October 20, 2016
Authored by: Luke Lantta
Circumstances, laws, and taxes all change. And, when they do, many settlors don’t want their beneficiaries to have to go into court to get permission to roll with the changes. That’s why you often find a trust provision that permits non-judicial amendments to the trust. The breadth of these powers to amend differ from a narrow power to amend to a broad power to amend, like the one before the Maryland Court of Special Appeals in Grueff v. Vito. There, the power to amend a family trust provided:
This Agreement may be revoked, altered or amended from time to time by an instrument in writing, signed by the holders of not less than seventy-five (75%) interest herein and delivered to the Trustee.
The beneficiaries used that amendment power a number of times over the years. But, eventually they took it too far. After one of four beneficiaries of the trust filed a lawsuit concerning the trust, the three remaining beneficiaries executed an amendment that reduced the complaining beneficiary’s share to 0%. The trial court, applying the plain language of the power to amend, found the disinheriting amendment to be valid. The appellate court disagreed and rejected the literal reading of the trust amendment clause.
The appellate court reasoned that the settlor really wanted all four beneficiaries to remain beneficiaries and also that eliminating one beneficiary would require unanimity in future amendments making the amendment quorum language meaningless. In reaching its conclusion, the appellate court rejected the maxim that a power to do the greater (revoke) includes the power to do the lesser (amend) because, if the trust was revoked, the complaining beneficiary would get a distribution.
So, grantors take heed: if you really, really want a broad amendment power that includes the power to do things like disinherit a beneficiary, then you may want to do more than rely on the plain language in your trust.
As an added bonus, the Maryland appellate court also weighed in on the hot topic of duties owed to remainder beneficiaries of a revocable trust while the settlor is alive. Maryland decided that the trustee of a revocable trust does not owe a fiduciary duty to contingent remainder beneficiaries of the trust while the settlor is alive.