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Client Successes, News

Schnader Wins Precedent-Setting PA Supreme Court Decision for Wells Fargo

08/04/2017

Schnader obtained a noteworthy victory for client Wells Fargo that addresses significant issues for trust settlors, trustees, and beneficiaries, in a July 19, 2017 decision by the Supreme Court of Pennsylvania. The unanimous decision in Trust Agreement of Edward Winslow Taylor resolved a conflict between two provisions of the Pennsylvania Uniform Trust Act (“UTA”) regarding beneficiary efforts to remove trustees. The contested provisions in Pennsylvania’s UTA are substantially similar to those in the Uniform Trust Code as adopted in 33 states. For the first time in any state, a high court has now confirmed that the Code provision requiring court supervision of efforts to remove trustees is the exclusive provision for such removals. The decision is of national significance for trust settlors, trustees, and beneficiaries in all states that have adopted the Uniform Trust Code.

The precedent-setting case addressed whether beneficiaries could utilize Section 7740.1 of the UTA to modify the terms of the trust to add a “portability clause” authorizing them to replace the corporate trustee at their discretion without judicial approval. Wells Fargo, as trustee, maintained that the UTA does not permit such amendment, and that instead a trustee may be removed only through the process contained in UTA Section 7766, titled “Removal of Trustee.” Section 7766 requires beneficiaries to demonstrate to the satisfaction of a court that removal serves the best interests of the beneficiaries, is not inconsistent with a material purpose of the trust, and that either the current trustee has not effectively administered the trust or that there has been a substantial change of circumstances (not including corporate reorganization).

In Taylor, the Supreme Court of Pennsylvania found that the beneficiaries could not seek to replace Wells Fargo as a trustee without going through the judicial process laid out in Section 7766. The unanimous Supreme Court decision reversed a split decision of the Superior Court, which had overturned a Philadelphia Orphans’ Court ruling in agreement with Wells Fargo’s position. The Supreme Court held that in the absence of a portability clause in the settlor’s trust document, Section 7766 is the exclusive provision of the UTA by which a trustee may be removed and that the “modification” of a trust contemplated by Section 7740.1 does not include trustee removal.

Ralph G. Wellington and Roberta A. Barsotti led the Schnader team for Wells Fargo. Bruce P. Merenstein, Nancy Winkelman, and Lee C. Schmeer also supported the briefing and argument preparation.

“This decision will have an immense influence throughout the country,” said Wellington, who argued the case before the Supreme Court. “Most states with similar laws are likely to be guided by this precedent,” said Barsotti, a tax lawyer and a litigator who specializes in the field of trusts and estates.

This case has been watched closely by members of the trust and estate bar in Pennsylvania and nationally. When faced with similar efforts to change trustees, courts in states that have adopted the Uniform Trust Code will likely look to the Pennsylvania Supreme Court’s definitive interpretation of the provisions for removal and modification. The decision also is significant as it upholds the fundamental principal of Pennsylvania law to respect the trust settlor’s intent.

For additional information, contact either Wellington or Barsotti.

Read more in the in the article, “Court Approval Needed for Beneficiaries to Remove Trustees, Justices Rule”, published by Pennsylvania Law Weekly on July 28, 2017.