The opinion
J-A03018-17
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
IN RE: ESTATE OF: JOSEPH L. GRAHEK, IN THE SUPERIOR COURT OF
DECEASED PENNSYLVANIA
APPEAL OF: DAVID J. GRAHEK, PHILIP L.
GRAHEK, KATHLEEN G. CONNAL, JAMES
V.A. GRAHEK, STEVEN P. GRAHEK
No. 554 MDA 2016
Appeal from the Order Entered March 11, 2016
In the Court of Common Pleas of Lancaster County
Orphans' Court at No: 36-1976-1376
BEFORE: LAZARUS, STABILE, and DUBOW, JJ.
MEMORANDUM BY STABILE, J.: FILED APRIL 27, 2017
Appellants, David J. Grahek, Philip L. Grahek, Kathleen G. Connal,
James V.A. Grahek, and Steven P. Grahek, appeal from the March 11, 2016
order adjudicating the account1 of Wells Fargo Bank, N.A. (the “Trustee”).
We affirm.
This matter concerns a trust (the “Trust”)2 created under the October
1, 1971 will of Joseph L. Grahek, deceased. The Trust’s asset was income-
____________________________________________
1
See Pa. O.C. Rule 2.9.
2
There are two trusts at issue in this litigation. The parties reference them
as Trust A and Trust B. For purposes of this memorandum, we shall refer to
both as the Trust.
(Footnote Continued Next Page)
J-A03018-17
producing property (the “Property”) located in Orange County, California.3
Marion Grahek (“Mrs. Grahek”), the decedent’s wife was the Trust’s income
beneficiary during her lifetime. Appellants David J. Grahek and Philip L.
Grahek were remainder beneficiaries.4 The Trust produced $200,000 to
$300,000 per year in income for Mrs. Grahek.
On August 28, 2006, the Trust sold the Property because it was under
threat of eminent domain from the Orange County School District. The
Trustee planned to reinvest the sale proceeds—$8.7 million5—in like-kind
property in order to avoid the capital gains tax. Section 1033 of the Internal
Revenue Code permits conversion of property without recognition of a
capital gain if the property in question is under threat of eminent domain.
26 U.S.C.A. § 1033. In this case, a qualifying 1033 exchange needed to
occur before the end of 2009.
_______________________
(Footnote Continued)
3
We culled our summary of facts from the orphans’ court’s March 11, 2016
memorandum.
4
Mrs. Grahek died on October 16, 2013. Appellants Kathleen G. Connal,
James V. A. Grahek and Steven P. Grahek did not participate in this litigation
and were never listed in the caption until the notice of appeal. Opinion Sur
Appeal, 6/2/2016, at 1 n.2. The orphans’ court questioned the standing of
these parties. Id. Neither side briefed the issue, and we have no need to
address it.
5
The net gain on the sale was $8.2 million.
-2-
J-A03018-17
The Trustee invested roughly $2.1 million of the sale proceeds in
money market accounts. That amount would eventually cover the down
payment on a replacement property or the capital gains tax. The Trustee
intended to obtain nonrecourse financing for the remainder of the purchase
price of a replacement property. The Trustee planned to find a replacement
property that would produce sufficient income to cover the mortgage. The
Trustee invested the remainder of the Property sale proceeds, roughly $6.5
million, in a stock portfolio. The Trustee believed its strategy would continue
to produce income for Mrs. Grahek and increase the principal value for the
remainder beneficiaries. Appellants agreed with the Trustee’s plan.
During the financial crisis of 2008, nonrecourse financing became
temporarily unavailable and the Trust’s investment portfolio lost some of its
value. Dissatisfied with the situation, Appellants David J. Grahek and Philip
L. Grahek petitioned to remove Wells Fargo as trustee. By agreement,
David and Philip Grahek accepted appointments as trustees pro tem. In
2009, under their direction, the Trust purchased properties in Chattanooga
Tennessee and Canton, Georgia. The Trust did not have to pay a capital
gains tax.
On October 29, 2010, Appellants filed a petition to compel the filing of
an account.6 The Trustee filed its first account on January 14, 2011.
____________________________________________
6
See 20 Pa.C.S.A. § 7797.
-3-
J-A03018-17
Appellants filed objections to the account on March 1, 2011. The Trustee
filed a motion for judgment on the pleadings on June 1, 2011. The orphans’
court denied that motion on January 23, 2012. The parties filed a joint
stipulation of facts on March 26, 2015. Appellants filed amended objections
two days later. The orphans’ court conducted four days of hearings, the last
of which occurred on April 10, 2015. The orphans’ court entered the order
on appeal on March 11, 2016. Appellants filed this timely appeal on April 8,
2016.
Appellants state the questions involved as follows:
1. Did the orphans’ court err as a matter of law in concluding
that the five-year investment horizon pursued by [the
Trustee] satisfied the requirements of the prudent investor
rule when [the Trustee] acknowledged that the maximum
investment horizon was only three years and four months,
and [the Trustee] was notified six months before the market
crashed that 100% of the assets would be needed to
complete the 1033 exchange?
2. Did the orphans’ court err as a matter of law in approving
[the Trustee’s] compensation in light of its breach of fiduciary
duty?
Appellants’ Brief at 4.7
____________________________________________
7
The orphans’ court, in its June 2, 2016 opinion sur appeal, notes that
Appellants’ questions presented differ in certain details from the issues they
raised in their objections to the account. Likewise, Appellee asserts that
Appellants have waived their arguments on appeal because they never
raised them at trial (a violation of Pa.R.A.P. 302(a)), or because they are not
included in Appellants’ concise statement of errors (resulting in waiver under
Pa.R.A.P. (b)(4)(vii)). As set forth in the main text, we conclude that the
trial court’s March 11, 2016 opinion provides a sufficient basis for this
(Footnote Continued Next Page)
-4-
J-A03018-17
The following standard governs our review:
When reviewing a decree entered by the Orphans’ Court,
this Court must determine whether the record is free from legal
error and the court’s factual findings are supported by the
evidence. Because the Orphans’ Court sits as the fact-finder, it
determines the credibility of the witnesses and, on review, we
will not reverse its credibility determinations absent an abuse of
that discretion. However, we are not constrained to give the
same deference to any resulting legal conclusions. Where the
rules of law on which the court relied are palpably wrong or
clearly inapplicable, we will reverse the court’s decree.
In re Estate of Fuller, 87 A.3d 330, 333 (Pa. Super. 2014). Further, we
are cognizant that “one who seeks to surcharge a trustee bears the burden
of proving that the trustee breached an applicable fiduciary duty.” In re
Dentler Family Trust, 873 A.2d 738, 745 (Pa. Super. 2005), appeal
denied, 897 A.2d 1184 (Pa. 2006).
Instantly, the orphans’ court found no breach of fiduciary duty.
