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HomeMy WebLinkAbout21-2006-553 Orphans' CATHERINE V. McKINNEY, Settlor of The Patricia M. Kilkenny Family Irrevocable Turst and PATRICIA M. KILKENNY, Petitioners IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA v. ORPHANS' COURT DIVISION COMMUNITY TRUST COMP ANY, Respondent NO. 21-06-553 ORPHANS' COURT IN RE: PETITION FOR TERMINATION OF TRUST and OBJECTIONS TO FIRST AND FINAL ACCOUNT BEFORE OLER, J. OPINION and ORDER OF COURT OLER, 1., December 27,2006. In this Orphans' Court case, the settlor and the beneficiary of a trust designed to insulate the beneficiary's assets from invasion by the government in the event of her entry into a nursing home (Petitioners), have filed a petition to terminate the trust and objections to a first and final account filed by the trustee (Respondent). A hearing on the petition and objections was held by the court on November 29, 2006. F or the reasons stated in this opinion, the petition to terminate the trust will be granted and the objections to the account will be sustained in part. FINDINGS OF FACT 1. Petitioners are Catherine A. McKinney, an adult individual residing at 6 Coover Court, Dillsburg, York County, Pennsylvania, and Patricia M. Kilkenny, an adult individual residing at 603 Fairway Drive, Camp Hill, Cumberland County, Pennsylvania. 2. Respondent is Community Trust Company, a trust company operated and licensed under the laws of the Commonwealth of Pennsylvania and having its principal place of business at 3907 Market Street, Camp Hill, Cumberland County, Pennsylvania. 3. Petitioner McKinney is the daughter of Petitioner Kilkenny. 4. In 2002, Petitioner Kilkenny, the mother of Petitioner McKinney, owned the following assets: a residence at 605 Fairway Drive, Camp Hill, Cumberland County, Pennsylvania, valued at $162,155.50 as of September 30, 2002; a MetLife annuity valued at $103,000.00 as of July 1, 2002; and a MetLife annuity valued at $50,401.03 as of September 1, 2002. 5. On September 6, 2002, Petitioner Kilkenny transferred her assets, consisting of the residence and two annuities, in trust to her daughter, Petitioner McKinney. 6. Later on that date, Petitioner McKinney transferred those assets in trust to Respondent Community Trust Company pursuant to a "Family Irrevocable Trust" instrument, wherein Petitioner McKinney was settlor, her mother (Patricia Kilkenny) was beneficiary, and Respondent Community Trust Company was trustee. 7. The purpose of this set of transactions was to insulate the mother's assets from attachment by the government in the event that she was subjected to nursing home expenses which were paid through government programs. 8. The trust instrument provided that "[t]he Trustee shall receive as its compensation for the services performed hereunder that sum of money which the Trustee normally and customarily charges for performing similar services during the time which it performs these services." 9. Normal and customary charges of Respondent with respect to a trust of the size involved included an administration fee of 1.1% per annum (with the minimum fee being $1,500.00) and a termination fee "[e]qual to the average fee charged over the prior 12 months, annualized." 10. The trust agreement did not provide for or contemplate a partial termination fee; the trustee was, to a substantial degree, protected with respect to 2 trusts with reduced principals by the aforesaid minimum annual administration fee. 11. Due to an accounting error, the annual administration fee actually charged by Respondent throughout its administration of the trust has been 1.3% of the corpus. 1 12. The trust instrument further provided as follows: "Settlor, Catherine A. McKINNEY, is hereby granted the general power to appoint some or all of the principal of this Trust to herself, her estate or any other individual, in such proportions and upon such terms (in trust, outright gifts, or in any other manner) as she deems advisable." 13. In the course of the trust, Petitioner McKinney exercised her power of appointment on two occasions, withdrawing $20,000.00 in May of 2004, and withdrawing $11,120.00 in September of 2006; no "termination fee" was charged by Respondent in connection with these transactions. 14. During the course of the trust, Petitioners came to the conclusion that the benefit of the trust was not worth its cost in terms of administration fees, particularly in light of the fact that Petitioner Kilkenny had long-term (five year) nursIllg care Illsurance. 15. On December 27, 2005, counsel for Petitioners sent a letter to Respondent indicating that they desired to terminate the trust by Petitioner McKinney's exercise of a power of appointment over the entire corpus of the trust. 16. Respondent replied by letter dated February 3, 2006, that it would comply with Petitioners' wishes, but noting (a) that a termination fee would be charged and (b) that, if Petitioners wished to avoid the delay inherent in the filing of an account and confirmation by the court, Petitioner McKinney would be expected to execute a release in return for receipt of the assets. I By letter to the Court dated December 22, 2006, Respondent's counsel presented a revised computation of administration fees. However, this document was not filed of record. 3 17. As subsequently discovered, the proposed termination fee represented an overcharge because it was based upon the incorrectly computed administration fee. 18. Petitioners were not willing to accept either of these preconditions. 19. On February 16, 2006, Petitioners attempted to avoid the preconditions by the device of Petitioner McKinney's exercise of a power of appointment over two of the three assets in the trust-the residence and the larger annuity. 20. On March 13, 2006, Respondent responded to this attempt by asserting a right to charge a termination fee based upon the partial withdrawal of assets from the trust. 