Trusts: Reformation and Rescission

Reformation is a legal process that allows a court to correct mistakes in a trust document. This can include mistakes in the language of the document, errors in the description of the trust property, or mistakes in the identification of the beneficiaries.

Changed circumstances is not a ground for reformation of a trust. Reformation is only available to correct mistakes that existed at the time the trust was created.

The effect of reformation is to correct the trust document to reflect the settlor's true intent. This may involve adding, deleting, or changing language in the document.

Rescission is the cancellation of a trust. This can occur for a variety of reasons, including fraud, undue influence, mistake, or illegality.

There are two types of rescission of a trust: void and voidable. A void trust is one that is invalid from the beginning, while a voidable trust is one that is valid at its creation but can be later rescinded.

The effect of rescission of a trust is that the trust is terminated, the trust assets are distributed to the beneficiaries, and the trustee is removed from office.

Reformation corrects mistakes in the trust document, while rescission cancels the trust. Reformation is available only for mistakes, while rescission is available for a variety of reasons, including fraud, undue influence, mistake, or illegality.

Whether a trust can be reformed or rescinded after it has been fully executed depends on the jurisdiction. Some jurisdictions allow reformation and rescission even after the trust has been fully executed, while others do not.

The statute of limitations for reformation or rescission of a trust varies from jurisdiction to jurisdiction. In some jurisdictions, the statute of limitations is the same as the statute of limitations for breach of contract, while in others it is the same as the statute of limitations for fraud or mistake.

Any of the settlor, the beneficiaries, or the trustee of the trust can bring an action for reformation or rescission of the trust.

In an action for reformation or rescission of a trust, the plaintiff must prove that the mistake, fraud, undue influence, or illegality was material and that it caused them harm.

Some of the defenses to an action for reformation or rescission of a trust include laches, estoppel, and unclean hands.

The remedy for reformation or rescission of a trust can include correcting the trust document, terminating the trust, and distributing the trust assets to the beneficiaries.

Some of the practical considerations in deciding whether to seek reformation or rescission of a trust include the cost of litigation, the likelihood of success, and the potential impact on the beneficiaries.