A. In re William J. and Marian A. Dudley Trust Dudley Trust:
1. Case Summary:
In Dudley Trust
, William J. Dudley and Marian A. Dudley, husband and wife, acting as co-settlors, created their revocable trust. After the death of the first co-settlor, the trust agreement directed the trustee to make the following distributions from the marital trust established thereunder: (1) a sum equal to 0.142857% of the marital trust to the trustee of a separate discretionary trust for the benefit of William’s first sister; (2) a sum equal to 0.142857% of the marital trust to William’s second sister outright; (3) a sum equal to .0035714% of the marital trust to each of three named charities; and (4) the remaining balance of the marital trust divided equally among 23 named individuals.
Following the death of William (the first co-settlor to die), the trustee petitioned the Probate Court for instructions concerning distribution of the trust assets. “Petitioner calculated that if he distributed the trust assets in conformity with the percentage allocations in the trust document, [William’s sisters] would each take $1,345.57, the three charities would each get $33.64, and the remaining 23 individuals would each receive $40,830.92.”20
William’s sisters appeared in response to the petition.
William’s sisters alleged that the attorney who drafted the trust agreement had made a mathematical mistake “whereby she first stated the percentages in numerical number and then followed it with a percentage sign which essentially had the effect of moving the decimal over two points.”21
The sisters sought discovery of the drafting attorney’s file for any information it might provide regarding William’s intentions. However, the trustee presented testimony by another attorney who represented co-settlor Marian after William’s death (Marian having died by the time the hearing on the petition was held). Marian’s attorney “recalled that he had appraised Marian Dudley of the unusual distribution percentages in the trust agreement, but she emphatically replied that ‘she didn’t want to make any changes.’”22
The Probate Court denied the sisters’ request for discovery of the drafting attorney’s file and instructed the trustee to distribute the marital trust assets as set forth in the trust agreement: “[I]’m satisfied that any concerns as to the validity of those percentages of distribution had been addressed by [Marian’s attorney] and had been explained to his satisfaction and that there would be no reason for this Court to deviate from the four corners of this document or find that the terms and conditions of this trust are not, in fact, the intent of the settlor…”23
William’s sisters appealed.
The Court of Appeals analyzed the case under the law governing construction of ambiguities, despite the allegation by William’s sisters that a mistake had been made. Initially, the Court of Appeals decided that no patent ambiguity was present. “As reflected in petitioner’s proposed distribution table, the trust assets were capable of being distributed in conformity with the actual terms of the trust. Thus, these distribution provisions do not qualify as patently ambiguous, and the probate court correctly so held.”24
But the Court of Appeals went on to identify the existence of a potential latent ambiguity. “[R]espondents have demonstrated the potential existence of a latent ambiguity with respect to the trust agreement’s allocation percentages.”25
According to the Court of Appeals, three factors supported the conclusion that a latent ambiguity might exist. First, the Probate Court considered extrinsic evidence (i.e., the testimony by Marian’s attorney), which would only have been proper if an ambiguity was present. Second, the discrepancy between the small (“nominal”) amount of the distribution to the trust for William’s first sister and the large amount of the distributions to the remainder beneficiaries was “unusual”, according to the Probate Court. (This discrepancy also existed with regard to the gift outright to William’s second sister, although it was overlooked by the Court of Appeals.) Third, the record showed that co-settlors William and Marian themselves had established the separate discretionary trust for the benefit of William’s first sister, likely at substantial expense, “which would have made little sense if the settlors intended the discretionary trust to receive only the nominal amount set forth in the settlors’ trust.”26
Because of the potential existence of a latent ambiguity, the Court of Appeals held that the Probate Court erred, both by not considering extrinsic evidence of the co-settlors’ intentions at the time of the creation of the trust (such as the drafting attorney’s case file), and by instead considering irrelevant evidence – the testimony of Marian’s attorney – which related to a point in time long after the creation of the trust. “Consequently, we reverse the probate court’s [order] and remand for further proceedings regarding ascertainment of the settlors’ intent at the time they created the William J. and Marian A. Dudley Trust.”27
