Who Has Standing to Challenge Trustee’s Investments

In re Walker, 2019 PA Super 120, 2019 WL 1759792 (Pa. Super. Apr.22, 2019).

This appeal deals with the standing for residual beneficiaries of a revocable trust.

In July 2001, Pauline O. Walker (“decedent”) created a revocable trust, naming her daughters, Katherine W. Bantleon and Elizabeth W. Mecke (“the daughters”), as the residual beneficiaries.  Smithfield Trust Company (“Smithfield ”) was named trustee. Id. at *1.

Beginning in 2003, Smithfield began investing trust assets into a number of illiquid private limited partnerships, categorized as high-risk investments. Shareholders of Smithfield also invested in the limited partnerships.  In total, the trust invested $1.8 million into 38 limited partnerships.

Decedent died in March 2015, and the remaining trust assets were distributed to the daughters in November 2015. In August 2016, the trustee filed a first and final account.  Shortly thereafter, the daughters, in their capacity as beneficiaries, filed objections in Orphans’ Court, claiming that Smithfield breached its fiduciary duty as trustee by investing trust assets in the limited partnerships. Id. Smithfield filed preliminary objections, challenging Daughters’ standing with regard to the trust.  However, these objections were denied. Id.

In November 2017, the daughters sought to amend their original objections to include claims under Pennsylvania consumer protection laws and to add the estate as a party-plaintiff. This request was denied.  The daughters also brought a complaint in the civil division alleging the same violations of consumer protection laws and naming the estate as a party-plaintiff. The daughters further sought to combine their action in the civil division with their action in the Orphans’ Court; however, this was denied. Id.

Following trial in January 2018, the Orphans’ Court overruled the daughters’ objections, finding that Smithfield did not breach its fiduciary duty as trustee. The daughters timely appealed.  The trustee responded by challenging the daughters’ standing to appeal, which the daughters opposed. Id.

On appeal the daughters raised the following issues:

    1. Whether the lower court erred when it determined that Smithfield]satisfied its fiduciary obligation;
    2. Whether the lower court erred when it determined the daughters failed to prove breach of trust; and
    3. Whether the lower court erred in its denial of[the daughters’ evidence that supports a finding of breach of trust.

Id. at *2.

However, the Superior Court did not reach any of the above issues, instead, finding that the daughters lacked standing to bring an appeal.

First, addressing the concept of standing, the court noted that “[t]he core concept of standing is that a person who is not adversely affected in any way by the matter he seeks to challenge is not aggrieved thereby and has no standing to obtain a judicial resolution to his challenge.” Fumo v City of Philadelphia (citing Wm. Penn Parking Garage[, Inc. v. City of Pittsburgh,] 464 Pa. 168, 346 A.2d [269,] 280-[2]81 [ (Pa. 1975) ] ).

Next, relying on Sections 7781, 7783, and 7753 of the Pennsylvania Uniform Trust Act, as well as Section 74 of the Restatement (Third) of Trusts, the court declared:

The above cited authority plainly provides that a trustee’s duty inures solely to the benefit of the settlor of a revocable trust during the settlor’s lifetime. Moreover, a settlor may ignore a breach of trust, which precludes action on the part of the remainder beneficiaries. Accordingly, we proceed with our analysis with these concepts in mind.

Id. at *4.

The court then found that decedent had acquiesced and consented to the limited partnership investments made by Smithfield. The court noted that all of the limited partnership interests were purchased during decedent’s lifetime and that she had been provided with monthly statements regarding the investments’ performance.  Further, the record revealed that decedent was made aware of, and capable of understanding the risks associated with the limited partnership investments. Id.

The court held, that as settlor of the revocable trust, decedent’s acquiescence was binding on the daughters, and relieved Smithfield of any liability to the daughters. Id. at *5.  Therefore, the daughters were not aggrieved by the trustee’s conduct and, thus, lacked standing to bring a claim against the trustee. Id.