Florida Probate & Trust Litigation Blog

Florida Probate & Trust Litigation Blog

By Juan C. Antúnez of Stokes McMillan Antúnez P.A.

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2d DCA: Surviving spouse’s Homestead Rights vs. ex-spouse’s contractual rights under Marital Settlement Agreement. Who wins?

Posted in Homestead Litigation, Marital Agreements and Spousal Rights

Friscia v. Friscia, — So.3d —-, 2014 WL 4212689 (Fla. 2d DCA August 27, 2014)

2d DCA: “[T]he homestead status afforded to the Decedent’s interest in the marital home does not negate the terms of the MSA. . . . Because the MSA provides that it is binding on the parties’ “respective heirs, next of kin, executors and administrators,” . . . Second Wife [is] bound by its terms as well. Unfortunately for the Second Wife, the . . . provisions of the MSA result in her having a life tenancy in the Decedent’s interest in name only.”

It’s not unusual for marital settlement agreements (“MSAs”) to pop up as major players in contested probate proceedings (see here, here, here), what is unusual — which makes this case a “must read” for probate lawyers — is how the MSA’s contractual provisions trumped one of the sacred cows of Florida inheritance law: a surviving spouse’s homestead rights.

Case Study:

The decedent (“Husband”) entered into a MSA as part of his 2008 divorce from “Former Wife”. They had two children together. After the divorce Husband and Former Wife owned their “Marital Home” 50/50 as tenants in common. Under their MSA, Husband and Former Wife agreed she could continue living in the Marital Home until their youngest child graduated from high school, at which point Former Wife had the option of either buying out Husband’s 50% share in the property or selling it and splitting the net sales proceeds 50/50 with Husband.

Husband married again (“Second Wife”), then a few years later died in 2011. Second Wife was the personal representative of Husband’s estate. Husband’s youngest child had yet to graduate from high school in 2011, which meant Former Wife’s occupancy rights under the MSA remained in effect. Second Wife tried to circumvent the MSA by taking control of Husband’s 50% share of the Marital Home.

[1] Can a person have two homestead properties? YES

Second Wife argued the Marital Home didn’t qualify as creditor-protected homestead property because Husband wasn’t living in the house when he died, so she was free to take control of it as PR and sell it pay estate obligations. Wrong answer. As I’ve previously written here, under Florida law it’s possible to have more than one homestead property, even if you’re not living in the second house.

In this case, as in [Beltran v. Kalb, 63 So.3d 783 (Fla. 3d DCA 2011)], the final judgment of dissolution did not operate to transfer the Decedent’s interest and the former marital home had not been deeded when the Decedent died. Thus, the Decedent and the Former Wife still owned the former marital home as tenants in common at the time of his death. See Beltran, 63 So.3d at 786–87. And the fact that the Former Wife had been awarded exclusive use and possession of the marital home did not in itself extinguish its homestead protection. See id. at 787. The Decedent’s interest retained its homestead protection because the Decedent’s sons, whom he still supported financially, continued to live on the property. See id.; see also Nationwide Fin. Corp. of Colo. v. Thompson, 400 So.2d 559, 561 (Fla. 1st DCA 1981) (“[T]he Florida Constitution does not require that the owner claiming homestead exemption reside on the property; it is sufficient that the owner’s family reside on the property.”).

[2] Did the MSA’s sales clause waive homestead property’s creditor protection? NO

Having struck out on her first homestead argument, Second Wife then claimed that the homestead property’s creditor protection shield had been waived by the MSA’s sale clause, so here again she was free to take control of it as PR and sell it pay estate obligations. My guess is that most probate lawyers would have bet on Second Wife winning this point. Why? Because not too long ago in Cutler v. Cutler (a case I wrote about here), the 3d DCA held that a Will’s sale’s clause stripped the decedent’s homestead property of its creditor protection, freeing the estate’s PR to take control of the property and sell it to pay estate obligations. Why the different outcome this time around? Because for probate purposes the homestead property’s protected status gets decided when the decedent dies. If the sales clause applies at death (as it did in Cutler), creditor protection falls; if the sales clause does not apply at death (as in this case), creditor protection stands.

Here’s what the 2d DCA had to say in terms of the importance of timing:

As relates to this case, the operative time frame for determining homestead status is the time of the owner’s death because a property’s character as homestead dies with the decedent. Rohan Kelley, Homestead Made Easy, 65 Fla. B. J. 17, 18 (Mar. 1991); see also Wilson v. Fla. Nat’l Bank & Trust Co. at Miami, 64 So.2d 309, 313 (Fla.1953). “Although the property is no longer ‘homestead,’ the exemption from forced sale ‘bonds’ to the title and transfers to the heir or devisee, if the constitutional conditions are met.” Kelley, supra, at 18.

Again, because the MSA’s sales clause had yet to kick in when Husband died, it didn’t waive the homestead property’s creditor protection shield, which meant Second Wife couldn’t take control of it as PR and sell it to pay estate obligations:

[T]he Decedent’s agreement to sell the marital home was not necessarily inconsistent with the homestead right protecting his interest in the home from forced sale. See In re Ballato, 318 B.R. 205, 209 (Bankr.M.D.Fla.2004) (holding that a provision of a final judgment of dissolution providing for the sale of the marital home and the division of the proceeds does not in itself preclude homestead status on one spouse’s half interest); Barnett Bank of Cocoa, N.A. v. Osborne, 349 So.2d 223, 223 (Fla. 4th DCA 1977) (“[W]e determine the trial court correctly ruled that the property was subject to the homestead exemption claimed by the former husband, notwithstanding the former husband and wife having been divorced and the wife entrusted by the decree with custody of the children and possession of the home” until the youngest reaches majority.).

Similarly, the Decedent’s agreement to divide the proceeds was not necessarily inconsistent with his homestead right protecting his share of the proceeds from claims of his creditors. See Kerzner, 77 So.3d at 217 (holding that a husband’s agreement to sell the marital home and pay any “liens or encumbrances” on the home with the proceeds does not constitute a waiver of homestead protection from claims of his creditors because a judgment held by a creditor is not a lien or encumbrance on the homestead property).

Thus, the MSA provision providing for disposition of the marital home did not constitute a waiver of the Decedent’s homestead protections from forced sale or the use of any sale proceeds to pay his creditors.

[3] Will surviving spouse’s homestead rights trump ex-wife’s contractual rights under the MSA? NO

This is the part of the case I find most interesting. A key component of the MSA was Former Wife’s right to keep living in the Marital Home until the kids were out of high school. This contractual right conflicts directly with Second Wife’s right to a life estate in Husband’s 50% share of the Marital Home, which she’s entitled to under F.S. 732.401(1) if it’s homestead property. Not one to wait around, once she lost her homestead disqualification argument, Second Wife showed up at First Wife’s doorstep and demanded to be let in so she could enforce her homestead life-estate rights. As reported by the 2d DCA, this bit of “self help” didn’t end well:

Second Wife went to the former marital home “to exercise her right in the life estate” and Thomas [Husband's older son] refused entry. When the Second Wife persisted with her attempts to gain entry, Thomas called the police and they escorted the Second Wife from the property. [Second Wife] argued that, as a life tenant, [she] has an unrestricted right of access to the property.