Rather, the orphans’ court found that the Trustee met its legal obligations;
that the Trustee’s plan sufficiently provided for the interests of the income
and remainder beneficiaries; and that a financial crisis of historic proportions
was unforeseeable. Having reviewed the record, the parties’ briefs, the
applicable law, and the orphans’ court’s opinion, we adopt the orphans’
court’s March 11, 2016 opinion as our own. The orphans’ court’s thoroughly
_______________________
(Footnote Continued)
Court’s review and an accurate analysis of the substance of Appellants’
objections to the account and arguments on appeal. To the extent
Appellants intended to raise any issues not addressed in the trial court’s
March 11, 2016 opinion and/or not previously preserved in accordance with
the Rules of Appellate Procedure, we deem such issues waived.
-5-
J-A03018-17
and accurately explains the lack of merit in each of Appellants’ objections to
the Trustee’s account. We direct that a copy of the orphans’ court’s opinion
be filed along with this memorandum.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 4/27/2017
-6-
Circulated 04/03/2017 03:19 PM
IN THE COURT OF COMMON PLEAS OF LANCASTER COUNTY, PENNSYLVANIA
ORPHANS' COURT DIVISION
IN THE ESTATE OF:
JOSEPHL. GRAHEK No. 3.6-1976~1376
deceased
OPINION.ON OBJECTIONS TO ACCOUNT FORMARIT:AL TRUS-T FOR.THE
BENEFIT OF MAR.IONS. GRAHEI<>ATKINS'ONAND TRUST :FOR· TBE
BENEFIT OF MARION s~ GRAHEK-ATKIIS'SON
PROCEDURAL HISTORY
Currently pending before the Court are the.Arnended.Objections of Marion S. Grahek-
Atkinson, David J. Grahek and Philip L Otahek filed oh March 27, 2015 (hereinafter
"Objections to Trust A").to First Account ofWellsFargo,N,A. pertaining to the Trust under
Will of Joseph r, Grahek dated October 1, l97l, Marital Tru$tforthe Benefit of'Maricn.S.
Grahek-Atkinson (hereinafter "TrustA") and to the. Petition forAdjudication Related thereto.
Also pending are Amended Objections of'Marion S. Grahek-Atkinson, David J. Grahek and
Philip L. Grahek filed on March 27, 201 S'(ltereinafter "Objections to Trust B") to First Account
of Wells Fargo, N.A. pertaining to the Trust under Will of Josepht. Grahek, Deceased, dated
October 1,. 1971, Trust for the. Benefit of MarionS.: Grahek-Atkinson (hereinafter "Trust B") and
to the Petition for Adjudication Related thereto.
Wells Fargo.Bank(hereinafter "Trustee") served as Trustee of two trusts established by
Joseph L. Grahek'. Initially; the asset of these trusts was a property located at 155 East La Jolla
Street, Orange County, California (hereinafter "Placentia Property"). The Placentia Property was
sold on or before August 28, 2006, after notice was provided that the property was under threat
1These trusts are referred to as Trust A and Trust B throughout the Pleadings and
supporting documents as well as during the hearings on the Objections.
of condemnation. As a direct.result of circumstances surrounding the sale of the property,
Trustee allegedly attempted to execute an "exchange" of the property-through the purchase of a
subsequent property in accordance with Section I 033 of the Internal Revenue Code (hereinafter
"1033.·~xchange'l
On February 13, 2009, Kathleen G. Connal, David J, Grahek, James YA. Grahek, Philip
L Grahek and Steven P. Grahek (hereinafter collectively "Remainder Beneficiaries") _and Marion
S. Grahek Atkinsonthereinafte» ''LifeTenaht")..tHed a Petitlon for Removal and Replacement of
Trustee orAppointmeht of a.Substituted Fi'duci'aty Pro rem (herefnafter "Pro Tem .Petition").
Remainder Beneficiaries and Life Tenant contended that Trustee was failing to find -appropriate
properties-to-complete the 1033.E.xchange. While thelitigation surrounding the Pro Tem F~tidon
· progressed, the g~adHn,~ f9l' 9ompleting the ims: Exchange grew closer, All par.ties appeared
concerned that a resolution to their differences would not be reached in time to.effectuate the
l 03'3 Exchange.
In art attempt to .cornplete the 1 ()~3 Bxchange, the parties entered into a Stipulation and
Release Agreement whereby Trustee agreed to the· appointment of'two of the Remainder
Beneficiaries, David J. Grahek and. Philip L. Grahek as trustees pro rem, See Grahek Stipulation
and Release Agreement filed March 25, 2009 and attached to the Court Order of March 27, 2009.
TheAgreement also states that:
In consideration of the Agreement, Beneficiaries, for themselves and their
respective heirs; guardians, executors, administrators, predecessors, successors,
parents, subsidiaries or affiliated corporations; companies divisions or entities;
partners, directors, officers, managers, supervisors or employees; insurers;
stockholders; personal representatives, attorneys, agents or assigns, and any one
claiming through or under them or any of them (all the foregoing persons and
entities referred to collectively as the "Releasers"), fully remise, release and fully
2
discharge Wachovia, its respective heirs, guardians, executors, administrators,
predecessors; successors, parents, subsldiaries or affiliated corporations,
companies, divisions or entities, partners, directors, officets.managers,
supervisors or employees, insurers, stockholders-personal representatives,
attorneys, agents or assigns, and any one claimirt~ through pr under itot any of
them (collectively "Wachovia") from all debts, obligations; demands.judgments,
claims, controversies or causes of action of any kind whatsoever either in law or
on equity, whether foreseen or unforseen, matured or unmatured, known or
unknown, accrued or notaccrued, expensesj.interest, attorneys' fees, which
Releasers, or any of them, ever had, now have, orheteinaftetca~. shafLofm4y
have against Wachovia arising out of or in any waytefoted to the 1033 Exchange
involving the Placentia Property except to the exte~toflos-s ·<it fi'abilhy sdleiy as a
resultotany of Wachovia's warranties set forth in Paragraph 7· being tinttue,
jnaccurate or erroneous in any material respect. R~leascirs-¢xptessly ·a~¢~ that
except as set·fortb irrthe proceeding sentence, Wa.choiva:shali'.haveno iiabHity·
whatsoever ·arising out of or in any way related tothe 1033 farnhang~ inyoiving;
and
the l>I~centia Prop.erty, incluciing. by not.limited to.taxes, ptnah;ies ipte.rest
(including capital gains tax) thatmay be due orbecome due'to any taxin.g
authority, incJudirtg but not limited to the Internal Revenue S~rvi~~ or.any state,
local or municipal taxing authority. This paragtaphdoes not release:apyclaim
Beneficiaries have asserted or may assert with respect to-lheadminietration ofthe
Grahek Trusts; including but not limited to investment.of'the Trusrassets :ttpto
the Effective Date.
