Court of Appeals leaves unanswered how no-contest clauses reduced four decades of estates and trusts case law

By Michael Wein

Maryland estates and trusts law does not get its fair share of reported appellate decisions. The vast majority of estates and trusts cases are handled quickly and adroitly by the orphans’ court or, in some counties, the circuit court. Few cases are seriously litigated on appeal, and even fewer are decided by the Maryland appellate courts. A survey reveals that only 2 out of the 97 cert petitions granted by the Court of Appeals in the 2016 term fell under the category of “Estates and Trusts.”[1] In 2015, there were none.[2]

One of the two Court of Appeals cases from the 2016 term, Vito v. Grueff, was heard at oral argument on March 31, 2017. Vito highlights the lack of wills and estates case law in Maryland.

In Vito, four siblings (Candace, Michael, Judith, and Tim) were given the benefits of their deceased father’s estate. The estate had been placed in a trust, to be doled out over more than a decade. The siblings had equal 25% shares in the trust. In 2013, one of the siblings (Candace) challenged the legality and competency of various amendments that had been made to the trust. Only two months later, the remaining three siblings amended the trust to “reduce Candace’s 25% beneficial interest in the trust to zero and reallocate it among Michael, Judith, and Tim, resulting in each of them having a 33 1/3 % beneficial interest.” Grueff v. Vito, 229 Md. App. 353, 362 (2016). Such changes could be made with the approval of three out of four siblings.

Divesting Candace’s interest might seem rather unfair. The remaining three siblings in effect excluded Candace as a beneficiary because she had earlier sought to challenge a different action of the siblings. The Court of Appeals judges seemed to recognize that concern during oral argument. The amendment would seem particularly unfair in light of the Maryland Trust Act, which took effect on January 1, 2015. The Act would have precluded such self-interested actions by the three siblings. As the Court of Special Appeals noted, were the Act applicable, the amendment “would not have survived.” Grueff, 229 Md. App. at 368 n.7.

Nevertheless, the events in Vito preceded the enactment of the Maryland Trust Act, and the case fell under existing case law. As far as the remaining three siblings were concerned, under existing case law, the trust empowered 75% of the beneficiaries to do what they desired, and they desired to remove Candace’s interest from the trust. In fact, at oral argument, counsel for Michael, Judith, and Tim reiterated that the case was a mere matter of contractual interpretation for a valid trust. Although the amendment was undesirable, there was nothing that the Court could say or do, absent intervening on public policy grounds.

In a unanimous opinion issued on May 22, the Court of Appeals rejected that argument and the actions of the remaining three siblings. Judge Shirley M. Watts, writing for the Court, explained:

Considering the language of the entire trust instrument, we hold that the plain language of the modification provision does not grant authority for three beneficiaries of the trust to remove the fourth beneficiary, and that the irrevocable trust clearly evinces the settlor’s intent for the trust to benefit his four children—the four beneficiaries—equally. An interpretation of the trust instrument that would permit three of the settlor’s children to divest the fourth would contravene the settlor’s intent and be inconsistent with the plain language of the irrevocable trust. We conclude that the amendment at issue—in which three of the four beneficiaries purported to divest the fourth beneficiary—was impermissible under the terms of the irrevocable trust.

The Court’s opinion is limited to the terms of the specific trust instrument at issue. The opinion does not include any discussions of a larger public policy or statutory provision, but instead focuses on the intent of the trust and settlor—in this case, to benefit the four siblings equally. According to the Court, the changes contemplated by the remaining three siblings would have eviscerated that intent.

As noted earlier, few reported appellate opinions exist in the estates and trusts realm, which is anomalous if one considers that virtually every death of a loved one could result in litigation of their assets. With more estates case law, such unfortunate circumstances like Vito may have been avoided, because the legality of the actions taken by the remaining three siblings would have been understood beforehand.

Ironically, the public policy against actions like those in Vito helps to explain why there exist so few published cases in estates and trusts. The explanation begins with Md. Code Ann., Est. & Trusts § 4-413, which provides that, where probable cause exists to bring a claim, “a provision in a will purporting to penalize an interested person for contesting the will or instituting other proceedings relating to the estate is void.” Section 4-413 is meant address “no-contest” or in terrorem clauses that threaten against litigation. A survey of all states’ laws on in terrorem clauses, prepared by the American College of Trust and Estate Counsel (ACTEC), notes that such clauses are, to a significant degree, unenforceable nationwide.

