J-A30006-17


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

    IN RE: ADRIAN CHEN TRUST NO. 1             :   IN THE SUPERIOR COURT OF
    & ADRIAN CHEN TRUST NO. 2                  :        PENNSYLVANIA
                                               :
                                               :
    APPEAL OF: ADRIAN CHEN                     :
                                               :
                                               :
                                               :
                                               :   No. 1950 WDA 2016

               Appeal from the Order Entered December 2, 2016
      In the Court of Common Pleas of Allegheny County Orphans' Court at
                          No(s): Case No. 02911840


BEFORE: BOWES, J., STABILE, J., and FORD ELLIOTT, P.J.E.

MEMORANDUM BY BOWES, J.:                                 FILED APRIL 12, 2018

        Adrian Chen appeals from the order of the orphans’ court refusing to

surcharge the trustees of the Adrian Chen Trust No. 1 (“Chen Trust 1”) and

the Adrian Chen Trust No. 2 (“Chen Trust 2”), and approving fees charged in

connection with the administration of the trusts. We affirm.

        On July 8, 2013, Mr. Chen, a resident and citizen of Hong Kong,1

instituted this action by filing a petition for citation to show cause 1) why a

surcharge should not be imposed on Appellees, Dominic C. Abbott, Joseph A.

DeMartino, and Rudolf Bischof (collectively “trustees”), who are the trustees




____________________________________________


1   Hong Kong is a semi-autonomous region of the People’s Republic of China.
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of the Chen Trust 1 and the Chen Trust 2;        and 2) why the terms of the

Chen Trust 2 should not be amended.2

       The following background facts aid in an understanding of the issues

presented on appeal.          At all relevant times herein, William Robinson,

Esquire, was a prominent estates and trusts attorney in the Pittsburgh area

who practiced initially at Reed Smith LLC, and later at Lovett Bookman

Harmon Marks, LLP. Both firms were highly-regarded law firms with access

to tax professionals. The latter firm was formed in 2003 by estate and trust

specialists from Reed Smith LLC and was devoted to practicing in the area of

estates and trusts.      Mr. Robinson received an undergraduate degree from

Princeton University, earned his law degree in 1966 from the University of

Pennsylvania Law School, started to practice at Reed Smith in 1968, and

became an equity partner in that firm.

       In 1987, Mr. Robinson drafted a trust for Mr. Chen’s mother, Stella

Lam Chen, who was a resident of Hong Kong.3 On December 15, 1987, Mrs.
____________________________________________


2 The July 8, 2013 petition also included a request that the trustees be
removed. On August 23, 2016, the trial court entered a consent order
outlining the terms of an agreement reached among Mr. Chen and the three
trustees whereby the latter three agreed to resign.             However, the
resignations were not effective until a successor corporate trustee agreed to
accept appointment as trustee of the trusts in question, which did not occur.
Thus, the trustees, contrary to Mr. Chen’s representation on appeal,
continue to serve since the triggering event for their resignation has not yet
occurred. See Appellant’s brief at 5.

3 Since Hong Kong was a British colony in 1987, Mrs. Chen’s citizenship
status is unclear.



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Chen executed that document, which named as trustees Mr. Abbott, Mr.

Bischof, Harold Goldman, and Mrs. Chen’s husband Godfrey, who was Mr.

Chen’s father. Mrs. Chen died on June 18, 1988, and pursuant to the terms

of her December 18, 1987 trust, its assets were divided into three parts and

placed in three successor trusts.

      One of the three trusts created upon Mrs. Chen’s death benefitted Mr.

Chen and his issue and became the Chen Trust 1.          The other two trusts

benefited Godfrey and Mrs. Chen’s daughter, Cynthia, respectively.          The

Chen Trust 1 was a domestic non-grantor trust, a complex trust for United

States federal income tax purposes.        This trust minimized tax by not

subjecting to federal income tax any distributions of capital gains in a

taxable year to a foreign person or foreign trust, and by imposing federal

income tax only on dividend income from a United States source. Mr. Chen’s

father Godfrey died in 1989, when Mr. Chen was sixteen years old, and Mr.

DeMartino was appointed to replace him as trustee of the Chen Trust 1.

      In 1994, Mr. Chen received a substantial inheritance from his father’s

estate.   Mr. DeMartino and Mr. Robinson suggested that he place those

funds in a trust, which Mr. Robinson drafted and Mr. Chen signed.         When

Cynthia told her brother that it was ill advised to place that money in a trust,

Mr. Chen conveyed to Mr. Robinson that he no longer wanted the trust. The

attorney voided the 1994 instrument.

