Court Opinion

ID: 4032683
Source: CourtListenerOpinion
Date Created: 2016-09-10 03:32:49.072402+00
Date Added: 2024-06-11T14:09:04.201176
License: Public Domain

J-A14003-16

                               2016 PA Super 206

IN RE: ESTATE OF LILLIAN E. LOUCKS,              IN THE SUPERIOR COURT OF
DECEASED                                               PENNSYLVANIA

APPEAL OF OTTERBEIN UNITED
METHODIST CHURCH

                                                     No. 1947 MDA 2015

              Appeal from the Order Entered October 6, 2015
               In the Court of Common Pleas of York County
                    Orphans' Court at No(s): 6791-1540

BEFORE: BOWES, OTT AND PLATT,* JJ.

OPINION BY BOWES, J.:                          FILED SEPTEMBER 09, 2016

      Otterbein United Methodist Church appeals from the October 6, 2015

orphans' court order that denied it the right to invade the principal of a trust

of which it is a beneficiary. We affirm.

      The pertinent facts follow. Lillian E. Loucks died testate on November

9, 1991. After her November 10, 1987 last will and testament was admitted

to probate, letters testamentary were issued to her executor, York Bank and

Trust Company (“York”). Ms. Loucks devised her residuary estate to an inter

vivos trust, which was executed on August 13, 1984. The trust named York

as trustee, and M & T Bank is successor trustee to York.

* Retired Senior Judge assigned to the Superior Court.
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         The dispositive terms of the August 13, 1984 trust were as follows.

Ms. Loucks retained a life estate in the trust assets and was entitled to both

all of its income and such principal as the trustee deemed necessary for her

use and benefit.       Trust Agreement, 8/13/84, at Article II.         Article III

governed disposition of a portion of the trust assets upon Ms. Loucks’ death

and provided that, if the assets in her estate were insufficient to satisfy

certain specific bequests, then those bequests were to be satisfied from the

trust.    Additionally, Article III provided for the distribution of either fifteen

percent of the trust’s then existing income and principal or $5,000,

whichever was less, to two individuals when Ms. Loucks died.               Finally,

pursuant to Article IV, any balance remaining in the trust after the specific

bequests were paid, as outlined in Article III, was to be held in a charitable

trust.    Article IV provided that the charitable trust’s income be distributed

equally between Appellant and an entity that became SpiriTrust Lutheran.

The two beneficiaries were permitted to use the income for any purpose.

         After Ms. Loucks died, the charitable trust was funded with $700,000

in principal.   Since 1991, Appellant and SpiriTrust Lutheran have received

equal amounts of the income generated by the corpus.             On February 13,

2015, Appellant filed a petition asking for an increase in the amount that it

was receiving from the Lillian E. Loucks trust.        In other words, it sought

distributions from principal.      The trustee, SpiriTrust Lutheran, and the

Commonwealth of Pennsylvania, as parens patriae of charitable trusts, were

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served with notice of the petition.     The Commonwealth has opposed the

grant of the relief requested by Appellant.        The orphans' court held a

hearing, and it thereafter denied Appellant's request to invade principal.

This appeal followed. Appellant frames the issue for our review as follows:

             A. Did the Orphans' Court make an error of law or abuse
      its discretion when it found the Settlor did not intend to
      specifically benefit Otterbein United Methodist Church, one of the
      specifically identified beneficiaries named in the Lillian E. Loucks
      Trust Agreement and that, rather, the settlor's intent was to
      allow Otterbein United Methodist Church to fail for lack of funds
      and to place the remaining Trust funds with another, yet to be
      identified, religious organization?

Appellant’s brief at 4.

      Herein, despite how Appellant presents the pertinent inquiry, we are

determining whether the terms of Ms. Loucks’ trust permit an invasion by

Appellant of its portion of the principal. “[T]he interpretation of a trust or a

will presents a question of law. As such, our standard of review is de novo,

and our scope of review is plenary.” In re Estate of McFadden, 100 A.3d

645, 650 (Pa.Super. 2014) (en banc) (citations omitted).

      Certain principles guide trust interpretation.    The testator's intent is

the cornerstone of such an endeavor. As we articulated in Estate of Pew,

655 A.2d 521, 533 (Pa. Super. 1994), it is “hornbook law that the pole star

in every trust . . . is the settlor's . . . intent and that intent must prevail.”

