Published on:

Court Decides Reformation of Trust Issues


RL died a resident of Wyoming County on January 18, 2006. His Last Will and Testament dated October 3, 2005 was admitted to probate in this court on April 3, 2006. Under the terms of his will the testator divided his estate in equal shares for his three children, but established a testamentary trust for the share for the benefit of his son, JB. The trust provides for the distribution of income as well as principal for the benefit of JB and is not a Supplemental Needs Trust (SNT) as authorized and defined in EPTL 7-1.12.

Although there has been no formal appointment of a guardian for JB pursuant to SCPA Article 17-a or Mental Hygiene Law Article 81, he is alleged to be a person under disability and receives Supplemental Security Income (SSI) and Medicare benefits as a result of his disability. There is no indication that JB is receiving or has received Medicaid or other, local benefits through the Wyoming County Department of Social Services (DSS) or other agency.

The facts are not in dispute and the matter is before the court on cross-motions for Summary Judgment pursuant to CPLR 3212. The two issues presented are:

1. May the testamentary trust created under RL’s will, be reformed to create a SNT to preserve JB’s eligibility for government benefits?

2. Must a SNT created by action of the court in reforming the trust under the will contain a “payback clause” pursuant to EPTL 7-1.12 ( c )?

Under the terms of the trust in the will, JB is to receive the net income in quarterly installments with authority to the trustee to invade the trust principal for JB’ benefit, “During the lifetime of my son, to liberally provide for my son’s health, support and maintenance.” Although JB is not presently receiving medical or other services funded through Medicaid, he is receiving Social Security and Medicare benefits. Unless the trust is reformed, it is likely that he will lose his eligibility for those benefits and be denied eligibility for Medicaid-funded services should he need them in the future.

CPA 1420 authorizes the Surrogate’s Court to determine the validity, construction or effect of any provision of a will and to take such proof and make such decrees as justice shall require.

The existence of clear and unambiguous language, however, is not a bar to the reformation of a testamentary trust. The recent case of Matter of Kamp (7 Misc 3d 615 [Sur Ct, Broome County 2005]) provides a thorough review and analysis of the cases and issues relevant here. This court agrees with the reasoning in Matter of Kamp in rejecting the more restrictive analysis of Matter of Rubin, particularly in the context of the creation of SNTs.

One other, noteworthy case took a different approach in the face of unfavorable and unambiguous language in the trust and utilized EPTL 10-6.6 (b) (2) to pay out the principal of the trust to a new SNT created for the beneficiary.

Despite the obvious difference in the language of the trusts in those cases and the language of the will in this case, reformation may still be allowed upon consideration of relevant factors, including:

1. The intention of the testator 2. Lack of fraud or unjust enrichment 3. Non-interference with or disruption of the dispositional plan under the instrument.

The Third Restatement of the Law of Property states the principle simply as:

“A donative document, though unambiguous, may be reformed to conform the text to the donor’s intention if it is established by clear and convincing evidence (1) that a mistake of fact or law, whether in expression or inducement, affected specific terms of the document; and (2) what the donor’s intention was.”

Here, in cases involving a SNT and Medicaid or other public benefit planning, courts have created a presumptive intent on the part of the testator or donor to take advantage of public benefits or funds available as the primary means of providing for the care of a disabled individual. This common-sense presumption is similar to the presumption that a testator will desire to reduce taxes to the greatest extent possible.

The affidavit of the attorney-draftsman states that a SNT was not presented to the testator for his consideration due to the lack of time at the onset of his final illness. In addition:

1. The testator was the sole care giver for JB for his entire, adult life.

2. JB was receiving public benefits in the form of Social Security and Medicare while residing with his father and at the time of the execution of the will.

3. The bulk of the modest estate here consists of various parcels of real property.

Given the potential loss of the Social Security and Medicare benefits JB has been receiving and the likely need to sell the parcels of real property to replace those benefits, the court has no difficulty in presuming that the testator would have intended that JB’ share pass by way of a SNT had he been presented with that option.

Further, there is no suggestion of any element of fraud by or unjust enrichment of any party and the reformation of the trust in the manner requested would not interfere with or disrupt the dispositional plan under the will. In fact, the creation of the SNT here is necessary to preserve the plan established by the will.

Accordingly, the court finds and directs that the trust created by Robert’s Will should be reformed into a SNT f/b/o JB. A proposed SNT was drafted by the guardian ad litem and attached to the petition. The court has reviewed the terms of the proposed SNT and finds as follows:

1. No “payback” clause is required because the will, as reformed, passes the property of the testator, not JB, into the SNT and the trust is not a “self-settled” trust.

2. The reference to “quarterly” distribution by the trustee in paragraph one should be deleted.

In addition, while not part of the terms of the reformed trust in the will, the decree will require the following conditions of the trustee:

A. Annual Account – The trustee shall be required to file an annual account with the court by May 1st of each year.

B. The trustee may only resign and a successor may only be appointed upon application to and with the approval of this court.

C. Expenditure of trust funds – The trustee shall be permitted to expend up $500 for any single item up to a maximum of $1,000 per year from the trust without advance approval from the court, subject to review and approval by the court on the annual account and any intermediate or final trust accounting.

The construction of a will is not always discouraged. If the real intention of the testator shall be unraveled through construction of his will, courts must allow the same. Should you encounter the same predicament as in the case at bar, ask the assistance of a Kings County Probate Attorney and Kings County Estate Lawyers of Stephen Bilkis & Associates.

You may reach us at our toll free numbers or visit our nearest office located in the convenient areas of metropolitan New York. Call us now and we’ll give you legal advice for free.

Contact Information