In Re: Trust B of Wells; Apl of: V.M.I. Foundation

• Court: Supreme Court of Pennsylvania
• Decided: March 21, 2024
• Docket: 5 WAP 2023
• Status: Published

Opinion

[J-55-2023] IN THE SUPREME COURT OF PENNSYLVANIA WESTERN DISTRICT

TODD, C.J., DONOHUE, DOUGHERTY, WECHT, MUNDY, BROBSON, JJ.

IN RE: TRUST B UNDER AGREEMENT : No. 5 WAP 2023 OF RICHARD H. WELLS DATED : SEPTEMBER 28, 1956 : Appeal from the Order of the : Superior Court entered September : 7, 2022, at No. 1269 WDA 2021, APPEAL OF: V.M.I. FOUNDATION, INC. : Affirming the Order of the Court of : Common Pleas of Venango County : entered October 5, 2021, at No. : 2005-00235. : : ARGUED: October 17, 2023

OPINION

JUSTICE WECHT DECIDED: MARCH 21, 2024 In 1965, Richard H. Wells created a perpetual charitable trust (the “Trust”) for the

sole benefit of his alma mater—the Virginia Military Institute (“VMI”). VMI is a public

university located in Lexington, Virginia. Wells named as the Trust’s beneficiary the

Virginia Military Institute Foundation (the “Foundation”), an entity that holds and oversees

VMI’s endowment assets. Since its inception, the Trust has been managed by an

independent corporate trustee. Believing that it can manage the Trust with fewer

expenses and higher returns, the Foundation now seeks to terminate the Wells Trust and

to receive the assets outright, to be added to its endowment and administered

consistently with Wells’ charitable intentions.1 The orphans’ court evaluated the burdens

borne by the Trust and the charitable benefits thereto, and it concluded that the burdens

1 See 20 Pa.C.S. § 7740.3(e) (providing for the judicial termination of charitable trusts in defined circumstances). did not meet the statutory criteria for termination. The Superior Court agreed, and

accordingly affirmed the orphans’ court’s order.2

We conclude that, in denying trust termination, the orphans’ court acted within the

discretion afforded to it by Section 7740.3(e) of the Uniform Trust Act (“UTA”). The intent

of the settlor to effectuate charitable giving through a perpetual charitable trust, as

opposed to an outright gift, is protected by the high standard for termination that Section

7740.3(e) prescribes. The Foundation failed to satisfy this standard. We therefore affirm

the Superior Court’s order.

I. Background

Wells, who was a member of VMI’s graduating class of 1924, lived most of his life

in Oil City, Venango County. In 1952, Wells became the president of the Oil City Trust

Company, as well as a member of its board of directors. As president, Wells aggressively

led the Oil City Trust Company to expand and to acquire additional banks. In 1954, Oil

City Trust Company purchased two local banks and was renamed First Seneca Bank and

Trust Company (“First Seneca”). Under Wells’ leadership, the company continued to

expand, quintupling in size. Wells was reelected as president continually until he retired

in 1963.

On September 28, 1956, Wells created the Richard H. Wells Revocable Trust

Agreement, establishing First Seneca as the corporate trustee. The trust originally

provided for Wells’ wife and children until their deaths, at which time the trust would be

distributed to their heirs. If there were no heirs, then the trust assets were to be distributed

to various individuals. The residue, if any, would go to VMI, to be added to its general

endowment fund and identified as a memorial to Wells and the Class of 1924.

2 In re: Trust B Under Agreement of Wells, 282 A.3d 1149 (Pa. Super. 2022).

[J-55-2023] - 2 Wells amended the trust four times. In 1960, Wells revoked the outright distribution

to VMI. Instead, Wells directed that any remaining principal would be placed in a separate

perpetual charitable trust, with a committee of the trustee bank’s officers authorized to

select the charitable beneficiaries. In exercising this discretion, the trustee was directed

to afford favorable consideration to VMI in the allocation of trust income. Wells revised

the trust again in 1961 and 1963, continuing to afford VMI favorable consideration for the

distribution of the trust income of a contingent charitable remainder.

In 1965, Wells made his last amendment to the Trust. In this amendment, Wells

instructed that, upon his wife’s death, two named individuals would retain lump sums, and

the remaining principal would then form the corpus of a perpetual charitable trust, with

the Foundation as the sole beneficiary. Upon the death of Mrs. Wells, the Foundation

was to receive income at least annually, to be credited to the Class of 1924, as follows:

the Trustee shall add any accumulated and undistributed income in the trust to the principal thereof, and shall hold the thus augmented principal in trust, in perpetuity, and the Trustee shall pay and distribute the net income of the Trust, in perpetuity, at least annually, to the VMI Foundation, Virginia Military Institute, of Lexington, Virginia, which distributions shall by said VMI Foundation, Virginia Military Institute be credited to the Class of 1924, and which distributions shall be unrestricted, to be applied for such purposes as the governing board of the VMI Foundation may from time to time determine.3 Through each amendment, First Seneca remained the trustee. The final version

of the Trust provided compensation for the trustee as follows:

After the death of the Settlor the Trustee shall receive as compensation for its services such reasonable sum or sums of money as may be commensurate with the duties performed by it under this agreement, which compensation may include a commission computed on income and on

3 Amendment to Revocable Trust Agreement, 7/7/1965, at 4, Article I.B.5; R.R. at 36a.

[J-55-2023] - 3 corpus, and which shall be in accordance with a schedule of compensation currently in effect when the services are performed.4 Wells died on March 30, 1968, and his Trust became irrevocable. Mrs. Wells died

in 2004. In 1991, First Seneca merged into another bank and, through a name change

and subsequent merger, was succeeded by PNC Bank in 2009.

In 1969, Congress passed the Tax Reform Act, which required the classification of

certain trusts as private foundations and subjected all private foundations to the Private

Foundation Rules (“PFR”) prescribed by the Internal Revenue Code.5 These rules require

annual distributions of five percent of the fair market value of the trust’s assets, subject to

increasing penalties,6 and compel an annual excise tax of 1.39 percent.7 The Wells Trust

is a private foundation subject to the PFR.

The principal of the Wells Trust has grown from $1.5 million in 2010 to over $2.1

million in 2020, with distributions to the Foundation totaling $639,314 in this same period.

According to the Foundation, the Wells Trust generates annual distributions to the

Foundation of approximately $67,000 per year.8 PNC collects about $18,500 in annual

fees for its duties as trustee. The Wells Trust also incurs expenses of about $750 each

year for the preparation of tax returns.

On May 6, 2019, the Foundation filed a petition to terminate the Wells Trust,

seeking to obtain the Trust’s assets itself and to maintain the assets as a permanent fund

4 Id. at 6, Article I.C.3; R.R. at 38a. 5 26 U.S.C. §§ 4940-48. 6 Id. § 4942. 7 Id. § 4940(a). 8 In 2017, the Foundation received $71,961. Foundation’s Br. in Support of Motion for Summary Judgment, Ex. 7, R.R. at 141a. In 2018, the Foundation received $59,757. Id., Ex. 6, R.R. at 139a. And, in 2019, the Foundation received $83,021. Id., Ex. 5, R.R. at 137a.

[J-55-2023] - 4 under terms and conditions similar to those set forth in the Wells Trust, in honor of Wells

and the Class of 1924. Judicial termination of a charitable trusts is authorized by Section

7740.3(e) as follows:

If the separate existence of a trust, whenever created, solely for charitable purposes results or will result in administrative expense or other burdens unreasonably out of proportion to the charitable benefits, the court may, upon application of the trustee or any interested person and after notice to the Attorney General, terminate the trust, either at its inception or at any time thereafter, and award the assets outright, free of the trust, to the charitable organizations, if any, designated in the trust instrument or, if none, to charitable organizations selected by the court, in either case for the purposes and on the terms that the court may direct to fulfill as nearly as possible the settlor’s intentions other than any intent to continue the trust, if the court is satisfied that the charitable organizations will properly use or administer the assets.9

The Foundation described the growth of its endowment over time. Although the

endowment was small at the time of Wells’ death, it has since grown to exceed $500

million and is now one of the largest endowments per student of any public university in

the United States. Within the endowment are fifteen hundred restricted funds that the

Foundation maintains in separate accounts. All of these assets are managed by BNY

Mellon. The Foundation asserted that PNC’s fees, at twenty-eight percent of the income,

coupled with other administrative expenses and burdens, were unreasonably out of

proportion to the charitable benefits of the Trust. The Foundation asserted that, if it were

able to add the assets from the Wells Trust to its own endowment, it would save

approximately $13,450 each year, which is about one half of one year’s tuition for an in-

state cadet at VMI.

9 20 Pa.C.S. § 7740.3(e) (emphasis added).

[J-55-2023] - 5 PNC filed an answer. Shortly thereafter, the Commonwealth entered its

appearance as parens patriae.10 Relying upon evidence that Wells had amended his

Trust four times and that each amendment designated the Foundation as a beneficiary

and provided for a third-party financial institution to serve as corporate trustee, PNC

argued that termination would be contrary to Wells’ intent as expressed in the explicit

terms of the trust document. PNC further argued that the Foundation failed to provide

factual support to establish that there were any burdens out of proportion to the charitable

benefits. The Commonwealth made similar arguments.

Following discovery, each party moved for summary judgment. At argument in the

orphans’ court, counsel for the Foundation conceded that, as to PNC’s fees, “we accept

that the quid pro quo, the payment of those fees for [PNC’s] services rendered, are

reasonable. They’re market.”11 Following argument, the orphans’ court denied the

Foundation’s motion for summary judgment and its termination petition and granted

PNC’s and the Commonwealth’s motions for summary judgment. The court explained

that Wells wanted his charitable trust to continue in perpetuity and did not want to make

an outright gift to the Foundation. According to the orphans’ court, the trust documents

were clear, easily understood, and consistent, and PNC’s fees were reasonable.

10 The parens patriae power is rooted in the “ancient powers of guardianship over persons under disability and of protectorship of the public interest.” In re: Estate of Pruner, 136 A.2d 107, 109 (Pa. 1957). As a Pennsylvania charitable trust, the Wells Trust is subject to the Attorney General’s oversight. By statute, the Attorney General’s interest in the trust is equal to that of the Foundation. See 20 Pa.C.S. § 7710(d) (“The Office of Attorney General has the rights of a charitable organization expressly named in the trust instrument to receive distributions from a trust having its situs in this Commonwealth . . . .”). The Attorney General participates as an indispensable party in every proceeding affecting a charitable trust. In re: Estate of Voegtly, 151 A.2d 593, 594 (Pa. 1959). 11 N.T., 8/30/2021; R.R. at 516a.

