PA. SUPREME COURT AGREES TO DECIDE WHETHER THE FAILURE TO DISCLOSE EVERY ASSSET CONTRIBUTED TO THE TRUST CONSTITUTES FRAUD TO INVALIDATE TRUST

• Monday, September 30, 2019
• Category: Wills, Trusts and Estate Litigation

Does the failure of one settlor of a trust to disclose to another each and every asset of a corporate entity being contributed to the trust constitute fraud? And should irrevocable trusts be subject to a stricter standard than wills for finding that fraud occurred?

The Pennsylvania Supreme Court is poised to answer questions in a case in which a woman is seeking to invalidate an irrevocable trust after discovering that its assets included two Florida properties her then-husband has purchased without her knowledge and that his girlfriend was living in one of them.

In In re Passarelli Family Trust, the Superior Court en banc unanimously reversed a Chester County Orphans’ Court ruling that had granted Margaret Passarelli’s petition to terminate the trust based on a finding of fraudulent misrepresentation by her now ex-husband Joseph Passarelli, who is also the trustee. The trust named Margaret and Joseph Passarelli as beneficiaries, along with their two minor children.

While the Orphans’ Court found that Margaret Passarelli would not have agreed to execute the trust if she had known about Joseph Passarelli’s extramarital affair and the two properties he purchased without her consent, the Superior Court said there was no proof that a misrepresentation was made.

Joseph Passrelli had purchased the two Florida properties through two companies known as Japen Holdings and Japen Properties (referred to collectively in the complaints as Japen), according to the Superior Court March 28 opinion, penned by Judge Anna E Lazarus. Because Japen and its aggregate valuation were included in the trust’s schedule of assets, that constituted a sufficient disclosure, Lazarus said.

“Here, Japen and its total value were identified in Schedule ‘A’ to the trust,” Lazarus said. “The description provided was sufficient to describe and identify the particular asset contributed to the trust. Indeed, it would be patently absurd to require that each and every asset of a corporate entity be identified upon the entity’s contribution to a trust in order to constitute a valid transfer. A corporation is, itself, an identifiable asset and can be sufficiently described by its corporate name.”

Reference: Zack Needles, Of The Law Weekly, Pennsylvania Law Weekly, 42 PLW 899, September 24, 2019, In Re Passarelli Family trust.

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