In Re: Ins. Trust Agreemnt of Frank P. Sawders. Jr

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2018 PA Super 345IN RE: INSURANCE TRUST AGREEMENT IN THE SUPERIOR COURT
OF FRANK P. SAWDERS, JR. OF PENNSYLVANIA
APPEAL OF COMMONWEALTH OF
PENNSYLVANIA
No. 2678 EDA 2017
Appeal from the Order Entered July 25, 2017
In the Court of Common Pleas of Montgomery County
Orphans’ Court at: No 2017-X1560
IN RE: INSURANCE TRUST AGREEMENT IN THE SUPERIOR COURT
OF FRANK P. SAWDERS, JR. OF PENNSYLVANIA
APPEAL OF CHILDREN’S HOSPITAL OF
PHILADELPHIA
No. 2832 EDA 2017
Appeal from the Order Entered July 25, 2017
In the Court of Common Pleas of Montgomery County
Orphans’ Court at: No 2017-X1560
BEFORE: STABILE, J., STEVENS, P.J.E.,* and STRASSBURGER, J.**
OPINION BY STABILE, J.: FILED DECEMBER 18, 2018
____________________________________________
* Former Justice specially assigned to the Superior Court.
** Retired Senior Judge assigned to the Superior Court.
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In these consolidated appeals, the Commonwealth of Pennsylvania and
Children’s Hospital of Philadelphia (“Appellants”) appeal from an order
providing that the two grandchildren (“Grandchildren”) of Frank P. Sawders,
Jr., settlor of an Insurance Trust Agreement (“Trust”) executed over fifty years
ago, are entitled to share 100 percent of Trust income for life. Appellants
argue that the Trust limits Grandchildren’s share to 60 percent of Trust income
and that the remaining 40 percent goes to seven charities. Appellants also
appeal the Orphans’ Court’s award of counsel fees to one of the grandchildren,
Stephanie Laisy.
We affirm the portion of the Orphans’ Court’s order that Grandchildren
receive 100 percent of Trust income for life. When one grandchild dies, the
charities will become entitled to receive 50 percent of Trust income. When
the second grandchild dies, the charities will become entitled to receive 100
percent of Trust income. We reverse the portion of the Orphans’ Court order
awarding counsel fees to Stephanie Laisy.
Settlor, Frank P. Sawders, Jr. (“Settlor”), created the Trust on April 7,
1966 and amended it on September 12, 1966 and May 31, 1967. The Girard
Trust Bank was named as Trustee. The Trust’s purpose was “to create an
Insurance Trust of the proceeds of certain life insurance policies now in effect
on [Settlor’s] life.” The Trustee’s role was to hold the policies as “custodian”
during Settlor’s life and to carry out the other terms and conditions of the
Trust during and after Settlor’s life.
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Settlor died on October 4, 1967, making the Trust irrevocable. Following
a series of mergers and acquisitions, BNY Mellon, N.A., became the current
Trustee as successor in interest to Girard Trust Bank.
Article V of the Trust provides that following Settlor’s death:
Trustee shall hold the principal of the Trust in the TRUST Estate in
trust nevertheless and shall pay the net income[1] quarterly or at
other convenient intervals, but not less frequently than annually,
to or for the benefit of EMILY SAWDERS LAISY, daughter of said
SETTLOR during her life, and to the extent income is not sufficient,
the TRUSTEE shall invade principal to pay medical expenses
incident to a prolonged illness of EMILY SAWDERS LAISY, her
children or her husband but only to the extent that such medical
expenses are not covered by hospitalization or medical insurance.
Article VI of the Trust provides:
Upon the death of EMILY SAWDERS LAISY, the daughter of said
SETTLOR, or upon the death of the SETTLOR in the event that his
daughter is not then living, the income of the Trust Estate shall be
paid as follows:
1. Ten (10%) percent thereof to MARGARET SAWDERS, sister of
the SETTLOR, for the term of her life; and
2. Ten (10%) percent thereof to RUTH SAWDERS, sister of the
SETTLOR, for the term of her life; and
3. Ten (10%) percent thereof to MARY SAWDERS, sister of the
SETTLOR, for the term of her life; and
4. Ten (10%) percent thereof to LEO SAWDERS, brother of the
SETTLOR, for the term of his life; and
____________________________________________
1 The Trust and its amendments use “net income” and “income”
interchangeably. For purposes of this decision, we deem these terms to have
identical meanings.