Id. at ~8. Along with agreeing that David J. Grahek and Philip L. Grahek could serve a'strJ.1stees
pro tem, the parties agreed that"[ d]uring the Pro, Tern Trustee Period. assets ofthe GrahekTrusts
maintained by Wachovia [now Wells Fargo] shall be maintained only pursuant to the
Administrative Agency Agreement, which is attached hereto as Exhibit"C" ... .'' Id. at 16. On
March 27, 2009, this Court entered an Order appointing David J. Grahek arid Philip L Grahek as
trustees pro tern (hereinafter "Trustees Pro Tem"), in accordance With the Agreement entered into
by all parties.
On October 29, 2010, Trustees Pro Tem and the Life Tenant (hereinafter collectively
"Objectants") filed a Petition to Compel the Filing of an Account By Trustee. On January 14,
2011, Trustee filed their First Account for their period of administration of the two trusts. On
3
March J, 2011, Objectants filed their initial objections.
On Ju11,e l, iot L Trustee filed .1.M9ti9rrfot)\t~gt11ent QP thePJeagii.igS,.or in the
Alternative, forPartial Summary Judgment, 'Jhi~ Ni!o~ion;;i)rpart, ~roµgh,tto iS$'1efhe scopeof"
the release language of'paragraph-Sl.repredueed above, On.January 23,;20lZthe Co1.1rtI~sue4 an
Opinion.and accompanying Ordefdenyihg.theMoiion for Judgment on thed>leadittgs: Thts
'opinion proV1ded .theJ)attkswfth.the Cout'Ps iriterpretatfon.ofthe.iartgUageof"'paragraph 8. and'
how it limited the liability of'Trustee:
On March 26,:2QJS, a Je>in(SUpuJ4tion.ofF~qfay,;~~ filed ~Y th~ pa.rtie$. Anwn~eq
Objections were filed on March 27, 2015 as-referenced .above. fiearingswere held on:tvlarch:·~9,
2015, April 1, 2015, April. 9·, 2015 and :April 10, 2015. The parties have submitted briefs and
reply briefs supporting theirrespective:posltions· end.the.mater 1s MW ffpefor disposition.
FINDINGS OF.FACT
Joseph L. Grahek (herefoafter "D:ec<!4.e».etdied on October 14, 1916 ha,ving disposed .ot
his Estate byWil], See Joi11tStipulaU011 of.Ea:91$,:
The Decedent's Will 9r~ate~twoirrnvocab,leJrusts, ainarital trnst(TrustA) and a
residual trust (Trust B). Id.
The sole income beneficiary of Trust A and Trust B was. Marion Grahek, .also known as
Madon Grahek-Atklnson. Id.
The Remainder Beneficiaries of Trust A are; the beneficiaries identified by Mrs. Grahek-
Atkinson's estate plan or, if no plan exists.to the corpus of TrustB, The Remainder
Beneficiaries of Trust Bare the children of Decedent and Marion Grahek-Atkinson and include
Objectors, David J. Grahek and Philip L. Grahek, Id.
4
Trust A also contained aprovision ·that Tn1stee pay principal to Mrs. Grahek-Atkinson
11fo,r her support, Go.mfort art~[Wyllb.e.ing,w.h¢never the Trustee d.~t¢nnin.e$1hut the;income.o(my
wife.from all sources, Including thfs·trust; is11ots.ufficfo11t for hersupport, comfort and wen
being." See Decedent's Will,
TrustB also contains a provision forthe paymehfot'cofpus to Mrs. Grahek-Atkinson if
Trustee deenis·sttchpaymehtnecessafy. Id.
TheTrusts ifiiUally named NationalCenttaLB·ank:as Trustees, which b:ecame Wadtov:ia
Bapk, N;A; and.)he11 We!ls.f~rgo B.m,k; N.A; S~~)oit#Stipufotk,ri o(F.acts,
The primary asset of Trust AJmd. Trnst II V/;l~ a parqeLof re.al esiate hr c~n :fornhrwhlc;h
sustained a commercjalpuiI4ing(her-ein~Jter "Piaceniia ?ropprt/1i Jcl,; N.T. p, 2J; :IL s:-fo;
Trust A heid24~t9%.ofthe real estateassetwhile Trust Bheld75.8l%ofthe real.estate
.asset; .Join; Stipulation of Facts~ N.t .• p. i 6:0, ll..11·14:,
Wells Fat"golfar1kWa,$ aware thatthe·:orange County $¢hQol.Pfafrfotwasfot¢r~stedin
acquiring the Placentia Property as early as 2003 or 2.004 M.dmightr¢~9rtto emlrtent~fornain.
Joint Stipulatj9n0,f :Facts; N.Lp. l}; u, 12:.24,
The Placentia Property was sold under threat ofcondemnation on August 28, 2006for a
sales price of $8.7 MUUort. Joint Stipulation of Facts; N.T. p. 22, 11. 5-8; p. 26, II. 12-19.
The. net gain on the Placentia Property was $8,2 Million. Joint Stipulation ofFacts.
While the Trust held the Placentia Property, it produced approximately $200;000 to
$300,000 a year for thelife-time beneficiary, Madon Grahek-Atkinson. N;T; 430, IL 12-18.
A I 033 Like-Kind Exchange is a reference to the Tax Code which.is applicable where an
initial property is taken through eminent domain or condemnation and a new property can be
5
acquired; without any capital gains.tax' consequences, so long as the acquisition. takes place
Withing 3' years from the Md.:ohh¢'yeat i11whichtl)e;qond¢rnr1at{on acfrvffyo~c_µrted. Joint
StiJ?:Ulatibn:qf,F~cts; 'N'.Ti p. 462; U. J3.-l8;:p,: 4691 H.-18-42.-
The-Federal T~xReiurn~ and. the Califqm:ia·State T:~:K·Retim1s{or 200(5 both reflected an
intention to.complete a lOJ3 Like-Kind Exchange. foi'tit:Stiplilatiori-of Racts'f JointExhibits.B
and C; 'N:T. Ji; :21J. 1 - p; 2s,. 1. 23.
The deadline to complete the· l 03:3 ti.ke~Kind. ·Ex.dhange:Wt\S December 3 L.2009, Joint
:stfputa,ti<m ofFacts;
At some point in 200$., Attorney St~phenJ.-Schurnadberb:~gan prepariug' a: legal opinion
regardirrg ..al033. exchange. A.draft of'hfs initial research was provided to Afforney Gerald
Williams by correspondence ahd'<it teferehced :ate.qµesrdate .of April :i6.,. 20{)'5,, N.T. p·. 24, 1.3- p.
25.' LIS.
The: draft of the_:r~s~a.r_ch·-of-Attorney $chitmMJ\er Wa$';ina.r.l:<~.d 11Dtaft for Jpfo:rn;1aHon
Purposes only:'; and.was not completed, $.ee'Ex.bi.bit .(h3Ql and.N.r. p/2.5~ 1.16.-.p/26, l- 8.