[J-55-2023] - 6 Because there was no doubt about Wells’ intent, the orphans’ court believed there was

nothing else to consider.12

The Foundation appealed. In its statement of errors complained of on appeal,13

the Foundation asserted that the orphans’ court erred by considering Wells’ intent which,

according to the Foundation, was not relevant. The orphans’ court filed a supplemental

opinion explaining that none of the Trust’s fees or expenses were “unreasonably out of

proportion to the charitable benefits” or otherwise “destroying” the Trust.14

The Superior Court affirmed.15 The Foundation argued that the orphans’ court

erred in denying its request to terminate the Trust because it established all of the

requirements of Section 7740.3(e). According to the Foundation, the orphans’ court

erroneously determined that Wells’ intent to create the Trust precluded termination.

The Superior Court noted the “scarcity of case law, in Pennsylvania as well as

other jurisdictions, addressing judicial termination of charitable trusts.”16 Finding no

factually analogous cases, the Superior Court turned to the sole similar case that it came

across: In re Schlegel, an orphans’ court decision from 2003.17 In Schlegel, the settlor

created a charitable trust known as the “Arthur O. and Clara M. Schlegel Memorial Fund

12 See Tr. Ct. Op., 9/30/2021, at 7 (“This was a man who clearly knew what he was doing. He was the President of a Bank and Trust Company. Wells wanted to make a gift in trust to his alma mater and he did. There is really nothing else to be considered. Since the language and circumstances surrounding the establishment of the trust leave no doubt as to his intent there is nothing further to analyze.”). 13 See Pa.R.A.P. 1925(b). 14 Tr. Ct. Op., 12/28/2021, at 2 (citing 20 Pa.C.S. § 7740.3(e)). 15 Trust B Under Wells, 282 A.3d 1149. Judge Stabile concurred in the result. 16 Id. at 1157. 17 No. 36-1990-0184, 2003 WL 26100147 (Pa.Com.Pl. Lancaster Cnty. Feb. 4, 2003).

[J-55-2023] - 7 for Deformed Children of Berks County.”18 The trust provided that, upon Ms. Schlegel’s

death, the trustee was to use the income from the trust “to assist in defraying the medical

and hospital costs of treating and correcting physical deformities in children residing in

Berks County who are either without parents or whose parents are unable financially to

meet such expenses.”19 The trust instrument directed the trustee to follow the

recommendations of social service agencies that worked with such children to determine

who would receive assistance.

Years later, the trustee sought termination of the trust, asking the orphans court to

terminate the trust and to award the assets to the Berks County Community Foundation.

The trustee averred that it had experienced difficulty in providing charitable benefits and

that termination would accomplish “significant tax savings” because the trust was a

private foundation subject to the PFR.20 As part of the Berks County Community

Foundation, the trust’s assets would be maintained as a public charity and would be

relieved of these burdens. In addition, the trustee averred that a successful collaboration

between the Berks County Community Foundation and the trust had developed, and that

the Berks County Community Foundation and its familiarity with the community would

facilitate the charitable benefit intended by the settlor. The Attorney General did not

object. The orphans’ court granted the trust termination, concluding that “pursuit of the

settlor’s goals and objectives by the present trustee results in expenses and burdens

18 Id. at *1. 19 Id. 20 Id. (noting that “the trustee experienced some difficulty in organizing an advisory board of Berks County residents and promoting community awareness of the availability of the fund within the geographical limits provided by the settlor”); id. (observing that the trust’s status as a private foundation “subjects the trust to an annual excise tax, detailed reporting requirements and limits on its operations”).

[J-55-2023] - 8 which are unreasonably disproportionate to the charitable benefits.”21 The court directed

the distribution of the balance of the trust to the Berks County Community Foundation to

be administered according to the purpose identified in the trust.

The Superior Court in this case held that Schlegel was distinguishable and did not

support reversal of the orphans’ court decision. In particular, in Schlegel, the termination

petition was unopposed. Although the trustee advanced an argument about the favorable

tax treatment that would result from converting the assets from their status as a private

foundation to part of a public charity, the trustee also averred that it faced challenges

fulfilling the settlor’s charitable intent and had established a successful collaboration with

the Berks County Community Foundation. Such circumstances were not present here.

Turning to the Foundation’s argument that the Trust’s expenses would be avoided

by a transfer of the assets to the Foundation, the Superior Court disagreed that this was

a reason to terminate the Trust. The court reasoned that savings of about $13,450 per

year did not prove the existence of “administrative expense or other burdens

unreasonably out of proportion to the charitable benefits” as required by Section

7740.3(e).22

We granted the Foundation’s petition for allowance of appeal to address:

Whether, in a matter of first impression, the Pennsylvania Superior Court erred in its analysis and application of [Section 7740.3(e)] in holding that the [Foundation] is not entitled to the remedies sought by its Motion for Summary Judgment, specifically to include the termination of the Wells Trust with an award of the trust’s assets to the [Foundation] to be held on the conditions nearly identical to the terms and conditions set forth in the Wells Trust.23

21 Id. 22 Trust B Under Wells, 282 A.3d at 1160. 23 In re: Trust B Under Agreement of Richard H. Wells, 293 A.3d 569 (Pa. 2023) (per curiam).

[J-55-2023] - 9 II. Arguments

The Foundation argues that Section 7740.3(e) is unambiguous and provides no

room for the orphans’ court to consider the settlor’s intent to create a trust when deciding

whether to terminate the trust. If, as the lower courts held, the settlor’s intent to create a

trust is paramount, then, according to the Foundation, there would never be any basis for

the judicial termination of a charitable trust. The Foundation argues that the only

consideration for judicial termination is a comparison of the benefits and the burdens,

consideration that the Foundation believes the lower courts ignored.

The Foundation seeks to terminate the Wells Trust and to obtain the Trust’s assets

for itself in order to be “free of the financial burdens, administrative requirements, taxes,

and investment limitations,” which the Foundation believes negatively impact the Trust

“solely as a result of its separate existence as a trust treated as a Private Foundation

under Internal Revenue Code § 4940 et. seq.”24 These burdens include the 1.39 percent

excise tax (approximately $4,325 per year), and the mandatory five percent distribution,

which the Foundation believes deprives the Trust of flexibility needed to meet its needs

and to protect the Trust’s assets. The Foundation asserts that, as an endowment, it has

a total returns strategy, which the Foundation describes as focusing upon long-term total

returns and annual distributions that are based upon a percentage of assets and are

derived from both principal and income—a strategy that the Wells Trust cannot pursue.25

The Foundation desires greater flexibility than the Wells Trust can provide, allowing it to

24 Foundation’s Br. at 6. 25 See 20 Pa.C.S. § 8113 cmt. (Joint State Gov’t Comm’n 2001) (“Accordingly, this provision [of the Principal and Income Act] will provide needed flexibility primarily to those charitable trusts that are not private foundations.”).

[J-55-2023] - 10 select a range of investment options and distribution rates.26 Had Wells known about the

ways that the PFR would restrict the Trust, the Foundation believes that Wells would have

preferred trust termination.

Addressing PNC’s fees, the Foundation argues that its concession that these fees

are “market rate” and “reasonable” does not mean that these expenses are not

unreasonably out of proportion to the charitable benefit or that Wells’ charitable purposes

would not be enhanced by the cost savings that would be realized by the transfer of assets

to the Foundation. Relying upon an affidavit from VMI’s Chief Financial Officer, the

Foundation argues that transferring the Trusts’ assets would result in annual savings of

$13,400 in fees to the outside manager. Added to the other benefits that would result

from the transfer of assets, the Foundation predicts that terminating the Trust would result

in savings of $17,739 annually.27

Turning to the charitable benefits of the Trust, the Foundation argues that these

benefits are to be assessed by examining whether the expenses benefit the Trust. The

Foundation suggests that any burden that diminishes the trust’s assets can have no

charitable benefit and, therefore, will always be unreasonably out of proportion to the non-

existent charitable benefit. The Foundation sees no benefit to the Trust arising from taxes

or expenses. As in Schlegel, the Foundation argues that termination is warranted

26 20 Pa.C.S. § 8113(e) (providing that “the value of the trust shall be the fair market value of the cash and other assets held by the trustee with respect to the trust, whether such assets would be considered ‘income’ or ‘principal,’” and which is “determined at least annually and averaged over a period of three or more preceding years”). 27 Foundation’s Reply Br. at 28.

[J-55-2023] - 11 because it “would accomplish significant tax savings” given the Trust’s status as a private

foundation.28

PNC responds by characterizing the standard necessary for termination under

Section 7740.3(e) as heightened, tying termination not just to the existence of burdens,

but to the existence of burdens that are “unreasonably out of proportion to” the Trust’s

charitable benefits.29 According to PNC, even if this standard is met, the orphans’ court

has discretion to deny termination.

PNC observes that the legislature enacted Section 7740.3(e) against the backdrop

of well-developed common law prioritizing settlor intent, which “supplements” the

statutory framework.30 According to PNC, “[c]onsidering and respecting the settlor’s

intent in establishing an independently administered perpetual trust serves to uphold the

indelible principle that ‘[e]very person has a right to dispose of his or her own property as

he or she sees fit.’”31

Driven by well-settled rights and principles, the common law is, according to PNC,

particularly solicitous of the settlor’s “intent that the trust shall not be terminated,” which

is evidenced by “the placing of the estate in a trust, and investing the trustee with authority

over it.”32 PNC describes the common law’s focus on the settlor’s intent as being

28 Foundation’s Br. at 13 (quoting Schlegel, 2003 WL 26100147, at *1 (“It is the contention of the petitioner that the transfer of the trust to the Berks County Community Foundation as requested would accomplish significant tax savings.”)). 29 See 20 Pa.C.S. § 7740.3(e). 30 PNC’s Br. at 26 (quoting 20 Pa.C.S. § 7706 (“The common law of trusts and principles of equity supplement this chapter, except to the extent modified by this chapter or another statute of this Commonwealth.”)). 31 Id. at 27-28 (quoting In re: Estate of Paul, 180 A.2d 254, 262 (Pa. 1962)). 32 Id. at 28 (quoting In re: Baughman’s Estate, 126 A. 58, 64 (Pa. 1924) (internal citations omitted)).

[J-55-2023] - 12 consistent with public policy favoring charitable giving.33 According to PNC, charities,

and, by extension, the public, benefit from the intention of donors who have the

prerogative to do as they wish with their own assets, including to create a charitable trust.

Because a settlor presumptively knows that there will be expenses associated with

the trust and with having an independent trustee, PNC believes that ordinary trust

expenses are consistent with settlor intent and cannot form the basis for trust termination.

