Spring 2024:
The MLO Minute: “We’re On the Cutting Edge of Estates and Trusts: Pennsylvania Supreme Court Holds That “Reasonable” Trustee Fees Are Insufficient to Terminate Charitable Trust”
By Dennis McAndrews, Esq., Founder and Managing Partner Emeritus —
As part of the ongoing commitment of our Estates and Trusts Department to remain current on major legal developments, one of our most valuable resources is our membership in the National Academy of Elder Law Attorneys (NAELA) which scours the national landscape for important court decisions, regulatory actions, and statutory changes. This week, we received the following important interpretation of trust law which is particularly critical for individuals who fund or establish charitable trusts. We give special thanks to the editors of the NAELA eBulletin for permission to reproduce the case summary below. The case is titled In re Trust B Under Agreement of Richard H. Wells, Filed 3/21/24.
Richard H. Wells created a perpetual charitable trust for the sole benefit of his alma mater Virginia Military Institute (“VMI”). PNC Bank, N.A., became the trustee in 2009. VMI’s Foundation (“the Foundation”), which holds and oversees VMI’s endowment assets, was named as the trust’s beneficiary. The Foundation sought to terminate the trust and to receive the assets outright. Pennsylvania law permits the termination of a charitable trust if the administrative expense and other burdens are unreasonably out of proportion to the charitable benefit of the trust. The Foundation argued that the trustee’s fees — 28 percent of the income — along with other administrative expenses and burdens, were unreasonably out of proportion to the charitable benefit of the trust. The Foundation asserted that if the Trust assets were added to the Foundation’s own endowment, it would save approximately $13,450 each year, equal to roughly half a year’s tuition for an in-state cadet at VMI. PNC argued that the Foundation failed to provide factual support to establish that there were any burdens out of proportion to the charitable trust. The Commonwealth of Pennsylvania (“the Commonwealth”) — which entered its appearance as parens patriae — made a similar argument. All parties moved for summary judgment, and the trial court granted PNC’s and the Commonwealth’s motions for summary judgement, finding that PNC’s fees were reasonable, and Richard did not want to make a gift outright to the Foundation. The Foundation appealed. The Superior Court affirmed the trial court’s ruling.
The Pennsylvania Supreme Court granted the Foundation’s petition for allowance of appeal to determine whether the Pennsylvania Superior Court erred in holding that the Foundation was not entitled to termination. The Pennsylvania Supreme Court held that termination of a charitable trust is not warranted simply because termination is advantageous to a beneficiary. In this case, the expenses of administering the trust were not unreasonably out of proportion to the trust’s charitable benefit. The Foundation therefore failed to meet its burden of showing that continuing to administer the trust was unduly burdensome.