IN RE: JOHN E. JACKSON AND SUE M. JACKSON CHARITABLE TRUST APPEAL OF: POLLY J. TOWNSEND AND WILLIAM R. JACKSON, JR.
from the Order Dated December 7, 2016 In the Court of Common
Pleas of Allegheny County Orphans' Court at No(s): 3999
BEFORE: BENDER, P.J.E., SOLANO, J., and MUSMANNO, J.
case arises out of a dispute between the individual trustees
(Appellants Polly J. Townsend and William R. Jackson, Jr.)
and the corporate trustee (Appellee PNC Bank, N.A.) of the
John E. Jackson and Sue M. Jackson Charitable Trust
("Trust"). Townsend and Jackson (hereinafter,
"Individual Trustees") appeal from a December 7,
2016 Orphans' Court order entered under Section 7763(a.1)
of the Uniform Trust Act ("UTA"), that resolved
that dispute by limiting the amount that could be distributed
by the Trust to charities in 2016 and by designating which
charities could receive distributions from the Trust that
year. We affirm in part, vacate in part, and remand for
further proceedings consistent with this opinion.
settlors, John E. Jackson and Sue M. Jackson (referenced in
the Trust Agreement - and hence in this opinion - as
"Grantors") established the Trust on February 6,
1950. John Jackson lived until April of 1971, and Sue Jackson
lived until January of 1994. The Trust Agreement named two
trustees, W.R. Jackson (John E. Jackson's brother) and
Commonwealth Trust Company of Pittsburgh.
The Trust Agreement provided, in part:
4. This trust is created solely for charitable purposes, and
the income and principal of the trust estate is to be used
for the sole benefit of public charities in the manner
hereinafter set forth.
. . . .
6. The Trustees shall distribute the income of the trust fund
among such public charities created for religious,
educational or other charitable purposes as they in their
sole discretion may deem proper. The Grantors may from time
to time suggest to the Trustees specific charitable
institutions or charitable causes to which they would like
contributions made by the Trustees but the Trustees are in no
manner obligated to follow the requests of the Grantors but,
on the contrary, may distribute the income and principal of
the trust fund for such charitable purposes as they in their
sole discretion may determine.
The Trustees shall from year to year determine what amounts
of both income and principal of the trust fund shall be
distributed to charitable institutions or for charitable
purposes, and it is understood that there is to be no
limitation placed on the discretion of the Trustees with
respect to the amount of principal or income paid at any one
time or to any one charity.
7. This charitable trust shall continue until the expiration
of three years after the date when its assets have been
entirely depleted. The Grantors may add additional assets to
the trust at any time within three years after all of the
assets of the trust have been exhausted; but if after a
period of three years from the exhaustion of the trust fund
no assets have been contributed to the trust fund by the
Grantors, then at the end of such three year period this
Agreement shall be considered as having been cancelled by the
parties hereto and the trust thereupon finally terminated.
Upon the death or resignation of W.R. Jackson, the
Commonwealth Trust Company of Pittsburgh will select another
in his place from the officers of the Pittsburgh-Des Moines
Company; and if said Commonwealth Trust Company shall merge
with another trust institution, the merged institution
together with W.R. Jackson, or his successor, shall continue
to act as Trustee.
Trust Agreement at ¶¶ 4, 6-7.
W.R. Jackson resigned in 1989. At that time, none of the
officers of the Pittsburgh-Des Moines Company was willing to
act as the individual trustee. The Orphans' Court
appointed Appellant Polly J. Townsend, W.R.'s daughter,
as the next individual trustee. In connection with the
resignation of Jackson and the appointment of Townsend, the
trustees filed their First and Partial Account, which the
Orphans' Court confirmed.
25, 1994, Townsend resigned as the individual trustee. The
trustees then filed a Second and Partial Account. No new
individual trustee was appointed at that time.
January 29, 1998, the Orphans' Court re-appointed
Townsend as the individual trustee. The court also modified
the succession provision of the Trust Agreement to state:
There shall always be two trustees acting hereunder, National
City Bank of Pennsylvania and its successors and an
individual trustee who is a member of the Jackson family.