Wells specifically intended his estate’s charitable distributions to be made through a

perpetual charitable trust. PNC views the lower courts’ resolution of the termination

petition as consistent with this intent and the plain language of Section 7740.3(e).

The Commonwealth, as parens patriae, agrees with PNC. According to the

Commonwealth, the Wells Trust cannot be terminated merely because it is classified as

a private foundation under federal law; otherwise, all private foundations would suffer from

the same termination-worthy burdens. Had the General Assembly intended to subject all

private foundations to termination, the Commonwealth suggests that it could have said

so. The Commonwealth asserts that the General Assembly also declined to subject

private foundations to termination simply because the beneficiary is capable of managing

the assets itself.

The Commonwealth further argues that the five percent mandatory distribution

under the PFR is not a burden at all, but a benefit that inures exclusively to the Foundation

as sole beneficiary. Additionally, the Commonwealth asserts that there is nothing

preventing PNC as the trustee from pursuing a total returns investment strategy.34 The

33 See In re Estate of Baum, 211 A.2d 521, 522 n.2 (Pa. 1965) (“It is difficult to conceive of a Commonwealth public policy that is more fundamental or more meaningful than its frequently restated policy of encouragement to charities and charitable giving in the public interest.”). 34 See 20 Pa.C.S. § 8113(a) (permitting “the trustee of a trust held exclusively for charitable purposes” to elect a total returns investment strategy).

[J-55-2023] - 13 Commonwealth believes that none of the burdens upon which the Foundation relies are

unreasonable and that, in any case, the orphans’ court had the discretion to deny

termination based upon its assessment of these alleged burdens.

III. Discussion

A. Standard of Review

Summary judgment is appropriate “where there are no genuine issues of material

fact and the moving party is entitled to judgment as a matter of law.”35 The trial court is

required to “take all facts of record and reasonable inferences therefrom in a light most

favorable to the non-moving party and must resolve all doubts as to the existence of a

genuine issue of material fact against the moving party.”36 A trial court’s entry of summary

judgment “may be disturbed by an appellate court only if the court committed an error of

law; thus, our standard of review is de novo, and our scope of review is plenary.”37

This appeal requires us to interpret and apply the UTA, an endeavor that is guided

by the Statutory Construction Act.38 The object of interpretation and construction of

statutes “is to ascertain and effectuate the intention of the General Assembly and . . . the

plain language of the statute is generally the best indicator of such intent.”39 “We will only

look beyond the plain meaning of the statute where the words of the statute are unclear

or ambiguous.”40

35 Nicolaou v. Martin, 195 A.3d 880, 891 (Pa. 2018); see also Pa.R.Civ.P. 1035.2(1). 36 Maas v. UPMC Presbyterian Shadyside, 234 A.3d 427, 436 (Pa. 2020). 37 LJL Transp., Inc. v. Pilot Air Freight Corp., 962 A.2d 639, 647 (Pa. 2009) (internal citations omitted). 38 1 Pa.C.S. §§ 1501-1991. 39 Commonwealth v. Zortman, 23 A.3d 519, 525 (Pa. 2011) (citing 1 Pa.C.S. § 1921(a), (b)). 40 Id. (citing 1 Pa.C.S. § 1921(c)).

[J-55-2023] - 14 B. Common law

There is no factual dispute that Wells intended to create a perpetual charitable

trust. Wells was well-versed in the language and structure of trusts. Not only was Wells

the long-term and successful president of a bank and trust company, but he demonstrated

his aptitude in this regard with multiple revisions, refining over time his intentions as

settlor. Wells designated his company, First Seneca (now PNC), to serve as trustee, and

he directed that the trustee would receive reasonable compensation.

In the first version of his trust, Wells required the trustee to pay whatever principal

remained in the trust to VMI directly. However, in the 1960, 1961, and 1963 amendments,

Wells chose not to make any gifts to VMI directly but, instead, to create a generalized

charitable trust with favorable consideration to the needs of VMI. In the final amendment,

Wells again opted not to make an outright gift to VMI but to benefit the Foundation as the

sole beneficiary of the perpetual charitable trust. Wells further amended the Trust to

expand upon the reasonable compensation owed to the trustee so as to include a

commission computed on the income and corpus under a schedule of compensation in

effect when the services were performed.

When Mrs. Wells died in 2004, the Foundation became the sole beneficiary of the

Trust, receiving an equitable right to derive benefits from the property held in trust.41 This

is exactly how Wells intended it to be when he unambiguously created the perpetual

charitable trust and provided for the periodic distribution of trust income to the Foundation

41 See Lewis v. Alexander, 685 F.3d 325, 332 (3d Cir. 2012) (“Th[e] structure [of a trust] means that the beneficiary does not actually own the assets of the trust, but instead has an equitable right to derive benefits from them.”).

[J-55-2023] - 15 in perpetuity.42 It is not disputed that Wells intended to create a perpetual charitable trust

with a single beneficiary and that terminating the Trust would be contrary to this intent.

Notwithstanding Wells’ indisputable intent, Section 7740.3(e) of the UTA provides

authority for a court to terminate his trust. The UTA is premised upon the Uniform Trust

Code (“UTC”), a “comprehensive” national model proposed for codification of the common

law of trusts, which model “applies generally to all trusts.”43 The UTA and the UTC both

provide that “[t]he common law of trusts and principles of equity supplement” the

legislation, “except to the extent modified” by statute.44 To understand the meaning of

Section 7740.3(e), it is helpful to review the common law that continues to supplement

the UTA, as well as the relevant provisions of the UTC.

The common law meaning of a trust is “a relation between two persons, by virtue

of which one of them as trustee holds property for the benefit of the other. . . . There must

be sufficient words to raise a trust, property to be subject to it, and a purpose to be

accomplished.”45 A trust creates two primary interests: the interest of the settlor in

creating the trust, transferring interest in trust property, and establishing the conditions of

the trust; and the interest of the beneficiary in enjoying the benefit to which the trust is

directed.46 The trustee has a derivative interest “in performing the agreed duty to

42 See Amendment to Revocable Trust Agreement, 7/7/1965, at 4, Article I.B.5; R.R. at 36a; see also id. at 6, Article VIII; R.R. at 38a. 43 Trust Under Agreement of Taylor, 164 A.3d 1147, 1149 (Pa. 2017) (internal quotations omitted); see also In re Trust of Garrison, 288 A.3d 866, 872 (Pa. 2023) (describing the UTC as codifying “the consensus of common law principles then governing the law of trusts”). 44 20 Pa.C.S. § 7706; see also UNIF. TR. CODE § 106 (UNIF. L. COMM’N 2000). 45 In re Passarelli Family Trust, 242 A.3d 1257, 1269 (Pa. 2020) (quoting In re Vosburgh’s Estate, 123 A. 813, 815 (Pa. 1924)). 46 Garrison, 288 A.3d at 872.

[J-55-2023] - 16 administer the trust assets for the benefit of the beneficiaries in accordance with the terms

established by the settlor.”47

When construing a trust, “[t]he intent of the settlor, if not contrary to law, must

prevail.”48 The best evidence of the settlor’s intent is the trust instrument itself.49 Because

of the well-established rights of settlors to dispose of their property through trust, 50 the

common law is particularly solicitous of the settlor’s “intent that the trust shall not be

terminated,” an intent evidenced by the creation of the trust in the first instance.51 For

more than a century, the common law has recognized that a beneficiary of a charitable

trust has no right to demand the termination of the trust and the award of assets.52 Under

47 Id. 48 In re Trust of Tracy, 346 A.2d 750, 752 (Pa. 1975); see also In re Estate of Burleigh, 175 A.2d 838, 839 (Pa. 1961) (“[T]he testator’s intent is the polestar and must prevail.”). 49 See Farmers Tr. Co. v. Bashore, 445 A.2d 492, 494 (Pa. 1982) (“A settlor’s intent is to be determined from all the language within the four corners of the trust instrument, the scheme of distribution and the circumstances surrounding the execution of the instrument.”); In re Girard Tr. Corn Exch. Bank, 208 A.2d 857, 859 (Pa. 1965) (“Admission of evidence to show the intent of the settlor is the exception and not the rule for the sound reason that the writing itself must be considered to be the best and controlling evidence of the settlor’s intent.”); Cf. Burleigh, 175 A.2d at 839 (“It is now hornbook law . . . that the testator’s intent . . . must be gathered from a consideration of (a) all the language contained in the four corners of [the] will and (b) [the] scheme of distribution and (c) the circumstances surrounding” the testator at the time the will was made and “(d) the existing facts . . . .”). 50 See, e.g., Paul, 180 A.2d at 262 (“Every person has a right to dispose of his or her own property as he or she sees fit.”); In re Covington’s Estate, 33 A.2d 235, 242 (Pa. 1943) (because an individual has the right to dispose of property, the owner’s “directions” are “scrupulously observed by those who administer the law”). 51 Baughman’s Estate, 126 A. at 64. 52 See In re Yeager’s Estate, 47 A.2d 813, 815 (Pa. 1946) (“A trust to pay the income to a charitable institution forever is an active trust which may not be terminated by the demand of the institution that the principal be paid to it, even with the consent of the trustee.”); In re Unruh’s Estate, 93 A. 1000, 1001 (Pa. 1915) (noting the “wide distinction between a gift to a charity and a gift to a trustee to be applied to a charity,” and recognizing that, were the court to “terminate the trust and order the transfer of the assets to the (continued…)

[J-55-2023] - 17 the common law, a “trust cannot be terminated if it would frustrate the testator’s purpose

in creating the trust.”53

Although beneficiaries had no common law right to terminate a trust and to obtain

the assets outright, the common law doctrines of equitable deviation and cy pres

empowered courts to modify the terms of a trust in particular circumstances. Equitable

deviation permitted a court to alter the provisions of a charitable trust to account for

unanticipated circumstances in order to give effect to what the settlor probably would have

intended had the settlor anticipated the circumstances.54 Cy pres empowered the court

to reform a trust when changed circumstances made implementation of the settlor’s

charitable beneficiary, we would not only be defeating the intention of the testatrix, but would also deprive the ultimate objects of her bounty . . . of the supervision and control which we have over trustees”). 53 In re Estate of Davis, 297 A.2d 451, 455 (Pa. 1972); see also In re Tr. Estate of Grote, 135 A.2d 383, 391 (Pa. 1957) (“This Court has wisely limited and restricted the termination of testamentary trusts whenever it could reasonably be said that one or more of the ultimate purposes of the testator for keeping the trust alive has not been fully accomplished.”); In re Craig’s Estate, 52 A.2d 650, 651 (Pa. 1947) (“If this testatrix’s gift had been to a trustee . . . we would be bound to sustain the trust in the hands of such trustee and refuse any request by the church or its successor for the possession of the assets, whether in the guise of a substituted trustee or otherwise.”); Baughman’s Estate, 126 A. at 64 (“A substituted method is not [the settlor’s] method, and is not permissible, unless necessary to give effect to [the settlor’s] expressed purpose.”); Ronald Chester, Modification and Termination of Trusts in the 21st Century: The Uniform Trust Code Leads a Quiet Revolution, 35 REAL PROP. PROB. & TR. J. 697, 701 (2001) (describing “the American rule that blocks trust termination (or even modification) when it contravenes settlor intent”). 54 See RESTATEMENT (THIRD) OF TRUSTS § 66 cmt. a (AM. L. INST. 2003) (“The objective is to give effect to what the settlor’s intent probably would have been had the circumstances in question been anticipated.”).

