As the weather gets cooler, I pass along a very Hot Tip to warm you up.

October 4, 2015

Generally speaking, you cannot do indirectly that which would be prohibited if you tried to do it directly. But in this case the Superior Court held that the beneficiaries could it seems do just that!

Under a decision of the Pennsylvania Superior Court in Trust under Agreement of Edward Winslow Taylor, the Superior Court approved a Petition to Modify a Trust under section 7740.1 (d) filed by most (but not all) of the beneficiaries to give the beneficiaries the power to remove and replace the corporate trustee with another corporate trustee without satisfying the requirements for trustee removal under section 7766 of the Probate, Estates and Fiduciaries Code. Wells Fargo was the corporate trustee involved and opposed the Petition, successfully before Judge Herron of the Philadelphia Orphans' Court Division, but not so successfully before Judge Lazarus (Judge Herron's former colleague on the Philadelphia Bench) now sitting on the Superior Court.

Section 7766 provides that "The court may remove a trustee if it finds that removal of the trustee best serves the interest of the beneficiaries of the trust and is not inconsistent with a material purpose of the trust, a suitable cotrustee or successor trustee is available and:

  • (1) the trustee has committed a serious breach of trust;
  • (2) lack of cooperation among cotrustees substantially impairs the administration of the trust;
  • (3) the trustee has not effectively administered the trust because of the trustee's unfitness, unwillingness or persistent failure; or
  • (4) there has been a substantial change of circumstances. A corporate reorganization of an institutional trustee, including a plan of merger or consolidation, is not itself a substantial change of circumstances."

The Superior Court in the case of In re McKinney, 67 A.3d. 824 (PA Super. 2013) broadened the ability of beneficiaries to force a change in corporate trustees due to change of circumstances where the beneficiaries are no longer lived in Pennsylvania and no longer found it convenient to deal with the Pennsylvania corporate trustee. The did that by a relatively broad application of the change of circumstances language.

The Taylor case, if it remains good law, will largely negate the requirements of section 7766 by allowing beneficiaries to modify a trust without the trustee's agreement by petitioning the Orphans Court Division to insert a provision that allows the corporate trustee to be removed and replaced with another corporate trustee without any showing of fault or other cause set forth in section 7766.

In doing so, the Superior Court found that section 7740.1 allowing modification of a trust by petition to the court, even without the consent of the trustee, was clear and unambiguous on its face and had no limitation suggesting that a modification to remove and replace the corporate trustee had to be pursued by satisfying the more rigorous specific provisions of section 7766 dealing with the removal and replacement of trustees.

What is remarkable about this provision is that section 7740.1 is modeled after the uniform trust code provision, the comments for which specifically state that this general modification provision is not intended to provide an alternative to the provisions of the code dealing specifically with removal of a trustee.

It is even more remarkable in that the Advisory Committee on Decedents' Estates Laws had recommended to the Legislature that the courts be given a broader authority to remove a trustee without an affirmative showing of fault or substantial change in circumstance required under proposed section 7766. This proposal did not give the qualified beneficiaries even if they were in agreement an absolute right to change trustees as the Uniform Trust Code suggested, but the proposal we made was intended to give the court the power to look at all of the circumstances and replace the trustee if that was in the best interest of the trust and the beneficiaries. The Advisory Committee concluded, in short, that there are sometimes when a trust "divorce" was the best thing even where the trustee was not at fault. After all you can change the trustee, but you are usually stuck with the beneficiaries. This modest liberalization of the rule to allow replacement of corporate trustees was removed in the Senate Judiciary Committee at the behest of the Pennsylvania Bankers' Association, clearly reflecting a more conservative legislative intent with respect to trustee removal.

I didn't agree with what they did in the Senate. I thought our proposal was more fair, as long as the beneficiaries did not have an automatic right to change trustees--at least the court could look at the overall situation with the trust and the trust beneficiaries and try to do what it thought overall was in the best interest of the trust and the trust beneficiaries, not ignoring the testator's intent in appointing a particular trustee, nor ignoring the beneficiaries' point of view or the trustee's point of view. But I thought the court ought to have the power to do it if the court thought overall that it was the right thing to do. But we lost that argument.

This legislative history was thought to be irrelevant because there were no express limitations to section 7740.1. A Petition has been filed to the Superior Court to reconsider its decision, and it seems likely to me that the decision will be appealed to the Pennsylvania Supreme Court if it is not reconsidered.

I have attached PDF copies of both the Superior Court majority opinion and dissent. I have great respect for Judge Lazarus, but in this case I agree with the dissent.

Download Majority Opinion / Download Majority Dissent

Dan Evans does a very thorough job of analyzing and criticizing this Superior Court case in his blog accessible at the following:

There are lots and lots of beneficiaries who would like to have portability for their trusts, and it seems to me that if the Taylor case stands they should be able to get that power almost automatically if they are willing to go to court to do so.

As Dan Evans points out, the Superior Court pointed to the fact that there was no evidence that the beneficiaries actually wanted to replace Wells Fargo Bank as trustee, though it is not at all clear to Dan (or me) as to why their subjective intent was relevant (but who are we kidding here?!) If the decision stands, we would need to be looking to see which of our trust beneficiary clients wish to have portability sufficiently to go to court to achieve it. Then again we would have to figure out whether we are also representing the trustee of that trust, who may have a different point of view on this matter.
As always, be careful out there!
Best regards,

Bob Wolf, Moderator, P & T Hot Tip Email List

Tener, Van Kirk, Wolf & Moore, P.C.

One Oxford Centre, Suite 2100

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Pittsburgh, PA 15219

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