Beneficiary’s Automatic Standing to Challenge Trustee’s Alleged Breaches of Fiduciary Duties
Trust Under Will of Ashton, 233 A.3d 869 (Pa. Super. 2020), allocatur granted Dec. 2, 2020, appeal docket 36 EAP 2020
The Supreme Court granted allocatur to consider whether a beneficiary has automatic standing to challenge all of a trustee’s breaches of fiduciary duties toward the trust or must demonstrate substantial, direct, and immediate harm to challenge a trustee’s particular breaches.
This case arises from the Will of Mr. Ashton, in which he designated that the residue of his estate be placed into a trust (Trust) for investment, with its net income available to certain beneficiaries, including Elizabeth Ashton Reed. Under the Will, Reed is entitled to a payment of $2,400 annually for life, which does not change based on the expenses of the Trust, market fluctuations of the assets of the Trust, or other changes to the value of the assets of the trust. PNC Bank serves as the sole trustee administering the Trust. Over the years, the assets of the Trust grew significantly – from approximately $5,560,000 to approximately $73,000,000, in addition to the approximately $29,000,000 distributed to beneficiaries. In January 2018, PNC filed the Fourth and Interim Account of its administration, documenting transactions that occurred between November 1983 and December 2017. Reed filed Objections to the Fourth Account, alleging that PNC engaged in numerous transactions and disbursements that were wasteful, constituted self-dealing, and were otherwise improper. PNC filed preliminary objections, arguing that Reed has no legally cognizable interest in the outcome of her Objections to the Fourth Account and, therefore, no standing to litigate them.
The Orphans’ Court overruled PNC’s objections as to Reed’s standing to challenge the Fourth Account based on Reed’s vested interest in ongoing payments from the Trust. Specifically, the Orphans’ Court found that Reed’s “standing was ‘ordinary and automatic’ because ‘vested trust beneficiaries inescapably have standing with respect to administration of a trust.’” Slip op. at 5, quoting Orphans’ Court Opinion at 8. PNC appealed.
Superior Court held that the Orphans’ Court erred in finding Reed had standing to challenge the Fourth Account. Superior Court found that the Orphans’ Court erred in failing to “focus on whether Appellant’s alleged mismanagement caused Appellee harm that was ‘substantial, direct and immediate’” and “without providing any legal authority,” creating an exception to this “well-enshrined principle” to find Reed had standing to challenge the Fourth account “solely on the basis of her status as a ‘current vested trust beneficiar[y].’” Slip op. at 9, quoting Orphans’ Court Opinion at 8. Applying the “substantial, direct, and immediate” standard, Superior Court found that Reed did not have automatic standing, concluding that:
Appellee erroneously relies upon the argument that a beneficiary has standing because a beneficiary has an equitable interest in the trust res. Appellee’s Br., at 18. Once again, an equitable interest in the trust res does not translate into automatic standing regarding every action the trustee takes. Rather, the beneficiary may only challenge those actions of a trustee that adversely impact the beneficiary’s rights to the trust in a “substantial, direct and immediate” manner.
In sum, there is no legal authority to support the conclusion of the Orphans’ Court that a beneficiary with a vested interest in a trust automatically has standing to challenge the actions of a trustee. Rather, the beneficiary must establish that the challenged conduct of the trustee adversely impacted the beneficiary’s rights in a Trust in a manner that was “substantial, direct and immediate” in order to establish standing to challenge the actions of the trustee. In this case, Appellee failed to establish that the trustee’s alleged mismanagement during the time period of the Fourth Account harmed Appellee’s right to receive $2,400 annually in a manner that is substantial, direct and immediate. Thus, Appellee lacks standing to challenge the Fourth Account.
Slip op. at 13-14.
Judge Collins filed a dissenting statement, summarily concluding that he “would affirm on the opinion of the trial court.”
The Supreme Court granted allocatur to consider:
Did the Superior Court err when it held that the equitable property interest in the trust res of a current vested beneficiary does not establish the beneficiary’s automatic standing to raise issues with the Trustees’ breach of fiduciary duties to the Trust, but instead a court must evaluate each and every beneficiary’s individualized financial loss to determine if it meets some unknown threshold sufficient to meet the “substantial, direct and immediate” test?