As discussed in the previous postings, REFORMING a Last Will and Testament is much more difficult than CHANGING a Last Will and Testament. Reforming a Last Will and Testament can only occur after the death of a testator and involves a proceeding before the Surrogate’s Court.
Reformation involves removing or adding language to a Last Will and Testament or a Trust created under a Last Will and Testament (a Testamentary Trust), due to a mistake, oversight, or error, to better match the Last Will or the Testamentary Trust to the testator’s intentions. However, as the courts repeatedly state, they are generally loathe to reform testamentary instruments and, as a rule, will not, unless reformation effectuates the testator’s intent. i When construing a will, the testator’s intent is to be gleaned from a sympathetic reading of the instrument in its entirety and not from a single word or phrase. ii It is of paramount importance that the testator’s actual purpose be determined and effectuated to the extent it comports with the law and public policy. iii When the testator gives clear directions courts are to carry out the directions, not add to, or take from them. iv
Despite their inclination to not reform wills and trusts, courts have shown a willingness to reform wills to obtain the benefits of a supplemental needs trust where the testator’s intent to supplement, rather than supplant, government benefits is evident from the language of the testamentary instrument and such reformation would not change the testator’s dispositive plan.
Example:Rose of Commack, NY died in 2006 survived by four adult children: Irwin, Karen, Joel, and Susan, who is disabled. Her will stated, in part, the following:
I give, bequeath and devise to my Trustees, an amount equal to the Unified Credit Equivalent available at the time of my death. My Trustees shall hold such amount in Trust, as a separate Trust Fund to invest and reinvest the same, collect the income therefrom to pay all the net income to my daughter, SUSAN, during her lifetime in quarterly or more frequent installments, together with so much of the principal thereof as my Trustees shall at any time or from time to time, in their absolute discretion deem advisable to my daughter’s health, support and maintenance. Upon the death of my said daughter, SUSAN, my Trustees shall pay and distribute the principal then remaining to such of my issue then living in equal shares, per stripes. My Trustees shall pay all of the income of said Trust to my daughter, SUSAN, not less than quarterly during her lifetime. Upon the death of my daughter, SUSAN, my Trustees shall distribute the then principal, together with any accrued income of this Trust to my children, JOEL, IRWIN and KAREN, share and share alike, per stirpes.
Special counsel was appointed to represent Susan’s interests and the special counsel recommended the reformation of Rose’s will to reform the trust to create a supplemental needs trust. The New York State Department of Health (DOH) opposed the request to reform the trust into a supplemental needs trust. DOH asserted that reforming the trust to create a supplemental needs trust was not necessary or appropriate given the language the decedent used in the will to pay Susan all of the net annual income of the trust without any trustee discretion or interference about how the money is to be used. DOH acknowledged that the payment of income from the trust to Susan will likely disqualify her from some governmental benefits.
In analyzing the case, the Court first stated that New York law authorizes the creation of testamentary supplemental needs trusts when the following requirements are satisfied: (1) the person for whose benefit the trust is established suffers from a “severe or chronic or persistent disability”; (2) the trust evidences the intent that the assets be used to supplement, not supplant, government benefits; (3) the trust prohibits the trustee from using assets in any way that may jeopardize the beneficiary’s entitlement to government benefits or assistance; and (4) the beneficiary does not have the power to assign, encumber, direct, distribute or authorize distribution of trust assets. The Court also reiterated the policy of New York to encourage the creation of supplemental needs trusts to enhance the quality of a disabled individual’s life without jeopardizing Medicaid eligibility.
The Surrogate’s Court decided in favor of reformation. The reformation of the trust for met the criteria enunciated in the New York law (above). Susan, the income beneficiary, suffers from chronic disabilities. The will evidences Rose’s intention that the trust’s assets be used to supplement, not supplant, government benefits. It was significant that the will directs that the trust “shall not in any way jeopardize any monies that she is now receiving from any government agency or that she will be entitled to receive after my death.” Susan has no power to dispose of any trust assets. The requested reformation did not alter Rose’s testamentary plan, and the Court found the requested reformation to be in Susan’s best interests. v
To be continued….
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.