Why didn’t Second Wife’s ploy work? Because under the MSA’s successors-in-interest clause, Husband’s executor (i.e., his PR), heirs,  and “next of kin” (including his Second Wife) were bound by the terms of the MSA as they relate to the Marital Home, even if that means his new wife ends up with a life estate “in name only.”

[T]he homestead status afforded to the Decedent’s interest in the marital home does not negate the terms of the MSA. If the Decedent had lived, the Former Wife would have been entitled to exclusive use and possession of the former marital home. . . . Because the MSA provides that it is binding on the parties’ “respective heirs, next of kin, executors and administrators,” . . . Second Wife [is] bound by its terms as well. Unfortunately for the Second Wife, the . . . provisions of the MSA result in her having a life tenancy in the Decedent’s interest in name only.

Lesson learned?

This “homestead” case has attracted a good amount of commentary (e.g., see here, here). My guess is that most probate lawyers will read it and scratch their heads in consternation, while most divorce attorneys will do the same and feel vindicated. Why? Because at its core this case really isn’t about homestead law, what it’s really about is the lengths to which our courts will go to enforce settlement agreements, even when that enforcement action takes place as part of a probate proceeding involving parties who never signed the contract (like a new wife!).

As noted by the 1st DCA in Pierce v. Pierce (a case I wrote about here), the “mediation and settlement of family law disputes is highly favored in Florida law.” My personal experience is that judges will bend over backwards to hold parties to their settlement agreements, especially in family disputes. If you’re involved in an inheritance dispute that revolves around enforcing an MSA, step one is to get the dispute before the right judge (which may be your family-law judge instead of your probate judge, see here). Step two: hammer away at the point that litigating parties make big sacrifices when they settle their disputes short of trial. The benefit of that bargain is meaningless if the deal goes up in smoke when one side dies. The way we make sure that doesn’t happen is by enforcing MSAs in the probate context, even if that means someone’s homestead rights get sacrificed in the process.

Changing trustees can be contentious, but there are ways for beneficiaries to ease the process.

Posted in Trust and Estates Litigation In the News, Trustees In Hot Water

“Choosing a trustee is hard — but getting rid of one is harder. Beneficiaries who choose to switch trustees can find the process costly, drawn out, and unpleasant. But it may be getting a bit easier. Last year, the Superior Court of Pennsylvania ruled that Jane McKinney, the beneficiary of her parents’ trusts, was allowed to switch trustees from PNC Bank — the trustee after a series of bank mergers — to SunTrust Delaware Trust, which was geographically closer to her home.” Source: Dumping a Trustee, by Amy Feldman, Barron’s (September 27, 2014).

As a family trust moves into its second or third generation, it’s almost inevitable that someone’s going to be unhappy with the trustee. The good news is that most well-drafted trust agreements include a mechanism for replacing trustees as and when needed. Now the bad news: in the absence of good drafting trust beneficiaries may have to sue for the removal of their trustee. In the past the only grounds for that kind of suit was a showing of some kind of malfeasance or negligence. This type of litigation is fraught with uncertainty and usually very expensive to pursue. Fortunately for Florida trust beneficiaries, as of 2007 we’ve adopted § 706(b)(4) of the Uniform Trust Code, which is the UTC’s “no fault” trustee removal provision. This UTC provision is incorporated into our trust code at F.S. 736.0706(2)(d), and it empowers a court to remove a trustee without cause if:

[R]emoval is requested by all of the qualified beneficiaries, the court finds that removal of the trustee best serves the interests of all of the beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available.

Here’s the official commentary to the UTC provision, explaining the rule’s underlying rationale:

It has traditionally been more difficult to remove a trustee named by the settlor than a trustee named by the court, particularly if the settlor at the time of the appointment was aware of the trustee’s failings. . . . Because of the discretion normally granted to a trustee, the settlor’s confidence in the judgment of the particular person whom the settlor selected to act as trustee is entitled to considerable weight. This deference to the settlor’s choice can weaken or dissolve if a substantial change in the trustee’s circumstances occurs. To honor a settlor’s reasonable expectations, subsection (b)(4) lists a substantial change of circumstances as a possible basis for removal of the trustee. Changed circumstances justifying removal of a trustee might include a substantial change in the character of the service or location of the trustee. A corporate reorganization of an institutional trustee is not itself a change of circumstances if it does not affect the service provided the individual trust account. Before removing a trustee on account of changed circumstances, the court must also conclude that removal is not inconsistent with a material purpose of the trust, that it will best serve the interests of the beneficiaries, and that a suitable cotrustee or successor trustee is available.

To date we haven’t had a Florida appellate decision discussing F.S. 736.0706(2)(d). So if you’re involved in a case seeking to apply this statute, for now all you can do is look to rulings from sister states that have also adopted the UTC’s “no fault” approach. Which brings me to In re Jane McKinney Descendants’ Trust, a 26-page scholarly, well written and thoughtful Pennsylvania appellate opinion that’s received a good amount of national attention and is a “must read” for trust lawyers working in UTC jurisdictions (like Florida). Here’s an excerpt from a recent Barron’s piece entitled Dumping a Trustee reporting on the case:

Last year, the Superior Court of Pennsylvania ruled that Jane McKinney, the beneficiary of her parents’ trusts, was allowed to switch trustees from PNC Bank — the trustee after a series of bank mergers — to SunTrust Delaware Trust, which was geographically closer to her home. The case was important because the court didn’t require McKinney to show any cause, such as negligence or bias in its dealings, issues that historically would have been required in forcing a trustee to step aside. Instead, the court ruled that “a string of mergers over several years, resulting in the loss of trusted bank personnel, coupled with the movement of a family from Pennsylvania to Virginia, constitutes a substantial change in circumstances.”

Although the UTC’s no-fault approach is a vast improvement over traditional trust law, it does impose one very significant hurdle: unanimous consent by all of the trust’s beneficiaries. As reported in the Barron’s piece, this may be a lot harder than you’d expect:

It’s especially problematic, if all (or a majority) of a trust’s multiple beneficiaries need to sign off on a change of trustee. A pending Washington, D.C., case revolves around the Tompkins family trust; some of its 94 beneficiaries want to switch trustees. While the Tompkins case may be extreme, getting agreement even among four children after the parents have died may prove difficult enough. “We’ve seen removal delayed because the beneficiaries cannot agree,” says Magill. “It forces shared decision-making that isn’t suited to the circumstances.”

Lesson learned?

Good drafting pays off; include easy-to-execute provisions for removing trustees in all of your trust agreements.

“Roughly 70% of families lose a chunk of their inherited wealth, mostly due to estate battles.” How to manage estate litigation risk? Think “process” . . . then think “mandatory arbitration”

Posted in Trust and Estates Litigation In the News

Source: When Heirs Collide, Wall Street Journal (Sept. 26, 2014).

