A Strong Offense
A Stronger Defense
We’ve looked at a lot of cases where courts have permitted trust reformation or modification. In many of these cases, trusts had been modified to avoid unintended or adverse tax consequences, to fix a scrivener’s error, or to tweak some administrative provision. A Florida appellate court’s ruling in Megiel-Rollo v. Megiel causes us to add another potential circumstance to that list: adding remainder beneficiaries. Adding beneficiaries gets to the core of a trust’s dispositive provisions, so let’s turn briefly to the unique circumstances underlying this decision.
The grantor created a revocable trust naming herself as trustee and beneficiary during her life. Upon her death, the grantor’s assets were to be “divided between the Beneficiaries as tenants in common in proportion to their respective interests as set forth in the [S]chedule of [B]eneficiaries.” The term “Beneficiaries” was also a defined term as those people “listed in the Schedule of Beneficial Interest[s].” One problem – the schedule of beneficial interests was never prepared. So, the trust is either void ab initio for lack of beneficiaries or merged with the grantor’s estate upon her death, right? Nope.
The trust did have a beneficiary – the grantor – just not any remainder beneficiaries. Without reformation, it is true that the failure of the trust to designate any remainder beneficiaries would result in the successor trustee holding the trust corpus under a resulting trust in favor of the grantor’s estate. But, the appellate court found that in this circumstance reforming the trust to identify remainder beneficiaries may be appropriate.
First, Florida has a liberal policy of reforming instruments to conform to the intentions of the parties. Second, Florida Statute 736.0415, which permits reformation of trusts, is broad in scope in order to accomplish the settlor’s intent. Third, the reformation statute is a remedial statute intended to enforce a right or redress an injury. In light of these parameters, the party seeking trust reformation should be permitted to prove a claim for trust reformation in accordance with the reformation statute.
Now, this doesn’t mean that the trust will be reformed – only that there should be a chance to make a case for reformation. It is pretty significant, however, that altering the dispositive distribution terms of a trust is fair game for reformation. Perhaps driving the court’s decision was an affidavit of the drafting attorney admitting that he discussed with the grantor who she wanted to name as the remainder beneficiaries, but, due to his oversight, the schedule of beneficial interests was never prepared.