In Re: Estate of Loucks, L. , 148 A.3d 780 ( 2016 )

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2016 PA Super 206IN RE: ESTATE OF LILLIAN E. LOUCKS, IN THE SUPERIOR COURT OF
DECEASED PENNSYLVANIA
APPEAL OF OTTERBEIN UNITED
METHODIST CHURCH
No. 1947 MDA 2015
Appeal from the Order Entered October 6, 2015
In the Court of Common Pleas of York County
Orphans' Court at No(s): 6791-1540
BEFORE: BOWES, OTT AND PLATT,* JJ.
OPINION BY BOWES, J.: FILED SEPTEMBER 09, 2016
Otterbein United Methodist Church appeals from the October 6, 2015
orphans' court order that denied it the right to invade the principal of a trust
of which it is a beneficiary. We affirm.
The pertinent facts follow. Lillian E. Loucks died testate on November
9, 1991. After her November 10, 1987 last will and testament was admitted
to probate, letters testamentary were issued to her executor, York Bank and
Trust Company (“York”). Ms. Loucks devised her residuary estate to an inter
vivos trust, which was executed on August 13, 1984. The trust named York
as trustee, and M & T Bank is successor trustee to York.
* Retired Senior Judge assigned to the Superior Court.
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The dispositive terms of the August 13, 1984 trust were as follows.
Ms. Loucks retained a life estate in the trust assets and was entitled to both
all of its income and such principal as the trustee deemed necessary for her
use and benefit. Trust Agreement, 8/13/84, at Article II. Article III
governed disposition of a portion of the trust assets upon Ms. Loucks’ death
and provided that, if the assets in her estate were insufficient to satisfy
certain specific bequests, then those bequests were to be satisfied from the
trust. Additionally, Article III provided for the distribution of either fifteen
percent of the trust’s then existing income and principal or $5,000,
whichever was less, to two individuals when Ms. Loucks died. Finally,
pursuant to Article IV, any balance remaining in the trust after the specific
bequests were paid, as outlined in Article III, was to be held in a charitable
trust. Article IV provided that the charitable trust’s income be distributed
equally between Appellant and an entity that became SpiriTrust Lutheran.
The two beneficiaries were permitted to use the income for any purpose.
After Ms. Loucks died, the charitable trust was funded with $700,000
in principal. Since 1991, Appellant and SpiriTrust Lutheran have received
equal amounts of the income generated by the corpus. On February 13,
2015, Appellant filed a petition asking for an increase in the amount that it
was receiving from the Lillian E. Loucks trust. In other words, it sought
distributions from principal. The trustee, SpiriTrust Lutheran, and the
Commonwealth of Pennsylvania, as parens patriae of charitable trusts, were
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served with notice of the petition. The Commonwealth has opposed the
grant of the relief requested by Appellant. The orphans' court held a
hearing, and it thereafter denied Appellant's request to invade principal.
This appeal followed. Appellant frames the issue for our review as follows:
A. Did the Orphans' Court make an error of law or abuse
its discretion when it found the Settlor did not intend to
specifically benefit Otterbein United Methodist Church, one of the
specifically identified beneficiaries named in the Lillian E. Loucks
Trust Agreement and that, rather, the settlor's intent was to
allow Otterbein United Methodist Church to fail for lack of funds
and to place the remaining Trust funds with another, yet to be
identified, religious organization?
Appellant’s brief at 4.
Herein, despite how Appellant presents the pertinent inquiry, we are
determining whether the terms of Ms. Loucks’ trust permit an invasion by
Appellant of its portion of the principal. “[T]he interpretation of a trust or a
will presents a question of law. As such, our standard of review is de novo,
and our scope of review is plenary.” In re Estate of McFadden, 100 A.3d
645, 650 (Pa.Super. 2014) (en banc) (citations omitted).
Certain principles guide trust interpretation. The testator's intent is
the cornerstone of such an endeavor. As we articulated in Estate of Pew,
655 A.2d 521, 533 (Pa. Super. 1994), it is “hornbook law that the pole star
in every trust . . . is the settlor's . . . intent and that intent must prevail.”