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5. Ten (10%) percent thereof to MRS. GEDA WALLACE, 200 W. 58St., New York, New York;[2] and
6. The balance of income shall be divided into as many
shares as there shall be children then living of SETTLOR’S
daughter, EMILY SAWDERS LAISY, and the TRUSTEE shall pay
the said income equally to or for the benefit of such children for
the term of each child’s life. Until age 21 such payments of income
shall be made to the guardian of the person having custody of the
child and thereafter shall be made directly to the child.
[Emphasis added].
Article VIII of the Trust provides:
Upon the death of any of the income beneficiaries set forth in
Article VI, the interest of said beneficiary shall lapse and the share
of principal of which such income was previously paid shall
be held in further Trust by my TRUSTEE, such Trust to be known
as “Mary M. and Frank P. Sawders, Jr. Charitable Trust” and the
net income shall be paid as follows:
1. Twenty (20%) percent thereof to the MERCY HOSPITAL,
Pittsburgh, Pennsylvania.
2. Forty (40%) percent thereof to the HOSPITAL OF UNIVERSITY
OF PENNSYLVANIA, Philadelphia, Pennsylvania.
3. Ten (10%) percent thereof to the CHILDREN'S HOSPITAL,
Pittsburgh, Pennsylvania.
4. Ten (10%) percent thereof to the ST. PAUL'S ROMAN CATHOLIC
ORPHANAGE, Pittsburgh, Pennsylvania.
5. Ten (10%) percent thereof to the CHILDREN'S HOSPITAL,
Philadelphia, Pennsylvania.
6. Ten (10%) percent thereof to the CHURCH FARM SCHOOL,
Paoli, Pennsylvania.
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2On September 12, 1966, Settlor amended Article VI of the Trust to revoke
Geda Wallace’s share.
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[Emphasis added].
On May 31, 1967, Settlor amended the Trust as follows:
The Trustees shall keep any property added to this trust during
my lifetime invested, with all powers, authorities, and discretion
given in the original DEED, and shall distribute net income and
principal as follows:
A. As much—even if all—of the net income and principal as
I may from time to time direct in writing shall be paid either
to me or as I may specify;
B. As much of the net income and principal as the Trustee
may from time to time think desirable for my welfare,
comfort or support or for the welfare, comfort, support
or education of my daughter EMILY SAWDERS LAISY,
or any of her children either shall be paid to me or to that
person or shall be applied directly for those purposes; and
C. Any remaining net income shall from time to time be
accumulated and added to the principal.
I expressly direct that the Trustee may, under Paragraph B, make
such payments to or for the benefit of my daughter and her
children as the Trustee believes I would have made personally,
even without a specific authorization from me, but the Trustee
shall promptly advise me of such payment.[3]
[Emphasis added].
Following Settlor’s death, Settlor’s daughter, Emily Sawders Laisy
(“Daughter”), received 100 percent of Trust income for 49 years until her own
death on May 28, 2016. Settlor designated his four siblings and Daughter’s
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3In addition, on May 31, 1967, Settlor amended the charitable trust in Article
VIII to reduce the share of the Hospital of the University of Pennsylvania from
40 percent to 20 percent and to bequeath 20 percent to Johns Hopkins
Hospital in Baltimore, Maryland.
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children as beneficiaries in the event of Daughter’s death. Daughter was
survived by two children, Stephanie A. Laisy and Christopher Laisy
(collectively “Grandchildren” or individually “Granddaughter” or “Grandson”).
Settlor’s four siblings predeceased Daughter.
Settlor also provided for the Trust to fund the Mary M. and Frank P.
Sawders, Jr. Charitable Trust (“Charitable Trust”) and designated seven
charities as income beneficiaries. To date, the Charitable Trust is unfunded.
In January 2017, seven months after Daughter’s death, Trustee
informed Granddaughter that it would seek “guidance” from the Montgomery
County Orphans’ Court regarding whether Grandchildren should share 100
percent or 60 percent of Trust income. As of January 31, 2017, the value of
the Trust totaled $3,774,026.64.
Instead of seeking guidance, Trustee distributed $10,000 to Grandson
conditioned upon his execution of a “Refund Agreement” in which he agreed
to refund the Trust if required. Granddaughter declined a similar offer from
Trustee.