Upon the death, resignation or inability to serve of any
individual co-trustee, the corporate trustee shall select as
his or her successor a member of the Jackson family, subject
to the approval of a court of competent jurisdiction.
1/29/98. National City Bank of Pennsylvania was a successor
in interest to Commonwealth Trust Company.
about April 1, 2005, Townsend and National City Bank filed a
Third and Partial Account in the Orphans' Court. They
also filed a petition to reform the Trust to provide for two
individual trustees and to appoint Townsend's brother,
William R. Jackson, Jr., as the second individual trustee. On
May 24, 2005, the Orphans' Court approved the Third and
Partial Account and entered an order reforming the
Trust's appointment provision to state:
There shall always be three trustees acting hereunder,
National City Bank of Pennsylvania and its successors, which
shall possess at all times one-half of the voting power of
the trustees, and two individual trustees who are members of
the Jackson family, each of whom shall possess at all times
one-fourth of the voting power of the trustees. Upon the
death, resignation or inability to serve of any of then
serving individual co-trustee, his or her successor shall be
such member of the Jackson family designated as such by said
co-trustee at or before the time he or she ceases to so
serve. In the event that an individual co-trustee ceases to
serve without designating his or her successor, the other
then serving individual co-trustee shall designate a member
of the Jackson family to fill such vacancy, or if no such
designation has been made, the successor individual
co-trustee shall be such member of the Jackson family
designated to serve by the oldest living grandchild of
William R. Jackson competent to make such designation. . . .
Order, 5/24/05. The court also approved the appointment of
William R. Jackson, Jr. as the second individual trustee.
2006, Individual Trustees decided that they wanted to
terminate the Trust. When National City Bank opposed the
termination, Individual Trustees filed a petition in the
Orphans' Court seeking to remove and replace National
City Bank with a corporate trustee that would cooperate in
terminating the Trust or, in the alternative, to terminate
the Trust immediately. Individual Trustees explained:
Petitioners' reasoning for terminating the Trust during
their lifetimes centered on concerns that if the Trust
continues past Petitioners' lifetimes or their ability to
administer the Trust, that the succeeding generation of
potential Trustees (Petitioners' children and
grandchildren) (i) lack the knowledge of the Grantors and
their philosophies, (ii) will disagree over the
administration of the Trust and (iii) will cause the Trust
assets to be distributed in a manner never contemplated by
Pet., 12/1/06, at ¶ 63. As authority for terminating the
Trust, Individual Trustees relied on Paragraph 7 of the Trust
Agreement, which states in part: "This charitable trust
shall continue until the expiration of three years after the
date when its assets have been entirely depleted."
Trustees' request to terminate the Trust was
unsuccessful. On May 24, 2007, the Honorable Robert A. Kelly
granted National City Bank's motion for judgment on the
pleadings, holding: (1) Paragraph 7 of the Trust Agreement is
"not a basis for termination of the Trust"; and (2)
the Individual Trustees' averments "do not
constitute a basis for termination of the Trust but are
merely allegations of a potential stalemate that may be
arising between the Individual Trustees and the Respondent,
National City Bank." Order, 5/24/07. The order dismissed
Individual Trustees' petition insofar as it sought
termination of the Trust, but did not address their request
to remove and replace National City Bank. Id.
Individual Trustees did not appeal the May 24, 2007 order,
and did not thereafter pursue replacement of National City
2008, PNC acquired National City Bank and, as a result,
became the corporate trustee. Since then, PNC and Individual
Trustees have disagreed about the amount and recipients of
the Trust's charitable donations, but until the present
controversy, they were able to reach a compromise each year.
