11.27.2022

PA Superior Court Finds that Payment of Trustee Commissions Is Not Sufficient Basis for Trust Termination

In Re: Trust B under Agreement of Richard H. Wells dated September 28, 1956, No. J-A18026-22, 2022 PA Super 154 (Pa. Super. Sept. 7, 2022)

In a case of first impression, the Pennsylvania Superior Court held that the payment of reasonable trustee’s commissions did not constitute a sufficient basis for termination of a trust under 20 Pa. C.S. §7740.3(e).  In In Re: Trust B under Agreement of Richard H. Wells dated September 28, 1956, No. J-A18026-22, 2022 Pa Super 154 (Pa. Super. Sept. 7, 2022), the V.M.I. Foundation (“VMI”), which holds and manages the endowment for the Virginia Military Institute sought to terminate the charitable trust created by Richard H. Wells (“Settlor”) pursuant to 20 Pa. C.S. §7740.3(e) and to add the trust assets to its endowment fund in order to save the costs of trust fees and expenses.  20 Pa. C.S. §7740.3(e) provides that a court may terminate a trust held solely for charitable purposes if the separate existence of the trust “results or will result in administrative expense or other burdens unreasonably out of proportion to the charitable benefits.”

The Superior Court upheld the motion for summary judgment granted by the Venango County Orphans’ Court, which relied on Settlor’s clear intent to create a perpetual charitable trust, not an outright gift, stating “Since the language and circumstances surrounding the establishment of the [T]rust leave no doubt as to [Settlor’s] intent, there is nothing further to analyze.” Superior Court at *8 (quoting the Orphans’ Court Opinion, 10/5/21, at *7.)  In support of its ruling, the Orphans’ Court referenced the fact that Settlor had been the president of a bank and trust company and had amended his trust to change an outright gift to VMI to a gift in trust.  In addition, VMI had conceded that the trustee’s rates were market rates and, therefore, reasonable.  See 20 Pa. C.S. §7768(d): “Compensation at levels that arise in a competitive market shall be presumed to be reasonable in the absence of compelling evidence to the contrary.)  VMI had argued that terminating the trust and adding the trust assets to its endowment would be cost effective through a decrease in federal income tax as well as a savings in invest management and custodial fees.

The Court held that under these facts, VMI did not meet its burden of proving “the existence of ‘administrative expenses or other burdens unreasonably out of proportion to the charitable benefits,’ as required by 20 Pa. C.S.A. §7740.3(e).”  Superior Court at *19.