      From June 18, 1988, until 1995, gains from the Chen Trust 1 were

distributed to a foundation that had been created by Godfrey. In 1995, the

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trustees became dissatisfied with the performance of their investment

managers, liquidated the investments of the Chen Trust 1, and chose a new

investment manager.       That liquidation resulted in realized capital gains of

approximately $2 million. Mr. Robinson advised Mr. Chen to create a foreign

grantor trust to receive the $2 million dollar gain as well as all future gains

generated by the Chen Trust 1.       Mr. DeMartino concurred with the advice

offered by Mr. Robinson.

      On February 27, 1996, just months before he graduated from Carnegie

Mellon University with a degree in industrial management and economics,

Mr. Chen executed the Chen Trust 2. This was the foreign grantor trust that

was created at Mr. Robinson’s recommendation. At that time, Mr. Chen was

married but had no children. The Chen Trust 2 was an irrevocable trust that

benefited Mr. Chen and his issue, and qualified as a foreign grantor trust

under the federal tax law in existence on February 27, 1996. It was funded

with distributions from the Chen Trust 1.

      On February 27, 1996, Mr. Chen designated Mr. Abbott, Mr. Bischof,

Mr. Goldman, and Mr. DeMartino, as the trustees of the Chen Trust 2. Under

the terms of the February 27, 1996 trust instrument, the trustees were

permitted to distribute the whole or any part of the income and principal of

the Chen Trust 2 to Mr. Chen, Mr. Chen’s wife, or Mr. Chen’s issue.         The

intent of the Chen Trust 2 was to reduce Mr. Chen’s United States income

tax liability.   Specifically, due to its status as a foreign grantor trust, the

Chen Trust 2 minimized the tax liability of both the Chen Trust 1 and the

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Chen Trust 2 under the Internal Revenue Code because Mr. Chen diverted all

his disbursements from the Chen Trust 1 to the Chen Trust 2. In turn, all of

the Chen Trust 2’s income was taxed as if received by Mr. Chen, who is not

a United States citizen, and was thereby subjected to a reduced amount of

federal income tax liability. While Mr. Chen was not permitted to amend or

revoke the aforementioned trust, the trust instrument provided that the

trustees could, with court approval, reform the trust to eliminate or minimize

any burdensome tax consequences to the trust so long as the change was

consistent with the purpose of the trust.

      On August 20, 1996, the United States income tax law was amended,

the effect of which was to disqualify the Chen Trust 2 as a foreign grantor

trust solely because its income and principal could be distributed to the issue

of Mr. Chen.    There is no proof that the trustees ever knew about this

change in the tax law.      When Mr. Goldman died in 1997, he was not

replaced. Thus, Appellees were the trustees of both of the Chen trusts when

the present lawsuit was filed.     After the February 27, 1996 trust was

created, Mr. Chen and his wife had children.     Mr. Chen, his wife, and his

children have never been residents or citizens of the United States, and only

Mr. Chen received distributions from the Chen Trust 2.

      From 1996 onward, the trustees continued to use Mr. Robinson for

legal advice, and employed an independent accounting firm, Louis Plung &

Company (“Plung”) to prepare income taxes for the two trusts. In 2011, Mr.

Chen retained the services of Dennis Unkovic, Esquire, who informed Mr.

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Robinson in October of that year that the Chen Trust 2 did not qualify as a

foreign grantor trust due to the fact that Mr. Chen’s children were

beneficiaries, and the August 20, 1996 alteration in the tax law prohibited

children from being beneficiaries of a foreign grantor trust.

      In turn, Mr. Robinson told the trustees, for the first time, that there

was an issue as to whether the Chen Trust 2 qualified as a foreign grantor

trust. Mr. Robinson advised them that the problem could be remedied, and

the trustees relied upon this advice and continued to treat the Chen Trust 2

as a foreign grantor trust in income tax returns filed after October 2011.

Plung filed the income tax returns for the Chen Trust 2 from 2011 to 2013 as

if it was a foreign grantor trust. For the 2014 filing, the trustees retained

Don Kozusko, Esquire, to prepare the income tax returns for the Chen Trust

2, and he treated that trust as a foreign grantor trust.        Mr. Kozusko, a

Harvard Law School graduate, had offices in Washington, D.C., New York,

Chicago, and Connecticut, and had practiced domestic and international

estate and tax planning for over thirty-five years.

