A uniform code for dealing with mistakes in wills is set froth in the Restatement of Property (Third)-
Wills and Donative Transfers, which provides:

§ 12.1 Reforming Donative Documents To Correct Mistakes

“A donative document, though unambiguous, may be reformed to conform the text to the donor’s intention if it is established by clear and convincing evidence (1) that a mistake of fact or law, whether in expression or inducement, affected specific terms of the document; and (2) what the donor’s intention was. In determining whether these elements have been established by clear and convincing evidence, direct evidence of intention contradicting the plain meaning of the text as well as other evidence of intention may be considered.”

The comments to this section of the Restatement explain that “when a donative document is unambiguous, evidence suggesting that the terms of the document vary from intention is inherently suspect but possibly correct. The law deals with situations of inherently suspicious but possibly correct evidence in either of two ways. One is to exclude the evidence altogether, in effect denying a remedy in cases in which the evidence is genuine and persuasive. The other is to consider the evidence, but guard against giving effect to fraudulent or mistaken evidence by imposing an above-normal standard of proof. In choosing between exclusion and high-safeguard allowance of extrinsic evidence, this Restatement adopts the latter. Only high-safeguard allowance of extrinsic evidence achieves the primary objective of giving effect to the donor’s intention. To this end, the full range of direct and circumstantial evidence relevant to the donor’s intention…may be considered in a reformation action.”

Florida’s Supreme Court dealt with a case which, after sixteen years, is still cited as one of the leading cases dealing with the concept of reformation and remedies to correct a mistake in estate planning documents. In Estate of Tolin, 622 So.2d 988 (Fla. 1993). The case remains a great example to explain the law’s approach to reforming estate planning when a mistake has been made.

The case involved the estate of one Alexander Tolin who died in 1990. His estate plan began several years prior when he executed a Last Will and Testament. Under this Will, the residue of his estate was devised to his friend, Adair Creaig. The Will was prepared by his attorney, Steven Fine, and executed in the attorney’s office. The original Will was retained by the attorney and a blue-backed photocopy of the original executed Will was given to Mr. Tolin.

Later, Alexander Tolin executed a Codicil to the Last Will and Testament which changed the residuary beneficiary from Adair Creaig to Broward Art Guild, Inc. This Codicil was also prepared by his attorney, Steven Fine, at the attorney’s office. Again, the attorney retained the original in his office and Mr. Tolin was given a blue-backed photocopy of the original executed Codicil.

Approximately six months prior to his death, Mr. Tolin advised his neighbor, and a retired New York attorney, Ed Weinstein that he had made a mistake and that he wished to revoke the Codicil and reinstate Adair Creaig as the residuary beneficiary. Mr. Weinstein advised him that he could accomplish his purpose by tearing up the original Codicil. Unfortunately, Mr. Tolin tore up the photocopy which he thought was the original Codicil. The mistake was discovered soon after his death and as expected, a court battle ensued to determine whether the Broward Art Guild or Adair Creaig was the proper beneficiary of Mr. Tolin’s estate.

The case reached the Chambers of the Florida Supreme Court which initially observed that the strict letter of the law (the Florida Probate Code §732.506) requires the intentional destruction of the original will or codicil in order to effectuate a revocation. Since it was undisputed that the original was not destroyed because of a mistake, the court then asked whether a constructive trust should properly be imposed when a testator fails to effectively revoke a codicil because of a mistake of fact which prevented the testator from fulfilling the requirements of section 732.506.

What is a Constructive Trust?

The Court explained that a constructive trust is properly imposed when, as a result of a mistake in a transaction, one party is unjustly enriched at the expense of another. The Court observed that it would be quite unfair for the Broward Art Guild to benefit by virtue of Mr. Tolin’s mistake in tearing up the copy of the Codicil instead of the original:

The court was prescient in noting that “this case shows the importance of distinguishing an original document from a copy. The facts in the instant case show that the testator’s mistake in destroying a copy of the codicil, rather than the original, was caused by the high quality of the copy, which made it indistinguishable from the original. As technology advances, the determination of whether an instrument is an original or a copy may become more difficult. Thus, it is advisable for attorneys preparing documents, such as wills and codicils, to consider designating which documents are copies. Such a designation would have aided in the disposition of this case.”

