Hallowell, S. v. Hallowell, W. ( 2023 )

J-A16042-23
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT OP 65.37
SUZANNE HALLOWELL, AMBER : IN THE SUPERIOR COURT OF
HALLOWELL, AND SEAN HALLOWELL : PENNSYLVANIA
:
:
v. :
:
:
WAYNE HALLOWELL :
: No. 1157 MDA 2022
Appellant :
Appeal from the Decree Entered July 18, 2022
In the Court of Common Pleas of Berks County Orphans’ Court at No(s):
87791
BEFORE: PANELLA, P.J., BENDER, P.J.E., and McCAFFERY, J.
MEMORANDUM BY McCAFFERY, J.: FILED: AUGUST 15, 2023
Wayne Hallowell (Appellant) appeals from the decree entered in the
Berks County Court of Common Pleas Orphans’ Court, which, upon petition by
trust beneficiaries Suzanne Hallowell, Amber Hallowell, and Sean Hallowell
(collectively Appellees),1 removed Appellant as trustee of the Erwin W. Burk
Family Revocable Trust and the Erwin W. Burk Revocable Trust (collectively
the Trusts), determined that both Amber and Sean were entitled to further
distributions, and imposed a surcharge for Appellees’ attorney fees. On
appeal, he contends the orphans’ court abused its discretion when: (1) it
relied on a preliminary draft accounting, rather than the final accounting, in
making factual findings; (2) it determined that beneficiary Amber was entitled
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1Appellee Suzanne Hallowell is Appellant’s estranged wife, and Amber and
Sean are their adult children.
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to further distributions from the Trust; (3) it determined that beneficiary Sean
was entitled to further distributions from the Trust; and (4) it applied a
surcharge for Appellees’ legal fees. For the reasons below, we affirm in part
and reverse in part.
This appeal involves the administration of two trusts created by grantor,
Erwin W. Burk (Grantor).2 The first trust ─ the Erwin W. Burk Family
Revocable Trust ─ was executed in July of 1994 (the 1994 Trust). Grantor’s
wife, Ada Z. Burk, was listed as the second grantor. The second trust ─ the
Erwin W. Burk Revocable Trust ─ was executed in July of 2001 (the 2001
Trust). Both Grantor and his wife are now deceased.3 Appellant is the
nephew, by marriage, of Grantor. See N.T. at 122. At some point before his
death, Grantor adopted Appellant so he “could give [him] gifts and stuff for
taxes.” Id.
Both the 1994 Trust and the 2001 Trust list Grantor, Appellant, and
attorney Phelps T. Riley as trustees. Attorney Riley was later removed as a
co-trustee and disbarred. See N.T. at 123. Appellant then “brought in” his
accountant, Bill Maslo, as a co-trustee, until 2014. Id. From June 9, 2014,
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2 Both the parties and the trial court treat the Trusts as one entity. As the
court noted in its decree, Appellant “has completely commingled funds from
the two separate trusts [for years,] provided a single accounting for both, and
stipulated through counsel that the relevant provisions of the two trust
documents are the same.” Decree, 7/18/21, at 1.
3 Grantor passed away “somewhere around” 2001 or 2002. N.T., 6/15/22, at
123.
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to present, Appellant has been the sole trustee of both Trusts. See id.;
Decree, 7/18/22, at 1. It is undisputed that after Appellant became sole
Trustee, he commingled the funds of both Trusts in one account. N.T. at 29-
30.
The distribution provisions of the Trusts are separated into seven Trust
Periods. All parties agree that the Trusts are currently in Trust Period No. 4.4
See Orphans’ Ct. Op., 10/26/22, at 2. The Trusts contain the following
relevant provisions:
11.13 Trust Period No. 4. The Trustee shall hold and
administer in trust during Trust Period No. 4 the Trust Property
set aside for [Appellant] pursuant to section 11.11 as follows:
(a) Income: Descendants. The Trustee each year shall pay
to or use for the benefit of [Appellant, Appellant’s] Spouse, [and
Appellant’s] Descendants . . . in equal or unequal proportions, and
in monthly or other convenient installments, so much of the Net
Trust Income as the Trustee in the Trustee’s sole discretion
determines to be necessary for their reasonable support,
maintenance, health and education.
* * *
(d) Principal : Descendants, Spouses. The Trustee in the
Trustee’s sole discretion shall pay to or use for the benefit of
[Appellant], [Appellant’s] Spouse, [and Appellant’s] Descendants
. . . at any time and from time to time so much of the Trust
Principal as the Trustee determines to be necessary for their
reasonable support, maintenance, health and education.
(e) Principal: Descendants: The Trustee in the Trustee’s
sole discretion shall pay to or use for the benefit of [Appellant]
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4 Trust Period No. 3 ended when Appellant’s mother, Helen Z. Hallowell,
passed away. See N.T. at 22; Exhibit P-2, 2001 Trust (2001 Trust), at § 1.1;
Exhibit P-3, 1994 Trust (1994 Trust), at § 1.1. The record does indicate when
Appellant’s mother died.
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and [Appellant’s] Descendants at any time and from time to time
so much of the Trust Principal as the Trustee determines to be
necessary, and in their best interests, to enable them to marry, to
enter into a trade or business, to purchase a home or for similar
purposes.