Accenture estimates that $30 trillion will pass from Boomers to Millennials over the next 30 years. Will this intergenerational wealth transfer actually happen? Who knows? At one time Boomers were expected to benefit from a similar windfall of equally gargantuan proportions — some $41 trillion at the time of this study (2003). Then reality stepped in, the “great recession” hit (likely the worst global recession since World War II), incomes stagnated, people lost their jobs. More recent estimates now put the expected Boomer inheritance at $8.4 trillion.

Managing uncertainty:

Uncertainty is unavoidable, the best we can do is manage it. And good estate planning is all about managing uncertainty. The trick is knowing which uncertainties or “risks” to focus on. Traditionally, the risk factor most estate planners and their clients spent most of their time fretting about was taxes. In reality, estate litigation poses a much greater risk for most people. According to this study fewer than 2 out of every 1,000 Americans who die — 0.14% — owe any estate tax whatsoever because of the high exemption amount (which has more than quadrupled since 2001). By contrast, the potential wealth-destroying risk posed by estate litigation is exponentially greater. In fact, according to a study cited this weekend in a WSJ piece entitled When Heirs Collide, it’s a risk that actually impacts around 70% of all families:

Roughly 70% of families lose a chunk of their inherited wealth, mostly due to estate battles, according to research conducted over two decades by the Williams Group, a San Clemente, Calif., firm that helps families avoid such conflicts.

How to manage estate litigation risk? Think process . . . then think mandatory arbitration:

Until fairly recently most estate planners (and their clients) assumed there was nothing you could do from a planning perspective to improve the process for resolving estate disputes once they broke out, all we could do was focus our planning energies on prediction and prevention. Preventive planning is important, be we can’t stop there. If “[r]oughly 70% of families lose a chunk of their inherited wealth, mostly due to estate battles,” planning for a better dispute-resolution process needs to be a high priority. So how do we do that?

Step one, opt out of all the unpredictability and qualitative limitations inherent to an overworked and underfunded public court system that asks our probate judges to juggle thousands of cases at a time. (In Miami-Dade – on average – each of our probate judges took on 2,848 new cases in FY 2012-13, and in Broward the figure was even higher at 3,105/judge.) Step two, “privatize” the dispute resolution process to the maximum extent possible via mandatory arbitration clauses in all our wills and trusts, which are enforceable by statute in Florida (F.S. 731.401). I’ve written before on why I believe privately funded and administered arbitration proceedings are a better dispute-resolution process for estate litigation. Whether you agree with me or not, there’s no denying this fact: estate litigation is a real threat potentially impacting every one of our clients. One way or another these disputes will get resolved. Planning for that eventuality requires a focus on process, not just prevention.

Interview with a Probate Lawyer: Frank T. Adams

Posted in Interview with a Probate Lawyer, Marital Agreements and Spousal Rights

Frank T. Adams of Dunwody White & Landon, P.A. in Coral Gables, Florida, was on the winning side of Kelley v. Kelley, a case involving a collateral attack on a “quickie” Nevada divorce in connection with a Florida inheritance dispute.

Frank T. Adams of Dunwody White & Landon, P.A. in Coral Gables, Florida, was on the winning side of Kelley v. Kelley, an interesting 4th DCA opinion I wrote about here involving a collateral attack on a “quickie” Nevada divorce in connection with a Florida inheritance dispute.

I invited Frank to share some of the lessons he drew from this case with the rest of us and he graciously accepted.

[Q]  What strategic decisions did you make that were particularly outcome determinative at the trial-court level? On appeal?

[A] Once the decedent’s son abandoned the counts in the complaint challenging the validity of the will based on lack of testamentary capacity or mistake, he was left with his challenge to the exercise of the power of appointment in favor of Joanna by attacking the 1979 Nevada divorce. At both the trial court level and on appeal we relied on the fact that under Nevada law the son could not challenge the parent’s divorce. Nevada law precludes a challenge to the divorce proceedings from anyone other than the parties. If Nevada law would not allow Gordon, III to challenge the divorce, how could a Florida court grant those rights of the son. The court did not even need to get to the issue of the validity of the 1979 divorce. There was a 30+ year old decree from Nevada and no one with the right to challenge it. Obviously the decedent was not challenging it and the divorced wife (Gordon, III’s mother) could not challenge it because (i) she had been the petitioner in the divorce proceedings (is she going to tell the Nevada court that she committed a fraud upon it) and (ii) she IS REMARRIED (obviously she believes the 1979 divorce is valid). Since Gordon, III had no right to challenge the Nevada divorce, that count properly should be dismissed on a Motion to Dismiss.

[Q]  If you had to do it all over again, would you have done anything different in terms of framing the issues for your trial-court judge? On appeal?

[A] I think the courts got it right by seeing the case as controlled by the full faith and credit clause of the US Constitution. While we had several other arguments (in my mind most notably a lack of standing*) the best way for the courts to resolve the issue was to confirm the inability of our courts to overturn a sister-state’s order (from a case where the court had personal jurisdiction over the parties to that suit). We left the courts with no other choice, short of invalidating a 30 year old decree.

*The provisions in Gordon Jr’s Will exercising the power of appointment provided that if Joanna did not survive Gordon, Jr, then the trust assets (under the Gordon I trust agreement) were distributable to the charities. Since the charities were permissible appointees, even if Joanna was not the surviving spouse the trust assets should pass to the charities and not to Gordon, III, as the taker in default. The only remaining count did not claim that the charities were impermissible appointees.

[Q]  Do you think there’s anything that could have been done in terms of better estate planning to avoid this litigation or at least mitigate its financial impact on the family?

[A] In addition to being the attorney for the personal representative, I was Gordon Jr’s attorney and the draftsman of his Will. I had drafted Mr. Kelley’s prior documents and when he came in and told me that he wanted to cut his son out of his estate plan, obviously my antennae went up. I did what I have always done when such a case arises: (i) I discussed the client’s decision with him at length and, on more than 1 occasion; (ii) advised him that this was his, and only his, decision to make, but he needs to think long and hard about the decision – if you have any doubts, error on the side of including your child in the estate plan; (iii) spoke with Mr. Kelly again, a week after our meeting to confirm his decision to cut out his son; (iv) highlighted the fact that his son was cut out of the estate plan, when I forwarded the initial drafts to him; (v) went over every provision in the documents with Mr. Kelley, in person, before the documents were executed, making sure (a) he understood the documents; (b) he understood the consequences of his decision; (c)the documents accurately reflected his intentions; and (e) the decision was his alone (concluding in my own mind that he had testamentary capacity and was not being unduly influenced by anyone). Throughout the process I took copious notes, understanding that a will contest was likely to occur and that my estate planning file would likely be subject to disclosure through discovery. I feel I did all I could; and that was borne out by the fact that the counts in the original complaint based upon Incapacity, Mistake and Undue Influence, were all dropped by the son. During the estate planning, I really could not see coming a challenge to Mr. Kelley’s prior divorce (more than 25 years prior to the planning), in light of a marriage to Joanna of more than 20 years and the fact that I knew his ex-wife was also remarried.