I’m always interested in how our sister jurisdictions handle problems in connection with attempts to transfer real and personal property into a trust that might fall short of the formalities required by the Uniform Trust Code. One such case recently surfaced in our Midwestern sister state of Nebraska in Chebatoris v. Moyer 757 N.W. 2d 212 (Neb. 2008).
Moyer, the decedent, created a revocable living trust, with Ron Moyer (Ron) as cotrustee. Moyer died intestate. Moyer purported to fund the trust with both real and personal property that she had described in “Appendix ‘A” attached to the trust document. This is the same method I have seen many clients use in their attempts to create and fund trusts.

The trust document in Moyer stated that “SETTLOR desires to create a trust and is concurrently herewith transferring certain properties to this trust which are set forth on Appendix ‘A attached hereto.” It also stated that “TRUSTEE agrees to hold the property described on Appendix ‘A together with all investments, reinvestments and additions thereto in trust in accordance with the provisions of this Agreement.” Appendix “A” describes three parcels of land, two in Otoe County, Nebraska, and one in Iowa, and lists a variety of personal effects, including bank accounts. The trust instrument also gave detailed instructions as to the distribution of the trust property upon the death of the settlor, Moyer.

Litigation arose in the administration of the probate estate as to whether or not the real and personal property described in the trust document had been properly conveyed by the settlor to the trustee. If it had not been properly transferred, then the trust was wholly unfunded upon Moyer’s death and all property mentioned in the trust document would be a part of the intestate estate.

The Nebraska court looked to the intent of the settlor as the governing principal in its decision and also observed that the instrument created by the settlor met the minimum requirements for a deed: “Although the transfer of real property would have been best memorialized by a separate document, we nevertheless conclude that Moyer’s trust agreement operates as a deed transferring real property…Moyer’s trust document satisfies each of the statutory requirements for a deed of real property. Moyer signed the trust agreement as the settlor of the trust, thus satisfying the requirement of signature by the grantor of the property. Moyer and Ron also signed the agreement as cotrustees, indicating their acceptance of the trusteeship. The agreement was acknowledged by a notary public and was filed with the register of deeds, albeit after Moyer’s death.”

The court also applied the principles of equity (even though trusts are governed by a trust code): “We find further support for our conclusion in equity. The duty of this court is to carry out the true intent of the parties. The particular words of a conveyance are unimportant if the intention of the parties can be determined. In construing instruments conveying property, equity concerns itself with the substance and not the form of the transaction, and the particular form or words of a conveyance are unimportant if the intention of the parties can be ascertained.”

Therefore, because the instrument contained the bare minimums for a real property transfer, coupled with the clear language of the trust instrument from which the settlor’s intent was undisputed, the Court reached the right conclusion in holding that the trust was properly funded. It is refreshing to observe a court continue to use equitable principles in an area of law consumed by legislation.

The new Florida Trust Code recognizes the recent increase in use of long-term trusts, thereby requiring greater flexibility in the restrictive rules that apply concerning when a trust may be terminated or modified other than as provided in the instrument. The governing principal of the trust code is to carry out the settlor’s intent. The power to modify the terms of a trust appears in a variety of sections of the new trust code. For example, a court now has discretion to modify an irrevocable trust because of circumstances not anticipated by the settlor. In exercising its discretion the court is to consider any spendthrift provision but is not precluded from modifying the trust for that reason. Fla.Stat. §736.04113. Also, a court may modify a trust if such action is in the best interest of the beneficiaries. Fla.Stat. §736.04115.

The new code also allows for reformation of the terms of a trust if a mistake occurs in its creation if necessary to conform to the settlor’s original intent. Fla. Stat. §736.0415. This remedy is now available under the new trust code to correct a mistake of fact or law even if the original terms of the trust, as originally but mistakenly created, are unambiguous. The mistake may be one either of expression or inducement, but in any event must be established by clear and convincing evidence.