The Probate Court and the Court of Appeals both correctly found that there was no patent ambiguity in the trust agreement; that is, no uncertainty as to meaning appeared on the face of the instrument. The reason why there was no uncertainty on the face of the instrument was that the percentage figures used in the trust agreement reflected mathematical precision and had only a single possible meaning. For example, “0.142857% of the marital trust” meant trust assets having a value equal to 0.00142857 of the trust, which equated to the sum of $1,345.57. As the Court of Appeals recognized, “the trust assets were capable of being distributed in conformity with the actual terms of the trust.”28
A latent ambiguity requires that the language employed in the instrument must have more than one possible meaning, as showed by some extrinsic fact or extraneous evidence. Because the percentage figures used in the trust agreement reflected mathematical precision and had only a single possible meaning, it was simply not possible for any extrinsic fact or extraneous evidence to show the existence of a latent ambiguity. To continue our example, nothing would show that “0.142857% of the marital trust” meant anything other than trust assets having a value equal to 0.00142857 of the trust. Simply put, the percentage figures were the percentage figures. Therefore, the Court of Appeals erred when it professed to find the existence of a potential latent ambiguity.
In fact, the Court of Appeals never identified any uncertainty as to the meaning of the percentage figures used in the trust agreement. Instead, the Court of Appeals identified several reasons why the percentage figures might be inconsistent with, and fail to accurately set forth, the settlor’s intentions. Of course, if the percentage figures failed to accurately set forth the settlor’s intentions, then the percentage figures represented a mistake, not an ambiguity. The Court of Appeals should have considered whether a mistake was evident on the face of the instrument. If there was no evident mistake (and in this author’s view, there was none), then the contents of the scrivener’s file should have been inadmissible to vary the meaning of the trust agreement. “‘[T]estimony of the scrivener of a mistake in drafting a will or of an intention of testator different from that expressed in the will is not admissible, in the absence of ambiguity or mistake appearing upon the face of the will.’”29
If the suggested correct outcome seems harsh, it could have been circumvented by bringing a different type of action – a petition to reform the trust agreement based on a scrivener’s error. “[M]ichigan caselaw [h]as recognized the equitable power of a court to reform the terms of an instrument, including a trust if it is proven by clear and convincing evidence that the settlor’s intent and the terms of the instrument were affected by a mistake.”30
The distinction being drawn is between an action to construe the meaning of an instrument through interpretation (such as Dudley Trust
), and an action to reform the terms of an instrument based upon mistake.
B. In the Matter of Kenneth A. Hope Trust No. 1:
1. Case Summary:
In Hope Trust
, the settlor’s trust agreement “included a provision whereby each niece and nephew [of settlor] was to receive $2,500 upon [the settlor’s] death.”31
After settlor’s death, the successor trustee petitioned the Probate Court to reform the trust agreement so as to eliminate the gift provision for the nieces and nephews. One of the settlor’s nephews objected to the petition. The successor trustee presented an affidavit from the attorney who prepared the most recent version of the trust agreement, averring that the settlor intended to eliminate the gift provision for the nieces and nephews, but that the attorney had failed to draft the trust agreement consistent with the settlor’s intentions. The Probate Court granted the successor trustee’s motion for summary disposition, finding that the “evidence clearly and convincingly established a scrivener’s error”, and ordered the trust agreement reformed to eliminate the gift provision for the nieces and nephews.32
On appeal, the Court of Appeals noted three key factors. First, there was no claim that the gift provision contained a patent ambiguity. Second, there was no claim that the gift provision contained a latent ambiguity. Third, there was “nothing on the face of the trust as a whole to indicate that there was a scrivener’s error.”33
Consequently, because there was no ambiguity or mistake evident in the trust agreement, the Probate Court was required to determine the settlor’s intention from the trust agreement itself. “[E]xtrinsic evidence was not admissible to show that [the settlor] meant the opposite of what is expressly stated in [the gift provision.]”34
The trust agreement included the gift provision; therefore, it was the settlor’s intent to make the gift to the nieces and nephews, and the Probate Court erred by reforming the trust agreement to eliminate the gift provision.35
The Probate Court and Court of Appeals agreed that the facts of Hope Trust
did not present either a patent or latent ambiguity. Instead, they agreed that this case was subject to a mistake analysis, but they differed as to the propriety of making recourse to extrinsic evidence to prove the existence of the mistake. While the Probate Court permitted admission of extrinsic evidence (i.e., scrivener’s testimony) to prove the existence of the mistake, the Court of Appeals held that extrinsic evidence was inadmissible because no mistake was evident from the face of the instrument.