* * *
11.25 Trustee Discretion. (a) The Trustee, in making any
decisions pursuant to this section 11 to pay Net Trust Income
and/or Trust Principal to any Beneficiary, shall consider:
(1) the priorities and qualifications set forth in
section 13.1, et seq.,
(2) the income and principal from all sources known
to the Trustee of the Beneficiary and the Beneficiary’s Spouse,
(3) the income and principal from all sources known
to the Trustee of the Family Members who have a legal obligation
to support the Beneficiary,
(4) the desirability of augmenting the separate
estates of the Beneficiary and the Beneficiary’s Spouse,
(5) the Federal and state income tax consequences to
the beneficiary of any proposed distribution,
(6) all other circumstances and factors which the
Trustee considers pertinent.
(b) The Trustee’s decisions to make those discretionary
payments, and the Trustee’s making of those discretionary
payments, shall be absolutely binding upon all Beneficiaries and
shall not be subject to judicial review, and the Trustee shall be
fully released and discharged from all further accountability and
liability for those determinations and payments.
* * *
13.5 Trust Period No. 4. (a) The Grantor’s first priority
during Trust Period No. 4 is that each Descendant of
[Appellant]:
(1) receive the finest possible undergraduate
and graduate educations on a full-time basis at all times on
or before his or her 25th birthday, and
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(2) be supported according to his or her reasonable
needs at all times while enrolled in undergraduate or graduate
programs on a full-time basis,
to the extent, and only to the extent that his or her Parents are
unable to satisfy the Grantor’s desires from the Parent’s assets
and income.
(b) The Grantor’s second priority during Trust Period No. 4
is that [Appellant, Appellant’s] Spouse, and each Descendant of
[Appellant] . . . in order of generation, be supported according to
that person’s reasonable needs.
* * *
14.4 Discretionary Powers. (a) the Grantor has granted to
the Trustee in sections 5 and 11 the power to make discretionary
distributions of the net Trust Income and/or Trust Principal to
certain Family Members.
(b) If any Trustee determines at any time to make any such
distribution to the Trustee, in the Trustee’s capacity as a permitted
Beneficiary, or to any Parent, Spouse or Descendent of the
Trustee, the Trustee may not make the distribution, unless
another Trustee who is not a Parent, Spouse or Descendant
of that Trustee authorizes the proposed distribution by that
Trustee.
* * *
16.4 Accounting: Quarterly. Each quarter after Grantor . .
. ceases to be a Trustee, the Trustee shall furnish quarterly to
each person then entitled to receive Net Trust Income a statement
showing:
(a) the Trust’s receipts and disbursements during the
preceding quarter,
(b) each asset of the Trust . . ., and
(c) each liability of the Trust.
16.5 Accounting: Annual. Each year after Grantor . . .
ceases to be a Trustee, the Trustee shall furnish to each person
then entitled to receive Net Trust Income a statement showing the
Trust Property then held by the Trustee and the Trust’s receipts
and disbursements during the preceding annual period.
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1994 Trust at §§ 11.13(a), (d), (e), 11.25(a)-(b), 13.5(a)-(b), 14.4(a)-(b),
16.4(a)-(c), 16.5 (emphases added). See also 2001 Trust.5
While Appellant and Suzanne were married and living together, all
distributions from the Trusts were deposited into a joint checking account of
which Suzanne had access, and from which the parties’ bills were paid. See
N.T. at 31, 177-78. After Suzanne filed for divorce in 2019, Appellant
commingled the Trust funds with his personal funds in an escrow account held
by his attorney, Ken Picardi. See id. at 85, 136.
On July 8, 2021, Appellees filed a petition seeking removal of Appellant
as Trustee. They averred Appellant: (1) failed to provide a required quarterly
accounting of the Trusts; (2) failed to provide Appellees with a copy of the
Trust documents; (3) made distributions to himself and Appellees without the
required third-party authorization; (4) refused to pay for Amber’s dental
school expense and “intentionally misled” her to believe he had no obligation
to do so; and (5) “denied disbursements” to Sean for his “care and
treatment[.]” Appellees’ Petition for Removal of Trustee & Other Relief,
7/8/21, at 2-4. Appellees requested that the orphans’ court, inter alia, remove
Appellant as trustee, require him to provide a full accounting of the Trusts,
surcharge him for “all monies he took from the Trusts;” and “pay [Appellees’]
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5 While some of the language in the 2001 Trust differs from that in the 1994
Trust, it is substantially the same for the purposes of the issues in this appeal.
Therefore, for ease of disposition, we will refer only to the language in the
1994 Trust.
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reasonable attorney’s fees[.]” Id. at 5. Appellant filed an answer with new
matter on August 16, 2021, asserting that Appellees “have each enjoyed
significant benefits in the form to distributions from the Trusts during [his]
tenure . . . as Trustee[,]” and only object presently due to his “impending
divorce[.]” Appellant’s Answer & New Matter to Petition for Removal of
Trustee & Other Relief, 8/16/21, at 3-4. On August 30th, Appellees filed a
motion to compel a full complete accounting of the Trusts.
On October 19, 2021, the orphans’ court entered a decree prohibiting
Appellant from “disburs[ing], distribut[ing], or otherwise spend[ing] any
funds” in the Trusts or held by Appellant’s agents that have been distributed
from the Trusts, until further notice. Decree, 10/19/21, at 1. The court also
directed Appellant to provide a “full accounting of the Trusts” by November
2nd, and scheduled a hearing on the matter for December 16th. Id. at 1-2.
Appellant subsequently provided Appellees with a partial account for the
period from May 9, 2014, through October 15, 2021, which showed a balance
of $151,955.73 in the Trusts. See Exhibit P-4, Second & Partial Account,
1/15/21 (Preliminary Accounting), at 2.