In arr e-mail.dated October 3, 200~,David. Grahele raised concerns about the ramifications
of his mother's death on completing the 1033 Exchange. -See.G~26i N.1'.: p, 41, L 1- p, 43_, l..6;
As a result of Mr. David Grahek's.inquiry.Trustee sought to obtain a legal opinion
regardtng the issues raised in the October 3, 2006 correspondence, N;T: p. 43, 11. 7-23.
Mr. David Grahek.testified that he agreed to obtaining thelegal opinion of Tom Bergen,
an attorney in Lancaster County, to address his concerns about the 1033 exchange and the
possible death of his mother. NT p, 43,.11. 7 - 23.
Wells Fargo Bank paid Attorney Bergan $4,825 to prepare his legal opinion. N.T. p. 250,
6
1:7 - p. 2511. I .
. Attomey Berganptepared .a.6 page legal opinion' dated December ls, 2()06 wherein he
specific!llly identifies Jhatth1;: 1'.qµestiqn.conc~ms the,abil~ty of'thetrusts .: or the.remainder
beneficil;\f.ies tq elect to defersome qr ell.of the gain from the conversion; •. i after-the demise of
Mrs. Grahek-Atkinson." See.Exhiblt G-45.
Wells· Fargo Ba11k·proposed'to invest 20% o:£the. fundrrecefved from' the sale· of the
Placentia Property in short-term Investments aud the rest. W.e>uld beplaced irra "combination of'
in_coro.¢ stocks; growth. stt:>~ks; ~ fullr·diver$ffied.portfdU9 ~f.larg~~cap; mid-cap, small-cap,
.internatjhnal emergtng.matkej-srocksand fix~d~fnqo,ne basedon' themodern portfolio. theory",
N;:Lp;)03, L 2l~'P• ,304,J,5:i p, 30S; IL 17°~3.·
Wells Fargo segregated $2;210,000:00·ah&111vested that in Money Market Accounts
earning an average of4 to 4;5% to coverthe costs of'the:CapitaJGai.ns taxes due Ori the sale of
the Placentia Property if the: I 0~3 exchangecould not occur: Jolnt Stipulation of Facts; N.T, p.
J.521 L".2$:. p. 153·,J.22.:
The fu,pdsrenuuningaft~r sequestratlcn qft4~,$2,_1, Million for laxes totaled
approximately $6.5Mill.ion.a,rid. wererinvested inabalanced pornollo that utilized Modem
Portfolio Theory. N.T. p. 338,.IL 2- 6; p. 339, 1. 11" p. 340,, 1.23.
The money invested by' Wells Fargo in the dfverstfied portfolio was held .in investments
that could be readily converted into cash. N.T. p. 234, 11. 5- 13.
From the beginning, Wells Fargo intended to seek non-recourse financing. and to utilize
the $2-1 Million invested for paying capital gains taxes as a down-payment on a replacement
property. N.T, p. 154, 11. 4-20.
7
The initial Wells Fargo strategy was to purchase a properly utilizing approximately $2.1
Miilfon a:nd non·recou.rse financing for thetemaining purchase ptfoe·to avoid payirig Capital
Gains Taxes on the-sale of the· Placentla Property and allow theaapproxiniat~ $6'Million
remainingfrom the: sale to-beJre~ for.investment, N.T . p; 158, l, 2.1- p, l5.9;l7;
Mr. Mar~ Allen t~stWed thattbe'investments:Jn the Grahek portfolio could have been.
.liquidated.within three {3} days in order- to purchase a' pr6petfy under a 1033 exchange. N.T. p.
:336, 11. t7- Ht
Mr. Mark Allen, who served asjht? Trust fovestwe11tOfficer and 'who no !Qn~er work$ for
Trustee, testified that they had.two groups they had to sati'sfy with. their choice ofinvesiments;
the income p·enefic.i~'Y and the growth of:capitaJ 'forthe resi<Jvalben~fi()iarie.s, J\T.T .. p,3'.43, h 20·
p. ~44. L8\p 3.~2, Ur 17"24i,
Ms. Spencer.the-expert for Objectors also' acknowledg~lthat ''[t]his·is)i.spliHntetest
·trust. 'there's ah incon1ebeneti:dary,Mrs. Gi'ahek, who was to received thefocome, andthe
remainder beneficiaries who were to receive. the. principalwhen Mrs; Grahek passecf away. So
the trustee.has duties to both sets of benefiqiatie$, and H's the trustee's responsibility to provide
incomeferthe income beneficiary and.to preserve andincrease the principal for the principal
beneficiaries." N.T. p. 559, 11. 8-17.
The Bank's investment policy for the Trusts was to provide Mrs, Atkinson with
approximately $300,000 in annual income. N .r, p. 344- ll. 12-25.
The Trust investment officer, Mr. Mark Allen, testified that "one of my objectives,
because we talk about preservation of principal, one of mine was preservation of buying power.
That, to me, was extremely important, to stay above what was happening in real estate. If the
8
real estate market went down, and my portfolio went down, as longas t stayedabovewhat they
were looking to reinvest in, we were sm1 accomplishing whiit·wewer.e tt.Yh1g to do. I' was more ..
~ as much afraid of real estate moving 1.1p dramatically !,lJ1d 'th¢ir buying.powetdropping
precipitously." .N.T. p . .346, 11. 12- 23.
Trustee avoided investing in ant subscription-based fove~ftri1ents witha'Iock-up period so
that-the-invested funds couldbe accessed quickly if an appropriate· 1.033 ptoperty foukthe
located. NS. p. 3.5~, U.8~2d.
On. J une.l S, 2Q01:, Paul Bernett, a.r~gicm~J. man~gfo$ 4itect~r for real ¢stat~]l$Set
managementwith Trustee. who wasassigned tothe Grahe]; Trastsadvisedanofher me.m'ber·of'the
real estate department that the M~naging·Directors·for:the:Bankwoul~ not-approve a.leverage
-ratfo o'f greater than 50% Of any real estate purchased, N.1\p. 379,.1.·23 ° p. 381;:L 7;
On February L5, 2008,. afterbeing advised. by Mt. Geo:i;ge·George
. .
th:at.nan~recoutse
'or
financing W(:\S no longer available, Mr. aerne.tt Wi th'the R.¢'~1 'Est~teibep~rtinent the Bank
.suggested purchasing a replacement property at l 00% oNhe: cost ·N'.r; P'· ::3 8,5, L l 7 • p. 3 8'6; 1..3;
·p.3$7, II. 16-20.
In 2008, approximately two years into the search for areplacement properly, Wells Fargo
Bank.also sought thelegal advice of Attorney N. Brooke Gabrielson who was asked to address
the impact the creation of an LLC would have on a 1033 exchange, in' avoiding Capital Gains
Taxes. N.T.p.251,1.20-p.253,l.ll;p.399,l. i6.
Attorney Gabrielson of Howse & Brown submitted a 6 pa.se legal opinion elated
September 15~ 2008 which addresses the issues raised by Mr. Paul Bernettin his e-mail
correspondence to Attorney Gabrielson of August 29, 2008. See Exhibit WF-195; Exhibit WF-
9
260.