See also Estate of McFadden, supra. We are not permitted to construe a
provision in a trust so as “to destroy or effectually nullify what has always
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been considered the inherent basic fundamental right of every owner of
property to dispose of his own property as he desires, so long as it is not
unlawful.” Estate of Pew, supra at 533. Critically, the settlor’s intent
must be ascertained from the language of the trust, and we give effect, to
the extent possible, to all words and clauses in the trust document. See In
re Estate of McFadden, supra; accord Farmers Trust Co. v. Bashore,
445 A.2d 492, 494 (Pa. 1982) (“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.”).
Only when the language of the trust is ambiguous or conflicting or
when the settlor’s intent cannot be garnered from the trust language do the
tenets of trust construction become applicable. Farmer’s Trust, supra at
494 (“Only if a settlor's intent cannot be ascertained with reasonable
certainty will a court apply canons of construction, to attribute a reasonable
intention to the settlor in the circumstances.”); see also In re Estate of
McFadden, supra. In this case, we conclude that the language is clear and
articulates Ms. Loucks’ intent; hence, we do not resort to other canons of
trust construction.
The pertinent provision of the trust is in Article IV and states:
IV. Distribution of the Balance of the Trust Upon Settlor's Death.
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The balance remaining in said trust shall be held and retained by
the Trustee perpetually, for the following uses and purposes:
(A) To pay and distribute one-half of the income
therefrom to Otterbein United Methodist Church, of
York, Pennsylvania, to be used by said church for
reducing any indebtedness, or for general purposes.
(B) To pay and distribute one-half of the income
therefrom to Lutheran Social Services, South Region,
for the York Lutheran Home, located at 750 Kelly
Drive, York, Pennsylvania, for the purpose of
reducing indebtedness, or for general purposes.
(C) In the event that the balance in the Trust at
the time of Settlor's death is less than Fifty
Thousand Dollars ($50,000.00), then I direct
the Trustee to pay said balance to Otterbein
United Methodist Church, of York,
Pennsylvania, and Lutheran Social Services,
South Region, for the York Lutheran Home, in
equal shares.
Trust Agreement at pp. 3-4 (emphases added).
The plain language of Article IV does not permit discretionary
distributions from the corpus of the trust when needed or requested by
either Appellant or the other beneficiary in order to sustain their financial
viability. To the contrary, the language indicates unequivocally that the
trust is to be held perpetually and only the income is to be distributed to the
respective beneficiaries. Invasions of principal would deplete the trust so
that it would not be perpetual, in violation of the settlor’s clearly-articulated
intent. Additionally, the settlor set forth the triggering event for principal
distribution: if the balance in the trust was less than $50,000 when Ms.
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Loucks died. There is no construction that can be placed upon the
dispositive terms of this trust that would permit Appellant to invade
principal.
Thus, Appellant, even though it now denies this claim, is seeking to
modify the terms of this perpetual charitable trust, which implicates our
decision in In re Barnes Foundation, 683 A.2d 894 (Pa.Super. 1996).
Therein, we adopted Restatement (Second) of Trusts § 381 to analyze when
the court can permit deviation from the terms of a charitable trust:
The court will direct or permit the trustee of a charitable trust to
deviate from a term of the trust if it appears to the court that
compliance is impossible or illegal, or that owing to
circumstances not known to the settlor and not anticipated by
him compliance would defeat or substantially impair the
accomplishment of the purposes of the trust.
Restatement (Second) of Trusts § 381.
In the present case, compliance with the terms of the trust is neither
impossible nor illegal. The trust’s purpose was to supply income to the two
named beneficiaries in perpetuity, and it permits no distributions of principal.
It cannot be said that Ms. Loucks could not possibly have anticipated that
one of the two institutions might become in need of funds in excess of
income generated from the corpus; she did not allow invasion of principal in
that event. Rather, the trust was allowed to terminate only if the assets in it
were $50,000 or less upon her death. Appellant’s present position, wherein
it asks for permission to obtain principal when its financial needs require it,
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would eventually result in the termination of its portion of the trust, which is
not permitted under the language in question.
Appellant suggests that Ms. Loucks authorized the distribution of
principal under Article VII, which provides:
In the administration of the Trust Estate and any Trust provided
for hereunder, the Trustee shall have . . . the following powers
without restriction, either after the delivery of the notice referred
to in Subsection (D) of Section VI hereof, or. . . after the death
of the Settlor.
