decided: October 16, 1974.
Appeal from decree of Court of Common Pleas, Orphans' Court Division, of Philadelphia, No. 3351 of 1941, in re estate of Jessie A. Killey, settlor.
Harry R. Nixon, with him Schneider, Nixon & John, for appellants.
J. Pennington Straus, with him Robert H. Louis, W. Joseph Harrison, III, and Schnader, Harrison, Segal & Lewis, for appellee.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Chief Justice Jones. Concurring Opinion by Mr. Justice Roberts. Mr. Justice Pomeroy joins in this concurring opinion.
[ 457 Pa. Page 475]
This appeal arises from the final decree of the Orphans' Court Division of the Court of Common Pleas
[ 457 Pa. Page 476]
of Philadelphia sustaining certain exceptions and dismissing certain exceptions to the adjudication entered upon objections to the third account of the Industrial Valley Bank and Trust Company (IVB), successor trustee under an inter vivos deed of trust executed by Jessie A. Killey. The account covered the period from September 22, 1948, to February 16, 1970. The court en banc sustained appellants' exceptions to certain transactions in United States Treasury obligations in 1962 and exceptions to the allowance of commissions to the trustee and of additional counsel fees. All other exceptions were dismissed. This direct appeal followed.
Appellants, remaindermen under the deed of trust, contend that IVB should be surcharged (1) for its total lack of attention in administering the trust during the period from September 22, 1948, through August 2, 1963, and (2) for failing to communicate with the settlor or any trust beneficiary with reference to their preferences as to investments during the period from August 1963 to February 1970, when the corpus of the trust was invested wholly in IVB's common trust fund.
Appellants initially claim that the court below erred in dismissing their exceptions because it applied the incorrect standard for judging the propriety of IVB's stewardship of the trust. We agree. This Court has not heretofore specifically addressed the issue of whether a stricter standard of responsibility should be exacted from trust companies as fiduciaries than from an ordinary trustee. In Linnard's Estate, 299 Pa. 32, 148 A. 912 (1930), this issue was earnestly pressed; however, the Court declined to make a ruling on that issue, opining that the record would not warrant any such advance in the law and that "[r]ulings which involve enlarged application of established principles to new conditions, and, when subsequently followed, give rise to what become known as new or advanced principles,
[ 457 Pa. Page 477]
should be made only in cases where the facts relied on plainly appear and clearly call for such rulings." Id. at 39, 148 A. at 914. The court below recognized that "a detailed review of this record does indicate that this trust did not receive the attention of the trustee as it should have." We concur and therefore believe that this case occasions the appropriate opportunity to clarify the standard of care owed by a fiduciary who either has, or procured his appointment by representing that he has, greater skill than that of a man of ordinary prudence, and to eradicate any misconstructions which may have resulted from this Court's forbearance in Linnard's Estate.*fn1
Since 1941 this Court has recognized that if a fiduciary has greater skill than that of a man of ordinary prudence, then the fiduciary's standard of care must be judged according to the standard of a man with his special skill. See Stirling's Estate, 342 Pa. 497, 504, 21 A.2d 72, 76 (1941). See also Lohm Estate, 440 Pa. 268, 273, 269 A.2d 451, 454 (1970); Mastria Estate, 413 Pa. 278, 281 n.3, 196 A.2d 653, 655 n.3 (1964); Glauser Estate, 350 Pa. 192, 196, 38 A.2d 64, 66-67 (1944); Restatement (Second) of Trusts, § 174. Today we add that one who procures his appointment as trustee by representing that he has greater skill than that of a man of ordinary prudence will be held to have such skill as he had represented. See Restatement (Second) of Trusts, § 174. In the present case, the corporate trustee held itself out as an expert in the handling of estate and trust accounts. It represented itself as being possessed of greater knowledge and skill than the average man. It was therefore under a duty to exercise a skill greater than that of an ordinary man, and the manner
[ 457 Pa. Page 478]
in which investments were handled must accordingly be evaluated in light of such superior skill.*fn2 E.g., Liberty Title & Trust Co. v. Plews, 142 N.J. Eq. 493, 60 A.2d 630 (1948); Union Commerce Bank v. Kusse, 251 N.E.2d 884 (Ohio Probate Ct. 1969).
We are fully aware of the principle well-settled in this area of the law that one who seeks to surcharge a fiduciary for breach of trust must bear the burden of proving the particulars of his wrongful conduct. Maurice Estate, 433 Pa. 103, 249 A.2d 334 (1969); Lerch Estate, 399 Pa. 59, 159 A.2d 506 (1960). The rationale of the court below was that appellants had failed to discharge their burden of proof and therefore their claims for surcharge could not be sustained. Since that court, in ascertaining whether appellants had met their burden, misconstrued the duty of care incumbent upon the appellee, and since the question of the propriety of surcharging a fiduciary rests in the first instance with the Orphans' Court Division of the Court of Common Pleas, we remand to the court below for reconsideration in light of this opinion.