September 9, 2016, Individual Trustees sent PNC a list of
proposed charitable distributions totaling $701,000 for the
year 2016. In response, PNC prepared an analysis of the
proposed recipients and presented it to Individual Trustees
on October 13, 2016. On November 1, 2016, Individual Trustees
prepared a revised proposal, deleting some recipients from
their original list and reducing the total distribution to
November 28, 2016, PNC filed a "Petition to Resolve a
Deadlock Between Trustees Pursuant to Section 7763[(a.1)] of
the Uniform Trust Act." PNC alleged that a deadlock had
formed between itself and Individual Trustees regarding the
amount and recipients of donations for the year 2016. PNC
said that it sought judicial intervention because, in order
to avoid a tax penalty under Section 4942 of the Internal
Revenue Code ("Taxes on failure to distribute
income"), the Trust needed to distribute at least 5% of
its net assets ($475,838) before the end of the year. PNC
Pet., 11/28/16, at ¶¶ 18, 20. PNC represented
that, in order to meet the year-end deadline, it would need
to begin processing distribution payments by December 12,
2016, a mere two weeks later. Id. at ¶ 32.
petition, PNC averred that, "[e]very year since Judge
Kelly's Order, due to the desires of the individual
trustees to make over distributions from the Charitable Trust
and [PNC]'s desire to grow and preserve the Trust, the
trustees find themselves facing a year-end deadline for
complying with the requirements of Section 4942." PNC
Pet., 11/28/16, at ¶ 20. Although PNC and Individual
Trustees had compromised in previous years, PNC's
petition averred that PNC was "no longer willing to
jeopardize the long-term viability of the Charitable Trust
for the sake of the short-term expediency of reaching an
agreement with the individual trustees." Id.
stated that, "in keeping with the traditional giving
pattern of the Charitable Trust during the lifetime of the
Donors," it favored distributing the Trust's funds
"to civic organizations, educational/arts organizations,
health care facilities and children & youth
organizations, with at least one-half of such distributions
being to charitable organizations primarily situated in
Western Pennsylvania." PNC Pet., 11/28/16, at ¶ 21.
PNC characterized the organizations it favored as
"worthwhile charities," and contrasted its list of
preferred donees with those organizations favored by
Individual Trustees, which it called "political advocacy
groups." Id. at ¶ 27. In addition, PNC
averred that the amount of distributions favored by
Individual Trustees would eventually exhaust the Trust
"in circumvention of Judge Kelly's [May 24, 2007]
Order." Id. at ¶ 23.
submitted to the court a list of proposed donees that, in its
view, were "in keeping with (i) the giving history of
the Charitable Trust during the lifetimes of John and Sue
Jackson, and (ii) in keeping with Judge Kelly's Order of
Court, dated May 24, 2007." PNC Pet., 11/28/16, at
¶ 28. PNC's list included 26 organizations selected
by PNC to receive one-half of the required distribution
($237,919) and 18 organizations from the list Individual
Trustees submitted to PNC, which were to receive the other
one- half of the required distribution. PNC asked the court
"to resolve the current deadlock by casting a 'third
vote,'" either in favor of the list it had compiled,
or in favor of the list that Individual Trustees had proposed
to PNC in their September 9, 2016 letter. Id. at
December 1, 2016, Individual Trustees filed an Answer and New
Matter. Individual Trustees alleged that PNC
"unilaterally imposed an artificial 5% limit on the
Trust's annual charitable giving, forced the Trust to
donate to local causes supported by PNC, and refused to allow
charitable contributions to legitimate charities recommended
by [Individual Trustees] (and supported by the Trust for
decades)." Answer and New Matter at 1. They contended
that the Grantors intended for the Trust's individual
trustee(s) to make donation decisions and that PNC's
"proper role - as set forth in the Trust Agreement and
as demonstrated by the six decades-long history of the Trust
before PNC's involvement - is to work with the
[individual] Co-trustees to facilitate donations to charities
selected by the [individual] Co-trustees and to manage the
Trust's assets." Id. at 3, 6. Individual
Trustees asked the court to deny PNC's petition, order
PNC to make the contributions proposed by Individual Trustees
on November 1, 2016, and order PNC -
to assume its proper corporate co-trustee role, which
includes providing the [individual] Co-trustees with
information and recommendations for possible donations,
vetting charities, investing the Trust's assets (along
with the [individual] Co-trustees), and otherwise providing
the traditional services that the corporate co-trustee for
this Trust provided for almost sixty (60) years.
Id. at 44. Also on December 1, 2016, Individual
Trustees filed a Motion for Expedited Discovery. They sought
an evidentiary hearing at the conclusion of the discovery.