(J) To divide and distribute any Trust in kind or in
money, or partly in each, or by wa[y] of undivided
interest and for such purposes to value any property
to be thus divided or distributed at fair market
values at the date or dates of distribution.
We refuse to construe this provision so as to allow invasions of
principal under Article IV. To do so would be to abrogate the clear language
of Article IV providing for a perpetual trust with payments only of income to
its two beneficiaries. Article VII does nothing more than permit the trust to
be divided and distributions to be made in kind. It does not mention
invasions of principal, even though other provisions in the trust are clear in
that respect.
Ms. Loucks’ trust was created to provide: 1) income to her during her
lifetime (Article II); 2) money to named individuals at her death (Article III);
and 3) after compliance with Article III, the balance remaining to be placed
in a perpetual charitable trust with the income payable, in equal shares, to
Appellant and SpiriTrust (Article IV). To further these ends, the instrument
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accords the trustee the power to manage the funds within the trust, and
under Article VII, “[t]o divide and distribute any Trust in kind or in money,
or partly in each, or by way of undivided interests, and for such purposes to
value any property to be thus divided or distributed at fair market values . .
. .” Art. VII(J)).
Under the above-articulated precepts of trust construction, the
trustee’s authority to distribute trust assets in Article VII must be read in
conjunction with Articles II through IV. In Articles II and III, Ms. Loucks
demonstrated her ability to set forth when principal could be invaded. In
Article II, she authorized the trustee “in its absolute discretion” to distribute
payments from the principal to her during her lifetime as “deem[ed]
necessary or advisable for her use and benefit.” In Article III, the settlor
empowered the trustee to distribute payments from the principal to specific
individuals upon her death. Finally, as noted, in Article IV, the settlor
allowed the trustee to pay the trust corpus to Appellant and SpiriTrust if the
trust contained less than $50,000 when she died. Article IV permits no
principal invasions. Article VII is an administrative rather than dispositive
provision, and does not allow corpus distributions under Article IV.
Appellant also maintains that In re Longbotham's Estate, 29 A.2d
481 (Pa. 1943), is “similar to this case.” Appellant’s brief at 20. Therein,
the question presented was whether principal could be expended to make
major repairs to other real property that also constituted principal. Our High
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Court applied the precept that payment for permanent improvements, such
as those at issue in the case, should come from principal rather than
income. The Court applied the legal principle that “[i]f the improvements
are permanent in character, the principal is benefited, the effect being
merely to substitute one form of principal for another.’” Id. at 482 (quoting
Restatement of Trusts, § 233, comment (k)). Appellant is not asking for an
asset constituting principal to be repaired from principal. Thus,
Longbotham's Estate analyzes an issue that is not implicated herein.
Appellant also posits that the rationale of In re Jacobson's Estate,
331 A.2d 447 (Pa. 1975), applies. Therein, the trustee was expressly
allowed, within it discretion, to use principal, and we upheld such a
distribution in the face of objection by the remaindermen of the trust. The
trust in this case does not authorize principal distributions to Appellant under
Article IV, and Appellant’s reliance upon that decision is misplaced.
We also note the following. In seeking such distributions of principal
needed to sustain itself, Appellant relies heavily upon the fact that it is
presently unable to generate sufficient money to meet its operating costs,
which include attending to the needs of a significant number of indigent
people. It suggests that we must determine that the settlor did not intend
for it to fail for lack of funds, and that the orphans’ court abused its
discretion in concluding that it could not obtain distributions from its one-half
of the principal of the trust to the extent needed to render it financially
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viable. Appellant insists that, without payments from the trust corpus, it will
become insolvent and thus, application of the cy pres doctrine will become
necessary even though the settlor intended for it to be the recipient of one-
half of the trust assets.
While we laud Appellant’s efforts to aid the poor, our task herein is to
interpret the terms of the trust and ascertain whether it permits Appellant to
receive principal distributions. Appellant is responsible for its own financial
operations, and the state of its budgetary affairs is not a factor in
interpreting the terms of this trust.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 9/9/2016
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