Section 4-413 became law in Maryland in 1974. In the ensuing 43 years, not one appellate decision arose in which the statute was challenged, discussed, interpreted, or even cited. More amazingly, according to Westlaw, which includes most appellate briefs in Maryland for the past two decades, § 4-413 has apparently been cited in a brief in only a single appellate case—Niedecker v. Conway. The case led to an unreported opinion in 1999 by the Court of Special Appeals.[3]

Despite a lot of potential to consider a statute declaring the public policy applicable in the appellate courts, there is a dearth of knowledge and understanding of that statute. Section 4-413 remains mostly unknown outside attorneys who regularly practice estates and trusts law. (And I have come across some attorneys who advertise estates and trusts work but are blissfully unaware that § 4-413 even exists.)

This becomes particularly problematic when considering the context, public policy concern, and rationale for § 4-413. Despite a statute that declares in terrorem clauses void in most circumstances, few people either know about or cite it. And most wills and trusts (or at least trusts of the “holdover will” variety) freely include an in terrorem clause when drafted or provided by attorneys. Worse, the inclusion of in terrorem clauses continues to discourage legitimate litigation from heirs and beneficiaries, even though the threshold is relatively low for establishing probable cause and voiding the in terrorem clause.

Not everyone reviewing such a clause, particularly without qualified counsel available, may realize that probable cause is not a probability concept. Rather, probable cause is a good faith and reasonable belief by the person seeking the inquiry, as has been developed by decades of criminal law definitions on this very concept, and in other states analyzing similarly worded statutes. See Maryland v. Pringle, 540 U.S. 366, 370–71 (2003) (“On many occasions, we have reiterated that the probable-cause standard is a ‘practical, nontechnical conception’ that deals with ‘the factual and practical considerations of everyday life on which reasonable and prudent men, not legal technicians, act.’ … [P]robable cause is a fluid concept—turning on the assessment of probabilities in particular factual contexts—not readily, or even usefully, reduced to a neat set of legal rules.”); Patterson v. State, 401 Md. 76, 91–92 (2007) (“Probable cause is ‘a nontechnical conception of a reasonable ground for belief’ that the items sought will be found in the premises searched.”).

The relatively low threshold for probable cause is why Maryland is among 27 states with similar public policy rules noting the general unenforceability of in terrorem clauses. Maryland is also part of a small minority of jurisdictions that have never had an appellate decision discussing these clauses. According to the ACTEC, of the states that have had cases, “[i]n no state have the legislatures or courts expressly adopted a different rule for wills than for trusts.” In terrorem clauses are enforceable in 14 states, including in D.C., without regard to probable cause.

Unfamiliarity with § 4-413 in Maryland perpetuates fewer appellate decisions in the estates and trusts area of law. Parties and their counsel may have legitimate grievances over multiple aspects of a will or trust, but they may be fearful that any challenge would result in zero monies being claimed if they lose their lawsuit. (The root word “terrorem” in both Latin and French means “to fear.”) That fearfulness may not necessarily be warranted in light of § 4-413.

Vito did not turn on Maryland’s public policy against the large majority of in terrorem clauses, as the issue apparently wasn’t argued in the lower courts. Still, it would behoove the Court of Appeals and Court of Special Appeals, in a future opinion, to start letting attorneys and judges know that such an important statute exists in Maryland. In terrorem clauses are generally against a specific statutory command that codified Maryland’s public policy and is shared by most states. The fear of these clauses reduces transparency for estates matters, and 43 years is way too long for Maryland’s rule against in terrorem clauses to go without judicial citation. Without an opportunity to connect to Maryland’s common law to the enforceability of § 4-413, there will continue to be an unfair effect on heirs and beneficiaries, with legitimate legal concerns on the proper distributions and actions of their estates and trust cases.

[1] The first case, Vito v. Grueff, is the subject of this blog post. The second case, Castruccio v. Estate of Castruccio, examined the circumstances of a validly executed will.

[2] Excluded here is Conover v. Conover, which was listed as an estates and trusts case but was indisputably a family law case involving the standard to address custody proceedings for nontraditional de facto parents.

[3] The brief in Niedecker is also helpful for locating classic case law on no-contest clauses. One such case is Black v. Herring, 79 Md. 146 (1984), in which the Court of Appeals seemed to question the enforceability of no-contest clauses generally, noting “[i]t is a mistake to assume that the appellant in filing this bill, by which he seeks only the true construction of said will … and the enforcement of his rights thereunder, is seeking to thwart the designs of the testatrix or in any manner to interfere with the due execution of her wishes as expressed in her testamentary papers. It would be an anomaly in the law, and a very unjust restriction, if such a contention could be upheld.” Id. at 152–53 (emphasis added).