[J-55-2023] - 18 express directions impossible, illegal, or impracticable to implement.55 Although the

doctrine of cy pres is imprecise, it endeavors to approximate the intention of the settlor.56

C. The Uniform Trust Code and the Uniform Trust Act

Against this common law background, the National Conference of Commissions

on Uniform State Laws proposed codification of several means for termination or

modification of charitable and noncharitable trusts. Some of these the General Assembly

adopted verbatim in the UTA; others the General Assembly changed in significant ways

before adoption. Under the UTA, a trust may be modified or terminated only in defined

circumstances and under precise standards.57 For example, a noncharitable trust may

55 As this Court has explained: If property is given in trust to be applied to a particular charitable purpose, and it is or becomes impossible or impracticable or illegal to carry out the particular purpose, and if the settlor manifested a more general intention to devote the property to charitable purposes, the trust will not fail but the court will direct the application of the property to some charitable purpose which falls within the general charitable intention of the settlor. In re Women’s Homeopathic Hosp. of Phila., 142 A.2d 292, 294 (Pa. 1958); see also Manners v. City of Phila. Libr. Co., 93 Pa. 165, 1880 WL 13288, at *8 (Pa. 1880) (Cy pres “is a rule of law and equity that where a vested estate is distinctly given, and there are annexed to it conditions . . . that are not allowed by law[,] . . . these restraints . . . are void”). 56 See Women’s Homeopathic Hosp., 142 A.2d at 294 (under cy pres, the court exercises its discretion “in such a manner as to award the fund to an eleemosynary institution whose services will most nearly approximate the intention of the donor.”); In re Williams’ Estate, 46 A.2d 237, 239 (Pa. 1946) (Cy pres “is the doctrine of approximation.”); In re Trust of Farrow, 602 A.2d 1346, 1348 (Pa. Super. 1992) (providing that, when a trust cannot be administered “in exact conformity to the scheme of the person or persons who have provided for it, it must be performed with as close approximation to that scheme as reasonably practicable”). 57 See 20 Pa.C.S. § 7736 (providing that a trust is voidable “to the extent its creation was induced by fraud, duress or undue influence”); 20 Pa.C.S. § 7740(a) (providing that, if the trust instrument itself directs that it is to continue for a finite period of time, then the expiration of that time terminates the trust); id. (requiring a trust to terminate to the extent that “the purposes of the trust have become unlawful or contrary to public policy”); see also UNIF. TR. CODE §§ 406, 410.

[J-55-2023] - 19 be terminated in varying circumstances, depending upon whether the termination is: (a)

upon the consent of the settlor and all of the beneficiaries;58 (b) with the consent of the

beneficiaries but without the concurrence of the settlor;59 or (c) without the consent of all

beneficiaries.60

In certain circumstances, the General Assembly has required that modification or

termination be premised upon effectuating the settlor’s intent. For example, if a charitable

trust does not indicate a beneficiary or charitable purpose, nor authorize the trustee to

select a beneficiary or charitable purpose, Section 7735(b) empowers the court to make

the selection “consistent with the settlor’s intention to the extent it can be ascertained.”61

Section 7740.5 allows a court to reform a trust “to conform to the settlor’s probable

intention” if the intent expressed in the trust instrument was affected by a mistake of fact

or law.62 Under Section 7740.6, a court may modify a trust “in a manner that is not

contrary to the settlor’s probable intention in order to achieve the settlor’s tax

objectives.”63

58 20 Pa.C.S. § 7740.1(a) (“A noncharitable irrevocable trust may be modified or terminated upon consent of the settlor and all beneficiaries even if the modification or termination is inconsistent with a material purpose of the trust.”); see also UNIF. TR. CODE § 411(a). 59 20 Pa.C.S. § 7740.1(b) (Termination in this context is premised upon a judicial finding that “continuance of the trust is not necessary to achieve any material purpose of the trust.”); see also UNIF. TR. CODE § 411(b). A “material purpose of the trust” includes a spendthrift provision. 20 Pa.C.S. § 7740.1(b.1). 60 20 Pa.C.S. § 7740.1(d) (without the consent of the beneficiaries, the court “may” approve modification or termination “only if the court is satisfied that: (1) if all the beneficiaries had consented, the trust could have been modified or terminated under this section; and (2) the interests of a beneficiary who does not consent will be adequately protected”); see also UNIF. TR. CODE § 411(e). 61 20 Pa.C.S. § 7735(b); see also UNIF. TR. CODE § 405(b). 62 20 Pa.C.S. § 7740.5; see also UNIF. TR. CODE § 415. 63 20 Pa.C.S. § 7740.6: see also UNIF. TR. CODE § 416.

[J-55-2023] - 20 Section 7740.2(a) codifies equitable deviation for noncharitable trusts due to

unanticipated circumstances in order to “approximate the settlor’s probable intention.”64

Section 7740.2(a) is modeled on Section 412 of the UTC, which permits the equitable

deviation of charitable and noncharitable trusts alike.65 In enacting Section 7740.2(a),

however, the General Assembly chose to limit the remedy of equitable deviation to

noncharitable trusts.

D. Judicial termination under Section 7740.3(e)

Section 7740.3 pertains only to charitable trusts, and it codifies the common law

doctrine of cy pres as well as administrative deviation, the termination of small trusts, and

judicial termination:

(a) General rule.--Except as otherwise provided in subsection (b), if a particular charitable purpose becomes unlawful, impracticable or wasteful:

(1) the trust does not fail, in whole or in part;

64 Section 7740.2(a) provides: The court may modify the administrative or dispositive provisions of a noncharitable irrevocable trust, make an allowance from the principal of the trust or terminate the trust if, because of circumstances that apparently were not anticipated by the settlor, modification, allowance or termination will further the purposes of the trust. To the extent practicable, the modification or allowance shall approximate the settlor’s probable intention. 20 Pa.C.S. § 7740.2(a). 65 Section 412(a) of the UTC provides: The court may modify the administrative or dispositive terms of a trust or terminate the trust if, because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust. To the extent practicable, the modification must be made in accordance with the settlor’s probable intention. UNIF. TR. CODE § 412(a). As the UTC comment explains, “the purpose of the ‘equitable deviation’ authorized by subsection (a) is not to disregard the settlor’s intent but to modify inopportune details to effectuate better the settlor’s broader purposes.” UNIF. TR. CODE § 412 cmt.

[J-55-2023] - 21 (2) the trust property does not revert to the settlor or the settlor’s successors in interest; and

(3) the court shall apply cy pres to fulfill as nearly as possible the settlor’s charitable intention, whether it be general or specific.

(b) Exception.--A provision in the terms of a charitable trust that would result in distribution of the trust property to a noncharitable beneficiary prevails over the power of the court under subsection (a) to apply cy pres.

(c) Administrative deviation.--A court may modify an administrative provision of a charitable trust to the extent necessary to preserve the trust.

(d) Administrative termination of small charitable trusts.--A trust solely for charitable purposes having assets of less than $100,000 may be terminated at its inception or at any time thereafter by the trustee with the consent of the Attorney General and all charitable organizations that are designated as beneficiaries by name in the trust instrument. Upon termination, the assets, subject to the approval of the Attorney General, shall be delivered to the organizations, if any, designated in the trust instrument or, if none, to organizations selected by the trustee, in either case to be held and applied for the general or specific charitable purposes and on the terms that will, in the trustee’s discretion, fulfill as nearly as possible the settlor’s intention.

(e) Judicial termination of charitable trusts.--If the separate existence of a trust, whenever created, solely for charitable purposes results or will result in administrative expense or other burdens unreasonably out of proportion to the charitable benefits, the court may, upon application of the trustee or any interested person and after notice to the Attorney General, terminate the trust, either at its inception or at any time thereafter, and award the assets outright, free of the trust, to the charitable organizations, if any, designated in the trust instrument or, if none, to charitable organizations selected by the court, in either case for the purposes and on the terms that the court may direct to fulfill as nearly as possible the settlor’s intentions other than any intent to continue the trust, if the court is satisfied that the charitable organizations will properly use or administer the assets.66 Subsections (a) and (b) are modeled upon Section 413 of the UTC, and they

recognize that strict adherence to a settlor’s intended charitable purpose may not always

be possible because of changing circumstances that arise after the settlor’s intent is

66 20 Pa.C.S. § 7740.3.

[J-55-2023] - 22 memorialized in the trust.67 Where the particular charitable purpose has become

“unlawful, impracticable or wasteful,” Section 413 of the UTC gives courts the cy pres

power to modify or terminate (in whole or in part) a charitable trust in order to effectuate

the settlor’s charitable intentions.68 Under such circumstances, and in the absence of

contrary language, Section 7740.3(a) and (b) presume that the settlor would prefer that

the gift be used for other charitable purposes rather than to see the trust fail, and

accordingly empower the court to alter the purpose to which a charitable trust’s assets

67 See UNIF. TR. CODE § 413 cmt. Section 413 provides: (a) Except as otherwise provided in subsection (b), if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful: (1) the trust does not fail, in whole or in part; (2) the trust property does not revert to the settlor or the settlor’s successors in interest; and (3) the court may apply cy pres to modify or terminate the trust by directing that the trust property be applied or distributed, in whole or in part, in a manner consistent with the settlor’s charitable purposes. (b) A provision in the terms of a charitable trust that would result in distribution of the trust property to a noncharitable beneficiary prevails over the power of the court under subsection (a) to apply cy pres to modify or terminate the trust only if, when the provision takes effect: (1) the trust property is to revert to the settlor and the settlor is still living; or (2) fewer than 21 years have elapsed since the date of the trust’s creation. UNIF. TR. CODE § 413. 68 See UNIF. TR. CODE § 413 cmt. Cy pres empowers the court in its discretion to terminate the trust and to distribute the assets “to other charitable entities.” Id. The court also may order “partial termination” if “the trust property is more than sufficient to satisfy the trust’s current purposes.” Id.

