Posts Tagged ‘Pennsylvania Superior Court’

Beneficiaries Permitted to Modify Trust Terms by Agreement

OCTOBER 19, 2015 VOLUME 22 NUMBER 38

Not every client we speak with wants to set up a trust for generations of descendants, but some do. The notion of allowing assets to grow for two or three (or more) generations can be attractive.

It is difficult, of course, to imagine what one’s grandchildren and great-grandchildren will be like when they grow up. There’s another challenge that is less obvious, though — what will the economy, the legal environment, and the very notion of trust planning look like in, say, 80 years?

We’re not particularly good at predicting the look of the landscape at the turn of the next century, but occasionally we get a little insight into the problem when considering the plans made several generations ago. Trusts can easily live for a century, and the problems facing trust beneficiaries today might or might not have been considered when those trusts were drafted.

That’s what Pennsylvania’s intermediate appellate court had to deal with in a recent case it considered. At issue was the trust established by Edward Winslow Taylor in 1928. Mr. Taylor died in 1939, and the trust became irrevocable. It continues — altered in at least two fundamental ways — since then.

Originally, the trust named The Colonial Trust Company as trustee. Two years later he amended the trust to change the trustee to The Pennsylvania Company for Insurance on Lives and Granting Annuities as trustee, since it had assumed the business of the initial trustee in a merger. In the following eight decades, a series of mergers and buyouts had left Wells Fargo Bank, a national bank and trust company, as trustee.

The trust initially paid its income to Mr. Taylor’s daughter, Anna Taylor Wallace. When she died in 1971, she used her power to direct the trust income to her oldest son, Frank Wallace, Jr. Upon his death in 2008, the trust was divided into four separate trusts — one for the benefit of each of his children, with each then being worth a little less than $2 million. Each trust will continue until 2028.

A lot has changed in the practice and law governing administration of trusts since the 1920s. As just the latest illustration, Pennsylvania, where these trusts are administered, has adopted the Uniform Trust Code (as has Arizona). Trusts written almost a century ago seem hopelessly dated today.

Two years ago, three of the four trust beneficiaries suggested updating the language of the trust to reflect more modern thinking. One change they wanted to make: they argued that the trust should be modified to allow the four of them, if they chose, to change the trustee from Wells Fargo to a new corporate trustee.

Though no beneficiary objected to the change, Wells Fargo did object. The bank convinced the Philadelphia judge that the new Pennsylvania Trust Act did not allow such a change, even if the beneficiaries had all agreed. The beneficiaries appealed.

In the appellate court, the beneficiaries argued that all they were doing was to modernize the trust’s language. The inclusion of a power to change trustees, they insisted, would be considered commonplace today. Furthermore, the Pennsylvania version of the Trust Code clearly permitted modifications so long as all beneficiaries (and the original settlor, if he had still been living) agreed.

Not so fast, insisted Wells Fargo. The scholars who drafted the Uniform Trust Code had clearly indicated that their intention was not to permit a change of trustee by modification of the trust document — even if all the beneficiaries did agree. The bank pointed to the comments written by the uniform code’s drafters in support of their argument.

The appellate court, in a split (2-1) decision, sided with the beneficiaries. According to the majority opinion, the comments written by the drafting committee shouldn’t even be consulted unless there is ambiguity in the language of the statutes. Here, there is not — the Pennsylvania Trust Act permits beneficiaries, acting together, to make a change that includes the power to change trustees.

The dissenting judge would have found that removal of a trustee is a different matter from other trust amendment provisions. In fact, the Pennsylvania statute includes a specific method for trustee removal — and the agreement of the beneficiaries is not a method included in that separate statute. The specific trustee removal provision should have governed over the general modification provision, in the view of the dissenting judge. Trust of Edward Taylor, September 18, 2015.

As we note above, Arizona has also adopted a version of the Uniform Trust Code. Does that mean that an Arizona case would be decided the same way? Perhaps not.

Arizona made small but significant changes to the uniform law before adopting it. Those changes might well compel the opposite result — and particularly where the question appears to have been a close question even under Pennsylvania’s version of the uniform law.

Nonetheless, we like to see discussion about the Edward Winslow Taylor case, for at least these three reasons:

  1. It highlights how much hubris is involved when we “plan” for management of assets a century or so after our own demise. That doesn’t mean it can’t be done, or even that it shouldn’t be tried — but it does remind us that flexibility is key.
  2. We presume that Mr. Taylor was a descendant of Edward Winslow — a signer of the Mayflower Compact. While we’re not descended from Mr. Winslow, we are descended from his sister. It makes us feel proud to see that this (our) patrician family remains relevant today.
  3. “We” in this case means your author and his brother Steven. Not only does Steven now live in Philadelphia (where Mr. Taylor’s trust is administered and was litigated), but October 19 (the day of publication for this little newsletter) happens to be his birthday. It’s a small world, with plenty of odd circles to keep us mildly entertained (and by “us”, here I mean me).

