Court Opinion

ID: 4381932
Source: CourtListenerOpinion
Date Created: 2019-03-28 18:35:34.539384+00
Date Added: 2024-06-11T12:04:22.834685
License: Public Domain

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                                   2019 PA Super 95

    IN RE: PASSARELLI FAMILY TRUST             :   IN THE SUPERIOR COURT OF
                                               :        PENNSYLVANIA
                                               :
    APPEAL OF: JOSEPH PASSARELLI               :
                                               :
                                               :
                                               :
                                               :
                                               :   No. 3150 EDA 2016

                 Appeal from the Decree September 19, 2016
      In the Court of Common Pleas of Chester County Orphans' Court at
                             No(s): 1516-0101

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.:                                 FILED MARCH 28, 2019

       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

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1The Passarelli children are represented in this appeal by a guardian ad litem,
who filed a participant’s brief advocating for vacatur of the Orphans’ Court’s
order.
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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

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2These businesses were acquired during the marriage with marital property,
and were titled in Joseph’s name. The businesses were valued at a combined
amount of $4,200,000.00. See Trust, 5/21/15, Schedule “A.”

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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

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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

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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, 41 A.2d 287,

288 (Pa. Super. 1945).

       Generally, a trust executed without reservation of power by a
       settlor to revoke or reform the trust is irrevocable. See Harding
       v. Harding, 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, 677 A.2d 331, 333 (Pa. Super. 1996). The evidence

required to substantiate a request for rescission must be clear, precise, and

convincing. In re Trust Estate of LaRocca, 192 A.2d 409, 412 (Pa. 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, 76 A.2d

187 (Pa. 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 recission 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
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3 In her petition to terminate the trust, Margaret also alleged claims of duress,
undue influence and mistake. She subsequently abandoned those claims in
the Orphans’ Court, which grounded its ruling solely on the issue of fraud.

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Orphans’ Court adopted the definition of fraud applied by this Court in In re

Estate of Glover, 669 A.2d 1011 (Pa. Super. 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, [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

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Supreme Court’s decision in In re Paul’s Estate, 180 A.2d 254 (Pa. 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 scrivener, “occupying a confidential relationship

to testatrix, by the exercise of fraud, misrepresentation and concealment,

unduly influenced the testatrix” to make a bequest of stock to him, by leading

her to believe that the stock was worth substantially less than its actual value.

Id. The Court noted that, as the testatrix suffered from no mental infirmity

but a large part of her estate was left to someone in a confidential relationship

to her, the burden rested with contestants to prove undue influence.4 See id.
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4 We note that this test for undue influence somewhat conflicts with both
earlier and subsequent precedent of the Court addressing this issue. That
standard, employed to this day, requires the application of a three-part test
to determine whether a presumption of undue influence arises. Specifically,
a contestant is required to prove, by clear and convincing evidence, that: (1)
the proponent of the will was in a confidential relationship with the testator;
(2) at or around the time of execution, the testator had a “weakened intellect”;
and (3) the proponent receives a substantial benefit under the will. See
Estate of Clark, 334 A.2d 628 (Pa. 1975). Similarly, earlier cases applied a
nearly identical test. In Boyd v. Boyd, 66 Pa. 283, 293 (1871), the Court
characterized the undue influence inquiry as follows:

       [W]here, . . . an entire stranger—having no claims from lawful
       relationship—, . . . derives a very considerable benefit from the

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at 257.    There being no dispute that the scrivener enjoyed a confidential

relationship with the testatrix and received a large part of her estate, the Court

distilled the legatees’ remaining burden to the following:

       Appellants’ argument requires that four propositions be sustained:
       (a) that the true value of the stock was $800, not $50, per share;
       (b) that [scrivener] knew this true value; (c) that, by fraud and
       misrepresentation, [scrivener] concealed the true value from
       testatrix and lulled her into believing that, on the basis of a $50
       per share value, she was bequeathing [scrivener] less than 3% of
       her estate; (d) that had testatrix known the true value of the . . .
       stock which represented approximately 33% of her gross estate
       she would not have made this bequest.

Id. at 261.

       After examining the record, the Court concluded that the legatees had

established the first three propositions, i.e., that (1) the stock had a value of

approximately $800 per share during the relevant period; (2) the scrivener

was aware of the true value of the stock; and (3) there was, in the record,

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       act, . . . direct proof ought not to be, and is not required. . . .
       General evidence of power exercised over the testator, especially
       if he be of comparatively weak mind from age or bodily infirmity,
       though not to such an extent as to destroy testamentary capacity,
       will be enough to raise a presumption, which ought to be met and
       overcome before such a will can be established. Particularly ought
       this to be the rule when the party to be benefited stands in a
       confidential relation to the testator.

Id. at 293 (emphasis added). Thus, the test employed in Paul, which omitted
any requirement that a contestant demonstrate that the testator suffered from
a weakened intellect, is not in harmony with the law as it existed for nearly
one hundred years prior to the date Paul was issued by the Court, and as it
has existed in the years since.

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evidence that the scrivener provided misinformation to the testatrix as to the

value of the stock. However, the Court ultimately concluded that the legatees

had failed to prove that but for the scrivener’s misrepresentations, the

testatrix would not have bequeathed to him the stock.