After several continuances resulting from Appellant’s attempt to obtain
discovery from Appellees, the orphans’ court conducted a status conference
on April 27, 2022. That same day, it entered an order directing Appellant to
file an accounting with “relevant supporting documentation . . . for the period
during which he served as sole trustee, beginning May 7, 2014 to present[,]”
and rescheduled the hearing on Appellees’ petition for June 15, 2022. Order,
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4/27/22. On May 27, 2022, Appellant filed an interim account, which showed
a beginning balance of $802,381.76, and an ending balance of $63,352.22 in
the Trusts. See Interim Account, 5/27/22 (Second Accounting), at 2.
The orphans’ court conducted a hearing on June 15, 2022. Appellees
first called Appellant as on cross. Appellant acknowledged that he “considered
[himself] the main beneficiary” of the Trusts based on his conversations with
the Grantor. N.T. at 25. Nevertheless, he explained that before Suzanne filed
for divorce, all the distributions from the Trusts were deposited into their joint
bank account.6 Id. at 31-32. Appellant testified that he used trust funds to
pay for Amber’s undergraduate education, which included one year at Penn
State University and three years at Cornell University. See id. at 48. He also
paid for her teaching degree at Reading Area Community College, as well as
some of her expenses at Arcadia University when “she wanted to become a
physician assistant.” Id. Appellant admitted, however, that he refused her
request to pay for dental school. He explained:
[T]hen she changed her mind again, and I believe she was around
24, 25, and . . . in my opinion she was becoming a professional
student. She was just going to college having a good time. And
I said you got a teaching degree, you have an ag[riculture]
degree, now you want to become a dentist. You can go out and
work for a couple years and earn your own money. We helped
her out. It’s not like we didn’t give her an education. We shuffled
a lot of money into her, exact amount, I don’t know. Plus, at the
same time we were paying the health care, we bought her a car.
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6 The parties owned and operated a family farm, which was subsidized by
distributions from the Trusts for years, before they sold the farm sometime
prior to this litigation. See N.T. at 37-40, 42-44, 130, 174-75.
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Id. at 48. With regard to Sean, Appellant testified that trust distributions paid
for his college education, and while he was in college, he and Suzanne “always
took care of [Sean’s] health care and dental, stuff like that.” Id. at 132-33.
Appellant conceded, however, that after Suzanne filed for divorce, he
used trust distributions for his sole benefit ─ specifically, to pay for his health
care and attorneys. See N.T. at 33, 38-39. He explained that he had “always
helped” his children, but that after he and Suzanne separated, “[a]s trustee
[he] thought they got enough[.]” Id. at 37. Appellant acknowledged that
when he became sole trustee, the balance in the Trusts was $802,381.76, and
that there is currently “a little over $63,000” remaining in the Trusts. Id. at
73-74. He further noted that the escrow account held by his attorney includes
his personal funds from the sale of the family farm, commingled with the funds
from both the 1994 and 2001 Trusts. Id. at 86-87, 103-04, 108. Appellant
testified that the payments for his personal expenses should have come from
his own money ─ however, he did not know how much of his personal funds
were commingled with the Trust funds. See id. at 100, 108, 148.
With regard to his responsibilities as trustee, Appellant admitted he: (1)
commingled the funds in both trusts into one account, and then commingled
trust funds with his personal funds; (2) refused Amber’s request to pay for
dental school before she turned 25 years old; (3) failed to distribute any trust
funds to Appellees since he and Suzanne began divorce proceedings; (4) made
distributions to himself without the approval of a third-party trustee in
violation of Section 14.4; (5) made distributions to himself after the orphans’
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court’s October 2021 order prohibiting him from doing so; (6) failed to provide
quarterly or annual accountings of the Trusts to Appellees pursuant to
Sections 16.4 and 16.5;7 and (7) never provided Appellees with a copy of the
Trust documents. See N.T. at 29, 47-48, 53, 55, 60-61, 63-64, 83-85, 103-
04, 116, 120.
Amber, who was 36 years old at the time of the hearing, testified that
she had not seen the Trust agreements before she was 25 years old, and was
unaware of the provision providing for her education. See N.T. at 156, 200.
While she was an undergraduate student at Cornell, she asked Appellant if she
“should try to expediate [her] schooling” to finish a semester or two early
because it was a “very expensive school[.]” Id. at 153. She claimed
Appellant told her there was “plenty of money” in the Trusts to pay for her
and Sean’s education. Id. However, when she discussed the possibility of
attending dental school during her senior year at Cornell, Amber testified that
Appellant told her she “got enough money and it was his money, he could do
what he wanted.” Id. at 154, 156-57. Amber stated she waited until she was
28 to begin dental school so that she could save money for tuition. Id. at
154-55, 157. She further claimed that if she had been aware of the Trust
provision providing for her education expenses until the age of 25, she “would
have finished [undergraduate] school early” so that she could have completed
____________________________________________
7 In fact, Appellant acknowledged the first full accounting he provided since
he was sole Trustee was in May of 2022. N.T. at 61.
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dental school before her 25th birthday. See id. at 156. Amber provided the
court with a breakdown of the educational expenses she incurred which totaled
$312,634.97. See id. at 150-53; see also P-5, Amber’s Expenses for Dental
School.
