J-A13014-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN RE: ESTATE OF EDWARD L. IRWIN, IN THE SUPERIOR COURT OF JR., ALSO KNOWN AS EDWARD L. IRWIN PENNSYLVANIA
APPEAL OF: ROXANNE ROTHBERGER
No. 1125 WDA 2015
Appeal from the Order Entered June 5, 2015 In the Court of Common Pleas of Allegheny County Orphans' Court at No(s): 2003 of 2013
BEFORE: OLSON, STABILE AND MUSMANNO, JJ.:
MEMORANDUM BY OLSON, J.: FILED NOVEMBER 15, 2016
Roxanne Rothberger (Daughter), as trustee for the Edward L. Irwin
Special Needs Trust (the Trust), appeals from the June 5, 2015 order
terminating the Trust.1 In this case, we are presented with the limited
question of whether a trust established pursuant to 20 Pa.C.S.A. § 5602
terminates automatically upon the principal’s death. The trial court
concluded that, based upon the language of the Trust instrument, the Trust
terminated automatically upon Edward L. Irwin Jr.’s (Decedent’s) death. Our
review of the Trust instrument reveals this conclusion was in error.
Nonetheless, we conclude, for the reasons set forth below, that a section
1 The June 5, 2015 order became final on June 29, 2015 when the trial court denied Daughter’s exceptions. J-A13014-16
5602 trust automatically terminates upon the principal’s death.2 Our
disposition of this limited issue doesn’t fully resolve this litigation because
whether a trustee maintains authority under the Uniform Trust Act, 20
2 Throughout the briefing in this case, the parties conflate a special needs trust with a trust established under section 5602. As the Supreme Court of New Jersey explained:
A special needs trust is a trust that is intended to allow a disabled individual to maintain eligibility for certain needs-based government benefits. The use of special needs trusts to protect eligibility for government benefits was first authorized by Congress when it passed the federal Omnibus Budget Reconciliation Act of 1993 (OBRA ′93). OBRA ′93 identified certain types of trusts into which disabled individuals, or persons acting on behalf of such individuals, can place assets without those assets becoming available assets for purposes of determining Medicaid eligibility. One such trust is what is known as a special needs trust. See 42 U.S.C. § 1396p(d)(4)(A). In 1999, Congress extended the protections afforded by the use of a special needs trust, finding that the contents of that type of trust are not considered resources or assets for purposes of determining eligibility for S[upplemental Security Income].
J.B. v. W.B., 73 A.3d 405, 414 (N.J. 2013) (internal quotation marks, footnote, and certain internal citations omitted).
A trust created pursuant to section 5602, on the other hand, is a trust created by an agent pursuant to a power-of-attorney executed by the principal. Only a very small subset of section 5602 trusts are also special needs trusts. Cf. 42 U.S.C. § 1396p(d)(4)(A) (a special needs trust must be formed by a “parent, grandparent, legal guardian of the individual, or a court” and the principal must be under 65 years old).
In this case, Decedent was over 65 years old when the Trust was created. Thus, it failed to satisfy the requirements for a special needs trust. See In re Pooled Advocate Trust, 813 N.W.2d 130, 142 (S.D. 2012). In order to avoid confusion, we do not use the (incorrect) terminology used by the parties. Instead, we refer to the Trust at issue herein as a section 5602 trust.
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Pa.C.S.A. § 7701 et seq. (which governs the administration of an express
trust like the one at issue in this case), is a separate and distinct issue from
whether the section 5602 trust terminates upon the principal’s death.
Accordingly, we affirm the trial court’s order terminating the Trust and
remand for further proceedings consistent with this memorandum.
The factual background and procedural history of this case is as
follows. On May 5, 2009, Decedent executed a financial power-of-attorney
and named one of his sons, Edward L. Irwin, III (Edward), as his agent.
Decedent named another son, David Irwin (David), as his successor agent.
