HomeMy WebLinkAbout10-15-13 � • � '�..«�A �
, � 4,.,.a "� �
:� � `--'� � �
� r''�-� r....�_.7
. , W "`....°� .M...� '�'�) s'a�'�'�.
� � 'ti'� ��' ._..,;� �:;"%'
.. � � ��„ E� �"""'�' �4 P ����
� �^gp ��� "w'�
�.�.�.. � C.jl ,.�.;; �_
��• G�.? f::,ry � � �`",�
t� �;,;°� ti°. —�—� �"a
� �� �� , �.,�
..;... �, ;; y',°�
� -�--
�} �..�
"."� i--a �'d+''' ���
:�-�' C.�,a
IN RE: : IN THE COURT OF COMMON PLEAS
: (�F CUMBERLAND COUNTY,
ESTATE OF LOTTIE IVY DIXON : PENNSYLVANIA
Deceased :
: ORPHANS' CUURT DIVISION
: NO. 21-07-0686
RESPONSE OF OBJECTANTS, GEORGE F. DIXON III AND RICHARD E.
DIXQN,Tp M&T'S MOTIQN TQ STRIKE OBJECTIONS
TO M&T'S FIRST AND PARTIAL ACCOUNT
AND NOW comes George F. Dixon III and Richard E. Dixon(hereinafter"the
Brothers"), Objectants to M&T's First and Partial Account of the Trust Under Revo�cable
Agreement with Lottie Ivy Dixon("Revocable Trust"),by way of answer to M&T's Motion to
Strike Objections state and aver as follows:
l. Denied. The Objections filed by the Brothers are serious, substantial and
well-founded objections that are and will be supported by both documentation and Qther written
evidence and the testimony of witnesses. The Obj ections are squarely based on facts and law and
merit the full consideration of the Court, including a period of discovery and a hearing on the
merits.
4748814
.
2. Denied. The allegations of this paragraph constitute a misstatement and
mischaracterization of Pennsylvania law as it applies to the facts and circumstances of this case.
The Brothers are both successor co-trustees and remainder beneficiaries of the Revocable Trust. As
such, they have the right and standing to object to actions taken by M&T1, the Corporate Trustee, in
violation of the trust instrument and Pennsylvania law, including M&T's failure to administer the
trust in accordance with the provisions of the trust document, M&T's failure to preserve the
principal of the trust, and M&T's failure to properly balance the income interests of the settlor with
the growth interests of the remaindermen- all of which caused substantial losses to the trust. It is
not the case that M&T's duties in connection with this trust ran solely to the settlor. Section 7753(a)
of the PEF Code does not apply to this case. Rather, the bank's duties ran to the beneficiaries.
Standing as Co-Trustees
A successor trustee is required by the duty of loyalty to enforce any claim that the trust
estate has against a co-trustee or prior trustee. Thus,the Brothers are under a duty to seek a
surcharge against the Corporate Trustee for losses incurred as a result of M&T's breaches of
duty during its administration of the trust. If the Brothers did not pursue a surcharge action
against M&T,they would expose themselves to a potential surcharge. Under Pennsylvania law,
as formerly codified at 20 Pa. C.S.A. § 7135, successor trustees such as the Brothers have the
right and power to recover assets of the trust from the original trustee. Here,the successor
trustees have the duty to recapture the wasting of trust assets caused by the actions of M&T and
to seek correction of the Account.
1 The Revocable Trust was under the sole administration of the Corporate Trustee,Manufacturers and Traders Trust
Company, Successor to Allfirst Trust Company of Pennsylvania, Successor to Dauphin Deposit Bank and Trust
Company (hereinafter "Corporate Trustee" or "M&T") from August 19, 1985 to June 28, 2007 when George F.
Dixon III and Richard E.Dixon became successor co-trustees at the time of the Settlor's Death.
4748814 2
�
As successor co-trustees, the Brothers have the right and duty to insure that the Account
prepared by the Corporate Trustee is proper and accurate. The Bank improperly and without
justification failed and/or refused to provide the Brothers the complete data and draft of the
Revocable Trust accounting for several years, despite repeated requests. When the proposed
Account was finally made available, the Brothers identified major problems both in the reported
actions taken by the Bank in the administration of the trust and in the content and format of the
accounting. As a result,they refused to sign or verify the proposed Account.