21. On March 16, 2006, Petitioners disputed Respondent's right to charge a termination fee when the trust was not in fact being terminated. 22. On or about April 25, 2006, Respondent reasserted (a) its position that it had a right to charge a termination fee for withdrawal of part of the assets of the trust and (b) its position that, in lieu of a court accounting and confirmation, the appointed assets would not be distributed without a release 23. Petitioners continued to reject these positions of Respondent. 24. On June 20, 2006, Petitioners filed a petition to terminate the trust, and for incidental relief including attorney's fees, without payment of a termination fee. 25. Respondent filed a First and Final Account with respect to the trust on September 7,2006. 26. This account included overcharges for administrative fees as discussed previously, a termination fee calculated incorrectly as discussed previously in the amount of $4,242.50, and attorney's fees in the amount of $11,641.00; an additional $4,554.50 in attorney's fees was claimed by Respondent's counsel at the hearing; and in a letter to the court received after the hearing Respondent's 4 counsel claimed a further amount of $4,235.00 in attorney's fees? The majority of these $20,448.50 legal fees were apparently related to Plaintiffs' petition and objections. 27. Petitioners have incurred reasonable and necessary attorney's fees in connection with this matter in the amount of $2,602.34. 27. At the hearing on the petition and objections, counsel for the parties stipulated to the parties' agreement that, at this point, the trust should be terminated. CONCLUSIONS OF LAW 1. The Court has jurisdiction over the parties and subject matter of this litigation. 2. Respondent breached its contractual and fiduciary duties by (a) overcharging for administration fees during the course of the trust, (b) claiming a termination fee for transactions which would not have terminated the trust, and (c) overcharging for the termination fee; and 3. Petitioners did not act improperly or umeasonably in declining to release Respondent from liability for its administration of the trust or declining to pay a termination fee in connection with the withdrawal of two of the trust's three assets. ORDER OF COURT AND NOW, this 2ih day of December, 2006, upon consideration of Petitioners' Petition for Termination of Trust and Objections to First and Final Account, following a hearing held on November 29, 2006, and for the reasons stated in the accompanying opinion, it is ordered and directed as follows: 1. The Family Irrevocable Trust dated September 6, 2002, in which Petitioners are settlor and beneficiary and Respondent is trustee is terminated; 2 With regard to this letter, the court advised counsel that if it were to consider such additional evidence at this time the evidence would have to be presented by a filed stipulation rather than in the form of correspondence. 5 2. Petitioners' objections to Respondent's First and Final Account filed September 6, 2006, are sustained to the extent that Respondent is directed to file, within 30 days of the date of this order, an Amended First and Final Account (a) correcting the overcharges on administration fees, (b) deleting administration fees after March 13, 2006, except as to the asset which Petitioners had elected to leave in the trust, (c) charging a termination fee based only on the asset which Petitioners had elected to leave in the trust, and (d) deleting all attorney's fees incurred as a result of Petitioners' petition and objections, with the exception of fees for the preparation of the accounts themselves; 3. Within 30 days of the date of this order, Respondent shall pay to Petitioners the sum of $2,602.34 for attorney's fees; and 4. No other relief is granted to either party. BY THE COURT, s/ 1. Wesley Oler, Jr. 1. Wesley Oler, Jr., 1. Michael L. Bangs, Esq. 429 South 18th Street Camp Hill, PA 17011 Attorney for Petitioners Todd F. Truntz, Esq. 415 Fallowfield Road Suite 301 Camp Hill, PA 17011 Attorney for Respondent 6 7 CATHERINE V. McKINNEY, Settlor of The Patricia M. Kilkenny Family Irrevocable Turst and PATRICIA M. KILKENNY, Petitioners IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA v. ORPHANS' COURT DIVISION COMMUNITY TRUST COMP ANY, Respondent NO. 21-06-553 ORPHANS' COURT IN RE: PETITION FOR TERMINATION OF TRUST and OBJECTIONS TO FIRST AND FINAL ACCOUNT BEFORE OLER, J. ORDER OF COURT AND NOW, this 2ih day of December, 2006, upon consideration of Petitioners' Petition for Termination of Trust and Objections to First and Final Account, following a hearing held on November 29, 2006, and for the reasons stated in the accompanying opinion, it is ordered and directed as follows: 1. The Family Irrevocable Trust dated September 6, 2002, in which Petitioners are settlor and beneficiary and Respondent is trustee is terminated; 2. Petitioners' objections to Respondent's First and Final Account filed September 6, 2006, are sustained to the extent that Respondent is directed to file, within 30 days of the date of this order, an Amended First and Final Account (a) correcting the overcharges on administration fees, (b) deleting administration fees after March 13, 2006, except as to the asset which Petitioners had elected to leave in the trust, (c) charging a termination fee based only on the asset which Petitioners had elected to leave in the trust, and (d) deleting all attorney's fees incurred as a result of Petitioners' petition and objections, with the exception of fees for the preparation of the accounts themselves; 3. Within 30 days of the date of this order, Respondent shall pay to Petitioners the sum of $2,602.34 for attorney's fees; and 4. No other relief is granted to either party. BY THE COURT, 1. Wesley Oler, Jr., 1. Michael L. Bangs, Esq. 429 South 18th Street Camp Hill, PA 17011 Attorney for Petitioners Todd F. Truntz, Esq. 415 Fallowfield Road Suite 301 Camp Hill, PA 17011 Attorney for Respondent