TRUST BENEFICIARIES CANNOT MODIFY A TRUST AGREEMENT TO ADD A PORTABILITY CLAUSE

The Pennsylvania Superior Court erred in holding that §7740.1 did not exclude modifications to a trust in a case where beneficiaries asked the court to allow the trust to be modified to include a portability provision because §7766 was the exclusive provision regarding removal of trustees.

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Settlor established an irrevocable trust in 1928 for the benefit of his daughter and her children and named a corporate trustee. The trust agreement provided for the appointment of a new corporate trustee if the position became vacant but did not expressly give the beneficiaries any power to remove the corporate trustee. Bank, through a series of mergers, had become the corporate trustee and in 2009, sought court approval to divide the trust into four equal trusts, one for each of daughter’s grandchildren. The orphans’ approved the request and appointed each of the four grandchildren the co-trustee of his or her separate trust. Three of the grandchildren petitioned the orphans’ court to modify the trust to add a portability provision to allow the removal of the corporate trustee and appoint a new one. Bank opposed the petition arguing that Pennsylvania trustees had to be removed in accordance with §7766(b) of the UTA. Bank asserted that a trust agreement could not be modified to give the beneficiaries the power to remove a trustee without court approval. The orphans’ court granted bank’s motion for judgment on the pleadings. The Superior Court reversed, noting that the beneficiaries did not currently seek to remove bank as the corporate trustee, and held that §7740.1 did not exclude modifications relating to the removal of a trustee.

The court granted discretionary review to determine whether the Superior Court erred in holding that beneficiaries may amend the terms of a trust to permit the removal of a trustee without judicial approval. Bank argued that when the UTA was read as a whole, §7740.1 did not trump §7766 and that the Superior Court’s decision rendered §7766 superfluous and extended the scope of §7740.1. Beneficiaries argued that portability clauses were common in modern trust agreements and they should be put on the same footing as beneficiaries of modern trusts rather than being held captive to bank as a derivative trustee. They asserted that the settlor could not have contemplated the changes in the banking world since 1930, that the UTA provided a set of default rules where the trust agreement was silent and that §7766 was such a default provision and that §7740.1 was not ambiguous and that the two sections addressed different trust issues.

The court found that the Superior Court erred in holding that the language of §7740.1(b) did not require the application of the principles of statutory construction. Sections 7740.1 and 7766 had to be construed and considered together and when read together, there were ambiguities and neither section explicitly addressed the issue in this case. Other states, in enacting the UTC, included express language preventing general modification provisions from being used to remove or replace a trustee.

The court agreed that permitting beneficiaries to modify a trust agreement under §7740.1 to add a portability clause would nullify the effectiveness of §7766. Additionally, prior law showed a long history of limiting the removal of trustees to circumstances in which the orphans’ court found good cause. Furthermore, legislative history showed that the general assembly specifically declined to enact a provision allowing beneficiaries to remove a trustee “whether or not the trustee [was] at fault.”

 

Reference: Trust Under Agreement of Taylor, PICS Case No. 17, 1261 (Pa. July 19, 2017), Digest of Recent Opinions, Pennsylvania Law Weekly, 40, PLW 772, (August 22, 2017)

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