Trust-instrument scriveners, and estate-planning professional generally, watch out. The Uniform Trust Code’s mistake-based reformation section, specifically §415, is a gift to the trial lawyers. In the litigation space some have yet to get the message. Some, however, clearly have. Section 415 provides as follows: “The court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor’s intention if it is proved by clear and convincing evidence what the settlor’s intention was and that the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement.” A general discussion of the public-policy implications of this radical piece of legislation is found in §8.15.22 of Loring and Rounds: A Trustee’s Handbook (2022), the relevant parts of which section are reproduced in the appendix immediately below.
For a case in which the players had not gotten the message, see Todd v. Hilliard Lyons Trust Co. as Trustee Under Will of Todd, 633 S.W.3d 342 (Ky 2021). At issue was a limited testamentary power of appointment that was not exercisable for the benefit of any person adopted, for the benefit of the issue of any person adopted, and for the benefit of the ancestors of any person adopted. The powerholder petitioned the court to strike just the exclusionary language. Excluded extrinsic evidence had suggested that the settlor had had the powerholder’s two adopted children in mind. The appellate court, having confirmed that the relevant overarching public policy is that settlor-intent is the “polar star” toward which all interpretative efforts are to be guided, that intent controls absent illegality, nonetheless granted the petition to strike on public policy the grounds the exclusionary language. The Court’s reasoning: The adoption exclusion’s expansiveness was “discriminatory” and thus violative of public policy under the Uniform Trust Code. We disagree. The UTC doesn’t regulate dispositive-provision public-policy doctrine, the trust was not an incentive trust, and the case was not an intestacy case. In a tour de force of circular reasoning the court went out of its way to subvert the trust-settlor’s lawful intentions. If settlor-intent truly is the equity court’s “polar star” then the power should either have been judicially voided in toto, or, better still, reformed under UTC §415 to reduce the excluded class to the two adoptees and their issue, the section (1) not requiring that there be ambiguous language and (2) authorizing the introduction and consideration of extrinsic evidence. Quaere: Might a §415 reformation still be an option for the takers-in-default-of-exercise?
For a case in which the players, at least some of them, clearly had gotten the message about §415’s liberality, see Connary v. Shea, 259 A.3d 118 (Maine 2021). In Connary an alternate UTC §415 reformation claim precluded summary judgment. That UTC §415 is available even in the absence of ambiguity is a nice trap not only for the clueless estate planner but also for the clueless fiduciary litigator.