[J-55-2023] - 23 are to be applied.69 Equitable deviation for noncharitable trusts70 and cy pres for

charitable trusts both permit a court to alter the trust’s provisions due to unforeseen

circumstances, in order to further the intended purpose of the trust.

The General Assembly has authorized the administrative deviation of charitable

trusts in Section 7740.3(c), permitting the modification of administrative provisions in

order to preserve the trust. The General Assembly accounted for the administrative

deviation of noncharitable trusts in Section 7740.2(b). This is a departure from the UTC,

which provides for the administrative deviation of charitable and noncharitable trusts alike

in Section 412(b).71

Section 7740.3(d) authorizes the administrative termination of small charitable

trusts. Even in this categorical termination provision, the beneficiary cannot unilaterally

decide that it would prefer that the trust be terminated. The burden is on the trustee to

establish that the assets of the trust are less than $100,000 and to obtain the consent of

the Attorney General and the beneficiaries.72 Section 7740.3(d) parallels Section

7740.4(a), which pertains exclusively to noncharitable trusts. Section 7740.4(a)

authorizes a trustee to terminate a noncharitable trust when “the value of the trust property

69 See 15 AM. JUR. 2d Charities § 149. 70 20 Pa.C.S. § 7740.2(a). 71 Compare 20 Pa.C.S. § 7740.3(c), with 20 Pa.C.S. § 7740.2(b) (“The court may modify the administrative provisions of a noncharitable irrevocable trust if adherence to the existing provisions would be impracticable or wasteful or impair the trust’s administration.”). The UTC provides for the administrative deviation of charitable and noncharitable trusts in Section 412(b). UNIF. TR. CODE § 412(b) (providing that the “court may modify the administrative terms of a trust if continuation of the trust on its existing terms would be impracticable or wasteful or impair the trust’s administration.”). 72 20 Pa.C.S. § 7741.3(d).

[J-55-2023] - 24 is insufficient to justify the cost of administration” and no beneficiary objects.73 The court

also may terminate a noncharitable trust under Section 7740.4(b) “if it determines that the

value of the trust property is insufficient to justify the cost of administration.”74 The

General Assembly has made the legislative determination that all charitable trusts having

assets less than $100,000 are likely to be inefficient to administer and may be terminated.

Judicial termination of charitable trusts under Section 7740.3(e)—the provision at

issue here—proceeds in two parts: termination and distribution. The termination provision

requires an examination of whether the trust’s “separate existence” results in

“administrative expense or other burdens” that are “unreasonably out of proportion” to the

trust’s “charitable benefits.”75 If so, then the court “may” terminate the trust and proceed

to the distribution provision, awarding the assets outright to the beneficiary to fulfill “as

nearly as possible the settlor’s intentions other than any intent to continue the trust.”76

The statute operates to permit the court to set aside the settlor’s intent “to continue the

trust” only after the court, in its discretion, determines that the balancing referenced in the

termination provision weighs in favor of termination.

73 20 Pa.C.S. § 7740.4(a). The UTC provision upon which Section 7740.4(a) is modeled applies to all trusts, whereas Section 7740.4(a) applies only to noncharitable trusts. See UNIF. TR. CODE § 414(a) (“After notice to the qualified beneficiaries, the trustee of a trust consisting of trust property having a total value less than [$50,000] may terminate the trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of administration.”). The General Assembly codified the termination of noneconomic charitable trusts in Section 7740.3(d). 74 20 Pa.C.S. § 7740.4(b). The UTC provision upon which Section 7740.4(b) is modeled applies to all trusts. UNIF. TR. CODE § 414(b) (“The court may modify or terminate a trust or remove the trustee and appoint a different trustee if it determines that the value of the trust property is insufficient to justify the cost of administration.”). 75 20 Pa.C.S. § 7740.3(e). 76 Id.

[J-55-2023] - 25 Judicial termination of charitable trusts under the UTA has no direct counterpart in

the UTC. The “unreasonably out of proportion standard” of Section 7740.3(e) is an

invention of our General Assembly. Here, we construe the plain language of that statute.

It is not merely when the burdens are out of proportion to the charitable benefit that

termination is warranted under Section 7740.3(e). Rather, the General Assembly has

required that disproportion to be “unreasonable” before the court has any discretion to

terminate. “Unreasonable” generally is understood to be a heightened standard, one that

intentionally is difficult to meet.77 “Unreasonable” suggests the absence of reason.78

The factors that the court expressly is required to consider before terminating a

trust—the trust’s separate existence, expense and burdens, unreasonable

disproportionality, and charitable benefits—do not include the settlor’s intent to continue

the trust. This represents a departure from judicial termination of charitable trusts under

the common law, a statutory “modification” of “the common law of trusts and principles of

equity.”79

The General Assembly has required the consideration of settlor intent in other

scenarios, indicating its willingness to do so when intent matters.80 For example, within

the same section, the General Assembly has made settlor intent relevant for Section

77 See, e.g., Mays v. Hines, 592 U.S. 385, 391 (2021) (describing “unreasonable” as a standard that is “difficult to meet”). 78 See Bryan Garner, A DICTIONARY OF MODERN LEGAL USAGE (2d.ed. 1995) (defining “unreason” as “absence of reason; indisposition or inability to act or think rationally or reasonably;” and “unreasonableness” as “an act not in accordance with reason or good sense,” or “the fact of going beyond what is reasonable or equitable”); BLACK’S LAW DICTIONARY (11th ed. 2019) (defining “unreasonable” as “[n]ot guided by reason; irrational or capricious”); OXFORD ENGLISH DICTIONARY (2020 ed.) (defining “out of proportion” as “lacking, or so as to lack, appropriate relation (to something else); unbalanced, disproportionate, esp. disproportionately large; exaggerated, overemphasized”). 79 20 Pa.C.S. § 7706. 80 See 20 Pa.C.S. §§ 7735(b), 7740.2(a), 7740.3(a), 7740.5, and 7440.6.

[J-55-2023] - 26 7740.3(a). The termination provision of Section 7740.3(e) leaves no room for the

consideration of settlor intent. By definition, judicial termination results in the award of

“assets outright, free of the trust,” in contravention of the settlor’s intent to continue the

trust. The General Assembly has accounted for the settlor’s intent not by requiring

independent judicial consideration of intent, but by imposing a heightened standard that

must be met in order to abrogate this intent. Judicial termination in derogation of the

settlor’s intent to continue the trust is permissible only in the narrow circumstances and

under the heightened standard established by Section 7740.3(e).

The “unreasonably out of proportion” standard protects the settlor’s intent to

continue the trust by requiring a showing that a charitable trust’s “administrative expense

or other burdens” are so excessive as compared to the charitable benefits that it becomes

unreasonable to persist. Any rational or non-excessive discrepancy between the burdens

and benefits would not suffice. A “burden” is not “unreasonably out of proportion,” and

does not permit termination, unless the trust’s “separate existence” essentially defeats

the “charitable benefits” established by the trust. If the court weighs the burdens and the

benefits and finds the burdens to be unreasonably out of proportion to the benefits, the

court “may” in its discretion proceed to the distribution prong and “award the assets

outright” to the beneficiary.

The lower courts in this case rejected termination in part because termination

would be inconsistent with the settlor’s intent to continue the trust. It is not disputed that

termination would violate Wells’ intent. Termination will always be contrary to the settlor’s

intent. If the settlor’s intent to continue a trust, standing alone, could defeat judicial

termination, termination would never be warranted under Section 7740.3(e), and the

judicial termination provision would be meaningless. Instead of enacting an

[J-55-2023] - 27 inconsequential statute, the General Assembly deemed judicial termination in derogation

of settlor intent to be warranted when the high standard of Section 7740.3(e) is satisfied.

We agree with the Foundation that the settlor’s intent to continue the trust does not

independently defeat termination under Section 7740.3(e). But that does not end the

matter. It is the Foundation’s burden, as the moving party and the appellant, to establish

that the trial court abused its discretion in weighing the burdens and the benefits or in

denying termination. The Foundation asserts that it established unreasonable

disproportion because terminating the Trust and handing the assets to the Foundation

would avoid the 1.39 percent federal excise tax as well as the mandatory five percent

annual distribution and the concomitant lack of investment flexibility that results from the

PFR.

The Wells Trust and the Foundation are both tax-exempt charitable organizations

under Section 501(c)(3) of the Internal Revenue Code.81 Charitable organizations

described in Section 501(c)(3) are divided into two classes: private foundations and “other

than” private foundations, which include public charities.82 Public charities such as the

Foundation have escaped the private foundation designation by showing that they are

supported by the public. Private foundations like the Wells Trust “typically have a single

major source of funding” and “have as their primary activity the making of grants to other

charitable organizations and to individuals.”83

With the Tax Reform Act of 1969, Congress created a rigid regime of regulation

for private foundations such as the Wells Trust, a regime borne of “deep distrust of private

81 See 26 U.S.C. § 501(c)(3). 82 26 U.S.C. § 509(a) (defining “private foundation” as all organizations described in 501(c)(3) “other than” specifically excluded organizations). 83 Public Charities, IRS, https://www.irs.gov/charities-non-profits/charitable- organizations/public-charities (last visited March 18, 2024).

[J-55-2023] - 28 foundations.”84 Although the Wells Trust is subject to the PFR, the Foundation is not.

The PFR create a tax regime governing private foundations and impose substantial

penalties for those that fail to comply. In particular, the PFR impose an excise tax;85

prohibitions upon self-dealing between the private foundation and certain “disqualified

persons;”86 annual minimum distribution requirements;87 penalties upon on the failure to

make annual distributions;88 penalties for excess business holdings;89 penalties for

investments that jeopardize the charitable purpose;90 and taxes upon taxable

expenditures.91 Violations result in graduated penalties.92

The PFR impose an annual excise tax of 1.39 percent upon the net investment

income of the Wells Trust, which is defined as the amount by which gross income and

capital gain net income exceed certain allowable deductions.93 The Foundation’s Chief

Financial Officer estimated that the excise tax burdens the Wells Trust in the amount of

approximately $4,325 annually.94 Neither PNC nor the Commonwealth dispute this figure.