Happy birthday, Steve.

Can You Change Your Will By Writing On It?

NOVEMBER 18, 2013 VOLUME 20 NUMBER 44

So you have a will, and you want to make some changes. Can you just write in the new provisions? How about if you sign somewhere on the document?Can it be a copy of your will, or does it have to be on the original to be effective? Do you need witnesses?

The correct answer: don’t make changes that way. There are too many variables, too many interpretations, too many ways for those changes to just add cost to the probate of your estate while not effecting the result you intend. Talk to your lawyer, get changes made formally, and have a new will drawn up. Can it just be a codicil? Yes, but there is frankly almost no reason in this age of computerization to ever sign a codicil to your will — just sign a new will. One drafted by your lawyer.

Sometimes, though, time just gets away from you. If you want to make changes, you probably ought not wait until just before your 100th birthday. That’s probably the biggest mistake Jenny Travis (not her real name) made.

Ms. Travis had signed a will in 2002, and a codicil a few months later in 2003. In 2010 she had her caretaker call her lawyer, asking him to make a visit to review her estate plan.

The lawyer made a photocopy of Ms. Travis’ existing will and codicil, and went to her home to discuss them with her. During their meeting, he hand-wrote several changes in the margins of his copy of her existing will. As she described the changes, he scratched out two individuals’ names next to a bequest and wrote in two replacements. In another place he deleted a paragraph, and in another made modifications to the way a bequest would be handled. Another was changed from $10,000 to $42,000, again in the lawyer’s handwriting. Finally, the two charities who were scheduled to get the remainder of her estate in the 2010 will were crossed out and replaced with Ms. Travis’ brother.

At this point the lawyer had Ms. Travis sign her name by each of the changes, and he signed as a witness. Then he wrote a note to his secretary at the top: “Linda, do a codicil that changes” the affected sections of the 2002 will and 2003 codicil. He took the document back to his office with him, and a codicil was prepared. Unfortunately, though, Ms. Travis died six weeks after her lawyer’s visit, without ever having signed the new, formally prepared codicil.

Did those handwritten changes constitute a will or a codicil? Not according to the Pennsylvania probate office, which declined to admit the handwritten changes to probate (but did admit the 2002 will and 2003 codicil).

Ms. Travis’ lawyer appealed, and the Superior Court (the second-tier appellate court in Pennsylvania) viewed things differently. The appellate judges ruled that Ms. Travis’ changes might be a codicil to her will — and that the probate court should conduct a hearing to determine whether that was what she intended when she signed (and her lawyer witnessed) beside each change. One of the nine judges considering the case would have gone further — he would have ordered the handwritten notes admitted to probate without any further testimony. Still, it seems likely from the language of the opinion that the lawyer’s notes will ultimately be given effect — it will just have taken a trip to the appellate court and a delay of several years before the issue is resolved. In Re Estate of Tyler, November 13, 2013.

Assuming that Ms. Travis really did want to make the changes her lawyer wrote down, what might have been done differently to make sure her wishes were carried out? And would the same result be reached if Ms. Travis had lived and died in Arizona?

One obvious thing to consider would have been to make the changes earlier. By the time of her death Ms. Travis was 100 years old — if she had been thinking about making the changes for very long, she probably should have called her lawyer earlier. Perhaps, though, she had just recently made up her mind about the changes when she met with her lawyer.

Apparently Pennsylvania law permits changes to a will to be effective if written by someone else and signed by the person making the changes. It may not even have been necessary for her lawyer to sign as a witness (we don’t practice Pennsylvania law, so we might have gotten that wrong). The same is not true in Arizona — changes like those made by Ms. Travis’ lawyer would require her signature and two witnesses in Arizona. It’s not even completely clear that the changes would have been accepted then, since there does not seem to have been any indication in the written notes that the changes were intended to be a will or codicil, and they were made on a photocopy of her old will.

In Arizona it would have been better for the lawyer to write out a separate document describing what it was and the intended effect, and to have Ms. Travis sign it in front of two witnesses. Such a document would probably have been effective. Another alternative, since Arizona permits “holographic” wills, would have been for Ms. Travis to write out her changes in her own handwriting, and to sign that document (no witnesses would have been required) — though that creates plenty of opportunity for her to get the changes jumbled, or leave out portions or make mistakes. Presumably the lawyer, familiar with will drafting, would have had an easier time making the changes correctly.

Of course it would have been wonderful if the lawyer could have returned to Ms. Travis’ home with a beautifully typed new will (again, just forget codicils) the next day and had her sign in front of two witnesses. It is unclear why that did not happen — whether Ms. Travis was unable to discuss her wishes shortly after the initial visit, or the lawyer’s secretary Linda was out sick the next day, or what else might have intervened. The central lesson: if you want to make changes to your estate plan, get to it promptly, and talk with your lawyer right away.