See also Estate of McFadden, supra. We are not permitted to construe a

provision in a trust so as “to destroy or effectually nullify what has always

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been considered the inherent basic fundamental right of every owner of

property to dispose of his own property as he desires, so long as it is not

unlawful.”   Estate of Pew, supra at 533.        Critically, the settlor’s intent

must be ascertained from the language of the trust, and we give effect, to

the extent possible, to all words and clauses in the trust document.      See In

re Estate of McFadden, supra; accord Farmers Trust Co. v. Bashore,

445 A.2d 492, 494 (Pa. 1982) (“A 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.”).

      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. Farmer’s Trust, supra at

494 (“Only if a settlor's intent cannot be ascertained with reasonable

certainty will a court apply canons of construction, to attribute a reasonable

intention to the settlor in the circumstances.”); see also In re Estate of

McFadden, supra. In this case, we conclude that the language is clear and

articulates Ms. Loucks’ intent; hence, we do not resort to other canons of

trust construction.

      The pertinent provision of the trust is in Article IV and states:

      IV. Distribution of the Balance of the Trust Upon Settlor's Death.

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       The balance remaining in said trust shall be held and retained by
       the Trustee perpetually, for the following uses and purposes:

                (A) To pay and distribute one-half of the income
                therefrom to Otterbein United Methodist Church, of
                York, Pennsylvania, to be used by said church for
                reducing any indebtedness, or for general purposes.

                (B) To pay and distribute one-half of the income
                therefrom to Lutheran Social Services, South Region,
                for the York Lutheran Home, located at 750 Kelly
                Drive, York, Pennsylvania, for the purpose of
                reducing indebtedness, or for general purposes.

                (C) In the event that the balance in the Trust at
                the time of Settlor's death is less than Fifty
                Thousand Dollars ($50,000.00), then I direct
                the Trustee to pay said balance to Otterbein
                United     Methodist     Church,      of   York,
                Pennsylvania, and Lutheran Social Services,
                South Region, for the York Lutheran Home, in
                equal shares.

Trust Agreement at pp. 3-4 (emphases added).

       The plain language of Article IV does not permit discretionary

distributions from the corpus of the trust when needed or requested by

either Appellant or the other beneficiary in order to sustain their financial

viability.     To the contrary, the language indicates unequivocally that the

trust is to be held perpetually and only the income is to be distributed to the

respective beneficiaries.      Invasions of principal would deplete the trust so

that it would not be perpetual, in violation of the settlor’s clearly-articulated

intent.      Additionally, the settlor set forth the triggering event for principal

distribution: if the balance in the trust was less than $50,000 when Ms.

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Loucks died.     There is no construction that can be placed upon the

dispositive terms of this trust that would permit Appellant to invade

principal.

      Thus, Appellant, even though it now denies this claim, is seeking to

modify the terms of this perpetual charitable trust, which implicates our

decision in In re Barnes Foundation, 683 A.2d 894 (Pa.Super. 1996).

Therein, we adopted Restatement (Second) of Trusts § 381 to analyze when

the court can permit deviation from the terms of a charitable trust:

      The court will direct or permit the trustee of a charitable trust to
      deviate from a term of the trust if it appears to the court that
      compliance is impossible or illegal, or that owing to
      circumstances not known to the settlor and not anticipated by
      him compliance would defeat or substantially impair the
      accomplishment of the purposes of the trust.

Restatement (Second) of Trusts § 381.

      In the present case, compliance with the terms of the trust is neither

impossible nor illegal. The trust’s purpose was to supply income to the two

named beneficiaries in perpetuity, and it permits no distributions of principal.

It cannot be said that Ms. Loucks could not possibly have anticipated that

one of the two institutions might become in need of funds in excess of

income generated from the corpus; she did not allow invasion of principal in

that event. Rather, the trust was allowed to terminate only if the assets in it

were $50,000 or less upon her death. Appellant’s present position, wherein

it asks for permission to obtain principal when its financial needs require it,

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would eventually result in the termination of its portion of the trust, which is

not permitted under the language in question.

