Wife’s Petition To Terminate Family Irrevocable Trust On Grounds Of Fraud Denied Despite Husband Having A Secret Paramour At The Inception
Voiding of irrevocable trust by settlor for fraudulent inducement had to be based on common law fraud standard.
Wife Margaret Passarelli appealed from the order of the superior court revising the trial court’s order. While wife was undergoing testing for cancer, her husband Joseph Passarelli met with an attorney to discuss estate planning options, including formation of an irrevocable trust. The attorney prepared documents that he forwarded to husband.
Wife and husband later met with the attorney, who presented wife with documents creating an irrevocable family trust and spent the next hour answering wife’s questions about the trust. Wife noted her desire for her and her husband’s assets to remain in the family for their children, in the event wife and husband got divorced and husband remarried and had more children. At the end of the meeting, husband and wife executed the trust documents. The trust named husband as trustee, wife and husband as settlors and their children as additional beneficiaries. As trustee, husband had discretion to distribute trust income to the settlors and their children. The trust would continue following the settlors’ death for the benefit of their children and living issue.
Several months after creating the trust, wife had discovered that husband had been having an affair, with husband’s paramour living in one of wife’s and husband’s properties in Florida. Wife filed for divorce and moved for special relief to prevent dissipation of the trust assets, alleging that husband’s motive in creating the trust was to gain control over marital assets and avoid equal distribution. Wife subsequently filed a petition to terminate the irrevocable family trust, challenging the formation of the trust on grounds of fraud, duress, and undue influence. Wife’s fraud allegation specifically claimed that husband had failed to disclose all marital assets. However, wife later amended her argument to assert fraudulent inducement on the basis that husband failed to disclose all the marital properties in Florida.
Applying the fraud standard for challenging a will set forth in In re Estate of Glover, 669 A.2d 1011, the trial court found that wife had proven fraudulent inducement through clear and convincing evidence, crediting the wife’s allegation that she had no knowledge of the purchase of property in Florida with marital assets. However, the superior court reversed, rejecting the trial court’s reliance on Glover and instead using the common law fraud standard. Under the common law standard, the superior court found that wife had failed to prove a material misrepresentation because there was no requirement under trust law that husband identify individual asset in the res.
On appeal, the court agreed that common law fraud was the appropriate standard for voiding an irrevocable trust on grounds of fraudulent inducement. The court further agreed with the superior court that failure to disclose the specific real properties owned by the companies whose assets were being incorporated into the trust did not constitute a material misrepresentation. The court further noticed that wife had failed to explain how, if the Florida properties were specifically disclosed, it would have prevented her from agreeing to create the trust. The court accordingly affirmed the superior court.
In a concurring and dissenting opinion, Chief Justice Saylor agreeing with the adoption of the common law fraud standard for proving fraud in the inducement of an irrevocable, but argued that wife had satisfied the burden of proof under that standard.
Ref: Digests of Recent Opinions, Pennsylvania Law Weekly, 44 PLW 81, Tuesday January 26, 2021, In re: Passarelli Family Trust, PICS Case No. 21-0064 (Pa. Dec. 22, 2020)
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