In re Passarelli Family Trust

206 A.3d 1188

IN RE: PASSARELLI FAMILY TRUST

Appeal of: Joseph Passarelli

No. 3150 EDA 2016

Superior Court of Pennsylvania.

Argued July 10, 2018

Filed March 28, 2019

Mark R. Ashton, Exton, for appellant.

John F. McKenna, West Chester, for appellee.

Douglas W. Olshin, West Chester, Guardian Ad Litem, for participating party.

BEFORE: GANTMAN, P.J., BENDER, P.J.E., PANELLA, J., SHOGAN, J., LAZARUS, J., STABILE, J., DUBOW, J., NICHOLS, J., and McLAUGHLIN, J.

OPINION BY LAZARUS, J.:

Joseph Passarelli ("Joseph") appeals from the decree, entered in the Orphans' Court Division of the Court of Common Pleas of Chester County, granting the petition of Appellee, Margaret Passarelli ("Margaret"), to terminate an irrevocable trust ("Trust"). Upon careful review, we reverse.

The following facts and procedural history have been adopted from the findings of fact contained in the Decision of the Orphans' Court filed September 16, 2016, as well as our own review of the record. Joseph and Margaret Passarelli were married on November 27, 1998, and have two minor children.¹ In the Spring of 2015, Margaret agreed with Joseph to meet with an attorney, Michael Perna, Esquire, to discuss estate planning. Margaret was unaware that Joseph had previously met with Attorney Perna and only learned of their pre-existing relationship shortly before the execution of the estate planning documents. During this time period, Margaret was facing a possible cancer diagnosis and was emotionally upset.

Attorney Perna prepared various documents, including powers of attorney and wills, as well as the Trust, at Joseph's direction. On May 21, 2015, Margaret and Joseph met with Attorney Perna to execute the documents. The irrevocable trust agreement included a schedule of assets, compiled by Joseph, to be conveyed to the Trust. The schedule included two property companies known as Japen Holdings, LLC, and Japen Properties, LLP (collectively, "Japen").² See Trust, 5/21/15, Schedule A. Prior to execution, Margaret did not ask about the inventory of assets, nor did she read the trust documents. Margaret did, however, inquire as to the disposition of trust assets in the event of divorce and was informed by Attorney Perna that the Trust would survive a dissolution of the couple's marriage.

The Trust named Joseph and Margaret as Settlors and Joseph as Trustee. The document named Settlors and their two minor children as discretionary income beneficiaries during the lifetime of the Settlors. The Trust also authorized discretionary distributions of principal to Settlors and/or their children for support, health, comfortable maintenance, education, and general welfare. The Trust further provided that, at the death of Settlors, the Trust would continue for the benefit of the children and their living issue.

Sometime after executing the Trust, Margaret discovered that Joseph, through Japen, had purchased two properties in Florida (the "Properties") without her knowledge and had included these properties in the corpus of the trust, via Japen. In September 2015, Margaret discovered Joseph was having an extra-marital affair and filed for divorce. She also discovered that Joseph's girlfriend was living in one of the Properties. In October 2015, Margaret filed, in the divorce action, an emergency petition for special relief to prevent dissipation of marital assets. In December 2015, the divorce court froze fifty percent of certain accounts included in the corpus of the trust.

On January 19, 2016, Margaret filed, in the Orphans' Court, a petition to terminate the Trust pursuant to 20 Pa.C.S.A. §§ 7736 and 7740.6. The court held an evidentiary hearing and subsequently issued findings of fact and conclusions of law. The court found that Joseph had concealed the fact that he purchased the Properties with marital assets and had failed to disclose that fact at the time of the Trust's execution. The court further found that Margaret would not have agreed to execute the Trust had she known about the existence of the Properties. As a result, the court concluded that Margaret had met her burden of proving fraudulent conduct by Joseph and dissolved the Trust.

Joseph timely appealed and a divided three-judge panel of this Court reversed. On November 29, 2017, Margaret filed an application for reargument en banc, which this Court granted on January 12, 2018. Joseph raises the following questions for our review:

1. Whether a finding of fraud may be premised upon a failure to identify each asset contributed to a trust?

2. Whether non-disclosure of an asset conveyed to a trust can be construed as fraudulent misrepresentation where[:] (a) the complaining party had no present interest in the asset conveyed to [the] trust[;] (b) the asset became part of the trust[;] and (c) the complaining party received a benefit from the asset conveyed to the trust[?]

3. Whether non-disclosure of $ 470,000 of assets conveyed to a trust is material where the assets made part of the trust total $ 14,600,000[?]