Eventually, Daughter, Edward, and David engaged in litigation relating to
how Edward and David exercised the power-of-attorney. The parties
ultimately settled their dispute by establishing the Trust for Decedent’s
benefit. The Orphans’ Court of Allegheny County approved the parties’
settlement and the creation of the Trust. The Trust was funded by two
demand notes – one signed by Edward and one signed by David.3 Robert
Lemons (Lemons), the Trust’s original trustee, did not immediately collect on
the demand notes.
3 Edward’s demand note was for $15,000.00 at an annual interest rate of 0.22% while David’s demand note was for $60,000.00 at an annual interest rate of 0.22%. Both demand notes were payable upon demand of the trustee during Decedent’s lifetime and became immediately payable upon Decedent’s death. Furthermore, both demand notes included provisions permitting the trustee to confess judgment on the demand notes.
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On March 14, 2013, Decedent died. On April 2, 2013, prior to the
issuance of letters testamentary, Lemons, on behalf of the Trust, filed a
complaint seeking confession of judgment against David. Judgment was
entered against David, and in favor of the Trust. Thereafter, letters
testamentary were issued naming Edward as executor of Decedent’s estate.
On April 5, 2013, Edward and Lemons entered into an agreement in which
Edward agreed to pay $15,012.03 to the Trust on or before April 10, 2013 to
satisfy Edward’s demand note. Edward also agreed to pay $68,885.92 of
David’s inheritance directly to the Trust in order to satisfy the judgment
entered against David. Despite these arrangements, Edward did not make
the payments required by the April 5 arrangement.
On January 13, 2014, Edward and Lemons entered into an agreement
whereby Lemons agreed to accept a payment of $2,500.00 in order to fully
satisfy Edward’s obligation to the Trust. Lemons also “agree[d] to enter into
a settlement agreement with the Estate and the beneficiaries of the Estate
and the Trust, in lieu of the formal administration of the Trust and a First
and Final Account submitted to the Court on the Trust’s behalf.” Daughter’s
Proposed Findings of Fact and Conclusions of Law, 3/30/15, at Ex. 6.
Immediately after signing the January 13 agreement, Lemons resigned
as trustee and Daughter was appointed as successor trustee. On October
14, 2014, Daughter served David with a notice of intent to execute on the
confessed judgment. On November 17, 2014, David filed a petition seeking
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to strike or open the confessed judgment. Daughter filed an answer to the
petition which included new matter. On December 23, 2014, David filed a
petition to terminate the Trust. On June 5, 2015, the trial court entered an
order terminating the Trust and staying further proceedings relating to the
execution. Daughter filed exceptions which were denied on June 29, 2015.
This timely appeal followed.4
Daughter presents one issue for our review:
Whether the [trial] court committed an error in law and abused [its] discretion by terminating [the] Trust based upon findings of fact that were unsupported by substantial evidence, by relying upon language that cannot be found in the [document creating the] Trust and in effect directing the distribution of Trust assets in violation of both the Trust language and the applicable law?
Daughter’s Brief at 4.
Daughter’s lone issue on appeal requires us to interpret the instrument
used to create the Trust. Our standard of review of a trial court’s order
interpreting a trust instrument is de novo and our scope of review is plenary.
See Scalfaro v. Rudloff, 934 A.2d 1254, 1257 n.2 (Pa. 2007) (citation
omitted). As this Court has stated:
When interpreting a trust instrument, the intent of the settlor is paramount and if that intent is not unlawful, it must prevail. To ascertain this intent, a court must examine the language of the document, the scheme of distribution, and the facts and the circumstances existing at the creation of the trust. The settlor’s intent must be determined with such reasonable certainty that little doubt exists of this intent. If the settlor’s intent remains
4 The trial court did not order Daughter to file a concise statement of errors complained of on appeal. See Pa.R.A.P. 1925(b).
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uncertain, a court turns to canons of construction to supply the settlor’s likely intent.
Trust Agreement of Cyrus D. Jones Dated June 24, 1926, 607 A.2d
265, 268 (Pa. Super. 1992) (citations omitted).
