Win One for the Fiduciary – The PA Supreme Court Clarifies the Interplay of UTA Provisions
July 20, 2017
By Kendra D. McGuire, Esquire
As counsel to fiduciaries across our great Commonwealth, I was beginning to despair that changing one’s trustee was becoming as easy as changing the oil in one’s car. In the seminal case of Trust Under Agreement of Edward Winslow Taylor, our Pennsylvania Supreme Court pumped the brakes (to continue the metaphor).
Following the Superior Court’s ruling in In re McKinney Trusts, 67 A.3d 824 (Pa. Super. 2013), disgruntled beneficiaries became emboldened and began testing the boundaries of trustee removal in Pennsylvania. The Taylor Trust presented one such case and when the Superior Court in Taylor opined that trustee removal could be achieved through trust modification, many of us took notice. Thankfully, the Pennsylvania Supreme Court decided to hear the case.
In Taylor, the Pennsylvania Supreme Court was called upon to determine the interplay between two sections of Pennsylvania’s Uniform Trust Act (UTA), namely sections 20 Pa.C.S. 7740.1 and 7766. Section 7740.1 is titled “Modification or termination of noncharitable irrevocable trust by consent” and is modeled after section 411 of the Uniform Trust Code (UTC). Section 7766 is titled “Removal of trustee” and is modeled after section 706 of the UTC.
In summary, the Pennsylvania Supreme Court agreed with the trial court, overturned the Superior Court, and concluded that the scope of section 7740.1 of the UTA does not extend to modification of trust agreements to permit the removal and replacement of trustees; instead, section 7766 is the “exclusive provision” for removal of trustees (a finding consistent with the Comments to section 706 of the UTC). The high Court concluded that “the UTA does not permit removal and replacement of a trustee without Orphans’ Court approval in accordance with section 7766.” Opinion, pg. 2.
The beneficiaries of the Philadelphia County Taylor trust commenced the action by petitioning to modify the terms of the trust to add a “portability clause” which would permit them to replace a corporate trustee at any time, at their discretion, without cause or judicial approval. Wells Fargo, the corporate fiduciary, argued that modification under 7740.1 was essentially a guise to avoid the removal provisions of 7766. The trial court agreed with the trustee and held that the “beneficiaries’ attempt to use the broad modification provisions in section 7740.1(d) to eviscerate section 7766 must therefore yield to the specific removal provisions in section 7766.” The Superior Court overturned the trial court’s decision and the PA Supreme Court wisely granted the trustee’s request for discretionary review of the matter.
The Supreme Court’s Opinion should have impact beyond the facts of this particular trust matter. For those of us who live our professional lives in the PEF Code, the Court’s guidance is invaluable. In guiding practitioners and fiduciaries who navigate the PEF Code every day, the Court’s discussion and analysis provides a clearer roadmap. The Court’s analysis of “…whether section 7740.1’s modification power extends to the modification of other statutory provisions of the UTA”, especially in light of the “lack of any explicit language in sections 7740.1 or 7766” is illuminating. Opinion, pg. 16. The Court outlined the contrasting evidentiary hurdles presented in the two competing statutes and noted that the factors to be considered for trustee removal are far more substantial than those considered for trust modification. The Court also took care to outline prior Pennsylvania law on trustee removal, noting that the Commonwealth “has a long history of strictly limiting the removal and replacement of a trustee…” and that enactment of 7766 reflects the legislature’s “intent to retain these principals in connection with the removal and replacement” of trustees. Opinion, pgs. 19 and 20. Inclusion of one “no fault” provision in 7766 “does not reflect any generalized legislative intent to permit beneficiaries to exercise control over the removal and replacement of trustees”, per our Supreme Court. Opinion, pg. 20. Each of these statements provides important guidance to practitioners, fiduciaries and beneficiaries alike.
As always in fiduciary cases, facts matter. The Opinion, authored by Justice Donohue, sets forth the trust terms, amendments to those trust terms as well as the chronology and history of trustee service. The trust instrument did not expressly provide the beneficiaries with the power to remove the corporate trustee.
The Opinion should be added to the reading list of any student of statutory construction. Importantly, the Court confirmed that statutes may not be interpreted in isolation and courts must read each section “not by itself, but with reference to, and in light of, the other sections” and that they must be read “harmoniously.” Opinion, pgs. 13 and 16.
Trustee removal in Pennsylvania has historically been rare with the evidentiary bar set quite high. This Court continues that precedential axiom, for now.
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