4. Whether a trust agreement should be terminated premised upon fraud where the alleged victim professes to have never read the instrument but it conferred upon the alleged victim a tangible benefit consistent with the estate planning goals she sought to achieve?

Substituted Brief of Appellant, at 3-4.

Joseph first asserts that the Orphans' Court erred in finding Margaret proved Joseph fraudulently induced her to execute the trust agreement because he failed to disclose the existence of the Properties. The Orphans' Court found that Joseph concealed the fact that he was having a long-term extra-marital affair and had used marital assets to purchase and maintain a Florida home for his girlfriend. The court concluded that Margaret would not have executed the trust if she had been aware of those facts. Joseph argues that trust law imposes no duty to disclose each and every asset contributed to a trust and that Margaret failed to establish the requisite elements of fraud. For the following reasons, we agree.

"A trust arises when, by a sufficient declaration of its terms, the three following elements concur: sufficient words to create it, a definite subject matter, and a certain or ascertained object." Pugh v. Gaines , 156 Pa.Super. 613, 41 A.2d 287, 288 (1945).

Generally, a trust executed without reservation of power by a settlor to revoke or reform the trust is irrevocable. See Harding v. Harding , 305 Pa. 572, 158 A. 253 ( [Pa.] 1932). An irrevocable trust may be rescinded by the settlor, however, if it is demonstrated that the trust was created through fraud, duress, undue influence, or mistake. Id.

Rebidas v. Murasko , 450 Pa.Super. 546, 677 A.2d 331, 333 (1996). The evidence required to substantiate a request for rescission must be clear, precise, and convincing. In re Trust Estate of LaRocca , 411 Pa. 633, 192 A.2d 409, 412 (1963). The credibility and weight accorded to the testimony and witnesses will not be disturbed except for clear error. Id. at 413, citing Harbison Estate , 365 Pa. 468, 76 A.2d 187 (1950). Where the rules of law on which the Orphans' Court relied are palpably wrong or clearly inapplicable, we will reverse the court's decree. In re Estate of Zeevering , 78 A.3d 1106, 1108 (Pa. Super. 2013).

Here, Margaret sought rescission of the Trust on the basis that its creation was fraudulently induced by Joseph because he failed to include the Properties in Schedule A.³ In reaching its decision to rescind the Trust, the Orphans' Court adopted the definition of fraud applied by this Court in In re Estate of Glover , 447 Pa.Super. 509, 669 A.2d 1011 (1996). The Orphans' Court characterized this definition as requiring proof that: (1) the testator had no knowledge of the concealed or misstated fact, and (2) the testator would not have made the same bequest had she known the truth. See Orphans' Court Decision, 9/16/16, at 4. Applying this standard to the evidence presented in the instant matter, the Orphans' Court concluded as follows:

[Margaret] testified credibly that she had no knowledge of the purchase of the [Properties] with marital assets on May 1, 2015. [Joseph] admitted that at the relevant time, the date [Margaret] executed the Trust, [Margaret] had no knowledge of his purchase of the [Properties].

[Joseph] suppressed the existence of the [Properties] to [Margaret]; the list of real property identified on Schedule A omits these properties as well. [Margaret], however, understood the Trust to encompass all of their marital property at the time. By failing to disclose the information [to] [Margaret,] she did not, and could not[,] know[ ] exactly what assets or issues were really on the table as part of the transaction.

[Joseph's] failure to disclose the purchase, and existence, of the [Properties] was an act of fraud intended to induce [Margaret] to execute the Trust document he wanted and created. Whether one labels his action a suppression of the truth or a suggestion of what is false by silence, the result is the same—the fraudulent inducement of [Margaret] to execute the Trust. As the Supreme Court has explained, "[t]he concealment of a material fact can amount to culpable misrepresentation no less than does an intentional false statement." Moser v. DeSetta , [527 Pa. 157, 589 A.2d 679, 682 (Pa. 1991) ].

Orphans' Court Decision, 9/16/16, at 5-6.

We find the court's application of the two-part test for fraud set forth in Glover to be misplaced. As Glover 's definition of fraud is grounded in the Supreme Court's decision in In re Paul's Estate , 407 Pa. 30, 180 A.2d 254 (1962), a review of each case is in order.

Paul , a 1962 decision of our Supreme Court, involved an appeal from probate by residuary legatees, who alleged that the scrivener of the testatrix's will, also a beneficiary thereunder, had exerted undue influence upon the testatrix. See id. , 180 A.2d at 256 ("The sole issue in the court below was whether [scrivener] had exerted undue influence upon the testatrix[.]"). The legatees contended that the...