Trust Reformation

Setting up a trust is a common aspect of planning for one’s estate. A trust can allow an estate to be settled without probate. Reducing taxes is also an important goal of a trust. Unfortunately, some trust instruments include ambiguous terms or have provisions that may not reflect the settlor’s intent. You may need to modify the terms of an irrevocable or revocable trust through the process of trust reformation. Experienced New York City estate litigation attorney Jules Haas may be able to represent you through this potentially difficult process.

Errors and omissions in the preparation of a trust can reduce an estate’s value or inadvertently disinherit a loved one. While you can institute trust construction proceedings when a grantor’s intent for the trust needs to be determined, reformation is a different proceeding that’s used when intent can be determined, but trust terms don’t fit with the intent because of a change or mistake in the law. Trust reformation occurs when the court alters the language of the trust instrument, whether to remove or to add language, for the purpose of making the instrument jibe with the settlor’s intention.

For instance, trust reformation is possible when a trust doesn’t provide the intended benefits, whether because a lawyer made a drafting error while preparing the trust or the law changed such that the trust instrument is now unsuitable for achieving the grantor’s purpose. The reformation may be sought to update trust provisions created prior to the birth of a particular family member. It could also be used to stop beneficiaries and others from bringing a trust contest.

The grantor’s intent will guide the court on the issue of whether trust reformation is appropriate in a particular situation. In the past, trust reformation has been difficult to obtain in New York City. Generally, trust reformation is utilized when an instrument is subject to a factual situation that would cut against its intent. For example, if the purpose of the trust was to maximize tax benefits under a generation-skipping transfer tax while transferring property to one’s descendants, and tax and inheritance law change, it may be appropriate to ask the court to reform the trust. However, the grantor must have expressed an intent towards this purpose in order to reform the instrument in this manner.

Similarly, New York courts have reformed trusts to turn them into supplemental needs trusts when a testator’s intent has not been satisfied and the mandates of New York Estates, Powers and Trusts Law (EPTL) 7-1.12 are met. EPTL 7.12 provides for the creation of a trust to meet a disabled person’s supplemental needs when he or she is receiving government benefits or assistance programs. If, for example, a decedent’s spouse was named in a trust as a beneficiary, but she became disabled with Parkinson’s and needed to live in a nursing home, the court could reform the trust as a special needs trust. This would enable her to receive financial assistance from the government.

When no evidence exists to support the reformation of an instrument that is already clear and unambiguous, reformation to fix the trust language is not possible. Trust reformation wouldn’t be appropriate, for example, only because of an assumption that the person who executed testamentary instruments plans to minimize taxes. Trust reformation can’t be used to repair problems in estate or tax planning. The court will interpret the grantor’s purpose by giving the words of the trust instrument their natural, commonsense meanings. The court can’t shift the purpose of a trust instrument’s language to provide consequences the grantor did not intend or think about.

It’s important to retain a lawyer if you are a fiduciary or beneficiary who believes a trust instrument didn’t provide the benefits it was intended to provide due to unanticipated changes. Likewise, if you believe that the trust language reflects a grantor’s intent, you may wish to oppose reformation proceedings brought by another interested party. Seasoned New York City attorney Jules Haas may be able to represent you in trust reformation proceedings. Mr. Haas has represented clients in New York City estate litigation for more than 30 years. His clients live in Manhattan, the Bronx, Queens, Kings, Richmond, Nassau, Suffolk, and Westchester Counties. He provides a free case review and offers reasonable fee arrangements. Call him at (212) 355-2575 or contact us through our online form.