Agnes M. Gassmann Revocable Living Trust v. Reichert, 802 N.W.2d 889 (2011)

Facts

  • John A. Gassmann and Agnes M. Gassmann, a married couple, executed separate but identical revocable living trusts: the John A. Gassmann Revocable Living Trust and the Agnes M. Gassmann Revocable Living Trust.
  • The couple had four children: John T. Gassmann, Mary Reichert, Jo Anne Dalhoff, and James Gassmann.
  • The Gassmanns’ assets included farmland that had been conveyed to a limited liability limited partnership named the John Thomas Gassmann LLLP (LLLP).
  • Each parent trust owned a 49.5% partnership interest in the LLLP; John T. owned the remaining 1% interest and farmed the land.
  • The trusts addressed disposition of the LLLP interests in Article Five, Paragraph 6. Paragraph 6(a) stated that if John T. survived the decedent, the trust’s LLLP interest would “be handled pursuant to Paragraph 2 of Article Ten.”
  • Article Ten, Paragraph 2 set up trusts for each of the children, which the three nonfarming siblings later argued meant the LLLP interests were to be shared equally as part of the overall plan for the children.
  • Paragraph 6 also provided contingent distributions if John T. did not survive (to his descendants), and if neither John T. nor his descendants survived, the LLLP interest would become part of the residue of the trust estate.
  • After both John A. and Agnes died, the children disputed whether the LLLP interests were meant to pass exclusively to John T. (because he farmed the land) or instead be divided equally among all four children through the children’s trust provisions.
  • The attorney who formed the LLLP and drafted the parent trusts testified that Paragraph 6(a)’s cross-reference was a drafting mistake and did not reflect the Gassmanns’ instructions; he supported his testimony with contemporaneous handwritten notes from his meetings with the settlors.
  • Wells Fargo Bank, N.A., as trustee of the parent trusts, petitioned the North Dakota district court to reform the trusts to correct the asserted mistake and carry out the settlors’ intent.
  • Mary, Jo Anne, and James opposed reformation and appealed after the district court reformed the trusts and determined John T. would receive the LLLP farmland in addition to one-fourth of the remaining trust assets.

Issues

  1. May a court reform the terms of a revocable living trust, including language that appears unambiguous, when clear and convincing evidence shows the settlors’ intent and that the written terms were affected by a mistake?
  2. Did the district court err by reforming the trusts so that John T. receives the farmland held in the LLLP in addition to his one-fourth share of the residue of each parent trust?

Decision

  • The North Dakota Supreme Court affirmed the district court’s judgment reforming the trusts.
  • The court concluded the district court did not err in finding, on clear and convincing evidence, that the settlors intended the LLLP farmland to pass to John T. and that Paragraph 6(a) contained a drafting mistake.
  • The court affirmed the determination that, after reformation, John T. was entitled to receive the LLLP farmland in addition to his one-fourth share of the remaining trust assets.
  • The court remanded only for correction of clerical errors in the judgment.

Legal Principles

  • A trust may be reformed to conform to the settlor’s intent when clear and convincing evidence establishes both the settlor’s intent and that the trust terms were affected by a mistake of fact or law, including a drafting error.
  • Extrinsic evidence, including drafting-attorney testimony and contemporaneous attorney notes, may be considered to prove mistake and intent in an action for reformation.
  • Findings on intent and mistake are factual determinations; on appeal, those findings are reviewed under a clearly erroneous standard, and the trial court’s credibility determinations generally control if supported by the record.
  • When reformation is granted, the corrected terms govern distribution, including whether a transfer is treated as a specific disposition rather than part of the residuary estate.

Conclusion

Agnes M. Gassmann Revocable Living Trust v. Reichert held that the district court properly reformed John A. and Agnes Gassmann’s identical revocable living trusts based on clear and convincing evidence that a mistaken cross-reference in the LLLP-distribution provision failed to state the settlors’ intent, and the Supreme Court affirmed the resulting distribution awarding John T. the LLLP farmland in addition to his one-fourth share of the remaining trust assets, with a limited remand to correct clerical errors.