84 James J. Fishman, The Private Foundation Rules at Fifty: How Did We Get Them and Do They Meet Current Needs? 17 PITT. TAX. REV. 247, 269 (2020). 85 26 U.S.C. § 4940 (entitled “Excise tax based on investment income”). 86 Id. at §§ 4941, 4946(a)(1). 87 Id. at § 4942. 88 Id. 89 Id. at § 4943. 90 Id. at § 4944. 91 Id. at § 4945. 92 Id. at § 4942(a) and (b). 93 Id. at § 4940(a), (c). 94 Foundation’s Br. in Support of Summary Judgment, Ex. 1, Aff. of David L. Prasnicki at 3; R.R. at 89a.

[J-55-2023] - 29 The purported lack of investment flexibility caused by the PFR and the five percent

distribution required thereunder are less straightforward and not entirely separable. The

Foundation has not sought to quantify these purported burdens. Section 4942 of the

Internal Revenue Code requires private foundations to make annual distributions of five

percent of the aggregate fair market value of the trust’s assets over the trust’s

indebtedness.95 This provision ensures that private foundations give a minimum amount

of their assets to their charitable activities or beneficiaries instead of simply increasing the

value of the trust.96

The Foundation asserts that, because the Wells Trust is a private foundation

subject to the PFR and the mandatory five percent distribution, the Trust cannot avail

itself of the total returns investment policy permitted under Section 8113 of the Principal

and Income Act.97 As a public charity, the Foundation asserts that it would be free to

proceed under Section 8113.

95 See 26 U.S.C. § 4942(e)(1). 96 Failing to make mandatory distributions will result in initial penalties of 30%, with subsequent penalties increasing to 100%. Id. § 4942(a), (b). This graduated penalty scheme is “one of the most unique innovations” related to the Tax Reform Act of 1969. Fishman, The Private Foundation Rules, 17 PITT. TAX. REV. at 277. Under this regime, there is an initial penalty, and an opportunity to seek mitigation of that penalty. “Those who do not correct or are repeat offenders are subject to a much higher [penalty]. Only the most egregious violators of the [PFR] face loss of tax-exempt status and possibly the confiscation of assets.” Id. 97 See 20 Pa.C.S. § 8113. This section provides: (a) Election.--Notwithstanding the foregoing provisions of this chapter, the trustee of a trust held exclusively for charitable purposes may elect to be governed by this section unless the governing instrument expressly provides that the election provided by this section shall not be available. (b) Eligibility for election.--To make an election under this section, the trustee shall adopt and follow an investment policy seeking a total return for the investments held by the trust, whether the return is to be derived from appreciation of capital or earnings and distributions with respect to capital (continued…)

[J-55-2023] - 30 Section 8113 of the Principal and Income Act was adopted in 2002, and provides

that a trustee of a charitable trust “may elect to be governed by” Section 8113.98 If the

trustee makes this election, then the trustee is permitted to “adopt and follow an

or both. The policy constituting the election shall be in writing, shall be maintained as part of the permanent records of the trust and shall recite that it constitutes an election to be governed by this section. (c) Effect of election.-- (1) If an election is made to be governed by this section, the term “income” shall mean a percentage of the value of the trust. (2) Except as otherwise provided in paragraph (3), the trustee shall, in a writing maintained as part of the permanent records of the trust, select the percentage and determine that it is consistent with the long-term preservation of the real value of the principal of the trust but in no event shall the percentage be less than 2% nor more than 7% per year. *** (4) The term “principal” shall mean all other assets held by the trustee with respect to the trust. The selection may be made either annually or subject to change only when the trustee deems such change necessary and prudent. *** (e) Value determination.--For purposes of applying this section, the value of the trust shall be the fair market value of the cash and other assets held by the trustee with respect to the trust, whether such assets would be considered “income” or “principal” under the other provisions of this chapter, determined at least annually and averaged over a period of three or more preceding years. However, if the trust has been in existence less than three years, the average shall be determined over the period during which the trust has been in existence. (f) Charitable organizations.--For a charitable organization defined under Chapter 79 (relating to charitable instruments) the provisions of Chapter 79 shall supersede subsection (c) if necessary to comply with the minimum investment return requirements. 20 Pa.C.S. § 8113. 98 Id. § 8113(a).

[J-55-2023] - 31 investment policy seeking a total return for the investments held by the trust, whether the

return is to be derived from appreciation of capital or earnings and distributions with

respect to capital or both.”99 If the trustee makes this election, then Section 8113

redefines the term “income” to mean between two and seven percent of the trust’s value,

depending upon the percentage chosen by the trustee.100 Under this election, the value

of the trust is the “fair market value of the cash and other assets held by the trustee with

respect to the trust,” regardless of “whether those assets are ‘income’ or ‘principal’ . . . ,

determined at least annually and averaged over a period of three or more preceding

years.”101

If the five percent minimum distribution required by the PFR exceeds the

distribution that otherwise would be made because of an election under Section 8113, the

trustee must comply with the federally mandated distribution.102 In a Joint Statement

issued in connection with the 2002 enactment of Section 8113, the Joint State

Government Commission explained that:

The above rules are necessary only in connection with trusts which state that only the income can be expended currently. Trusts which allow the application of both principal and income can be managed on a total return basis in any event. In addition, charitable trusts that are private foundations for Federal income tax purposes already have the ability to expend “principal” to the extent provided in [20 Pa.C.S. § 7903]. Accordingly, this provision will provide needed flexibility primarily to those charitable trusts that are not private foundations.103

99 Id. § 8113(b). 100 Id. § 8113(c)(1), (2). 101 Id. § 8113(e). 102 Id. §§ 8113(f), 7903(a)(1); 26 U.S.C. § 4942. 103 20 Pa.C.S. § 8113 cmt. (Joint State Gov’t Comm’n 2001).

[J-55-2023] - 32 Although the Foundation argues that the PFR deny the Wells Trust “‘needed

flexibility’ derived from access to the investment management framework set forth in

[Section 8113],”104 it is not clear that the Wells Trust is barred from making an election

under Section 8113. Section 8113(a) facially permits a trustee of a private foundation to

elect to be governed by Section 8113. For charitable organizations defined under

Chapter 79, the provisions of Chapter 79 supersede the effect of an election under

Section 8113 only “if necessary to comply with the minimum investment return

requirements.”105 Chapter 79 defines charitable organizations to include private

foundations subject to the PFR.106 The trust document governing a private foundation “is

deemed to include provisions” conforming to the PFR.107 For private foundations such as

the Wells Trust, therefore, the trust document is deemed to include the distributions

required to satisfy the PFR, and the PFR will supersede the effect of an election under

Section 8113 to the extent necessary to comply with the PFR’s mandatory five percent

distribution.

According to the Commonwealth as the public supervisor of charitable trusts, if the

total returns election would result in an annual distribution that was lower than the five

percent required by the PFR, then the PFR would supersede the election under Section

8113. If the total returns election under Section 8113 would result in distribution higher

than the five percent required by the PFR, then the PFR would not supersede the election

104 Foundation’s Br. at 48 (quoting 20 Pa.C.S. § 8113 cmt. (Joint State Gov’t Comm’n 2001)). 105 20 Pa.C.S. § 8113(f). 106 Id. § 7902. 107 Id. § 7903(a)(1) (“The governing instrument of a charitable organization is deemed to include provisions, the effects of which are to: (1) Require distributions for each taxable year in such amounts and at such times and in such manner as not to subject the organization to [penalties under the PFR].”).

[J-55-2023] - 33 under Section 8113. It is not as apparent, as the Foundation asserts, that an election

under Section 8113 is unavailable to the Wells Trust.

The Foundation also argues that the PFR deny the flexibility afforded in Section

8113 to vary the annual distributions between two and seven percent and to average the

value of the trust over the prior three years. Again, this is true only if the total returns

under Section 8113 are less than those mandated by the PFR. If the total returns exceed

those mandated by the PFR, then the increased distributions would not burden the Trust,

but would benefit it.

The Foundation believes that the PFR pose a risk to the Wells Trust’s ability to

maintain the “real value” of the principal because they deprive the Trust of the definition

of “income” provided in Section 8113(c)(1).108 Under Section 4942(e)(1) of the PFR, the

annual distribution is derived from the trust’s fair market value.109 Under Section 8113,

the trust’s “income” is defined as a percentage of the fair market value of the trust.110

Although the Foundation’s position in this regard is not entirely clear, it appears that the

Foundation views the PFR as a burden because they permit the principal to be invaded

to meet the five percent annual distribution requirement. However, the election permitted

by Section 8113 also requires the annual distribution of income that is defined to include

108 See Foundation’s Br. at 51 (“The arbitrary 5% distribution requirement of the Private Foundation Rules under the Internal Revenue Code poses a risk to the Wells Trust’s ability to maintain the ‘real value’ of the principal of the Wells Trust, contrary to the Total Return Statute.”). 109 26 U.S.C. § 4942(e)(1) (providing that “the minimum investment return for any private foundation for any taxable year is 5 percent of the excess of (A) the aggregate fair market value of all assets of the foundation other than those which are used (or held for use) directly in carrying out the foundation’s exempt purpose, over (B) the acquisition indebtedness with respect to such assets”). 110 20 Pa.C.S. § 8113(c)(1).

[J-55-2023] - 34 the principal.111 Because the PFR and Section 8113 both require income to be

determined in terms of the total value of the trust, Section 8113 offers no relative

protection of the “real value” of the principal. The flexibility afforded by Section 8113 to

derive a return from the appreciation of capital or earnings already has been

accomplished by the PFR. The Joint Statement accompanying the enactment of Section

8113 explained that Section 8113 would only apply to charitable trusts that are not private

foundations because “charitable trusts that are private foundations for Federal income tax

purposes already have the ability to expend ‘principal’” as income.112

Even if the Foundation was correct that the application of the PFR limits investment

flexibility, this would hardly be an irrational or excessive burden to consider under Section

7740.3(e). The total returns distribution rate under the Foundation’s endowment is less

than the mandatory five percent required by the PFR, highlighting why Congress sought

to impose the mandatory distribution as part of the Tax Reform Act of 1969.113 Congress

sought to force donated funds into the charitable stream more quickly by requiring all

private foundations to distribute their income annually in amounts at least equal to a

specified percentage.114 The mandatory five percent distribution has become the

standard spending rate for private foundations. By contrast, public charities sometimes

111 Compare id. (“If an election is made to be governed by this section, the term ‘income’ shall mean a percentage of the value of the trust.”), with 26 U.S.C. § 4942(e)(1)(A) (providing that the “minimum investment return for any private foundation for any taxable year is 5 percent” of the “aggregate fair market value of all assets of the foundation”). 112 20 Pa.C.S. § 8113 cmt. (Joint State Gov’t Comm’n 2001). 113 See Foundation’s Motion for Summary Judgment at 8 (stating that the Foundation’s distribution rate is 4.6% of the endowment’s total value). 114 See Fishman, The Private Foundation Rules, 17 Pitt. Tax. Rev. at 259.

