The trial court abused its discretion in finding that the creation of an irrevocable trust was premised on fraud because although wife was not aware that husband had bought properties in Florida and included them in the assets of a corporation when she executed the trust, she identified no duty to fully disclose a corporation’s assets when the corporation was added to the trust corpus, there was no divorce pending when the trust was executed and she could not show that she suffered any injury from the “misrepresentation.”

Wife executed an irrevocable trust naming husband as trustee, husband and wife as settlors and their two minor children as additional beneficiaries. The trust provided that the trustee would distribute income to settlors and their children at his discretion. After executing the trust, wife discovered that husband had purchased two properties in Florida without her knowledge and included them in the corpus of that trust as part of the assets of a corporation. She also discovered that husband was having an affair and that husband’s girlfriend was living in one of the Florida properties. She filed for divorce, for an emergency petition to prevent dissipation of marital assets and to terminate the trust pursuant to 20 Pa.C.S. §§7736 and 7740.6. The trial court found that husband had concealed the fact that he had purchased the Florida properties with marital assets and concluded that wife had met her burden of proving fraudulent conduct and dissolved the trust. Husband appealed.

Husband argued a finding of fraud could not be premised on a failure to identify each asset contributed to a trust and asserted the trust was irrevocable. Wife argued that since the creation of the trust was induced by fraud, it was voidable. The court noted that it did not find the trial court’s reliance on Estate of Newhart, 22 Fid. Rep.2d 383, persuasive since that case involved undue influence in the formation of a will. The court held that the adoption of the elements of fraud as discussed in the Restatement of Trusts and the Restatement of Property and as expressed in case law regarding common law fraud was appropriate in this case. The trial court had concluded that the omission of the addresses of the Florida properties from schedule A was a material fact that fraudulently involved wife to execute the trust. The court noted, however, that schedule A did not identify any corporate assets of either of two corporations included in the trust corpus. The assets of the corporations were included in the trust in their entirety and were valued at more than $4 million. The court applied the six factor test for fraud in the inducement of a trust and found no false statement was made. The corporations were included in the trust, were accurately valued and the Florida properties were included under the holdings of one of the corporations. Wife identified no duty to fully disclose a corporation’s assets when the corporation was added to the corpus of a trust. Additionally, when the trust was executed, no divorce was pending and there was no duty to disclose under the divorce code. Furthermore, wife could not show that she suffered any injury from the “misrepresentations.”

Reference: In Re Passarelli Family Trust, PICS Case No. 17-1815 (Pa. Super. Nov. 16, 2017) Pennsylvania Law Weekly, 40 PLW 1149, December 12, 2017

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