There can be no doubt that the Brothers have standing to object to the Account filed by
M&T since the Revocable Trust has been"aggrieved"by the improper distributions and other
actions taken by the bank.
StandinE as Benefciaries
The Brothers also have standing as remainder beneficiaries of the Revocable Trust. It is
well-settled Pennsylvania law that the primary duty of a trustee is the preservation of the assets
of the trust and the safety of the trust principal. The law in effect at the time the Revocable Trust
was created in 1985 and throughout the administration of the trust by M&T provided that it is the
duty of the trustee to preserve the estate,both as respects income and principal,which, so far as
possible,must be kept intact until the termination of the trust and its delivery to the
remaindermen. A trustee should protect the interests of remaindermen as well as the life tenant.
See In re Estate of Hamill, 487 Pa. 592, 410 A.2d 770 (1980); Estate of Pew,440 Pa. Super. 145,
655 A. 2d 521(1994),appeal withdrawn, 544 Pa. 631 (1995)(a trustee's responsibilities flow not
only to the life tenant,but also to the remaindermen). Pennsylvania courts have recognized the
right of trust`remaindermen to raise objections to the trust administration and/or pursue surcharge
4748814 3
.
actions for breach of fiduciary duty. Id.; In the Matter of Markowitz, 71 A.3d 289 (Pa. Super.
2013).
Although the rights of beneficiaries of a revocable trust may be subject to the influence of
the settlor,here Lottie Ivy Dixon("Mrs. Dixon"or"Settlor"), during the settlor's lifetime, that
does not relieve the Bank of its good faith and fiduciary obligation and duty to protect and
preserve trust assets,to manage the trust estate in a manner that will preserve the trust fund for
the remaindermen, and to administer the trust in accordance with the trust instrument. See 20
Pa.C.S. § 7771 ("the trustee shall administer the trust in good faith, in accordance with its
provisions and purposes and the interests of the beneficiaries and in accordance with applicable
law.").Nor does it somehow remove the Brothers' ability and standing to make complaint about
the corporate trustee's malfeasance.
The Brothers' Obiections
• As the Objections clearly establish, the Revocable Trust instrument required that
distributions of principal be made only as requested in writin�by the Settlor
delivered to the Trustee and that payment of income be made only as the Settlor
directed in writin�.
• As the Objections clearly establish, and not contested by M&T in its motion to strike,
M&T made distributions or payments of principal and income without written request
or written directive from the Settlor.
• Through discovery,the evidence will show that M&T made substantial distributions
and payments of principal and/or income,most often on the basis of phone calls,
sometimes on the basis of phone calls from third parties and sometimes on the basis
of its own decision.
4748814 ,4
_ _
,
• A trustee has no authority to act beyond the specific provisions of the trust
instrument.
• The evidence will show that the requirement of a written request or directive was
included in the trust instrument in an effort to prevent just what happened here-
unfettered distributions and pillage of the principal and interest because of external
pressures and demands placed on Mrs. Dixon by others.
• A settlor may revoke or amend a revocable trust only by strict compliance with the
terms of the trust instrument. Here,the trust agreement, at Article XIV,requires an
instrument in writing signed by the Settlor and delivered to the trustee. There was no
such writing in this case. Mrs. Dixon never otherwise consented in writing to
authorize distributions of principal and/or income by M&T without a written request
or written directive from her.
• It is and was beyond the power of M&T to waive the requirements for amending the
trust, especially when doing so caused the depletion of trust funds.
• As the Objections also state, a fact ignored by M&T in its motion to strike, M&T not
only made improper distributions of principal and income, it unilaterally converted
principal to income in violation of the trust instrument.
• The trust�instrument did not authorize or grant M&T the power to make conversions
of principal to income.
• A corporate trustee such as M&T is required to exercise extraordinary care in the
management of a trust.
• Nothing excused the Bank from its duty to properly document the distribution of
funds and to otherwise maintain adequate records of the administration of the trust.