      Appellant suggests that Ms. Loucks authorized the distribution of

principal under Article VII, which provides:

      In the administration of the Trust Estate and any Trust provided
      for hereunder, the Trustee shall have . . . the following powers
      without restriction, either after the delivery of the notice referred
      to in Subsection (D) of Section VI hereof, or. . . after the death
      of the Settlor.

            (J) To divide and distribute any Trust in kind or in
            money, or partly in each, or by wa[y] of undivided
            interest and for such purposes to value any property
            to be thus divided or distributed at fair market
            values at the date or dates of distribution.

      We refuse to construe this provision so as to allow invasions of

principal under Article IV. To do so would be to abrogate the clear language

of Article IV providing for a perpetual trust with payments only of income to

its two beneficiaries. Article VII does nothing more than permit the trust to

be divided and distributions to be made in kind.          It does not mention

invasions of principal, even though other provisions in the trust are clear in

that respect.

      Ms. Loucks’ trust was created to provide: 1) income to her during her

lifetime (Article II); 2) money to named individuals at her death (Article III);

and 3) after compliance with Article III, the balance remaining to be placed

in a perpetual charitable trust with the income payable, in equal shares, to

Appellant and SpiriTrust (Article IV). To further these ends, the instrument

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accords the trustee the power to manage the funds within the trust, and

under Article VII, “[t]o divide and distribute any Trust in kind or in money,

or partly in each, or by way of undivided interests, and for such purposes to

value any property to be thus divided or distributed at fair market values . .

. .” Art. VII(J)).

      Under the above-articulated precepts of trust construction, the

trustee’s authority to distribute trust assets in Article VII must be read in

conjunction with Articles II through IV.    In Articles II and III, Ms. Loucks

demonstrated her ability to set forth when principal could be invaded.        In

Article II, she authorized the trustee “in its absolute discretion” to distribute

payments from the principal to her during her lifetime as “deem[ed]

necessary or advisable for her use and benefit.”      In Article III, the settlor

empowered the trustee to distribute payments from the principal to specific

individuals upon her death.      Finally, as noted, in Article IV, the settlor

allowed the trustee to pay the trust corpus to Appellant and SpiriTrust if the

trust contained less than $50,000 when she died.         Article IV permits no

principal invasions. Article VII is an administrative rather than dispositive

provision, and does not allow corpus distributions under Article IV.

      Appellant also maintains that In re Longbotham's Estate, 29 A.2d

481 (Pa. 1943), is “similar to this case.” Appellant’s brief at 20. Therein,

the question presented was whether principal could be expended to make

major repairs to other real property that also constituted principal. Our High

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Court applied the precept that payment for permanent improvements, such

as those at issue in the case, should come from principal rather than

income.    The Court applied the legal principle that “[i]f the improvements

are permanent in character, the principal is benefited, the effect being

merely to substitute one form of principal for another.’” Id. at 482 (quoting

Restatement of Trusts, § 233, comment (k)). Appellant is not asking for an

asset    constituting   principal   to   be   repaired   from   principal.   Thus,

Longbotham's Estate analyzes an issue that is not implicated herein.

        Appellant also posits that the rationale of In re Jacobson's Estate,

331 A.2d 447 (Pa. 1975), applies.             Therein, the trustee was expressly

allowed, within it discretion, to use principal, and we upheld such a

distribution in the face of objection by the remaindermen of the trust. The

trust in this case does not authorize principal distributions to Appellant under

Article IV, and Appellant’s reliance upon that decision is misplaced.

        We also note the following. In seeking such distributions of principal

needed to sustain itself, Appellant relies heavily upon the fact that it is

presently unable to generate sufficient money to meet its operating costs,

which include attending to the needs of a significant number of indigent

people. It suggests that we must determine that the settlor did not intend

for it to fail for lack of funds, and that the orphans’ court abused its

discretion in concluding that it could not obtain distributions from its one-half

of the principal of the trust to the extent needed to render it financially

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viable. Appellant insists that, without payments from the trust corpus, it will

become insolvent and thus, application of the cy pres doctrine will become

necessary even though the settlor intended for it to be the recipient of one-

half of the trust assets.

      While we laud Appellant’s efforts to aid the poor, our task herein is to

interpret the terms of the trust and ascertain whether it permits Appellant to

receive principal distributions. Appellant is responsible for its own financial

operations, and the state of its budgetary affairs is not a factor in

interpreting the terms of this trust.

      Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 9/9/2016

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