A recent decision from the Orphans’ Court in Susquehanna County Pennsylvania shows that it’s possible to remove a corporate trustee under the right circumstances pursuant to 20 Pa.C.S.A. Section 7766(b)(4). In In re: Warriner Trusts (No. 1977-120 O.C. and No. 1967-45 O.C.), the court removed Wells Fargo Bank, N.A as corporate trustee of the Warriner Trusts, and replaced it with the Philadelphia Trust Company.
In reaching its decision, the court followed the Pennsylvania Superior Court decision in In re: McKinney, 67 A.3d 824, 830 (Pa. Super. Ct. 2013). It went through each factor comprising the 4-part test of the no-fault removal provision under 20 Pa.C.S.A. Section 7766(b)(4), which states that removal of a trustee is warranted when the beneficiaries provide clear and convincing evidence that:
- Removal best serves the interest of the beneficiaries of the trust;
- Removal isn’t inconsistent with a material purpose of the trust;
- A suitable co-trustee or successor trustee is available; and
- There’s been a substantial change in circumstances.
Best Interest of the Beneficiaries
In its analysis in McKinney, the court focused on several questions, the first being whether a removal of a corporate fiduciary best serves the interests of the beneficiaries. In this regard, the court identified several factors, such as personalization of service, cost of administration, efficiency of service and the experience and qualifications of the proposed trustee.
In siding with the McKinney family, the McKinney court focused on a key fact: individuals who once serviced the trust no longer did so because of corporate mergers and acquisitions leading to the erosion of personalized service.
Similar facts were present in Warriner Trusts. Since the creation of the Warriner Trusts, The Pennsylvania Company for Insurance on Lives and Granting Annuities/The Pennsylvania Bank and Trust Company had gone through numerous mergers and acquisitions. In 1955, The Pennsylvania Company for Insurance on Lives and Granting Annuities became the First Pennsylvania Banking and Trust Company. In 1974, it became First Pennsylvania Bank, which merged with CoreStates in 1990 and became CoreStates Financial Corporation, which then was acquired by First Union in April of 1998. First Union and Wachovia then merged to form Wachovia in 2001 and in 2008 Wells Fargo acquired Wachovia.
Substantial Change in Circumstances
The court went on to detail the substantial change of circumstances prong by explaining how the Wells Fargo new service model substantially changed the character of the services provided to the Warriner Trusts. It stated that the implementation of a call center to assist trust clients was a new development that departed from the traditional trust service model that the Warriner family had become accustomed to. The individual trustee provided numerous examples to highlight his frustration over the inability to receive the same level of personal service from Wells Fargo that he had received from prior banking institutions.
There was also.a substantial change of circumstances related to the sales culture. The court noted that Wells Fargo doubled the sales goals in the trust department, which necessarily reduced the amount of time that was available to spend with established trust clients to simply service the accounts. As a result of the increased emphasis on sales, Walters (The Warriner family Trust Officer) was expected to “cross-sell” products to his trust clients, including products on the retail side of Wells Fargo such as credit cards and checking accounts.
The findings of fact disclosed this about the new sales culture within the trust department:
“Wells Fargo began to use an acronym SLOB (single line of business) for trust clients who refused to purchase other Wells Fargo products. Walters considers this term to be offensive. Walters was told that he was not to have any SLOB clients in his book of business as there was an emphasis to get those clients to purchase other Wells Fargo products. If the SLOB trust client refused to purchase additional Wells Fargo products, Walters was told to discontinue the one-on-one personal contact with them and refer them back to the Philadelphia Trust Center.”
Removal Not Inconsistent With a Material Purpose of the Trust
In circumstances in which the settlor’s corporate trustee no longer exists as a result of a corporate merger, the Pennsylvania Superior Court in McKinney provided the following guidance:
While the settlors may have desired that [Pennsylvania Bank and Trust Company] serve as trustee when that bank dissolved, that desire could no longer be fulfilled. We cannot conclude that PNC’s role as trustee now serves a purpose material to the trusts. There is no evidence that the settlors ever even contemplated PNC serving as trustee. When the chosen trustee no longer exists, the only material purpose that can be served through designating a trustee is that the trustee effectively administers the trusts. Where both the trustee and the proposed successor trustee are qualified to serve that purpose, we will not find that removal violates a material purpose of the trust. McKinney, 67 A.3d at 836.
As in McKinney, the original banking institution selected in the Warriner documents no longer exists. Instead, Wells Fargo is a corporate successor. The court concluded that “At this point, the only material purpose of the trust to be promoted is effective trust administration.”
A Suitable Successor Trustee Is Available
Wells Fargo contended that the Philadelphia Trust Company wasn’t qualified to serve as the corporate trustee of the Warriner Trusts. However, Wells Fargo had consented to The Philadelphia Trust Company replacing Wells Fargo as corporate trustee of smaller trusts. In exercising its fiduciary obligations, Wells Fargo determined that the Philadelphia Trust Company had the ability to adequately serve as corporate trustee.
The court’s criticism of Wells Fargo continues as it states “Wells Fargo is far more interested in the ‘morals of the marketplace’ than with the heightened honesty expected from a fiduciary. If it makes money, Wells Fargo is going to keep it. If it does not make money, Wells Fargo is getting rid of it. This attitude permeated the entirety of this litigation – and echoes in Wells Fargo’s hollow objections to the competence of the Philadelphia Trust Company to serve as a corporate trustee.”
Dean A. Walters, Esquire, was the Senior Trust and Fiduciary Specialist for the Warriner Family Trust Relationship at Wachovia Bank and later Wells Fargo Bank from March, 2007 through December, 2012 and was a fact witness at the hearing on the Warriner Trusts. He currently is a Partner in the Trust and Estates Practice Group of Connor, Weber & Oberlies, P.C., and is an Adjunct Professor at the Villanova University Charles Widger School of Law.