In re Trust Under Will of Augustus T. Ashton, Deceased Dated January 20, 1950

• Decision Date: 04 October 2021
• Docket Number: No. 36 EAP 2020,36 EAP 2020
• Parties: TRUST UNDER WILL OF AUGUSTUS T. ASHTON, DECEASED DATED JANUARY 20, 1950 Appeal of: Elizabeth A. Reed
• Court: Pennsylvania Supreme Court

260 A.3d 81

TRUST UNDER WILL OF AUGUSTUS T. ASHTON, DECEASED DATED JANUARY 20, 1950

Appeal of: Elizabeth A. Reed

No. 36 EAP 2020

Supreme Court of Pennsylvania.

Argued: April 14, 2021

Decided: October 4, 2021

Obadiah Gildersleeve English, Esq., John F. Higgins, Esq., Stanley R. Ott, Esq., Mannion Prior, L.L.P., for Appellant.

William Brooke Igoe, Esq., Heike Krippendorff Sullivan, Esq., Ballard Spahr LLP, Hara Kay Jacobs, Esq., for Appellee.

Jennifer Leonard Nevins, Esq., Stevens & Lee, P.C., for Appellee Trustees of the University of Pennsylvania.

Robert John Opalka, Esq., for Appellee Meemie Sullivan.

Claudia M. Tesoro, Esq., PA Office of Attorney General, for Appellee Pennsylvania Office of Attorney General.

Raymond Paul Pepe, Esq., for Appellee Amicus Curiae Pennsylvania Bankers Association.

BAER, C.J., SAYLOR, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

OPINION

JUSTICE SAYLOR

In this appeal by allowance, we consider whether a vested beneficiary of a trust has standing to challenge the trust's administration where her benefit consists of a fixed annuity and the trust corpus is sufficient to provide the benefit for many years.

I.

Augustus Ashton ("Settlor") died in October 1951. In his will, he created a trust to be funded by the residue of his estate for the benefit of his family members and certain charitable interests (the "Trust"). In particular, the will created eight separate fixed annuities benefitting designated family members; five of those annuities have since terminated pursuant to their terms. Appellant, Settlor's grandniece, is one of three remaining beneficiaries. She is entitled to $2,400 annually irrespective of the size of the Trust's corpus for the remainder of her life, and then any surviving children or grandchildren born during her lifetime will receive a portion of her $2,400 share. At this juncture, the sums payable to all three remaining beneficiaries total $11,400 annually. Every beneficiary is entitled to the Trust's income rather than its principal.

The will appointed Land Title Bank and Trust Company in Philadelphia ("Land Title") as trustee. In May 1951, Settlor executed a codicil appointing Clement Bowen as co-trustee. The same day, he sent a letter to Land Title confirming his understanding that the trustee would receive, as compensation, an annual commission of five percent of the gross income collected. The Trust has been administered solely by Land Title or its corporate successors – currently, PNC Bank, National Association ("PNC") – since Mr. Bowen's death in 1971, as neither the will nor the codicil directed that Mr. Bowen be replaced. The Trust was initially funded in 1951 with approximately $2.6 million in assets. By 2017, the corpus had grown to around $72.3 million.

Under the terms of the will and the May 1951 letter to Land Title, the trustee is paid its commission from the Trust's gross income collected during a particular year, and the beneficiaries are paid their respective fixed sums out of the Trust's income net of the commission. After that, additional net income is added back into its corpus as needed to prevent it from dipping below the value established at the time of Settlor's death. Finally, the balance of the Trust's net income for the year is made available as scholarship money to students at the University of Pennsylvania (the "University") who meet the criteria stated in the will. After the termination of fixed annuity payments to all named beneficiaries, the Trust will continue to fund scholarships at the University in perpetuity.

In January 2018, PNC generated a Fourth and Interim Account documenting transactions that occurred between November 1983 and December 2017 (the "Fourth Account"). PNC filed the Fourth Account in the orphans’ court, together with a Petition for Adjudication/Statement of Proposed Distribution (the "Petition"), as required. See Pa. O.C. Rule 2.4.

Among other matters, the Petition set forth two requests for adjudication. In the first request, PNC sought approval to divide the Trust into two: the first to be funded with $5 million and dedicated to the named beneficiaries’ annuity payments, and the second to be funded with the balance of the Trust's present assets and dedicated to providing scholarships for students at the University as a purely charitable trust. See generally 20 Pa.C.S. § 7740.7(b) (relating to the division of trusts with court approval). The theory was that the latter trust could take advantage of tax benefits available to purely charitable trusts. See Petition for Adjudication, Rider to Item 14, at 1.