The Howser & Brown Opinion asked, in part, ifa:U the equity had. to he reinvested for
purposes ofa 1033 exchange. N.T. p. 397, I. 16;. p. 398,J.17,,
From October l, 20.06 until JµneJO, 2009, Tru.st A earned $248,501 and TrustB earned:
$876,974. N;T, p. 361, 11. 14~ 17; p. ~62,l.:23~ .p •. 363',LlO,
Mr. Mark Allen.who served as a.Vice President-and.Investment Strategist with Trustee,
was asked abouttwo of the sales of stock; ,namely th'e purchase of $270,000'worthof Lazard,
Emerging Markets Portfolio on April 30, 2008.and.Wells.Fargo'Advantage Endeavor Select on
December 11, 2008. N.1'. p. 333, l.19'- p,33'4, I. ]6,
Mr. Maloney testifie<l thatWells Ear~o "made everyeffor(l:>aseq on .the l?apenvqrk thatI
reviewed, to seek outa property th~tconsisted orhad tpe qqaUficaW;m,s tpe.yrequired, acting in a
fiduciary capacity, to acquire aproperty in alQ3J,exchnnge/' N,T, p.5'84;l.22- p. 585\ LL
On June 9, 2009, Trust B purchased afepiacemehtprdpertyfo Chattanooga, Tennessee
using $4.6 Million in cash and liquidated secudtfos and $4, 134,bOO in non-recourse financlng
for a total purchase price of $8.7 Million, Joint Stipulation of Facts,
On September 23, 2009, Trust A and Trust B purchased a replacement property in
Canton, Georgia using $2.6 Million in cash and liquidated securities and $1. 1 million in non-
recourse financing for a total purchase price of 3 .7 Million with Trust A owning 75% of the
property and Trust B owning 25% of the property. Joint Stipulation of Pacts.
On October 16, 2013, Marion Grahek-Atkinson died. Joint Stipulation of Facts.
CONCLUSIONS OF LAW
Trustee had a fiduciary duty to both the lifetime income beneficiary, Mrs. Grahek-
10
Atkinson, as well as the remainder beneficiaries, The sumdard of care lmposed upon the Trustee
is that identified 'under the Prudent Investor Rule, 20 Pa.01$ .. ·§720"1, et, seq. Essentially; "[a)
fiduciary shall Investandmanage property heldin a trust es !:l. prudentinvestorwould, by
considering the purposes, terms and other circumstances of the trust.and by pursing an overall
investment strategy.reasonably suited to the trust." 20'.Pa.C.$. §7203(~). When making
investment decisions, a.fiduciary·''shall :consider,. arMng other things, to the extent relevant to the
decision or action:
( l) the size of'the 'trust;
(2) the nature and' estimated duration of the fi~uci~ rel~tio~~bip;
(3) the. liquidityand'distributionrequlrements
. ofthetr4~t;:
.
(4) the expected tax consequences 'of investment deoisions or strategies and.of
distributions ofdncome and ptirtdj:>al;
(~) the role that. each Investment or.course of actfoh plays 11\ the overall investment
:sttatigy;
(6) an asset''s special relationship: or specl&l valQe.;Jf"any; .tcf.the)\lfposes of the tr0$tl:frto
·oneor.more:ofthe:beneficfories~,,.
(7) to the extent reasonably known to tne fidti~il\ty,Jlte needs ofthe h~m~fici~r_ies for
present and future dJstdputib11s .~uthodz~d orrequired bythe ·goveroit1g· instruments; and
(8) to the extent reasonably known to the fiduciary, the.income and resources. of'fhe
beneficiaries andrelated trusts,
20 Pa.CS. §7203 (c).
The initial burden ofproof rests with the Objectors..
In general, one who seeks to surcharge a trustee bears the burden of proving that
the trustee breached an applicable fiduciary duty, However, when a beneficiary
has succeeded in proving that the trustee has committed.a breach of duty and that:
a. related loss has occurred, .. the burden of persuasion ought to shift to the trustee
to prove, as a matter of defense, that the loss would have occurred in. the absence
of a breach of duty; We believe that, as between innocent beneficiaries and a
defaulting fiduciary, the latter should bear the risk of uncertainty as to the
consequences of its breach of duty.
In re Dentler Family Trust, 2005 PA Super 146, 873 A.2d 73 8, 745 (2005) citing Estate of
11
Stetson! 463 Pa, 64, 345 A.id. 679, 690 (1975). "[I]fthe trusteecommits a breach of trust, he is
chargeable with (a) any loss ordepreciation in.valueof'the trust.estate resulting from thebreach
of'trust; or (b) any profitmade by him through the breach oftrust; or (c) any profit which. would
have accrued to the trust estate if there-had been.no breach of'trust," In re. p·axson Trust I, 2006
PA Sup-er 9:, 893 A.2d 991 122 (~0-06) citihgRestatement (Second) of Trusts § 205.
ANALYSIS
Objection 4
The pivotal objection to the Trustee's actions and· Investment strategy i.s Obj~qtion4
which states:
4, Obje~tion is .made to eaeh of'the,foll9Wi11g enumerated iriVestrrtents listed on
Exhibit ~~A",. attached hereto Mid made a· part lieteof as whotly· inapj>'ropriate in the
elrcumstanees of.the trust, as the trust had .sh:ort'.tenrdigUidity.heeds,. the trustee
elected to pursu<r.a_ 103·3' Hke~kind exchange: and the-:rrJstee faHed 1a.1·1n1plerrtentah
investment proces_s With appropriate.investment oqjectives and time.horlzonsfor
'acquisition' of'replacement pro petty;
At the time· of trial, this objection had-evolved into an objection that encompassed an objection to
the overall investment strategy implemented by Trustee'.
Objectors assertthatthe Trustee was.under an obligation, asa.fiduciary.fo retain all
funds from the sale ofthe Placentia Property in cash or cash equivalents to ensure that there was
sufficient cash on hand to purchase a replacement property under section 1033 of the Internal
2As exhibited above, the Objection filed by Objectors specifically identified a listof
investments at issue. However, throughout trial and even in their- brief, Objectors focused on the
generalized theory that "[tjhe Bank improperly exposed Trust assets to market risk when those
assets needed to be preserved in order to ensure their availability for the completion of a like-
kind exchange under section 103.3 of the Internal Revenue Code of 1986. ,,· Objectors Brief, p.