      In his July 8, 2013 petition instituting this lawsuit, Mr. Chen claimed

that the trustees breached their fiduciary duty in two respects: 1) despite

being informed in October 2011 of the problem with the status of the Chen

Trust 2 as a foreign grantor trust, trustees did not seek advice from a lawyer

other than Mr. Robinson; and 2) they continued to allow income tax returns

to be filed for that trust as if it were a foreign grantor trust.    Mr. Chen

sought a surcharge for the potential adverse tax consequences flowing from

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the possibility that the Chen Trust 2 would lose its status as a foreign

grantor trust. Mr. Chen also asked that the terms of the Chen Trust 2 be

modified.   During the course of the proceedings, Mr. Chen raised a third

surcharge issue: that in 1995, the trustees erroneously overpaid withholding

taxes on dividends.

      On December 9, 2013, the trustees joined in Mr. Chen’s prayer for

relief as to the modification of the trust. Specifically, they filed a motion for

immediate implementation of Mr. Chen’s request that the terms of the Chen

Trust 2 be modified to eliminate Mr. Chen’s children as beneficiaries to

ensure that it would be treated as a foreign grantor trust. On May 6, 2014,

a guardian ad litem was appointed for the children.

      On July 2, 2014, Mr. Chen opposed the December 9, 2013 motion,

even though it was consistent with his July 8, 2013 petition. At that time,

Mr. Chen sought to terminate the irrevocable Chen Trust 2.             Then, on

February 19, 2015, Mr. Chen asked that both trusts be terminated and their

assets be transferred to two newly-drafted trusts with Appellees as the

named trustees.       The trustees opposed that grant of relief, as it was

inconsistent with Mrs. Chen’s intent when she created the Chen Trust 1.

      On March 3, 2016, the trustees filed a first and partial account for both

trusts covering the period from June 19, 1988, through January 31, 2016.

Mr. Chen and the guardian ad litem of his children filed objections. In June

and July 2016, the orphans’ court conducted seven days of hearings on the

various issues before it.   By that time, Mr. Chen had raised an additional

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basis for surcharge: that the trustees overpaid withholding taxes in 1995,

when the trust assets were transferred to PNC Bank in the United States.

On August 9, 2016, the orphans’ court entered an order that reformed the

Chen Trust 2 to eliminate Mr. Chen’s issue as beneficiaries, and ordered the

trustees to obtain a private letter ruling from the Internal Revenue Service

(“IRS”) as to whether its court-ordered amendment would be given

retroactive effect.

      The trustees have supplemented the record with a November 13, 2017

private letter ruling issued by the IRS after this appeal was filed.        That

federal agency ruled that the August 9, 2016 modification to the Chen Trust

2 would be considered retroactive and effective as of February 27, 1996, the

date the trust was created.

      On October 31, 2016, the trustees filed a second and partial account

encompassing the period January 31, 2016, through September 30, 2016.

Mr. Chen also filed objections to that account, but waived a hearing on those

objections. On November 30, 2016, the orphans’ court issued a ruling

denying the request for surcharge and all other objections to both the first

and partial account and the second and partial accounts.          This appeal

followed. Mr. Chen raises the following issues on appeal:

      1. Whether the lower court erred and abused its discretion in
      denying Appellant’s objections to the more than $7 million in
      legal fees, trustees fees and other professional fees identified in
      Trustees’ Accounts, when it applied the incorrect burden of
      proof, failed to distinguish between professional fees relating to
      the administration of the Trusts and fees relating to litigation


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      failed to conduct any analysis regarding the reasonableness of
      any [of] the professional and trustee fees incurred, failed to
      make any conclusion of law regarding the reasonableness of the
      Trustees’ fees, and in failing to even address in its Opinion
      Appellant’s legal fees[.]

      2. Whether the lower court erred and abused its discretion by
      denying Appellant’s request for surcharge of the Trustees even
      before the issuance of a critical Private Letter Ruling (“PLR”) by
      the Internal Revenue Service (“IRS”), and concluding that the
      Trustees were not negligent and reasonably relied on counsel
      and other professionals.

Appellant’s brief at 4.

      Prior to addressing the merits of these contentions, we first outline the

applicable standard of review:

          Our standard of review of an orphans’ court’s decision is
      deferential. When reviewing an orphans’ court decree, this
      Court must determine whether the record is free from legal
      error and whether the orphans’ court’s findings are supported
      by the record. Because the orphans’ court sits as the finder of
      fact, it determines the credibility of the witnesses and, on
      review, this Court will not reverse its credibility determinations
      absent an abuse of discretion. However, this Court is not bound
      to give the same deference to the orphans’ court conclusions of
      law.

