In Re: Jackson, J. Appeal of: Townsend, P. ( 2017 )

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2017 PA Super 350IN RE: JOHN E. JACKSON AND SUE M. IN THE SUPERIOR COURT OF
JACKSON CHARITABLE TRUST PENNSYLVANIA
APPEAL OF: POLLY J. TOWNSEND AND
WILLIAM R. JACKSON, JR.
No. 61 WDA 2017
Appeal from the Order Dated December 7, 2016
In the Court of Common Pleas of Allegheny County
Orphans' Court at No(s): 3999 of 1988
BEFORE: BENDER, P.J.E., SOLANO, J., and MUSMANNO, J.
OPINION BY SOLANO, J.: FILED NOVEMBER 07, 2017
This case arises out of a dispute between the individual trustees
(Appellants Polly J. Townsend and William R. Jackson, Jr.) and the corporate
trustee (Appellee PNC Bank, N.A.) of the John E. Jackson and Sue M.
Jackson Charitable Trust (“Trust”). Townsend and Jackson (hereinafter,
“Individual Trustees”) appeal from a December 7, 2016 Orphans’ Court order
entered under Section 7763(a.1) of the Uniform Trust Act (“UTA”), 1 that
resolved that dispute by limiting the amount that could be distributed by the
Trust to charities in 2016 and by designating which charities could receive
distributions from the Trust that year. We affirm in part, vacate in part, and
remand for further proceedings consistent with this opinion.
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1
20 Pa. C.S. § 7763(a.1).
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The settlors, John E. Jackson and Sue M. Jackson (referenced in the
Trust Agreement — and hence in this opinion — as “Grantors”) established
the Trust on February 6, 1950. John Jackson lived until April of 1971, and
Sue Jackson lived until January of 1994. The Trust Agreement named two
trustees, W.R. Jackson (John E. Jackson’s brother) and Commonwealth Trust
Company of Pittsburgh.
The Trust Agreement provided, in part:
4. This trust is created solely for charitable purposes, and
the income and principal of the trust estate is to be used for the
sole benefit of public charities in the manner hereinafter set
forth.
....
6. The Trustees shall distribute the income of the trust fund
among such public charities created for religious, educational or
other charitable purposes as they in their sole discretion may
deem proper. The Grantors may from time to time suggest to
the Trustees specific charitable institutions or charitable causes
to which they would like contributions made by the Trustees but
the Trustees are in no manner obligated to follow the requests of
the Grantors but, on the contrary, may distribute the income and
principal of the trust fund for such charitable purposes as they in
their sole discretion may determine.
The Trustees shall from year to year determine what amounts
of both income and principal of the trust fund shall be distributed
to charitable institutions or for charitable purposes, and it is
understood that there is to be no limitation placed on the
discretion of the Trustees with respect to the amount of principal
or income paid at any one time or to any one charity.
7. This charitable trust shall continue until the expiration of
three years after the date when its assets have been entirely
depleted. The Grantors may add additional assets to the trust at
any time within three years after all of the assets of the trust
have been exhausted; but if after a period of three years from
the exhaustion of the trust fund no assets have been contributed
to the trust fund by the Grantors, then at the end of such three
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year period this Agreement shall be considered as having been
cancelled by the parties hereto and the trust thereupon finally
terminated.
Upon the death or resignation of W.R. Jackson, the
Commonwealth Trust Company of Pittsburgh will select another
in his place from the officers of the Pittsburgh-Des Moines
Company; and if said Commonwealth Trust Company shall
merge with another trust institution, the merged institution
together with W.R. Jackson, or his successor, shall continue to
act as Trustee.
Trust Agreement at ¶¶ 4, 6-7.
Trustee W.R. Jackson resigned in 1989. At that time, none of the
officers of the Pittsburgh-Des Moines Company was willing to act as the
individual trustee. The Orphans’ Court appointed Appellant Polly J.
Townsend, W.R.’s daughter, as the next individual trustee.2 In connection
with the resignation of Jackson and the appointment of Townsend, the
trustees filed their First and Partial Account, which the Orphans’ Court
confirmed.
On May 25, 1994, Townsend resigned as the individual trustee. The
trustees then filed a Second and Partial Account. No new individual trustee
was appointed at that time.
On January 29, 1998, the Orphans’ Court re-appointed Townsend as
the individual trustee. The court also modified the succession provision of
the Trust Agreement to state:
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2
Although she was not at that time an officer of the Pittsburgh-Des Moines
Company, Townsend was on the board of directors of the company, and had
previously been an officer of the company.
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There shall always be two trustees acting hereunder, National
City Bank of Pennsylvania and its successors and an individual
trustee who is a member of the Jackson family. Upon the death,
resignation or inability to serve of any individual co-trustee, the
corporate trustee shall select as his or her successor a member
of the Jackson family, subject to the approval of a court of
competent jurisdiction.
Order, 1/29/98. National City Bank of Pennsylvania was a successor in
interest to Commonwealth Trust Company.
On or about April 1, 2005, Townsend and National City Bank filed a
Third and Partial Account in the Orphans’ Court. They also filed a petition to
reform the Trust to provide for two individual trustees and to appoint
Townsend’s brother, William R. Jackson, Jr., as the second individual
trustee. On May 24, 2005, the Orphans’ Court approved the Third and
Partial Account and entered an order reforming the Trust’s appointment
provision to state:
There shall always be three trustees acting hereunder,
National City Bank of Pennsylvania and its successors, which
shall possess at all times one-half of the voting power of the
trustees, and two individual trustees who are members of the
Jackson family, each of whom shall possess at all times one-
fourth of the voting power of the trustees. Upon the death,
resignation or inability to serve of any of then serving individual
co-trustee, his or her successor shall be such member of the
Jackson family designated as such by said co-trustee at or
before the time he or she ceases to so serve. In the event that
an individual co-trustee ceases to serve without designating his
or her successor, the other then serving individual co-trustee
shall designate a member of the Jackson family to fill such
vacancy, or if no such designation has been made, the successor
individual co-trustee shall be such member of the Jackson family
designated to serve by the oldest living grandchild of William R.
Jackson competent to make such designation. . . .
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Order, 5/24/05. The court also approved the appointment of William R.
Jackson, Jr. as the second individual trustee.
In 2006, Individual Trustees decided that they wanted to terminate the
Trust. When National City Bank opposed the termination, Individual
Trustees filed a petition in the Orphans’ Court seeking to remove and replace
National City Bank with a corporate trustee that would cooperate in
terminating the Trust or, in the alternative, to terminate the Trust
immediately. Individual Trustees explained:
Petitioners’ reasoning for terminating the Trust during their
lifetimes centered on concerns that if the Trust continues past
Petitioners’ lifetimes or their ability to administer the Trust, that
the succeeding generation of potential Trustees (Petitioners’
children and grandchildren) (i) lack the knowledge of the
Grantors and their philosophies, (ii) will disagree over the
administration of the Trust and (iii) will cause the Trust assets to
be distributed in a manner never contemplated by the Grantors.
Pet., 12/1/06, at ¶ 63. As authority for terminating the Trust, Individual
Trustees relied on Paragraph 7 of the Trust Agreement, which states in part:
“This charitable trust shall continue until the expiration of three years after
the date when its assets have been entirely depleted.”
Individual Trustees’ request to terminate the Trust was unsuccessful.
On May 24, 2007, the Honorable Robert A. Kelly granted National City
Bank’s motion for judgment on the pleadings, holding: (1) Paragraph 7 of
the Trust Agreement is “not a basis for termination of the Trust”; and (2) the
Individual Trustees’ averments “do not constitute a basis for termination of
the Trust but are merely allegations of a potential stalemate that may be
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arising between the Individual Trustees and the Respondent, National City
Bank.” Order, 5/24/07. The order dismissed Individual Trustees’ petition
insofar as it sought termination of the Trust, but did not address their
request to remove and replace National City Bank. Id. Individual Trustees
did not appeal the May 24, 2007 order, and did not thereafter pursue
replacement of National City Bank.
In late 2008, PNC acquired National City Bank and, as a result,
became the corporate trustee. Since then, PNC and Individual Trustees
have disagreed about the amount and recipients of the Trust’s charitable
donations, but until the present controversy, they were able to reach a
compromise each year.