[Q]  Any final words of wisdom for estate planners and probate lawyers of the world based on what you learned in this case?

[A] When a client wants to cut out a child you must immediately go into litigation mode. Expect there will be a contest, so make sure you take extra steps to make sure, in your own mind, that the testator has testamentary capacity. DOCUMENT your file, but keep in mind that it will become the subject of discovery.

One thing I do not believe I will do as a routine matter, will be to question the validity of the client’s prior divorce. While I will continue to question where and when the client got divorced and ask for a copy of the divorce decree for my file, I will not go beyond that and investigate the details of that divorce. While the court did not address the issue, what would have been the worst consequence if Gordon, III had been permitted to challenge the Nevada divorce, would have been the impact on both the estate planning and the probate. In the estate planning, it would have required the planner to interrogate his own client about the prior divorce and perhaps even discuss the matter with the divorce attorney who handled the matter. That would have been a nightmare. In the probate, when there is an intestacy or an election to take an elective share and either the decedent or the surviving spouse had been married previously, I require a copy of the divorce decree(s). (I have had a case where the decedent was never divorced from his prior spouse to the “surviving spouse” and was thus denied an elective share.) If the court had sided with Gordon, III, the probate attorney would have to not only obtain a copy of the divorce decree, but would also have to conduct a full investigation into the validity of those proceedings.

4th DCA: If a probate creditor files his “independent action” in the wrong division of the circuit court, should the action be dismissed or transferred?

Posted in Creditors' Claims

West v. West, — So.3d —-, 2013 WL 5989234 (Fla. 4th DCA November 13, 2013)

4th DCA: “[W]hile the circuit court is divided into divisions for efficiency in administration, all judges of the circuit court exercise the court’s jurisdiction, and cases filed in the wrong division should be transferred to the proper division.”

One of the decedent’s two sons claimed his father owed him over $50,000 when he passed away. To collect on this debt son filed a creditor claim against his father’s estate. Other brother objected, which triggered the obligation under F.S. 733.705 to file an “independent action” to adjudicate the claim. The creditor-brother, who also happened to be his father’s personal representative, had apparently gotten comfortable in the probate division, because he filed his independent action as an adversary proceeding in the circuit court’s probate division, rather than filing a new complaint in the circuit court’s civil division. According to local Administrative Order 6.102–9/08, that was a mistake. So how do you fix this mistake? Do you transfer the improperly filed claim or dismiss it? The probate judge dismissed it. Wrong answer says the 4th DCA, the case should have been transferred, here’s why:

The single question we answer is whether the trial court should have transferred the case to the civil division. The answer is yes.

In 2008, the chief judge of the Fifteenth Circuit signed Administrative Order 6.102–9/08, which declared that “independent actions” be filed in the civil division. The personal representative filed the claims in the wrong division, and he could not re-file his petition in the civil division because the statutory thirty-day period expired. See § 733.705(5), Fla. Stat. (2011). His only viable options were to have his claim transferred or to obtain an extension of time. The trial court denied him both.

We have previously acknowledged that, in a situation where a complaint should have been filed in the probate division, the court should not dismiss the case solely because it was filed in the wrong division. Grossman v. Selewacz, 417 So.2d 728, 730 (Fla. 4th DCA 1982) (citing In re Guardianship of Bentley, 342 So.2d 1045 (Fla. 4th DCA 1977)). “[W]hile the circuit court is divided into divisions for efficiency in administration, all judges of the circuit court exercise the court’s jurisdiction, and cases filed in the wrong division should be transferred to the proper division.” Id.

While the personal representative did not file a motion to transfer, he did argue that transfer was the correct remedy.

As the Third District explained:

In the instant case the [trial] court did not consider the question of transfer, and there is nothing in the record to show that it was requested to do so. Nevertheless, we feel that in construing the rule to produce a just result (as we conceive it our duty to do) it is necessary for us to hold that the court should transfer rather than dismiss the cause.

Gross v. Franklin, 387 So.2d 1046, 1048 (Fla. 3d DCA 1980) (emphasis added).

The trial court erred in not transferring the personal representative’s petition to the civil division.

Lesson learned?

In this case the 4th DCA addresses the same basic issue covered by the 3d DCA in its Kates opinion, which I wrote about here. Bottom line, all circuit court judges have the same inherent authority; it doesn’t matter if your judge’s deciding a will contest, adjudicating a murder trial, or enforcing an alimony claim: same authority. If you’re convinced a claim’s being litigated in the wrong division of the right circuit court (in other words, you’re not challenging venue or the circuit court’s subject matter jurisdiction), what you need to do is have the case transferred to the correct division — NOT move for dismissal. At its core this is an administrative-convenience argument, not a jurisdictional or venue challenge.

Note to readers:

The linked-to opinion above was first published in 2013. I try to report on cases as they’re published. I don’t always succeed. This blog post is part of an ongoing project to report on older cases I wasn’t able to get to previously.

4th DCA: What’s it take to collaterally attack a “quickie” Nevada divorce as part of a Florida inheritance dispute?

Posted in Marital Agreements and Spousal Rights, Practice & Procedure

Kelley v. Kelley, — So.3d —-, 2014 WL 4427275 (Fla. 4th DCA September 10, 2014)

4th DCA: “The driving force behind Nevada’s statutory impediment on collaterally attacking divorce decrees has its origins in the state’s decision to establish itself as a premiere divorce destination. A low barrier to attacking a Nevada divorce decree would have been bad for business.”

In this case a disinherited son contested his father’s estate on the grounds that his father wasn’t “legally” married at the time of his death, thus excluding his surviving spouse as a valid beneficiary of a multigenerational family trust. This kind of status-based challenge is a common line of attack in inheritance disputes. For example, inheritance cases can turn on a person’s status as a validly “adopted” heir (click here), or status as a true “descendant by blood” (click here), or status as a “posthumously” conceived child (click here), or status as a “legally” recognized father (click here), or status as a “legally” married spouse (click here). This is what happened in the Kelley case above.

Case Study:

The seeds of this controversy were planted over 50 years ago in 1956 when Gordon P. Kelley (“Gordon I”) created the Gordon P. Kelley Trust Fund, an irrevocable trust benefiting his children for life, including his son “Gordon Jr.” Under the terms of the Kelley trust when Gordon Jr. died he had a limited power of appointment, exercisable in his Will, to transfer the remaining assets of his trust to or in further trust for his surviving “spouse,” any descendants of Gordon I, and certain charities. If Gordon Jr. didn’t exercise this power, the trust fund divested 100% by default to his son, Gordon Kelley III (“Gordon III”).

