Testamentary Trust Created Under Last Will and Testament of Ischy, In re

• Decision Date: 30 May 1980
• Citation: 415 A.2d 37,490 Pa. 71
• Parties: In re ISCHY TRUST CREATED UNDER the LAST WILL AND TESTAMENT OF LaVerne K. ISCHY. Inter Vivos Trust Created By LaVerne K. Ischy and Donald C. Keister. Appeal of the SCOTTDALE BANK & TRUST COMPANY, Formerly the Scottdale Savings & Trust Company, Testamentary Trustees Under the Last Will and Testament of LaVerne K. Ischy, Deceased, and Trustees Under the Inter Vivos Trust Created by LaVerne K. Ischy and Donald Keister.
• Court: Pennsylvania Supreme Court

Page 37

415 A.2d 37

490 Pa. 71

In re ISCHY TRUST CREATED UNDER the LAST WILL AND TESTAMENT OF LaVerne K. ISCHY. Inter Vivos Trust Created By LaVerne K. Ischy and Donald C. Keister Appeal of the SCOTTDALE BANK & TRUST COMPANY, Formerly the Scottdale Savings & Trust Company, Testamentary Trustees Under the Last Will and Testament of LaVerne K. Ischy Deceased, and Trustees Under the Inter Vivos Trust Created by LaVerne K. Ischy and Donald Keister.

Supreme Court of Pennsylvania.

Argued March 3, 1980.

Decided May 30, 1980.

David W. Cook, James R. Gaut, John W. Pollins, III, Hammer & Pollins, Greensberg (Sp. Counsel), for appellant.

Dominic Ciarimboli, Ralph Conrad, Greensburg, for appellee.

Before EAGEN, C. J., and O'BRIEN, ROBERTS, NIX, LARSEN, FLAHERTY and KAUFFMAN, JJ.

OPINION OF THE COURT

ROBERTS, Justice.

The Scottdale Bank & Trust Company, trustee, appeals from the denial of certain compensation for the administration of two trusts. The orphans' court refused compensation on the ground that appellant had waived its right to the disputed fees. Careful review convinces us that the record cannot support the orphans' court's conclusion and accordingly we reverse.

The present litigation began in October 1976 when appellee Lucile Keister Lindstrom filed four petitions in the Court of Common Pleas of Westmoreland County, Orphans' Court Division, challenging the administration of four separate trusts and estates of which she is a beneficiary. ¹ The question of compensation now before this Court arises from two of these petitions.

Petition No. 65-76-1699 concerned an inter vivos trust established in 1938 by Lucille's aunt, LaVerne Ischy, and Lucile's father, Donald Keister. ² By the terms of the trust instrument the Scottdale Bank & Trust Company (hereafter Bank) succeeded Lucile's father as sole trustee upon his death in 1964. ³ In this petition Lucile alleged that she had only an illegible copy of the trust instrument and that her requests of the Bank for a certified copy of the trust instrument and for an accounting of the administration of the trust had all been denied. The petition prayed that the orphans' court issue to the Bank a rule to show cause why it should not provide Lucile with a certified copy of the trust instrument and with a complete accounting of the administration of the trust and why it should not be removed as trustee.

Petition No. 65-76-1698 concerned a testamentary trust established by the will of LaVerne Ischy. ⁴ This trust was established in 1961 and the Bank has been sole trustee at least since the death of appellee's father in 1964. In this petition Lucile alleged that, despite repeated requests, the Bank had failed to file any accounting of the administration of the trust and that petitioner had incomplete knowledge of trust assets. In addition, Lucile alleged that her sister Marilyn Keister Kiefer, who is also a beneficiary of the trust, and her sister's husband, Raymond E. Kiefer, who is president of the Bank, were exercising control over the Bank to appellee's detriment. See note 1, supra. This petition also sought a rule to show cause why the Bank should not file a complete accounting and why it should not be removed as trustee.

A rule to show cause was granted on both petitions in November 1976. In December the Bank, through its president Raymond E. Kiefer, filed separate answers denying all charges and claiming that there was no evidence to support its removal as trustee. ⁵

A hearing was held before the orphans' court in March of 1977. At the hearing Lucile's attorney placed on the record an agreement of counsel that the Bank would furnish to Lucile a full accounting of its administration of the various trusts and estates involved. The orphans' court instructed the Bank to supply these accounts within thirty days. They were apparently produced sometime in June.