On September 9, 2016, Individual Trustees sent PNC a list of proposed
charitable distributions totaling $701,000 for the year 2016. In response,
PNC prepared an analysis of the proposed recipients and presented it to
Individual Trustees on October 13, 2016. On November 1, 2016, Individual
Trustees prepared a revised proposal, deleting some recipients from their
original list and reducing the total distribution to $693,000.
On November 28, 2016, PNC filed a “Petition to Resolve a Deadlock
Between Trustees Pursuant to Section 7763[(a.1)] of the Uniform Trust Act.”
PNC alleged that a deadlock had formed between itself and Individual
Trustees regarding the amount and recipients of donations for the year
2016. PNC said that it sought judicial intervention because, in order to avoid
a tax penalty under Section 4942 of the Internal Revenue Code (“Taxes on
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failure to distribute income”), the Trust needed to distribute at least 5% of
its net assets ($475,838) before the end of the year. PNC Pet., 11/28/16, at
¶¶ 18, 20.3 PNC represented that, in order to meet the year-end deadline, it
would need to begin processing distribution payments by December 12,
2016, a mere two weeks later. Id. at ¶ 32.
In its petition, PNC averred that, “[e]very year since Judge Kelly’s
Order, due to the desires of the individual trustees to make over
distributions from the Charitable Trust and [PNC]’s desire to grow and
preserve the Trust, the trustees find themselves facing a year-end deadline
for complying with the requirements of Section 4942.” PNC Pet., 11/28/16,
at ¶ 20. Although PNC and Individual Trustees had compromised in previous
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3
Section 4942 provides, in part:
(a) Initial tax. There is hereby imposed on the undistributed
income of a private foundation for any taxable year, which has
not been distributed before the first day of the second (or any
succeeding) taxable year following such taxable year (if such
first day falls within the taxable period), a tax equal to 30
percent of the amount of such income remaining undistributed at
the beginning of such second (or succeeding) taxable year. . . .
(b) Additional tax. In any case in which an initial tax is
imposed under subsection (a) on the undistributed income of a
private foundation for any taxable year, if any portion of such
income remains undistributed at the close of the taxable period,
there is hereby imposed a tax equal to 100 percent of the
amount remaining undistributed at such time.
....
26 U.S.C. § 4942(a), (b); see also id. § 4942(c)-(e) (calculation of
“undistributed income” subject to tax). PNC alleged that the Trust is a
“private foundation” for purposes of this provision. PNC Pet., 11/28/16, at ¶
18.
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years, PNC’s petition averred that PNC was “no longer willing to jeopardize
the long-term viability of the Charitable Trust for the sake of the short-term
expediency of reaching an agreement with the individual trustees.” Id. ¶
27.
PNC stated that, “in keeping with the traditional giving pattern of the
Charitable Trust during the lifetime of the Donors,” it favored distributing the
Trust’s funds “to civic organizations, educational/arts organizations, health
care facilities and children & youth organizations, with at least one-half of
such distributions being to charitable organizations primarily situated in
Western Pennsylvania.” PNC Pet., 11/28/16, at ¶ 21. PNC characterized the
organizations it favored as “worthwhile charities,” and contrasted its list of
preferred donees with those organizations favored by Individual Trustees,
which it called “political advocacy groups.” Id. at ¶ 27. In addition, PNC
averred that the amount of distributions favored by Individual Trustees
would eventually exhaust the Trust “in circumvention of Judge Kelly’s
[May 24, 2007] Order.” Id. at ¶ 23.
PNC submitted to the court a list of proposed donees that, in its view,
were “in keeping with (i) the giving history of the Charitable Trust[] during
the lifetimes of John and Sue Jackson, and (ii) in keeping with Judge Kelly’s
Order of Court, dated May 24, 2007.” PNC Pet., 11/28/16, at ¶ 28. PNC’s
list included 26 organizations selected by PNC to receive one-half of the
required distribution ($237,919) and 18 organizations from the list
Individual Trustees submitted to PNC, which were to receive the other one-
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half of the required distribution. PNC asked the court “to resolve the current
deadlock by casting a ‘third vote,’” either in favor of the list it had compiled,
or in favor of the list that Individual Trustees had proposed to PNC in their
September 9, 2016 letter. Id. at ¶ 32.
On December 1, 2016, Individual Trustees filed an Answer and New
Matter. Individual Trustees alleged that PNC “unilaterally imposed an
artificial 5% limit on the Trust’s annual charitable giving, forced the Trust to
donate to local causes supported by PNC, and refused to allow charitable
contributions to legitimate charities recommended by [Individual Trustees]
(and supported by the Trust for decades).” Answer and New Matter at 1.
They contended that the Grantors intended for the Trust’s individual
trustee(s) to make donation decisions and that PNC’s “proper role — as set
forth in the Trust Agreement and as demonstrated by the six decades-long
history of the Trust before PNC’s involvement — is to work with the
[individual] Co-trustees to facilitate donations to charities selected by the
[individual] Co-trustees and to manage the Trust’s assets.” Id. at 3, 6.
Individual Trustees asked the court to deny PNC’s petition, order PNC to
make the contributions proposed by Individual Trustees on November 1,
2016, and order PNC —
to assume its proper corporate co-trustee role, which includes
providing the [individual] Co-trustees with information and
recommendations for possible donations, vetting charities,
investing the Trust’s assets (along with the [individual] Co-
trustees), and otherwise providing the traditional services that
the corporate co-trustee for this Trust provided for almost sixty
(60) years.
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Id. at 44. Also on December 1, 2016, Individual Trustees filed a Motion for
Expedited Discovery. They sought an evidentiary hearing at the conclusion
of the discovery.
On December 2, 2016, the Orphans’ Court held oral argument on
PNC’s petition. Both parties, as well as a representative of the Attorney
General of Pennsylvania, were present.4 PNC reiterated that it “need[ed] to
cut checks by December 12th” in order to avoid the excise tax. N.T.,
12/2/16, at 26. The Orphans’ Court stated that it would cap donations at
5% of the Trust’s assets because there was “no reason to go above” the
amount required to avoid a tax penalty. Id. at 24-25. The court denied the
motion for expedited discovery 5 and took the designation of charitable
recipients under advisement. Id. at 32. On December 6, 2016, Individual
Trustees filed a revised donation proposal, limiting their proposed donations
to 5% of the Trust’s assets. 6 On December 7, 2016, the Orphans’ Court
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4
Under the UTA, “The Office of Attorney General has the rights of a
charitable organization expressly named in the trust instrument to receive
distributions from a trust having its situs in this Commonwealth and the right
to notice of any proceeding or nonjudicial settlement agreement in which
there is a charitable interest or purpose.” 20 Pa. C.S. § 7710(d). The
Attorney General must be made a party in all proceedings involving
charitable trusts. See In re Pruner's Estate, 136 A.2d 107, 110 (Pa.
1957) (discussing predecessor to present statute).
5
The court stated that it might revisit the issue of discovery if the parties
could not agree on distributions for 2017. N.T., 12/2/16, at 32.
6
Individual Trustees recognized that the court had determined that it would
not authorize distribution of more than 5% of the trust’s assets in 2016, and
(Footnote Continued Next Page)
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entered an order selecting the charities on PNC’s list for distributions in
2016. The order stated that the court had considered PNC’s petition,
Individual Trustees’ answer and new matter, Judge Kelly's May 24, 2007
order, and the December 2, 2016 oral argument. Order, 12/7/16. On
December 14, 2016, Individual Trustees filed a motion for reconsideration
or, in the alternative, for clarification of the court’s December 7, 2016 order.
On December 19, 2016, the Orphans’ Court denied that motion.
On May 2, 2017, the Orphans’ Court filed an opinion in which it
explained its decision. The court stated:
Given the time constraints which were placed upon the
court by the unseasonable request, the court determined that a
prudent decision would require distributions in order to not
dissipate trust assets on non-trust intentions, solely because of
the co-trustees[’] inability to agree. The court chose 5% to be
distributed for the current year utilizing the minimum investment
return for private foundations. 26 U.S. Code §4942(e). The court
also chose the charities as suggested by the corporate trustee,
for the current year, solely because of the lack of time needed
for all possible options to be fully vetted.
While the court has made these determinations, nothing in
the court’s determinations for this calendar year, should be
interpreted or extrapolated to any future years. Consequently,
all parties in interest will have the opportunity, in the event that
non-agreement by the trustees occurs, to seek court
intervention as to what is in the best interest of the trust with
regard to distributions and the charities receiving such.