The Court of Appeals seemed not to fully appreciate that the case actually presented a petition to reform the terms of the trust agreement based on an alleged mistake; it was not an action to interpret the meaning of the trust agreement based on the presence of an ambiguity or mistake. If the Court of Appeals had recognized that it was dealing with a petition to reform a trust agreement, then it might have considered Section 7415 of the Michigan Trust Code. Shortly prior to the Court of Appeals’ decision in Hope Trust
on April 20, 2010, the Michigan Trust Code36
took effect on April 1, 2010. One provision in the Michigan Trust Code, Section 7415,37
addresses the situation presented by Hope Trust
. Section 7415 provides as follows: “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.”38
Section 7415 mirrors the situation in Hope Trust
, where the successor trustee petitioned the Probate Court to reform the terms of the trust agreement, based on evidence of an alleged scrivener’s error, which caused the terms of the trust agreement to fail to accurately reflect the settlor’s intention. The Probate Court’s order granting the reformation petition preceded the effective date of, and apparently did not mention, Section 7415. But Section 7415 was in place by the time of the Court of Appeals’ decision, and it provided direct support (albeit after the fact) for the Probate Court’s ruling. Moreover, the Court of Appeals’ ruling – that extrinsic evidence was inadmissible because there was no evidence of the scrivener’s error on the face of the document – was inconsistent with the terms of Section 7415, which does not require that the mistake be apparent on the face of the document. Instead, the mistake need only be proved by “clear and convincing evidence.” Even if Section 7415 did not technically govern the outcome in the case, because of the timing of its effective date, its principles should still have been followed because the provision “is consistent with [preexisting] Michigan caselaw[.]”39
C. In re Estate of Luscinda Jane Stillson:
1. Case Summary:
The dispute in Stillson Estate
concerned the interpretation of an alternate devise under testator’s will. As the primary devise, testator left her entire estate to her son Floyd, “‘should he be living at the time of my death.’”40
In a separate provision, testator made clear that she understood she was thereby disinheriting her other two sons, Gary and John: “‘Although I bear no ill-will toward either of my other sons, Gary Stillson and John Stillson, nor toward any friend or relative, for reasons of my own it is my desire that distribution of my estate be limited to my son Floyd Stillson as previously specified in this my Last Will and Testament.’”41
In the event that son Floyd predeceased her, testator made an alternate devise to “‘my other heirs at law.’”42
Testator was predeceased by her son Floyd and one of Floyd’s daughters. Testator was survived by three of Floyd’s four children and the children of Floyd’s predeceased daughter, as well as her sons Gary and John. Following testator’s death, sons Gary and John filed a petition for construction of the will, arguing that they should be included as “other heirs at law” under the alternate devise. Subsequently, the personal representative of testator’s estate filed a petition for determination of testamentary takers, arguing that only Floyd’s descendants should be considered as “other heirs at law” under the alternate devise.
