IRREVOCABLE TRUST NOT PROCURED BY FRAUD DUE TO FAILURE TO DISCLOSE EACH ASSET CONTRIBUTED TO TRUST
Irrevocable trust was not procured by fraudulent misrepresentation due to co-settlor’s failure to specifically describe each individual asset being contributed to the trust where identifying the corporation holding the assets was enough to identify the scope of assets. Order of the trial court reversed. Joseph Passarelli appealed from the trial court’s order granting appellee Margaret Passarelli’s petition to terminate an irrevocable trust. Appellee, who was then married to appellant, agreed to join appellant to meet with an estate planning attorney. The attorney had prepared various documents at appellant’s direction, including wills, powers of attorney, and the subject irrevocable trust. The parties met with the attorney to execute the documents. The irrevocable trust included a schedule of assets compiled by appellant to be conveyed to the trust. Appellee was informed by the attorney that the trust would survive dissolution of the parties’ marriage. The trust named the parties as settlors, appellant as trustee, and the parties and their two minor children as beneficiaries.
After executing the trust, appellee learned that appellant had purchased properties in Florida without her knowledge and included them in the corpus of the trust. Appellee also discovered that appellant was having n extra-marital affair, with appellant’s girlfriend living in one of the trust properties, and appellee filed for divorce. Appellee subsequently petitioned to terminate the trust. The trial court granted the petition, finding that appellant concealed the fact that he purchased the Florida properties with the marital assets without appellee’s knowledge. The trial court further found that appellee would not have executed the trust had she known of the properties’ existence. Thus, the court ruled that appellee had proved that the trust was formed by appellant’s fraudulent conduct.
On appeal, appellant challenged whether the trial court’s finding of fraud could be premised upon his failure to identify each asset contributed to the trust, or whether non-disclosure of assets would constitute fraudulent misrepresentation when appellee had no present interest in the assets and instead received benefits from the trust. Appellant further challenged whether appellee could terminate the trust when it conferred upon her a tangible benefit consistent with the parties’ estate planning goals.
The court reversed the decision of the trial court. The court ruled that the trial court erroneously applied a two-part test for fraud that asked whether a testator had no knowledge of concealed or misstated facts and whether the testator would not have made the same bequest with knowledge of the truth. The court noted that the test relied upon by the trial court was based upon a case involving undue influence rather than fraudulent misrepresentation, In any event, the court held that the test improperly eliminated key elements of fraud such as knowledge, justifiable reliance, and injury.
Applying those elements to the present case, the court ruled that appellee failed to prove that appellant, having disclosed the aggregate value of the Florida properties, and also had a duty to disclose the exact nature of each asset. The court held that there was no case law or statute requiring each asset in a trust to be specifically identified by a settlor. Instead, the court held that identifying the corporation that owned the Florida properties was sufficient to describe the assets being contributed to the trust.
References:
Digest of Recent Opinions, Pennsylvania Law Weekly, 42 PLW 37, Tuesday, April, 2019, In re: Passarelli Family Trust, PICS Case No. 19-0425 (pa. Super. March 28, 2019)
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