CHILDREN WERE ENTITLED TO PROCEEDS FROM THE SALE OF REAL PROPERTY PURCHASED WITH CUSTODIAL ACCOUNT
In the trust litigation appellate case of Werner vs. Werner, PICS Case NO. 16-1271 (Pa. Super, Oct, 2015) the Honorable John L. Musmanno, writing on behalf of the Pennsylvania Superior Court, ruled that the children were entitled to the entire proceeds of the sale of real property purchased using funds held in custody for them. Melanie Werner appealed from the order of the trial court that she had breached her fiduciary duty as custodian of accounts held for the benefit of her adopted daughters Isabelle and Sophie Werner, and awarding the children damages in the form of proceeds from the sale of real property purchased using funds from the children’s custodial accounts. The children cross-appealed, arguing that the trial court erred in not assigning their attorneys’ fees to Melanie due to her egregious and/or vexatious actions.
Melanie and her husband Eric Werner adopted the children and created two custodial accounts for the benefit of the children for college expenses, naming Melanie as custodian. Melanie and Eric subsequently separated and both parties moved out of the marital residence, with Melanie unable to afford the costs to maintain the residence. Melanie withdrew the funds in the custodial accounts, using the vast majority of the funds to purchase a new residence, which she titled in her name alone. Melanie later used her personal funds to make improvements to the new residence.
The children commenced an action against Melanie, seeking monetary damages and an accounting, based on their allegation the Melanie had violated her fiduciary duties as custodian. The children later filed a petition additionally seeking an order requiring Melanie to pay attorneys’ fees due to her bad faith conduct. The trial court found the Melanie had violated her duty as custodian under the Pennsylvania Uniform Transfer to Minors Act and the children were entitled to the entire proceeds from the sale of the residence Melanie had purchased with the custodial funds. The trial court denied the children petition for attorneys’ fees.
On appeal Melanie argued that her withdrawal of custodial funds and using and using said funds to purchase a new residence was not a breach of her duties as a custodian. Melanie further argued that the children failed to prove that they incurred any actual damages and that the purchase of the residence with custodial property was done in good faith because it was necessary to purchase a new residence to provide a better living environment for Melanie and the children.
The court rejected Melanie’s arguments, ruling that the purchase of the new residence was not primarily for the benefit of the children, one of whom had already moved out the house. Moreover, the court ruled that the children were damaged by Melanie’s actions because the custodial funds were for the children’s college expenses, and the children were thereby denied access to those funds. The court further ruled that the children were entitled to the entire proceeds from the sale, because Melanie commingled her personal funds with custodial funds and could not show what portion of the increased value in property was attributable to her personal funds.
Finally, the court rejected the children’s cross-appeal arguing that the trial court erred by not shifting their attorneys’ fees onto Melanie. Although the court agreed with the trial court’s determination that fee shifting was permissible under the Pennsylvania Uniform Transfer to Minors Act (PUTMA), the court held the PUTMA did not mandate an award of attorneys’ fees to prevailing plaintiffs. The court declined to disturb the determination of the trial court that Melanie’s conduct during the litigation was sufficiently egregious or vexatious as to warrant an award of attorney’s fees. Accordingly, the court affirmed the order of the trial court.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 39 PLW 1017 (October 25, 2016)
Filed Under: Trust Litigation; Custodial Accounts; Misappropriation of Custodial Funds
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