We do note that the record in no way supports appellants' claim that the trust was improperly administered during the period in which the corpus was invested in the common trust fund. Additionally, we dismiss as meritless appellants' argument that IVB should have consulted the settlor or the beneficiaries regarding investment policy. Consequently, reconsideration
[ 457 Pa. Page 479]
by the court below can be limited to that period commencing September 22, 1948, until and including that time in August 1963 when the entire trust portfolio was liquidated.*fn3
Decree vacated in part and the matter remanded to the court below for proceedings consistent with this opinion.*fn4 Costs to abide the event.
Decree vacated in part and matter remanded.
Concurring Opinion by Mr. Justice Roberts:
I join in the opinion of the Court. Like the majority, I believe that in light of the corporate fiduciary's representations of greater skill in the administration of trusts,*fn1 the orphans' court incorrectly applied the "prudent man" standard in assessing the trustee's performance during the years 1948 to 1963.*fn2 This matter must therefore be remanded to the orphans' court for adjudication of the fiduciary's management of the trust in view of the standard of care and skill it represented it possessed. If they desire, the parties on
[ 457 Pa. Page 480]
remand will be permitted to offer additional evidence relevant to the care the trustee should have exercised.
As the majority correctly observes, our holding is mandated by section 174 of the Restatement (Second) of Trusts (1959).*fn3 Section 174 states: "The trustee is under a duty to the beneficiary in administering the trust to exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property; and if the trustee has or procures his appointment as trustee by representing that he has greater skill than that of a man of ordinary prudence, he is under a duty to exercise such skill." All fiduciaries -- trust companies or otherwise -- who procure appointment by claiming special skill in the administration of estates have a duty to exercise such skill. Of course, if a fiduciary does not claim greater skill, a "prudent man" standard would apply unless it can affirmatively be proven that the fiduciary in fact possessed greater skill.
However, I wish to emphasize that although a trustee is charged with the duties of preserving the corpus*fn4 and making it productive,*fn5 the court on remand must
[ 457 Pa. Page 481]
recognize that even the most skillful trustee may not at all times be able fully to preserve principal or to produce maximum income. A trustee is not a guarantor or insurer of the trust's success. But if the court finds that in the exercise of its duties the corporate fiduciary failed to use the care and skill it represented it possessed, it may impose a surcharge for any depreciation in the value of the principal*fn6 or loss of income.*fn7
"Here Are Some Advantages of A Trust For Your Family
"They will get expert assistance with their investments. A proper 'mix' of various kinds can be made to meet their needs, and changed as these needs or economic conditions vary.
"A living trust is first and foremost a plan for investment management of income-earning assets. Over the years, this is more important even than avoiding probate or minimizing taxes. For example, as trustee of your living trust, we would hold and protect the assets for you and other beneficiaries; invest the principal; keep the portfolio under continuing review, and reinvest the income and capital gains, or pay income to you or other beneficiaries, as you may direct.
"When you establish a carefully planned living trust with us, you keep all the benefits of property ownership but free yourself from worry about investment research and analysis in today's complex world. You assign that task to us as your investment manager.
[ 457 Pa. Page 482]
"The advantage to an individual beneficiary is that, whatever the objective of his trust, it benefits from our overall knowledge of finance and investments. When you name us a trustee, your securities are placed under the care of trust men who have had years of experience in managing trust funds. They regularly review the most reliable standard sources of statistical data, and have at their disposal all the facts and figures available to us as a financial institution. This knowledge and experience are what they apply to the problems of individual trust accounts.
"Furthermore, when you establish a living trust with us, you can relax in the certainty that our investment management is both constant and alert. You no longer need be concerned about trying to keep up with fast-moving market and financial developments. What has been your part-time worry is assigned to us as a full-time job on your behalf.
"When you create a properly planned living trust with us as trustee, you retain all of the benefits of property ownership, but rid yourself of all the tasks of property management and investment. Here are some of the advantages of such a trust:
"You provide continuous and experienced management for your securities during your lifetime and for the benefit of your family after your death.
"A living trust is essentially an arrangement whereby you transfer certain assets to us as your trustee. We retain in the trust those assets that fit the investment program which you have approved, and we dispose of other possibly less desirable assets, reinvesting the proceeds to fit your program. . . ."