Agnes M. Gassmann Revocable Living Trust v. Reichert
2011 WL 3668446, 2011 ND 169, 802 N.W. 2d 889 (2011)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A court may reform the terms of a trust, even if unambiguous, to conform to the settlor's intention if it is proved by clear and convincing evidence that a mistake of fact or law affected both the settlor's intent and the trust's terms. Once reformed, the trust must be interpreted as a whole, giving effect to its structural distinctions between specific allocations and the residual estate.
Facts:
- John A. and Agnes Gassmann, parents of four children including John T. Gassmann, created identical revocable living trusts to manage their assets.
- In 2001, John A. and Agnes deeded farmland into a limited liability limited partnership named 'the John Thomas Gassmann LLLP' (LLLP).
- Their respective trusts each held a 49.5 percent partnership interest, and their son, John T., who farmed the land, held a one percent interest.
- Article Five of the trusts, a section for specific allocations, directed that upon their deaths, their interests in the LLLP were to be distributed to 'my Trustee' for the benefit of John T. or his descendants.
- Article Ten of the trusts directed that the residue of the trust estates, after specific allocations, would be divided into four equal shares for each of their children.
- After the deaths of John A. and Agnes, a dispute arose among the four children regarding the proper disposition of the LLLP farmland.
Procedural Posture:
- Wells Fargo Bank, as trustee, petitioned the district court (trial court) for an order to clarify and reform the terms of John A. and Agnes Gassmann's trusts.
- The attorney who drafted the trusts submitted an affidavit alleging a mistake in the drafting.
- Mary Reichert, Jo Anne Dalhoff, and James Gassmann (John T. Gassmann's siblings) opposed the reformation.
- The district court found by clear and convincing evidence that the settlors intended John T. to receive the LLLP and that a drafting error had occurred.
- The district court ordered the trust reformed to direct the LLLP interest to the trustee of the John T. Gassmann Generation Skipping Trust.
- The district court also concluded that this reformed specific allocation was to be distributed to John T. in addition to his one-fourth share of the trust residue.
- Mary Reichert, Jo Anne Dalhoff, and James Gassmann appealed the district court's judgment to the Supreme Court of North Dakota.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Did the district court err in reforming a trust to correct a drafting mistake regarding the distribution of specific property, and in subsequently construing the reformed trust to mean that this specific allocation was in addition to the beneficiary's equal share of the trust's residue?
Opinions:
Majority - Marig, J.
No. The district court did not err in reforming the trust based on clear and convincing evidence of a scrivener's error, nor did it err in interpreting the reformed trust to grant the specific allocation in addition to the beneficiary's residual share. Reformation of a trust is permissible under N.D.C.C. § 59-12-15 when there is clear and convincing evidence that a mistake of fact or law caused the trust's terms to diverge from the settlor's intent. Here, the testimony of the drafting attorney, corroborated by his contemporaneous notes and the logical structure of the trust, provided sufficient evidence that the settlors intended for John T. to receive the LLLP interests. After reformation, proper construction of the trust required reading its provisions as a whole. The trust's structure explicitly distinguished between specific allocations under Article Five, which were to be made 'prior to the final allocation of assets under Article Six,' and the distribution of the residue. Therefore, the LLLP, as a specific allocation, passed directly to John T.'s trust and was not part of the residue to be divided equally among the four children.
Analysis:
This decision reaffirms the judicial power to reform donative instruments like trusts to correct mistakes and effectuate the settlor's true intent, provided the high evidentiary standard of 'clear and convincing evidence' is met. It underscores the weight given to the testimony of a drafting attorney, especially when supported by documentary evidence, in proving a scrivener's error. The case also provides a clear model for trust construction, emphasizing that courts must honor the instrument's structure, particularly the distinction between specific allocations and the residual estate. This precedent solidifies the principle that specific bequests are distributed 'off the top' before the remainder is calculated and divided, unless the instrument expressly directs otherwise.