Estate of Sacchetti v. Sacchetti, 128 A.3d 273, 281–82 (Pa.Super. 2015)

(citations omitted).

      Mr. Chen’s first issue on appeal is that the orphans’ court committed

an abuse of discretion in approving the legal fees, trustees fees, and other

professional fees outlined in the two accounts. Specifically, he contends that

the court 1) incorrectly allocated to him the burden of proving the

reasonableness of those fees; 2) made no determination as to their


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reasonableness; and 3) did not distinguish between fees properly incurred to

administer the trust from those relating to deficient legal advice.

      Preliminarily, we note that these allegations presented on appeal bear

no resemblance to the objection that Mr. Chen actually leveled before the

orphans’ court.   Indeed, nothing in Mr. Chen’s objections can be remotely

construed to include the present allegations that he raises on appeal.      Mr.

Chen’s objections to the account for Adrian Chen Trust 1 were as follows:

      26. Objection is made to the payment of legal fees to Reed
      Smith, William Robinson, Buchanan Ingersoll [which is the law
      firm that successfully defended Mr. Chen’s request for surcharge
      against the trustees], Kozusko Harris Duncan[, which is the law
      firm that prepared the two accounts specifically ordered by the
      orphans’ court] and Lovett Bookman. Objection is made to the
      payment of fees to Louis Plung for accounting services.

      27. Objection is taken to the payment of Trustees fees to the
      Trustees of the trust.

Adrian Chen’s Objections to the First Partial Account for Adrian Chen Trust

No. 1, 4/18/16, at 26, 27 (emphases added). His objections to the account

filed for the second trust are almost identical:

      20. Objection is made to the payment of legal fees to Reed
      Smith, William Robinson, Buchanan Ingersoll, and Kozusko
      Harris Duncan.

      21. Objection is made to the payment of fees to Louis
      Plung and Gleason & Associates for accounting services.

      22. Objection is taken to the payment of Trustees fees to
      the Trustees of the trust.

Adrian Chen’s Objections to the First Partial Account for Adrian Chen Trust

No. 2, 3/3/16, at 20-22 (emphases added).


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        By these objections, Mr. Chen clearly sought to surcharge the trustees

for all the fees that they had paid to themselves, all the lawyers, and any

accountant from the inception of the two trusts. Thus, Mr. Chen’s objections

raise the position that all of the attorneys, accountants, and trustees in

question were not entitled to any compensation at all.        This proposition

apparently was premised upon Mr. Chen’s averments that the trustees

breached their fiduciary duties by relying upon Mr. Robinson’s advice after

2011.

        We find that Mr. Chen’s claims constitute overreaching.    Simply put,

the trustees would be entitled to fees prior to 2011, since there were no

allegations that they breached their fiduciary duties before that time.

Furthermore, Mr. Chen had no legal grounds upon which to challenge the

fees charged to prepare the court-ordered accounts filed in this matter.

Finally, Mr. Chen never raised a contention that the accountants knew or

should have known that the Chen Trust 2 was not a qualified foreign grantor

trust, and knowingly filed incorrect tax returns for the trusts before 2011.

        The trustees countered these objections by noting that there was no

legal basis for Mr. Chen’s claim that they, the lawyers, and the accountants

were not entitled to any compensation for the services that they rendered

from 1987 to 2016:

        26. The averments contained in Paragraph 26 are denied. It is
        denied that Adrian Chen's Objections to payment of legal fees to
        Reed Smith, William Robinson, Buchanan Ingersoll, Kozusko
        Harris Duncan, or Lovett Bookman have any legal merit. It is
        also denied that Adrian Chen's objection to payment to Louis

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     Plung & Co. for accounting services has any legal merit. By way
     of further response, per the terms of the [Chen Trust 1] and the
     [Chen Trust 2], the Trustees are entitled to use Trust assets to
     pay administrative costs, accountant fees, and legal fees. See
     [Chen Trust 1] § 5.2(L); [Chen Trust 2 § 4.2(L). . . . The
     Trustees have not committed a breach of trust, engaged in any
     misconduct, or otherwise improperly incurred the fees and costs.
     However, a trustee is not ordinarily entitled to attorney’s fees
     and expenses if it is determined that the trustee breached the
     trust. . ."); see also In re Wormley’s Estate, 59 A.2d 98 (Pa.
     1948). At all times, the Trustees’ actions have been competent,
     professional; proper, legal, exercised in good faith, and
     predicated upon the advice of trust counsel and professional tax
     and investment managers and advisers, all of which were relied
     upon by the Trustees and consistent with the Trusts’ terms and
     has served to benefit the present and any future beneficiaries of
     the Trusts.

