Wednesday, October 22, 2008
In an opinion issued today, the Indiana Supreme Court held that the reformation of trust provisions in two wills to comport with the testators' intent to avoid adverse income tax consequences had been proper. The suit had been filed by beneficiaries against the firm that had drafted the wills. The court here held that there had been a mistake in the trust language of the original wills, that the true intent was to avoid taxes and that the trusts had been reformed consistent with Indiana law.
The trial court had concluded that the IRS must accept the reformation and that the beneficiaries suffered no damages. The court here held that the beneficaries had expended time and money dealing with the consequences of the alleged drafting negligence and that these costs might establish damages even if no tax penalty is assessed. Further, "[w]hat is less clear...is what the reaction the federal authorities will have to all of this. More precisely is there some reason the I.R.S. may find to avoid the effect of the reformation in spite of this Court's opinion? We have no way to know one way or the other, and decline to speculate." Thus, the trial court's grant of summary judgment was inappropriate. (Mike Frisch)