Gordon Jr. exercised the power of appointment in favor of his current wife, Joanna Kelley (“Joanna”), and three charities. Gordon III got nothing. According to the 4th DCA Gordon III sought to invalidate his father’s power of appointment on several grounds, including Joanna’s status as a legally married spouse:

Gordon III sought a declaration finding Gordon Jr.’s exercise of his power of appointment invalid since Joanna was not his legal spouse, and thus was “not a permissible appointee” under the Kelley Trust. The count alleged that in 1979 Gordon Jr.’s first wife, Holly Burguieres, “appeared in Nevada for a ‘quickie divorce’” and secured a divorce decree after falsely asserting she was a resident of Nevada. Evidence of the ruse was allegedly memorialized by a financial agreement confirmed and incorporated by the trial court in its final dissolution judgment, which reflects that Burguieres actually resided in Mexico City.

Alleging that neither Burguieres nor Gordon Jr. satisfied Nevada’s six-week residency requirement, Gordon III contended the Nevada court lacked subject matter jurisdiction over their case, rendering the divorce decree void. Building upon this revelation, since Gordon Jr. was still legally “married” to Burguieres, his marriage to Joanna would be bigamous—and thus void as against public policy—making Gordon Jr.’s exercise of his power of appointment in Joanna’s favor invalid, since she did not fall within the four classes of beneficiaries permitted by the Kelley Trust. As a result, Gordon III averred “all assets of the [Kelley Trust] are distributable to [himself] as the default taker.”

Collaterally attacking a divorce judgment entered in another state:

Gordon III argued that according to the federal constitution’s “full faith and credit clause,” a Florida probate judge wasn’t required, or even entitled, to give effect to his father’s Nevada divorce judgment. Constitutional arguments come up from time to time in inheritance cases, but they’re always tough to make, and almost never work (see here, here). This case is no exception. Here’s the controlling test for collaterally attacking another state’s divorce decree on constitutional grounds, as articulated by the 4th DCA:

Consistent with full faith and credit, a divorce decree obtained in a foreign state is impeachable in Florida only if the judgment is susceptible to collateral attack under the foreign state’s jurisprudence. See Johnson v. Muelberger, 340 U.S. 581, 589 (1951). This rule “provide[s] a substantial degree of uniformity regarding the vulnerability of divorce decrees to collateral attack,” enhancing the finality of each state’s judgments. In re Marriage of Winegard, 278 N.W.2d 505, 508 (Iowa 1979). Furthermore, collateral attacks wilt against judgments involving parties who have had their day in court; where “there has been participation by the [parties] in the divorce proceedings” and “the [parties] ha[ve] been accorded full opportunity to contest the jurisdictional issues,” any further attack on the judgment is barred by res judicata. Sherrer v. Sherrer, 334 U.S. 343, 351 (1948) (footnote omitted); Coe v. Coe, 334 U.S. 378 (1948).

Did the argument work in this case? No. Why? Because both parties to the Nevada divorce (Gordon Jr. and Burguieres) participated in and accepted the court’s final judgment. In other words, they had their day in court and accepted the final outcome. Under these circumstances, a third party (Gordon III) is barred as a matter of law from re-opening the Nevada divorce by challenging the outcome years later in a Florida courtroom.

In this case, Burguieres initiated the Nevada dissolution proceedings by filing a verified complaint with the trial court, in which she attested to Nevada’s limited jurisdictional requirements. After Gordon Jr. answered the complaint without raising a jurisdictional challenge, Burguieres appeared in court and confirmed her residency allegations. . . . Since both Gordon Jr. and Burguieres participated in the divorce proceedings and are bound by the Nevada decree, Nevada law precludes Gordon III’s collateral attack. The Faith and Credit Clause therefore bars his full assault on the Nevada judgment in Florida.

By the way, it’s no accident that out-of-state challenges to Nevada divorces are so difficult. Having it any other way is bad for business. As noted by the 4th DCA:

The driving force behind Nevada’s statutory impediment on collaterally attacking divorce decrees has its origins in the state’s decision to establish itself as a premiere divorce destination. A low barrier to attacking a Nevada divorce decree would have been bad for business. As one commentator explains:

 To escape states with harsh laws, people with money (or, more frequently, wives of people with money) could get on a train and head for a “divorce mill.” Throughout much of the twentieth century, the divorce mill was Nevada. It needed the business, and moral qualms, for whatever reason, have never played a big role in Nevada jurisprudence. In 1927, Nevada reduced its residence period to three months, and in 1931, in a “frenzied attempt to head off … threatened rivalry” from other states, Nevada reduced the residence period still further, to six weeks. “Going to Reno” became almost a synonym for getting a divorce.

 Lawrence M. Friedman, A Dead Language: Divorce Law and Practice Before No–Fault, 86 Va. L.Rev. 1497, 1504–05 (2000).

What about non-U.S. divorce decrees?

Does it matter that the foreign divorce decree at issue in this case was entered in a sister state (i.e., Nevada), vs. a foreign nation (e.g., Mexico)? Yes. Divorce decrees entered in non-U.S. courts aren’t nearly as bullet proof as those entered in sister states (an important distinction to keep in mind in a state like Florida, which has the 4th largest immigrant population in the nation (one-in-five Floridians are foreign born)):

Gordon III contends the Florida Supreme Court’s decision in In re Estate of Kant, 272 So.2d 153 (Fla.1972), provides the child of a decedent, as a lineal descendant, with unbridled “standing to challenge and impeach the validity of a divorce decree [in Florida] when it will affect the validity of a later marriage to the reputed surviving spouse.” In Kant, the deceased’s children alleged in an answer to a petition for letters of administration that the deceased’s marriage to his current wife was void since the wife’s prior divorce to a different spouse in Mexico had never been “rendered.” In re Estate of Kant, 265 So.2d 524, 525 (Fla. 3d DCA 1972). At trial, the children presented evidence that the divorce decree was actually a forgery. Kant, 272 So.2d at 155. As a result, the trial court denied the petition for letters of administration, finding that the current wife “was in fact not the widow of the deceased because she had not been lawfully divorced from her prior husband.” Id.

Did the U.S. vs. non-U.S. divorce distinction ultimately matter in this case? No. Vegas may be its own form of alternate reality (like Miami!), but it’s still part of the U.S. Bottom line: the Nevada divorce stands; Gordon III’s claims fail.

The crucial difference between Kant and this case is that the Full Faith and Credit Clause was not at issue, since “[s]tates are not required to give full faith and credit to divorces rendered in foreign nations,” such as Mexico. In re Schorr’s Estate, 409 So.2d 487, 489 (Fla. 4th DCA 1981) (emphasis added). Bound by the precepts of full faith and credit, Gordon III was required—unlike the children in Kant—to demonstrate his ability to bring the action under the foreign state’s jurisprudence. Since, as discussed previously, Gordon III failed to meet this hurdle, his action was impotent and properly subject to dismissal.

M.D.Fla: Can a corporate trustee caught in middle of on-going divorce litigation sue one of the ex-spouses for unjust enrichment?

