Trust Reformation? What’s that?

Trusts are prepared with an eye toward longevity. A trust is designed to protect assets for benefit of a  beneficiary, both now and for the future. The Trust will specify who will manage it now (the Trustee) and will typically contain a list of successor trustees who can step in later if necessary, and a mechanism for someone to appoint a successor Trustee if there ever is an unfilled vacancy. The Trust is for the living and the not-yet-born. The Trust will specify who receives the funds if a beneficiary dies. The trust will specify the terms and limitations on distributions. A Trust may last for one lifetime or may morph into another form after the death of the primary beneficiary.

Sometimes, the trust is not written in a way that correctly addresses the concerns of the person who established the trust. This could be due to an error or misunderstanding on the part of the “scrivener” (the person who actually “wrote” or prepared the trust). Sometimes, laws that control the effect of such trusts may change, and the original creator (grantor) may not even know it. And sometimes, the original purpose of the Trust is being frustrated due to a change in circumstances after many years. The Trustee of the Trust may discover that certain language in the original trust has now created ambiguities, or is making the beneficiary ineligible for governmental benefits when they should have been eligible.A Trust that was erroneously written as a general discretionary trust may need to be amended to be a special needs trust. What can be done if it’s an irrevocable trust? Generally, a court petition will be needed, and this is called “trust reformation.”

There are two primary legal theories on which a court in New Jersey can “reform” or amend an irrevocable trust. One theory is “scriviner error” — the scriviner knew what needed to be done, and what the grantor wanted, but made an error in the way s/he wrote the trust. The other theory is that it is necessary to reform the Trust to conform to the grantor’s intent — circumstances or laws have created a vacuum within the trust, there’s a lack of clarity as to whether a certain person is intended to be a beneficiary, or law has changed and more specific language is now required in order to adequately protect the Beneficiay the way the grantor wanted.

The party who petitions the court must prove by “clear and convincing evidence” that the amendments should be done and are consistent with the grantor’s actual intentions. The original scriviner of the trust may have to be subpoenaed to testify. Everyone who has a stake in the trust will have to be given Notice of the proceeding. While the court will rely heavily on the express terms of the document, extrinsic evidence can be presented in these cases. Substantial proof will be required, and often that proof must relate back to the time the Trust was created.

When legal problems occur, the law provides a remedy. Don’t despair – just call a lawyer.

For representation on estate and trust planning, special needs and elder care, call … 732-382-6070

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