Ward Should Be Allowed To Express Wishes, Hire Counsel

APRIL 11, 2005  VOLUME 12, NUMBER 41

When the legal system takes over decision-making and care of an incapacitated adult, there is a struggle between competing goals. It is important to provide adequate protection and supervision, but it is also important to maintain the ward’s personal autonomy and self-determination. It is often difficult to decide how much latitude to give to an incapacitated ward. Even the court system charged with overseeing that balancing act can sometimes be too restrictive.

Sheri Rosengarten was the subject of a guardianship in Pennsylvania. Before the onset of her mental illness she had established a revocable living trust naming herself and her brother David as co-trustees. Unfortunately, her brother had mismanaged her trust assets after she became incapacitated, and so her personal and legal affairs were in some disarray.

The court appointed a non-family member, lawyer Susan B. Smith, to serve as Ms. Rosengarten’s guardian (of both her person and estate—what would be called a guardian and conservator in Arizona). Thereafter Ms. Smith began to manage Ms. Rosengarten’s personal and financial affairs, although assets in her living trust were being managed by her father as successor trustee.

Because Ms. Rosengarten was in an assisted living facility, her guardian decided it was time to sell her residence and add the proceeds to the assets under management. Ms. Rosengarten objected (as did her father), thinking that she might some day be improved enough to return to her home. In the meantime she thought it made sense to rent the house out—perhaps as a group home that could be tailor-made for her as her condition improved.

Although the court had appointed an attorney to represent Ms. Rosengarten in the guardianship proceeding, she wanted to choose a different attorney and argue against the sale of her home. The court, however, refused to hear from the lawyer she had hired, insisting that the attorney previously appointed could represent her interests. After a brief hearing the judge ordered that Ms. Rosengarten’s home should be sold, and the proceeds delivered to Ms. Smith rather than held in her living trust.

The Pennsylvania Superior Court (that state’s intermediate appellate court) reversed the trial judge’s holdings and remanded the case back to the trial court. Once she had raised the argument that she was no longer incapacitated, said the appellate judges, the first question to be addressed was whether a guardianship was still necessary. At that hearing Ms. Rosengarten should of course be allowed to choose her attorney unless it could be shown that she lacked capacity to even enter into a lawyer-client relationship, and her wishes should be respected to the fullest extent possible. Estate of Rosengarten, March 24, 2005.

Bank Liable for Exploitation By Branch Manager and Assistant

MAY 10, 2004 VOLUME 11, NUMBER 45

Carmen DiCesare, age 82, may have been a little confused when he visited the local branch of Prudential Savings Bank in south Philadelphia that day in August, 2000. By the time he left the bank he had made major changes in his estate plan, and the bank’s branch manager and assistant branch manager had benefited from Mr. DiCesare’s situation.

What Mr. DiCesare apparently wanted to accomplish was to arrange for direct deposit of his Social Security checks into a passbook savings account at Prudential. Frances Mazzei, the branch manager, told him that he would need to have his original passbook with him to set up the direct deposit account, and he told her that he had lost the book. She then helped him to open a new account, and to transfer his existing Prudential account balances.

One of the documents Mr. DiCesare signed that day was a note prepared by Ms. Mazzei that said “I want to put the account in trust to Frances Mazzei and Lucia Sqiieri.” Ms. Squitieri (the note misspelled her name) was the assistant branch manager. The two women even called bank President Thomas Vento to check on whether the account titling was permissible; Mr. Vento did not advise them not to set up the account. The two women then held on to Mr. DiCesare’s passbook, giving him only a copy.

The “in trust for” language, of course, meant that the two women would receive Mr. DiCesare’s account upon his death. They assisted him in transferring almost $250,000 into the new account, and then moved $430,000 from another bank into the account. The balance was then $680,454.63, with another $709 deposited each month by Social Security.

When Mr. DiCesare did die ten months later Ms. Mazzei and Ms. Squitieri removed and spent the account balance. Mr. DiCesare’s estate then brought suit against Ms. Mazzei, Ms. Squitieri and Prudential Savings Bank itself.

After recovering $156,000 from Ms. Mazzei and Ms. Squitieri, the estate obtained a judgment against them and the bank for the remaining balance. Prudential and the two women appealed.

The Pennsylvania Superior Court upheld the judgment against all three defendants. The court quickly determined that Mr. DiCesare was vulnerable, and that Ms. Mazzei and Ms. Squitieri had developed a relationship of trust with him that made them liable for the loss.

As for the bank’s liability, the court ruled that Mr. DiCesare’s estate did not have to show that Prudential had violated any law or regulation. The fact that senior management knew what the two branch officers were doing, and did nothing to stop their actions or even inquire, was enough to make Prudential liable for the entire $563,767.40 judgment. Owens v. Mazzei, April 7, 2004.

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