     27. The averments contained in Paragraph 27 are denied. It is
     denied that Adrian Chen's Objection to payment of the Trustees’
     fees has any legal merit. By way of further response, the
     Trustees only started receiving payment of fees in 2002. Per the
     terms of the [Chen Trust 1] and the [Chen Trust 2], the Trustees
     are entitled to receive reasonable compensation for services.
     See [Chen Trust 1] § 6.9(A); [Chen Trust 2] § 5.9(A). The
     express terms of both the [Chen Trust 1] and the [Chen Trust 2]
     are consistent with Pennsylvania law. See 20 Pa.C.S. § 7768.
     At all times, the Trustees’ fees were reasonable and the
     Trustees’ actions have been competent, professional, proper,
     legal, exercised in good faith, and predicated upon the advice of
     trust counsel and professional tax and investment managers and
     advisers, all of which were relied upon by the Trustees and
     consistent with the Trusts’ terms and has served to benefit the
     present and any future beneficiaries of the Trusts.

Answer and New Matter to Adrian Chen’s Objections to First and Partial

Account for Adrian Chen Trust No. 1, 5/5/16. The answer to the objections

to the second trust is identical.   See Answer and New Matter to Adrian

Chen’s Objections to First and Partial Account for Adrian Chen Trust No.2,

5/5/16, at 20-22.


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     The orphans’ court likewise understood that Mr. Chen’s objections

were to the payment of any fees at all and not a challenge to whether they

were reasonable. It resolved that claim as follows:

           The main objection that was raised is the payment from
     the Trusts for attorney fees to Reed Smith, Robinson, Buchanan
     Ingersoll, and Kozusko, and the payment for Plung's accounting
     services. Here, the Trustees were placed in a position to be sued
     because of the duties they performed or allegedly failed to
     perform as Trustees.      Adrian brought action for surcharge
     against the Trustees alleging they failed in their duties as
     Trustees. Thus, it would be unjust to require the Trustees to
     personally pay to defend legal actions bought against them
     solely by reason of their positions as Trustees, where the
     Trustees prevailed against surcharge.

            The Supreme Court of Pennsylvania has determined that
     “It is well established that whenever there is an unsuccessful
     attempt by a beneficiary to surcharge a fiduciary the latter is
     entitled to an allowance out of the estate or trust to pay for
     counsel fees and necessary expenditures in defending himself
     against the attack.” In re McGillick Foundation, 537 Pa. 194,
     204, 642 A.2d 467, 472 (1994), (wherein the Supreme Court
     approved the payment of the trustees’ litigation expenses from
     the foundation after the trustees successfully defended litigation
     that attempted to remove them and surcharge them)[.]

Trial Court Opinion, 11/30/16, at 17.

     The rules applicable to objections to a filed account are clear:

     (a) Objections to an Account and/or a petition for
     adjudication/statement of proposed distribution shall be filed
     with the clerk on or before the time and date of the audit in
     those counties holding an audit, and by a specified date in all
     other counties, with a copy sent by first-class United States mail,
     postage prepaid, to the accountant or the accountant's counsel,
     if represented, and to each interested party and claimant who
     received the notice pursuant to Rule 2.5, to the extent known.




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       (b) Objections shall be in writing, with consecutively numbered
       paragraphs, signed by counsel, or if not represented by counsel,
       then by all the objectors in accordance with Rule 3.12.
       Objections shall be verified by at least one of the objectors in
       accordance with Rule 3.13.

       (c) Each objection shall:

              (1) be specific as to description and amount;

              (2) raise one issue of law or fact, but if there are
              several objections relating to the same issue, all
              such objections shall be included in the same
              paragraph as subparts; and

              (3) briefly set forth the reason or reasons in
              support thereof.

              (d) The court may extend the time for filing
              objections.

Pa.O.C.Rule 2.7 (emphases added).