The trial court found that pursuant to the express language of the
Trust instrument, the Trust terminated immediately upon Decedent’s death.
The portion of the Trust instrument relied upon by the trial court states:
Paragraph VI Termination
A. Beneficiary’s Death: Upon [Decedent’s] death, the Trustee may pay any death taxes due by reason of [Decedent’s] death regarding assets passing in accordance with the provisions contained in this Agreement or otherwise, and all expenses of her [sic] last illness, funeral and burial, and expenses related to administration and distribution of the Trust Estate, if, in the Trustee’s sole and absolute discretion, other provisions have not been made for the payment of such expenses.
The Trustee is hereby authorized to make all decisions necessary for and incident to the removal, transportation, and disposition of [Decedent’s] remains and the performance of a funeral or memorial service, after consulting with other members of the family.
The Trustee shall make no payments for expenses incurred prior to [Decedent’s] death if the Trustee shall determine, in said Trustee’s sole and absolute discretion, that payment therefore is the obligation of any county, state, federal or other governmental agency which has a legal responsibility to serve persons with disabilities which are the same or similar to [Decedent’s].
Upon termination of this Special Needs Trust due to [Decedent’s] death, the Trustee shall distribute the remaining Trust Estate to [Edward, David, Daughter,] John Paul Irwin, Edythe Irwin, and Margaret Sympson, in equal shares, per stirpes.
David’s Petition to Terminate the Trust, 12/23/14, at Ex. B.
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The trial court apparently relied upon the sentence that states, “Upon
termination of this Special Needs Trust due to [Decedent’s] death . . .” in
determining that the Trust terminated immediately upon Decedent’s death.
The trial court’s reading fails to consider the remainder of the section on
termination of the Trust. Specifically, the first paragraph states that upon
Decedent’s death the trustee is authorized to pay death taxes. It would not
be possible for the trustee to use trust assets to satisfy death taxes if the
Trust terminated immediately upon Decedent’s death.5 Therefore, the plain
language of the Trust instrument indicates that the Trust was not intended
to terminate upon Decedent’s death.
Not only does the plain language of the Trust instrument refute the
trial court’s conclusion, the facts and circumstances existing at the creation
of the Trust support a finding that the Trust was not meant to terminate
upon Decedent’s death. As noted above, the demand notes signed by
Edward and David, which funded the Trust, were executed together with the
Trust instrument in order to resolve pending litigation. Thus, they are key
5 Pursuant to section 5603, “upon the principal’s death, any remaining balance of corpus and unexpended income of the trust shall be distributed to the deceased principal’s estate.” 20 Pa.C.S.A. § 5603(b)(1). In this case, the Trust instrument provided that, upon Decedent’s death, the trustee expend the corpus and unexpended income for: (1) payment of trust expenses; (2) payment of funeral expenses; (3) payment of costs associated with Decedent’s last illness; and (4) payment of death taxes. At least some of these expenses may be paid from the Trust’s corpus and income after the Trust terminates pursuant to the Uniform Trust Act. Cf. 20 Pa.C.S.A. § 7780.7 (permitting a trustee to withhold from a trust distribution a reasonable reserve for the payment of expenses and debts).
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facts and circumstances evidencing the Trust’s purpose. Although the
demand notes signed by Edward and David were payable at any time, they
provided that, upon Decedent’s death, the notes would be immediately
payable to the Trust. David’s Petition to Terminate the Trust, 12/23/14, at
Ex. C. Such a provision would not make sense if the Trust terminated
immediately upon Decedent’s death. Thus, based upon the plain language
of the Trust instrument and the surrounding facts and circumstances at the
time the Trust instrument was executed, we conclude that the trial court
incorrectly relied upon the plain terms of the Trust instrument in concluding
that the Trust terminated upon Decedent’s death.
