The Superior Court of Pennsylvania affirmed an orphans’ court decision denying the appellants’ petition to terminate an irrevocable trust. In re Peterson Family Irrevocable Trust, No. 772 WDA 2024, 2025 Pa. Super. 60 (Pa. Super. Ct. Mar. 13, 2025).
In April 2011, Don and Marjorie Peterson (the Petersons) established the Peterson Family Irrevocable Trust (the trust). The Petersons’ daughter was the trustee, and their grandchildren were the beneficiaries. The Petersons’ personal residence was the only asset held in the trust. In January 2024, the Petersons filed a petition to terminate the trust, but their granddaughter, a named beneficiary, contested its termination. After a hearing, the orphans’ court denied the Petersons’ petition to terminate the trust.
On appeal, in a case of first impression, the Pennsylvania Superior Court addressed whether the Petersons’ mistaken belief when they created the trust that it would preclude their residence from being considered for Medicaid eligibility and used to satisfy Medicaid healthcare claims was an “unanticipated circumstance” under Pennsylvania’s Uniform Trust Act, 20 Pa. Stat. and Cons. Stat. Ann § 7740.2(a), which would permit the orphans’ court to terminate the trust. In its de novo review, the court stated that a plain reading of section 7740.2(a) revealed that the orphans’ court may terminate a trust if, due to unanticipated circumstances, termination would further the purposes of the trust. The court noted substantial precedent establishing that the intent of a trust’s settlor, as set forth in the language of the trust instrument, must prevail.
The Petersons asserted that their intent in creating the trust was to shield their personal residence from being considered in determining Medicaid eligibility and anticipated claims for long-term care and for it to pass to their grandchildren at their death. However, when their home was transferred to the trust and distributions were made to their estate, the residence became a countable asset for Medicaid purposes. Therefore, the trust’s purpose could not be fulfilled because, under the trust’s terms, their residence was a countable asset impacting their eligibility for Medicaid and subject to future healthcare claims under Medicaid.
The court found that the plain language of the trust agreement demonstrated the Petersons’ intention to create a trust that would provide income and support for their healthcare needs and protect their assets from creditors. Although the trust’s language did not explicitly provide that it was intended to shield the trust assets from Medicaid claims, it did specifically state that it was intended to protect the trust assets from claims arising from the Petersons’ debts or obligations, which would include claims for healthcare services provided by Medicaid.
The court agreed with the Petersons’ assertion that their personal residence may have been exempt from claims asserted under Medicaid if it had remained titled in their names instead of being held by the trust, and that due to the transfer of ownership to the trust, the residence was a countable asset if one or both of them applied for Medicaid and was no longer protected from healthcare claims made under Medicaid. However, the court determined that the Petersons’ misunderstanding of the legal consequences of the trust at the time of its creation was a mistake of law rather than “unanticipated circumstances”—i.e., unforeseen facts about the future—that would permit the court to terminate the trust under section 7740.2(a). Accordingly, the court affirmed the orphans’ court order denying the Petersons’ petition to terminate the trust.
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