Trust Modification

Extrinsic Evidence Sufficient to Construe Settlor’s Original Intent

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.

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