Failure To Provide ‘Clear And Convincing Proof" of Decedent’s Intent Mandates Denial Of Action To Reform Trust

In this case, the decedent, William McLellan, created an irrevocable life insurance trust for the primary benefit of his wife and children in 2006. The life insurance trust was funded with a $2.5 million life insurance policy. Plaintiff, Lois Jean McLellan, the spouse of the decedent and mother of two of decedent’s four children, was named as trustee of the life insurance trust. Mrs. McLellan filed a Complaint for Divorce on several months before the decedent’s death, but judgment was not entered prior to decedent’s death.

The life insurance trust was established by the decedent as a generation skipping trust that would hold the corpus during the lifetime of each child of decedent and make distributions to the issue of each child (i.e., to the decedent’s grandchildren) upon the death of the child. According to plaintiff, the decision to establish a generation skipping trust was made in 2006 when the federal estate tax exemption was $2,000,000.00; however, this no longer serves a useful tax purpose now, since the federal exemption amount has been raised to $5,000,000.00. As a result, plaintiff asked the Court to reform the life insurance trust in order to delete the generation skipping tax language and permit final distributions from the trust to be made directly to decedent’s four children. The defendants, two of the decedent’s four children, joined in the plaintiff’s request to reform the life insurance trust but also requested that plaintiff be removed as trustee due to the divorce action initiated by plaintiff that was pending at the time of the decedent’s death.

After a hearing, the Court denied the parties’ request for modification of the life insurance trust. The Court found that the trust was unambiguous on its face, and that the suggested changes “substantially modify the trust’s structure, distribution scheme, and beneficiaries.” Further, the Court held:

The reformation of a trust agreement in a probate action requires clear and convincing proof of the testator’s intent. … Reformation cannot be predicated upon sheer speculation as to what the parties would mutually have intended had the matter been brought to their attention prior to their death. … The doctrine has been applied, ‘only with caution and to clarify ambiguities in a will, usually where an unforeseen contingency occurred which might have resulted in unexpected intestacies,…or to achieve certain tax advantages without substantive changes in any substantive provisions of a will or trust.’… Plaintiff’s request for amendment fails to meet the clear and convincing evidence standard required under the doctrine of probable intent. No evidence is offered to show the only reason the grandchildren were designated as beneficiaries is to take advantage of a Federal estate tax exemption. Many other reasons potentially exist as to why the grandchildren were specifically designated as beneficiaries … The proposed amendment changes a substantive provision of the will which, if allowed, changes the beneficiary scheme to the detriment of future grandchildren. Moreover, the doctrine of probable intent cannot even reached by the court without a showing of ambiguity, confusing clause, or mistake. There are no ambiguities on the face of this trust as it pertains to the distribution scheme or intended beneficiaries. Therefore, this Court cannot permit modification premised on probable intent. [Citations Omitted]

The Court also held that the question of whether plaintiff should be removed as trustee was a matter of interpretation of the trust instrument, and thus a matter of law to be decided by the Court:

‘Whether a [contract provision or] term is clear or ambiguous is a question of law.’ … When the terms of a contract are clear and unambiguous, ‘it is the function of a court to enforce it as written and not to make a better contract for either of the parties.’ Absent ambiguity, the intention of the parties is to be ascertained by the language of the contract. [Citations Omitted]

After reviewing the trust instrument, the Court held that Ms. McLellan, the decedent’s spouse, was the trustee of the life insurance trust.

The case is annexed here – In the Matter of the Irrevocable Life Insurance Trust of William McLellan