Posted in Marital Agreements and Spousal Rights, Practice & Procedure

Berlinger v. Wells Fargo, N.A., Slip Copy, 2014 WL 4071667 (M.D.Fla. August 18, 2014)

Can a corporate trustee caught in middle of on-going divorce litigation sue one of the ex-spouses for unjust enrichment? Court says “YES”

This isn’t the first time the trusts at the center of this on-going divorce battle have made it into a published court ruling. I previously wrote about these trusts here, in the context of a controversial appellate ruling by the 2d DCA clarifying when spendthrift/ discretionary trusts are subject to claims for unpaid alimony. This time around the battle ground is a federal court (note the increasing “federalization” of trust disputes, see here), and the question to be decided is whether a trustee can use a common-law based claim of “unjust enrichment” to recoup trust assets it’s being sued for having improperly distributed.

For reasons not discussed in the linked-to order, in framing its claims for recoupment Wells Fargo didn’t rely on F.S. 736.1018, a provision in our trust code that specifically authorizes trustees to sue for the return of improperly-distributed trust funds. I’m not sure if this omission was by design or not, and it may not ultimately matter. Why? Because F.S.  736.0106 tells us trust litigation isn’t governed exclusively by our trust code, to the extent not specifically preempted, the common law of trusts and principles of equity continue to apply.

Can a corporate trustee caught in middle of on-going divorce litigation sue one of the ex-spouses for unjust enrichment? YES:

The plaintiffs are suing Wells Fargo, alleging improper trust distributions were made on behalf of their father, “Bruce,” to their mother, “Sue,” in connection with their 2007 divorce settlement. Bruce is the primary beneficiary of the trusts, although his three children are also beneficiaries. The plaintiffs are Bruce and Sue’s three children. Wells Fargo and Bruce served as co-trustees of the trusts at the time the distributions were made. The contested distributions include $2 million to Sue, on behalf of Bruce, for the equitable distribution of marital assets and monthly distributions to provide alimony and support payments due from Bruce to Sue pursuant to a divorce settlement. In other words, trust funds that were supposed to benefit both Bruce and his children . . . were used to pay Bruce’s individual debts (i.e., settle his divorce). Why anyone at Wells Fargo thought it was a good idea to go along with this plan is beyond me.

Anyway, although we won’t know who’s ultimately at fault here until the case is tried, for now we do know this: if anyone got trust funds they weren’t supposed to get, it wasn’t Wells Fargo. So what to do now that they’ve gotten themselves caught up in this mess? Answer: sue both Bruce and Sue for the return of the trust funds their children are now contesting.

Now back to the unjust-enrichment claim. Is it viable in this kind of case? I don’t see why not. More importantly, the judge agrees it’s viable; here’s why:

Sue contends that the unjust enrichment claim . . . should be dismissed for failing to state a claim for which relief can be granted. Wells Fargo asserts that to the extent it is liable to plaintiffs for payments provided to Sue, it would be inequitable for Sue to retain those funds. Thus, Wells Fargo argues it has properly alleged a valid claim for unjust enrichment.

“A claim for unjust enrichment has three elements: (1) the plaintiff has conferred a benefit on the defendant; (2) the defendant voluntarily accepted and retained that benefit; and (3) the circumstances are such that it would be inequitable for the defendants to retain it without paying the value thereof.” Virgilio v. Ryland Grp., Inc., 680 F.3d 1329, 1337 (11th Cir.2012); Florida Power Corp. v. City of Winter Park, 887 So.2d 1237, 1241 n. 2 (Fla.2004).

In this case, Wells Fargo alleges it conferred a benefit on Sue pursuant to a divorce settlement by distributing principal or income on a monthly, on-going basis to provide for alimony and support payments. In addition, Wells Fargo distributed $2,000,000.00 to Sue, on behalf of Bruce, pursuant to the divorce settlement. Wells Fargo also alleges that Sue voluntarily accepted and retained these benefits and if plaintiffs prevail in the underlying action, Sue’s retention of the benefit conferred would be inequitable. Accordingly, the Court finds the allegations set forth a plausible claim for unjust enrichment.

What about standing?

As a fallback Sue argued that if the claim for unjust enrichment against her was viable, Wells Faro lacked standing to assert it because the funds came from the “Trusts” not Wells Fargo. Strike two, here’s why:

As discussed above, plaintiffs allege Wells Fargo made improper distributions from the Trusts to Sue, on behalf of Bruce. If plaintiffs succeed, Wells Fargo will be held liable for the distributions of the funds, not the Trusts, and it would be inequitable for Sue to keep those funds at Wells Fargo’s expense. . . . Therefore, this Court finds Wells Fargo has standing to bring a claim for unjust enrichment against Sue.

When to “Decant” a Trust. It’s getting easier to tinker with irrevocable trusts. Here’s how it works.

Posted in Practice & Procedure, Probate & Guardianship Statutes

Decanting lets trustees re-write irrevocable trust agreements by figuratively pouring the assets from an old trust into a new one.

If you’re working with an irrevocable trust that needs fixing for some reason and the trust agreement includes an “absolute” power to invade trust principal, your first thought should be to simply re-write the trust by using Florida’s “decanting” statute (F.S. 736.04117). Decanting lets trustees re-write irrevocable trust agreements by figuratively pouring the assets from an old trust into a new one. Under Florida’s decanting statute, an “absolute” power to invade principal means a power that’s not limited to specific or ascertainable purposes, such as health, education, maintenance, and support (“HEMS”), whether or not the term “absolute” is used.

Decanting’s all the rage in estate planning circles, as it should be: it’s a legislatively-sanctioned way to privately re-write an irrevocable trust without going through the costs and delays inherent to a judicial modification proceeding. (Yes, this all gets done out of court.) For a solid general introduction to decanting you’ll want to read Decanting is Not Just for Sommeliers, recently co-authored by Texas law prof. Gerry W. Beyer. Here’s an excerpt:

Times change, needs change, and laws change thus giving a trustee motivation to decant. Examples of reasons to decant include to:

  • Correct a drafting mistake;
  • Clarify ambiguities in the trust agreement;
  • Correct trust provisions, due to mistake of law or fact, to conform to the grantor’s intent;
  • Update trust provisions to include changes in the law, including new trustee powers;
  • Change situs of trust administration for administrative provisions or tax savings;
  • Combine trusts for efficiency;
  • Allow for appointment or removal of trustee without court approval;
  • Allow for appointment of a special trustee for a limited time or purpose;
  • Change trustee powers, such as investment options;
  • Transfer assets to a special needs trust;
  • Adapt to changed circumstances of beneficiary, such as substance abuse and creditor or marital issues, including modifying distribution provisions to delay distribution of trust assets;
  • Add a spendthrift provision;
  • Divide a “pot trust” into separate share trusts;
  • Partition of trust for marital deduction or generation-skipping (GST) transfer tax planning.

In trusts and estates circles, you know you’re on to a good thing when an idea’s codified by lots of state legislatures, which is exactly what’s happened with decanting. In 1992 New York became the first state to enact a decanting statute. As of 2014, at least 22 states have followed suit: Alaska, Arizona, Delaware, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, Nevada, New Hampshire, New York, North Carolina, Ohio, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Virginia, Wisconsin and Wyoming. For more on how to navigate Florida’s particular brand of trust-decanting statute you’ll want to read Trust Law Decanting: It’s Nothing to Wine About by Naples attorney Laird Lile, and Fixing Old Trusts and Exploiting New Opportunities: Florida’s Decanting Statute by Boca Raton attorney Thomas Katz.