Orphans’ Ct. Op., 5/2/17, at 2.7
_______________________
(Footnote Continued)
they stated that by submitting this proposal, they were not waiving any
rights. Donation Proposal, 12/6/16, at 1 n.1.
7
There is no information in the record regarding whether the parties are
facing another deadlock in 2017 and, if so, whether they have timely sought
(Footnote Continued Next Page)
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On January 5, 2016, Individual Trustees filed a timely appeal in which
they raise the following issues, as stated in their brief:
I. Did the Orphans’ Court abuse its discretion by entering a
series of Orders breaking a contrived “deadlock” between co-
trustees of the John E. and Sue M. Jackson Charitable Trust (the
“Trust” or “Jackson Family Charitable Trust”) without hearing
any evidence, without holding an evidentiary hearing, and/or
without making any findings of fact?
II. Did the Orphans’ Court abuse its discretion by failing to even
attempt to ascertain the intent of the Grantors of the Trust,
which, under settled Pennsylvania law, is the “pole star” of every
trust?
III. Did the Orphans’ Court abuse its discretion by allowing
Appellee PNC Bank, N.A. (“PNC”), the fourth successor corporate
co-trustee, to usurp donation authority away from Appellants
Polly J. Townsend (“Polly”) and William R. Jackson, Jr. (“Dick”)
(together, the “Jackson Family Co-trustees”) even though the
Grantors’ intent was for the Jackson Family trustee(s) to
exercise such authority and the Jackson Family trustee(s) did, in
fact, exercise such authority free from interference from all
predecessor corporate co-trustees for nearly sixty years before
PNC’s involvement with the Trust?
IV. Did the Orphans’ Court abuse its discretion by resolving the
contrived “deadlock” by PNC’s artificial deadline of December 12,
2016?
V. Did the Orphans’ Court abuse its discretion by limiting 2016
donations from the Trust to five percent (5%) of Trust assets
even though any such limitation is directly contrary to the Trust
instrument, which provides that there is “no limitation” on the
amount of princip[al] or income that can be donated to charity,
_______________________
(Footnote Continued)
intervention by the Orphans’ Court as suggested in the court’s opinion. Our
docket contains no indication that either party sought expedition of this
appeal so that the parties’ disputes could be resolved before the end of
2017, and it appears that proceedings in this appeal were delayed by the
late filing of the record and at least one request to extend a briefing
deadline. After the appeal was argued on September 19, 2017, we made
efforts to accelerate our disposition.
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and all donations proposed by the Jackson Family Co-trustees
were consistent with the Grantors’ intent and Trust history?
VI. Did the Orphans’ Court abuse its discretion by refusing to
permit donations in 2016 to so-called politically conservative
charities even though such charities have received nearly 800
annual donations from the Trust for nearly $6 million?
VII. Did the Orphans’ Court abuse its discretion in directing
donations overwhelmingly to charities in Western Pennsylvania
despite the Trust’s donation history, which reveals that only
approximately twenty-five percent (25%) of donations have
been to Western Pennsylvania charities?
VIII. Did the Orphans’ Court abuse its discretion and commit an
error of law to the extent it relied in any way on the May 24,
2007 opinion of Orphans’ Court Judge Kelly in resolving the
contrived 2016 “deadlock?”
IX. Did the Orphans’ Court violate the Jackson Family Co-
trustees’ due process rights by failing to afford them any hearing
at which they could respond to the allegations in the Petition
filed against them by PNC and/or present evidence in support of
their Answer and New Matter?
X. Did the Orphans’ Court abuse its discretion and commit an
error of law by making donation decisions, thereby improperly
exercising trustee discretion that is vested exclusively in the
trustees?
XI. In the alternative, did the Orphans’ Court abuse its discretion
by selecting donations on PNC’s proposed list of donations over
the charities on the Jackson Family Co-trustees’ proposed list of
donations where the Jackson Family Co-Trustees’ proposed
donations were more consistent with the Grantors’ intent and the
Trust’s 66-year donation history?
Individual Trustees’ Br. at 6-7.8
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8
The Attorney General’s Office joined PNC’s brief seeking affirmance and did
not file its own brief. Three charitable organizations (The Leadership
Institute, Young America’s Foundation, and the National Right To Work Legal
Defense and Education Foundation, Inc.), each of which was on Individual
(Footnote Continued Next Page)
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We apply the following standard of review:
The findings of a judge of the orphans’ court division, sitting
without a jury, must be accorded the same weight and effect as
the verdict of a jury, and will not be reversed by an appellate
court in the absence of an abuse of discretion or a lack of
evidentiary support. This rule is particularly applicable to
findings of fact which are predicated upon the credibility of the
witnesses, whom the judge has had the opportunity to hear and
observe, and upon the weight given to their testimony. In
reviewing the Orphans’ Court’s findings, our task is to ensure
that the record is free from legal error and to determine if the
Orphans’ Court’s findings are supported by competent and
adequate evidence and are not predicated upon capricious
disbelief of competent and credible evidence.
When the trial court has come to a conclusion through the
exercise of its discretion, the party complaining on appeal has a
heavy burden. It is not sufficient to persuade the appellate court
that it might have reached a different conclusion if, in the first
place, charged with the duty imposed on the court below; it is
necessary to go further and show an abuse of the discretionary
power. An abuse of discretion is not merely an error of
judgment, but if in reaching a conclusion the law is overridden or
misapplied, or the judgment exercised is manifestly
unreasonable, or the result of partiality, prejudice, bias or ill-will,
as shown by the evidence of record, discretion is abused. A
conclusion or judgment constitutes an abuse of discretion if it is
so lacking in support as to be clearly erroneous.
We are not constrained to give the same level of deference to
the orphans’ court’s resulting legal conclusions as we are to its
credibility determinations. We will reverse any decree based on
palpably wrong or clearly inapplicable rules of law. Moreover,
we are not bound by the chancellor’s findings of fact if there has
been an abuse of discretion, a capricious disregard of evidence,
or a lack of evidentiary support on the record. If the lack of
evidentiary support is apparent, reviewing tribunals have the
power to draw their own inferences and make their own
deductions from facts and conclusions of law. Nevertheless, we
will not lightly find reversible error and will reverse an orphans’
_______________________
(Footnote Continued)
Trustees’ list of proposed donees but not on that of PNC, filed amicus curiae
briefs in support of Individual Trustees.
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court decree only if the orphans’ court applied an incorrect rule
of law or reached its decision on the basis of factual conclusions
unsupported by the record.
In re Paxson Tr. I, 893 A.2d 99, 112-13 (Pa. Super.) (quotation marks and
citations omitted; some formatting altered), appeal denied, 903 A.2d 538(Pa. 2006). Because the Orphans’ Court did not hold a factual hearing and
did not make credibility determinations, we are not constrained by our
standard of review in reviewing any factual determinations made by the
court in this matter.
Individual Trustees’ Standing
PNC avers that Individual Trustees lack standing to bring this appeal
because they do not have a substantial, direct, and immediate interest in the
Trust. See PNC’s Br. at 16-19. In a reply brief, Individual Trustees respond
that PNC waived this argument by (1) naming Individual Trustees as
respondents in its action, and (2) failing to object to Individual Trustees’
standing in the Orphans’ Court. See Individual Trustees’ Reply Br. at 2.
Individual Trustees also assert that co-trustees of a charitable trust have
standing to appeal trust administration matters, and that they have standing
on multiple other bases. Id. at 2-6. The Orphans’ Court did not have any
occasion to address whether Individual Trustees have standing to appeal.
The rules regarding appellate standing are well established. “Except
where the right of appeal is enlarged by statute, any party who is
aggrieved by an appealable order, or a fiduciary whose estate or trust
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is so aggrieved, may appeal therefrom.” Pa.R.A.P. 501 (emphasis added).
This Court has explained:
An aggrieved party must have a substantial interest at stake. A
substantial interest is an interest in the outcome of the litigation
which surpasses the common interest of all citizens in procuring
obedience to the law. In addition, the party’s interest must be
adversely affected in a manner[] which is both direct and
immediate.
In re McCune, 705 A.2d 861, 864 (Pa. Super. 1997) (citations and
quotation marks omitted), appeal denied, 724 A.2d 935 (Pa. 1998). In
addition:
Standing to APPEAL must be distinguished from the
concept of standing to SUE. Rule 501 requires that an appellant,
absent statutory standing to appeal, have party status in the
lower court or in the administrative agency and be aggrieved by
an appealable order. Any party in the proceedings below who
was aggrieved by an appealable order has standing to APPEAL
under Rule 501.
