Correcting Documentary Misdescription With Reformation
| Jurisdiction | Colorado,United States |
| Citation | Vol. 39 No. 8 Pg. 97 |
| Pages | 97 |
| Publication year | 2010 |
2010, August, Pg. 97. Correcting Documentary Misdescription With Reformation
August 2010
Vol. 39, No. 8 [Page 97]
Trust and Estate Law articles are sponsored by the CBA Trust and Estate Section. Topics include trust and estate planning and administration, probate litigation, guardianships and conservatorships, and tax planning.
In 2009, the Colorado General Assembly enacted a fundamental change in the law of reformation. With this change, the Colorado statute now allows reformation in a broad set of factual circumstances.
Responding to the reformers' call for change, the Uniform Probate Code (UPC) now allows the use of reformation in many circumstances. In 2009, Colorado adopted this new UPC change. Colorado's statutory rule means that the equitable remedy of reformation will be used in many more probate cases to relieve misdescriptions in donative instruments. The new change also may find a more immediate call to duty in estate proceedings for 2010 decedents.
The 2010 Tax Repeal Anomaly
The Economic Growth and Tax Relief Reconciliation Act of 2001 called for a one-year elimination of federal estate tax and federal generation skipping transfer (GST) tax for decedents passing away in 2010.(fn1) When this law went into effect, 2010 seemed far in the future. Many expected that the U.S. Congress would address this one-year repeal well before the end of 2009. Congress did not. There are no signs that the repeal will be addressed this year.
The repeal leaves many estate plans (often drafted based on then-existing federal transfer tax and basis adjustment expectations) looking very strange and potentially funding unintended transfers. "Strangeness"-and even severe dysfunctional funding-can result from traditional marital deduction planning and the widespread use of formula clauses.
After 1982, the use of formula clauses became commonplace as estate planners sought to help families reduce federal estate and GST tax. The estate planner inserted such clauses with the intent to use each spouse's federal estate tax exemption amount. Such clauses helped estate planners fulfill their role.(fn2) However, without a federal estate tax-and depending on the clause used-implementation of carefully drafted estate documents could produce mistaken funding patterns that were never intended. Disclaimers often are considered one way to prevent unintended interpretations of estate planning documents. Another option may be useful, as well. For documents that are not redrafted, and when disclaimers cannot be secured, the newly strengthened equitable remedy known as reformation might provide a solution. This article provides an overview of reformation, including a discussion of the history of reformation, as well as current practice.
Overview of Reformation
Reformation is the longstanding and traditional remedy used to correct documentary misdescription cases. Reformation can be traced back to the English Court of Chancery. The Court of Chancery was a court of equity in England and Wales; there, the remedy was known as rectification. Reformation is a species of equitable remedy, like injunction or specific performance.
Applicability
Reformation lies when there is a well-proven discrepancy between what a document says and what the document was intended to say. In the words of a prominent trust case:
In other words, reformation conforms a document to what it was intended to say.(fn4)If, by mistake, an instrument as written, fails to express the true intention or agreement of the parties, equity will grant reformation of the instrument so as to make it correctly express the agreement actually made.(fn3)
The History of Reformation in Colorado
Before 2009, Colorado case law recognized reformation through a "latent-patent" lens that looked for ambiguity. Under this approach, a will or trust could be reformed if the document was ambiguous.(fn5) The reformation remedy could not be used for unambiguous documents. If a will's terms were unambiguous, a court would not admit extrinsic evidence to prove that a testator's intent was contrary to the plain language of the will.(fn6)
Well-settled Colorado case law held that when an unambiguous will is silent as to the disposition of certain property, the admission of extrinsic evidence of the testator's intent regarding such disposition is...
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