For better or worse, change does not come frequently or consistently to New York's body of trust law. While some trusts and estates practitioners take solace in this fact, it is the source of frustration for many others who find that it too often fails to serve the modern needs of trust settlors, beneficiaries, and trustees.
Practitioners think that New York trust law, which traditionally has been among the most developed and respected in the nation, now all too often frustrates, rather than safeguards, a settlor's intent, often forcing the trustee and beneficiaries to deal with problems, or incur expenses, that otherwise could have been avoided. Aggravating the situation is the fact that much of New York's trust law is found in case law, making it more challenging to locate the governing rule, and sometimes creating ambiguity. These problems affect more than just the persons interested in any particular trust. Rather, they have systemic, state-wide repercussions. The reality is many other states have modernized and consolidated their trust laws, and, in so doing, have lured away from New York a tremendous amount of business directly and indirectly related to the trust industry, depriving New York of significant tax revenue and jobs.1
Fortunately, New York now finds itself in the midst of a once-in-a-generation opportunity to systematically review, modernize, and consolidate its trust law. On May 22, 2012, the EPTL-SCPA Legislative Advisory Committee, led by former Surrogate C. Raymond Radigan (Radigan committee), submitted to the legislature its Sixth and Final report recommending the adoption of a modified version of the Uniform Trust Code (UTC).2 That report contained requests that the legislature disband the Radigan committee after 20 years of dutiful service and that the Trusts and Estates Law Section of the New York State Bar Association (NYSBA) take over its independent legislative review function. It also explained that NYSBA and other organizations would undertake a full, independent review of the Radigan committee's UTC proposal.
Since then, NYSBA, the New York City Bar, and the Advisory Committee of the Office of Court Administration have joined forces to undertake an extensive review of the Radigan committee's UTC proposal in light of current New York law in order to make the appropriate recommendations to the legislature.3 That process is far from over. At the end of the day, what each of NYSBA, the City Bar, and the OCA recommends to the legislature, and what law is actually enacted, could very well vary from the Radigan committee's proposal.
Nevertheless, as this review process unfolds, practitioners might be left wondering what the future holds for New York trust law. This article attempts to provide at least a glimpse of the direction in which some urge New York needs to move. It does so by focusing on just a few of the provisions of the Radigan committee's proposal, which are presented in no particular order.4
Reform to Correct Mistakes
Proposed UTC §4155 states:
The court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor's intention if it is proved by clear and convincing evidence that both the settlor's intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement.
If enacted, this proposed rule would usher in a significant change from New York's traditional New York law on reformation, as it authorizes a reformation even in the absence of an ambiguous governing instrument. Traditionally, New York courts have been reluctant to exercise their reformation powers and would do so only to effectuate the creator's intent.6 The underlying theory is that the best evidence of a creator's intent is found in the unambiguous words of the governing instrument.7 Thus, courts would reform an unambiguous instrument only if the alleged mistake were evident on the face of the instrument.8 If the instrument is devoid of ambiguity, courts would refuse to allow the reformation.9 Extrinsic evidence is inadmissible absent ambiguity, even if it establishes that the facially unambiguous governing instrument contains a mistake.10
This traditional rule has been abandoned in many states and, even in New York, has been chipped away at by some courts and practitioners. The modern rule is based on the notion that the existence of clear and unambiguous language is not a bar to reformation.11 Indeed, some New York courts have reformed unambiguous instruments because of mistakes established only through extrinsic evidence.12 Other courts have done so only under limited circumstances, such as reforming in order to create a supplemental needs trust13 or to address changes in the tax laws.14 The proponents of the modern rule argue that it better equips courts to enforce the creator's intent, the ascertainment of which should not necessarily be limited to the four corners of the governing instrument. According to them, adherence to the ambiguity requirement in the face of clear and convincing extrinsic evidence of a mistake frustrates such intent. The high burden of clear and convincing evidence provides an adequate safeguard to deviations from the grantor's intent.
This more liberal approach was adopted by the Restatement (Third) of Property15 and formed the basis of UTC §415, that latter of which, in turn, was adopted by the Radigan committee in its entirety. Proposed UTC §415 explicitly authorizes the reformation of an unambiguous trust if there is clear and convincing extrinsic evidence of a mistake.
Limitations on Trustee Actions
Proposed UTC §1004 states:
(a) A beneficiary may not commence a proceeding against a trustee for breach of trust more than one year after the date the beneficiary or a representative of the beneficiary was sent a report that adequately disclosed the existence of a potential claim for breach of trust and informed the beneficiary of the time allowed for commencing a proceeding.