In its second request, the Petition sought authorization for certain changes to PNC's fees as the sole remaining trustee. PNC asked for a one-time retroactive commission of approximately $730,000, representing one percent of the market value of the Trust as of the previous month. See id . at 2. As well, PNC sought to increase its compensation going forward.¹ In particular, it asked for approval to begin charging fees in accordance with its institutional fee schedule, albeit discounted by 20%. See id . at 2-3. This would give PNC the ability to charge fees as a percentage of the "account" value rather than a percentage of the income.²

Acting as parens patriae , the Attorney General issued a "no objection" letter in response to PNC's proposed changes. See generally 20 Pa.C.S. § 7710(d) ; In re Pruner's Estate , 390 Pa. 529, 531-32, 136 A.2d 107, 109 (1957) (explaining that the Commonwealth, acting through the Attorney General, retains the authority to oversee charitable trusts).

After filing the Fourth Account with the orphans’ court, PNC, through counsel, sent a letter to Appellant explaining that the account had been filed with the court and that it would be called for audit on a date certain. See Pa. O.C. Rule 2.5(a)(3) (providing that accounts may not be confirmed unless the accountant gives written notice to, inter alia , all trust beneficiaries); In re Galli's Estate , 340 Pa. 561, 569-70, 17 A.2d 899, 902-03 (1941) (same). The letter included the following directive:

[I]f you have any objection to any transaction shown in the [Fourth] Account, to the proposed Fee Arrangement or the division of the Trust, or to any payment, failure to pay, distribution proposed, or any other aspect of the Petition for Adjudication/Statement of Proposed Distribution, you must file written objections in conformity with [Orphans’ Court] Rule 2.7 with the Clerk of the Court on or before the audit date. If you do not file any objections, you will be deemed to have approved the Account as stated and agreed with the Fee Agreement, the division of the Trust, and the Trustee's proposed disbursements and distribution.

Letter from Heike Sullivan of Ballard Spahr, LLC, to beneficiaries, Jan. 5, 2018, at 2.

In conformance with the above, Appellant filed objections with the court, in which she made numerous assertions with regard to PNC's management of the Trust. See Pa. O.C. Rule 2.7. She suggested, for example, that PNC had: failed to keep track of scholarship recipients and amounts as required under the will (thus allegedly permitting scholarship money to be misdirected to the University's endowment), see Elizabeth Ashton Reed, Objections to Fourth & Interim Account of PNC Bank, N.A., Trustee, filed April 2, 2018 (C.P. Phila.), at 3; improperly charged the Trust approximately $2.3 million in fees, see id . at 10; and engaged in instances of self-dealing and wasteful spending, in violation of PNC's duty of loyalty to the Trust's beneficiaries, see id . at 10-12.³

Appellant also averred that any retroactive change to the commission realized by PNC, or increase in fees payable to PNC, would be improper. See id . at 10. Further, she objected to the request to divide the Trust, asserting any such division would be improper. See id . Finally, Appellant requested that her daughter be appointed as successor co-trustee, arguing it was Settlor's intent to have two co-trustees managing the Trust at all times. See id . at 12-13.

In response, PNC filed preliminary objections, contending that Appellant lacked standing to raise her objections – notwithstanding that PNC had invited her to do so – as she had no legally cognizable interest in the Trust's administration. In this respect, PNC asserted the proposed changes would have no effect on Appellant's $2,400 annual benefit. See Preliminary Objections of PNC Bank, Trustee, April 23, 2018.⁴

The Orphans’ Court sustained PNC's preliminary objections with regard to some of Appellant's objections, including the alleged omissions in the administration of the University's scholarships. Those items are not at issue in this appeal. However, the court overruled PNC's preliminary objections as to several other of Appellant's objections, holding Appellant had standing with respect to all such claims. See In re Augustus Trask Ashton , No. 1039 ST of 1952, Decree at 2 (C.P. Phila. July 9, 2018). After PNC obtained permission from the Superior Court to file an interlocutory appeal, see Pa.R.A.P. 1311, the orphans’ court issued an opinion explaining its ruling as to each of Appellant's claims. See In re Augustus Trask Ashton , No. 195201039, Opinion Sur Appeal, 2019 WL 1030718 (C.P. Phila. Feb. 25, 2019).

First, the court held Appellant had standing as a vested income beneficiary to object to aspects of the Trust's administration because she is entitled, not just to one income payment, but to payments for the remainder of her life. The court reasoned that payments many years into the future could potentially be affected if the Trust were improperly administered. See id . at *3-4.⁵

Second, the court found that Appellant's interest in seeking appointment of a successor co-trustee was sufficient to give her standing because she was alleging that PNC had engaged in self-dealing and other breaches of its fiduciary duty; as a consequence, the court continued, appointment of a co-trustee would benefit Appellant by protecting against...