In the matter of the Trust Created By Agreement Dated December 20, 1961, By And Between John Seward Johnson, Grantor, And Philip B. Hoffman, Gustav O. Lienhard And Kenneth Perry, Trustees (Known As The John Seward Johnson 1961 Charitable Trust), 194 N.J. 276, 944 A.2d 588 (2008) the New Jersey Supreme court addressed the issue of the interpretation of the word “spouses” as used in a charitable trust.

Between 1939 and 1963, John Seward Johnson created a series of trusts to benefit his family members. One of these was an irrevocable charitable trust which named four of Johnson’s six children, their spouses, and his eleven grandchildren as beneficiaries. The trust provided that for a thirty-five year charitable phase, all net income of the trust was to be distributed to “educational, religious, and charitable organizations.” At the conclusion of the charitable phase, the income and the corpus could be distributed to the beneficiaries at the “absolute and uncontrolled discretion” of the trustees. In naming the beneficiaries, the trust used the following language in respect of the distribution of the corpus: “to use for or distribute and pay over to and among the Grantor’s four children, Mary Lea Johnson Ryan, Elaine Johnson Wold, John Seward Johnson, Jr., and Diana Melville Johnson Stokes, their spouses, and their issue, or any one or more of them,” The testamentary language authorizing the trustees to distribute income is almost identical, naming the Johnson children, “their spouses, and their issue, or any one or more of them” as beneficiaries. Importantly, the word “spouses” was not defined anywhere in the trust document.

Mary Lea Johnson died in 1990. She was survived by her six children and her third husband, Martin Richards. In 1995, the trustees began a ninth accounting of the trust in anticipation of distributing the interest and corpus to the beneficiaries after the charitable phase concluded.

To the Rescue….the Scrivener

The court agreed with the trustees that the word “spouse” was ambiguous and that the probable intent of the settlor could be ascertained through the use of extrinsic evidence including the testimony of the scrivener.

The scrivener of the trust and a trustee believed that Richards continued to be a beneficiary of the trust despite his wife’s death. The other trustees disagreed, believing that Johnson’s failure to use the phrase “surviving spouses” indicated that he did not intend to include widows and widowers as beneficiaries. The trustees didn’t quite know what to do, since they knew it was possible that the trust could be interpreted to include widowers. The trustees then filed a petition with the court seeking guidance on the interpretation of the trust.

The case worked its way through the court system and the probate court eventually held a hearing concerning Johnson’s intent with respect to surviving and divorced spouses and the meaning of the ambiguous word “spouses.” The evidence included testimony from the scrivener regarding the settlor’s intent. The probate court ruled that surviving spouses were intended to be included as “spouses” but not those divorced from Johnson’s legatees.

The scrivener freely admitted that he could not recall Johnson ever telling him directly that he wanted surviving spouses to benefit under the trust. However, the probate court allowed him to express his opinion that he “certainly thought [it] was [Johnson's] objective” to include surviving spouses as beneficiaries. The scrivener was also allowed to comment that “it was [his] understanding that [Johnson] wanted to include surviving spouses” as beneficiaries, that it was his “understanding of Mr. Johnson’s intent regarding the term spouses … that it included surviving spouses,” and that “it was certainly [his] impression that in Johnson’s mind, the word ‘spouses’ included widows and widowers.”

This is the type of evidence (“clear and convincing” extrinsic evidence) which is helpful under the Uniform Trust Code’s provisions (adopted in Florida) allowing for the reformation or modification of trusts to conform to the settlor’s intent. It has been my experience that this type of testimonial evidence, coupled with evidence of a testator’s overall estate plan, can serve as a good predicate for seeking judicial reformation/modification of the terms of a trust instrument under the new Trust Code.

