Court Opinion

ID: 4351624
Source: CourtListenerOpinion
Date Created: 2018-12-18 18:44:02.09636+00
Date Added: 2024-06-11T14:37:10.509576
License: Public Domain

J-A18009-18

                                  2018 PA Super 345

 IN 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.
J-A18009-18

      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. 58
       St., 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.

____________________________________________

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

____________________________________________

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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