In PA, a Name is Enough: No Need to Identify Corporate Assets To Make Valid Transfer to Trust

In re Passarelli Family Trust, 206 A.3d 1188 (PA Super 2019)

The Superior Court of Pennsylvania reversed a decree entered in the Orphans’ Court Division of the Court of Common Pleas of Chester County granting the petition of Margaret Passarelli to terminate an irrevocable trust (the “Trust”).

Joseph and Margaret Passarelli were married on November 27, 1998 and had two children. In the spring of 2015, at the behest of her husband Joseph, Margaret agreed to meet with an attorney to discuss estate planning.  Margaret was unaware that Joseph had previously met with that attorney and only learned of their pre-existing relationship shortly before the execution of estate planning documents.

On May 21, 2015, Margaret and Joseph met with the attorney to execute documents. The Trust included a Schedule of Assets (“Schedule”), 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 referred to herein as “Japen”).

Before execution, Margaret did not ask about the Schedule, nor did she read the Trust documents.

Sometime after executing the Trust, Margaret discovered that Joseph had purchased two properties in Florida, through Japen, without her knowledge, and included those properties in the corpus of the Trust.

In September of 2015, Margaret discovered that Joseph was having an extramarital affair and filed for divorce.  She also discovered that Joseph’s girlfriend was living in one of the Florida properties.

On January 19, 2016, Margaret filed an Orphans’ Court petition to terminate the Trust pursuant to 20 Pa. C.S.A. §§7736 and 7740.6, alleging that Joseph had committed fraud by concealing the purchase of the Florida properties owned by Japen and that, had Joseph disclosed that information regarding Japen’s assets, she would not have executed the Trust.

The Orphans’ 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 failed to disclose it at the time of 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, Margaret had met her burden of proving fraudulent conduct by Joseph.  The Court dissolved the Trust.

Joseph filed an appeal and the Superior Court, in an opinion by Judge Lazarus, reversed.

The Superior Court concluded that the Orphans’ Court had incorrectly applied the elements of fraud in relying on In re Estate of Glover, 447 Pa.Super. 509, 669 A.2d 1011 (1996) and In re Paul’s Estate, 407 Pa. 30, 180 A.2d 254 (1962). Glover and Paul involved will contests, which were deemed distinguishable from the irrevocable trust at issue.  The Court found that a stricter standard should apply since an irrevocable trust is an immediate and final transfer of ownership that is not usually modified or rescinded.

Instead, the Superior Court relied on Eigen v. Textron Lycoming Reciprocating Engine Div., 2005 PA Super 141, 874 A.2d 1179 (2005) and the common law elements of fraud.  To establish fraud or inducement, a party must demonstrate:

(1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) the resulting injury was proximately caused by the reliance.

Id. at 1195.

The Superior Court acknowledged that a misrepresentation need not be a positive assertion; it can be “any artifice by which a person is deceived to his disadvantage” and may be “false or misleading allegations or by concealment of which should have been disclosed.” Id.

In the instant case, the Superior Court held that,

Margaret has failed to demonstrate that Joseph, having disclosed Japen and its aggregate valuation, also had a duty to disclose each and every asset owned by Japen. Margaret cites to nothing in the law of trusts—and our research has disclosed nothing—requiring that each and every asset composing the res of a trust be specifically identified by a settlor.  While a trust is invalid unless the subject matter is definite or definitely ascertainable, trust property need not be segregated, designated or specifically described; a valid trust is created where the identity of the res is clear and the description sufficient.

Id. at 1196.

The Court went further, stating that that “it would be patently absurd to require that each and every asset of a corporate entity be identified upon in a contribution to a trust in order to constitute a valid transfer.” Id. Instead, the corporation is, itself, is an identifiable asset, which is sufficiently described by its corporate name.