At the initial hearing, the Probate Court determined that the meaning of the phrase “other heirs at law” was patently ambiguous, because it might mean “heirs other [than] John and Gary”, but it also might mean “heirs…other than Floyd[.]”43
“In part because if the parties are here debating its meaning it would seem to support the proposition that there’s an ambiguity. But I think that reasonable people may differ about its interpretation just looking at it from the four corners of the document.”44
Because it found the will to contain an ambiguity, the Probate Court ruled that extrinsic evidence would be considered to construe the meaning of the disputed phrase.
The Probate Court subsequently conducted an evidentiary hearing at which the parties were permitted to introduce extrinsic evidence of the testator’s intention with respect to the meaning of the alternate devise. Following the hearing, the Probate Court entered its opinion holding that the phrase “other heirs at law” included only Floyd’s descendants. The Probate Court reached this holding based on the testimony of the attorney who drafted testator’s will, which the Court found more credible than the other side’s evidence. “[The drafting attorney] testified that the Testator told him that she in no way wanted her sons, John and Gary, to be takers under the Will. She wanted all her property to go to her son, Floyd, and that if Floyd did not survive her, she wanted it to go to Floyd’s children. He further testified that he drafted the Will using the phrase ‘other heirs at law’ to mean only Floyd’s children, not John and Gary.”45
Sons John and Gary appealed the Probate Court’s ruling.
The Court of Appeals majority held that the Probate Court had erred in finding the will to be ambiguous. First, the Court of Appeals rejected the Probate Court’s observation that “if the parties are here debating its meaning it would seem to support the proposition that there’s an ambiguity.”46
According to the Court of Appeals, “[t]he fact that the parties disagree about the meaning of the relevant language does not, and cannot, create an ambiguity.”47
Second, the Court of Appeals decided that there simply was no ambiguity present in the will that justified the consideration of extrinsic evidence. “The language states that if Floyd predeceased Luscinda, which he did, then the estate is bequeathed ‘to my other heirs at law.’ The only reasonable construction of this language is that ‘other’ refers to those heirs other than Floyd, since it was Floyd who was originally to take the entire estate had he survived Luscinda.”48
The Court of Appeals went on to rule that the clause stating the testator’s intention to disinherit sons John and Gary was limited to the scenario where the original devise to Floyd was given effect: “[T]he explanatory paragraph that Luscinda intended to leave the entire estate to Floyd clearly stated that it was to be given ‘to my son Floyd as previously specified’ thus making clear that her intention was to leave the estate to Floyd, but if he did not survive her, for her ‘other heirs at law.’”49
Therefore, because the will contained no ambiguity, the Probate Court erred by considering extrinsic evidence of the testator’s intent. “[T]he extrinsic evidence in this case contradicted the express written language of the document, and parol evidence should not have been admitted.”50
Justice Markey dissented. She agreed with the Probate Court that the phrase “other heirs at law” was ambiguous. “A text is ambiguous ‘when it is equally susceptible to more than a single meaning.’”51
“From the four corners of the will it is equally likely that ‘other heirs at law’ might refer to those flowing only from Floyd, who preceded the testator in death, or might include the [other sons, John and Gary].”52
Based on the existence of the ambiguity, Justice Markey believed that the Probate Court did not err by considering extrinsic evidence of the testator’s intent.
The Court of Appeals was correct in concluding that there was “no ambiguity on the face of the document[.]”53
Testator made her primary devise “to my son Floyd Stillson.” Testator acknowledged her understanding that, by making her primary devise to Floyd, she was thereby disinheriting her other two sons: “Although I bear no ill-will toward either of my other sons, Gary Stillson and John Stillson, … for reasons of my own it is my desire that distribution of my estate be limited to my son Floyd Stillson as previously specified. . .” This statement, expressing the intention to disinherit Gary and John, was expressly limited to the scenario where Floyd survived testator and was able to take the primary devise (“…my desire that distribution of my estate be limited to my son Floyd Stillson as previously specified…”). In the event that Floyd predeceased her, Testator made her alternate devise “to my other heirs at law.” The necessary conclusion is that “my other heirs at law” meant the heirs other than Floyd. The Probate Court’s confusion as to the meaning of “my other heirs at law” was apparently prompted by speculation as to whether testator would have also intended to disinherit Gary and John in the event she was predeceased by Floyd. But testator addressed the disinheritance of Gary and John in her will and expressly limited such disinheritance to the scenario where Floyd survived testator. If testator had also wanted to disinherit Gary and John in the event that Floyd predeceased her, then she could have said so. But she did not, even though the possibility of Floyd predeceasing her was within her contemplation; after all, she did make the alternate devise in the first place.
