Can the beneficiaries of a trust remove a corporate trustee? This was the issue in a recent decision from a Pennsylvania Supreme Court case.
In “Trust Under Agreement Of Edward Winslow Taylor Appeal Of: Wells Fargo Bank,” the beneficiaries of an irrevocable trust were told they did not have permission to remove a trustee through the general provisions of the Pennsylvania Uniform Trust Act (UTA). The Pennsylvania Supreme Court decision was unanimous.
Edward Taylor, the settlor, established a trust in February 1928 to care for his daughter Anna and her children living at the time. It was amended later in 1928 and in 1930.
In the original trust, the settlor named “The Colonial Trust Company or its successors” as the corporate trustee. By 1930, Colonial had merged into a successor corporation, and the settlor acknowledged the successor as the new corporate trustee. When Edward died in 1939, pursuant to the terms of the trust, Anna became the co-trustee along with the corporate trustee. When she died in 1971, her sole surviving son, Frank, became the co-trustee. Frank died in 2008 and was survived by four children. Anthony was next in line to serve as co-trustee. But he renounced the appointment. In 2009, Wells Fargo, after many mergers, was the corporate trustee. It sought court approval to divide the trust into four separate and equal trusts for each of Anna's surviving grandchildren. The probate court approved the request, appointing each of the four grandchildren as the co-trustee of his or her separate trust.
The trust is irrevocable and terminates in 2028. The trust executed in 1928 allowed the corporate trustee, in its judgment, to deplete the principal for the benefit of Anna or her children. But the 1930 amendment eliminated that power and provided only for the distribution of income. The trustees have common powers over trust management, including discretion regarding investments.
The 1928 version of the trust stated that disputes would be resolved by arbitration. However, the 1930 amendment removed that requirement. The trust states that if the corporate trustee position becomes vacant “as a result of the resignation, removal or inability to act,” the settlor (if alive) or the beneficiary had the authority to appoint a new one. The only limitation was that the new trustee “shall be a recognized banking institution in the City of Philadelphia, Pennsylvania.”
The reference of the removal of the corporate trustee is not defined or further explained, and the trust didn’t expressly provide the beneficiaries with any power to remove the corporate trustee.
The beneficiaries argued that Wells Fargo created a conflict in different sections of the law that doesn’t exist. They also said the bank misused the rules of statutory interpretation to thwart the clearly stated intentions of the legislature. They argued that the two provisions address different trust issues. One permits modification of the trust agreement to provide beneficiaries with the flexibility to replace a trustee at some future date. The other lets a court replace a trustee immediately, based upon certain present facts and circumstances.
The Pennsylvania Supreme Court held that the specific provisions of the UTA dealing with a removal of a trustee had to be followed. In this case, the beneficiaries tried to remove a corporate trustee with a two-step process to remove the bank as a corporate trustee. The Court agreed with the analysis proposed by the beneficiaries and favored the specific provisions of the UTA which has strict requirements for the removal or replacement of a trustee.
The Court said an ambiguity exists necessitating the application of the canons of statutory construction to ascertain the intent of the General Assembly. It held that that courts should consider the following factors when determining whether a current trustee or a proposed successor trustee best serves the interests of the beneficiaries:
· personalization of service; the cost of administration;
· the convenience to the beneficiaries;
· the efficiency of service;
· personal knowledge of trusts' and beneficiaries' financial situations;
· the location of trustee as it affects trust income tax;
· personal relationship with beneficiaries; the settlor's intent as expressed in the trust document; and
· any other material circumstances.
The Supreme Court concluded that the scope of section 7740.1 of the UTA doesn’t extend to the modification of trust agreements to permit the removal and replacement of trustees. Instead, as the UTC comment to section 7740.1 reflects, section 7766 of the UTA is the “exclusive provision regarding removal of trustees.” As a result, the Superior Court’s decision was reversed.
This is yet another example of why it is important to have estate plans reviewed on a regular basis. Today, most trusts contain a portability provision that allows beneficiaries of irrevocable trusts to replace corporate trustees. However, trusts that were created many years ago may not include this provision. An experienced trust attorney will be able to review your trusts, evaluate whether or not they have a portability provision and help you determine if they are still relevant to your estate planning goals.
Reference: FindLaw (July 19, 2017) “Trust Under Agreement Of Edward Winslow Taylor Appeal Of: Wells Fargo Bank”