Wednesday, December 30, 2020
Pennsylvania Supreme Court: Settlor Must Prove Elements Of Common Law Fraud to Void Irrevocable Trust Based On Fraudulent Inducement
In In Re Passarelli Family Trust, the Pennsylvania Supreme Court held that "an irrevocable trust based on fraudulent inducement pursuant to 20 Pa.C.S. § 7736, a challenging settlor must prove the elements of common-law fraud by clear and convincing evidence."
Margaret and Joseph Passarelli had two children. In 2015, Joseph met with an attorney (Perna) to begin the estate planning process. In the same year Joseph and Margaret met with Perna to continues estate planning discussions that ended with the couple creating the Passarelli Family Trust. Margaret wanted to make sure that the assets accumulated during their marriage stayed in the family. In the event of Joseph ever being remarried, Margaret wanted to ensure that the assets remained with the children from their marriage.
The Trust contained assets that totaled to an estimated $13 million, which included two real estate property companies, Japen Holdings, LLC, and Japen Properties, LLP. Included in Japen's assets were two Florida properties, which Margaret did not know about. Although Japen was in the inventory of assets, the properties were not listed.
After the Trust was created, Margaret discovered that Joseph had been involved in an affair and his "paramour" was living in one of the Florida properties. Margaret then attempted to terminate the irrevocable trust, mainly claiming fraudulent inducement. Margaret claimed that she was fraudulently induced to create the trust when Joseph did not disclose the Florida properties.
In orphan's court, the court found that Margaret had proven fraudulent inducement by clear and convincing evidence, but the Superior Court reversed holding that Margaret failed to meet her burden.
The Pennsylvania Supreme Court held that a settlor must show the elements of common law fraud by clear and convincing evidence in order to prove fraudulent inducement and ultimately held that non-disclosure of the properties did not provide a basis for voiding an otherwise valid trust agreement.
See Pennsylvania Supreme Court: Settlor Must Prove Elements Of Common Law Fraud to Void Irrevocable Trust Based On Fraudulent Inducement, Probate Stars, December 28, 2020.