Sunday, April 19, 2009

Bank Trustee Asks for Higher Fees Despite Fee Agreement - AG Says No

With stories about dropping endowment values and struggling charities sharing newspaper pages with stories about overpaid bankers, an article posted by the Philadelphia Inquirer seems hard to believe. A bank trustee wants to double its fees, taking money away from a summer camp for poor children, scholarships for art students, and the episcopal cathedral in Philadelphia.  The two primary charitable beneficiaries are fighting back, and they are getting support from the Attorney General of Pennsylvania. A court hearing is scheduled for July.

Since 1973 two Pennsylvania charities - the College Settlement Camp in Horsham (a camp for poor children who would not otherwise go to summer camp) and the Church of the Savior in West Philadelphia (now the Episcopal Cathedral) - have benefited from a trust created under the will of Elizabeth R. England.  As recently as last year, the trust distributed $450,000 to each charity, an amount that covered one-third of the camp's budget and over one-half of the cathedral's budget.  This year each distribution is expected to be $100,000 less and both charities have had to cut programs.


A big part of the reason behind the lower distribution is a dispute with the Bank of New York Mellon Corp., successor to Ms. England's original trustee, Girard Trust Corn Exchange Bank.  Mellon has asked the Philadelphia Orphans' Court to double its fees, altering an agreement that Ms. England made with Girard in 1963, 10 years before her death.  The trustee has operated under the agreement since the trust's inception, but Mellon now says it should be paid at its standard rate and also argues that it has been underpaid since 1994, the date it last filed a formal accounting with the court.  On top of all that, Mellon is charging the trust for the legal costs incurred in connection with its attempt to increase its trustee's fees.

According to the story in the Inquirer, the fee agreement includes a mechanism that allows the two charities to replace a trustee if it seeks a fee change but no agreement with the charities can be reached. The charities have asked Mellon to turn the trust over to Brown Bros. Harriman & Co., but Mellon has refused.  Mellon may think recent changes to Pennsylvania's trust law strengthen its position, because the changes permit a court to adjust fees in certain situations.  Whether any grounds for adjustment exist remains to be seen.  The charity division of the Attorney General's office has already gotten involved, opposing the request for higher and retroactive fees and also opposing the use of trust funds to pay the trustee's costs.  And that - the AG's involvement - may be a very good sign for kids who want to go to summer camp and for the neighborhood programs the cathedral has had to cut.

sng

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