Scalfaro v. Rudloff

884 A.2d 904, 2005 Pa. Super. 334, 2005 Pa. Super. LEXIS 3530

• Court: Superior Court of Pennsylvania
• Decided: September 30, 2005
• Status: Published

Opinions

OPINION BY

TODD, J.:

¶ 1 Richard Rudloff appeals the December 3, 2004 judgment of the Bucks County Court of Common Pleas voiding the deed transferring property from Appellant’s father, Robert C. Rudloff (“Father”), to Appellant and his brother, James R. Rudloff, and ordering the distribution of the estate in accordance with a trust (“Trust”) created during Father’s marriage to Appellant’s mother, Helen M. Rudloff (“Mother”). We are constrained to reverse.

¶2 The factual background and procedural history of this case were summarized by the trial court as follows:

Robert C. Rudloff and Helen M. Rud-loff [“Rudloffs”], both now deceased, owned as joint tenants by the entirety property located at 37 Hilltop Rd., Lower Makefield, Pennsylvania (“Lower Makefield Property”). On August 11, [1993] the [Rudloffs] executed an Inter Vivos Declaration of Trust (“Trust”) granting to the beneficiaries the Lower Makefield Property. The named beneficiaries of the Trust are the [Rudloffs’] three children, Judy Sealfaro, Richard E. Rudloff [Appellant] and James R. Rudloff.

Helen Rudloff died on October 19, 1996. On June 14, 2000 Robert C. Rud-loff executed and filed a deed granting to Defendants [Richard and James Rud-loff) as tenants in common the Lower Makefield Property under the belief that he was free to do so as sole trustee of the Trust. If valid, this action extinguished both the Trust and any property rights of the Plaintiff [Judith Sealfaro] in the Lower Makefield Property.

Robert C. Rudloff died on December 24, 2001. James Rudloff and his family have lived on the Lower Makefield Property since either June or July of 2000. Both Richard Rudloff and James Rudloff claim ownership of the Lower Makefield Property as grantees based on their father’s conveyance of the property by deed dated June 14, 2000.

On June 16, 2003 Plaintiff filed a Complaint in an Action to Quiet Title in the Lower Makefield Property. Plaintiff alleges the Lower Makefield Property was the corpus of the trust entered into by the [Rudloffs] on August 11, 1993. Plaintiff further alleges that both her mother and father were joint trustees of the Trust, and that as the Trust was constructed, the consent of both parents was necessary to modify the Trust in any way. Consequently, Plaintiff avers that upon the death of her mother on October 19, 1993 the Trust as written was no longer modifiable, and therefore the conveyance of the Lower Makefield Property by Robert C. Rudloff to Defendants as sole trustee of the Trust on June 14, 2000 was void. Plaintiff demands the Deed dated June 14, 2000 transferring the Lower Makefield Property from Robert C. Rudloff to Defendants be cancelled, and the Lower Makefield Property be administered in accordance with the terms and conditions of the Trust.

On September 17, Defendants filed an Answer, New Matter and Counterclaim. Defendants alleged in their Answer that Robert C. Rudloff did not exceed his power as trustee of the Trust by conveying the Lower Makefield Property to Defendants on June 14, 2000. Defendants further allege that the Trust was revocable by Robert C. Rudloff and/or Helen C. Rudloff, and that Robert C. Rudloffs conveyance of the Lower Makefield Property by deed to Defendants constituted a valid revocation and extinguishment of the Trust. Defendant’s Counterclaim alleges that by reason of the June 14, 2000 conveyance by Robert C. Rudloff title to the Lower Makefield Property lies in the Defendants and their claim is superior to any claim of the Plaintiff.

A bench trial was held on March 1, 2004. In its Order dated March 2, 2004 this Court directed that: (1) the June 14, 2000 Deed is void and shall be canceled on the records of the Bucks County Recorder of Deeds and (2) that the real property and premises known as Bucks County Uniform Parcel Identifier: Tax Parcel No. 20-17-009 (i.e. Lower Makefield Property) shall be administered in accordance with the terms and conditions of the August 11, 1993 Trust entered into by Helen M. Rudloff and Robert C. Rudloff.

