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The Empire Crushes the Rebellion: PA Supreme Court Overturns Ruling on Taylor Trust
In a stunning, unanimous decision today—reversing that of the Pennsylvania Superior Court—the state’s Supreme Court has declared that it is unlawful to modify a trust to add a portability provision.
That is, the Court has essentially decreed that the beneficiaries of many trusts (mostly those created before the 1980s) are almost powerless to change the Corporate Trustees originally named by their trust’s Settlor.
As I’ve written about in previous blog posts, folks interested in Pennsylvania fiduciary law have been eagerly awaiting this ruling by the state Supreme Court since May 2016, when it agreed to take up the appeal filed by Wells Fargo Bank.
The Back Story
The question at hand was this: Can beneficiaries of a trust, by their unanimous agreement, modify that trust to add a portability provision, allowing them the ability to remove and replace the Corporate Trustee chosen by the Settlor at any time and for any reason, or even for no reason at all.
Since at least the 1980s, estate planners have routinely, if not by default, included portability provisions in every trust they create. Portability provisions ensure that a Corporate Trustee doesn’t become complacent about either its investment decisions or its customer service. As such, a bank or trust company that meets their basic investment and administration duties need not fear portability provisions. In fact, the free market activity encouraged by such provisions could even bring any bank more business.
In a nutshell, the addition of a portability provision is nothing more than a “facelift” to the trust document, because under all circumstances, there will always be a bank in charge – just perhaps not the small town bank Uncle Alfred chose 63 years ago before it was swallowed up by a much larger one.
This explains why since Pennsylvania implemented its version of the Uniform Trust Act in 2006, countless trusts have been modified to include these provisions. Most banks, with some notable exceptions, have traditionally not viewed these modifications as objectionable or as violating a material purpose of the trust.
Nonetheless, those days of trust modifications to add portability provisions have come to a crashing end in Pennsylvania with today’s decision. (Trust Under Agreement of Edward Winslow Taylor, Appeal of Wells Fargo Bank, 15 EAP 2015 – Decided July 19, 2017). Even if all trust beneficiaries and the Corporate Trustee agree to adding this provision, this opinion now makes a modification for this purpose prohibited and unlawful.
Well, first, Wells Fargo. It will now presumably remain Corporate Trustee of the Taylor Trust forever. But was that all that their case was about? Or did Wells Fargo litigate this case up to the Supreme Court level seeking a broader-scale victory?
Although they did not explicitly state it, oddly enough, the Pennylvania Supreme Court has unmistakably concluded that the identity of the Corporate Trustee is a “material purpose” of each and every trust in the Commonwealth that does not include an explicit right to remove and replace provision.
In doing so, from my perspective, it may have been unaware of the following facts:
– Countless trust Settlors over the years have signed trust documents that contained no remove and replace language and that were prepared by the very Banks named as Corporate Trustees in those documents. Often these Settlors were unrepresented by counsel.
– If a trust document does not contain a remove and replace clause, the Banks contend that the Settlor intentionally did not want to give anyone the right to ever remove or replace the named Corporate Trustee. But isn’t that pure speculation? Does everyone assume that a Bank that prepared a trust document naming itself as Corporate Trustee necessarily told the Settlor about the option of a remove and replace provision?
– Many Corporate Trustees–especially large ones like Wells Fargo–are “legacy” trustees. In other words, they were not the original bank appointed as Corporate Trustee by the Settlor, but assumed this role by simply acquiring the original bank that the Settlor had named in the document.
The Court’s opinion will affect countless families who are beneficiaries of trusts lacking portability provisions. In addition, Wells Fargo and any other Trustees resistant to resigning now have essentially guaranteed Trustee status, without regard to their investment performance, fees, or customer service.
Is this a Case-Closed Development?
Because the Supreme Court admitted that its opinion arose out of statutory confusion, I believe this issue requires a legislative fix. The fact that a trust document does not include specific remove and replace language is not evidence that even one Settlor intentionally omitted it from their trust document or had even heard those words before signing the document. It is difficult to believe that any Settler, properly informed, would ever refuse to include such a clause.
Perhaps the legislature could consider amending Section 7740.1 to note that unless a Corporate Trustee can prove that the option of including a right to remove and replace clause in the trust document was (1) explained to the Settlor and (2) intentionally rejected by that Settlor, then the beneficiaries of that trust can indeed modify it to add a portability provision, provided that any successor Corporate Trustee must have assets under management at least equal to those of the current Corporate Trustee.
But waiting for the legislature can take forever. So if you are the beneficiary of a Pennsylvania trust with no portability provision, does that mean you have no meaningful voice?
Not at all. If you have questions or concerns about your Corporate Trustee and your personal efforts to address those issues have failed, a lawyer well-versed in fiduciary law may be able to help. Contact me at firstname.lastname@example.org