Berman v. Sandler

• Decision Date: 10 January 1980
• Citation: 399 N.E.2d 17,379 Mass. 506
• Parties: Merrill C. BERMAN et al., Trustees, v. Allan I. SANDLER et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 17

399 N.E.2d 17

379 Mass. 506

Merrill C. BERMAN et al., Trustees, v. Allan I. SANDLER et al.

Supreme Judicial Court of Massachusetts, Middlesex.

Argued Nov. 7, 1979.

Decided Jan. 10, 1980.

Nicholas U. Sommerfeld, Boston, for plaintiffs.

Philip H. Suter, Boston, guardian ad litem, pro se.

Before HENNESSEY, C. J., and QUIRICO, KAPLAN, WILKINS and ABRAMS, JJ.

HENNESSEY, Chief Justice.

This is an action to reform a written trust agreement brought by the trustees of a trust created by the late Ellen B. Sandler. The defendants, beneficiaries under the trust, are the settlor's husband, named both in his individual capacity and as executor of the settlor's will, and their two minor children. A guardian ad litem was appointed to represent the interests of the minor children and those persons not yet in being who may become interested in the trust. Pursuant to Mass.R.Civ.P. 64, 365 Mass. 831 (1974), a judge of the Probate and Family Court Department of the Trial Court reserved and reported the case without decision to the Appeals Court. All parties thereupon filed a joint application for direct appellate review, which we allowed in accordance with G.L. c. 211A, § 10(A).

All parties are in agreement as to the facts. On July 9, 1968, Ellen B. Sandler, as donor, executed an agreement of trust naming Merrill C. Berman and herself as trustees. The trust, known as the Ellen B. Sandler Trust, was revocable and at the donor's death divided into a marital deduction trust and a non-marital deduction trust, known as Trust A and Trust B respectively. The marital deduction trust, the only one in question here, was set out in section 1 of article Third of the trust agreement. It was determined by a fractional share formula and contained the usual provisions necessary not only for its administration but also for its qualification as a marital deduction under I.R.C. § 2056(b). ¹ The first paragraph of section 1 provided for a smaller marital deduction to equalize the estates of the donor and her husband should the husband not survive his wife by six months.

On June 29, 1972, an attorney for Mrs. Sandler ² proposed an amendment to the trust, the purpose of which was to excise from the trust the so-called equalization language which the attorney feared might jeopardize qualification for the marital deduction. A paragraph was to be substituted identical to the first paragraph of section 1 of article Third of the original trust agreement except for the substitution of a presumption of the husband's survival in place of the equalization language. However, the scrivener omitted the words "the first paragraph of" from the clause detailing the language to be deleted. Thus, instead of deleting merely the first paragraph of the first section of article Third, the amendment excised the entire first section. In effect, the paragraphs specifying the essential elements of the marital deduction trust were replaced by one paragraph calling for the creation and funding of such a trust. The amendment was signed by Mrs. Sandler on October 1, 1972, and was accepted by the trustees. No one noticed the scrivener's omission until after Mrs. Sandler's death on August 4, 1978.

The trustees, joined by the guardian ad litem, ³ seek reformation of the amendment so that they may proceed with the funding of the trusts ⁴ and with the filing of necessary tax returns. Although the availability of the marital deduction is "a matter to be decided under Federal Tax law," any modification of the trust agreement to conform with the settlor's intent with respect to the marital deduction is "clearly . . . a matter of State law" which this court may properly decide. See Babson v. Babson, --- Mass. ---, --- ^A, 371 N.E.2d 430, 434 (1977), quoting from Mazzola v. Myers, 363 Mass. 625, 633, 296 N.E.2d 481 (1973). It is appropriate for us to render a decision in this case despite the parties' agreement that the amendment contained an inadvertent scrivener's mistake, cf. Pastan v. Pastan, --- Mass. ---, --- ^B, 390 N.E.2d 253 (1979); Babson v. Babson, supra at --- - --- ^C, 371 N.E.2d 430 (1977), because only an interpretive decision by the highest State court will dispose of contrary interpretations by the Internal Revenue Service. ⁵ See Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967). We conclude on the basis of the discussion below that the amendment should be reformed so as to delete only the first paragraph of the first section of article Third and to retain the remainder of section 1 as found in the 1968 trust instrument.