Defendants filed a Motion for Post-Trial Relief on March 17, 2004 alleging the Court’s failure to find that Robert C. Rudloffs conveyance of the subject premises to Richard and James Rudloff by Deed dated June 14, 2000 revoked the Trust justifies a new trial, or in the alternative judgment for Defendants on [their] counterclaim, thereby quieting title in the Lower Makefield Property in Defendants. The Motion for Post-Trial Relief [was] denied.

(Trial Court Opinion, 11/16/04, at 1-4 (footnotes omitted).)

¶ 3 Final judgment was entered on December 3, 2004, and this timely appeal followed, wherein Appellant presents a single issue for review:

Whether a surviving trustee under a Declaration of Trust which was, by its express terms revocable, was denied the power to revoke the trust after the death of one trustee despite a trust provision that in the event of the death of one trustee, the survivor shall continue as sole trustee.

(Appellant’s Brief at 3.)

¶ 4 This Court recognizes that “[t]he scope of appellate review of a decree in equity is limited. Absent an abuse of discretion or an error of law, we are bound to accept the findings of the trial court or master.” Werner v. Werner, 393 Pa.Super. 125, 128, 573 A.2d 1119, 1121 (1990).

¶ 5 As this Court previously has explained,

[i]n Pennsylvania, it is well settled that a settlor may revoke or amend a revocable trust in accordance with the terms of the trust. A settlor has the power to revoke a trust if and to the extent he has reserved such power by the terms of the trust. However, if the settlor has reserved a “power to revoke the trust only in a particular manner or under particular circumstances, he can revoke the trust only in that manner or under those circumstances.”

In re Fellman, 412 Pa.Super. 577, 580-81, 604 A.2d 263, 264-65 (1992) (internal citations omitted).

¶ 6 Paragraph 5 of the Trust at issue in this case provides:

We reserve unto ourselves the power and right at any time during our lifetime to amend or revoke in whole or in part the trust hereby created without the necessity of obtaining the consent of any beneficiary and without giving notice to any beneficiary. The sale or other disposition by us of the whole or any part of the property held hereunder shall constitute as to such whole or part a revocation of this trust.

(Declaration of Trust, 8/11/93, at 2.) Paragraph 7 of the Trust further provides: “In the event of physical or mental incapacity or death of one of us, the survivor shall continue as sole Trustee.” (Id.)

¶ 7 In holding that Father did not have the power to revoke or amend the Trust, and, therefore, that his attempted conveyance of the property by deed was void, the trial court reasoned as follows:

The terms of the Trust clearly vested the power to terminate the Trust jointly in Robert C. and Helen M. Rudloff, and did not provide for one trustee to have the authority to change or revoke the Trust upon the death of the other joint trustee.

The use of the language “we,” “ourselves” and “us” indicates the clear intent of the [Rudloffs] to act as joint trustees. The trustees jointly held the power to “amend or revoke” the instrument “in whole or in part” during their lifetimes. There was no provision stating that upon the death of one of the joint trustees the power to revoke or amend the Trust would then be vested solely in the surviving trustee.

Paragraph 7 of the Trust instrument in relevant part states: “in the event of physical or mental incapacity of or death of one of us, the survivor shall continue as sole Trustee.” This paragraph does not state that the surviving trustee can thereafter amend the trust. It is not in dispute that upon the death of Helen M. Rudloff on October 19, 1996 Robert C. Rudloff became the sole trustee in accordance with said instrument. However, his role as sole trustee was as a fiduciary; he had no power or right to amend the Trust in his independent capacity.

(Trial Court Opinion, 11/16/04, at 5-6.) The trial court thus concluded that “[alb-sent evidence that such revocation or amending occurred previously, all power to revoke or amend the Trust terminated on the date of Helen M. Rudloffs death: October 19,1996.” (Id. at 6-7.)

¶ 8 While our research has disclosed no Pennsylvania case directly on point, the Supreme Court of Utah addressed a nearly identical situation in Matter of Estate of West, 948 P.2d 351 (Utah 1997). In that case, Herschel West, Sr. and his wife, Hazel, executed a Declaration of Trust which provided that they held their home in trust for the benefit of themselves and after their deaths for their three adult children, the plaintiffs. The trust utilized language identical, in relevant part, to that at issue in the instant case. Specifically, Paragraph 5 of the trust document provided:

We reserve unto ourselves the power and right at any time during our lifetime to amend or revoke in whole or in part the trust hereby created without the necessity of obtaining the consent of any beneficiary and without giving notice to any beneficiary. The sale or other disposition by us of the whole or any part of the property held hereunder shall constitute as to such whole or part a revocation of this trust.

