Reformation: from Here to Uncertainty
| Publication year | 2015 |
| Pages | 59 |
Articles
Trust and Estate Law
Reformation: From Hereto Uncertainty
By Kerri L. Klein.
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 conservator ships, and tax planning.
Coordinating Editors
David W. Kirch, Aurora, of David W. Kirch, P.C.—(303) 671-7726, dkirch@dwkpc.net; Constance D. Smith, Denver, of Fairfield and Woods P.C.—(303) 894-4474, csmith@fwlaw.com
The law allowing reformation to correct mistakes in documents is still new in the state. Colorado courts have found standing to be a crucial component of a reformation claim, but limitations on the scope have yet to be clarified.
Since the Colorado General Assembly's passage of CRS § 15-11-806 in 2009,[1] the topic of reformation to correct mistakes has become an active issue in a growing number of cases and appears to be a new tool in the arsenal of many trust and estate litigators. CRS § 15-11-806 provides:
Reformation to correct mistakes. The court may reform the terms of a governing instrument, even if unambiguous, to conform the terms to the transferor's intention if it is proved by clear and convincing evidence that the transferor's intent and the terms of the governing instrument were affected by a mistake of fact or law, whether in expression or inducement.
While the text may appear straightforward, questions abound regarding the scope of the remedy, who may make an argument for reformation, and under what circumstances reformation may be allowed. To analyze the current treatment of these questions, it is necessary to first look at the history and the original intent of the statute.
The History
Reformation of donative documents in Colorado was controlled by common law until the effective date of CRS § 15-11-806. As discussed in the article "Correcting Documentary Misdescription With Reformation,"[2] the common law allowed reformation only in cases where the donative document was ambiguous.[3] Extrinsic evidence to prove the testator's intent was contrary to the terms of the document was not admissible without a finding of ambiguity.[4] The enactment of CRS § 15-11-806 has changed the law to now allow reformation of the text of a donative document "even if unambiguous."[5]
The Intent
CRS § 15-11-806 was passed in conjunction with other updates to the Colorado Uniform Probate Code.[6]The language of this statute was based largely on § 2-805 of the national Uniform Probate Code. The Comments to § 2-805 state that it was based on § 415 of the Uniform Trust Code (UTC). The Comments further state that § 415 of the UTC was based on § 12.1 of the Restatement (Third) of Property (Wills & Other Donative Transfers) (Restatement). The Comments to § 2-805 end by stating that it is "explained and illustrated" by the Comments of both § 415 of the UTC and § 12.1 of the Restatement.
Comment b of the Restatement provides the insight that the statute's underlying intention lies in equity:
Equity rests the rationale for reformation on two related grounds: giving effect of the donor's intention and preventing unjust enrichment. The claim of an unintended taker is an unjust claim. Using the equitable remedy of reformation to correct a mistake is necessary to prevent unjustly enriching the mistaken beneficiary at the expense of the intended beneficiary.[7]
Section 2-805 was intended to unify the treatment of inter vivos donative documents with the treatment of wills.[8] Under the UTC, reformation was allowed if it was "proved by clear and convincing evidence that both the settlor's intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement."[9] The concept that "mistake, whether in execution or in expression, should not be allowed to defeat intention" was growing in acceptance and § 2-805 was intended to codify this trend.[10]
The Grounds
The standard of proof necessary to meet the requirements of CRS § 15-11-806 is clear and convincing evidence. Comment d of the Restatement explains that this heightened standard is needed to prevent "giving effect to mistaken or fraudulent testimony."[11] The question then becomes: What should that evidence contain to be persuasive? Comment g of the Restatement indicates that two aspects must be proven. First, there must be evidence that a mistake of fact or law affected the terms of the document, and second, there must be evidence of the donor's actual intent.[12]
Standing
Comment g of the Restatement states that a petition for reformation may be brought by any interested person and that such a petition can be filed before or after death.[13] In re the Estate of Jeffrey M. Johnson[14] was the first reported case in Colorado to address the new statute. There, the Colorado Court of Appeals held that a divorced spouse lacked standing to bring a claim under CRS § 15-11-806 due to her removal as a beneficiary under CRS § 15-11-804(2).[15]
In Johnson, during the decedent's life...
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