Suzanne testified that she was not seeking any additional funds from
the Trusts via a surcharge. See N.T. at 172-73. She confirmed Amber’s
testimony that Amber told Appellant she wanted to go to dental school while
still pursuing her undergraduate degree at Cornell, and that Appellant “said
no, you’ve gotten enough.” Id. at 175. Suzanne further stated that she did
not see a copy of the Trust agreements before 2019. Id. at 179.
Sean testified that while he was aware of the Trusts growing up, he was
“never provided any sort of specifics[.]” N.T. at 183-84. He knew there was
money for college, and he “went to college for a year or two” ─ he
acknowledged that Appellant provided money for his college expenses. Id. at
184. At the time of the hearing, Sean was 39 years old and unemployed. Id.
at 181-82. He stated he worked on the family’s farm for a while, but since it
was sold he has been “trying to work a part-time job[.]” Id. at 184-85. Sean
testified he was diagnosed with depression that has made it difficult for him
“to hold . . . full-time employment[.]” Id. at 185. Sean stated that Appellant
has not inquired about his “financial needs[.]” Id. at 180.
At the conclusion of the hearing, Appellant’s counsel asserted that while
Appellant disputed the allegations of Appellees and any request for a
surcharge, he no longer wanted to serve as Trustee of either of the Trusts.
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See id. at 204, 234. The court commented that there was “no question
[Appellant] should be removed from trustee[,]” but requested the parties file
briefs concerning the surcharge issue. See id. at 234.
Both Appellant and Appellees submitted post-trial briefs. On July 18,
2022, the orphans’ court entered a final decree. The decree outlined the
court’s factual findings, and directed as follows:
1. [Appellant] is prohibited from any further actions as Trustee of
the Trust[s] except to accomplish the directives of this Decree.
2. A surcharge against [Appellant] for legal fees and costs is
awarded in the amount of $42,790.39 and same shall be paid
by [Appellant] to [Appellees’ counsel] within ten days of the
date of this Decree.
3. A surcharge against [Appellant] for Trust funds that should
have been distributed to Trust Beneficiary, Amber Hallowell for
education expenses is awarded in the amount of $312,634.97
and the same shall be paid by [Appellant] to Amber Hallowell .
. . within thirty days of the date of this Decree.
4. A surcharge against [Appellant] for Trust funds that should
have been distributed to Trust Beneficiary, Sean Hallowell is
awarded in the amount of $312,000 and the same shall be paid
by [Appellant] to Sean Hallowell . . . within thirty days of the
date of this Decree.
5. If for any reason [Appellant] fails to comply with the foregoing
paragraphs . . . [Appellant] shall:
a. Immediately transfer the full amount of the Trust
[Principal] Balance on Hand as set forth in [P-4] of
$151,955.73 to [Appellees,] care of their counsel, to be
used in the following priority:
i. Payment of [Appellees’] counsel in full and for
any further legal expense in this matter;
ii. Payment to Amber Hallowell as set forth in the
foregoing paragraph 3;
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iii. Payment to Sean Hallowell as set forth in the
foregoing paragraph 4; and
iv. Any remainder to be held under the terms of the
Trust.
b. Be deemed to have been removed as Trustee with
[Appellees] substituted as Trustee.
Decree, 7/18/22, at 4-5.
This timely appeal followed. Appellant later complied with the orphans’
court’s directive to file a Pa.R.A.P. 1925(b) concise statement of errors
complained of on appeal, and the orphans’ court filed a responsive opinion on
October 26, 2022.
Appellant presents four issues for our review:
A. Did the [orphans’] court abuse its discretion through its
decision to rely solely on the preliminary draft accounting and
its factual finding that all distributions from the Trusts from
June 9, 2014 to the present were made, at least partially, for
[Appellant’s] benefit as the basis for issuing the surcharges
against [him]?
B. Did the [orphans’] court abuse its discretion in holding that the
Trusts required further distributions to Amber Hallowell?
C. Did the [orphans’] court abuse its discretion in holding that the
Trusts required further distributions to Sean Hallowell?
D. Did the [orphans’] court abuse its discretion in applying a
surcharge against [Appellant] for [Appellees’] legal fees and
costs in the amount of $42,790.39?
Appellant’s Brief at 5 (some capitalization omitted).8
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8 In his Pa.R.A.P. 1925(b) statement, Appellant also challenged the orphans’
court’s determination that he breached his fiduciary duties as Trustee. See
Appellant’s Statement of Errors Complained of on Appellant Pursuant to Rule
1925(b), 9/14/22, at 1. He has not, however, raised that claim in his brief
before this Court. Thus, it is abandoned on appeal.
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Our review of a ruling of the orphans’ court is deferential. In re
Scheidmantel, 868 A.2d 464, 478 (Pa. Super. 2005).
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 [o]rphans’
[c]ourt’s findings, our task is to ensure that the record is free from
legal error and to determine if the [o]rphans’ [c]ourt’s findings are
supported by competent and adequate evidence and are not
predicated upon capricious disbelief of competent and credible
evidence.
Id. at 478-79 (citation omitted). Indeed, we are not bound by factual findings
“if there has been an abuse of discretion, a capricious disregard of evidence,
or a lack of evidentiary support on the record.” Id. at 479 (citation omitted).
