Trust Reformation To Correct Mistakes Of Fact Or Law

PROBATE CORNER

By: David M. Garten, Esq.

ARTICLE: Trust Reformation To Correct Mistakes Of Fact Or Law

Sec. 736.0415, F.S. reads: “Reformation to correct mistakes.  Upon application of a settlor or any interested person, the court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor’s intent if it is proved by clear and convincing evidence that both the accomplishment of the settlor’s intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement. In determining the settlor’s original intent, the court may consider evidence relevant to the settlor’s intent even though the evidence contradicts an apparent plain meaning of the trust instrument.”

“A reformation relates back to the time the instrument was originally executed [or amended] and simply corrects the document’s language to read as it should have read all along.” Morey v. Everbank, 93 So. 3d 482 (Fla.1st DCA 2012), citing Providence Square Ass’n, Inc. v. Biancardi, 507 So. 2d 1366 (Fla. 1987).[1]

So, when can you reform a trust?  Refer to the following four examples:

In Megiel-Rollo v. Megiel, 162 So. 3d 1088 (Fla. 2^nd DCA 2015), the settlor’s trust was   reformed to correct an alleged drafting error by the drafting attorney who neglected to prepare and incorporate into the trust instrument a contemplated schedule of beneficial interests when the trust was executed.

In Morey v. Everbank, 93 So. 3d 482 (Fla.1st DCA 2012), the trustee filed a petition to reform the trust to express the settlor’s purported intent that life insurance proceeds payable to the trust were to be used for the sole and exclusive use of the settlor’s children and not to pay administration expenses and creditor’s claims. The trial court denied the petition and the appellate court affirmed. The court relied in part on the drafting attorney who testified that the decedent, an experienced businessman, read everything before executing the trust amendments. The court reasoned that although proof that the decedent reviewed the documents before executing them does not alone preclude an order of reformation [See Restatement (Third) of Prop. Wills & Other Donative Transfers §12.1 cmt. l (2003)], there was no evidence that the decedent was not fully capable of understanding the trust documents as written. In addition, the court held that the deterioration in the decedent’s financial circumstances between the time he executed estate planning documents and the date of his death did not constitute a “mistake” requiring reformation of the trust documents. Reformation is not available to modify the terms of a trust to effectuate what the settlor would have done differently had the settlor foreseen a change of circumstances that occurred after the instruments were executed. See, e.g., Restatement (Third) of Prop.: Wills & Other Donative Transfers. at cmt. h (2003) (Reformation is not “available to modify a document in order to give effect to the donor’s post-execution change of mind . . . or to compensate for other changes in circumstances.”).

In Reid v. Estate of Sonder, 63 So. 3d 7 (Fla. 3rd DCA 2011), the settlor executed a trust which provided for a number of specific bequests following his death.  After the settlor died, the PR determined that the trust funds were insufficient to pay all of the specific bequests and filed a petition to abate the bequests proportionately and for an order determining that the settlor’s apartment was a specific devise to Reid and not subject to abatement. After the court denied the petition, the trustee petitioned to reform the trust claiming that the trust did not evidence the settlor’s intent which was to give his apartment to Reid not subject to abatement.  The trial court denied the trustee’s petition and the appellate court affirmed. The court reasoned in part: “At the trial, William Palmer, the scrivener of the Edgar Sonder Trust, testified that Sonder never instructed him to create a priority between the gifts, and that the inclusion of the terms “after giving effect to” in paragraphs 2. and 3. was his own doing. However, he conceded Sonder read the trust and approved the language. It also is undisputed that Sonder made two subsequent amendments to the trust, and both times expressly ratified the language, making the gift of the apartment subordinate to the gifts provided in paragraphs 1. and 2.  Even assuming the probate court found Palmer’s testimony credible, there is no evidence Sonder would not have been capable of understanding the trust as written. In fact, nothing in the record explains why Sonder, an articulate and precise businessman, would have approved the plain and simple trust terms if they did not reflect his intent. Further, although it is clear Sonder intended for Reid to have the apartment, it is equally apparent Sonder intended for Hebrew Union College to have $125,000 as part of an endowment fund in honor of his deceased wife. These two gifts together constitute the bulk of the trust assets. The testimony does not establish Sonder would have preferred the gift to Reid over the endowment gift in the event both could not be satisfied. Therefore, we affirm the probate court’s order on the petition to reform.”

In Kelly v. Lindenau, 2017 Fla. App. LEXIS 6959; 42 Fla. L. Weekly D 1133; 2017 WL 2180970 (Fla. 2^nd DCA May 17, 2017), the settlor was an Illinois resident and created an Illinois revocable trust. After moving to Florida, the settlor asked his Illinois attorney to amend his trust. The trust amendments were prepared pursuant to Illinois law and were only signed by one witness. After the settlor’s death, the trustee filed a petition to determine the validity of the trust amendments. In response, a trust beneficiary filed a counterclaim seeking to reform the trust on that basis that the error in failing to have two witnesses sign the second amendment was a mistake of law. The trial court granted the beneficiary’s petition and the appellate court reversed. The court held that an improperly executed trust amendment cannot be validated through reformation.

BURDEN OF PROOF: The party seeking reformation has the burden to prove, by clear and convincing evidence, that the trust as written does not reflect the settlor’s intent. This standard is an intermediate standard of proof between the “preponderance of the evidence” standard used in most civil cases, and the “beyond a reasonable doubt standard” of criminal cases, requiring the evidence to be of such weight that it produces in the mind of the trier of fact a firm belief or conviction, without hesitancy, as to the truth of the allegations sought to be established. See Reid v. Estate of Sonder.  The evidence must be credible; the memories of the witnesses must be clear and without confusion; and the sum total of the evidence must be of sufficient weight to convince the trier of fact without hesitancy. See Owens-Corning Fiberglas Corp. v. Ballard, 749 So. 2d 483 (Fla. 1999), citing In re Adoption of Baby E.A.W., 658 So. 2d 961, 967 (Fla. 1995).

[1] Reformation and modification are different remedies. Modification is used: (a) to amend a trust with respect to either administrative or distribution terms; (b) to terminate a trust in whole or in part; (c) to modify a trust to direct or permit a trustee to do unauthorized or prohibited acts; or (d), to modify a trust to preclude a trustee from doing authorized or required acts. Refer to §§736.0410-736.0414 and 736.0416, F.S. and The Florida Trust Code Scrivener’s Summary. In contrast, reformation is used to conform the trust to the settlor’s intent when the terms were affected by a mistake of fact or law. Refer to §736.0415, F.S.