On April 24, 2017, Granddaughter filed a petition for judicial intervention
and declaratory judgment pursuant to 20 Pa.C.S.A. § 7711, requesting the
Orphans’ Court to determine that Grandchildren are 100 percent income
beneficiaries and award Granddaughter reasonable counsel fees to be paid
from the Trust for Trustee’s failure to seek guidance from the court on its own.
The seven charities and the Commonwealth, acting as parens patriae, opposed
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the petition, claiming that Grandchildren should share 60 percent of Trust
income, while the remaining 40 percent of Trust income and principal should
immediately fund the Charitable Trust.
On July 25, 2017, the Orphans’ Court granted Granddaughter’s petition
and ordered that Grandchildren were 100 percent income beneficiaries of the
Trust. The Orphans’ Court also ordered the Trustee to pay Granddaughter
attorney fees not to exceed $7,500.00 from Trust assets. Appellants filed
timely appeals to this Court, and both Appellants and the Orphans’ Court
complied with Pa.R.A.P. 1925.
Appellants raise two questions in these appeals:
I. Are [S]ettlor’s two [G]randchildren legally entitled to share
100% (rather than 60%) of the current income from [the Trust]
for life, given the inherent tension between Article VI and Article
VIII of the [T]rust instrument as written and given [S]ettlor’s
explicit intention to benefit certain Pennsylvania charities?
II. Is there any legal basis for the unexplained award—in favor of
[G]randchildren—of “up to $7,500.00” in attorney fees, payable
from Trust assets?
Commonwealth’s Brief at 5.4
The first and most important question in this appeal is whether, in the
wake of Daughter’s death, Grandchildren are entitled to receive 100 percent
____________________________________________
4The Commonwealth filed a brief in support of its appeal at 2678 EDA 2017.
Children’s Hospital of Philadelphia filed a brief joining in the Commonwealth’s
brief in its entirety.
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of Trust income, or whether Grandchildren and the charities are entitled to 60
and 40 percent, respectively.
Preliminarily, we observe that the Commonwealth, acting through its
Attorney General as parens patriae, has standing to participate in this case.
The Commonwealth is “an indispensable party in every proceeding which
affects a charitable trust[.]” In re Voegtly’s Estate, 151 A.2d 593, 594 (Pa.
1959); see also 71 P.S. § 732-204(c) (Attorney General authorized to
intervene in any action “involving charitable bequests and trusts”). Settlor
identified seven charities as beneficiaries of Trust income. Since these
charities have an interest in Trust assets, the Attorney General is an
indispensable party to this litigation. Beyond that, the Attorney General
“represents a broader interest than that of [any] charity alone. He must
protect the interests of the public at large, to whom the social and economic
benefits of [charitable] trusts accrue.” In re Estate of Feinstein, 527 A.2d
1034, 1036 n.3 (Pa. Super. 1987).
The Uniform Trust Code provides that “the court may intervene in the
administration of a trust to the extent its jurisdiction is invoked by an
interested person or as provided by law.” 20 Pa.C.S.A. § 7711(a).
Granddaughter, an interested person, triggered the Orphans’ Court’s
jurisdiction by filing a petition seeking judicial intervention and declaratory
judgment under Section 7711(a). The Orphans’ Court enjoyed jurisdiction to
construe the Trust under 20 Pa.C.S.A. § 7711(c), which states: “A judicial
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proceeding involving a trust may relate to any matter involving the trust’s
administration, including a request for declaratory judgment.” Id.; see also
42 Pa.C.S.A. § 7533 (Declaratory Judgment Act authorizes court to construe
“instruments” such as trusts).
“In interpreting a trust instrument, the intent of the settlor is paramount
and if that intent is not contrary to law, it must prevail.” Estate of Taylor,
522 A.2d 641, 642 (Pa. Super. 1987). The 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. Id. at 643. “Only when the language of the trust is
ambiguous or conflicting or when the settlor’s intent cannot be garnered from
the trust language do the tenets of trust construction become applicable.”
Estate of Loucks, 148 A.3d 780, 782 (Pa. Super. 2016) (denying charitable
beneficiary’s request to invade principal because plain language of trust did
not permit discretionary distributions from principal). However great the
temptation is to supply terms in accordance with what the settlor presumably
would have provided had the omission been called to his attention, the court
is without power to reform an unambiguous instrument. Trust under Gift of
Clark, 856 A.2d 1201, 1204 (Pa. Super. 2004).
