What happens when a trust is not executed properly? Can the trust be reformed after the grantor’s death? In some cases, yes. However, in Kelly, et. al. v. Lindenau, the answer was not favorable.
Ralph created a an Illinois trust in December 2006, properly executed under Illinois law. Upon Ralph’s death, the assets would be distributed to his wife, if living, and, if not, then to his children, Jill, Jeff and Judy. Unfortunately, Ralph’s wife predeceased Ralph and after her death, Ralph moved to Florida.
In 2009, Ralph met Donna Lindenau (“Donna”) and signed a first and second amendment to his trust. The first amendment is not relevant in this case. The second amendment (“Second Amendment”) provided that Ralph’s Sarasota residence be distributed to Jeff and his Bradenton residence be distributed to Donna. Both amendments were prepared by the Illinois attorney and, while Ralph signed the amendment in the presence of 2 witnesses, only 1 witness actually signed the document.
Ralph died in 2015 and his trust became irrevocable. Judy, as trustee, filed an action for declaratory judgment to determine whether both amendments were valid. Donna filed a counterclaim seeking a reformation of the Second Amendment. She argued that the failure of the second witness to actually sign the Second Amendment was a mistake of law. Accordingly, she argued that the Second Amendment should be reformed. She also argued for a constructive trust for the Bradenton house.
Jeff and Jill argued that both amendments were invalid as they were not properly executed in accordance with Florida law. The lower court granted Donna’s request and ordered Judy to transfer the Bradenton residence to Donna.
Jeff, Jill and Judy appealed.
The appellate court determined that there was no dispute that the Second Amendment reflected Ralph’s intent to leave the Bradenton residence to Donna. The court also confirmed that the Second Amendment was only executed by 1 witness.
The court then analyzed the Florida statute which requires that the signing of the testamentary aspects of a trust must comply with the same formalities as a signing of a will, i.e., signing in the presence of 2 witnesses and the witnesses signing in the presence of the testator and of each other.
Donna argued the failure to obtain the signature of a witness was a mistake of law affecting the accomplishment of Ralph’s intent and the remedy was reformation of the trust.
The court looked to the Florida statute which provides that a trust can be reformed to conform to the settlor’s intent if the settlor’s intent is proved by clear and convincing evidence. The mistake of law or fact must also affect the trust terms. Under the facts of this case, the terms of the Second Amendment were clear and no mistake of fact or law affected the terms of the Second Amendment.
The court concluded that reformation is not a remedy when there is an error in the execution of the document. The court reversed the lower court’s reformation.
ADVICE: The obvious “take away” from this case is to not slight the formalities of execution. Be consistent in the execution procedure. Be very careful when your clients want to sign documents away from your office. This author has a procedure that all documents are signed in her office. If the client is insistent, then contact an attorney in the location where they want to execute the documents and have that attorney supervise the execution. At the very least, write a VERY clear letter on execution formalities and advise the clients of the consequences if the documents are not executed properly.
WORD OF THE WEEK: Declaratory Judgment is a court order which determines the rights of parties without ordering anything be done or awarding damages. The judge, after analyzing the controversy, simply issues an opinion declaring the rights of each of the parties involved.
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