D. In the Matter of the Jack E. Crane Trust Crane Trust:
1. Case Summary:
In Crane Trust
, the settlor executed a trust agreement that provided for distribution in equal shares to his two sons, upon the settlor’s death. The trust agreement further provided that, in the event a son died, then such deceased son’s trust share “shall be held in separate Trusts for such living issue [of the deceased son] by right of representation for the benefit of such grandchildren.”54
As for the definition of “issue”, the trust agreement provided that the term “‘shall be construed to include any adopted person and his or her descendants whether natural or adopted, but shall in no event, and under no circumstances, be construed to include any illegitimate child or children, as that term is defined by the statutes of the State of Michigan currently in force, unless such illegitimate child is specifically named in the Trust Agreement, or any amendments hereto.’”55
At settlor’s death, he was survived by his two sons, Jack D. and Donald. Subsequently, Donald married a woman, Lilia, who was pregnant with another man’s child. At the birth of the child, Vladislav, Donald put his name on the birth certificate as the child’s father. Then Donald died. In litigation before the Probate Court concerning Donald’s estate, Lilia and Jack D. fought for control of the estate; Jack D. unsuccessfully contested the validity of the marriage of Donald and Lilia; and the Probate Court ordered that Donald’s heirs included Lilia and Vladislav.
Lilia, acting on behalf of Vladislav, then filed a petition with respect to the Crane Trust, seeking various types of relief against Jack D. as successor trustee. In the trust litigation, Lilia filed a motion for an order construing certain trust terms, as well as a determination that Vladislav was a trust beneficiary. Jack D. as successor trustee opposed the petition and the motion. The Probate Court, considering whether the trust agreement was ambiguous, decided that it was unambiguous. “[T]herefore, extrinsic evidence in the form of the scrivener’s testimony was not admissible.”56
The Probate Court next considered the meaning of the term “issue” as used in the trust agreement, finding “that ‘issue’ in the Jack E. Crane Trust meant ‘an individual’s descendant,’ including adopted children and excluding illegitimate children.”57
Finally, the Probate Court considered the rights of Vladislav in the unambiguous trust agreement: “[V]ladislav Crane was Donald Crane’s issue for purposes of the Jack E. Crane Trust because he was not illegitimate and because the probate court had previously issued an order that Vladislav Crane was Donald Crane’s child.”58
Jack D. appealed.
