Invasion Of Principal By Trust Beneficiary Must Be Authorized By Express Terms of Trust
In the trust litigation case of In Re Estate Loucke, PICS Case No.16-1162 (Pa. Super. Sept. 9, 2016), the Honorable Mary Jane Bowes, writing on behalf of the Pennsylvania Superior Court, ruled that a beneficiary was not authorized to invade trust principal, where such an act would run counter to the express terms of the trust providing for perpetual distributions of trust income. The Order of the orphans’ court was affirmed.
Otterbein United Methodist Church appealed from the order of the orphans’ court denying appellant the right to invade the principal of a trust of which appellant was a beneficiary. Lillian Loucke died testate, with her will providing that her residuary estate was to be devised to a previously executed inter vivo trust. The terms of the trust provided decedent a life estate in the trust assets, entitling her to all the income and principal as the trustee deemed necessary for decedent’s use and benefits. The trust also provided that, upon decedent’s death, if the assets of her estate were insufficient to satisfy bequests, those bequests were to be satisfied from the trust, and further provided for distribution to two specific individuals upon decedent’s death. Finally the trust required that any remaining balance was to be held in charitable trust, with the income to be paid in perpetuity, split evenly among appellant and another entity that became SpiriTrust Lutheran.
Appellant filed a petition seeking an increase in its distribution, or effectively, distributions from the principal of the trust. Appellant’s position was opposed by the commonwealth as parens patriae and by the trustee and SpiriTrust Lutheran. After a hearing the orphans’ court denied appellant’s petition. Appellant appealed, arguing that the orphans’ court erred or abused its discretion in denying the petition, where the effect of refusing to permit appellant to invade trust principal would be to cause it to fail for lack of funds, requiring another religious organization to be substituted under the cy press doctrine.
The court affirmed the ruling of the trial court, holding that the terms of the trust were clear and unequivocal that invasion of trust principal was not permissible. The court noted that the article of the trust authorizing distributions to appellant and SpiriTurst provided that said distributions would be perpetual in nature. The court held that, to allow the beneficiaries to invade trust principal would run counter to the settlor’s explicit intention to have the trust be perpetual, since the trust could run dry from repeated payments out of trust principal. The court rejected appellant’s argument that invasions of principal were authorized by another provision of the trust, ruling that provisions made no mention of invasion of principal, and in any event was an administrative provision compared to the distribution provision authorizing the benefits appellant was to receive from the trust.
Finally, the court rejected appellant’s contention that prohibiting it from invading the trust principal in order to shore up its financial condition would ultimately frustrate the settlor’s purpose, if appellant failed due to lack of funds. The court again note that the trust did not authorize invasion of principal and held that appellant’s financial condition was its own responsibility and could not be a factor in permitting deviation from the terms of the trust.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 39 PLW 922 (September 27, 2016)
Filed Under: Invasion of Trust Principal by Beneficiary.
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