Florida Probate & Trust Litigation Blog

Florida Probate & Trust Litigation Blog

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

2016 legislative news: A person’s ashes are not assets of his probate estate

Posted in Probate & Guardianship Statutes
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Cremated remains are not property, as defined in s. 731.201(32), and are not subject to partition for purposes of distribution under s. 733.814.

In 2014 the 4th DCA grappled with a tragic case I wrote about here involving a dispute between two divorced parents over the disposition of their deceased son’s cremated remains. The father hoped to split his son’s ashes 50/50 with his ex-wife by arguing they’re assets of his son’s probate estate, and thus subject to equal partition. The 4th DCA ruled against him based on centuries of common law.

Appellate decisions are fine, but life’s a whole lot easier when a rule’s plainly stated in a statute, which is what finally happened. Effective July 1, 2016 the common-law rule on ashes not being probate property was codified in new F.S. 497.607(2) as follows:

Cremated remains are not property, as defined in s. 731.201(32), and are not subject to partition for purposes of distribution under s. 733.814. A division of cremated remains requires the consent of the legally authorized person who approved the cremation or, if the legally authorized person is the decedent, the next legally authorized person pursuant to s. 497.005(43). A dispute regarding the division of cremated remains shall be resolved by a court of competent jurisdiction.

This was one small change incorporated into a wide-ranging bill that revamped much of Ch. 497, which governs Florida’s funeral home industry. For a comprehensive summary of all of those changes you’ll want to read the bill’s Legislative Staff Analysis.

By the way, the statute’s last sentence should jump out to probate litigators.

A dispute regarding the division of cremated remains shall be resolved by a court of competent jurisdiction.

What this sentence is telling us is that the old rules regarding litigation over remains haven’t changed. If there’s a dispute, a person’s ashes will be disposed of according to his intent, as established by clear and convincing evidence (see here).

3d DCA: Can the 500-year-old “relation back” doctrine be used to block today’s $4 million probate creditor claim?

Posted in Creditors' Claims, Practice & Procedure

Richard v. Richard,  — So.3d —-, 2016 WL 2340787 (Fla. 3d DCA May 04, 2016)

looking-back

The “relation back” doctrine enjoys virtually unanimous application throughout the fifty states, and dates back, by some accounts, more than 500 years. See generally, Relation back of letters testamentary or of administration, 26 A.L.R. 1359 (1923).

Just because someone’s Will says you’re their personal representative (PR) doesn’t make it so. First, you’re not a PR until a judge says you are. Second, you don’t have to take the job; you can always say no. And if something goes wrong in the interim, you’re not on the hook; you have zero fiduciary duties to anyone until after a court appoints you PR (see here).

What’s the “relation back” doctrine?

But what if the testator’s died and something needs to get done before a judge gets around to appointing a PR? Say a bill needs to get paid before the power’s shut off, or a house needs to get sold before a sale contract’s breached, or a lawsuit needs to get filed before a limitations period is blown. What then? Think “relation back” doctrine. Under this doctrine anything you do on behalf of an estate gets validated after the fact once you’re appointed PR (see here).

Getting stuff done during the gap period between the day a person dies and the day his PR gets appointed is a problem that’s been around for a long time, and the relation back doctrine is a fix that’s been around just as long. According to the 3d DCA:

The relation back doctrine enjoys virtually unanimous application throughout the fifty states, and dates back, by some accounts, more than 500 years. See generally, Relation back of letters testamentary or of administration, 26 A.L.R. 1359 (1923).

The doctrine’s codified in section 3-701 of the Uniform Probate Code, which in 1974 was adopted almost verbatim as section F.S. 733.601 of Florida’s Probate Code. The Florida statute currently provides as follows:

Time of accrual of duties and powers.—The duties and powers of a personal representative commence upon appointment. The powers of a personal representative relate back in time to give acts by the person appointed, occurring before appointment and beneficial to the estate, the same effect as those occurring after appointment. A personal representative may ratify and accept acts on behalf of the estate done by others when the acts would have been proper for a personal representative.

Note the difference between the first and second sentence of the statute. A PR’s “duties” kick in once he’s appointed (first sentence), but his “powers” relate back prior to his appointment (second sentence). This distinction’s at the core of the 3d DCA’s ruling in this case.