       In this case, Mr. Chen’s objections were to the payment of any fees

whatsoever. Moreover, Mr. Chen failed to set forth the reason or reasons

why all those trustees/lawyers/accountants fees from 1987 to 2016 should

be surcharged to the trustees, and he did not specify the amount that he

was contesting.      Mr. Chen made no attempt, either in his objections or at

the hearings conducted on those objections, to parse out what he now

concedes to be proper fees from what he now contends were improper fees.4

____________________________________________


4In this connection, we observe that Mr. Chen also claims that investment
advisor fees and management fees were improperly paid by the trustees.
Appellant’s brief at 35. Neither item was mentioned or contested in the
objections that he filed.




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See Appellees’ brief at 57 (“Appellant takes a different approach on appeal

from that which he took before the Trial Court. At trial, he never objected to

the reasonableness of the majority of the professional fees, but only to their

payment.”). Simply put, the issues that he now raises on appeal were not

presented to the orphans’ court. He has therefore waived his first issue for

purposes of this appeal.        See Pa.R.A.P. 302(a) (“Issues not raised in the

lower court are waived and cannot be raised for the first time on appeal.”).

       Mr. Chen’s second averment faults the orphans’ court for refusing to

surcharge the trustees for the potential adverse tax consequences that

might flow from their treatment of the Chen Trust 2 as a foreign grantor

trust when it did not qualify for that status after August 20, 1996.5 As we

articulated in In re Estate of Warden, 2 A.3d 565, 573 (Pa.Super. 2010)

(citation omitted), a trustee has a duty to preserve the trust assets, and the

standard of care “imposed upon a trustee is that which a man of ordinary

prudence would practice in the care of his own estate.”         A surcharge is

imposed when the trustee does not “exercise common prudence, skill and

caution in the performance of its fiduciary duty, resulting in a want of due

care.” Id. A surcharge is a penalty imposed on the trustees to compensate

the beneficiaries of the trust for any loss occasioned by the trustee’s lack of

____________________________________________


5 We note that the trustees indicate that they have instituted a legal
malpractice claim against Mr. Robinson in the event the trust incurs taxes
and penalties based upon the fact that Mr. Chen’s children were named
beneficiaries of the Chen Trust 2 prior to the retroactive amendment.



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due care. Id. Concomitantly, the orphans’ court cannot surcharge a trustee

unless it finds both “that the trustee breached a fiduciary duty and (2) that

the trustee’s breach caused a loss to the trust.” Id.

       Since we agree with the orphans’ court assessment that the trustees

did not commit a breach of fiduciary duty, we need not reach the second

element of the surcharge test.6            In this connection, we note that, with

exceptions not herein applicable, the terms of a trust instrument prevail over

any contrary provisions contained in the chapter of the Probate Estates and

Fiduciaries Code applicable to trusts.         20 Pa.C.S. § 7705(a).   The trusts

provide in pertinent part:

       The Trustees of such Trust shall have and may exercise the
       following powers:

              ....

              (L) To employ and retain such accountants,
              attorneys,   custodians,    employees,     investment
              counselors and other representatives located in the
              United States or abroad . . . as from time to time the
              Trustees shall reasonably determine to be necessary
              and proper for the administration of such trust
              estate; to act without independent investigation
              upon the recommendation of any of such
              representatives[.]

Adrian Chen Trust No. 1 § 5.2(L) (emphasis added); Adrian Chen Trust No. 2

§ 4.2(L) (emphasis added); see also 20 Pa.C.S. § 7777(a)(1), (3) (“A
____________________________________________


6There was evidence adduced at the hearings that the statute of limitations
prevented the IRS from seeking back taxes for any years other than 2013-
2015.



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trustee may delegate duties and powers that a prudent trustee of

comparable skills might delegate under the circumstances. The trustee shall

exercise reasonable care, skill and caution in . . . selecting an agent . . . and

reviewing periodically the agent’s actions in order to monitor the agent's

performance and compliance with the scope and specific terms of the

delegation.”).

      Herein, the surcharge request was premised upon Mr. Chen’s

averments that the trustees were negligent and acted unreasonably in not

obtaining a second legal opinion after October 2011, when they were

advised of the defect in the Chen Trust 2. Mr. Chen additionally averred the

existence of a breach of fiduciary duty when the trustees knowingly filed

what he characterized as false tax returns indicating that the Chen Trust 2

was a foreign grantor trust.

      In the present case, the orphans’ court rejected these claimed

breaches of fiduciary duty as it “determined that Trustees exercised

reasonable care, skill and caution in selecting the professionals” so that they

were not liable under the terms of the trust and § 7777. Trial Court Opinion,

11/30/16, at 11. In this respect, the court’s findings, which are supported

by the record, were as follows.     Mr. Robinson was a qualified, prominent

lawyer specializing in estates and trusts, with degrees from Princeton and

the University of Pennsylvania, and practicing for a preeminent Pittsburgh

law firm. Mr. Robinson had been retained by Mrs. Chen to prepare the Chen




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Trust 1, a complex trust designed to reduce federal income taxes for foreign

nationals.