In his first issue, Appellant argues the trial court abused its discretion
when it relied solely on the October 2021 Preliminary Accounting, rather than
the May 2022 Second Accounting, to support its factual finding that all of the
Trust distributions since 2014 were made, at least partially, for Appellant’s
benefit. See Appellant’s Brief at 21. He further complains that this finding
was the basis of the court’s decision to impose the surcharges. See id.Appellant insists the Preliminary Accounting was “incomplete and preliminary”
and that Appellees were aware he was attempting to obtain records from them
in order to prepare a more complete accounting. Id. at 22. Appellant
maintains that he objected to the entry of the Preliminary Accounting at trial
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─ asserting it was “superseded” by the Second Accounting ─ but the orphans’
court overruled his objection. Id.
Appellant further argues that the primary discrepancy in the Preliminary
and Second Accountings is the manner in which the funds deposited in the
attorney escrow account were recorded. See Appellant’s Brief at 23. He
insists that the Second Accounting “clearly differentiates between distributions
from the Trusts and [Appellant’s] personal funds.” Id. Thus, Appellant
contends that many of the orphans’ court’s factual findings ─ which conclude
that Appellant used Trust funds for his sole benefit ─ are not supported by the
record. See id. at 24-28.
The orphans’ court rejected this argument as follows:
[Appellant] contends that [the orphans’] court erred in
declining to strike the inaccurate, preliminary accounting from the
record, refusing to permit [Appellant] to explain the updated,
more accurate accounting, and apparently relied on the
preliminary accounting in making findings. This issue is without
merit.
[The orphans’] court noted the discrepancy between the two
accountings, which showed [Appellant] does not understand his
duties to provide accurate accounting and the difficulties
encountered when funds are commingled. It is just one of the
reasons for the removal of [Appellant as] Trustee, to which [he]
agreed on the record to be removed. [Appellant’s] counsel could
have addressed the discrepancies between the two accountings in
her examination of [Appellant. The orphans’] court ruled only that
[Appellees’] counsel could question [Appellant] about the earlier
accounting.
Orphans’ Ct. Op. at 11.
Our review reveals no abuse of discretion by the orphans’ court.
Appellant takes particular umbrage with the court’s factual finding that “[a]ll
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distributions from the Trust[s] from June 9, 2014, to present were made, at
least partially, for [Appellant’s] benefit.” See Decree, 7/18/22, at 2;
Appellant’s Brief at 21, 26. He emphasizes that Trust disbursements paid for
both Amber and Sean’s education expenses, which did not benefit him at all,
and most of the disbursements were deposited into his joint checking account
with Suzanne to benefit the “farming operations[,]” of which he likewise claims
he received no benefit. Appellant’s Brief at 27-28. Appellant, however,
ignores two crucial details: (1) the Trust disbursements for Amber’s and
Sean’s education were made prior to June of 2014;9 and (2) the upkeep of
the farm provided a benefit to him. As the orphans’ court explained:
Prior to the divorce, [Appellant] made distributions to keep the
farm afloat and to pay other living expenses. These distributions
benefited him partially because they relieved him of the financial
responsibility to pay the expenses, and he worked on the farm. .
..
Orphans’ Ct. Op. at 11. We note that while Appellant claims “[i]t is
uncontested [he] does not participate in the farming operations and does not
receive any benefit from the same[,]” he provides no record citation for this
bald statement. See Appellant’s Brief at 28. Rather, Appellant referred to
himself as a “farm boy” and testified that he worked on the family farm in
some capacity until 2021. See N.T. at 62, 130. He also received money from
the sale of the farm. See id. at 87, 100. Thus, the orphans’ court’s
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9 At the time of the June 2021 hearing, Amber was 36 years old and Sean was
39 years old. Thus, Amber would have turned 25 in 2010, and Sean in 2007.
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determination that Appellant benefitted, at least partially, from all trust
disbursements while he was the sole trustee is supported by the record.
Moreover, our review of the record reveals the orphans’ court did not
rely solely on the Preliminary Accounting for its factual findings. Appellant
claims the Second Accounting demonstrates that the personal bills ─ including
legal bills ─ he paid from the attorney escrow account after Suzanne filed for
divorce, were paid with commingled personal funds as opposed to Trust
disbursements. See Appellant’s Brief at 25-26. However, despite the fact
that Appellant’s counsel argued to the court that the Second Accounting
clearly designated Trust funds from personal funds,10 Appellant provided no
testimony as to this distinction. In fact, when asked “how much of [his]
personal funds is in the trust account right now[,]” he replied: “I don’t know.
I have to ask Ken Picardi [ ] that. He’s handling that.” N.T. at 108. Appellant
later acknowledged that he did not know if the funds described in the Second
Accounting were Trust funds or personal funds. Id. at 148. Moreover,
although Attorney Picardi may have been able to clear up any confusion,
Appellant did not call him to testify.11 Appellant also candidly admitted he did
not know how much of the Trust funds he had taken for his own benefit since
his separation from Suzanne. Id. at 38. Accordingly, Appellant’s first issue
warrants no relief.
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10 See N.T. at 222-23.
11 Appellant appears to assert that his own Second Accounting is sufficient,
without any accompanying testimony, to support his claim. We disagree.
