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Court of Appeal affirms trial court order reforming $100 million trust

Crowe v. Tweten (2014) 2014 Cal.App. Unpub. LEXIS 9294 (California Court of Appeal, Fourth Appellate District, Division Two) [unpublished]. An elderly couple devised an estate plan with the assistance of counsel. They repeatedly stated that their intent was for the surviving spouse to inherit everything except for a “token,” tax-free gift to their children. Their attorney drafted the trust documents using a formula so that the children’s gift would vary depending on the amount of the federal estate tax exemption in the year that the first spouse died, with the surviving spouse receiving everything else. The attorney explained that this would result in the children receiving gifts ranging between $1 million and $3.5 million. But the attorney failed to draft the trust to accommodate the unlikely possibility that Congress would allow the federal estate tax to expire in 2010 and that one of the spouses would die that year. That was what happened, resulting in a formula that gave the children 100% of the deceased spouse’s share of the estate — some $50 million — and the surviving spouse nothing. The surviving spouse, whom GMSR represented on appeal, persuaded the trial court to reform the trust so that it conformed to the parties’ intent. On appeal, the children argued vigorously that, for multiple reasons, the trial court had no power to reform the trust and that it should be enforced according to its express terms. The Court of Appeal rejected these arguments and affirmed. It agreed with GMSR’s arguments that estate attorney’s drafting error caused the trust’s language to diverge from the actual intent and that this drafting error provided a basis for reformation.