The concept of standing to SUE, however, involves a
party’s capacity to initiate an action in the lower court or
administrative agency, and often involves an analysis of the
statute that the party is invoking.
20 West’s Pa. Practice, Appellate Practice § 501:1 (2016-2017 ed.)
(footnotes omitted).
We reject Individual Trustees’ contention that PNC waived its objection
to their standing. A challenge to a party’s standing to sue is waived it if is
not raised in the trial court, see In re Estate of Schumacher, 133 A.3d
45, 50 (Pa. Super.), appeal denied, 157 A.3d 477 (Pa. 2016); a challenge
to a party’s standing to appeal, however, need not (and indeed cannot) be
raised in the trial court. The latter type of challenge may be raised in a
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motion to quash or dismiss the appeal, or in an appellee’s brief. See 20 Pa.
West’s Pa. Practice, Appellate Practice § 501:16. Because PNC was not
required to contest Individual Trustees’ standing to appeal in the Orphans’
Court, it did not waive that issue. See Id. at § 501:1, § 501:16.
However, PNC’s argument that Individual Trustees lack standing to
bring this appeal is meritless. The appeal raises questions about Individual
Trustees’ powers and authority under the Trust Agreement. Among other
things, Individual Trustees contend that the Orphans’ Court’s order
interferes with their unilateral right to make decisions regarding the Trust’s
charitable gifts. PNC brought this action pursuant to Section 7763(a.1) of
the UTA, 20 Pa.C.S. § 7763(a.1), which provides that “any of the trustees or
any party in interest” may petition to have the court resolve a deadlock
among trustees, and Individual Trustees contend that the Orphans’ Court’s
order broke that deadlock in a way that unlawfully infringed upon their
authority. Individual Trustees have standing to litigate these issues.
Indeed, it would be strange to allow a trustee to bring a claim to break a
deadlock with a co-trustee under Section 7763(a.1) and not then to allow
the unsuccessful co-trustee to appeal a resulting decision adverse to that co-
trustee’s position. In terms of Appellate Rule 501, PNC’s Section 7763(a.1)
petition against Individual Trustees made Individual Trustees “parties” to
this action, and the Orphans’ Court’s decision contrary to their position made
them “aggrieved.”
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Individual Trustees also have standing under Rule 501 as “fiduciar[ies]
whose estate or trust is so aggrieved” because the Orphans’ Court’s decision
affects rights of unascertained beneficiaries under the Trust. Generally, “in
the absence of some special trust purpose, neither ‘the trustee’s abstract
interest in seeing the [grantor’s] intent carried out, nor his concrete interest
in fees’ can confer the status of ‘aggrieved party.’” Appeal of Gannon, 631
A.2d 176, 182 (Pa. Super. 1993) (footnote omitted) (quoting In re
Musser’s Estate, 17 A.2d 411, 414 (Pa. 1941)), appeal denied, 647 A.2d
902 (Pa. 1994). But a trustee may appeal from an order “construing the
relative rights of beneficiaries if some are unascertained or incompetent to
act for themselves.” Musser’s Estate, 17 A.2d at 414; Gannon, 631 A.2d
at 182. In cases involving unascertained charitable beneficiaries, a trustee
has standing to appeal notwithstanding the role of the Attorney General,
because “[t]he Attorney General represents the public interest in a
charitable trust rather than a particular class of potential beneficiaries and
his representation does not affect [the trustee’s] rights.” In re
Thompson’s Estate, 206 A.2d 21, 27 (Pa. 1965). Because the charitable
beneficiaries of the Trust were unascertained (and, indeed, one of the main
issues in this action is who those beneficiaries should be), Individual
Trustees had standing to appeal from the Orphans’ Court’s order
determining the relative rights of the various beneficiaries. See Musser’s
Estate, 17 A.2d at 414; Gannon, 631 A.2d at 182.
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PNC’s argument that the decision in McCune forecloses the Individual
Trustees’ standing is misplaced. In McCune, this Court held that the
distribution committee of a charitable trust lacked standing to appeal from
an order regarding the trustees’ first account. 705 A.2d at 864-65.
McCune did not involve an appeal by a trustee of a charitable trust, and it is
inapposite on these facts.
Deadlock Among Trustees
(Issues III, IV, X)
Several of Individual Trustees’ appellate issues reflect their
unwillingness to concede that there was a legitimate “deadlock” that called
for the intersession of the Orphans’ Court in this case. As noted, they also
question the Orphans’ Court’s exercise of authority to break that deadlock.
At the heart of much of Individual Trustees’ challenge is their
contention that decisions regarding the Trust’s charitable donations
historically have been made by the Trust’s individual trustees (who they
refer to as the “Jackson Family Co-trustee(s)”), with the corporate trustee
playing only a supportive role. They state:
From 1950 through 2009 — which included the entirety of
the Grantors’ remaining lives — the Jackson Family Co-trustee(s)
made all annual donation decisions for the Trust with the full
support of the Grantors and corporate co-trustees. The role of
the prior corporate co-trustees was to hold and invest the Trust’s
assets, prepare and maintain the Trust’s books and records,
prepare and file periodic statements, filings, and returns, and
make the donations designated by the Jackson Family Co-
trustee(s).
....
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For nearly six decades before PNC’s involvement, the
Jackson Family trustee(s) always chose which 501(c)(3)-
qualified charities would get donations from the Trust and the
amount of those donations, all without interference from the
corporate co-trustee. The Grantors never complained about the
Jackson Family trustee’s donations or the fact that it was the
family trustee — and not the corporate trustee — making those
donation decisions. Every corporate co-trustee prior to PNC
acknowledged the Jackson Family trustees’ right and authority to
fully direct the Trust’s donations as well as its own limited role as
holder and general manager (with the Jackson Family Co-
trustee(s)) of the Trust’s assets.
Individual Trustees’ Br. at 13, 18 (emphasis in original, citations to the
record omitted). Individual Trustees thus view exercise of “donation
discretion” as a role belonging exclusively to them. Id. at 35. From this
vantage point, Individual Trustees view PNC’s insistence on an equal role in
donation decisions as contrary to the Trust’s administrative scheme. They
view PNC’s declaration of a “deadlock” as contrived, and consider the
Orphans’ Court’s acceptance of PNC’s assertion of a deadlock and
subsequent decision to resolve that deadlock by entry of a judicial order to
be an usurpation of Individual Trustees’ historical powers regarding
charitable donations under the Trust.
The Uniform Trust Act provides, “Cotrustees who do not reach a
unanimous decision may act by majority decision.” 20 Pa. C.S. § 7763(a).
The statute does not allocate or divide co-trustees’ decision-making
authority among the trustees. As is the case regarding most other UTA
provisions, a settlor may provide in the trust document for a regime different
from this one. See id. § 7705. Indeed, a comment by the Uniform Law
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Commissioners who drafted the corresponding section of the Uniform Trust
Code (“UTC”)9 advises that crafting a more detailed provision governing co-
trustee issues might be a more advisable course. They warn:
Division of responsibility among cotrustees is often confused, the
accountability of any individual trustee is uncertain, obtaining
consent of all trustees can be burdensome, and unless an odd
number of trustees is named deadlocks requiring court resolution
can occur. Potential problems can be reduced by addressing
division of responsibilities in the terms of the trust. Like other
sections of this article, this section is freely subject to
modification in the terms of the trust.
Uniform Law Cmt. to UTC § 703, published following 20 Pa. C.S. § 7763.
Here, however, Grantors made no provision in the Trust Agreement for
a division of responsibilities between the individual and corporate trustees.
Nor was such a division addressed when the trustee provisions of the
Agreement were amended in 1998 and 2005. To the contrary, Paragraph 7
of the Agreement, as amended in 2005, states that the corporate trustee
“shall possess at all times one-half of the voting power of the trustees, and
two individual trustees who are members of the Jackson family . . . shall
[each] possess at all times one-fourth of the voting power of the trustees.”
The Trust makes no special provision for a different allocation of power with
respect to decisions about charitable donations, though it does alter Section
7763(a)’s “majority rules” requirement by stating that the corporate trustee
has 50% of the voting power and Individual Trustees each have 25%. In
____________________________________________
9
The UTA is Pennsylvania’s modified enactment of the Uniform Trust Code.