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Next, Appellant contends the orphans’ court abused its discretion in
directing further Trust distributions to Amber. Appellant’s Brief at 29. He
emphasizes that “the Trusts unambiguously gave [the Trustee, i.e. Appellant,]
discretion . . . regarding whether to make distributions.” Id. at 31. See 1994
Trust at § 11.25(a)-(b). Moreover, the Trusts provide that Trustee’s decisions
regarding discretionary payments are “absolutely binding.” Appellant’s Brief
at 35, citing 1994 Trust at § 11.25(b). Appellant maintains that he paid for
Amber’s undergraduate and post-graduate schooling, but later “used his
discretion to decline paying for . . . dental school because he believed she was
becoming a ‘professional student’ rather than planning to attend school to
further a particular career.” Appellant’s Brief at 35. Although the Trusts
designated education expenses as a priority, Appellant notes that it was but
one factor he was required to consider as Trustee when exercising his
discretion ─ paying for his children’s education was not “a mandatory
direction.” Id. at 38. He further explains that if he had paid more than
$300,000 for Amber’s dental school, he would have been “significantly and
inequitably favoring Amber over any other beneficiary.” Id. at 37. Lastly,
Appellant argues that even if the court properly determined he was required
to pay for Amber’s dental school, there was no finding that his failure to do so
“caused a loss to the Trust[,]” a prerequisite to justify a surcharge. Id. at 38.
Our review is guided by the following:
The settled law in Pennsylvania is that the pole star in every
trust . . . is the settlor’s . . . intent and that intent must prevail.
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The settlor’s intent may be divined by considering the trust
document as a whole. . . .
In re Est. of Warden, 2 A.3d 565, 572 (Pa. Super. 2010) (citations &
quotation marks omitted). Moreover:
The primary duty of a trustee is the preservation of the
assets of the trust and the safety of the trust principal. The
standard of care imposed upon a trustee is that which a man of
ordinary prudence would practice in the care of his own estate.
Surcharge is the remedy when a trustee fails to exercise common
prudence, skill and caution in the performance of its fiduciary
duty, resulting in a want of due care. See In re Miller's Estate,
26 A.2d 320, 321 ([Pa.] 1942) (defining “surcharge” as “the
penalty for failure to exercise common prudence, common skill
and common caution in the performance of the fiduciary’s duty ...
imposed to compensate beneficiaries for loss caused by the
fiduciary’s want of due care”).
Id. at 573 (some citations & quotation marks omitted). However, before
ordering a surcharge, an orphans’ court must find: “(1) that the trustee
breached a fiduciary duty and (2) that the trustee’s breach caused a loss to
the trust.” Id.
The orphans’ court’s use of the term “surcharge” in its decree to describe
the payment due to Amber is a misnomer. While it is clear the court found
Appellant breached his fiduciary duties, Appellant correctly states that there
was no testimony that this breach caused a loss to the trust. See Appellant’s
Brief at 38; In re Est. of Warden, 2 A.3d at 573. Rather, the orphans’ court
determined that Appellant abused his discretion, as Trustee, when he denied
Amber’s request to pay her dental school expenses. The court explained:
[Appellant] never considered the Grantor’s preferences in
exercising his discretion and focused his decision on what he
wanted. [Appellant] admitted this during his testimony. Even
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though his daughter was under the age of twenty-five, he felt that
she had enough of an education and should get employment.
Amber asked for the money while she was an undergraduate
student, and [Appellant] refused. He also had informed her that
at that time there was enough money for both children’s higher
education, so there was no reason to refuse her request. Sean
did not finish college, so even more funds were available for
Amber’s education.
Orphans’ Ct. Op. at 12. Accordingly, the court determined that Amber was
entitled to a distribution from the Trust for her dental school expenses.
Our review reveals no abuse of discretion in the orphans’ court ruling.
Appellant focuses solely on the language in Section 11.25 of the Trusts, which
provides him with the sole discretion to make distributions to the
beneficiaries. See 1994 Trust at § 11.25(a)-(b) (noting the Trustee’s
decisions are “absolutely binding” and “not . . . subject to review”). While he
recognizes that, in exercising his discretion, he must consider the Grantor’s
priority of education as set forth in Section 13.5, he maintains that the priority
is still only one factor he must consider, along with “all other circumstances
and factors which the Trustee considers pertinent.” See 1994 Trust at §
11.25(a)(6). Thus, Appellant concludes that under the terms of the Trusts,
the Trustee “has the broadest possible discretion in making distributions[,]”
and he properly exercised that discretion when he declined to pay for Amber’s
dental school. See Appellant’s Brief at 35.
We note that:
Generally, [courts] will not interfere with the exercise of a
discretionary power by a trustee unless “the trustee in exercising
or failing to exercise the power acts dishonestly, or with an
improper even though not a dishonest motive, or fails to use his
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judgment, or acts beyond the bounds of a reasonable judgment.”
...
In re Est. of Feinstein, 527 A.2d 1034, 1037 (Pa. Super. 1987) (citation
omitted). Here, the orphans’ court found, and we agree, that Appellant failed
to exercise reasonable judgment when he refused to pay for Amber’s dental
school. See Orphans’ Ct. Op. at 12.
The Trust language clearly provides that during Trust Period No. 4, the
Grantor’s “first priority” is to provide “the finest possible undergraduate and
graduate educations” to Appellant’s children “on or before [their] 25th
birthday[.]” 1994 Trust at § 13.5(1) (emphasis added). The only caveat to
the distributions is that the children and their parents (i.e. Appellant and
Suzanne) must be unable to pay for the education from their own “assets and
income.” Id. Appellant makes no claim that, at the time Amber requested
funds for dental school, either she or he and Suzanne had the ability to pay
for the schooling.
Moreover, while we recognize that the education priority set forth in
Section 13.2(1) is only one factor Appellant was required to consider in
exercising his discretion as Trustee, his testimony makes clear that he did not
base his decision to refuse Amber’s request for Trust distributions upon any
of the other factors set forth in Section 11.25. He simply decided Amber “was
becoming a professional student” and was “taking advantage of” the Trusts.
