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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37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"..

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