      After being told about the flaw in the Chen Trust 2, Mr. Robinson

informed the trustees that 1) he could remedy the situation by modifying the

trust retroactively so that Mr. Chen’s issue would be eliminated as

beneficiaries; 2) he told Mr. Unkovic about the solution; 3) they were

working on the situation together; and 4) documents would be sent to Mr.

Chen for final approval.         Mr. Robinson’s advice that the trust could be

retroactively modified was proven correct in light of the subsequent IRS

private ruling to that effect.

      Mr. Unkovic, in turn, informed Mr. Chen about Mr. Robinson’s

proposal, but Mr. Unkovic, who was frequently out of the country, never told

Mr. Robinson that Mr. Chen was going to refuse to cooperate with modifying

the trust.   Based upon the information conveyed by Mr. Robinson to the

trustees, the orphans’ court correctly concluded that they had no reason to

seek another legal opinion at that point.

      After this action was instituted, the trustees retained the services of

Mr. Kozusko, who also filed tax returns treating the Adrian Chen Trust 2 as a

foreign grantor trust.    Mr. Kozusko, a Harvard Law School graduate, had

offices in Washington D.C., New York, Chicago, Illinois, and Connecticut, and

had practiced domestic and international estate and tax planning for over

thirty-five years.




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      While Mr. Chen takes umbrage with the trustees’ failure to ensure that

Mr. Robinson was a specialist in foreign grantor trusts, he never established

that there was such a subspecialty in the trusts area.         Mr. Robinson’s

credentials as an estates and trusts attorney were impeccable, and the

trustees were permitted, under the trust instrument, to rely upon his advice

without independent investigation. Accordingly, the orphans’ court did not

abuse its discretion in concluding that the trustees did not breach their

fiduciary duty in relying upon his advice from 2011 until 2013.

      The second ground for surcharge relates to the 2011-2014 income tax

filings by the trustees that continued to treat the Chen Trust 2 as a foreign

grantor trust.     Mr. Chen asserts that the trustees breached their fiduciary

duty because they knew that the Chen Trust 2 did not qualify as a foreign

grantor trust, and yet knowingly filed false tax returns for the years in

question.   In connection with this surcharge contention, we rely upon the

following portion of the excellent and well-reasoned opinion of the orphans’

court, the Honorable Frank Lucchino, and adopt it as our own for purposes of

its disposition.

            The second basis for surcharge is Adrian’s assertion that
      the Trustees knowingly filed false tax returns, claiming AC-2 was
      a Grantor Trust when they knew it was not a Grantor Trust.
      Adrian claims tax liability could exceed one million dollars. (R at
      40). Attorney Robinson advised the Trustees that given the
      statute of limitations, any back taxes that were owed by AC-2
      would be de minimus. (TT at 756).

           Adrian cites In re Estate of Lohm, 440 Pa. 268, 269 A.2d
      451 (1970), for the theory that Trustees breached their fiduciary


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     duties by filing erroneous tax returns in reliance on Robinson and
     Plung.    In Lohm, the estate had missed the federal and
     Pennsylvania tax deadline and the Court determined that the
     fiduciaries were liable since they should have known or
     ascertained the tax deadline. Similarly, in Estate of Geniviva,
     675 A.2d 306, 311, 450 Pa.Super. 54, 64 (1996), the fiduciary
     (executor) did not file estate tax returns because his attorney
     had negligently advised him that the estate did not owe federal
     estate taxes. The Court determined that the fiduciary was liable
     because they should have known that estate taxes were due,
     rather than filing them four years late.

           The instant case is distinguishable from Lohm and
     Geniviva because the issue of grantor trust was too complex
     and technical for the Trustees to have known that AC-2 was not
     a Grantor Trust. An indication of the complexity of this issue is
     that four tax experts testified in this case and there has not been
     a unanimous agreement among them. Due to the complexity of
     the grantor trust issue, the Trustees reasonably hired
     professionals and relied on those professionals who advised
     them to file the federal tax returns as though AC-2 was a
     Grantor Trust.

