In re McFadden Testamentary Trusts

30 Pa. D. & C.5th 23
CourtPennsylvania Court of Common Pleas, Philadelphia County
DecidedApril 16, 2013
DocketNo. 1756 ST of 2009; 1129 ST of 1956
StatusPublished

This text of 30 Pa. D. & C.5th 23 (In re McFadden Testamentary Trusts) is published on Counsel Stack Legal Research, covering Pennsylvania Court of Common Pleas, Philadelphia County primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re McFadden Testamentary Trusts, 30 Pa. D. & C.5th 23 (Pa. Super. Ct. 2013).

Opinion

HERRON, J.,

Introduction

The objections of Elizabeth McFadden Melas to the accounts filed for the trusts established by George McFadden and Alexander McFadden raise the issue of whether litigation costs incurred by the trustees in their successful defense of a surcharge action brought by two of three beneficiaries should be charged to the trusts as a whole or apportioned solely to the two beneficiaries who initiated that surcharge action. As set forth below, those litigation costs should be borne by the trust as a whole for three reasons. First, the action against the trustees was not limited to surcharge but sought to benefit the trusts as a whole by seeking a division to benefit the differing needs of each beneficiary and by seeking appointment of a third trustee in accordance with the settlors’ intent. Second, the litigation was prolonged and complicated by the participation of all three beneficiaries. Third, the surcharge action related to actions that occurred prior to the division of the trusts and thus, if successful, would [26]*26have benefited all the beneficiaries. As a matter of equity, the trusts as a whole should bear those attorney fees and litigations costs.

Factual Background

George McFadden (“George”) died unexpectedly in a plane crash on April 22, 2008. Prior to his death, George had been the sole income beneficiary and one of three trustees for trusts that had been established under the wills of his father, Alexander McFadden, and his grandfather, George McFadden. With George’s death, the income beneficiaries of these two trusts changed to his three children: Elizabeth McFadden Melas (“Lisa”), Alexander (“Alex”) and Wilhelmina (“Willa”). In 2008, Lisa was the adult daughter from George’s first marriage, while Willa and Alex were his minor children from his second marriage to Carol (“Carol”) McFadden.

Prolonged, intense and highly sophisticated litigation subsequently broke out over the administration of these two trusts. In May 2009, Carol McFadden filed a petition as parent and natural guardian of Willa and Alex seeking to divide the George and Alexander Trusts into three separate trusts for the respective benefit of each of the beneficiaries.1 Her petition also sought an accounting and the removal of the two surviving trustees, BNY Mellon, N.A. and John McFadden (“John”). It proposed that Carol and David Hamilton be named successor trustees of the divided trusts for Willa and Alex. Finally, it sought to surcharge the trustees John and Mellon for losses suffered by both trusts after the September 2008 stock market crisis and to recover any trustee fees they had charged.

Although the wills of both George McFadden and [27]*27Alexander McFadden provided that “there shall be at all times a corporate trustee and two individual trustees,”2 the two surviving trustees, Mellon and John failed to appoint a third trustee prior to the filing of the objectants’ petition or the trustee account. On June 3, 2009, the two surviving trustees filed an account in Philadelphia for the Alexander Trust. That account covered the period May 2, 2006 through February 11, 2009. In Delaware County, an account was filed for the George Trust covering the broader period of September 24, 1985 to June 4, 2009. By decree dated June 15, 2009, the Delaware County McFadden petition and accounting were consolidated with the Philadelphia Alexander Trust action to the extent that they raised similar issues. Willa and Alex filed objections to these first accountings. In March 2010, the trustees filed amended accounts for both the George and the Alexander Trusts.3 Once again, Willa and Alex filed objections to those amended accounts on June 4, 2010.

Hearings were scheduled to consider the objections. At that first hearing on November 2, 2010, the parties stipulated that the issue as to all attorney fees would be deferred until the complex issues related to surcharge and removal of the trustees had been resolved. 11/2/10 a.m. N.T. at 11 (Mannion).

Shortly into the hearings, this court issued a decree that the George Trust and the Alexander Trust were divided as of November 10, 2010 into three separate trusts for the benefit of each of the individual beneficiaries. The Lisa and Willa Trusts were each to . receive one-fourth of the undivided trust assets, while the Alex Trust was to receive [28]*28one-half of those assets as set forth in the wills that had established those trusts. Winfield Jones was named as the third trustee of the trusts for the benefit of Willa or Alexander.

Carol McFadden, as natural guardian of her children, had forcefully called for the division of the trusts from the very beginning of the litigation. Lisa, in contrast, initially opposed division of the trusts. In her July 31, 2009 amended answer to the petition to divide the trusts, Lisa argued:

Respondent opposes the division of the ABM Trust to the extent that Carol McFadden or David Hamilton are appointed as successor trustee of any of the resulting trusts due to Carol McFadden’s many conflicts of interest with the A.B.M. Trust. Upon information and belief, the trustees of the A.B.M. Trust intend to exercise their rights to adjust or to convert the A.B.M. Trust to a unitrust pursuant to Pennsylvania’s Principal and Income Act. It is believed that if Carol is appointed trustee of resulting trusts for Wilhelmina and Alexander, due to conflicts of interest and lack of investment expertise there is a substantial risk that the trust assets will be depleted or improperly managed. As trustee, she would have standing to petition the court for a unitrust distribution which is larger than the 4% statutory default percentage. Respondent and her children are contingent beneficiaries of Wilhelmina’s and Alex’s share of the A.B.M. Trust, and therefore have an interest in precluding the dissipation of trust assets.4

As the hearings further progressed, another reason emerged for Lisa’s opposition to dividing the trusts: Lisa [29]*29did not want her trust to bear alone litigation costs related to a dispute over the exercise of options that George had granted to the trusts as part of loan agreements he had made with the trusts.5 Lisa’s position on dividing the trusts was fluid and contradictory. In her more recent filings, for instance, she asserts that before any of the hearings were held she had proposed a stipulation to divide the trusts so that her trusts could stay outside the litigation. This stipulation was rendered moot, she maintains, after the guardian ad litem filed objections in October 2009 to a division of the trusts.6

Shortly before the last day of hearings in March 2011, Willa and Alex McFadden, through their guardian Winfield Jones, filed an amended petition (“amended petition”) regarding the George and Alexander Trusts. In that amended petition, Willa and Alex announced their intention to “prosecute their claims, , and seek relief, only with respect to the Wilhelmina and Alexander Trusts...” In seeking to preclude Lisa from benefiting from any surcharge they might obtain, Willa and Alex noted that the Lisa Trusts “have opposed and sought dismissal of these proceedings....”7

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Cite This Page — Counsel Stack

Bluebook (online)
30 Pa. D. & C.5th 23, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-mcfadden-testamentary-trusts-pactcomplphilad-2013.