The Wife
Elinor Miller set up a trust naming her husband Bill as the trustee and lifetime beneficiary (the “Elinor Miller Trust”). After her death the assets remaining in the trust (after her charitable bequests and distributions to family members) were divided into three separate sub-trusts, designated as Trust A-1, Trust A-2 and Trust B with each serving a distinct purpose.

The Elinor Miller Trust provided that the Trustee should pay Bill the income from A-1 and A-2, in addition to “such amounts from the principal of Trust A-2 first and then liberally for his maintenance, health, and support in his accustomed manner of living, taking into account all of his other income and means of support known to the Trustee. The Trustee shall also pay [Bill] such additional amounts of principal from Trust A-2 as he may from time to time request.” Further, the Trust provided that upon Bill’s death, the “Trustee shall pay over and distribute the then remaining balance of Trust A-2, if any to such person or persons, and in such manner, as he shall appoint by his Last Will and Testament, which makes reference to said power of appointment, including in him the power to appoint to his estate. Any portion of Trust A-2 not effectively appointed by [Bill] shall continue to be held in trust for the lifetime of my son, [Tom].” Id.

The Husband
Prior to Bill’s death, he did two significant events in connection with the Elinor Miller Trust: First, Bill executed a codicil to his Will exercising his power of appointment and directing that upon his death the asset in Trust A2 be distributed to The Elinor and Bill Miller Foundation. Secondly, Bill transferred the entire balance of A2 assets (over seven million dollars) to the Bill Miller Trust (“the Transfer”).

Importantly, it was undisputed that Bill maintained 100% control over the Bill Miller Trust assets and had the right to end the trust at any time and thereby regain absolute ownership over the trust property and thus had complete and unfettered access to the seven million dollars conveyed into his trust.

‘Til Death Do Us Part
After Bill’s death in 2004, his son Tom sued Bill’s estate and the trustees of the Bill Miller Trust and the Foundation seeking to invalidate the Transfer. Tom argued that the Transfer was invalid because the Elinor Miller Trust only authorized transfers from A2 to Bill (the trust language used the words “to my husband”), and since the Bill Miller Trust was not Elinor’s “husband” the transfer, in Tom’s view, should be invalidated and the seven million dollars should be held in trust for Tom’s benefit.

One Fell Swoop
Tom also argued that since the Elinor Miller Trust language provided that “[t]he Trustee shall also pay to [Bill] such additional amounts of principal from A2 as he may from time to time request,” Bill could not take the entire corpus of the trust “in one fell swoop” and transfer all seven million dollars as he did prior to his death.

Beyond the Borders
The Fifth District examined and relied on fifty year old decisional case law from the United States Third Circuit Court of Appeals (Pennsylvania, New Jersey, Delaware), and the Commonwealth courts of Massachusetts and Pennsylvania. Using these cases as predicate, the Court found that Bill had the absolute right to withdraw all of the funds from A2 since it was undisputed that he had unlimited access and control over the assets at issue at all times, both before and after the transfer. Also, the Court concluded that its result was likely more in line with Elinor’s intent, and in construing the provisions of a trust document, “the cardinal rule is to give effect to the grantor’s intent, if possible.”

De Novo Review
This interesting opinion is significant for probate administration attorneys and litigators for a variety of reasons. First, the Court restated its position that the interpretation of the trust documents and the language of the trust is a question of law which is entitled to de novo review. Therefore, just like the case earlier in October from the Fourth District, Duncombe v. Adderly, -So.2d-, 2008 WL 4489234, 33 Fla.L.Weekly D2367a (4th DCA October 8, 2008) which established that fee petitions are questions of law that require statutory interpretation and subject to de novo appellate review, the interpretation of trust language is another area where a challenger gets at least two judicial bites at the apple. Second, the case illustrates how different district courts can arrive at different results. A comparison of the Third District’s September 8, 2008 Cutler v. Cutler — So.2d —-, 2008 WL 4057751(Fla. 3d DCA Sep 03, 2008) and the opinion cited above reflect the varying degree that appellate court’s are willing to expand the concept of “the settlor’s intent” which may appear to be at odds with the intent of the settlor’s estate planning documents.