29. Little evidence was provided of the specific enurnerated.investments in Exhibit "A" as the
presentation of evidence focused more on the choice- of Trustee to place funds in a balanced
portfolio rather than retaining the funds in cash,
12
Revenue Code. Objectors assert that this initial failure.to maintain proceeds in cash, along with
the subsequent
.
failures of the employees
. of Trustee to alter. the investment strategy at various.
stages in the' process of flndlng a suitable property, resulted. in a breach.of the Trustee's fiduciary
duty, Objectors assert that this purported breach makes: Trustee chargeablefor the market losses
suffered by the Trust during thy 2008 stock market, plunge,
The Objectors seekto .havethe.Court' draw fromthe plain language of the Trusts to
identify the 'intent of the Settler. Objectors assert.that this intertr-should·havebeen the polestar by
Which Trustee set Its investment goals. It.is apparenrthat the, Settlorestablished Trust. A'and
Trust.B to minimize the tax· obligations upon his death. Trustee's actions ofpursuing a I 033
exchange demonstrated a· commitment to th.at goal. .A lQ3} exchange would certairtl.y
accomplish Settler's purpose anq minimize tax consequences. Furthermore, a 1033 exchange
would have also continued to hold assets in realestate. From the plain language of the Trusts, it
is also apparent that Settler-intended to ensure his wife, Mrs. Grahek-Atkinson was cared for
during her life and that the assets of the Trust be safeguarded forthe residual beneficiaries.'
Objectors approach the management of the Trusts from Jhe fundamental starting point
that "it was. clear that the.most-important consideration in the management of the Placentia sale
proceeds was to keep the assets liquid, that.is, to maintain the ability to convert them to cash
without loss of principal.as therewas at the timeno.direneed to generate.income or growth."
Objectors brief, pg. 42. The Court is not persuaded that the starting polnt was the need to keep
3 The Court also notes. that Settler intended for the Trusts to be administered by a
corporate entity. It would seem that allowing the two sons of the Settler to serve as Trustees Pro
Tern is more afield from the intent of Settlor than any of the investment strategies employed by
Trustee.
13
the assets liquid. Objectors, time and time again, dismiss the duty of the Trustee· to the income
beneficiary, their own mother.
This case i$ plagued by two significaht issues-that the Court finds persuasive: 1'fame1y,
the Trusts in.question served two masters.and the Objectors have the favor of'hindsight, The
Trusts were charged with providing Mrs, Grahek-Atklnson with income; The income generated
during the time the TrustAssets wereinvested in the Placentia Property consisted
. . . . of. the rental
.
income of approximately $200,000· $300,000. This was the amount of'mcney'Mrs. Grahek-
Atkinson had received prior to the sale of the Placentia Property and it was. reasenable for. the
Trustee maintain a> stmilar distribution scheme for Mrs. .Grahek-Atkinson during the period ·ot
time they were seeking·41033 pro;Pe.rty and managing the pro·cee~$ofthe Placeriti.ti Property
sale. Trusrees.also had ia.dllfy to thy residual benefici~ries oftp~ True], The rysiquat
beneficiaries would obtain the principal upon the death of Mis. Grahek..Atkiiisoh, Trustees had.a
duty to preserve and growthis principal for the residual beneficiaries.
The second factor of great significance is the gift of hindsight, Hindsight is 11otonly an
independent issue but it'interplays with. the Trust serving two masters. The stock market
unexpectedly fellsignificantly in 2008. Seeing this dramatic decrease in value play out with the
assets ofthe Trust make Objectors quickly jump to the conclusion that the Trustees failed to keep
the assets safe. With hindsight, they identify what they believe should have been done with the
assets. But their assertions fail to give appropriate weight to the necessity to provide income to
Mrs. Grahek-Atkinson. Objectors would have you believe that all assets should have been kept
in cash and that if Mrs. Grahek-Atkinson needed more funds than the income generated by
holding money in cash or cash equivalent, principal could have been invaded to provide for her
14
needs. However, invasion of the principal would have been detrimental to the residual.
beneficiaries and a breach of the Trustee's fiduciary duty to them ..
The Court finds that the Trustee fulfilled its fiduciary-duty to the Trusts from the time the
Placentia Property was sold until the Trustees Pro Temtook over administration of'the Trusts'.
A review of the .choices made by the Trustee and thetestimony of their employees demonstrates
that the Trustee complied with the Prudent Investor Rufo.
Atthe time the Placentia Property was sold,Trustee. intertded: to. complete. a J .b:33
exchange. Until an appropriate property could be obtained, TnJ:s(eewas ~iven thetesponsibility
to manage the $8. 7 million proceeds from the sale of the property: E_mployees of Trustee
testified thatthe funds had to generate income to provide for Mrs; Grahek-Atkinson and grow
principal for the benefit.of the residual beneficiaries. FurthetmOre, the Trustee created a
.contlngency plan should an appropriate
.
property
. not be secured. The contingency'plart.
-·
was to
set-aside the amount of capital gains taxes that would be due as a result ofthe sale of the
Placentia Property; This set-aside served as the contingency plan throughout the Trustee's
administration following the sale of the Placentia Property.
Trustee's employees testified that they initially intended to seek non-recourse financing
so that when a replacement property was found, some of the funds trom the Trust could he used
in conjunction with the non-recourse financing while allowing the remaining funds from the
Trust to be held in investments. This plan would essentially create a source of rental income for
the income beneficiary along with the growth of principal for the benefit.of the residual
~While the account filed by Trustee spans a greater time period than that between the sale
of Placentia and the appointment of the Trustees Pro Tem, this period of Administration is the
crux of the litigation.
15
beneficiaries'. The percentage of Trust funds to be. used in the purchase of a replacement
property were subject to alteration through the l 033 process With U1e Trustee. Initially, Mr.
George sought to utilize non-recourse.financing tocover approximately 80% .of thepurchase
costofthe replacement properly, orily inte()dh'fgJo. utilize th¢$2Jni1Hon pJacegJrtreserv~.for
taxes as the cash contribution from l~~ trust N:T. p, 25t H. $-14. However, in-an .e-mail dated
June 18, 2007, the real estate department dfocussechhafthe property to be -ptirchased under the
103J Exchange.could not be.leveraged at80%. Mr.. Bem¢tt'testiffodthat the Banies,·~ommhtee
in charge of determining whether to. purchase a ptofi'erty would :·no.t:a.pprove hotrc,wlng more'than
5.0% of the purchase price. Nit, p. ·37i I..~ - p 3:S.-l .]. lS,
the Court finds the testimony of Mt, .MarkAlle~ to be extr,~mely. persuasive: Mr, Allen
testifiecl.apoutQie.inve$tmentgoiilsfotTrustee in -fight of.the 1033: exchange. Specificaily,.the
goal was to invest the proceeds of fne·I>Iatenffa Prcpertyso'that the Tmsts'would.malntaln
buying power in the real estate market. In orderto ptovide-1ncorne to Mrs. Orahek--Atkinson and.
maintain buying power in the real estate market, Trustee.made thereasonable and sound decision
to set aside the amount owed to cover pojentfal.capital 'gains taxes and invested the rest of the
funds in the market utilizing the balanced.portfolio theory. The choice to place approximately $2
mill ion into cash or cash equivalents by Trustee was a eontingency plan if ah acceptable 1033
exchange property could not be vetted and purchased. Meanwhile, the. remaining fonds were
able to generate sufficient income to provide a source ofrevenue for Mrs. Grahek-Atkinson.
