Trust Can Be Reformed to Add Beneficiaries

Can a trust be reformed to add beneficiaries where the trust as originally drafted fails to include any beneficiaries? 

According to a recent Florida trust case, yes, the trust can be reformed to add a residual beneficiary clause. 

In Megiel-Rollo v Megiel, 2nd DCA 2015), the decedent has prepared a will naming her three children as equal beneficiaries.  Some years later, the decedent prepared a revocable trust.  She also deeded her real property to the trust.  The trust, however, failed to name any beneficiaries of the trust upon the death of the decedent.  The trust stated that, upon the death of the settlor, the corpus should pass according to  Schedule of Beneficial Interests, which was supposed to be prepared and attached to the trust.

A dispute arose among the three children of the decedent, with two claiming that the decedent intended to name the two of them as the sole heirs, with the third child contending that the trust was void and/or could not be reformed.  Under the third child’s contention, the trust would be split into three equal shares for the children. 

The drafting attorney filed an affidavit admitting that he had made a mistake and should have prepared the Schedule of Beneficial Interest naming only two the decedent’s children as the deathtime beneficiaries of the trust.  Based on this affidavit and other information, the two children argued for trust reformation.

The Florida Trust Code, as of 2007, contains a trust reformation provision that allows a trust to be reformed to correct a mistake, Section 736.0415:

Upon application of a settlor or any interested person, the court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor’s intent if it is proved by clear and convincing evidence that both the accomplishment of the settlor’s intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement. In determining the settlor’s original intent, the court may consider evidence relevant to the settlor’s intent even though the evidence contradicts an apparent plain meaning of the trust instrument.

The third child argued that the trust itself failed under the “merger” doctrine, which requires that a trust have some separation of interests in the corpus.  The Court rejected this argument (internal citation omitted): 

[t]he failure of the Trust instrument to designate any remainder beneficiaries would ordinarily result in a merger is correct as far as it goes. “In order to sustain a trust entity, there must be a separation between the legal and equitable interests of the trust. If there is no separation of these interests, the doctrine of merger may apply and the trust be terminated.” “If the designation of beneficiaries is deemed too indefinite for enforcement of the provisions of a trust, the usual result is that the trust is void and ‘the designated trustee holds the corpus under a resulting trust in favor of the estate of the settlor.'” Based on these general principles, we agree with Sharon that–absent reformation–the failure of the Trust to designate any remainder beneficiaries would have the result that upon the Decedent’s death, then Denise, as successor trustee, would hold the Trust assets upon a resulting trust for the benefit of the Decedent’s estate.

In allowing for the possibility of reformation to limit the trust to the two children, the Court explained as follows:

It is beyond argument that the statutory reference to “a mistake of fact or law” is not limited by any qualifiers. The broad scope of the language used in the statute is inconsistent with the notion that reformation is available to correct some mistakes in a trust, i.e., “simple scrivener’s error,” but not others. “[W]hen the language of the statute is clear and unambiguous and conveys a clear and definite meaning, . . . the statute must be given its plain and obvious meaning.

Giving the statutory language of section 736.0415 its plain and ordinary meaning compels the conclusion that the remedy of reformation of the Trust is available to correct the alleged drafting error resulting from the omission to prepare and incorporate into the Trust the contemplated Schedule of Beneficial Interests. The absence of any language of limitation in the statute–other than the requirement of proof by the heightened standard of clear and convincing evidence–is additional evidence that  the legislature did not intend the construction of the statute for which Sharon contends. For this court to read such a limitation into the statute would amount to judicial legislation of the sort in which we will not indulge.

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