Having determined that the trial court erred in finding that the plain
language of the Trust instrument terminated the Trust upon Decedent’s
death, we turn to David’s argument that the Trust terminated as a matter of
law pursuant to 20 Pa.C.S.A. § 5603(b)(1).6 As this requires us to interpret
a statute, we are guided by the Statutory Construction Act, 1 Pa.C.S.A.
§ 1501 et seq. See Pennsylvania Pub. Util. Comm'n v. Andrew
Seder/The Times Leader, 139 A.3d 165, 172 (Pa. 2016) (citation
omitted). “The object of all statutory interpretation is to ascertain and
6 Daughter waived any argument that David’s request for approval of the Trust and its terms before the Orphans’ Court (when resolving the litigation relating to Edward and David’s use of the power-of-attorney) judicially estops him from advancing this position. See Westfield Ins. Co. v. Astra Foods Inc., 134 A.3d 1045, 1051 (Pa. Super. 2016) (a party may waive a judicial estoppel argument); Pa.R.A.P. 302(a), 2119(a).
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effectuate the intention of the General Assembly while also construing each
statute to give effect to all of its provisions.” Conestoga Bank v. Tioga
Investments II, 138 A.3d 652, 656–657 (Pa. Super. 2016). “The best
indication of this intent is the plain language of the statute.”
Commonwealth v. Schley, 136 A.3d 511, 516 (Pa. Super. 2016) (citation
omitted).
Section 5603 provides, in relevant part:
A power “to create a trust for my benefit” shall mean that the agent may execute a deed of trust, designating one or more persons (including the agent) as original or successor trustees and transfer to the trust any or all property owned by the principal as the agent may decide, subject to the following conditions:
(1) The income and corpus of the trust shall either be distributable to the principal or to the guardian of his estate, or be applied for the principal’s benefit, and upon the principal’s death, any remaining balance of corpus and unexpended income of the trust shall be distributed to the deceased principal’s estate.
20 Pa.C.S.A. § 5603(b). David argues that, pursuant to this provision, any
trust created by a power-of-attorney immediately terminates upon the
principal’s death.
We conclude that David’s interpretation of section 5603 has merit.
The structure of subsection (b)(1) indicates that the trust terminates upon
the principal’s death. Specifically, the first portion of that subsection states
that during the principal’s lifetime “[t]he income and corpus of the trust shall
either be distributable to the principal or to the guardian of his estate, or be
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applied for the principal’s benefit.” 20 Pa.C.S.A. § 5603(b)(1). The second
portion of that subsection provides that “upon the principal’s death, any
remaining balance of corpus and unexpended income of the trust shall be
distributed to the deceased principal’s estate.” Id. Taken together, the fact
that the trust’s corpus and income must be used for the principal’s benefit,
and upon the principal’s death it must be distributed to the principal’s estate,
indicates that there is no purpose for a section 5602 trust once the principal
dies.
Moreover, under the cannon of expressio unius est exclusio alterius,
“where certain things are designated in a statute, all omissions should be
understood as exclusions.” Commonwealth v. Richards, 128 A.3d 786,
789 (Pa. Super. 2015). In this case, the statute states that a section 5602
trust’s corpus and income be disposed of in a specific manner upon the
principal’s death, i.e., it is to be distributed to the principal’s estate. Thus,
other uses which are omitted from this portion of subsection (b)(1) are to be
understood as excluded, i.e., using the trust’s corpus and income to pay
death taxes. Under the Uniform Trust Act, a trust terminates automatically
“once no purpose of the trust remains to be achieved[.]” 20 Pa.C.S.A.
§ 7740(a). As no purpose of a section 5602 trust remains to be achieved
upon the principal’s death, a section 5602 trust must terminate upon the
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Daughter argues that, pursuant to 20 Pa.C.S.A. § 7705, the plain
language of the trust instrument, which as outlined above does not require
automatic termination of the Trust upon Decedent’s death, controls over the
provisions of section 5603(b)(1). Section 7705 provides that, “Except as
provided in subsection (b), the provisions of a trust instrument prevail over
any contrary provisions of this chapter.” 20 Pa.C.S.A. § 7705(a). This
argument is without merit.
