In Re: Passarelli Family Trust (majority)Annotate this Case
In this discretionary appeal, the Pennsylvania Supreme Court was asked to determine the burden of proof for a settlor of an irrevocable trust in order to void the trust on grounds of fraudulent inducement in the creation of the trust. The corpus of the Trust at issue here consisted of numerous assets totaling approximately $13 million, including two real estate property companies called Japen Holdings, LLC, and Japen Properties, LLP (collectively “Japen”). Although acquired during the marriage, Japen was owned 100% by Husband. Unbeknownst to Wife, among Japen’s assets were two residential properties in Florida. When presented with the Trust inventory of assets, Wife did not question its contents, which included Japen, but not a listing of its specific holdings, e.g., the Florida Properties. Approximately four months after the creation of the Trust, Wife discovered that Husband had been having an affair and that his paramour was living in one of the Florida Properties. Wife promptly filed for divorce. A month after that, she filed an emergency petition for special relief to prevent dissipation of the marital assets, including assets in the Trust. Wife argued that Husband’s motive in creating the Trust was to gain control over the marital assets and avoid equitable distribution. A family court judge accepted Wife’s argument by freezing certain accounts included in the Trust and directing Husband to collect rent from his paramour. The Supreme Court held that a settlor averring fraud in the inducement of an irrevocable trust had to prove by clear and convincing evidence the elements of common-law fraud. In doing so, the Court rejected the analysis set forth in In re Estate of Glover, 669 A.2d 1011 (Pa. Super. 1996), because it represented an inaccurate statement of the elements required to establish fraud in the inducement. The Court affirmed the Superior Court’s ruling that the complaining settlor did not prove fraud in the inducement.