See In re Trust Under Agreement of Taylor, 164 A.3d 1147, 1149 (Pa.
2017).
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light of the clear terms of Paragraph 7, we disagree with Individual Trustees’
contention that they possess exclusive power to decide who may receive
charitable donations from the Trust. Although the Trust may have operated
that way in past years (and, in particular, in the years prior to the 2005
amendment), this power now must be shared among all of the trustees,
including PNC.
The power sharing arrangement dictated by Paragraph 7 of the Trust
Agreement makes it imperative that the individual and corporate trustees
work together on all issues relating to the Trust, including issues relating to
charitable donations. Individual Trustees’ view that they possess exclusive
authority in this area is contrary to this mandate. Similarly, PNC’s
declaration when it filed this action that it was “no longer willing” to seek
“the short-term expediency of reaching an agreement with the individual
trustees,” PNC Pet., 11/28/16, at ¶ 27, is inconsistent with its trustee
responsibilities. We note that a trustee may be removed where “lack of
cooperation among cotrustees substantially impairs the administration of the
trust.” 20 Pa. C.S. § 7766(b)(2).
Where trustees possessing equal power deadlock, the UTA permits any
of them to petition for a judicial resolution of the deadlock. Section
7763(a.1) provides:
When a dispute arises among trustees as to the exercise or
nonexercise of any of their powers and there is no agreement by
a majority of them, unless otherwise provided by the trust
instrument, the court in its discretion, upon petition filed by any
of the trustees or any party in interest, aided if necessary by the
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report of a master, may direct the exercise or nonexercise of the
power as it deems necessary for the best interest of the trust.
20 Pa. C.S. § 7763(a.1).10 Here, there was a deadlock between Individual
Trustees and PNC regarding charitable donations. As nothing in the Trust
Agreement provides for a deadlock-breaking procedure that is inconsistent
with that in Section 7763(a.1), PNC was entitled to seek judicial intervention
under that section.
Individual Trustees contend that this deadlock was contrived. They
suggest that it was possible to work out the disagreement with PNC, as had
been done in past years, and that PNC declared a deadlock only because, as
it admitted, it was “no longer willing” to try to reach an agreement. See
PNC Pet., 11/28/16, at ¶ 27. But while it may be true that the deadlock was
avoidable, the fact remains that there was “no agreement by a majority” of
the trustees, which is all that was required to enable PNC to invoke Section
7763(a.1). We therefore do not agree that the parties’ dispute did not fall
within the terms of the statute. We add, however, that the Orphans’ Court
had discretion under Section 7763(a.1) to decline to order relief if it
concluded that the deadlock was not legitimate or was more amenable to
____________________________________________
10
The UTC provision on which Section 7763 of the UTA is based does not
contain a subparagraph comparable to (a.1). Prior to enactment of the UTA
in 2006, Pennsylvania trust statutes stated that an analogous statutory
provision dealing with disputes among personal representatives, 20 Pa. C.S.
§ 3328, also applied to trusts. That cross-reference was removed as
unnecessary upon Section 7763(a.1)’s enactment. See Jt. St. Govt. Comm.
Cmt. – 2005 to 20 Pa. C.S. § 7780.6.
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resolution without its intervention. In this respect, we note that Section
7763(a.1) is patterned after Section 3328(b) of the Fiduciaries Code, 20 Pa.
C.S. § 3328(b), which uses similar language to bestow judicial discretion to
address disagreements among personal representatives. See Jt. St. Govt.
Comm. Cmt. – 2005 to 20 Pa. C.S. § 7763.11 A comment to Section 3328(b)
states, “By making application of the section discretionary with the court, it
is believed that the court can compel fiduciaries to attempt first to reconcile
their differences without using the section as a cloak for securing advisory
opinions on all questionable matters.” Jt. St. Govt. Comm. Cmt. – 1949 to
20 Pa. C.S. § 3328.
Similarly, the court had discretion to refuse to be bound by the
deadline imposed by PNC as part of its petition under Section 7763(a.1).
PNC told the court that it needed a resolution by December 12, 2016 to be
able to mail donations by the end of the year, and that severe tax
consequences would befall the Trust if the donations were not mailed before
____________________________________________
11
The Statutory Construction Act authorizes us to consult Joint State
Government Commission reports in construing statutes, and, if necessary to
resolve a lack of explicitness, to consider a statute’s history and relevant
former law. 1 Pa. C.S. §§ 1921(c), 1939. Section 3328(b) of the Fiduciary
Code states:
When a dispute shall arise among personal representatives as to
the exercise or nonexercise of any of their powers and there
shall be no agreement of a majority of them, unless otherwise
provided by the governing instrument, the court, upon petition
filed by any of the personal representatives or by any party in
interest, aided if necessary by the report of a master, in its
discretion, may direct the exercise or nonexercise of the power
as the court shall deem for the best interest of the estate.
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2017. Individual Trustees argue that these deadlines were contrived and
that, even if the donations had to be made by December 31, 2016, there
was no need for a resolution of PNC’s petition two weeks before that. The
Orphans’ Court stated in its opinion that PNC’s deadline presented it with an
“unseasonable request,” Orphans’ Ct. Op. at 2, and it appears that the
deadline severely hampered the court’s ability properly to address the
situation placed before it. We nevertheless conclude that the Orphans’ Court
did not abuse its discretion in trying to meet the deadline that PNC imposed.
The court was faced with what it concluded were credible arguments in
support of the deadline, and it determined that there was a significant risk
that the Trust would be harmed if 2016 charitable gifts were not made by
the end of the year. We defer to the Orphans’ Court’s assessment of that
situation.
Ultimately, the Orphans’ Court exercised its discretion to grant relief
under Section 7763(a.1) by limiting the amount that could be donated by
the Trust in 2016 and by selecting PNC’s proposed list of charitable donees.
Individual Trustees argue that the court abused its discretion in granting
such relief because “the statute under which the purported ‘deadlock’ was
decided does not give the court the powers of a trustee; rather, it expressly
recognizes that the court (with the help of a master, if necessary) ‘may
direct the exercise or nonexercise of the power as it deems necessary for the
best interest of the trust.’” Individual Trustees’ Br. at 50 (quoting Section
7763(a.1) (emphasis in brief). They say the court “erred by delegating to
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itself the power of a trustee” and “tak[ing] matters into its own hands,”
thereby usurping Individual Trustees’ discretion to make the Trust’s
charitable donations. Id. at 50-51.
As explained below, we conclude that, as a result of the short deadline
imposed by PNC’s petition, the Orphans’ Court erred in the manner in which
it addressed the issues presented in this matter and, as a result, may have
erred in its resolution. However, we do not agree with Individual Trustees’
contention that, if the court had conducted a proper hearing and considered
appropriate evidence, it could not then issue an order that resolved the
dispute among the trustees. Section 7763(a.1) gives the court precisely
that authority by stating that it may direct the exercise or nonexercise of
such power as it deems appropriate; here, that meant it could direct the
amount and designate the recipients of the Trust’s 2016 charitable
contributions.
In Obici Trust, 134 A.2d 900, 906-08 (Pa. 1957), the Supreme Court
addressed an orphans’ court’s power to award similar relief as a result of a
deadlock among trustees under pre-UTA statutes incorporating the similar
power regarding disagreements among personal representatives. The trust’s
individual trustees disagreed about who to appoint as their successors, a
question that the Supreme Court held had to be decided by them
unanimously. The Supreme Court concluded that because the “disagreement
makes this impossible, a court may be called upon to effectuate settlor’s
intention that the vacancy be filled.” 134 A.2d at 907. The Court remanded
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for the orphans’ court to make “findings with respect to the proper
successor” trustee and “thereafter direct the appointment of a successor
trustee or trustees to fill the vacancies.” Id. at 908.
Just as the Supreme Court held that the orphans’ court in Obici could
break the parties’ deadlock by appointing a successor, so too could the
Orphans’ Court here break the deadlock by directing what charitable
donations were to be made in 2016. There is nothing unlawful about a
court’s selection of a trust’s charitable beneficiary. See 20 Pa. C.S.
§ 7735(b). Such an exercise of authority under Section 7763(a.1) is not an
illegal usurpation of trustees’ power, for it is specifically authorized by the
UTA.