       In Glover, this Court purported to apply the teaching of Paul to address

a claim of fraudulent inducement to make a will.       Glover involved a will

contest in which the contestants alleged the testatrix’s will was invalid due to

fraudulent inducement exercised by a friend.5 It was established in the trial

court that the friend, with the assistance of a financial advisor, had

“unscrupulously misappropriated” $1.6 million dollars from the testatrix over

the last few years of her life. In her will, which had been procured by the

friend on testatrix’s behalf from a law firm, testatrix left $50,000 each to the

friend and the financial advisor. Family members challenged the will, which

the trial court upheld.        On appeal, this Court held that the friend had

fraudulently induced testatrix to execute her will.

       The Court began by noting that its “research has indicated that scant

little case law exists in our Commonwealth regarding fraud in the inducement

of executing a will.” Glover, 669 A.2d at 1016. The Court identified Paul as

the sole published opinion within the prior 80 years to address the issue of

fraudulent inducement and cited the following language from that case:

“[T]he court held that ‘there is no evidence that testatrix did not know the
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5 Contestants also raised claims of forgery and undue influence, which were
rejected by this Court.

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true value of this stock and there is no evidence that . . . she would not have

made this bequest had she known of its true value.’” Glover, 669 A.2d at

1016, quoting Paul, 180 A.2d at 262.               From this, the Glover Court

extrapolated that a claim of fraudulent inducement to make a will requires

proof merely that: (1) the testatrix had no knowledge of the concealed or

misstated fact, and (2) the testatrix would not have made the same bequest

had she known the truth. Glover, 669 A.2d at 1016. Applying that test, the

Court concluded that the testatrix was unaware of the misappropriation of

funds by her friend, and that she would not have made the bequest had she

known of the theft.

        The Orphans’ Court’s reliance on Glover is problematic on multiple

fronts. First, as noted above, Paul—upon which the Glover court based its

holding—was a case ultimately involving undue influence, a similar yet distinct

legal theory.6 Thus, the Paul Court did not engage in a pure fraud analysis.

For this reason, the Paul court’s fact-specific distillation of the appellant’s

burden in that case is not directly applicable to a case rooted squarely in fraud.

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6   The Glover Court itself acknowledged this distinction, noting that:

        Theoretically, fraud is separate and distinct from undue influence,
        since, when the former is exercised the testator acts as a free
        agent but is deceived into acting by false data, and when the latter
        is exercised the mind of the testator is so overmastered that
        another will is substituted for his own.

Glover, 669 A.2d at 1016, quoting P.L.E. Wills § 114.

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As such, the subsequent adoption by the Glover court of the factors

enumerated in Paul as a definitive test for fraud was, in our opinion, in error.

        Second, the Glover court misstated the Paul “test,” omitting entirely

Paul’s requirement that there be “fraud and misrepresentation” in the

concealment of a material fact from the testator.7 Thus, in relying on Glover

rather than the Supreme Court’s case from which it purported to glean its

analytical   framework,       the   Orphans’       Court   relied   on   an   incomplete

characterization of the law. Indeed, the Glover framework entirely omits the

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7   Paul states that

        [a]ppellants’ argument requires that four propositions be
        sustained: (a) that the true value of the stock was $800, not $50,
        per share; (b) that [appellee] knew this true value; (c) that, by
        fraud and misrepresentation, [appellee] concealed the true value
        from testatrix and lulled her into believing that, on the basis of a
        $50 per share value, she was bequeathing [appellee] less than
        3% of her estate; [and] (d) that had testatrix known the true
        value of the . . . stock which represented approximately 33% of
        her gross estate she would not have made this bequest.

Paul, 180 A.2d at 261.

In purporting to adopt Paul’s factors as a test for fraud, the Glover court
characterized the requirements as follows:

        Paul requires that, before a contestant can establish that the
        execution of a will was fraudulently induced, the contestant must
        prove that: (1) the testatrix had no knowledge of the concealed
        or misstated fact, and (2) the testatrix would not have made the
        same bequest had she known the truth.

Glover, 669 A.2d at 1016. The Glover court plainly omitted key elements of
the Paul court’s inquiry.

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concepts of knowledge/recklessness, justifiable reliance and injury, all of

which are key elements any fraud inquiry. See Eigen, supra. Accordingly,

in relying on Glover, the Orphans’ Court essentially failed to engage in a fraud

analysis.

       This matter is distinguishable from Glover and Paul for another reason.

Unlike those cases, which addressed the fraudulent inducement of wills, this

matter involves an irrevocable trust. Unlike a will, which is ambulatory and

does not “speak” until the death of the testator, an irrevocable trust is just

that—irrevocable—from the moment of its execution. While a will may be

amended by codicil or revoked in its entirety, the transfer of property to

an irrevocable trust is an immediate and final transfer of ownership. Because

it is not easily modified or rescinded, an irrevocable trust provides stability

and security for both the settlor and beneficiaries.8 Assuming, arguendo, that

Paul and/or Glover provide the proper framework for a fraud analysis in the

context of wills, we conclude that, where an irrevocable trust is at issue, a

stricter standard should apply. Thus, we hold that it is appropriate to apply,

in the instant matter, the test for fraud as expressed in the case law

concerning common-law fraud, as well as in the Restatement of Trusts and

the Restatement of Property, which incorporate elements of knowing or

reckless misrepresentation; intention to mislead another into reliance; and
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8 In this case, Margaret’s purpose in executing the trust document was to
ensure that the Passarelli family money stayed within the Passarelli family and
would not be accessible to any future wife or children of Joseph. See N.T.
Hearing, 6/23/16, at 51-52.

