A CHANGE IN BENEFICIARY ON A LIFE INSURANCE POLICY IS A TYPE OF CONVEYANCE AND MARYLAND LAW DOES NOT AUTHORIZE GUARDIANS OF THE PROPERTY TO MAKE A CHANGE IN BENEFICIARY WITHOUT A COURT’S PERMISSION.

The Court of Appeals of Maryland held that a change in beneficiary designation is a conveyance under the Maryland Uniform Fraudulent Conveyance Act (“MUFCA”).  United Bank v. Buckingham, 472 Md. 407, 412, 247 A.3d 336, 339 (2021). The court additionally held that a guardian of the property could not change the beneficiary designation on life insurance because neither the common law nor any statute ever granted this power to guardians of the property.  Id. at433, 247 A.3d. 352.   

In 2009, John Buckingham, the founder, president and director of Sun Control Systems (“SCS”) was diagnosed with progressive and terminal dementia.  In May of that same year, SCS and Virginia Commerce Bank (“The Bank”) entered into a forbearance agreement; SCS defaulted in 2010.  Out of fear of losing millions of dollars through loans to SCS, the Bank reviewed SCS’s remaining assets, including eight life insurance policies in John’s name: six “JDB policies” from Northwestern Mutual, and two policies from John Hancock.  The Bank and SCS entered into a second forbearance agreement giving the Bank a secured interest in death benefits payable under the Northwestern Mutual policies.

In January of 2011, the Circuit Court for Montgomery County named David Buckingham (one of John’s children) as the guardian of John’s property.  In this capacity, David changed the beneficiaries on the eight life insurance policies. David then sold the John Hancock policies to the Osprey Trust where he obtained accelerated death benefits on the policies as an Osprey trustee.  David also sued the Bank in Montgomery County to invalidate the assignment of the Northwestern Mutual policies, which the court invalidated because John lacked the capacity to enter the agreement.  On October 17, 2012, John passed away. Northwestern and John Hancock distributed the remainder of the death benefits, but there was no money left to satisfy the Bank’s loans. 

On October 30, 2013, the Bank brought suit in the U.S. District Court for the District of Maryland against John Buckingham’s children (against Susan and Richard as representative for John’s estate and David in his capacity as trustee of Osprey and Blue Heron Trust).  The Bank wanted to invalidate the sale of the John Hancock policies from SCS to Osprey and the change in beneficiaries on the Northwestern Mutual policies.  Counts I-III pertained to the sale of the John Hancock policies, which the Bank claimed violated the MUFCA.  Counts IV-V pertained to the changes of beneficiaries on the Northwestern Mutual policies under the MUFCA.  Count VI alleged that David breached his fiduciary duty to SCS’ creditors and counts VII-VIII sought declaratory judgment that the John Hancock policy transfers were invalid because David, as guardian of the property did not have the authority to make them.  Both parties moved for summary judgment and the court ruled in the Buckingham children’s favor.  The Bank then appealed the decision to the United States Court of Appeals for the Fourth Circuit, which reversed and remanded the first five counts.  On remand, the Fourth Circuit directed the U.S. District Court for the District of Maryland to reconsider the propriety of summary judgment in light of applicable Maryland estate and trust law.

The U.S. District Court for the District of Maryland certified two questions for the Court of Appeals of Maryland to answer.  Buckingham, 472 Md. at 420, 247 A.3d 344.  First, does a change in life insurance beneficiary constitute a conveyance under the MUFCA.  Buckingham, 472 Md. at 420-21, 247 A.3d 344.  Second and does a guardian of property have the authority to make a change of beneficiary on a life insurance policy?  Buckingham, 472 Md. at 421, 247 A.3d 344. 