Section 7705 confers supremacy upon the express language of a trust
instrument over the default provisions of Chapter 77 of the Probate, Estates,
and Fiduciaries Code. In this case, however, the Trust was created pursuant
to section 5602, which is contained within the Powers of Attorney Chapter of
the Probate, Estates, and Fiduciaries Code, Chapter 56. Chapter 56
addresses the situation in which a power-of-attorney creates a trust for a
principal who is, in many cases, incapacitated. Chapter 56 limits the
authority of a power-of-attorney to set up a trust for the principal’s benefit.
Section 5603 only authorizes a power-of-attorney to create a trust which
automatically terminates upon the principal’s death. Furthermore, section
5603(b)(1) requires that all income and corpus of such a trust be used for
the principal’s benefit or transferred to the principal’s estate upon his or her
death. Thus, although the express terms of a trust instrument generally
displace the default rules included in Chapter 77, that is true only if the
individual who created the trust possessed authority to include that contrary
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provision in the trust instrument. Cf. 1 Pa.C.S.A. § 1933 (“Whenever a
general provision in a statute shall be in conflict with a special provision in
the same or another statute, the two shall be construed, if possible, so that
effect may be given to both.”). In this case, pursuant to section 5603(b)(1),
Daughter (who as Decedent’s attorney-in-fact created the Trust for
Decedent’s benefit7) lacked the authority to include a provision in the Trust
instrument which permitted the Trust to survive Decedent’s death.
Accordingly, the specific language of the Trust instrument does not control
whether the Trust terminated upon Decedent’s death.
For all of these reasons, we conclude that pursuant to section
5603(b)(1), a section 5602 trust terminates automatically upon the
principal’s death. The attorney-in-fact who executes a trust instrument on
behalf of a principal pursuant to section 5602 lacks the authority to include a
provision in the trust instrument which permits the trust to outlive the
principal. Thus, in this case, paragraph VI of the trust instrument is void
inasmuch as it provides that the Trust continued beyond Decedent’s death.
Instead, the Trust terminated immediately upon Decedent’s death.
7 The record does not reflect how Daughter became Decedent’s attorney-in- fact. As noted above, the record reflects that Decedent executed a power- of-attorney as to Edward and David. As no party has raised this issue, we assume for the purposes of this memorandum that Daughter lawfully became Decedent’s attorney-in-fact at some point prior to execution of the Trust instrument.
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Our foregoing analysis addresses the limited question presented by
Daughter. This limited question is separate and distinct from whether
Lemon’s and/or Daughter’s authority as trustee terminated upon Decedent’s
death. Although we conclude that section 7705 cannot be used to extend
the life of a section 5602 trust, many (if not all) of the remaining provisions
of the Uniform Trust Act govern the trustee’s administration of a section
5602 trust. We decline to address whether Lemons had authority under the
Uniform Trust Act to confess judgment on the demand note and whether
Daughter has authority to execute on that confessed judgment. Daughter
has not raised this question on appeal. See Daughter’s Brief at 4. Although
David includes a version of that question in his counterstatement of the
question involved, neither Edward nor David filed a cross-appeal in this case.
Moreover, resolution of those issues is not necessary to resolution of the
discrete claim brought in Daughter’s appeal. The trial court stayed
execution proceedings pending our disposition of Daughter’s challenge to the
termination of the Trust upon Decedent’s death. Upon remand, the trial
court shall decide, in the first instance, whether Lemons’ confession was
appropriate and, if so, whether Daughter may execute on the confessed
judgment under the Uniform Trust Act.
Order affirmed. Case remanded. Jurisdiction relinquished.
Judge Musmanno joins this memorandum.
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Judge Stabile files a Concurring Memorandum in which Judge Olson
joins.
Judgment Entered.
Joseph D. Seletyn, Esq. Prothonotary
Date: 11/15/2016
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