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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1592 September Term, 1998

WILLIAM H. JACOB v. MICHAEL W. DAVIS, ET AL.

Davis, Sonner, Adkins, JJ.

Opinion by Adkins, J.

Filed: October 7, 1999

Appellant William H. Jacob (Bill) is the sole remainderman of two trusts established under the last will and testament of his father, John B. Jacob (John). Appellant sued Michael W. Davis, the

surviving trustee of those trusts, and Davis's law firm, Ahlstrom & Davis, P.A., appellees, alleging numerous violations of

appellees' fiduciary duties as trustees, and seeking an accounting, other equitable relief, and damages. The complaint included the

following counts: 1) breach of fiduciary duty; 2) declaratory relief; 3) injunctive relief; 4) breach of contract; 5) tortious breach of covenants of good faith and fair dealing; 6) negligence; 7) trover and conversion; and 8) an accounting and establishment of a constructive or resulting trust. Ruling on a motion made by

appellees at the end of appellant's case, the trial court entered judgment pursuant to Maryland Rule 2-519 in favor of appellees on all eight counts. This appeal was timely filed from that judgment.

FACTS John died on January 22, 1994, leaving an estate valued at $853,164, and a will that created two trusts known as the Marital Trust, and the Family Trust, respectively (collectively, "the Trusts"). John's surviving wife, Harriett Bell Jacob (Harriett)

was the income beneficiary of the Trusts, and appellant was the remainder beneficiary. Harriett, appellant's stepmother, had the

right to make certain withdrawals of principal from the Family Trust, limited in amount and timing, and Davis, as independent

trustee, had the authority to make discretionary distributions of principal from the Trusts to Harriett "as, in the sole and absolute discretion of [Davis], are necessary, desirable or appropriate for the health, education and support of [Harriett] in [her] accustomed manner of living." The will directed that "in exercising such

discretion, the Trustee may take into account other financial resources of the beneficiaries under consideration." Harriett, was

prohibited from participating in the discretionary decision to distribute principal to her. John bequeathed his residuary estate to the Marital and Family Trusts. The size of each trust was determined by a formula, which

directed that the Family Trust receive an amount equal to the maximum amount that could pass free of federal estate taxes by utilizing the credit against estate and gift taxes ("unified credit") available to John, and the Marital Trust receive the remainder. Application of this formula resulted in zero federal

estate tax payable by John's estate, because his available tax credit allowed $600,000 to pass to the Family Trust free of tax. Further, there were no taxes payable with respect to the assets passing to the Marital Trust, because the trust qualified for the federal estate tax marital deduction ("marital deduction"), and thus any tax was deferred until the death of Harriett. Appellee Davis and Harriett were designated as personal

representatives of John's estate.

The personal representatives

were required to make an election on his federal estate tax return 2

identifying what portion of the Marital Trust they elected to qualify for the marital deduction. Although all assets passing to

the Marital Trust could so qualify, an election was required to effectuate the marital deduction. The personal representatives were required to show on the estate's Administration Account filed with the Orphans' Court the exact amount passing to the Marital Trust.1 The First and Final

Administration Account for John's estate, filed November 7, 1994, showed that $80,223 was to be distributed to the Marital Trust. This was consistent with the $80,476 elected by the personal representatives to qualify for the marital deduction on John's federal estate tax return.2 In fact, however, no assets were

distributed to the Marital Trust, and this trust never was funded. John's entire residuary estate was distributed by appellee Davis and Harriett, personal representatives, to the Family Trust. The

discrepancy between 1) the amount designated as passing to the Marital Trust on the distribution account for John's estate

($80,476), which is consistent with the federal estate tax return, and 2) the actual amount distributed (zero), is one subject of Under Federal Estate Tax Law, if the personal representatives did not elect to qualify the full Marital Trust for the marital deduction, taxes generated by the unqualified assets would be owed at John's death. See I.R.C.

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