To answer the first question, the court reviewed the definition of “conveyance” in the MUFCA to determine its plain meaning.  Buckingham, 472 Md. at 423, 247 A.3d 346.  A “‘Conveyance’ includes every payment of money, assignment, release, transfer, lease, mortgage, or pledge of tangible or intangible property, and also the creation of any lien or [encumbrance].’”  Id. at 424, 247 A.3d. 346 (quoting Md. Code Ann., Com. Law § 15-201 (2018)).  Though a change in beneficiary is a transfer of the right to receive insurance benefits from one individual to another, the court had to decide whether it was a “transfer” under the MUFCA, by first clarifying whether transfer in the definition of conveyance meant any kind of transfer or specifically “transfers of tangible and intangible property”.  Id.at 422-23, 247 A.3d. 345-46. 

The court found “includes” as used in the definition of conveyance to be instructive in determining the meaning of “transfer”.  Buckingham, 472 Md. at 424, 247 A.3d 346.  After comparing the definition of conveyance with other entries in the definition section, the court concluded that “includes” is an illustrative term, meaning the list of words that follow it are exemplary of potential conveyances.  Id. at 425, 247 A.3d. 347.  The court also clarified that “assignment, release, transfer, lease, mortgage, and pledge” are not modified by “tangible or intangible property” as a single category.  Id. at 426, 247 A.3d. 347-48.   Each item is supposed to be read individually, as evidenced by the use of commas and no conjunctions.  Id.  Therefore, “transfer” in the definition of conveyance only means a “transfer of something.”  Id. at 426, 247 A.3d. 348.  A change in beneficiary is a transfer under the MUFCA, and therefore a conveyance.  Id.

To confirm its reading of the plain language of the MUFCA, the court reviewed case law to determine the General Assembly’s intent behind enacting the original MUFCA.  Buckingham, 472 Md. at 426-27, 247 A.3d 348.  It is established by case law that fraudulent conveyance statutes were designed to void conveyances intentionally created to hinder, delay, or defraud creditors and that the General Assembly intended for creditors to have a remedy for these fraudulent conveyances. Buckingham, 472 Md. at 429, 247 A.3d. 349 (citing Kennard v. Elkton Banking & Trust Co., 176 Md. 499, 500 (1939)).  The court also referenced Maryland’s insurance statute, which specifically states a change of life insurance beneficiary is not valid if made fraudulently.  Id. at 430, 247 A.3d.350 (citing Md. Code Ann., Ins. § 16-111 (2018)). The court stated the insurance statute requires a remedy to be effective and a remedy exists under the MUFCA. Id.  The court found that interpreting a change in beneficiary as a conveyance was consistent with the General Assembly’s intent to give creditors a remedy when they have been defrauded. Id.

To answer the second question, the Court of Appeals reviewed Maryland’s legislative history to determine the role of a guardian of property.  Buckingham, 472 Md. at 433, 247 A.3d 352.  Under common law, a guardian of property’s role was restricted to preserving a ward’s estate.  Id.  The Maryland legislature adopted this role from English common law.  Id. at 434, 247 A.3d. 353. Neither English common law, nor Maryland common law, nor subsequent statutes designed by the General Assembly grant a guardian of property the ability to change beneficiaries.  Id.  The court also noted that five decades of guardianship law reform existed, yet the Maryland legislature did not alter the guardian of property’s role to include the ability to change beneficiaries on life insurance for the ward.  Id. at 441, 247 A.3d. 356-57.

The Court of Appeals of Maryland held that a change of beneficiary is a conveyance under the MUFCA and that a guardian of the property is not authorized to change a beneficiary designation on life insurance.  The court’s holding clarifies that creditors who are victims of a fraudulent change in beneficiary can recover under the MUFCA. The court’s holding also clarifies that a guardian of property has limited authority over a ward’s estate. The General Assembly will probably not pass a law permitting a guardian of the property to change beneficiaries for a ward, because legislative history has shown that the General Assembly prefers the guardian of property to have limited authority absent a court’s consent.

Stephanie Yamoah is a third-year law student at the University of Baltimore, School of Law and a second-year staff editor for Law Forum. She received her Bachelor’s of Science in Sociology/Anthropology from Towson University with a concentration in Criminal Justice. In the past, she has clerked for Prince George’s County’s Community Legal Services and Maryland Legal Aid. Currently she is a student-attorney practicing under rule 19 as part of the University of Baltimore’s Immigrant Justice Clinic.