The Maryland Court of Appeals holds for PNC in a suit by the beneficiaries of a testamentary trust created under the will of a Maryland resident where the beneficiaries claimed that PNC breached its fiduciary duty in requiring them to sign a release agreement arguably too favorable to PNC before distributing assets to them. The reason for the action was that PNC subsequently miscalculated the Maryland inheritance tax due.
The court held that under Maryland law, the inheritance tax is owed on the total amount of the remainder trust if the tax was not prepaid when the estate was administered and the trust funded. Such prepayment is an option under Maryland law. The court explained that under Maryland law, the state inheritance taxes could be prepaid on the remainder interest when the trust was funded but before the remainder vested, or the taxes could be deferred and paid at the time that the interest vested, at which time the tax is based upon the entire value of the vested interest. The personal representative of the estate elected not to prepay the tax; therefore, the tax became due when the interest became vested.
In addition, the divided court held that by sending the release agreement to beneficiaries, PNC did not breach its fiduciary duty to the beneficiaries.
PNC sent a release and indemnity agreement to each of the beneficiaries for execution prior to distributing the trust funds to them. The beneficiaries argued that the release agreement was too favorable to PNC and that PNC should not have required them to sign the release agreement. The court held that the release agreement was not required, but, nonetheless, PNC did not breach its duty of loyalty to the beneficiaries because the release agreement terms were not so broad or one-sided as to place PNC's interests ahead of those of the beneficiaries.
The dissenting judges stated that the court "condones PNC's self-initiated upgrade in protection, at the risk and the expense of the Beneficiaries," and that the court should not "condone the practice of a bank's asking beneficiaries to provide the bank insurance against the bank's own blunders."
The key to the majority's decision was that the release agreement provided greater protection than that offered under state law, which was narrowly held to be permissible under Maryland law.