{Id. at 354 (emphasis omitted).) Further, Paragraph 7 of the trust provided: “In the event of the physical or mental incapacity or death of one of us, the survivor shall continue as sole Trustee.” Id.

¶ 9 Following Hazel’s death, Herschel remarried, and thereafter executed a deed purporting to convey the property to himself and his second wife, Marilyn, the defendant. Following Herschel’s death, his children filed suit against Marilyn alleging that the deed was voidable as a violation of Herschel’s fiduciary duties as trustee.

¶ 10 In holding that the deed was valid, the Utah Supreme Court noted that the core issue was whether Herschel, either as sole trustee or surviving settlor, had the power to convey the property out of the trust to himself and Marilyn following Hazel’s death, and that the determinative questions were (1) whether, under the terms of the trust, Herschel and Hazel were authorized as trustees to sell or otherwise dispose of the house and thereby revoke the trust; (2) whether Herschel became the sole trustee after Hazel’s death, and succeeded to all the powers previously belonging to the joint trustees; and (3) whether Herschel could, consistent with his fiduciary duty as trustee, remove the house from the trust by quitclaiming it to himself and Marilyn. Id. at 353-54.

¶ 11 In concluding that under Paragraph 5 of the trust, Herschel and Hazel had the power as joint trustees to remove the house from the trust, the Court reasoned as follows:

The first sentence must be interpreted as authorizing the settlors to amend or revoke the trust, since a reservation of power would apply to the settlors who have granted the property but not to the trustees who have received it. The second sentence empowers the trustees, not the settlors, to sell or dispose of the property in the trust, since by establishing the trust the settlors have conveyed away their legal title to the property. Such sale or disposition of property will “constitute” a revocation of the trust.

Id. at 354 (emphasis omitted). As we noted, the language of the declaration of trust in the instant case is identical to the above,¹ and we agree with the Utah Supreme Court’s interpretation of the meaning of the language. Thus, in the instant case, Mother and Father had joint power as trustees to sell or dispose of the property, which would constitute a revocation of the trust.

¶ 12 Next, the Court in Matter of Estate of West determined that, upon Hazel’s death, Herschel succeeded to all of the powers exercisable by the joint trustees, including the power to sell or dispose of the property, which worked as a revocation of the trust, stating:

Although it is not clear that the surviving settlor may revoke the trust, the surviving trustee clearly may work a revocation by selling or disposing of the property.

The sale or disposition of the trust property can be accomplished only by the trustee(s) in whom the legal title resides. Any power granted to Herschel and Hazel as trustees could be exercised by him unilaterally after the death of Hazel. The Utah Uniform Probate Code provides, “If two or more trustees are appointed to perform a trust, and if any of them ... having accepted, ceases to be a trustee, the surviving or remaining trustees shall perform the trust and succeed to all the powers, duties, and discretionary authority given to the trustees jointly.” Utah Code Ann. § 75-7-405(2). Likewise, the West Trust provides in paragraph 7, “In the event of the physical or mental incapacity or death of one of us, the survivor shall continue as sole Trustee.” Thus, any rights given to Herschel and Hazel as co-trustees could be exercised by the survivor of them as sole trustee.

Therefore, although the emphasized language of the second sentence of paragraph 5 refers to “the sale or disposition by us,” this must be interpreted to mean the trustees while both are alive or the sole trustee when one of them has died. Otherwise, a sole trustee would have less power than the joint trustees held. That would be illogical, as nothing in the trust instrument denies to a sole trustee any of the powers possessed by the joint trustees.

Id. (emphasis omitted).

¶ 13 Similarly, in Pennsylvania, “[a] substituted or succeeding trustee, except as otherwise provided by the trust instrument, shall have all the powers, duties and liabilities of the original trustee.” 20 Pa. C.S.A. § 7135. Moreover, like the trust document in Matter of Estate of West, Paragraph 7 of the Trust in the instant case specifically provides that upon the death or mental incapacity of one of the settlors, the survivor shall continue as sole trustee. Thus, even if the trial court was correct in concluding that Father, as surviving settlor, could not revoke the trust, we hold that Father did have the power to sell or dispose of the assets of the Trust as sole trustee.

