Appeal from the Order of Superior Court at Nos. 1180 EDA 2006 & 1181 EDA 2006 entered 07-12-2007, reargument denied 09-13-2007, affirming the Order of Montgomery County Court of Common Pleas, Orphan's Court Division, dated 04-07-2006 at Nos. 58981 & 970526.
The opinion of the court was delivered by: Mr. Justice Eakin
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.
This dispute arose out of Stephen X. Stephano's testamentary trust which was administered by his son, Constantine, and after Constantine's death, by Constantine's son, Stephen C. S. Stephen C. S. has passed away, and his son Daniel, appellant herein, has served as both executor of Stephen C. S.'s estate and trustee of Stephen X.'s trust. Penelope Blechstein is appellant's aunt and Stephen X.'s granddaughter.
Stephen X.'s will created the trust, funded by the closely-held, family corporation, "Stephano Brothers." The will provided the trust would terminate on the death of certain listed individuals, at which time "the Trustees shall divide [his] estate into two equal parts." Original Record, Petition for Declaratory Judgment to Determine Nature of Penelope Blechstein's Interest, Nos. 58981 and 970526, Montgomery County Orphan's Court, Exhibit D (Stephen X.'s Will), at 3. Constantine was given the power of appointment over his part of the trust estate, Id., at 3-4, which he exercised in the Fourth Item of his own will, stating, in pertinent part:
By virtue of the power granted to me by the will of my father, Stephen Stephano, . I hereby appoint my son, Stephen C. S. Stephano, to receive all of the principal of the [residuary] trust established by that will, which I have the power to transmit; and direct that the said principal be paid, transferred and delivered to my said son and his heirs absolutely and forever, if he is living when the said trust terminates ..
Id., Exhibit A (Constantine's Will), at 3. Additionally, Constantine appointed Stephen C. S. as beneficiary of Stephen X.'s residuary trust, "subject to the condition, . that all . dividends on one-third of the shares of the preferred stock . herein appointed shall be paid to my daughter, Penelope S. Blechstein, for and during her life." Id.
In addition to the stock interest in Stephen X.'s residuary trust, in the Third Item of his will, Constantine gave Stephen C. S. the stock he owned outright at the time of his death. This devise was given "subject to the condition . that all of the dividends on all of the shares of preferred stock . shall be paid to my daughter, Penelope S. Blechstein, for and during the term of her life." Id., at 2. This item further provided if Stephen C. S. did not survive Constantine, the stock would go to Stephen C. S.'s male issue, with the same condition to pay dividends to Blechstein; only if Stephen C. S. had no male issue would the stock itself go to Blechstein, or to her surviving male issue, per stirpes.
Stephen X.'s trust terminated in 1993, and litigation surrounding the trust and Constantine's will began in 1995. Blechstein claimed Constantine's will created a trust, of which she was beneficiary; she sought an account of Stephen C. S. as trustee. The trial court found Blechstein had standing to seek an account, but left open the question of whether Constantine's will, with the conditions to pay her dividends, created a trust in Blechstein's favor, and if so, the value to her. See Trial Court Opinion, 4/7/06, at 3 (citing Stephano Trust, 15 Fiduc. Rep. 2d 348 (1995)).
Most recently, appellant filed a petition for declaratory judgment to have the trial court determine the nature of Blechstein's interests. Appellant relied on In re Pollock's Estate, 159 A. 555 (Pa. 1932), in which this Court held a bequest subject to the condition the beneficiary pay dividends to the decedent's wife for her lifetime was not a trust. Id., at 559 ("In all cases of acceptance of a gift made upon condition that the legatee pay certain debts or legacies, the legatee assumes a personal responsibility to pay; the relationship created is one of debtor and creditor."). Appellant contends Constantine did not intend to create a trust; the provisions in Constantine's will created a debtor-creditor relationship, or equitable charge.*fn1
On April 7, 2006, the trial court issued an opinion construing the two provisions of Constantine's will - the one devising the stock in Stephen X.'s residuary trust to Stephen C. S., and the other devising Constantine's stocks to Stephen C. S., both with the obligation to pay Blechstein a portion of the stocks' dividends - as creating a trust for her benefit. In resolving these issues, the trial court noted, under Pollock's Estate, appellant was correct that the will created a debtor-creditor relationship between appellant and Blechstein. However, the trial court declined to follow Pollock's Estate. Instead, the court relied on the subsequently created Restatement of Trusts as instructing that Blechstein's position - that a trust was created for her benefit - was correct.
Specifically, the trial court relied on three comments in various enactments of the Restatement of Trusts distinguishing a trust from an equitable charge. See Restatement (First) of Trusts § 10 ("An equitable charge is not a trust."). First, the trial court cited Comment f to § 10 of the First Restatement, which provides, in relevant part:
[W]here property is transferred to another with a direction to pay to a third person a certain sum out of the property or its proceeds, or "subject to the payment from the property or its proceeds," or "paying from the property or its proceeds" such sums, a trust and not an equitable charge is created, since the transferor thereby manifests an intention to impose a duty upon the transferee to deal with the property in part at least for the benefit of the third person.
Id., § 10 cmt. f. The trial court also relied on § 11, Comment b, which states "[i]n the absence of other evidence a transfer of property 'upon condition' that it be dealt with in a manner beneficial to a third person indicates an intention to create a trust rather than an intention to make a transfer upon condition." Id., § 11 cmt. b. Finally, the trial court relied on § 5, Comment h of the Restatement's most recent version, which states property may be transferred "by will to another person for the latter's own benefit but subject to the payment of a sum of money[,]" in which case an equitable charge or lien on the property is created. Restatement (Third) of Trusts, § 5 cmt. h. The Restatement differentiates this ...