4748814 5
A trustee's duty to act in good faith and in accordance with the purposes of the trust and
the interests of the beneficiaries is unassailable. See Section 7771 ("the trustee shall administer
the trust in good faith, in accordance with... the interests of the beneficiaries...") and Section
7772 ("A trustee shall administer the trust solely in the interests of the beneficiaries."). 20
Pa.C.S.A. 7771 and 7772. In Pennsylvania, the definition of"beneficiary"includes a
remainderman,both vested and contingent. See Official Comments to Chapter 77.
M&T's Motion to Strike further overlooks the Brothers' Objections to the content and
format of the Account as being deficient under the Pennsylvania Orphans' Court Rules,
including Rule 6.1, and the Uniform Fiduciary Accounting Principles in that the Corporate
Trustee provides no documentation, explanation or information regarding the purpose and effect
of the disbursements and distributions.
The Court should not summarily strike or dismiss the Objections.
3. Denied as stated. By way of further answer, the Brothers incorporate by
reference their response to paragraph 2 as set forth above. M&T's position is wholly without
merit for several reasons. Section 7753(a)of the PEF Code is not applicable to this case and the
legal principles that do apply support the Brother's Objections.
Section 7753 did not go into effect until November 6, 2006. Section 7753(a)was part of
the Uniform Trust Code("UTC"). The UTC, as modified and adopted in Pennsylvania,became
effective on November 6, 2006, P.L. 625,No. 98. See 20 Pa. C.S.A. §§ 7701 to 7799.3. The
Official Comments to Chapter 77 (which expressly state that they"may be used in determining
the intent of the General Assembly") stipulate:
Under the common law,the past actions of trustees,beneficiaries
and others regarding trusts are�overned�the le�al np 'nciple in
4748814 (
.
effect when the action occurred. Chapter 77 does not change those
common law concepts. (emphasis supplied)
See also, In re Estate of Warden, 2 A.3d 565, fn 5 (Pa. Super. 2010),appeal denied, 17 A.3d
1255 (Pa. 2011).
The Revocable Trust was signed and effective as of August 19, 1985. Moreover,the
overwhelming majority of the Bank's actions here in question—distributions and disbursements
and conversions of principal—took place between October 1, 1993 and December 6, 2005.
During that time period, for example, there were over$1.5 Million in distributions of principal.
Section 7753(a),however,was not in effect when those actions occurred. It cannot operate to
excuse the Bank's careless depletion of the Rev. Trust principal and income after the fact.
Rather, the legal principles in effect during the relevant times are found in Pennsylvania's
common law and in the PEF Code of 1972, all of which support the Brothers' Objections.
Pennsylvania law during that entire period provided that a trustee owed a fiduciary duty
to all trust beneficiaries. A trustee has the duty to protect and maintain the principal of the trust
for the benefit of the remaindermen. See In re Estate of Hamill,supra; In re Fox's Estate, 264 Pa.
478, 107 A. 863 (1919); Estate of Pew,supra.
The PEF Code of 1972 did not have a statutory provision relating specifically to
revocable trusts. Pennsylvania law,however,provided that:
a) The trustee is required to administer the trust in accordance with the provisions of
the trust document.
b) The trustee has a fiduciary duty to ensure the safety of the trust principal.
c) A trust must be administered solely in the interests of the beneficiaries.
d) A trustee has a fiduciary duty to protect the interests of remaindermen as well as
the life tenant.
4748814 7
e) A trustee has a fiduciary duty to administer a trust impartially based on what is
fair and reasonable to all of the beneficiaries, including remaindermen.