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resulting injury caused by reliance.      With this in mind, we turn to an

application of those principles to the instant matter.

      In Pennsylvania, the definition of fraud in the inducement is well-settled.

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.

Eigen v. Textron Lycoming Reciprocating Engine Div., 874 A.2d 1179,

1185 (Pa. Super. 2005).

      In addition, the Uniform Law Comment to 20 Pa.C.S.A. § 7736,

regarding setting aside a trust, notes that the section is a specific application

of the Restatement (Second) and (Third) of Trusts, which provides that:

      a trust can be set aside or reformed on the same grounds as those
      which apply to a transfer of property not in trust, among which
      include undue influence, duress, and fraud, and mistake. This
      section addresses undue influence, duress, and fraud.          For
      reformation of a trust on grounds of mistake, see Section 415.
      See also Restatement (Third) of Property: Wills and Other
      Donative Transfers Section 8.3 (Tentative Draft No. 3, approved
      2001), which closely tracks the language above. Similar to a will,
      the invalidity of a trust on grounds of undue influence, duress, or
      fraud may be in whole or in part.

20 Pa.C.S.A. § 7736, comment.

      As cited in the foregoing comment to section 7736, the Restatement

(Third) of Property provides guidance regarding the definition of fraud as

applied to a donative transfer:

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     (d) A donative transfer is procured by fraud if the wrongdoer
     knowingly or recklessly made a false representation to the donor
     about a material fact that was intended to and did lead the donor
     to make a donative transfer that the donor would not otherwise
     have made.

Restatement (Third) of Property (Wills & Don. Trans.) § 8.3 (2003).

     As noted in Eigen, supra, there are six elements that must be proven

in order to establish a claim of fraud in the inducement.      Each of these

elements must be present to warrant rescission of a Trust. See Porreco v.

Porreco, 811 A.2d 566, 570–71 (Pa. 2002).           First, a petitioner must

demonstrate that there was a representation. Here, Margaret argues that this

element is satisfied by Joseph’s non-disclosure of Japen’s ownership of the

Properties. We disagree.

     To be actionable, a misrepresentation need not be in the form of
     a positive assertion but is any artifice by which a person is
     deceived to his disadvantage and may be by false or misleading
     allegations or by concealment of that which should have been
     disclosed, which deceives or is intended to deceive another to act
     upon it to his detriment. Delahanty v. First Pennsylvania
     Bank, N.A., [] 464 A.2d 1243 ([Pa. Super.] 1983). Concealment
     can be a sufficient basis for finding that a party engaged in
     fraudulent conduct, provided that the other requisite elements of
     fraud are established. Mancini v. Morrow, [] 458 A.2d 580 ([Pa.
     Super.] 1983).      While concealment may constitute fraud,
     however, mere silence is not sufficient in the absence of a duty to
     speak. Smith v. Renaut, [] 564 A.2d 188, 192 ([Pa. Super.]
     1989).

Wilson v. Donegal Mut. Ins. Co., 598 A.2d 1310, 1315–16 (Pa. Super.

1991) (emphasis added).

     Here, Margaret has failed to demonstrate that Joseph, having disclosed

Japen and its aggregate valuation, also had a duty to disclose each and every

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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. DiLucia v. Clemens, 541 A.2d 765, 767 (Pa. Super. 1988). “It is

the identity of the fund, not of the pieces of coin or bank notes, that controls.”

In re Vosburgh's Estate, 123 A. 813, 815 (Pa. 1924).

      Here, Japen and its total value were identified in Schedule “A” to the

Trust. The description provided was sufficient to describe and identify the

particular asset contributed to the Trust. DiLucia, supra. Indeed, it would

be patently absurd to require that each and every asset of a corporate entity

be identified upon the entity’s contribution to a trust in order to constitute a

valid transfer.   A corporation is, itself, an identifiable asset and can be

sufficiently described by its corporate name.

      In light of the foregoing, we conclude that Joseph had no duty to disclose

every individual asset owned by Japen and, as such, Margaret cannot prove

the existence of a misrepresentation.          Wilson, supra.    Accordingly, the

Orphans’ Court erred in concluding that Margaret’s execution of the Trust

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agreement was the product of fraudulent inducement. Porreco, supra (each

element of fraud must be present to warrant rescission of trust).9

       Decree reversed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 3/28/19

____________________________________________

9Because we conclude that a finding of fraud in the inducement of a trust may
not be premised upon a failure to identify each and every asset contributed to
a trust, and reverse on that basis, we need not consider the remaining issues
Joseph raises in his statement of questions involved.

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