Process To Resolve the Deadlock
(Issues I, II, IX)
Section 7763(a.1) does not set forth any procedure or guidelines by
which an orphans’ court should determine how it is to resolve a deadlock
among trustees. But the general principles that courts are to follow in
resolving trust matters are familiar:
“[T]he interpretation of a trust or a will presents a question of
law. As such, our standard of review is de novo, and our scope
of review is plenary.” In re Estate of McFadden, 100 A.3d
645, 650 (Pa. Super. 2014) (en banc) (citations omitted).
Certain principles guide trust interpretation. The [settlor]’s
intent is the cornerstone of such an endeavor. As we articulated
in Estate of Pew, 440 Pa.Super. 195, 655 A.2d 521, 533
(1994), it is “hornbook law that the pole star in every trust . . .
is the settlor’s . . . intent and that intent must prevail.” See
also Estate of McFadden, supra. We are not permitted to
construe a provision in a trust so as “to destroy or effectually
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nullify what has always been considered the inherent basic
fundamental right of every owner of property to dispose of his
own property as he desires, so long as it is not unlawful.”
Estate of Pew, supra at 533. Critically, the settlor’s intent
must be ascertained from the language of the trust, and we give
effect, to the extent possible, to all words and clauses in the
trust document. See In re Estate of McFadden, supra;
accord Farmers Trust Co. v. Bashore, 498 Pa. 146, 445 A.2d
492, 494 (1982) (“A settlor’s intent is to be determined from all
the language within the four corners of the trust instrument, the
scheme of distribution and the circumstances surrounding the
execution of the instrument.”).
In re Estate of Loucks, 148 A.3d 780, 781-82 (Pa. Super. 2016). “When
the terms of a written trust instrument are clear and certain, parol or
extrinsic evidence is not admissible to explain the settlor’s intent. However,
such evidence is admissible to prove intent where the written instrument is
ambiguous.” Factor v. Getz, 276 A.2d 511, 512 (Pa. 1971) (citations
omitted).
The trustees’ dispute before the Orphans’ Court concerned what limits,
if any, should be placed on the amount of charitable contributions made by
the Trust in 2016 and what charities should be recipients of the Trust’s gifts.
As we explain in greater detail in the later sections of this opinion, resolution
of those questions necessarily required determination of the Grantors’ intent,
and that determination required an evidentiary hearing. PNC contends that
such a hearing was unnecessary because the Grantors’ intent regarding
these questions may be discerned from a review of the Trust Agreement
itself, but we find PNC’s contention disingenuous in light of PNC’s own
reliance on extrinsic evidence (such as historical donation records) to
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support its position on such issues as whether donations should be made
primarily to Western Pennsylvania organizations. See PNC’s Br. at 28-29,
35-37. The Orphans’ Court should have held a factual hearing to permit full
exploration of the parties’ dispute in light of the Grantors’ intent. The court
also should have granted Individual Trustees’ request for expedited
discovery to collect information relevant to the proceedings.
We are aware of only one reported appellate decision addressing an
issue similar to this one, but it supports our view of a need for a factual
record. In Stuart v. Continental Illinois National Bank & Trust Co. of
Chicago, 369 N.E.2d 1262 (Ill. 1977), the Supreme Court of Illinois
addressed a dispute between a corporate trustee and two individual trustees
regarding the disposition of a charitable trust fund. The trust document
gave the trustees discretion to choose charitable beneficiaries. 369 N.E.2d
at 1266. When the trustees were unable to agree on a plan of distribution,
the individual trustees filed suit to resolve the deadlock, and both the
corporate trustee and the individual trustees submitted lists of proposed
donees to the court. Id. at 1267, 1268-69. After a non-jury trial in which
the court “heard conflicting testimony concerning the testator’s intentions,”
the court adopted the plan submitted by the corporate trustee. Id. at 1266,
1269. The Illinois Supreme Court noted that when faced with a deadlock
among the trustees, “it was incumbent upon the trial court to resolve the
dispute by either appointing a new trustee or by framing a plan of
distribution.” Id. at 1275. “[T]he primary duty of the [trial] court was to
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effectuate the probable charitable intent of the testator. The crucial issue is
whether the evidence supports the conclusion that the court fulfilled this
duty by ordering distribution pursuant to the plan which it did endorse.” Id.Ultimately, the Illinois Supreme Court affirmed the trial court’s selection of
beneficiaries because it was supported by “competent and credible
evidence,” although the court rejected certain aspects of the plan endorsed
by the trial court. Id. at 1276.
We recognize that the Orphans’ Court was faced with time constraints
here that limited the discovery it could allow and the time for any hearing.
But by resolving PNC’s petition on the basis only of the parties’ submissions
and oral argument, the court decided issues critical to the Trust without any
factual evidence bearing on the Grantors’ intent. The court therefore must
hold a hearing at which it can give further consideration to these issues.
At the hearing, the parties may make a factual record that will enable
the court to determine the Grantors’ intent. It will be for the trial court to
determine the relevance and probative value of whatever evidence is
proffered, but we note that varying types of evidence may be considered.
For example, courts often consider, in addition to the language of the
instrument and the scheme of distribution, “the facts and circumstances
existing at the creation of the trust.” In re Shoemaker, 115 A.3d 347, 355
(Pa. Super. 2015). The Third Restatement of Trusts explains:
Among the circumstances that may be of importance in
determining the terms of a trust . . . in matters about which a
written instrument is silent or ambiguous, are the following: (1)
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the situations of the settlor, the beneficiaries, and the trustee,
including such factors as age, legal and practical competence,
personal and financial circumstances, and the relationships of
these persons and these factors to each other; (2) the value and
character of the trust property; (3) the purposes for which the
trust is created; (4) relevant business and financial practices at
the time; (5) the circumstances under which the trust is to be
administered; (6) the formality or informality, the skill or lack of
skill, and the care or lack of care with which any instrument
containing the manifestation in question was drawn.
The intention of the settlor that determines the terms of the
trust is the intention at the time of the creation of the trust and
not a subsequent intention. The settlor’s intention at the time of
the trust’s creation may be shown, however, not only by facts
that occurred before or at that time but also by facts occurring
thereafter to the extent evidence of those facts may be
considered under the applicable rules of evidence to show the
intention in question.
Restatement (Third) of Trusts § 4, Cmt. a (Am. Law Inst. 2003)12; see also
In re Estate of Krebs, 483 A.2d 919, 921 n.1 (Pa. Super. 1984) (quoting
part of Restatement (Second) of Trusts § 4, Cmt. a (Am. Law Inst. 1959),
which is similar to the comment in the Third Restatement).
In addition, courts may consider direct evidence of the settlor’s intent,
such as:
____________________________________________
12
Section 4 of the Third Restatement defines “terms of the trust.” The UTC
defines “terms of the trust” similarly to the Restatement. See UTC §
103(17) (Unif. Law Comm. 2000). Pennsylvania did not adopt the definition
of “terms of the trust” from the UTC “because it implies that there may be
terms outside the instrument governing the trust, which is undesirable and
inconsistent with the approach of [Pennsylvania’s UTA] to refuse
enforcement of oral trusts.” Jt. St. Govt. Comm. Cmt. – 2005 to 20 Pa.C.S.
§ 7703. Although Pennsylvania does not enforce oral trusts, we may
consider Section 4 of the Restatement as it pertains to ambiguities in trust
documents. See generally Estate of Krebs, 483 A.2d at 921 n.1.
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documents and testimony evidencing the donor’s intention; the
donor’s own declarations of intention, written or oral; contents of
the drafting agent’s files; and written or oral statements made to
the donor by the drafting agent or another concerning the
contents or effect of the document, to the extent that the donor
acquiesced, silently or expressly, in the other person’s
statement.
Restatement (Third) of Trusts § 4 Reporter’s Notes (quoting Restatement
(Third) of Prop.: Wills and Donative Transfers § 10.2 cmt. f (Am. Law Inst.
1999)); see Estate of McKenna, 489 A.2d 862, 867 (Pa. Super. 1985)
(holding that testimony by the scrivener regarding his conversation with the
testator was properly admitted to clarify an ambiguity in a will) 13 ; In re
Estate of Rudy, 478 A.2d 879, 881-82 (Pa. Super. 1984) (concluding that
testimony of testator’s lawyer, secretary, doctor, banker, and accountant
was properly admitted, where the testimony “did not impermissibly intrude
into the subjective intent of the testator, but rather referred only to the
circumstances attendant to the execution of testator’s will and codicil”).