And last but not least, before you pull the trigger on one of these transactions you’ll want to do a deep dive into all the potential tax traps that seem to bedevil estate planners at every turn. Don’t count on a PLR for cover; the IRS recently issued Rev. Proc. 2014-3, which placed decanting on its “no-ruling” list for most of the income, gift, and GST-tax issues you’d be interested in. Pending IRS guidance and case law developments, to wrap your arms around the possible tax effects of  a decanting you’ll want to read An Analysis of the Tax Effects of Decanting, co-authored by tax super star Jonathan Blattmachr.

Probate judge to personal representatives: “there is a higher power that [you're] accountable to and, short of God, that’s me.” 4th DCA says not so fast.

Posted in Compensation Disputes, Creditors' Claims, Practice & Procedure

Vazza v. Estate of Vazza, — So.3d —-, 2014 WL 4082864 (Fla. 4th DCA August 20, 2014)

“[R]egardless of whether the creditors gave approval or not, there is a higher power that [personal representatives are] accountable to and, short of God, that’s me.”

On average Broward County’s probate judges each took on 2,848 new cases in FY 2012-13 (see here). The unavoidable consequence of that kind of case load is what’s been referred to as the “cold judge” factor; a term coined in a 2009 ABA Litigation magazine piece entitled Persuading a Cold Judge.

Probate courts are especially prone to cold judging. Not because our probate judges don’t want to do the right thing (I believe most do), but because Florida’s state court system is so starved for resources they’re tempted to move cases through the system as quickly as possible. One way to do that is not requiring evidentiary hearings before ruling on temporary injunctions or “freeze” orders. Most of the time these no-evidence freeze orders don’t get appealed, but when they do, our appellate courts will step in from time to time and reverse them (see here, here). That’s what happened in this case.

Case Study:

The 4th DCA’s linked-to opinion above provides close to zero factual context for its ruling. Fortunately the case was reported on in the DBR in a piece by reporter Noreen Marcus entitled 4th DCA — Acting Somewhere Between God And Judge — Reverses Ruling Made Without Evidentiary Hearing. According to the DBR report, the decedent in this case is Richard R. Vazza, a wealthy real-estate developer who personally guaranteed loans worth $140 million. After his death Mr. Vazza’s creditors accused two of his sons of improperly siphoning funds out of the probate estate. They sought an order from the probate judge compelling the decedent’s sons, who were also serving as personal representatives, to return over $800 thousand in contested fees. The sons cried foul, claiming they’d acted with creditor approval. This argument didn’t get very far with the judge. As reported by the DBR:

Broward Circuit Judge Mark Speiser seemed to side with the creditors when he said the court registry would retain $855,253 in disputed salaries and fees to the Vazzas. He issued his Dec. 18, 2013, ruling without first holding an evidentiary hearing. According to a transcript quoted by the sons’ lawyers, Speiser stated, “regardless of whether the creditors gave approval or not, there is a higher power that they’re accountable to and, short of God, that’s me.”

Probate judges will often go out of their way to tell the lawyers involved in this kind of hearing that the ruling is temporary in nature and in no way reflects how he or she is going to ultimately rule on the merits of the case, which is apparently what happened in this instance. As reported by the DBR:

When he required the Vazzas to turn over the $855,253 to the court registry, Speiser explained: “But, again, I’m probably being redundant and repetitious, but I want to do so to overemphasize, I am not ruling today that they’re not necessarily entitled to any or all of that money. They may very well be entitled to all of it, but the proper process and procedure is that that has to get prior court approval.”

I have no doubt the judge’s comments were sincerely made. However, in the real life push and pull of contested probate proceedings this kind of ruling is inevitably viewed as a big win for the prevailing party. Why? Because it’s perceived as a strong indication of how your judge is “leaning” in terms of a final ruling, which isn’t a problem if the judge’s “leanings” are based on actual evidence. What is a problem is when the court skips the evidence step and rules on nothing other than uncorroborated argument of counsel, which is apparently what happened here. The DBR quotes the Vazzas’ lawyer, Gerald Richman of Richman Greer in West Palm Beach, as follows:

Richman characterizes what Speiser did as granting a mandatory injunction or prejudgment writ of attachment, both of which require a lot of record support.  “You don’t go ahead and say put this back when there’s no evidence that it wasn’t justified,” he said. “The important thing is that there’s a reason why you have to have an evidentiary hearing rather than just assuming that what was done is wrong.”

According to the 4th DCA he’s right: no evidence = reversal:

Richard W. Vazza and Stephen F. Vazza, former personal representatives of their father’s estate, appeal the trial court’s December 8, 2013 “Order on [Successor] Personal Representative’s Motion to Void and Set Aside Transactions Involving Conflicts of Interest.” The order required the Vazzas to return and reimburse the estate for allegedly improperly distributed funds.

Despite the disputed allegations regarding whether the Vazzas acted properly under Florida law and within their statutory power, the trial court entered its order requiring return of specific funds without holding an evidentiary hearing. Accordingly, we reverse and remand the case back to the trial court to hold an evidentiary hearing. See In re Estate of Winston, 610 So.2d 1323, 1325 (Fla. 4th DCA 1992) (citing § 733.6175, Fla. Stat. (1991)) (“[T]he Florida probate court has exclusive jurisdiction and is obligated to review estate fees upon the petition of a proper party.”).

Lesson learned?

The problem here isn’t a particular judge who doesn’t understand the right way to go about entering a freeze order, in my opinion it’s systemic: we ask our state court judges to do too much with too little. So what’s to be done? That depends on when you’re hired. Ideally, you’re brought in at the planning stage before the client passes away, which allows you to anticipate — and plan accordingly for — the structural limitations inherent to an overworked and underfunded state court system. As I’ve previously written here, one important aspect of that kind of planning should be “privatizing” the dispute resolution process to the maximum extent possible by including mandatory arbitration clauses in all our wills and trusts.

Once the client passes away, your options for opting out of the public court system are limited. What to do then? Anticipate — and plan accordingly for — the “cold judge” factor. And how do you do that? Follow the advice provided in Persuading a Cold Judge:

Begin at the beginning. In every court appearance, there are six basic queries to answer for a judge: [1] Who are you? [2] Who is with you, and whom are you representing? [3] What is the controversy, in one sentence? [4] Why are you here today? [5] What outcome or relief do you want? [6] Why should you get it? This last query is most often forgotten. Indeed, these six essential queries are a good beginning even when you are dealing with a warm judge. Consider putting them on a PowerPoint slide, a handout in the form of an “executive summary,” or a demonstrative exhibit to project through Elmo or other presentation technology.