           Adrian alleges that the Trustees knew that the tax returns
     they filed were incorrect. Robinson, Plung, and Kozusko all
     advised DeMartino to continue to file tax returns as a Grantor
     Trust. (TT at 726-731, 824-826). Robinson stated that, "The
     Trustees relied on us to prepare the returns."       (R at 50).
     DeMartino testified that he did not think, according to what he
     was told, that they were filing the wrong return. (TT at 31).
     DeMartino believed that        once the change was made
     retroactively then everything would be fixed[,] (TT at 725, 730-
     733), so he signed the tax return as his experts had advised. It
     was not negligent for DeMartino to sign the tax returns that his
     professionals had prepared.

           Furthermore, the Trustees were never definitely told that
     AC-2 was not a Grantor Trust. The Trustees were told by
     Robinson that an issue arose as to whether AC-2 qualified as a
     Grantor Trust but Robinson told them that the issue was fixable
     and would be fixed. (TT at 677-680, 705, 809-810, 936-937,
     944, 988).     DeMartino believed that to mean that AC-2
     contained either a typo, a scrivener's error or a drafting error.
     (TT at 685). Bischof was informed it was a scrivener's error.

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J-A30006-17


     (TT at 944, 954).       Abbott was informed that there was a
     scrivener's error creating an issue as to whether it was a foreign
     grantor trust. (TT at 979-981). Every time Abbott talked to
     Robinson about the grantor trust issue, Robinson assured him
     there was a ready solution to it and not to worry, and that it was
     agreed by Adrian to be fixed. (TT at 988).

           When DeMartino and Robinson discussed the grantor trust
     issue, Attorney Robinson informed DeMartino “that Dennis or
     Joe[l] Pfeffer, one of Dennis’ law partners, said that there was a
     clause in AC-2 that makes it not a Grantor Trust; and it could be
     — I don't want to put the ‘easily’ word in his mouth, but it could
     be readily fixed; and all he had to do is reform it, and something
     called reformation or modification, I'm not sure which it was,
     and by getting rid of the clause, it would - - and in Pennsylvania
     he said you could go retroactive, might have needed the court's
     approval of the retroactivity back to ‘96, and it would then be a
     Grantor Trust.” (TT at 809-810). Neither Robinson, nor anyone
     else at Reed Smith ever told the Trustees that they had
     concluded that AC-2 was not a Grantor Trust. (TT at 809 - 810).

           This Court finds that Robinson never told the Trustees
     conclusively that AC-2 was not [a] Grantor Trust. Instead[,] the
     Trustees were told that any error in AC-2 could be readily
     remedied retroactively. (TT at 677-680, 705, 809-810, 936-
     937, 944, 988).

           Furthermore, Robinson and Plung advised the Trustees
     with respect to the filing of the 2011-2013 tax returns as a
     Grantor Trust and the Trustees reasonabl[y] relied on their
     advice. (723-728, 824-826, 854). Don Kozusko, Esquire, was
     retained by the Trustees to prepare the 2014 taxes.            His
     credentials were uncontested. . . . All the experts that testified
     agreed that Kozusko is an expert in his field. Kozusko advised
     the Trustees with respect to filing the 2014 tax returns as a
     Grantor Trust and the Trustees reasonably relied on his advice.
     (728, 854). This Court has determined that the Trustees were
     not negligent for relying on Robinson, Plung, and Kozusko to
     prepare the tax returns.

Trial Court Opinion, 11/30/16, at 11-14.




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      Mr. Chen’s third surcharge claim pertained to income taxes withheld

by PNC Bank in 1995. The trustees’ proof at the hearings was that both the

Chen Trust 1 and the Chen Trust 2, as foreign non-grantor trusts and foreign

grantor trusts, respectively, were subject to 30% withholding tax on all

dividends derived from the United States.       In 1995, the trust assets were

transferred to PNC Bank, N.A., which advised the trustees that it would

withhold 30% on all United States dividends that the trust received for

income tax purposes.     The trustees accepted this decision.     Mr. Kozusko

testified on behalf of the trustees, stating that he would not have expected

them to question the decisions of the professionals handling the trusts as to

what taxes should be withheld from the trusts’ income. The orphans’ court

concluded that, “the Trustees were not negligent for relying on the advice of

their professionals” with respect to the amount of taxes that should be

withheld on United States source income. Id. at 18. This decision did not

constitute an abuse of discretion as the trust terms and the Probate, Estates,

and Fiduciaries Code permits trustees to rely upon advice from qualified

professionals. Accordingly, no relief is due.

      Order affirmed.




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Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 4/12/2018




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