Thus, contrary to § 7753(a), the duties of the trustee in this case are not owed exclusively
to the settlor. Rather,the trustee owed a fiduciary duty to protect the interests of the trust
beneficiaries,including remaindermen. M&T breached its fiduciary duties owed to the Brothers
and the other two remaindermen:
Regardless of whether Section 7753(a)may provide that the rights of the remainder
beneficiaries are subject to the control of the Settlor,that would not excuse M&T's failure to
properly administer the trust.Nor does it abrogate the rights of the co-trustees and remainder
beneficiaries to challenge improper distributions and conversions that were not in accordance
with the trust instrument. Even if it applied,to the extent that Section 7753(a) can be read to
condone undocumented and unauthorized movement of trust funds, including distributions
without written request and/or unauthorized conversions of principal to income, it is in conflict
with the trust instrument. The provisions of the trust instrument prevail over any contrary
provisions of Pennsylvania law, including Chapter 77 of the PEF Code. See 20 Pa. C.S. §
7705(a); In re Estate of Warden, 2 A.3d 565 (Pa. Super. 2010),appeal denied, 17 A.3d 1255 (Pa.
2011).
Here, M&T failed in its fundamental duty to preserve the trust assets, especially principal
—causing huge losses to the trust principal and income—by making unauthorized and
indiscriminate distributions from the Revocable Trust and conversions of principal to income,
not for the benefit of Mrs. Dixon,but knowing that the funds were being pushed through her
checking account for the benefit of third parties. Rather than preserving the principal and
income, the Corporate Trustee paid out well over$2.5 Million—while Mrs. Dixon was living a
4748814 g
simple existence—such that at the time of Settlor's death the principal balance was less than
$21,000.00.
4. Denied. The Brothers' Objections focus solely on actions taken by M&T
over the course of 22 years prior to Mrs. Dixon's death on June 28, 2007. The Brothers'
Objections also focus on the Account prepared and filed solely by M&T. It is further averred that
although the Brothers became co-trustees with M&T upon the Settlor's death,the improper
disbursements, distributions and conversions at issue took place long before that date and
without the knowledge of the Brothers.
5-6. Paragraphs 5 and 6 axe not relevant since the actions relating to the administration
of the trust preceded Mrs. Dixon's death and were controlled solely by M&T as the Corporate
Trustee. It is further averred that M&T continued to act unilaterally following the death of Mrs.
Dixon without the advice, consent or knowledge of the Brothers—including with regard to the
preparation and filing of the Account.
7. Denied. For the reasons set forth above in Paragraphs 1 through 6,the
Brothers' Objections have substantial merit and should not be summarily stricken or dismissed.
8. Denied. The Brothers incorporate by reference their responses to
paragraphs 1-7 as set forth above. M&T's Motion to Strike relies exclusively on Section 7753(a)
and is based on its self-serving conj ecture that Mrs. Dixon"waived"the requirements of the trust
instrument despite the fact that she never amended that instrument. Mrs. Dixon could have
�
4748814 9
.
amended the Revocable Trust only by way of an instrument in writing signed by her and
delivered to M&T as required by Article XIV. The record will establish that nothing like that
was ever done in this case. The Court should not allow an unknowing"waiver"to accomplish
that which the Settlor never requested in her lifetime: amendment of the trust to remove the
requirement for a written request or written directive in order for payrnent of principal or income
to be made.Neither the settlor nor the Corporate Trustee can choose to ignore the specific
provisions of the trust instrument.
Moreover,there is no evidence or record to support M&T's speculation. There is no
evidence or record to even suggest that Mrs. Dixon knew about, let alone"consented"to,many
of the actions taken by the Bank. As set forth above in Paragraphs 2 and 3, incorporated herein,
the Brothers have the right and"standing"as remainder beneficiaries and co-trustees to file
objections to M&T's Account, including,more specifically, to actions taken by the Bank that
were not in accordance with the trust instrument.
The Brothers submit that discovery relating to the Objections would further confirm that:
1) the trust instrument was never amended,modified, or revoked by Mrs.
Dixon;
2) the trust instrument required written request or written directive from the
Settlor in order to authorize disbursements or distribution of principal and income by
M&T;
3) the trust instrument required written request or written directive from the
Settlor in order to minimize invasion of principal and interest as part of an overall estate
plan;
4748814 j Q
4) the Bank did not and does not have written requests or written directives
from the Settlor; and
5) Mrs. Dixon was not aware of many of the Bank's actions in question.