The Orphans’ Court should make findings that support its conclusions
about the Grantors’ intent and should explain how those conclusions support
its order resolving the trustees’ deadlock.
The Amount of Distributions
(Issue V, VIII)
____________________________________________
13
Cases involving wills are relevant because “the rules for determining a
settlor’s intent are the same for trusts as for wills.” In re Tr. of Hirt, 832
A.2d 438, 448 (Pa. Super. 2003), appeal denied, 862 A.2d 1255 (Pa.
2004).
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Individual Trustees argue that the Orphans’ Court erred in limiting the
Trust’s 2016 distributions to 5% of the Trust’s assets. PNC responds that
the 5% figure was consistent with the Trust’s historical giving patterns,
Judge Kelly’s May 24, 2007 order in the termination action, and a provision
of the Uniform Principal and Income Act, 20 Pa.C.S. § 8113, that requires
certain charitable trusts to donate between two and seven percent of their
assets each year. The Orphans’ Court chose the 5% figure based on the
Internal Revenue Code provision that imposes a 30% tax on trusts that fail
to distribute at least 5% of their assets in a given year. See Orphans’ Ct.
Op. at 2 (citing 26 U.S.C. § 4942). The court concluded there was no reason
to exceed the 5% figure. N.T., 12/2/16, at 24. It said that in light of the
time constraints imposed by the late date of PNC’s petition, “the court
determined that a prudent decision would require distributions in order to
not dissipate trust assets on non-trust intentions.” Orphans’ Ct. Op. at 2.
Although the Orphans’ Court did not expressly state that it found the
Trust ambiguous with regard to the amount of annual distributions, the court
appears to have implicitly made that finding. The parties also appear to
have implicitly recognized this ambiguity in the Trust. As we previously
suggested, we agree with this conclusion. The Trust Agreement states, “The
Trustees shall from year to year determine what amounts of both income
and principal of the trust fund shall be distributed to charitable institutions or
for charitable purposes, and it is understood that there is to be no limitation
placed on the discretion of the Trustees with respect to the amount of
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principal or income paid at any one time or to any one charity.” Trust § 6.
The Trust document thus states that the amount of total annual
contributions is a matter committed solely to the Trustees’ discretion and
that donation amounts are not subject to any specific limitation. The
document provides no specific guidance to determine how the Trustees are
to “determine what amounts of both income and principal of the trust fund
shall be distributed to charitable institutions.” The court therefore could
consider extrinsic evidence in deciding this question.
The considerations cited by PNC to support the trial court’s decision to
limit donations to 5% of assets are not persuasive. The Orphans’ Court was
entitled to consider the historical giving patterns of the Trust in determining
the amount of distributions for the year 2016, but we see no indication in
the record that the court took judicial notice of those patterns. PNC’s
reliance on Judge Kelly’s May 24, 2007 order and on 20 Pa.C.S. § 8113 to
support the decision are misplaced. We fail to see the relevance of the 2007
order to the current dispute, which does not involve an attempt to terminate
the Trust.14 The Orphans’ Court’s opinion made no mention of Section 8113
(which was enacted more than 50 years after the Trust was established),
and PNC concedes that Section 8113 does not apply to trusts, such as the
____________________________________________
14
While the Orphans’ Court stated in its December 7, 2016 order that it had
considered Judge Kelly’s 2007 order, the court’s Appellate Rule 1925(a)
opinion makes no mention of the 2007 order.
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one at issue in this case, which are already subject to 26 U.S.C. § 4942.
See PNC’s Br. at 31 n.4.
We conclude, however, that the Orphans’ Court did not abuse its
discretion in limiting the 2016 distribution amount to that necessary to avoid
imposition of a tax penalty on the Trust. In this way, the court elected to
dissipate the least amount of Trust assets, preserving them until a more
considered decision could be made without the time pressures imposed by
PNC’s petition. In view of the short timeline, the court acted prudently.
Going forward, it will be necessary for the court to engage in a closer
assessment of the Grantors’ intent on this issue. We note, for example, that
PNC approaches this question from the viewpoint that contributions should
be minimized so that the Trust’s assets may be preserved and the Trust may
have as long a life as possible. The Trust Agreement, however, calls this
premise into question, as it contemplates that contributions will eventually
deplete the Trust. See Trust Agreement ¶ 7 (“This charitable trust shall
continue until the expiration of three years after the date when its assets
have been entirely depleted”). Although Judge Kelly’s May 24, 2007 order
stated that this provision did not support the request for termination of the
Trust that was before him, he did not state that the Trust’s annual charitable
donations must always be limited to preserve the Trust corpus and prevent
the Trust’s expiration. A factual record will be needed to explore the
Grantors’ intent regarding this question.
Selection of Donees
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(Issues VI, VII, VIII, XI)
Individual Trustees also contend that the Orphans’ Court erred by
selecting PNC’s list of proposed donees without attempting to discern the
Grantors’ intent. In the alternative, Individual Trustees argue that the
Orphans’ Court erred by not choosing their proposed donees, who had all
previously received donations from the Trust. Individual Trustees’ Br. at 51-
54.
More broadly, Individual Trustees accuse PNC of attempting to take
over the Trust so that it can impose its own donee selection criteria in place
of those preferred by the Grantors. Individual Trustees’ Br. at 18-21. They
emphasize that throughout the Trust’s history (including during the Grantors’
lifetimes), donee selection was handled by the Trust’s individual trustees,
and that the corporate trustee played only a supporting role. They argue
that this was the process favored by the Grantors, as it kept the Trust’s
charitable program within the control of family members of the Grantors who
would assure compliance with the Grantors’ preferences for giving.
Therefore, they suggest, even if Individual Trustees no longer have exclusive
control over this process, their preferences should accorded deference by
PNC and by the Orphans’ Court in this action.
PNC responds that the Orphans’ Court correctly chose its list, which, it
says, was consistent with the Grantors’ intent, as demonstrated by “the
traditional gift giving patterns of the Charitable Trust during the lifetimes of
the Grantors.” PNC’s Br. at 37-38. PNC also suggests that its proposed
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donees had a greater need for funds than Individual Trustees’ proposed
donees. Id. at 38-39.
The Orphans’ Court explained that it chose PNC’s list “solely because
of the lack of time needed for all possible options to be fully vetted.”
Orphans’ Ct. Op. at 2. In effect, then, the court simply picked one list rather
than the other because it had insufficient time to give considered judgment
to the question of which charities should be selected. While we agree that
the timing of PNC’s petition left the Orphans’ Court with little time to resolve
it, we conclude that the court abused its discretion by making a decision that
was not based on any evidence. See In re Paxson Tr. I, 893 A.2d at 112-
13. We also conclude that the court abused its discretion by accepting PNC’s
invitation to choose either its list or that proffered by Individual Trustees;
the court was required to exercise judgment to determine appropriate
recipients of the Trust’s gifts, and it should not have allowed its selection to
be constrained by the parties’ submission of exclusive slates.
The Grantors’ intent with regard to beneficiaries cannot be ascertained
based on the Trust Agreement alone. That document merely states, “The
Trustees shall distribute the income of the trust fund among such public
charities created for religious, educational or other charitable purposes as
they in their sole discretion may deem proper.” Trust § 6. It does not
mention any specific charity, geographic location, or ideology. Because the
Trust is silent with respect to these more specific issues, the Orphans’ Court
was required to consider extrinsic evidence of the Grantors’ intent to
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determine whether additional criteria should be applied to the donee
selection process. See In re Beisgen’s Estate, 128 A.2d 52, 55 (Pa.
1956); accord Stuart, 369 N.E.2d at 1266. The court abused its discretion
in failing to do so.
In considering extrinsic evidence, we believe the history of the Trust’s
giving is relevant. See PNC’s Br. at 37 (“the 44-year gift-giving history of
the Charitable Trust during the period that the Grantors had input into the
distributions of the Trust . . . represents the best evidence of the Grantors’
actual intentions”). In this connection, the giving pattern of the first
individual trustee, W.R. Jackson, is important. Although PNC is correct that
W.R. Jackson’s preferences “are not controlling,” id., they do reflect the
Trust’s charitable giving pattern during the Grantors’ lives. In addition, it
would be logical to assume that by picking W.R. Jackson, the Grantors’
brother and brother-in-law, the Grantors selected someone whose giving
philosophy was known to them and with which they agreed. A factual record
might prove otherwise, but in the absence of such contrary evidence, it
would seem that the charitable preferences of W.R. Jackson are entitled to
weight in determining the Grantors’ intent. We note that the Trust
Agreement states that the charitable decisions of the trustees would control
even if the Grantors expressed a preference to donate to a different charity,
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which shows that the Grantors placed significant confidence in W.R.