December 2, 2016, the Orphans' Court held oral argument
on PNC's petition. Both parties, as well as a
representative of the Attorney General of Pennsylvania, were
present. PNC reiterated that it "need[ed] to
cut checks by December 12th" in order to avoid the
excise tax. N.T., 12/2/16, at 26. The Orphans' Court
stated that it would cap donations at 5% of the Trust's
assets because there was "no reason to go above"
the amount required to avoid a tax penalty. Id. at
24-25. The court denied the motion for expedited discovery
took the designation of charitable recipients under
advisement. Id. at 32. On December 6, 2016,
Individual Trustees filed a revised donation proposal,
limiting their proposed donations to 5% of the Trust's
assets. On December 7, 2016, the Orphans'
Court entered an order selecting the charities on PNC's
list for distributions in 2016. The order stated that the
court had considered PNC's petition, Individual
Trustees' answer and new matter, Judge Kelly's May
24, 2007 order, and the December 2, 2016 oral argument.
Order, 12/7/16. On December 14, 2016, Individual Trustees
filed a motion for reconsideration or, in the alternative,
for clarification of the court's December 7, 2016 order.
On December 19, 2016, the Orphans' Court denied that
2, 2017, the Orphans' Court filed an opinion in which it
explained its decision. The court stated:
Given the time constraints which were placed upon the court
by the unseasonable request, the court determined that a
prudent decision would require distributions in order to not
dissipate trust assets on non-trust intentions, solely
because of the co-trustees['] inability to agree. The
court chose 5% to be distributed for the current year
utilizing the minimum investment return for private
foundations. 26 U.S. Code §4942(e). The court also chose
the charities as suggested by the corporate trustee, for the
current year, solely because of the lack of time needed for
all possible options to be fully vetted.
While the court has made these determinations, nothing in the
court's determinations for this calendar year, should be
interpreted or extrapolated to any future years.
Consequently, all parties in interest will have the
opportunity, in the event that non-agreement by the trustees
occurs, to seek court intervention as to what is in the best
interest of the trust with regard to distributions and the
charities receiving such.
Orphans' Ct. Op., 5/2/17, at 2.
January 5, 2016, Individual Trustees filed a timely appeal in
which they raise the following issues, as stated in their
I. Did the Orphans' Court abuse its discretion by
entering a series of Orders breaking a contrived
"deadlock" between co-trustees of the John E. and
Sue M. Jackson Charitable Trust (the "Trust" or
"Jackson Family Charitable Trust") without hearing
any evidence, without holding an evidentiary hearing, and/or
without making any findings of fact?
II. Did the Orphans' Court abuse its discretion by
failing to even attempt to ascertain the intent of the
Grantors of the Trust, which, under settled Pennsylvania law,
is the "pole star" of every trust?
III. Did the Orphans' Court abuse its discretion by
allowing Appellee PNC Bank, N.A. ("PNC"), the
fourth successor corporate co-trustee, to usurp donation
authority away from Appellants Polly J. Townsend
("Polly") and William R. Jackson, Jr.
("Dick") (together, the "Jackson Family
Co-trustees") even though the Grantors' intent was
for the Jackson Family trustee(s) to exercise such authority
and the Jackson Family trustee(s) did, in fact, exercise such
authority free from interference from all predecessor
corporate co-trustees for nearly sixty years before PNC's
involvement with the Trust?
IV. Did the Orphans' Court abuse its discretion by
resolving the contrived "deadlock" by PNC's
artificial deadline of December 12, 2016?
V. Did the Orphans' Court abuse its discretion by
limiting 2016 donations from the Trust to five percent (5%)
of Trust assets even though any such limitation is directly
contrary to the Trust instrument, which provides that there
is "no limitation" on the amount of princip[al] or
income that can be donated to charity, and all donations
proposed by the Jackson Family Co-trustees were consistent
with the Grantors' intent and Trust history?
VI. Did the Orphans' Court abuse its discretion by
refusing to permit donations in 2016 to so-called politically
conservative charities even though such charities have
received nearly 800 annual ...