The Orphans’ Court explained that the plain language of the Trust made
the Grandchildren 100 percent income beneficiaries:
[Settlor] directed that [Daughter] receive the income from this
Trust for the duration of her life. Following her death, which
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occurred in 2016, income [was] to be paid to [Settlor’s] siblings
in certain percentages, for the term of their life. None of Settlor’s
siblings survived [Daughter]. The balance of the income under
Article VI is to be shared between the children of [Daughter], of
which there are two. This court notes that the Settlor used the
term ‘balance’ rather than stating a set percentage to be shared
among his grandchildren. Thus, it is Article VI of the Trust that
determines the current income beneficiaries of the Insurance
Agreement Trust. As [Settlor’s] grandchildren are the only
surviving income beneficiaries, they are the current income
beneficiaries of the [Trust].
The court must next address the amount of income to which they
are entitled to share. [Granddaughter] argues that the
grandchildren are entitled to share 100% of the income of the
[Trust] and this court agrees. The reasoning becomes clearer
upon reading Article VIII of the Trust.
Article VIII of the Trust dictates when the Charitable Trust is to be
funded. Settlor specifically states that upon the death of any of
the income beneficiaries set forth in Article VI, the interest of said
beneficiary shall lapse and the share of principal of which such
income was previously paid shall be held in the Charitable Trust
and income paid in the set percentages to the specific charities
named by Settlor. This court found the phrase “the share of
principal of which such income was previously paid shall be held
in further Trust” manifested [Settlor’s] intent. When reading the
Deed of Trust and its Amendments as a whole, it is clear to this
court, based upon the unambiguous language used by Settlor,
that the Charitable Trust is to be funded with the share of principal
from which such income “was previously paid” to the persons
identified in Article VI. Since no income was ever paid to Settlor’s
siblings, there is no principal with which to fund the charitable
trust at this time.
Orphans’ Ct. Op., 11/28/17, at 4-5 (some capitalization omitted).
We agree with this analysis. Under the original Trust, the Charitable
Trust’s right to Trust principal does not vest until the death of any person
named in Article VI who survives Settlor and Daughter. Since this event has
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not yet taken place, the Charitable Trust’s right to funding has not vested, so
there is presently no income to pay to the charities.
To elaborate, under Article VI, any of Settlor’s four siblings who survive
Daughter would receive 10 percent of Trust income until death. At death, the
Charitable Trust would receive 10 percent of Trust principal, the “share of
principal of which such income was previously paid” to the sibling, and the
Charitable Trust would pay each charity the percentage of Trust income
prescribed in Article VIII. Any sibling who died before Daughter would not
receive Trust income during his or her lifetime. At death, that sibling’s share
would be divided equally among Daughter’s surviving children, and the
Charitable Trust would receive nothing, because no income “was previously
paid” to the sibling during his or her life.
Here, all of Settlor’s siblings died before Daughter. Thus, under Article
VI, each of their 10 percent shares went to the Grandchildren, leaving the
Grandchildren with 100 percent of Trust income to divide equally. The
Charitable Trust’s right to principal has not vested and will not vest until one
of the Grandchildren dies.
Further, under Article VI, 60 percent of Trust income shall be divided
equally among Daughter’s surviving children (the Grandchildren).5 Upon the
death of any Grandchild, the Charitable Trust shall be funded with “the share
____________________________________________
5 Again, because each of Settlor’s siblings predeceased Daughter, the
Grandchildren’s share increased from the original 60 percent to 100 percent.
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of principal of which such income was previously paid” to the child. Here,
two Grandchildren survived Daughter, and both remain alive, so the Charitable
Trust’s right to principal has not vested.
The May 31, 1967 amendment to the Trust did not change the charities’
position. The amendment (1) authorizes Settlor to invade principal and
income for any reason during his lifetime; (2) gives the Trustee the discretion
to add Trust income to principal and to invade Trust principal for Daughter’s
and the Grandchildren’s welfare, comfort, support or education; and (3)
permits the Trustee to add income to principal from time to time. These
revisions expand Settlor’s and the Trustee’s powers, but they do not
accelerate the Charitable Trust’s funding rights. As in the original Trust, the
Charitable Trust’s right does not vest until the death of any person named in
Article VI who survived Settlor and Daughter—here, one of the Grandchildren.
Because both Grandchildren remain alive today, the Charitable Trust’s right
remains unvested.