It is settled that a written instrument, including a trust, will be reformed on grounds of mistake upon "full, clear, and decisive proof" of the mistake. See Coolidge v. Loring, 235 Mass. 220, 224, 126 N.E. 276 (1920), quoting from Richardson v. Adams, 171 Mass. 447, 449, 50 N.E. 941 (1898); 4 A. Scott, Trusts § 333.4 (3d ed. 1967); 13 S. Williston, Contracts §§ 1548, 1585 (3d ed. 1970); Restatement (Second) of Trusts § 333, Comment e (1959). Cf. Franz v. Franz, 308 Mass. 262, 265-267, 32 N.E.2d 205 (1941) (deed). The doctrine of reformation for mistake with regard to trusts differs from that with respect to instruments such as contracts, however, in one important respect. In contract law, reformation will not be granted unless the parties' mistake is mutual. Eno v. Prime Mfg. Co., 317 Mass. 646, 650, 59 N.E.2d 284 (1945); Corbett v. Craven, 196 Mass. 319, 321, 82 N.E. 37 (1907), appeal dismissed sub nom. Kenney v. Craven, 215 U.S. 125, 30 S.Ct. 64, 54 L.Ed. 122 (1909). However, mutuality of mistake is not always required where trusts are concerned. Since a settlor usually receives no consideration for the creation of a trust, a unilateral mistake on the part of the settlor is ordinarily sufficient to warrant reformation. 4 A. Scott, Trusts § 333.4 (3d ed. 1967). Restatement (Second) of Trusts § 333, Comment e (1959). Included in the category of unilateral mistakes for which relief may be obtained is a settlor's acceptance of a trust instrument which, because of the mistake or inadvertence of the scrivener, fails to embody the settlor's intentions. Cf. Sampson v. Mudge, 13 F. 260, 261-262 (D.Mass.1882); Franz v. Franz, supra 308 Mass. at 266-267, 32 N.E.2d 205; Coolidge v. Loring, supra 196 Mass. at 225, 82 N.E. 37; G. Bogert, Trusts & Trustees § 991 (2d ed. 1962); 13 S. Williston, Contracts § 1549A (3d ed. 1970). The additional fact that the settlor in the case at bar has died should not foreclose relief, Roos v. Roos, 42 Del.Ch. 40, 44-45, 203 A.2d 140 (1964), and cases cited therein; W. Kerr, Fraud and Mistake 566 (7th ed. 1952); Restatement (Second) of Trusts § 333 (1959), so long as the evidence of mistake meets the requisite standard of proof.

In light of the foregoing principles, we now examine both the settlor's intent with regard to the trust amendment and the proffered evidence of mistake. To ascertain the settlor's intent, we look to the trust and its amendment as a whole and in particular focus on the circumstances known to the settlor upon execution of the amendment. See Putnam v. Putnam, 366 Mass. 261, 266-267, 316 N.E.2d 729 (1974). Consideration of the latter extrinsic evidence is proper where, as here, an amendment renders a trust ambiguous. See Id.

The present amendment, like the original trust, provides for the creation of a separate trust for the settlor's husband to be funded with "that fractional share of the trust property which . . . is needed to obtain the maximum marital deduction allowable in determining the federal estate tax on the donor's estate." This language standing alone demonstrates that the settlor intended that her estate avail itself of the maximum permissible marital deduction in computing the Federal estate tax. See Id. at 267, 316 N.E.2d 729. However, the amendment as drafted created doubts about the trust's qualifications for the marital deduction. If read literally, the amendment would replace the operative provisions of the marital deduction trust, without which the deduction would fail to qualify, with one paragraph specifying only the amount to be set aside for such a trust. Such a literal construction would not give...