## Facts

- Norman R. Carlson, Sr. and Hilda D. Carlson hired a law firm in 1988 to draft wills creating testamentary trusts intended to prevent federal estate and state inheritance taxes on property ultimately passing to their grandchildren.
- Each will placed residue into a trust naming a bank as trustee, with distribution authority over principal to benefit Norman R. Carlson, Jr. and Margaret Ann Carlson and remainder to their children.
- The trustee’s power to distribute principal used broad language (including “comfortable maintenance and welfare”), which a later consulted tax attorney believed was not limited by federal “ascertainable standards,” risking inclusion of trust assets in Norman Jr. and Margaret’s taxable estates.
- After both testators died in 1992 and the wills were probated, beneficiaries asked the drafting firm to seek judicial reformation.
- In 1995, a probate court reformed the trust provisions to conform to the testators’ tax-avoidance intent by inserting limiting “ascertainable standards” language and finding the trust had been drafted inconsistently with that intent.
- In 1999, the beneficiaries sued the drafting firm and an attorney for legal malpractice, alleging negligent drafting that created tax exposure and necessitated corrective litigation.
- The trial court granted summary judgment for defendants on the ground that, after reformation, plaintiffs could not prove damages.
- The Indiana Supreme Court granted transfer and reviewed whether the reformation was valid and, if so, whether plaintiffs could establish malpractice damages.

## Issues

1. Whether a court may reform testamentary trust provisions to add federal “ascertainable standards” to effectuate the testators’ tax-avoidance intent and prevent estate-tax inclusion.
2. Whether beneficiaries can maintain a legal malpractice claim for negligent estate-planning drafting when the instrument is successfully reformed in a manner effective for federal estate tax purposes, eliminating the alleged tax harm.

## Decision

- The court affirmed summary judgment for the law firm and attorney.
- The court held the trusts were properly reformed to include ascertainable standards consistent with federal estate tax law and the testators’ intent.
- Because the reformation was effective for federal estate tax purposes, the feared estate-tax inclusion did not occur, and plaintiffs failed to show compensable damages required for legal malpractice.

## Legal Principles

- Testamentary instruments may be equitably reformed when clear evidence shows the written terms fail to implement the testator’s intent.
- For federal estate tax purposes, discretionary powers over trust principal must be limited by an ascertainable standard (commonly health, education, support, or maintenance) to avoid treatment as an includible general power of appointment.
- A state-court reformation correcting a drafting mistake and implementing a preexisting tax-avoidance intent may be recognized for federal tax purposes when it is not a collusive device and is supported by findings reflecting original intent.
- Legal malpractice requires proof of damages; where corrective reformation eliminates the claimed tax injury, the damages element may fail as a matter of law.

## Conclusion

The Indiana Supreme Court upheld reformation of testamentary trusts to add federally compliant ascertainable standards consistent with the testators’ tax-avoidance intent and concluded that, because the reformation prevented the alleged estate-tax harm, the beneficiaries could not prove damages and their legal malpractice claim failed.


Carlson v. Sweeney, Dabagia, Donoghue, Thorne, Janes & Pagos, 895 N.E.2d 1191 (Ind. 2008)