On appeal, Jack D. argued that the meaning of “issue” as used in the trust agreement was patently ambiguous; that it was unclear whether “issue” was intended to include “non-biological children” like Vladislav; and that extrinsic evidence in the form of scrivener testimony should be admitted to establish the settlor’s intent. Interestingly, Jack D. argued that the term “issue” was ambiguous “because of three mistakes in the Jack E. Crane Trust language[.]”59
The first alleged mistake was the inclusion of the cross-reference to Michigan statute for the definition of “illegitimate child or children”: “[‘Issue’] … shall in no event, and under no circumstances, be construed to include any illegitimate child or children, as that term is defined by the statutes of the State of Michigan currently in force…”60
Jack D. argued that the cross-reference to Michigan statute was a mistake because there was no such statutory definition of “illegitimate child or children.” The Court of Appeals held that there was no mistake or ambiguity: “We agree with the probate court’s reasoning and conclude that a statutory definition of ‘illegitimate child’ existed under Michigan law [at MCL 710.39(3)] at the time the Jack E. Crane Trust was executed.”61
The second alleged mistake was the interchangeable use of the terms “issue” and “grandchildren” in the distribution language applicable at the death of one of settlor’s sons: “If any of said children shall have died or shall die leaving issue
then living, the Trust designated for such deceased child, together with all accumulations, shall be held in separate Trust for such living issue
by right of representation for the benefit of such grandchildren
Jack D. contended that equating “issue” with “grandchildren” was a mistake because “the two are not always the same.”63
The Court of Appeals agreed that “the issue of the settlor’s deceased child…is not necessarily the settlor’s grandchild in all circumstances, because an issue may be a descendant and not a child.”64
“However, in this case, Vladislav Crane is both the issue of the settlor’s deceased child and the settlor’s grandchild.”65
Therefore, the Court of Appeals found no mistake or ambiguity in this language.
The third alleged mistake was the allegedly “impossible situation” created by the following provision: “If any of Settlor’s children shall die leaving no issue then living, the Trust for his or her benefit shall terminate and all of the then remaining principal of such Trust, together with all accumulations, shall be equally divided among and distributed to the Settlor’s then living child or children, and the then living issue of any deceased child or children, such issue taking by right of representation.”66
According to Jack D., this provision made no sense, because the settlor only had two sons; if one son died without issue, then it would be impossible to divide the deceased and issue-less son’s trust share between the surviving son and the (nonexistent) issue of the deceased son. However, the Court of Appeals noted that “[t]he probate court [f]ound no mistake or ambiguity by considering the possibility that Jack E. Crane could have had more than two children” and concluded, “We find the probate court’s reasoning persuasive[.]”67
Finally, Jack D. argued that extrinsic evidence (i.e., the scrivener’s testimony) should have been admitted to show the existence of a latent ambiguity. “The scrivener testified that Jack E. Crane, the settlor, intended ‘issue’ in the Jack E. Crane Trust to only apply to biological descendants. Jack D. Crane contends that this demonstrates an ambiguity in the Jack E. Crane Trust…”68
The Court of Appeals rejected this argument, holding that it was clear from the four corners of the trust agreement that settlor intended for “issue” to include adopted, non-biological children. “We conclude that admitting the scrivener’s extrinsic evidence would impermissibly alter the meaning of the Jack E. Crane Trust.”69
Therefore, the Court of Appeals affirmed the Probate Court’s judgment that the trust agreement was unambiguous and that Vladislav was a beneficiary of the trust.
As to the ambiguity analysis, the Probate Court and the Court of Appeals both correctly ruled that the trust agreement was unambiguous. Jack D.’s effort to introduce scrivener testimony – that the settlor intended to excluded non-biological children from “issue” – was thwarted by the settlor’s express inclusion of adopted children in the trust agreement’s definition of “issue.” Notably, the definition of “issue” provision in the trust agreement was one provision not claimed to be ambiguous by Jack D. Moreover, all of the ambiguities alleged by Jack D. had to do with hypothetical situations that were not before the Court and were therefore irrelevant: no son died leaving an illegitimate child (first alleged ambiguity); no son died leaving issue other than a grandchild of settlor (second alleged ambiguity); and no son died without issue (third alleged ambiguity).
This review of the Court of Appeals’ 2010 extrinsic evidence cases suggests that Courts and litigants should carefully differentiate between ambiguities and mistakes in order to reach the right outcome. Courts and litigants should also distinguish between proceedings to construe an instrument and proceedings to reform an instrument because these proceedings are subject to different legal principles. It seems inevitable that litigants to trust and estate proceedings will continue to try and introduce extrinsic evidence of the decedent’s intentions to promote their own interests, and so this area of the law promises to continue to be frequently litigated.