In a highly anticipated opinion, the Pennsylvania Supreme Court has prevented an end around the no fault removal provision of Uniform Trust Code (“UTC”) Section 706. As we discussed in “An ‘End Around’ Trustee Removal,” UTC Section 706 provides that a court may remove a trustee if removal is requested by all of the qualified beneficiaries and the court finds that removal “best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust.” In Edward Winslow Taylor, Irrevocable Trust, only three of the four beneficiaries wanted to remove the Trustee, Wells Fargo. Since all of the beneficiaries did not agree to remove Wells Fargo as the Trustee, they could not use the no fault removal provision of UTC Section 706. So, the beneficiaries came up with an end around. They filed a petition in the Court of Common Pleas of Philadelphia County to modify the trust agreement using Pennsylvania’s version of UTC Section 411 in order to add a provision to the trust agreement which would permit a simple majority of the beneficiaries to remove the Trustee. Their petition to modify the trust agreement was denied by the Court of Common Pleas, and the beneficiaries appealed to the Superior Court of Pennsylvania, an intermediate appellate court, which sided with the beneficiaries and blessed the modification. Wells Fargo then appealed to the Pennsylvania Supreme Court, and, not surprisingly, the Pennsylvania Bankers Association filed an Amicus Curiae brief in support of reversal of the Superior Court’s decision.
A Win for the Trustees
On appeal, in a unanimous decision, the Pennsylvania Supreme Court reversed the decision of the Pennsylvania Superior Court and set aside the trust modification. The Court held that allowing the beneficiaries, through modification of the trust, to do something which UTC Section 706 expressly prohibits (that is, removal of a trustee without court approval and unanimous consent of all beneficiaries) would circumvent the very purpose of UTC Section 706 and render it useless. The Court ruled that UTC Section 706 is the exclusive provision for removal of a trustee and that beneficiaries cannot use the modification statute to add a provision to a trust agreement which would permit the removal of a trustee.
A significant number of trust documents which were drafted and executed before the 1990’s do not include a “portability provision” which gives the beneficiaries the power to remove and replace a trustee. Portability provisions only became widely prevalent in the past few decades. Many older trust agreements were actually prepared by the very banks which were named as the Trustee, or the banks provided specific language to the grantor’s attorney to include in the trust agreement. The banks obviously had no incentive to include a clause which would provide the beneficiaries with the power to remove and replace the bank. Likewise, many grantors, those who established trusts, typically had no incentive to include a clause providing the beneficiaries with the power to remove and replace the trustee. When these trusts were drafted decades ago, many banks were small businesses which delivered a high level of customer service. The grantors typically had personal relationships with the bank employees in the trust department and other bank staff. As the banking industry has experienced a tidal wave of mergers and acquisitions over the past few decades, the grantor’s small bank has long since been gobbled up, and trust beneficiaries find themselves frustrated with the lack of attention and personal service. Indeed, as the Pennsylvania Supreme Court itself noted in its opinion, the original trustee of the Edward Winslow Taylor Trust, the Colonial Trust Company in Philadelphia, through a series of mergers became Wells Fargo, the 3rd largest bank in the United States headquartered in San Francisco.
A Way Forward?
So, does this court opinion mean that beneficiaries are helpless in the face of a trustee which is not responsive or meeting expectations? No. Can the trustee hold the trust at ransom? No. There are alternatives to free a trust from an indifferent or incompetent trustee. If you have questions or concerns about your Trustee, an attorney with deep experience in trust law may be able to help.