory provisions contained in the Estates and Trusts Article, we note that
Finally, we consider that the Uniform Probate Code, both as it existed in 1969 when the Henderson Commission relied upon it and the current version, expressly require court authorization prior to a change in life insurance beneficiary on a policy of a ward. Unif. Probate Code § 5-408(4) (1969); Unif. Probate Code § 5-411 (last amended 2019) (2020). We note other states have recognized this approach. Wisconsin‘s highest court has stated, “[i]n our opinion a guardian has no more authority to designate a beneficiary in a policy of insurance upon the life of a ward than he would have to change the will of his ward by executing a codicil thereto or by executing a wholly new will.” Kay v. Erickson, 244 N.W. 625, 626 (Wis. 1932). Likewise, although a state statute dictated an alternate outcome, a Texas intermediate appellate court nonetheless observed, “[i]t appears to be the generally accepted rule . . . that the guardian of an incompetent may exercise the right to change the beneficiary designated in a policy on the life of the incompetent if by the change the ward is benefited, and if the guardian is duly authorized to make such a change of beneficiary by a court of competent jurisdiction.” Salvato v. Volunteer State Life Ins. Co., 424 S.W.2d 1, 4 (Tex. 1st. Ct. App. 1968). We agree with this rule and, as before noted, in accordance with
In sum, the role of a guardian to maintain and preserve the estate of the ward originated with English common law and was incorporated into Maryland law under the Declaration of Rights. This purpose of guardianship has been consistently referenced in caselaw and has remained unaltered after five decades of guardianship
CONCLUSION
For the foregoing reasons, we answer the first question certified to us by the District Court in the affirmative and hold that a change in life insurance beneficiary constitutes a conveyance under
CERTIFIED QUESTIONS OF LAW ANSWERED AS SET FORTH ABOVE. COSTS TO BE DIVIDED EQUALLY BETWEEN THE PARTIES.
Notes
In this article “assets” of a debtor means property not exempt from liability for his debts. To the extent that any property is liable for any debts of the debtor, such property shall be included in his assets.Md. Code (1957), Art. 39B § 1 (emphasis in original).
The commission altered the language of subsection (b) to read:
(1) “Assets” means property of a debtor not exempt from liability for his debts.
(2) “Assets” includes any property to the extent that the property is liable for any debts of a debtor.