Trustee has complied with the provisions of20 Pa.C.S. §7203 (c) of the Prudent Investor
5 Eventually, the Trusts would hold title to a replacement property and have a significant
amount of investments that could be liquidated if necessary. This would also result in the
diversification of the assets held in the Trusts,
16
R..ule. Trustee established a primary
.
goal of completing a i033 exchange
. lo rninilnize the tax
consequences of the sale of the Placentia P:roperty; The Ttu$tc(l ,c;teate<:l af11nq·to pay the taxes if
an appropriate property couldnot be. found, Finally; lheTr.t1~tee inyestecf~he funds notset aside
for taxes in a manhet in which.theycould'(a} . provide income fotMtS. Grahek-Atkinson similar
.
to.the.amount she· received irttehtal income from the·Placentia Propetfy~-(b)groW the principal
so (ha(theyftiffiiled their o'bligati~rt to tMr¢sidual benefiiiaues; (o) inves; the ftirtds·iita manner
inwhi~b,"the growth cpllld keep eipace qfthe _l:>qom'ing:real Y,state\mal'ket. to ensure buying power;
:and(d) provide M i.nvestinentsoµnd· ;gfrat~gy (utiliibigothyl?a.l~r1ced;portfc>Ho the9ry): to continue
to grow the assets Ifa 1033 exchange could nor.be accomplished.
Trustee'consideredtheirfi.s.cal re.sponsibiHtyto the ihcomeJS¢neficla1y as wen asthe
.tesidualbertefic1ari~s. trustee:d~monsttated a·commitm~n:n~ Pompletihg a 1033 exchang¢:..
I-Iowever,Trost(te also ccH}$id~re4 dw:ramifi<:.aticms qf not qqmpleting a lQJ!t ¢xcJ1a11ge. and
developed a contingent plan.
Objectors make much of the fact thaf the window of opportunity to complete al033·
exchange was-corning to a close and Th.istee had net secured a property; whatwould have
happened if Wells Fargo had remained Trustee is purely speculative and completely irrelevantto
the argumentof'both sides. However, by agreement, Trustee was replaced.and not one, but two
properties were purchased by the 1.033 exchange deadline. The choice of properties and
financing rested solely with Trustees Pro Tern. Trustees Pro Tern were able to buy two
properties worth more than the Placentia Property.were able to secure non-recourse financing
and avoided capital gains taxes.
Furthermore, it is apparent that hindsight guides the argument of Objectors. Initially, the
17
goalof trustee had been to utilize the·$2 million set aside-for capital gains .taxes as.a cash.
contribution to the purchase ofa replacementproperty. Even the Trustee'samendedposition of
only.usiugnon-recourse' financing 'for $0% .ofthe purchaseprice oftM property stili would have
resµltedih a slgnffieant-increase in valµe to this trtrsf. Essen(i~lly lhe Trustees :intended to
purchase a property worth $8 .7 million ormore, As.stlllli~g a property purchased' for $8'7
million, the Trust'would utilize. $4.35 million to purchase the· property. This would leave $4J5
mitlio11to inve·srfo eithenti:ore,tea:l estate orin a balanced port'foifo. The Trustee's parameters
for an appropriate property focluded:a revenue. source. the::prQJ)<Jrtywo.uld pay its o\.V!l mortgage
.andyossibly. even create a revenue so wee (if the.rcnta! payments exceededthe costof'payin~ the
financing). Once thepayoff:ofthe non-recourse-finarrciug wascomplete, the. Trustwould hold a
property worth 'approximately $K7 million as well as rhaihtaidng aninvestmerit'pertfolio with.
the remaining $4.:35 million notused inthe, 1033' e>echange, .excluding anygalns.reallzed during
this time periodand without everpaying capital $airt$ on the safe:ofthe Placentia Property. This
planwas extremely lucrative and obviously appealing to the .ObJectors·who. were readily in
agreement atthe start ·ofthe process.
During the time in question; Wells Fargo was serving as Trustee of Trust A and Trust B,
The Trost provisions did not require the Trust seek the input or approval of the beneficiaries to
make anydecisions. Such inclusion appears to have been.done.as a courtesy to long-standing
clients. the Objectors started the 1033 exchange process with the expectation thatthey would
see returns outlined above.
However, due to the sudden and unexpected collapse of the stock market in 2008, these
anticipated returns did not come to fruition during the Trustee's term, Objectors, in hindsight
18
and only after the catastrophic declinein the-financial markets.in 2008, sought to find a failure.in
the investment strategydeveloped by Trustee: The.sudden.historic decline in th¢ stock market
and n.o.t theactions ofthe Trustee, resulted in the loss ta portfolio value of'these trusts, The fact
that the market Collapsed withthe resulting decline in the. portfolio values in the Trusts, does not
establish that the Trustee breached its fidi.lciary:duty-to Mrs. Grahek-Atkinson.orto .the residual
b:enetldaries;. Based. won theJotalfty of t.he·rec.ord, the bbJectots;ff;li\.ed . to mee.ttheir.' burd en of
prooftha.tth¢Ttustee bt~a¢hed:its·:f.iduciacy t¢spo1isJbjlitie$, Theyfailed to esta\JJisn: .that tbe
Tni$1ee ~hoµl<i be, surchar&~il·for its il)vest,neri~·policjes and decfs!-o~·in the handling ofthe
Trusts.
For the.reasons set forthabove, the CourFfitids' thai.tlieTttlstee fulfiiled.its fidi:1cii'aty duty
and acted in accordarrce-witlt the P.r.ude·nt. Ihv.estor Rule.
Objection 5 and Objection 6:
Objection 5 asserts. tfo1i the Trustee felled to sell certain llst¢d ·~ecu.rHies (listed as "~''
tp.i:ougll and'f11cludirig "j''·fQrTrnst A anq h~Ythroµgh and including "h" fcr-Trust.Bjby the.end
of calendar year of 2007. Objectors assert that seiffog these securities-would' have.resulted in
"locking in" significant capita; losses which could have offset the capital.gains forthe tax return
of200i 'Objection 5 ties in significantly With Obj¢Gtion. 6 which then objects to the tax
liabilities created bythe purported failure to use t~e sale of'the.securities listed in Objection 5 to
minimize the capital gainsdue on value earned by the investments in 2007.
Objectors objections focus in on one calendar year in which. the Trustee purported to fail
to take a loss for tax purposes. However, the actions or inactions of a Trustee cannot be carved
out and looked at in a vacuum, Objectors urge the Court to look only at the 2007 year. Trustee,
19
in portions of their supporting brief, urge-the Court. to lookatthe period of growth of the Trusts
from inception to current day. Trustees seekthe.overly broad wbil.~. th~ QbJe-o_tQ"rs. seek, fhe
narrowly constricted; The CO.\lti'Js persuaded by neither,
Trustees served for.decades, Ids the dutyof the Trusteefo weigh the benefits of.al!
