Orphans’ Court Update
October 13, 2014
Publications
NOT SO FAST … The Lesson of Taylor: A trust cannot be modified to allow removal of the trustee without court approval.
In August 2014, the Philadelphia Court of Common Pleas ruled on an issue of first impression under the Uniform Trust Act – whether a trust could be amended under § 7740.1 to add a provision allowing for the removal of the corporate trustee without Court approval. The Court rejected the requested amendment, reasoning that when a party wished to remove a trustee, the more specific requirements of § 7766 must be met.
The case of In re Edward Winslow Taylor, O.C. No. 3563 IV of 1939, Aug. 14, 2014, involved an intervivos trust created by Mr. Taylor in 1928 for the benefit of his daughter, Anna Taylor Wallace, and her children. Anna Taylor exercised her right to designate the income beneficiary of the trust upon her death, choosing her son, Frank R. Wallace, Jr. Upon his death, the income was to be paid to Frank R. Wallace, Jr.’s children for 20 years, at which point the Taylor Trust would terminate and be distributed to Frank Jr.’s children. The Taylor Trust did not contain any provisions for removing the corporate trustee.
In 2013, five years after the death of Frank R. Wallace, Jr., three of his four children petitioned the Court to amend the trust to add a provision allowing for the removal and replacement of the corporate trustee upon the affirmative vote of the majority of the beneficiaries. Petitioners argued that modern trust agreements routinely contain such provisions, and that they should be permitted to amend the trust to include such a provision. The petitioners invoked § 7740.1 of the PEF Code, which provides for the modification of a trust where: (a) some beneficiaries consent; (b) the interests of the non-consenting beneficiaries are adequately protected; and (c) the proposed modification is not inconsistent with the material purpose of the trust agreement.
The trustee opposed the trust amendment, arguing that the petitioners were attempting to circumvent § 7766 of the PEF Code, which provides that a trustee can be removed only by an act of court and only in limited circumstances.
The Court reasoned that, because the Taylor Trust did not contain a provision for removal of a trustee, the Court must apply the provisions of the PEF Code. In choosing between applying 7740.1 (modification of trusts) and § 7766 (removal of trustee), the Court concluded that the more specific statutory provision governing trustee removal was controlling. The Court also noted that § 7766 anticipated “an active inquiry and findings by the court” which would not occur if the petitioners were permitted to modify the trust to allow for trustee removal by vote of the beneficiaries. Thus, the Court ruled that, where a trust contains no provision for trustee removal, the trust cannot be modified to add a provision allowing trustee removal without Court involvement. Instead, parties seeking removal of a trustee must petition the court for removal of the trustee and must establish a basis for removal under § 7766.
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