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HomeMy WebLinkAbout1997-63 IN RE: : IN THE COURT OF COMMON PLEAS OF TRUST UNDER WILL OF : ADAMS COUNTY, PENNSYLVANIA ROBERT C. HOFFMAN, : Deceased : NO. 63 ORPHANS’ 1997 : : ORPHANS’ COURT DIVISION : OPINION AND ORDER OF COURT BEFORE GUIDO, J. Currently before us are two separate petitions. The first was filed by members of the Advisory Committee to the Trust created under the will of Robert C. Hoffman, deceased. They have asked us to compel the Trustee to transfer the bulk of the Trust assets to the Adams County Community Foundation (“ACCF”). The second was filed by the Trustee asking that we remove the petitioning members of the Advisory Committee. We held an evidentiary hearing after which the parties filed extensive briefs in support of their respective positions. The matter is now ready for disposition. FACTUAL BACKGROUND Robert C. Hoffman was a very wealthy and generous man. He loved Adams County and gave freely to countless local causes during his lifetime. He was also a man who relished the notoriety that resulted from his generosity. Mr. Hoffman commissioned his long time friend and attorney John White to devise an estate plan to ensure that his wealth would continue to support charitable causes 1 in Adams County long after his death. His desire was “to create a charitable entity which he would fund almost exclusively and which would not seek contributions from 1 Mr. White is one of the Advisory Committee members petitioning herein. NO. 63 ORPHANS’ 1997 – ADAMS COUNTY 2 the general public.” His two major goals were 1) to continue his support for local charitable causes for the longest period possible and 2) to make sure that his name was 3 associated with the gifts. In order to accomplish his client’s stated goals Mr. White drafted a will which, 4 inter alia, created the Robert C. Hoffman Charitable Endowment Trust (the “Trust”). The Trust was to be a “public charity” so that its “income” could be used “for the 5 betterment of the citizens and organizations of Adams County. . .”. Mr. Hoffman named PNC Bank N.A. to act as his Trustee. Its function was to administer the trust “relative to 6 the management, investment and administration of assets.” Mr. Hoffman also created a three person Advisory Committee, vesting in it “the sole and exclusive duty and authority to annually determine the recipients of the Trust’s annual income, as well as the amount 7 of such Trust income to be received by each . . .” One member of the committee was to be an employee of PNC. The other two were to be appointed for set terms by the 8 President Judge of Adams County. Mr. Hoffman died on March 24, 1997. His will creating the aforementioned Trust, along with subsequent codicils, were admitted to probate by the Register of Wills of Adams County on April 3, 1997. After Mr. Hoffman’s death, Mr. White discovered that the Trust did not and could 9 not qualify as a “public charity” under IRS rules. It was determined that the Trust should be reformed to qualify it as a “private foundation.” In order to do so at least 5% 2 Affidavit of John R. White attached to Trial Exhibit 9. 3 See Trial Exhibits 1 and 9. 4 Trial Exhibit 2, paragraph Fourth. 5 Trial Exhibit 2, paragraph Fourth (A) and (B). 6 Trial Exhibit 2, paragraph Fourth (D). 7 Trial Exhibit 2, paragraph Fourth (D). 8 Trial Exhibit 2, paragraph Fourth (D). 9 Trial Exhibit 4. 2 NO. 63 ORPHANS’ 1997 – ADAMS COUNTY 10 of the value of the Trust’s assets had to be distributed annually. Mr. Hoffman’s 11 direction that only the income be distributed each year posed a potential problem. As a result the proposed reformation included a provision to authorize the distribution of 12 principal as well as income. The Trust was reformed by Decree entered by President Judge Kuhn on November 17, 2000. The overarching goal of switching from a “public charity” to a 13 “private foundation” was accomplished. The Decree contained the following language: . . . The TRUSTEE shall regularly make qualifying distributions from the income and principal of the Trust in such amounts as may be required so as not to subject the Trust to tax under Section 4942 of the Code;however, the TRUSTEE shall not be limited to that amount but rather may distribute such additional amounts of income and principal as the Advisory Committee may deem appropriate. 