Brief Fact Summary. Sidney M. Pond created a trust with his wife that provided income to him and his wife for their lives. However, the trust failed to make a provision for his wife if he predeceased her. The wife petitioned the court to reform the trust to conform to her husband’s intent to provide for her and have the trust qualify for a surviving spouse marital deduction under federal estate tax laws.
Synopsis of Rule of Law. A trust instrument may be reformed where the instrument fails to embody the settlor’s intent because of scrivener’s error. There must be clear and decisive proof of the error.
Pond created a revocable trust naming himself and his wife as trustees. During the settlor’s lifetime, all of the annual income and such principal as the trustees deemed necessary were to be paid to the settlor and his wife. If one of the children predeceased the parents, the trust provided that the deceased child’s share shall pass “equally and in equal shares to his/her issue by right of representation,” when the issue reach the age of thirty. The couple transferred all of their assets except their marital home into the trust. In his will, the settlor bequeathed all of his tangible personal property to his wife and the residue of hi estate, both real and personal, to the trust. The tax clause in the will authorized his wife, as executrix, “in her sole, exclusive and unrestricted discretion, to determine whether to elect under Section 2056(b) (7) of the Internal Revenue Code of 1954 to qualify all or a specific portion of the Sidney M. Pond Revocable Trust dated January
17, 1991 for the federal estate marital deduction and any marital deduction available under the law of the state in which I am domiciled at the time of my death.” The trust made no provision for the wife in the event of the settlor’s death. To qualify under Section 2056, the trust must provide the surviving spouse with a qualifying income interest for life. The settlor’s estate would have had to pay $70,000 in otherwise avoidable taxes without the deduction. The plaintiff requested that the court reform trust to give effect to the settlor’s intent to provide for her in the event of her death and to have the estate qualify under the martial deduction for federal estate tax purposes.
Issue. Whether there is clear and decisive proof of mistake due to scrivener’s error in a trust that does not include a provision for the settlor’s wife upon her death?
Held. There is clear and decisive proof of a scrivener’s error because the trust terms suggest the settlor intended to provide for his wife through his trust in the event of his death. The settlor and his wife had transferred almost all of their assets into the trust. During their lifetime, the trust was payable to the settlor and his wife. The settlor most likely intended for the same arrangement to exist if he died before his wife. In addition, because the trust grants the wife the power to elect to take the marital deduction, the trust may also be reformed to correct the ambiguity in the termination provisions so that the trust may qualify for the marital deduction.
Discussion. Points of Law - for Law School Success
To ascertain the settlor's intent, we look to the trust instrument as a whole and the circumstances known to the settlor on execution. View Full Point of Law
There was clear and decisive proof that the writer made a mistake in making the will because the settlor stated his intention that the trust qualify for a marital deduction.
Wills, Trusts & Estates Keyed to Dobris, Sterk & Leslie’s Second Edition.