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Trust Reformation

Written by on Jun 29, 2009| Posted in: Trust Litigation

Does a Trustee, Acting Alone, Have Standing to Seek Trust Reformation?

The enactment of Florida’s new Trust Code invited many unanswered questions, and the question of whether a trustee, acting solely in her capacity as trustee, has standing to seek reformation of a trust was presented to our appellate court in Reid v. Temple Judea, 994 So.2d 1146 (Fla. 3rd DCA 2007). 

The case involved a trust executed by Edgar Sonder who named Ceclia as trustee.  On May 17, 2000, Edgar Sonder executed a trust naming himself as trustee.   After Sonder’s death, his estate was probated and finding trust funds insufficient to pay all of the gifts provided for in Sonder’s will, Reid moved to abate the enumerated pecuniary gifts proportionately. Reid also claimed that the apartment was a devise, not subject to abatement.

Thereafter, Reid, as sole trustee, petitioned to reform the trust claiming that the trust instrument did not evidence the settlor’s intent which was to give his apartment to Reid not subject to abatement.  In support of her claim, Reid produced an affidavit from the drafting attorney stating that Sonder intended to devise the apartment as a specific gift to his nurse, Ceclia Reid.  Reid also presented Sonder’s handwritten instructions to the drafting attorney, which she maintained supported her position.

As expected, some of the other beneficiaries who would be cut out by the proposed reformation, objected to Reid’s petition, claiming that she did not have standing because she was “not an ‘interested person,’ but merely a volunteer and stakeholder in the Trust without any personal stake in the outcome”; and that Reid owed a fiduciary duty of loyalty to all beneficiaries to act impartially.

The case worked its way through the court system and the Third District Court of Appeals reversed the Miami Dade County Probate Court and held that Reid did in fact have standing under the new trust code. First, the Court noted that a trustee is generally obligated to follow the settlor’s true intent and purposes in discharging his/her duties in managing the trust and thus, a trustee clearly has standing to seek reformation.

The Court looked to the recent amendments to the Trust Code and found that they, as well as existing Florida decisional case law, recognized a trustee’s standing to seek modification of a trust instrument where the purposes of that trust, as written, have been, or cannot be, fulfilled; where complying with the terms of the trust will defeat or substantially impair carrying out a material purpose of the trust; or where the purpose for the trust no longer exits:

Judicial modification of trusts

(1) If the purposes of a trust have been fulfilled or have become illegal or impossible to fulfill or, if because of circumstances not known to or anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust or, if a material purpose of the trust no longer exists, upon the application of a trustee of the trust or any beneficiary a court at any time may modify the terms of a trust which is not then revocable to:

(a) Amend or change the terms of the trust, including terms governing distribution of the trust income or principal, or terms governing administration of the trust;

(b) Terminate the trust in whole or in part;

(c) Direct or permit the trustee to do acts that are not authorized or that are prohibited by the terms of the trust; or

(d) Prohibit the trustee from performing acts that are permitted or required by the terms of the trust.

(3) In exercising its discretion to order a modification of a trust under this section, the court shall consider the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and extrinsic evidence relevant to the proposed modification.  Fla. Stat. §736.04113 (replacing former section 737.4031).  This section also provides:

(1) Upon the application of a trustee of the trust or an qualified beneficiary, a court at any time may modify the terms of a trust that is not then revocable in the manner provided in subsection (2), if:

(a) The purposes of the trust have been fulfilled or have become illegal, impossible, wasteful, or impractical to fulfill;

(b) Because of circumstances not anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust; or

(c) A material purpose of the trust no longer exists.

The Third District stated: “We see little distinction between the authority conferred on a trustee by this provision to change or modify the terms of a trust on a claim that complying with the trust’s terms will frustrate the settlor’s purpose, and the authority needed to change or reform such a document so that its language accurately reflects what the settlor intended.”

Also instructive is section 736.0415 of the Florida Trust Code, which again confers broad authority upon a trustee to seek reformation of a trust:”  Upon application of the trustee or an interested person, a court may reform the trust’s terms to conform to the settlor’s intentions [if] clear and convincing evidence proves that both the accomplishment of the settlor’s intent and the terms of the trust were affected by a mistake.”

Signifcantly, it should be noted that reformation under this section is available for mistakes of law and of fact, whether or not the terms of the trust are ambiguous. Although Florida case law had previously supported reformation to cure scrivener’s errors, this new section of the trust code is broader, however, as it allows reformation for mistakes both in the expression and in the inducement.

This case serves as a reminder of the expansion of remedies made available to trust and estate practitioners when litigating the settlor’s intent.

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