See N.T. at 48-49. However, the language of Section 13.5(a) does not
provide any limitation on the number of degrees or areas of study the
beneficiary may pursue before her 25th birthday ─ it requires only that the
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beneficiary attend undergraduate or graduate school on a full-time basis and
that the beneficiary or her parents are unable to pay the cost themselves.
See 1994 Trust at § 13.5(a)-(b). Here, Amber testified that had she known
of the age limitation in the Trust, she could have completed her schooling by
the age of 25. See N.T. at 155-56. Appellant did not dispute this claim nor
provide any evidence to the contrary. Furthermore, Amber submitted to the
court a thorough breakdown of the expenses she incurred pursuing her
graduate education. Thus, the orphans’ court did not abuse its discretion
when it determined Amber was entitled to Trust distributions in the amount of
$312,634.97.
Appellant’s reliance on the catch-all factor ─ permitting the Trustee to
consider “all other circumstances and factors which the Trustee considers
pertinent” ─ to support his refusal to distribute Trust funds for Amber’s dental
education is misplaced. See Appellant’s Brief at 34-35. Had Appellant
expressed a reasonable basis for his decision, we agree that it would be
binding. However, as noted supra, a court may interfere with a trustee’s
exercise of discretion if the trustee “fails to use his judgment, or acts beyond
the bounds of a reasonable judgment.” In re Est. of Feinstein, 527 A.2d at
1037 (citation omitted). Appellant testified that he “considered [him]self the
main beneficiary” of the Trusts and his children as “secondary” beneficiaries
─ which contradicted the plain language of the Trusts. See N.T. at 25, 27;
1994 Trust at § 11.13. Moreover, the sole reason he provided for refusing to
pay for Amber’s dental school was his belief she “was becoming a professional
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student” and “taking advantage of” the Trusts. Id. at 48-49. Considering the
Grantor provided no limits on the number of degrees a beneficiary could
pursue, we agree with the orphans’ court’s determination that Appellant
abused his discretion as Trustee, and that Amber was entitled to a distribution
from the Trusts in the amount of her educational expenses. Thus, Appellant’s
second claim fails.
Next, Appellant similarly challenges the orphans’ court’s determination
that Sean was entitled to a distribution from the Trusts in the amount of
$312,000. Appellant repeats his arguments that: (1) there can be no
surcharge when there is no loss to the Trusts; and (2) he, as Trustee, had
absolute discretion to make distributions to the named beneficiaries. For the
same reasons as stated above, we reject these claims.
Nevertheless, Appellant also insists that the court’s award to Sean was
“wholly speculative,” and unlike the award to Amber, was unrelated to any
“specific entitlement.” Appellant’s Brief at 42. We agree.
The orphans’ court provided the following reasons in support of its
distribution award to Sean:
Sean’s health insurance, if it had been paid by the [T]rusts, would
probably amount to more than $100,000. Pursuant to Section
11.13(e) of the [T]rust[s], the descendants are also entitled to
have the [T]rusts provide money for marriage, entry into a trade
or business, or to purchase a home. Sean has no home and needs
land for his livestock. The additional money may allow Sean to
keep his livestock and provide a trade for him.
Orphans’ Ct. Op. at 13.
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The language of the Trust documents directs the Trustee to provide
income and/or principal disbursements to Appellant’s descendants as the
“Trustee determines to be necessary for their reasonable support,
maintenance, health and education.” See 1994 Trust at § 11.13(a), (d).
Section 11.13(e) also directs the Trustee to provide principal disbursements
to Appellant’s descendants “to enable them to marry, to enter into a trade or
business, to purchase a home or for similar purposes.” Id. at § 11.13(e).
Lastly, Section 13.5, which sets forth the Grantor’s priorities during Trust
Period No. 4, provides that following the priority of the descendants’
educational expenses, the “second priority is that [Appellant, Appellant’s]
Spouse, and each Descendant of [Appellant] . . . in order of generation, be
supported according to that person’s reasonable needs.” Id. at § 13.5(b)
(emphasis added).
Sean testified that he is unemployed, suffers from depression, has no
health insurance, lives with his mother and his sister, and does not have
sufficient income to pay for an apartment or his vehicle. See N.T. at 181-83,
185. While there was no testimony that he asked Appellant for any
distribution from the Trusts which Appellant refused, we note that Sean did
not receive a copy of the Trust documents until after the lawsuit was filed, and
did not know “any . . . specifics[.]” Id. at 184. Further, the record is clear
that Appellant did not inquire whether Sean needed any disbursements from
the Trusts. Id. at 53-55. Nevertheless, the orphans’ court’s award is simply
not supported by the record.
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While the court speculates that Sean’s health insurance “would probably
amount to more than $100,000[,]” there was no testimonial or evidentiary
support for that finding. See Orphans’ Ct. Op. at 13. Moreover, contrary to
the court’s comments in its opinion, Sean did not request a Trust distribution
to enable him to marry, enter into a trade, or purchase a home. See 1994
Trust at § 11.13(e). Furthermore, the court ignores the second priority in
Section 13.25(b), which requires the Trustee to support the reasonable needs
of the beneficiaries “in order of generation[.]” Id. at § 13.25(b) (emphasis
added). Therefore, Appellant’s “reasonable needs” would be prioritized over
Sean’s “reasonable needs.” Appellees simply failed to provide any evidence
detailing what Sean’s reasonable needs were when Appellant purportedly
breached his fiduciary duty as Trustee. Rather, they insist that the “terms of
the [T]rust instruments [should] have led Appellant to disburse some amount
─ anything ─ to Sean for his maintenance and well-being[,]” and the court
“fairly assigned a value to [his] loss as a common sense member of the
community would.” Appellees’ Brief at 38-40. We conclude, however, that
the court’s award is entirely speculative. Accordingly, because the court’s
award to Sean lacks evidentiary support in the record, we are constrained to
reverse that part of the decree.12 See Scheidmantel, 868 A.2d at 478.
