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Strange Maryland trust; successor Trustee rules


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Is anybody familiar with Maryland trust rules?  This falls into the category of doing a friend a favor, so TIA for any insight.

Client set up a living trust and then dies a few years later.  There are 2 beneficiaries of the trust (two of the client's three children).  Upon the death of the client the Trust named the youngest of the three children, who is not a beneficiary of the trust, as Trustee. All goes well for a few years. The now trustee (and youngest of the three children) develops some health issues which focuses the attention of the beneficiaries on the successor Trustee provisions of the Trust.  

The Trust names one of the other children (who is 1 of the 2 beneficiaries) as Trustee if the youngest of the three siblings dies or is unwilling to continue in her role as Trustee. 

Nothing further is specified in the Trust as far as Trustee succession goes.

Assume that (1) the youngest of the three children dies; and, (2) the named successor Trustee acts as Trustee for a few years; and, (3) the named successor Trustee dies.

The Trust doesn't contemplate this sequence of events.  There doesn't appear to be any provision in the Trust that grants the remaining beneficiary Trustee authority. 

The trust holds two assets: an investment account at a national brokerage and an annuity issued by a large insurance company. Both the brokerage firm and the insurance company have a copy of the Trust itself.

Assuming the above, is there something that the named successor Trustee should do (after the youngest sibling dies but obviously before her own death) so that the brokerage firm and insurance company understand that, upon her death, they should listen to the remaining beneficiary for all things they would otherwise look to the Trustee for?

Does Maryland trust law have a provision that says if a trust becomes trustee-less that trustee powers automatically vest in the remaining beneficiary?

TIA

me22

 

 

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I am an attorney but I am not familiar with the Maryland law of trusts. I am admitted to the bar of two states in a part of the country close to Maryland that would like take similar positions in matters of trust law as Maryland. For the most part, trusts were initially created under a state's judge-made law. Over time, state legislatures drafted statutes that directly or indirectly superseded some of this judge-made law. You should hire an attorney who is admitted to the Maryland bar and ask him/her to assist you in this matter. It is possible that Maryland has a statute that provides for the manner in which successor trustees are appointed and who is eligible to be named as a successor trustee if any or all of the trustees named in the trust document  die before the trust has fulfilled its purposes. If the statutory provision, if any, is not helpful, it is likely that the probate court or other court in the county where the decedent died will appoint a successor trustee. If faced with this situation, a prospective successor trustee or one of the beneficiaries would apply to the court to have a successor trustee appointed. If there is no other beneficiary but the child who survives the decedent's other children who were designated as trustees, and the surviving child is not incapable of managing his/her own financial affairs, one possibility is to ask the court to declare that the trust has  satisfied its intended purposes, terminate the trust and allow the surviving child to receive the remaining corpus and income of the trust outright.

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I am a Maryland attorney, but don't actively handle estate and trust matters.  My first question is why not call the attorney who drafted the trust document?  He/she should be able to answer your questions.  My second question is whether this is a special needs trust.  If so, see attached from the Maryland Attorney General as a starting point.  My third question is whether or not the trust is revocable or irrevocable. If the trust is silent on the matter, then it's revocable - Section 14-402(e) of the Estates and Trust Volume.  But if the settlor is dead I don't know who has the power to revoke it other than a court.  That would allow you to start from scratch. I am assuming that this is not a testamentary trust.  

It is important that you make sure that the  investment account and the annuity are actually titled in the name of the trust.  It is a regular occurrence for the parties to recite in the trust document that the following assets have been transferred to the trust when they have not in fact done so.  The assets remain in name of the settlor.  In other words, for example, the settlors house must be deeded to the "The Joseph Smith Family Trust" or it's not in the trust at all.  If the assets are not so titled, they will go through probate on the death of the settlor. 

Section 14-403 of the Estates and Trusts Article provides -see Section "(h)":

"§ 14-403. Creation of trust as transferor
In general
(a) Any person having the right to transfer property to another person may create a trust as a transferor under this subtitle.
Powers of transferor
(b) The transferor may:
(1) As declarant serve as trustee;
(2) Designate a trustee;
(3) Designate how the trustee will be chosen;
(4) Designate successor trustees in the order in which they will serve; and
(5) Designate how successor trustees will be chosen.
Duties of trustee to hold, manage, expend, and transfer trust property
(c) The trustee shall hold, manage, expend, and transfer trust property as provided in this subtitle.
Successor trustees
(d) The successor trustee shall assume the responsibilities of the trustee when the trustee is no longer willing or able to serve.
Number of beneficiaries and trustees
(e) A trust may have only one beneficiary but more than one trustee.
Liability of trustee and declining or resignation of role
(f) A trustee:
(1) Is not personally liable to a third person:
(i) On a contract properly entered into in a fiduciary capacity unless the trustee fails to reveal that capacity or to identify the trust in the contract; or
(ii) For an obligation arising from control of trust property or for a tort committed in the course of the administration of the trust, unless the trustee is personally at fault;
(2) May decline to serve as trustee before accepting trust property by notifying in writing the person who designated the trustee, or that person's legal representative; and
(3) May resign as trustee by notifying the successor trustee in writing, transferring all trust property to the successor trustee, providing the successor trustee with a complete accounting of trust property, and confirming that the successor trustee has accepted the trust property.
Acceptance of records and trust property to become successor trustee
(g) The next willing successor trustee in line shall accept the records and trust property and become trustee as soon as practicable after:
(1) The resignation of the trustee;
(2) The declination of the trustee;
(3) The death of the trustee; or
(4) The removal of the trustee.
Petition to designate successor trustee
(h) If the trustee is unable or unwilling to serve and no successor trustee will serve, the following persons in the order listed may petition the court to designate a successor trustee:
(1) The transferor or the legal representative of the transferor;
(2) The trustee;
(3) The beneficiary or the beneficiary's legal representative;
(4) The guardian of the person of the beneficiary;
(5) An adult member of the beneficiary's family or that family member's legal representative; or
(6) A person interested in the trust property or a person interested in the welfare of the beneficiary, either of whom the court determines to have a legitimate interest.
Remove or change designation of trustee
(i) Unless renounced by the transferor, the transferor may at any time remove or change the designation of the trustee and successor trustees."
 
You can find the entire Maryland Discretionary Trust Act at https://law.justia.com/codes/maryland/2017/estates-and-trusts/title-14/subtitle-4/
 
If you need a referral to a Maryland attorney who specialized in estates and trusts matter, let me know the County where everyone resides and I will be happy to find someone for you.
 
David 

  

Special Nees Trust from Maryland AG.pdf

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