Reformation and Modification of Trusts Through the Legal Process
A trust modification or reformation lawsuit aims to change a trust in a way that best reflects the settlor’s intent. The difference between a trust reformation and a trust modification may be slight, but generally a trust reformation seeks to correct an inaccuracy caused by mistake or fraud, while a trust modification seeks to correct an ambiguity or an issue caused by an unforeseen change in circumstances.
Living settlors are often free to reform their trusts easily and without much, if any, court involvement. However, trust beneficiaries may only reform a trust through the courts. If a beneficiary or another interested party wishes to reform a trust, they must allege that a mistake was made when the trust was written. The reason for the mistake may be an error or fraud, and a mistake may involve law or fact. In addition to proving that a mistake was made, the individual seeking the reformation must also prove that the terms of the trust misstate the settlor’s intent, or that the terms accurately reflect the settlor’s intent, but their intent was based on a misjudgment or fraud. Without clear and convincing evidence that a mistake was made and that the mistake does not reflect the true intent of the settlor, a trust reformation lawsuit will fail.
Typical Reformation Requirements
1Clear and convincing evidence of the settlor’s intent
2Clear and convincing evidence that the terms of the trust were affected by a mistake of fact or law
As with trust reformation, living settlors have the greatest ability to modify a trust, so long as it is a revocable trust. An irrevocable trust, on the other hand, may be modified by a living settlor only if the settlor and all beneficiaries agree to the modification. Once a settlor dies, a revocable trust becomes irrevocable. Irrevocable trusts usually may only be modified by court approval when all beneficiaries agree to a modification, and the modification will not frustrate the material purpose of the trust. A court will only consider a trust modification that might frustrate the material purpose of the trust if the reason for the modification substantially outweighs the material purpose. If a beneficiary cannot be found or otherwise cannot consent to the modification, the court may approve the modification only if it protects the interests of the non-consenting beneficiary.
A trust modification based on a change in circumstances typically requires that the settlor did not anticipate such circumstances.
During a trust modification lawsuit, a beneficiary or another interested party may allege that unforeseen circumstances have made the language of the trust ineffectual in carrying out the settlor’s intent. There must be evidence that the settlor did not anticipate the change in circumstances and that the language of the trust, coupled with that change in circumstances, will cause an extreme emotional or financial loss for a beneficiary. For example, a trust modification may be appropriate when there is an unanticipated change in circumstances that causes the trust and its beneficiaries to lose unnecessary amounts of money, or when there is an emergency concerning a beneficiary or another individual associated with the trust when it is clear what the settlor would have intended had they anticipated the emergency. A modification should be made in accordance with the settlor’s probable intent or, if their intent cannot be sufficiently determined, in accordance with the purposes of the trust.