14 (emphasis added). While the first three lines were necessary to comply with IRS regulations, the last three were not. In 2003 both court appointed members of the Advisory Committee began to have concerns regarding the viability of the Trust as a perpetual entity. Its value had decreased by more than $1 million in the three years since the reformation decree allowed the 15 invasion of principal to meet the 5% rule. Consequently they began to explore alternatives to enable the purposes of the Trust to be carried out well into the future. Barbara Ernico has been employed by the Advisory Committee in some capacity 16 since at least 2001. She was also active in the Adams County Foundation (ACF) and its 10 Trial Exhibit 4. 11 Trial Exhibit 4. 12 Trial Exhibit 4. 13 Trial Exhibit 12. 14 Trial Exhibit 12. 15 The decrease was from $7.391 million to $6.349 million. See Trial Exhibit 35. 16 She has held various titles including staff member, program director and consultant. 3 NO. 63 ORPHANS’ 1997 – ADAMS COUNTY successor organization the Adams County Community Foundation (ACCF). She was hired as the president of the ACCF when it was formed in 2008. In the early spring of 2007 the court appointed members of the Advisory Committee approached the Trustee about using the Trust’s assets to establish a donor advised fund within the soon to be formed ACCF. They realized that the Trust and the ACF had almost identical purposes. They viewed becoming part of its successor organization, the ACCF, as a way to achieve Mr. Hoffman’s goal of providing for charitable causes in perpetuity. At the September 2007 meeting of the Advisory Committee a lengthy discussion was held regarding the future of the Trust. At the conclusion of the discussion the following motion was proposed: . . . (T)hat the Robert C. Hoffman funds be transferred to the Adams County Community Foundation after it has been formally organized or reorganized and that the Hoffman funds become a separate fund within the Adams County Community Foundation and that the Robert C. Hoffman Charitable endowment Trust Advisory Committee formally retain the services of Mette, Evans & Woodside, as its legal counsel, to provide legal representation in all matters 17 relating to the implementation of these actions. The motion passed with both court appointed members voting in favor and the representative of PNC voting against. Over the next year Jeffrey Ernico, Esquire attempted without success to have the 18 Trustee transfer the Trust’s assets to the ACCF. The Trustee refused, arguing that it would go against Mr. Hoffman’s intention. Nevertheless the court appointed members of the Advisory Committee, with the help of Mr. Ernico, worked with the ACCF to draft a mutually agreeable Donor Advised Fund Agreement. At its August 19, 2008 meeting by 17 Trial Exhibit 16. 18 Mr. Ernico is an attorney with Mette, Evans and Woodside as well as the husband of Barbara Ernico. 4 NO. 63 ORPHANS’ 1997 – ADAMS COUNTY the same 2-1 vote, the Advisory Committee resolved to 1) approve the proposed Donor Advised Fund Agreement; 2) transfer a gift of $6,000,000 to the ACCF; and 3) instruct the law firm of Mette, Evans and Woodside to take legal action to implement its 19 decision. In February 2009 counsel filed a “Petition to Cause the Trustee to make 20 Distribution at the Direction of the Trust Advisory Committee.” The Trustee countered by filing a petition to remove the court appointed members of the Advisory Committee. We held an evidentiary hearing on both petitions in March 2010. DISCUSSION At the conclusion of the hearing we were satisfied that the court appointed members of the Advisory Committee had done nothing to justify their removal. We informed the parties of that finding immediately after the hearing had concluded. The issue of whether to require the Trustee to make distribution to the ACCF pursuant to the direction of the Advisory Committee was more problematic. The parties requested, and we allowed them, the opportunity to file post hearing briefs on the issue. After hearing the evidence, reviewing the briefs and relevant law we are satisfied that the transfer should be denied. The law with regard to the interpretation of wills and trusts is well settled. The intent of the testator/settlor is the “polestar” and “that intent, if it is not unlawful, must prevail.” In re: Estate of Elkins, 888 A.2d 815, 823 (Pa.Super. 2005) See also In re: Estate of Rider, 711 A.2d 1018 (Pa.Super. 1998). In order to ascertain the 19 Trial Exhibit 29. Unlike the earlier resolution calling for the transfer of all assets to the ACCF, this resolution left a balance of approximately $1,000,000 remaining in the Trust. 20 Because of declining market conditions the Trust assets had declined by almost $2,000,000, resulting in an amended petition which requested that the Trustee make distribution to the ACCF of all but $500,000 of the Trust assets. 