9. Denied. The Bank's cavalier remarks about the Brothers' very serious and
significant Objections are troubling and without merit. The Brothers incorporate by reference
their responses set forth above and further state:
• The Brothers as co-trustees and remainder beneficiaries have the right and standing
to file objections to M&T's Account based upon the Bank's improper actions as
Corporate Trustee and the improper substance of the Account. The requirements of
the txust instrument for written requests and directives were never removed or
amended in writing by the Settlor—those requirements were not"waivable"willy
nilly as the Bank saw fit to make distributions howsoever it desired. There is not
even a record here yet to establish that requests for distribution were made,by whom
and how they were made.
• Pursuant to Article III of the Revocable Trust,the Brothers were remainder
beneficiaries and had the right to expect that the Corporate Trustee would fulfill its
fiduciary duty to preserve the principal and to administer the trust in accordance with
the provisions of the trust instrument. Even if Section 7753(a) applied,the trust
instrument prevails.
• There is no hard and fast rule under Pennsylvania law that would preclude
consideration of"other means of income" as suggested by M&T. Rather, in the
ascertainment of a settlor's intent, it is fundamental that a trust provision must be
4748814 1 1
,
read in the context in which it appears. 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.
Farmers Trust Co. v. Bashore, 498 Pa. 146, 445 A. 2d 492 (1982).
• Looking at the four corners of the trust instrument and taking into consideration the
totality of the circumstances surrounding its creation as will be developed in
discovery, it is clear that the intent of the Settlor and her husband was that this trust
was not meant for routine invasion of the principal and income. The requirement of
the trust for written requests and directives from the Settlor was part of their plan to
prevent or minimize such invasions.
• M&T failed in its duty to use reasonable care and diligence to preserve and protect
trust assets for the benefit of both Mrs. Dixon and the remaindermen, and therein lies
the duty of the Bank to have evaluated the need for the extensive disbursements and
distributions.
Any records, documents or data relating to the trust accounting were and remain in the
exclusive possession and control of M&T. On numerous occasions,the Brothers requested the
complete data in connection with the Rev. Trust account. M&T provided partial data but failed
and/or refused to provide a complete set of data or the proposed draft account. The draft account
was finally circulated in or about April of 2013. The inexcusable delay in producing the account
caused material prejudice and harm to the Brothers as co-trustees and remainder beneficiaries: a
surcharge action could have been commenced several years ago upon a more timely filing of the
account and trust assets recaptured and placed back into the Revocable Trust for the benefit of
the remaindermen.
4748814 1 2
.
WHEREFORE, Objectants George F. Dixon III and Richard E. Dixon respectfully
request that the Motion to Strike be denied,that a period of discovery be provided and that a
hearing be scheduled on the merits of the Objections.
Respectfully submitted,
Date: October 15, 2013 By: ` r� �� " - i
.�
Kevin J. Kehner,Esq. (PA Bar No. 33539)
OBERMAYER REBMANN
MAXWELL & HIPPEL LLP
200 Locust Street, Suite 400
Harrisburg, PA 17101
(717) 234-9730
(717) 234-9734 (Fax)
kevin.kehner@ob ermayer.com
Counsel for George F. Dixon, III
and Richard E. Dixon
4748814 1 3
CERTIFICATE OF SERVICE
I, Kevin J. Kehner, certify that on this date, I have served a true and correct copy of the
foregoing Response of Objectants, George F. Dixon III and Richard E. Dixon, to M&T's Motion
to Strike Objections to M&T's First and Partial Account by first-class mail, addressed as
follows:
Elizabeth P. Mullaugh, Esquire Daniel L. Sullivan, Esquire
Kimberly M. Colonna, Esquire SAIDIS, SULLIVAN &ROGERS
McNEES, WALLACE &NURICK 26 West High Street
100 Pine Street Carlisle, PA 17013
P.O. Box 1166
Harrisburg, PA 17108-1166
Mark D. Bradshaw, Esquire Charlotte Dixon
STEVENS & LEE 323 Bayview Street
Harrisburg Market Square Camden, ME 04843
17 North Second Street, 16th Floor
Harrisburg, PA 17101
Date: October 15, 2013
� Kevin J. Kehner, Esquire
4748814 1 4