¶ 14 Finally, the Utah Supreme Court in Matter of Estate of West considered whether Herschel’s removal of the property was consistent with his fiduciary duty as trustee. Noting that under Utah law, a trustee has “ ‘exclusive control of the trust property’ and the power to ‘dispose of [it] ... at public or private sale’ ”, but that “a trustee’s transfer of trust property to himself and/or his spouse may constitute a breach of the trustee’s fiduciary duty and a voidable ‘sale ... affected by a substantial conflict of interest,’ except to the extent that ‘the trust expressly authorized the transaction,”’ the Court determined that Herschel was not only the sole trustee, but also the sole beneficiary under the trust, as evidenced by the language which, inter alia, reserved unto Herschel and Hazel all rights to the income from the property. Id. at 355. Such is also the case herein.

¶ 15 As in the trust at issue in Matter of Estate of West, the trust document executed by the Rudloffs provides:

NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that we do hereby acknowledge and declare that we hold and will hold said real property and all our right, title and interest in and to said property and all furniture, fixtures and personal property situated therein on the date of the death of the survivor of us, IN TRUST

1. For the use and benefit of [the Rud-loffs’ three children].

(Declaration of Trust, 8/11/93, at 1 (emphasis added).) It is clear from the above language that “[t]he children’s vested rights are subject to divestiture and will not ripen until the death of the surviving settlor,” Matter of Estate of West, 948 P.2d at 356. Accordingly, under the Trust, Father, as sole trustee and sole beneficiary, could sell or dispose of the property without breaching his fiduciary duty, and Father’s grant of the property to Appellant and James Rudloff constituted a revocation of the Trust. Thus, no trust existed at the time of Father’s death, and Appellee had no remaining contingent interest.

¶ 16 We note that Appellee cites in her brief the decision of our Supreme Court in In re Solomon’s Estate, 332 Pa. 462, 2 A.2d 825 (1938). In In re Solomon’s Estate, the appellant’s parents had set up an intervivos trust, the income to be divided equally among their three children for life. The trust provided that “The Donors shall have the power, at any time during their lifetime, by an instrument in writing delivered to the Trustee, to modify, alter or amend this agreement in whole or in part.” Id. at 463, 2 A.2d at 826. At one point, with the purpose of punishing the appellant, the parents ordered the trustee to pay appellant’s third of the income to them. After the appellant’s father died, appellant’s mother directed the trustee to resume payment to the appellant; the trustee, however, was advised that, under the trust, he could not legally pay the income to appellant.

¶ 17 On appeal, our Supreme Court affirmed the trial court’s holding that “the power to revoke was joint,” and that the mother’s instructions alone were insufficient to restore the appellant’s interest in the trust income, stating:

It should not be in the power of either party after the death of the other to destroy the trust both created and both intended to subsist. If we held as appellant suggests that the power survived to the mother, it could be exercised to deprive the other children of their income. No trust jointly created would be secure under such a determination.

(Id.)

¶ 18 However, in addition to the fact that the language above is mere dicta, we note that In re Solomon’s Estate is distinguishable from the instant case in that the surviving donor/settler in that case, the mother, did not have the power to revoke or amend the trust as a trustee, as Father did in the instant case.

¶ 19 For the reasons set forth above, we conclude that Father had the right to grant to Appellant and James Rudloff the subject property, and that such grant extinguished the Trust and any property rights of Appellee. Accordingly, we hold that the trial court erred in voiding the June 14, 2000 deed and ordering the distribution of Father’s estate in accordance with the Trust, and we thereby reverse the trial court’s order.

¶ 20 Judgment REVERSED.

¶ 21 KELLY, J. files a Dissenting Opinion.

1 . The Court in Matter of Estate of West noted that the trust document therein was a form-book trust document, and that a "revocable trust in which the settlor/trustors are also the trustees and manage the trust for their own benefit during their lifetimes is a standard estate planning device ... [used to] avoid probate of the assets while allowing the set-tlor to retain control of the trust property during his or her own lifetime.” Estate of West, 948 P.2d at 355.