5 NO. 63 ORPHANS’ 1997 – ADAMS COUNTY testator/settlor’s intent we “must focus first and foremost on the precise wording” of the document. Estate of Elkins, 888 A.2d at 823. Based upon that standard we are constrained to conclude that a transfer of the vast majority of the trust assets to the ACCF is not appropriate in this case. Mr. Hoffman bequeathed his residuary estate “In Trust unto P.N.C. Bank, N.A., as TRUSTEE, for the creation, in perpetuity of the ‘Robert C. Hoffman Charitable 21 Endowment Trust’.” He clearly stated his intention as follows: establish a charitable trust It is my aim and purpose to to acquire the the incomefrom which rest, residue and remainder of my estate . . . Trust shall be employed for the betterment of the citizens and organizations of Adams County, Pennsylvania, . . . 22 (emphasis added). He created an Advisory Committee to control the distribution of those funds. Finally, it was his expressed intention that the majority of that committee be appointed by the Adams County Court. The proposed distribution to the ACCF pursuant to the Donor Advised Fund Agreement is contrary to Mr. Hoffman’s expressed intentions in several respects. In the first instance, the funds would not be held in trust. Rather, they would become the sole property of the ACCF as evidenced by the following language: Ownership and Control . The Fund will be the property of the Foundation held by it in its normal corporate capacity; it shall not be deemed a trust fund held by it in a trustee capacity. Subject to the terms and conditions of this Agreement, the Foundation will have the ultimate authority and control over all property in the Fund, and the income derived therefrom, for the aforesaid charitable, educational 23 and religious purposes of the Fund and Foundation. Furthermore the ACCF would have the authority to change the purposes for which the Fund could be used in accordance with the variance powers contained in its 21 Trial Exhibit 2, paragraph Fourth. 22 Trial Exhibit 2, paragraph Fourth (A). 23 Trial Exhibit 52, paragraph 3. 6 NO. 63 ORPHANS’ 1997 – ADAMS COUNTY 24 by-laws. While there are certain safeguards placed in the Donor Advised Fund Agreement they are not fail safe. The bottom line is that the possibility exists for the funds to be used for purposes other than intended by Mr. Hoffman. More importantly Mr. Hoffman’s Advisory Committee would be fundamentally changed. While the ACCF maintains an “Advisory Committee” as part of the proposed Robert C. Hoffman Fund, that body no longer has the “sole and exclusive duty and authority to annually determine the recipients of the Trust’s annual income” as intended 25 by Mr. Hoffman. Rather its “recommendations for distributions from the Fund are 26 advisory only.” The ultimate decisions are vested in the ACCF Board. Nor does the Adams County Court have any involvement in the appointment of the members of the Advisory Committee as intended by Mr. Hoffman. Even if it were not clear from the express wording of the documents, the circumstances surrounding the execution of those documents would make it clear that a transfer of assets to the ACCF would be contrary to Mr. Hoffman’s intentions. We note that the ACF was in existence at the time Mr. Hoffman executed his will. It had substantially the same stated purposes as its successor the ACCF. Despite that fact, Mr. Hoffman, created a stand alone entity to make sure 1) that his wealth would be used in accordance with his wishes; and 2) that his name would be associated with his largesse. For the reasons set forth in the above opinion we will enter the Decree that follows. 24 Trial Exhibit 51, Article V, Section 6. 25 Trial Exhibit 2, paragraph Fourth (D). 26 Trial Exhibit 52, 5 (b). 7 NO. 63 ORPHANS’ 1997 – ADAMS COUNTY DECREE TH AND NOW, this 30day of SEPTEMBER, 2010, after hearing the evidence and reviewing the briefs filed by the parties in support of their respective positions it is hereby ORDERED, ADJUDGED and DECREED as follows: 1) The Amended Petition to Cause Trustee to Make Distribution at the Direction of the Trust Advisory Committee is DENIED. 2) The Petition for Removal of Two Members of Trust Advisory Committee is DENIED. By the Court, /s/ Edward E. Guido Edward E. Guido, J. Donald B. Kaufman, Esquire 100 Pine Street P.O. Box 1166 Harrisburg, Pa. 17108-1166 Kathryn L. Simpson, Esquire 3401 North Front Street P.O. box 5950 Harrisburg, Pa. 17110-0950 Michael T. Foerster, Esquire Office of the Attorney General TH 16 Floor Strawberry Square Harrisburg, Pa. 17120 :sld 8