Jackson’s judgment.15
The extrinsic evidence also should shed light on whether, as Individual
Trustees contend, greater deference should be paid to the charitable
preferences of Individual Trustees than to that of the corporate trustee. We
have held that Individual Trustees and PNC share equal power in making
charitable decisions, but that does not mean that the Grantors’ intent was
not to accord greater deference to Individual Trustees’ charitable
preferences. As noted, the original individual trustee was W.R. Jackson, in
whom the Grantors apparently placed confidence. Individual Trustees claim
that the original corporate trustee, Commonwealth Trust Company, played
no role in selecting charities. If true, that may mean that the Grantors
intended to defer to Individual Trustees on this issue.
This question is complicated by the parties’ surprising disagreement
about the Trust’s history. PNC says that Individual Trustees were not
intended to be Jackson family members, but merely Pittsburgh-Des Moines
Company executives, and it objects to Individual Trustees’ emphasis on their
link to the Jackson family as a reason to pay deference to their preferences.
Individual Trustees claim that the Trust Agreement’s original provisions for
____________________________________________
15
See Trust Agreement ¶ 6 (“The Grantors may from time to time suggest
to the Trustees specific charitable institutions or charitable causes to which
they would like contributions made by the Trustees but the Trustees are in
no manner obligated to follow the requests of the Grantors but, on the
contrary, may distribute the income and principal of the trust fund for such
charitable purposes as they in their sole discretion may determine”).
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selection of trustees referenced Pittsburgh-Des Moines officers only because
the Jackson family had a controlling interest in that company and a selection
from its officers would necessarily be a selection of a Jackson family
member. Their emphasis on family ties is supported by the fact that the
1998 and 2005 amendments to the trustee provision (which were made
after Pittsburgh-Des Moines went out of business) specifically required
individual trustees to be Jackson family members. A factual record is
needed to resolve these questions.
As was the case with respect to the amount of annual giving, we
consider PNC’s reliance on Judge Kelly’s May 24, 2007 order in relation to
this issue misplaced. Nothing in that order discusses selection of
appropriate charitable recipients. PNC must present evidence of how that
order helps to prove the Grantors’ intent in order for the order to be
relevant.
With respect to specific criteria for selection of donees, the parties
agree that all recipients of the Trust’s gifts must be legitimate charities. See
20 Pa. C.S. § 7735(a); Trust Agreement ¶ 4.16 We find no support in the
____________________________________________
16
We do not understand PNC to argue that any of the organizations
currently on the list of gift recipients proposed by Individual Trustees fails to
qualify as a charity under Internal Revenue Service rules for determining
charitable status. It appears that some organizations on a prior list
submitted by Individual Trustees did not qualify, but Individual Trustees
explain that they relied on PNC to inform them of any qualification issues
and that they removed any non-qualifying recipients from their list upon
receiving such information. Individual Trustees’ Br. at 13; Answer and New
Matter at 30-33.
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Trust Agreement for PNC’s preference for charities that provide “a direct
service to the poor, the underprivileged or the needy,” PNC’s Br. at 38, as
opposed to Individual Trustees’ preference for organizations that “promoted
the U.S. Constitution, free market principles, personal freedom and personal
rights,” Individual Trustees’ Br. at 17. The Trust Agreement references only
“public charities created for religious, educational or other charitable
purposes.” Trust Agreement ¶ 6. Any further restrictions regarding types of
charitable service must be discerned from the factual record regarding the
Grantors’ intent. We reject PNC’s suggestion, PNC’s Br. at 38 n.6, that the
Trust’s charitable recipients should be limited to those qualifying under the
Institutions of Purely Public Charity Act, 10 P.S. §§ 375, a 1997 enactment
relating to exemptions from state and local taxation. That statute can have
no bearing on the intent of the Grantors when they established their trust in
1950.
We also find no support in the Trust Agreement for PNC’s disapproval
of organizations that advocate in favor of selected public causes (what PNC
calls “political advocacy groups,” see PNC’s Br. at 38-39), so long as the
organizations’ advocacy does not disqualify them from charitable status. 17
____________________________________________
17
This litigation arose as a result of the requirement under federal tax law
that the Trust make annual charitable distributions of 5% of its assets.
Qualification of the Trust’s beneficiaries as charities under the Internal
Revenue Code therefore is essential. That Code states that “no substantial
part” of the activities of a charity may consist of “carrying on propaganda, or
otherwise attempting, to influence legislation” or “participat[ing] in . . . any
political campaign on behalf of (or in opposition to) any candidate for public
(Footnote Continued Next Page)
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The parties dispute whether such organizations were intended by the
Grantors to be recipients of Trust funds, and the historical giving record on
that issue therefore may be revealing.
Similarly, we see nothing in the Trust Agreement that supports PNC’s
preference that donations be made to charities in Western Pennsylvania.
PNC says that this preference mirrors the Trust’s giving record during the
Grantors’ lifetimes. Individual Trustees point out that the Grantors moved
out of Western Pennsylvania in 1958 and claim the Grantors did not make
substantial gifts to Western Pennsylvania charities after that. Resolution of
this question, like the others, requires consideration of the Grantors’ intent
as reflected in the Trust’s scheme of distribution and history of giving.
Finally, we agree with PNC that Paragraph 6 of the Trust Agreement
requires the trustees to exercise their discretion in selecting gift recipients
anew each year, and does not bind the trustees to contribute to the same
organizations year after year. See PNC’s Br. at 40-41. The Trust’s historical
giving record is relevant insofar as it sheds light on the Grantors’ intent
_______________________
(Footnote Continued)
office.” 26 U.S.C. § 501(c)(3). This prohibition bars charities from lobbying
or participating in political campaigns, but “permits them to receive tax-
deductible donations and to engage in limited, issue-based political
advocacy.” United States v. NorCal Tea Party Patriots (In re United
States), 817 F.3d 953, 954 (6th Cir. 2016). See generally 26 C.F.R. §
1.501(c)(3)-1; IRS Rev. Rul. 2007-41, 2007-25 I.R.B. 1421, 2007-1 C.B.
1421 (“Section 501(c)(3) organizations may take positions on public policy
issues, including issues that divide candidates in an election for public
office,” but “must avoid any issue advocacy that functions as political
campaign intervention”). Individual Trustees contend that all of their
proposed beneficiaries meet these requirements, and we do not understand
PNC to dispute that contention.
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regarding charitable contributions, and the trustees must be guided by that
intent. But ultimately, selection of gift recipients must be done jointly by the
Trust’s three trustees in a good faith exercise of their discretion under the
Trust. We emphasize once again that the Trust Agreement requires the
Trust’s three trustees to work together to perform that task. Requests that
the Orphans’ Court break deadlocks on these issues should be extraordinary.
When, as here, such a request is made, the Orphans’ Court must exercise its
independent judgment, guided by the same criteria as those that bind the
trustees.
Disposition
We affirm that part of the Orphans’ Court’s order that required
distribution of 5% of the Trust’s assets in 2016 and vacate the part of the
order that adopted PNC’s list of donees. We remand for further proceedings
to determine the Grantors’ intent with regard to distribution of the Trust’s
funds. The court shall permit expedited discovery.
We also leave it to the Orphans’ Court in the first instance to
determine as a matter of equity what, if anything, should be done regarding
the 2016 distributions that were made by the Trust pursuant to that court’s
December 7, 2016 order, which selected charitable recipients from PNC’s
preferred list. Recipients of those distributions are likely to have relied on
those funds, and it may be unrealistic and inequitable to consider any
repayment obligation if the Orphans’ Court ultimately decides that gifts
should have been awarded to different recipients. It also may no longer be
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practical to make additional 2016 contributions to additional charities from
Individual Trustees’ preferred list. The Orphans’ Court should work with the
parties to craft any additional remedy.
Order affirmed in part and vacated in part. Case remanded for further
proceedings consistent with this opinion. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/7/2017
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