A judge in a suburban district told me that the one thing I could do to assist his judging was to begin succinctly by telling him what was before the court, remind him of the nature of the case, and tell him what action I wanted the court to take and why I thought I had the right to that action. Once I did this for him, he would be ready to listen to my argument. This particular judge told me that he has so many cases that he can’t read the motions before the hearing, and if he has read them, it was so long ago that he couldn’t recall what he’d read. He has no legal assistant to write memos for him; he does his own legal research, and if you cited more than 10 cases for him to read, he couldn’t do it. He likes being a judge and wants to do the best job he can, but he is forced to come into hearings and trials cold. So, help him be the good judge he wants to be and the quality of his decisions will be your reward.

How much money do trust funders inherit?

Posted in Musings on the Practice of Law, Trust and Estates Litigation In the News

The median inheritance reported in the Federal Reserve’s Survey of Consumer Finances (SCF) was $69,000 (the average was $707,291). For trust funds, that median wealth transfer was way, way higher — $285,000 (and the average was $4,062,918).

If you earn your living as an attorney working with and around private and charitable trusts, it’s probably a good idea to have some sense of how large the “market” is for what you do and what your future prospects look like. Here’s my guess, based on personal experience and the best empirical data I’m aware of. First the good news: the market’s big — and growing fast. Now the bad: due to extreme market concentration and huge competitive barriers, most of that new business is going to go to a tiny % of lawyers.

Market size: think billions

In an article entitled The Prudent Investor Rule and Trust Asset Allocation: An Empirical Analysis, Prof. Sitkoff of Harvard Law reported that according to federal banking data roughly $760 billion was held in roughly 1.25 million private and charitable trust accounts as of year-end 2006, and according to IRS data in filing year 2007 more than 2 million 1041 tax returns were filed for trusts, reporting $142.5 billion in gross income, $3.7 billion in fiduciary fees paid, and $1.6 billion in attorney, accountant, and other professional services paid. These are all national figures.

The Florida-specific numbers are just as big. According to tax return data for 2012 (the latest available), the IRS received more than 140,000 fiduciary tax returns (Form 1041) for Florida-based trusts and estates, which reported in the aggregate over $6 billion in net income and approximately $273 million in attorney, accountant, and other professional services paid. These figures exclude trusts that are not “simple” or “complex” under the tax code, such as revocable trusts, thus understating the actual market size to some degree. On the other hand, the IRS figures lump all professional fees into a single line-item and include probate estates in their figures, which overstates the actual market size to some degree.

Florida – Filing Year 2012

IRS Tax Statistics — Fiduciary Income Tax Returns Filed (Form 1041)

Complex Trusts

Decedent’s Estates

Simple Trusts

Total

Returns Filed:

79,026

16,878

47,962

143,866

Net income:

$3,631,859,000

$850,236,000

$1,686,093,000

$6,168,288,000

Fees paid to Fiduciaries:

$160,018,000

$56,958,000

$84,963,000

$301,939,000

Fees paid to attorneys, accountants and other professionals:

$98,186,000

$137,765,000

$36,855,000

$272,806,000

Reflecting the rapid growth of this market, Prof. Sitkoff provided updated national figures in Major Reforms of the Property Restatement and the Uniform Probate Code: Reformation, Harmless Error, and Nonprobate Transfers, reporting that as of year-end 2010 federal banking data indicated $870 billion was held in trust accounts (in other words, an increase of over $1 billion or roughly 15% in just four years). As eye-popping as those figures might be, they exclude the vast majority of trusts. How do we know that? Because the federal banking data Prof. Sitkoff relies on only accounts for institutional trustees that are part of the U.S. Federal Reserve System, they categorically exclude all trusts in which the trustee or co-trustees are private individuals (which is most trusts). And we can expect these figures to skyrocket over the next few decades as we work our way through the largest generational wealth transfer in U.S. history. (See Why the $41 Trillion Wealth Transfer Estimate is Still Valid).

Market concentration: think 1.3%

With figures this big, you’d expect a lot more lawyers and other professionals to be active in this practice area. So why aren’t they? Think market concentration. While there may be huge sums tied up in U.S. trusts, those trusts are concentrated in a miniscule slice of the population, meaning the potential pool of clients is correspondingly limited. Which brings me to a cool set of charts recently published in this blog post on the FiveThirtyEight Blog. According to the blog-post’s author, Mona Chalabi, the most detailed data on inheritance in the U.S. comes from the Federal Reserve’s Survey of Consumer Finances (SCF). And according to the latest SCF data available, only 1.3% of the survey respondents who reported receiving an inheritance received it via a trust. In other words, close to 99% of all inheritances are NOT received in trust. (Think market concentration.) Here’s an excerpt from the FiveThirtyEight Blog post:

[A]ccording to the SCF, trust funds are rare. As of 2010 (yep, it’s a while ago, but this survey is only conducted every three years and SCF has yet to publish 2013’s results), 22.5 percent of respondents said they had inherited money. Only 1.3 percent said they had inherited money through a trust fund.

But how do trust inheritances compare to non-trust inheritances in terms of size: on average they’re orders of magnitude larger. (Think market size.) Here’s an excerpt from the FiveThirtyEight Blog post:

The median inheritance in the survey was $69,000 (the average was $707,291). For trust funds, that median wealth transfer was way, way higher — $285,000 (and the average was $4,062,918).

The outliers here are probably lying on a beach somewhere — one respondent inherited $105,000 in 1970, followed by $220 million via a trust fund in 2000 before finally receiving a $2 million top-up inheritance in 2005.

Malcolm Gladwell writes in Outliers it takes 10,000 hours of focused practice to master any skill. “What’s really interesting about this 10,000-hour rule is that it applies virtually everywhere,” Gladwell told a conference held by The New Yorker magazine. “You can’t become a chess grand master unless you spend 10,000 hours on practice. The tennis prodigy who starts playing at six is playing in Wimbledon at 16 or 17 [like] Boris Becker. The classical musician who starts playing the violin at four is debuting at Carnegie Hall at 15 or so.”

Market competition: think barriers to entry

The future growth prospects for this practice area are good, but the barriers to entry are huge. In terms of future “market” growth, the stat’s speak for themselves, so I’ll focus on the barriers-to-entry issue.

Malcolm Gladwell writes in Outliers it takes 10,000 hours of focused practice to master any skill. (Click here.) “What’s really interesting about this 10,000-hour rule is that it applies virtually everywhere,” Gladwell told a conference held by The New Yorker magazine. “You can’t become a chess grand master unless you spend 10,000 hours on practice. The tennis prodigy who starts playing at six is playing in Wimbledon at 16 or 17 [like] Boris Becker. The classical musician who starts playing the violin at four is debuting at Carnegie Hall at 15 or so.” Assuming you have the necessary education (usually that involves a tax or estate planning LL.M. in addition to your J.D.), the only way you’ll log the 10,000 hours of “practice” needed to master this very complex area of the law is by earning your stripes at a firm (usually a small boutique, the big firms have been abandoning this practice area for years) that’s already built a practice serving this highly-concentrated market niche. When it comes to competitive barriers, that one’s tough to beat.