____________________________________________
12 The orphans’ court was, rightfully, critical of Appellant’s utter failure to fulfill
any of his fiduciary duties as Trustee. Moreover, we recognize the court was
sympathetic to Sean’s “mental health issues” and lack of “steady income or
health insurance.” See Orphans’ Ct. Op. at 10. It appears the court intended
(Footnote Continued Next Page)
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In his final claim, Appellant challenges the orphans’ court’s decision to
impose a surcharge of $42,790.39 for Appellees’ legal fees and costs.
Appellant’s Brief at 44. He argues that the general rule in litigation ─ referred
to as the “American Rule” ─ is that each party pays their own counsel fees,
and that an award of counsel fees to another party is “viewed as exceptional.”
See id. (citation omitted). Moreover, he insists that the record does not
support a finding that he engaged in “dilatory, obdurate or vexatious conduct
during the course of the litigation” to warrant an award of counsel fees
pursuant to Section § 2503(7) of the Judicial Code. See 42 Pa.C.S. § 2503(7)
(permitting the award of a reasonable counsel fee “as a sanction against
another participant for dilatory, obdurate or vexatious conduct during the
pendency of a matter”). Appellant maintains that “the [orphans’] court did
not enunciate any legal basis . . . for including [Appellees’] legal fees and costs
in the surcharge action.” Appellant’s Brief at 46. Further, the fact that he
used Trust funds to pay his own counsel fees is not “an established exception
to the American Rule.” Id. at 47.
The orphans’ court provided the following explanation for the attorney
fees surcharge:
____________________________________________
to provide Sean with the same benefit that it awarded to Amber. However,
as the court also observed “there may no longer be enough funds remaining
in the [T]rust[s] to satisfy the judgment.” Id. at 14. We simply cannot affirm
a $312,000 distribution award absent any testimony or evidence to support
the dollar amount.
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In the case sub judice, a surcharge in the amount of [Appellees’]
legal fees and costs is appropriate. [Appellant’s] mismanagement
of the [T]rusts caused [Appellees] to file their action against him.
[Appellant] paid for his divorce lawyer with [T]rust funds, so he
considers lawyers’ fees and costs to be proper expenses.
Orphans’ Ct. Op. at 12-13.
Preliminarily, we note that “[t]he award of counsel fees is within the
sound discretion of the Orphans’ Court.” In re Est. of Geniviva, 675 A.2d
306, 313 (Pa. Super. 1996).
The general rule is that each party to adversary litigation is
required to pay his or her own counsel fees. In the absence of a
statute allowing counsel fees, recovery of such fees will be
permitted only in exceptional circumstances. . . .
Est. of Wanamaker, 460 A.2d 824, 825 (Pa. Super. 1983) (citations &
quotation marks omitted). Furthermore, Section 2503(7) of “[t]he Judicial
Code permits an award of reasonable counsel fees ‘as a sanction against
another participant for dilatory, obdurate or vexatious conduct during the
pendency of a matter.’” In re Ins. Tr. Agreement of Sawders, 201 A.3d
192, 200 (Pa. Super. 2018), citing 42 Pa.C.S. § 2503(7). “Generally speaking,
‘obdurate’ conduct may be defined in this context as ‘stubbornly persistent in
wrongdoing.’” In re Est. of Burger, 852 A.2d 385, 391 (Pa. Super. 2004),
aff'd, 898 A.2d 547 (Pa. 2006). Black’s Law Dictionary defines “vexatious” as
“without reasonable or probable cause or excuse; harassing; annoying.”
Black’s Law Dictionary, “Vexatious” (11th ed. 2019).
While we recognize the orphans’ court provided minimal explanation for
its award of attorneys’ fees, we nevertheless conclude the award was properly
imposed within the court’s discretion. Appellant’s conduct in administering
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the Trusts after Suzanne filed for divorce was solely self-serving. Particularly
troubling is the fact that he commingled his personal funds with the Trust
funds ─ which, in fact, he treated as personal funds ─ and he used distributions
from the Trust for personal matters even after the orphans’ court directed him
to cease all distributions in October of 2021. Appellant’s conduct both before
and after Appellees petitioned for his removal of Trustee was both obdurate
and vexatious.
We also emphasize that the orphans’ court did not require Appellant to
return the personal attorneys’ fees he paid with Trust distributions. See
Orphans’ Ct. Op. at 3 (stating that surcharging Appellant “at this time is a
prejudice barred by laches” since Appellees “reaped the benefits of [his]
distributions during his tenure as Trustee for fifteen years”). Rather, the court
directed the payment of Appellees’ lawyer fees from Trust funds as a proper
expense. See id. at 12-13. We detect no reason to disturb this ruling.
Therefore, because we conclude the orphans’ court’s award of $312,000
to Sean was speculative, and not supported by the record, we reverse that
part of the decree. In all other respects, we affirm.
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Decree affirmed in part and reversed in part. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 8/15/2023
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