[J-55-2023] - 35 “hoard money at the expense of the beneficiaries of their charitable mission.”115 The

Foundation’s sizeable endowment and distribution rate is in line with “immense billion-

dollar endowments at some colleges and universities that have average spend rates of

4.6 percent, a figure below the private foundation mandate.”116 The PFR require a higher

distribution to the Foundation than the Foundation requires of itself.

Because the PFR ensure a steady distribution rate of five percent, we agree with

PNC and the Commonwealth that they provide a benefit, not a burden, to the Foundation.

Regardless of whether PNC makes an election under Section 8113, the distributions

required by application of the PFR are not unreasonable burdens. If the Foundation

believes that the mandatory distributions will degrade the long-term value of the Trust,

then the Foundation is free to remedy this degradation through its own savings and

investment strategy. In particular, to the extent that application of the PFR results in

greater distributions to the Foundation, the Foundation is free to save and invest the

difference as it chooses. The Wells Trust provided unrestricted distributions, leaving the

Foundation free to spend its annual distribution or to add the surplus to its endowment

and to invest the money accordingly. Because the PFR’s mandatory distribution benefits

the Foundation, it is not something to be considered on the “administrative expense or

other burden” side of the scale.

The Foundation has conceded the reasonableness of PNC’s fees and does not

challenge these fees as a basis for termination on appeal.117 Notwithstanding this

115 Id. at 285-86. 116 Id. at 286. 117 See Foundation’s Br. at 14 (conceding that the Foundation is not challenging PNC’s fees on appeal and that these fees would not be enough to warrant termination); id. at 26 (stating that PNC’s fees are no longer at issue); id. at 39 (stating that PNC’s fees are “not a basis for the [Foundation’s] claim”).

[J-55-2023] - 36 concession, the Foundation includes in its calculation of burdens that would be avoided

with termination the $13,450 that the Wells Trust annually spends in management and

custodial fees.

Trusts carry with them inherent costs and administrative burdens, most notably

fees that are paid from the trust to the trustee. Wells accounted for the costs of trust

administration by providing “reasonable” compensation to the corporate trustee.118

“Compensation at levels that arise in a competitive market [is] presumed to be reasonable

in the absence of compelling evidence to the contrary.”119 The Foundation has conceded

that PNC’s fees are reasonable and represent market rates, indicating that the fees are

not out of proportion to the benefits the Trust provides. The Foundation has not argued

that PNC is violating any fiduciary duty relating to the Trust. The trustee’s fees are

inherent to Wells’ chosen method of distribution through a perpetual charitable trust. We

cannot conclude that the trustee’s fees are disproportionate to any charitable benefit

when those fees are an inherent part of the operation of the trust as explicitly directed by

Wells.120 PNC’s reasonable fees are not part of the weighing required by Section

7740.3(e) because reasonable fees cannot be unreasonably disproportionate.

By the Foundation’s own calculations, the administrative expenses and burdens

imposed upon the Wells Trust through the PFR is about $4,325 annually, which is the

approximate amount of the annual excise tax. Although the Foundation speaks broadly

118 Amendment to Revocable Trust Agreement, 7/7/1965, at 6, Article I.C.3; R.R. at 38a. 119 20 Pa.C.S. § 7768(d). 120 See Church of Little Flower v. U.S. Bank, 979 N.E.2d 106, 112 (Ill. App. 2012) (Where the trustee’s fees exceeded the distributions to two of three beneficiaries, termination was not appropriate because the trustee’s fees were not “unanticipated or unintended,” but were “brought about by the operation of the trust pursuant to [the settlor’s] express instructions.”).

[J-55-2023] - 37 of the “totality of the combined, deleterious impact on maximizing the Wells Trust’s

charitable purposes” that the PFR impose,121 the Foundation has not quantified any other

expense or burden in which the separate existence of the Trust results. We turn now to

the Trust’s charitable benefits.

The benefit side of the analysis considers the charitable benefits that result from

the separate existence of the trust.122 A charitable purpose “may be applied to almost

anything that tends to promote the well-doing and well-being of social men where neither

law nor public policy forbids.”123 The UTA provides that “[a] charitable trust may be

created for the relief of poverty, the advancement of education or religion, the promotion

of health, governmental or municipal purposes or other purposes the achievement of

which is beneficial to the community.”124 The Wells Trust was created for the purpose of

supporting higher education at Wells’ alma mater through its endowment via the

Foundation.

Trusts may achieve charitable benefits in terms of the distributions that are paid to

beneficiaries. A charitable trust that extends in perpetuity provides a long-term, ongoing

benefit to the beneficiary—a benefit that results from the separate existence of the trust

and that would be unavailable with an outright gift. If VMI were to close its doors, then

the trustee could invoke Section 7740.3(a) to save the trust, seeking to invoke cy pres “to

fulfill as nearly as possible” Well’s “charitable intention.”125 A transfer of assets to the

beneficiary would provide no such protection.

121 Foundation’s Reply Br. at 24. 122 See 20 Pa.C.S. § 7740.3(e). 123 In re Thompson’s Estate, 127 A. 446, 448 (Pa. 1925) (internal citation omitted). 124 20 Pa.C.S. § 7735(a). 125 Id. § 7740.3(a).

[J-55-2023] - 38 From 2010 through 2020, the Foundation received $639,314 in distributions.

During this time, the value of the trust principal increased by forty percent, from $1.5

million to more than $2.1 million. Between 2017 and 2019, the Foundation received an

average annual distribution of $71,500, nearly six times the amount paid by the Trust in

fees and taxes. The size of the trust indicates that it ought to be self-sustaining and

productive for many years to come. The charitable benefits to the Foundation are

substantial.126

Whether the burdens are unreasonably out of proportion to the charitable benefits

or whether to terminate the trust in the face of such disproportion are both questions

vested in the sound discretion of the orphans’ court. The high standard imposed for

judicial termination is fact-intensive. It requires a robust assessment of benefits and

burdens and the exercise of considered judgment to ascertain whether the burdens are

unreasonably excessive in light of the charitable benefits the trust provides.

Even if the Foundation demonstrated as a factual matter that there were burdens

created by the separate existence of the Wells Trust that are unreasonably out of

proportion to the charitable benefit, the General Assembly vested the orphans’ court with

the discretion not to terminate the Trust.127 When the General Assembly has used the

terms “shall” and “may” in the same section of a statute, it indicates its intent to treat some

actions as mandatory and some actions as discretionary.128 In Section 7740.3(a)(3) the

126 We reject the Foundation’s argument that the unreasonably out of proportion standard requires the trust’s expenses and burdens to be weighed against whether those individual expenses or burdens provide any charitable benefits. This is not what Section 7740.3(e) requires. The statute is not concerned with whether the burdens themselves confer any benefits. Rather, the standard looks at the expenses and burdens together and weighs them against the charitable benefits provided by the “separate existence of the trust.” Id. § 7740.3(e). 127 Id. (providing that “the court may . . . terminate the trust”). 128 Lorino v. Workers’ Comp. Appeal Bd., 266 A.3d 487, 493 (Pa. 2021).

[J-55-2023] - 39 General Assembly directed that the court “shall” apply cy pres under certain

circumstances.129 By contrast, Subsections (c), (d), and (e) describe the circumstances

under which a court “may” modify or terminate a trust.130 This design indicates legislative

intent to make termination permissive, not mandatory.131 Reading Section 7740.3(e) in

the context of the rest of Section 7740.3 demonstrates that this provision permits but does

not require termination under the circumstances described therein.

The orphans’ court’s exercise of discretion will be evaluated under the abuse of

discretion standard in light of the record. “An abuse of discretion may not be found merely

because an appellate court might have reached a different conclusion, but requires a

result of manifest unreasonableness, or partiality, prejudice, bias, or ill-will, or such lack

of support so as to be clearly erroneous.”132

The Concurring and Dissenting Opinion would remand for further proceedings in

order to permit the orphans’ court to exercise the discretion afforded by Section 7740.3(e).

A remand is not necessary, because the orphans’ court already exercised this discretion.

That court determined that neither the charitable benefits nor the burdens warranted

judicial termination. The orphans’ court found nothing about PNC’s fees to be

unreasonable and found that the Trust was not burdened by confusion, complexity, or

129 20 Pa.C.S. § 7740.3(a)(3). 130 Id. § 7740.3(c) (“A court may modify an administrative provision of a charitable trust to the extent necessary to preserve the trust.”); id. § 7740.3(d) (“A trust solely for charitable purposes having assets of less than $100,000 may be terminated . . . .”); id. § 7740.3(e) (providing the circumstances under which the court “may” terminate a trust). 131 See Zimmerman v. O’Bannon, 442 A.2d 674, 678 (Pa. 1982) (“With such a scrupulous use of the terms ‘may’ and ‘shall,’ in the very subsection in question, it is clear that the inclusion of ‘shall’ when referring to the obligation of the court to grant the requested stay was intended to convey the lack of the court’s discretion in that decision.”). 132 Grady v. Frito-Lay, Inc., 839 A.2d 1038, 1046 (Pa. 2003).

[J-55-2023] - 40 contradiction.133 Weighing the burdens and benefits, the orphans’ court held that the

Trust’s fees and expenses were not unreasonably out of proportion to the charitable

benefit.134 The record demonstrates compellingly that the Trust’s expenses and burdens

are not unreasonably out of proportion to the charitable benefits by any measure, and

that the orphans’ court did not abuse its discretion.

The approximately $4,325 that the Wells Trust will pay out annually in excise taxes

is weighed against the charitable benefit of approximately $71,500 in annual distributions

to the Foundation, as well as the likelihood that the value of the Trust will continue to

increase under PNC’s management and to provide long-term distributions. Consideration

of PNC’s reasonable compensation does not change this analysis, because reasonable

fees are not irrationally excessive when compared to the charitable benefits. Individually

or in the aggregate, none of the modest burdens imposed because of the Trust’s status

as a private foundation are unreasonably out of proportion to the charitable benefit.

Because the Foundation did not meet its burden, there was no basis under Section

7740.3(e) for the orphans’ court to set aside Wells’ intent to continue the Trust or for this

court to intrude upon the orphans’ court’s exercise of discretion in this regard.