Apparently without further court involvement, negotiations between the parties produced a Settlement Agreement, dated November 16, 1977, relating to all of appellee's court actions. ⁶ In the case of the inter vivos trust the Bank agreed to distribute all income accumulated to date to Lucile. It further agreed to exercise its discretion to invade principal for her benefit and to distribute that principal to her. In addition, the Agreement provided that the parties "will attempt to resolve the questions concerning details of the accounting submitted (concerning this trust) . . . as raised by counsel for (Lucile) . . . ." Record at 52a. ⁷

The Agreement also covered possible distributions to Lucile from the testamentary trust. Here a dispute concerning the proper interpretation of the will required more elaborate provisions. ⁸ The parties agreed, however, to submit this dispute to the orphans' court and further agreed that, should the court permit termination of the trust, the Bank would distribute all accumulated income and all but a portion of trust principal to Lucile and her sister in equal shares. Again, this section of the Agreement expressly acknowledged that the "parties will attempt to resolve the questions concerning details of the accounting submitted (concerning this trust) as raised by counsel for (Lucile) . . . ." Record at 53a. ⁹

By decree dated February 28, 1978, the orphans' court approved the Settlement Agreement in all respects. This decree also approved distribution of income and principal from the testamentary trust. ¹⁰

On March 27, 1978, by a writing signed by all counsel, the parties agreed to proceed with distribution on March 31, 1978. This memorandum expressed their understanding of certain issues which were not covered in the prior Settlement Agreement and, of equal importance, expressed their understanding that certain problems were as then still unsolved. For example, in this March 27 memorandum Lucile undertook to pay any brokerage fees incurred in the transfer of trust securities for distribution. But the memorandum expressly stated that the question of whether trust property should be used to compensate the attorneys who had represented the Bank or Marilyn and Raymond Kiefer was unresolved. No mention was made of compensation for the Bank as trustee. This memorandum expressly anticipated, however, that the Bank would provide further worksheets, before final distribution, showing receipts and disbursements from the trusts since March 1977. Finally, the memorandum, expressly anticipating possible further questions concerning the Bank's worksheets, required Lucile's attorney to raise any such questions before the time of distribution.

When the worksheets were submitted, apparently sometime in April, they included claims by the Bank for compensation for its administration of the two trusts. For the inter vivos trust the Bank claimed a fee on the distribution of accumulated income and a termination fee on principal. It also claimed a termination fee on principal for the testamentary trust. These claims totaled slightly over $4000. ¹¹

Lucile objected to these fees and the orphans' court set another hearing. In the interim trust assets were distributed according to the prior agreements, except for an amount sufficient to pay the contested fees. This amount has been placed in escrow.

At the hearing Lucile asserted that the Bank's failure to claim any fees in the accountings submitted in 1977 or in the Settlement Agreement of November 1977 constituted a waiver of these claims. Lucile also alleged that the fees were charged by the Bank as a result of animosity.

The sole witness at the hearing was a trust officer of the Bank. This officer testified to the general nature of the services performed for the trusts and to the methods used by the Bank to calculate the amount of claimed compensation. His testimony revealed that the Bank had charged fees on prior income distributions or had made periodic charges on income earned but not distributed from these trusts. Thus he explained that the income fee sought in the inter vivos trust was based on income accumulated since the time of a prior charge in January 1974, and that the absence of any income fee for the testamentary trust was because a fee had already been collected at the time of an income distribution in March 1978. The trust officer asserted that the fees claimed were reasonable and that the Bank had never intended to disclaim them.

On cross-examination appellee sought to substantiate her claim that the fees were included as an after-thought and for improper motives. The trust officer acknowledged that it was not until that April that the Bank contacted the Mellon Bank in Pittsburgh to obtain a suitable termination fee formula for these trusts. But the trust officer maintained both that these fees were reasonable and that failure to claim them in the earlier accountings or during the prior negotiations should not constitute a waiver. The only other portion of the record which supports appellee's claim of improper motive are several remarks of the orphans' court judge that the case was one of "bad blood." ¹²

By decree dated October 10, 1978 the orphans' court disallowed the Bank's claims for compensation. The court acknowledged that the fees claimed were reasonable. Moreover, the court indicated its belief that existence of animosity between a trustee and a beneficiary should not extinguish the trustee's right to reasonable compensation. The court ruled, however, that the Bank's failure to include the fees in the accounting it presented in 1977, in the Settlement Agreement of 1977 or in the memorandum of counsel of March 27, 1978 resulted in a waiver of its claim. Exceptions to the decree were taken, but they were dismissed and the decree was made final on May 16, 1979. This appeal followed. ¹³

We begin with the established principle that fiduciaries in this Commonwealth are entitled to fair and just compensation for services they perform, Williamson Estate, 368 Pa. 343, 82 A.2d 49 (1951); Kennedy Trust, 364 Pa....