The Attorney General insists that the charities
became entitled to a 10% interest in the income of the Trust upon
the death of each of [Settlor’s] four named siblings (a total of 40%
once all four siblings had died), although the charities’ enjoyment
of those income shares was postponed until after the death of
[Daughter]. This is so because the charities’ income shares were
vested upon creation; they were not, as [Granddaughter] has
implicitly suggested, mere contingent remainders, depending for
their effectiveness upon [Settlor’s] siblings’ surviving [Daughter].
. . .
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Here, the Trust does not contain any written requirement that any
of the named beneficiaries survive [Daughter]. Absent such a
stipulation, the charities’ respective income interests became
vested when [Settlor] himself died, regardless of how long any
other income beneficiary might or might not live . . . If [Settlor]
wanted to ensure that no Trust income could or would be paid to
the listed charities until after he, [Daughter], his siblings, and his
grandchildren were all dead, he could easily have said so.
Commonwealth’s Brief at 22, 23. The plain language of the Trust does not
support this “postponement” theory. As discussed above, the Charitable
Trust’s right to principal does not vest upon the death of Settlor or Daughter,
but upon the death of one of the Grandchildren, an event that has not taken
place.
The Attorney General also argues that “previously paid” is “unclear at
best,” because “[w]hile the suggestion that trust income must have
‘previously’ been paid to some beneficiaries invites interpretation, that
verbiage—standing alone—does not mandate divestiture or extended
postponement of the charities’ income interest until the deaths of both
[Grandchildren].” We disagree. We have no trouble concluding that
“previously paid,” read in context, means that the income beneficiary survived
both Settlor and Daughter, was paid Trust income, and then died himself or
herself. The Grandchildren survived Settlor and Daughter and have been paid
Trust income, but they both remain alive. Until one of them dies, the
Charitable Trust cannot be funded, and the charities cannot receive Trust
income.
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For these reasons, we hold that the Orphans’ Court properly ordered the
Trust to pay 100 percent of Trust income to the Grandchildren. Upon the
death of one of the Grandchildren, the Charitable Trust’s right of funding will
vest, and it will receive 50 percent of Trust principal and pay the charities 50
percent of Trust income in accordance with Article VIII. When the second
grandchild dies, the Charitable Trust will receive the remaining 50 percent of
Trust principal and pay the charities 100 percent of Trust income in accordance
with Article VIII.
In their second issue, Appellants challenge the Orphans’ Court’s decision
to award Granddaughter up to $7,500.00 in attorney fees from Trust assets.
We agree with Appellants that this decision was an abuse of the Orphans’
Court’s discretion.
We review awards of attorney fees for palpable abuse of discretion. In
re Barnes Foundation, 74 A.3d 129, 135-36 (Pa. Super. 2013). The
Orphans’ Court’s opinion did not explain its basis for awarding counsel fees.
Nor is any basis apparent from the record. “The general rule is that each party
to adversary litigation is required to pay his or her own counsel fees.” Estate
of Wanamaker, 460 A.2d 177, 179 (Pa. Super. 1983). The 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.” 42 Pa.C.S.A. § 2503(7). There was nothing dilatory, obdurate or
vexatious about the Trustee’s conduct herein. This case required careful
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construction of intricate Trust documents. The Trustee opposed
Granddaughter’s interpretation of these documents and posited an
alternative, albeit unmeritorious, interpretation of its own. The fact that
Granddaughter’s interpretation prevailed is not sufficient reason for awarding
her counsel fees. Moreover, the Judicial Code authorizes an award of counsel
fees where “the conduct of another party in commencing the matter or
otherwise was arbitrary, vexatious or in bad faith.” 42 Pa.C.S.A. § 2503(9).
This provision does not apply because Granddaughter commenced this case,
not the Trustee. Under the plain language of Section 2503(9), a party cannot
be sanctioned for defending itself.
In the absence of a statute allowing counsel fees, “recovery of such fees
will be permitted only in exceptional circumstances . . . [such as] where the
work of counsel has created a fund for the benefit of many.” Estate of
Wanamaker, 460 A.2d 824, 825 (Pa. Super. 1983). Although
Granddaughter’s position is meritorious, she did not create a fund for the
benefit of many; to the contrary, she succeeded in preventing the charities’
access to Trust income for the foreseeable future.
Accordingly, we reverse the portion of the Orphans’ Court order
awarding counsel fees to Granddaughter.
Order affirmed in part and reversed in part in accordance with this
Opinion.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/18/18
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