. .
actions it undertakes.oh behalf of Its clients; towhom a fiduciary duty .is owed. Yet to freat each
·oalertclar:yearas a-strtct i.ihit of'measuring the.cht>lces of a trusteewculd fail to tru:iy;:adequatdy
·ot,-apprppriately measure, th~ ql1qic,es of the fidu.ciary;.
Trustee: did not '·i:,ck-fo1t d1pitaf losses fi1.2007;. rn· the lnstant.actlen, the.Trustee did then.lock in
'losses ih 2008. Mr; AH:en:testhled that-although.he' could notretne.mbetwhy-he dki.:nol thl<e;the
.capitaLg~drts losse.s:1nZ007, ther<:-wereffeas~ns·why you would nqt ~I.ways take capita(
. ', , .. ,.. '
gahts.
'. ;,
Iossesin . a portfoliQ, .However,)v1}. Allen t(lStifj~d thathedld m~e a trade 'in -2.00$:fo:ta.kt c~¢·
of'some oflb:e capi.tal gci'.fns.'iq_ the Grahek ponfo.Jiq;.
Objectors have Jailed to demonstrate that.the.Trustee's decision to noi.vlock in" capital
.losses was a breach of fitluc'lacy-duty: .. Trustadmiltistration of investments under a balanced
portfolio scheme cannot be sequestered by year. Each year's investmentsroll into thdolfowing
year witlt the gains or IO$S~s following such investments, Furthermore, Objectors have failed.to
demonstrate through clear and convincing evidence as presented at the time of the hearings that
they suffered a loss beyond what wasre-captured ,in 2008. For these reasons, the Court dismisses
Objection 5 and 6.
Objection 2
Objectors second Objection is to the request in the Petition for Adjudication for a reserve
20
of $7,500.00 for each trust. Specifically, Objection 2 states, in part:
.... Objectants strongly oppose the establishment of thfa reserve, in .that.
to
Petitioner seeks only protect itself from. liability sought to be imposed by
Objectants for harm the latteralleges ithas suffered as a:r¢sultof P~titioner's
failure to carry out its fiduciary dt1Hes·, Permitting such a res~tv~ doesnot and
cannot inure to the best interest of'the trust, nori.ts penvfici!).l'ie~r and in the
circumstances is suggestive of'waste and rnismanagernent, '()bjectant.subn,it.S that
such a reserve ispatently inappropriate in lhe circumstances,
For reasons set forth more fully above, the Trustee-Was foundto have norbreached any fiduciary
duty.
To "reserve", as defined by Bl.ack's LawDictfonary> means. [!J<tl<e:ep back.to retain, to
11
keep in store for future or special use, ~d fo retain or llq(d..'9verfo af(lture time," 41" Edition.
Trustee requested a retainer o f$7 ,500 ..00 in each tr.qst<to p'-}t row~rd~ poJential(Uture expenses
associated with-litigation surrounding the filing:oflheir'Accounts .. Trustee has beenfound, as
discussed at great length Above, to. have acted 1;1pprppriatdy·regardingili~ managementoftbe
Trusts at issue. 'Furthermore, the request of a.reserve of $7,500:0,0'0 fo each trust is slight when
takinginto consideration the portfolio value of'fheTrusts, and tp·~- ~.ompt~xity'and years of
litigation;
The Court finds thatthe.request of a reserve.of $7>500.00in eachtrust is appropriate
given that Trustee carried out.its fiduciary duties",
Objection 3
6 Upon the entry of this Opinion, it is foreseeable that Trustee will file.a subsequent
Petition for the payment of their costs and attorney fees associated With defending their actions as
Trustee. Obviously, the $7,500.00 requested reserve could be credited towards the payment of
that bill. However, as of the time of the hearing, Trustees had not submitted any Additional
Credits to be reflected on the Adjudication of their Account and thus the $7,500.00 remains
intact as a reserve in each trust.
21
Objectors third Objection raisesconcerns aboutTrustee's decision to seek not one but
two legal opinions with regards to the 1033 exchange, Objectors believed that(sce~iti~ these
opinions:was redundant especi~lly:ip)ight ofth~.-f.acfth~t ~ draft ppi1J_fon'h11d been f01:mtila{ed.by
an Attorney. prior to the two opinions in-. question. Specifically, Objector~ Objection::under: 1n1st
"B" is:
J. O~iecdon:fa made.to.the Peti.tfonet's_pr.0:¢1.mmte.rtt of.two .(2).separaw opinlon:s
with regard to the elements and. time ;con;tra'hm of a· 1033 .ti'ailsactfon as well as a,
·neru.:ly con1plefethitd.opinj'q_n. The·st19je.~to1?ihf0.n.$.:addtes~ th.e s~:~issues::and.
represent a wasteful -tedundanc:1'!i1fthe:cfrcurrisrah'ces.. O~JectfonHnnade.to.'fo_g~i.
fees paid as-a D~~b1,1,rs~m<mt,of~rincjp~Ftp Steph~IJ), :Sc:hurn:aqll~r,.fo.rJqe,nearly,
complete opinion on. o.t··ab.out 8/U/oS:. tbe M1ou.n1:·o.ftliel>ayrrH;n.Us lieli~~ed to
be $4~283.277; Objection Is made 'to· iegal fees paid.as a·Disb1.11:sement of
Principal to Howser ~·:I3r9wq for one·(J)9{t~e .su&Jec( opinlons onoora.bpµt
10/16/08. The amount of the paymentls'belfoved.tcx'be'$3.,.734J'88: :1:'uriher
objection is.madeto legal fees·paia.ttYHartmah UnderhHi and Bntbaker. alsc
comprising at>:fsbi.t(sement of Pdn-c{pal, p'¢~µrrfng on otib<>ut 12/29/06; the
amount of which ObJectant.b.elfoves ~ay b~ $2i94-1.00:9 but ·abourwhfoh amount
Objectant is uncertain-and requests clarification qf the amounts actually paid for
each ofthe s.ubjecropihioi1s.
opinion from Attorney Schumacher, an ~(t.o.niey. licensed in Califomia, In fact; the testimony
_presented and Objectors admit in their replybrief thatthe opinion of Attorney-Schumacher was
initially requestedby outside counsel, Attorney Gerald Williams, who had also 'worked for the
The Amount of$4,283.27 is reflected in ~he Amended Objections to Trustt'B" while the
7
amount of $1,366.73 .is reflected in.the Amended.Objections to Trust "A'.
The amount of $3, 734.18 is reflected in 'the Amended Objections to Trust "B'' while the
8
amount of $1,145.82 is reflected in the Amended-Objections to Trust "A".
The amount of-$2,941.00 is reflected in the-Amended Objections to Trust "B" while the
9
amount of $1,883. 79 is- reflected in the Amended. Objections to Trust "A"..
22