The General Assembly has considered the circumstances warranting judicial

termination of a charitable trust and has not determined that termination is warranted

simply because it is to the advantage of beneficiaries. The predecessor of Section 7740.3

was Section 6110. Section 6110(b) authorized the administrative termination of small

charitable trusts with assets under $10,000, and Section 6110(c) authorized the judicial

133 See Tr. Ct. Op., 9/30/2021, at 7. 134 See Tr. Ct. Op. 12/28/2021 at 2.

[J-55-2023] - 41 termination of trusts in language virtually identical to Section 7740.3(e).135 Subsections

(b) and (c) were added in 1982 “to allow for the termination of trusts where the amount of

the principal or complexity of duties imposed upon the trustee makes continuance of the

trust impractical.”136 The 1982 comment indicates that the administrative expenses and

other burdens that the court is required to weigh against the charitable benefits are those

that are borne by the trustee in administering the trust and that bear upon the complexity

of duties imposed by the trust. There is no indication that the General Assembly was

concerned with whether the beneficiary could achieve more investment flexibility by virtue

of its distinct tax treatment or whether the beneficiary enjoyed a financial relationship with

another corporation that could result in less compensation to the trustee. Termination

was intended to free the trustee of the obligation of meeting complex administrative

expenses and burdens.

135 Section 6110(c) provided: (c) Judicial termination of charitable trusts.--If the separate existence of a trust solely for charitable purposes, whether heretofore or hereafter created, results or will result in administrative expense or other burdens unreasonably out of proportion to the charitable benefits, the court may, upon application of the trustee or any interested person and after notice to the Attorney General, terminate the trust, either at its inception or at any time thereafter, and award the assets outright, free of the trust, to the charitable organizations, if any, designated in the conveyance, or if none, to charitable organizations selected by the court, in either case for such purposes and on such terms as the court may direct to fulfill as nearly as possible the conveyor’s intentions other than any intent to continue the trust, if the court is satisfied that the charitable organizations will properly use or administer the assets. 20 Pa.C.S. § 6110(c) (repealed 2006). 136 20 Pa.C.S. § 6110 (repealed 2006) cmt. (Joint State Gov’t Comm’n 1982) (emphasis added).

[J-55-2023] - 42 Termination “merely because [it] would be more advantageous to the beneficiaries”

is inappropriate.137 The Foundation has not provided precedential support from this

Commonwealth or elsewhere showing that beneficiaries may obtain termination simply

because they believe that they can manage the assets more efficiently. The absence of

precedent supporting the ability of beneficiaries to terminate the trust and to obtain the

assets outright over objection by other interested parties or the Attorney General indicates

that these circumstances are unusual and not those at which Section 7740.3.(e) is

directed. The Foundation’s request is, quite literally, unprecedented.

In one of the few cases invoking judicial termination of a charitable trust, an Illinois

appellate court reversed the trial court’s grant of a beneficiary’s request to terminate a

trust and to distribute assets to the beneficiaries. In Church of Little Flower v. U.S.

Bank,138 a beneficiary, with the consent of the other two beneficiaries and the state’s

Attorney General, sought judicial termination under the doctrine of equitable deviation

due to the trustee’s fees, which the beneficiary alleged were too high in relation to the

distributions, a scenario the beneficiary believed to be the result of the PFR. According

to the court, termination would be warranted only if the trust was “so inefficient that its

continuation would necessarily interfere with the trust’s purpose.”139 That standard was

not met by virtue of the trust’s status as a private foundation. Even if the application of

the PFR was an unforeseen circumstance, the PFR’s mandatory distribution exceeded

137 RESTATEMENT (SECOND) OF TRS., § 167 cmt. b (AM. LAW. INST. 1959); see In re Trust of Mintz, 282 A.2d 295, 301 (Pa. 1971) (citing Section 167 with approval); Appeal of Gannon, 631 A.2d 176, 188 (Pa. Super. 1993) (same); see also Estate of Weeks, 402 A.2d 657, 658 (Pa. 1979) (endorsing the view expressed by the Restatement (2d) of Trusts on the question of whether a trust may be terminated without the consent of the settlor). 138 979 N.E.2d 106 (Ill. App. Ct. 2012). 139 Id. at 113.

[J-55-2023] - 43 the distributions required under the trust without the PFR and operated to the benefit of

the beneficiaries.140

We agree with the Illinois appellate court that it would be “inappropriate” to

terminate a trust because of its status as a private foundation.141 The Foundation offers

no basis to distinguish the Wells Trust from every other private foundation subject to the

PFR, suggesting that every charitable trust would be subject to termination simply

because of its status as a private foundation.

The PFR’s “burdens” have applied to all private foundations since 1969. The

General Assembly is well aware of the PFR and has legislated on this subject matter in

the Charitable Instruments Act.142 If the General Assembly believed these burdens to be

unreasonably out of proportion to charitable benefits and categorically to warrant

termination, it could have authorized the judicial termination of any charitable trust

classified as a private foundation. Other legislatures have done as much.143 Rather than

permit the termination of all private foundation trusts, the General Assembly chose to

enact the fact-specific and high standard of Section 7740.3(e).

The standard of Section 7740.3(e) contrasts with the categorical termination for

small charitable trusts in Section 7740.3(d), which demonstrates the General Assembly’s

140 Id. at 112 (“Under the private foundation rules, the total distributions to the charities from 2006 through 2010 actually exceeded the trust’s income. That is, if not for the operation of [the PFR], plaintiff would have received even less money.”). 141 Id. 142 See 20 Pa.C.S. § 7903(a)(1) (providing that “[t]he governing instrument of a charitable organization is deemed to include provisions” requiring distributions under the PFR). 143 See, e.g., MICH. COMP. LAWS § 14.285 (1971) (providing that “a private foundation trust” may terminate with the consent of the attorney general under certain conditions and without the attorney general’s consent “with consent of a court of competent jurisdiction in an action to which the attorney general is an indispensable party”).

[J-55-2023] - 44 willingness to authorize termination on a categorical basis when it wants to do so. It

follows that Section 7740.3(e) does not authorize termination simply because the Trust is

a private foundation. Being subject to the PFR is not the fulcrum upon which termination

depends.

Contrary to the Foundation’s argument, Schlegel is distinguishable on its facts.

There, the trustee sought termination of a private foundation with the support of the

Attorney General.144 The Schlegel trust had encountered difficulty with fulfilling the trust’s

charitable purpose. That is not the case here, where the Wells Trust is providing

considerable charitable benefits. The unopposed termination ordered in Schlegel does

not support the Foundation’s termination in this case.

We presume that a settlor understands the costs inherent in creating a trust, such

as the costs of an independent trustee and any tax consequences. We know from the

record that Mr. Wells certainly was aware of these expenses, as he directed the payment

of reasonable trustee fees from the Trust. Trusts typically have expenses. It will almost

always be the case that it costs less to give an outright gift than it does to administer a

trust. A gift is made and is done, whereas a trust such as the Wells Trust extends into

perpetuity and requires administration for the duration of its existence. Simply comparing

the expenses involved in a gift versus the expenses involved in administering a trust is

not sufficient to establish the unreasonably disproportionate standard of Section

7740.3(d). Otherwise, all trusts would be subject to termination. Whatever savings may

result from terminating a trust and awarding the assets to the beneficiary outright are not

relevant under Section 7740.3. Although the Foundation believes that it could manage

the trust assets better than PNC has done, it is the trustee, not the beneficiary, who

144 2003 WL 26100147, at *1.

[J-55-2023] - 45 administers the trust. It is the trust document, not the Foundation’s preference, that

controls the terms of the trust.

The General Assembly has accounted for the interest of the settlor in continuing

the trust by enacting a heightened standard for the termination of that trust. The plain

language of the statute protects this intent by ensuring that termination may be permitted

only when the administrative expenses and burdens are unreasonably out of proportion

to the trust’s charitable benefit. To the extent that the Foundation believes termination to

be warranted because Wells never anticipated that the trust would be subject to the PFR,

an examination of what the settlor may have anticipated is another way of addressing

what the settlor may have intended. And, like the consideration of the settlor’s intent to

create a trust, what the settlor anticipated with respect to the trust is not relevant as an

independent consideration under Section 7740.3(e). The General Assembly knows how

to account for unanticipated circumstances and how they relate to trust termination, as it

has authorized the termination of a noncharitable trust due to unanticipated

circumstances.145 The General Assembly decided to exclude unanticipated

circumstances as a basis to terminate charitable trusts.

The Concurring and Dissenting Opinion likewise believes that the issue of whether

“a settlor’s intentions to benefit a beneficiary in a particular manner may have been

affected by unforeseen changes”146 is generally relevant to a determination under Section

7740.3(e). In this case, the Concurring and Dissenting Opinion believes that “a change

in the law after Settlor’s death affecting the Trust in ways he could not anticipate” is one

of several facts that may preclude summary judgment for PNC and the Commonwealth.147

145 20 Pa.C.S. § 7740.2(a). 146 Concurring and Dissenting Op. at 2. 147 Id.

[J-55-2023] - 46 The impact of unforeseen changes or unanticipated circumstances in the law is not

relevant to the termination of charitable trusts, by the design of the General Assembly.

Although Section 412 of the UTC would permit termination of charitable and noncharitable

trusts alike due to “circumstances not anticipated by the settlor,”148 our General Assembly

chose to limit this remedy to noncharitable trusts.149 For charitable trusts, the ability to

account for unanticipated circumstances is limited to the doctrine of cy pres as codified in

Section 7740.3(a). Unforeseen changes are not relevant to judicial termination under

Section 7740.3(e).

The Concurring and Dissenting Opinion further opines that there are specific facts

in this case which, taken in the light most favorable to the Foundation, do not entitle PNC

and the Commonwealth to relief as a matter of law.150 Facts that are implicated under

the plain language of Section 7740.3(e) are those that go to the trust’s burdens and

charitable benefits. Reading the facts of this case in the light most favorable to the

Foundation does not change the analysis required by Section 7740.3(e) and applied

above.

Wells carefully constructed his trust to provide for certain named beneficiaries and

to leave a substantial estate to benefit the Foundation. Wells sought to commemorate

his gift in the honor of his graduating class, and he accounted for an independent

corporate trustee. Absent an impediment that causes the burdens of the trust to grow

unreasonably out of proportion to the charitable benefit, the assets that the Foundation

seeks must continue in trust.

The order of the Superior Court is affirmed.

148 UNIF. TR. CODE § 412(a). 149 Compare 20 Pa.C.S. § 7740.2(a) with id., § 7740.3. 150 Concurring and Dissenting Op. at 2.

[J-55-2023] - 47 Chief Justice Todd and Justices Donohue, Dougherty and Brobson join the

opinion.

Justice Mundy files a concurring and dissenting opinion.

[J-55-2023] - 48