Case Study:

In this case a $4 million creditor claim was filed against an estate over three months after the “notice to creditors” was first published, which means the claim was time barred under F.S. 733.702. But what if the notice to creditors wasn’t validly published? Then the time-bar defense vanishes, and the $4 million claim springs back to life. So was it valid? Claimant said NO; because under F.S. 733.2121 only a PR can validly publish a notice to creditors, and the order appointing the PR in this case was entered one day after the notice was first published.

But what about the relation back doctrine? Claimant argued it didn’t apply because publishing a notice to creditors is a “duty” — not a “power” — and duties only kick in after the PR’s appointed, they don’t relate back. Clever argument, but did it work? NOT with the 3d DCA. Here’s why:

Although the statute provides that the “powers … relate back in time,” the same sentence goes on to clarify that they relate back “to give acts by the person appointed, occurring before appointment and beneficial to the estate, the same effect as those occurring after appointment.” § 733.601 (emphasis added). Therefore, it is the acts of the person, who is later appointed personal representative of the estate, taken before his or her actual appointment that are granted “the same effect as those occurring after appointment,” so long as those acts are beneficial to the estate. Id. Certainly one cannot have the duty to act unless one also has the power to act. Taking the instant case as an example: implicit in the nature of the duty to publish a notice to creditors is the existence of the power to publish the notice to creditors . . .

In addition, the publication of the notice to creditors can reasonably be described as both a duty and a power of the personal representative. The personal representative is the only person authorized to publish a valid notice to creditors and the personal representative is obligated to publish the notice promptly. See § 733.2121(1), Fla. Stat. (2012). Thus, to the extent [claimant’s] proposed construction of section 733.601 is plausible, the “act” of publishing a notice to creditors, prior to the order appointing personal representatives, was validated by the relation back doctrine.

According to the 3d DCA, not only was the claimant’s statutory construction argument flawed textually, it also failed the “what’s practical” test.

Were we to adopt [claimant’s] construction of the statute, it would create significant and substantial uncertainty for a personal representative, who would now be required in each instance to determine whether the act undertaken is considered to have been taken pursuant to a “duty” or a “power” such that the former would not relate back but the latter would. This would be in conflict with the duties of a personal representative to “settle and distribute the estate of the decedent … as expeditiously and efficiently as is consistent with the best interests of the estate,” § 733.602(1), and to “promptly publish a notice to creditors.” § 733.2121. . . .

We hold that the relation back doctrine, codified in section 733.601, applies to the personal representative’s act of publishing the notice to the creditors, and that the order appointing personal representative relates back and validates the preappointment act of publication of the notice to creditors. We reverse the orders on appeal and remand this cause to the trial court for further proceedings with this opinion.

So what’s the takeaway?

Anything you do before a PR gets appointed that benefits an estate is subject to after-the-fact validation by a court-appointed PR under the relation back doctrine, as codified in F.S. 733.601. And it doesn’t matter if the thing that needed getting done is called a “duty” or a “power”, it’s all the same under F.S. 733.601. I like it; nice clear rules are good for all concerned.

Interview with a Probate Lawyer: Shannon M. Miller

Posted in Contested Guardianship Proceedings, Interview with a Probate Lawyer
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Shannon M. Miller of The Miller Elder Law Firm, PA, in Gainesville, Florida, is a Florida Bar Board Certified Elder Law Attorney and the past president of the Academy of Florida Elder Law Attorneys.

One of the pleasures of publishing this blog over the years has been the opportunity to meet and interact with some truly impressive lawyers. I recently had one of those moments when I was introduced to Shannon M. Miller of The Miller Elder Law Firm, PA, in Gainesville, Florida. Ms. Miller is a Florida Bar Board Certified Elder Law Attorney and the past president of the Academy of Florida Elder Law Attorneys. She’s also a fellow USMC veteran (Semper Fi!) and former public defender.

I’m guessing Ms. Miller’s past familiarity with our criminal justice system had something to do with her willingness to take on civil cases that also involved criminal violations arising from the financial exploitation of the elderly. In 2014, she was heavily involved in the legislative revamp of F.S. 825.103, which criminalizes the financial exploitation of elder Floridians (see here). A lot of work and study went into that legislation, as summarized in its legislative Staff Analysis.

Ms. Miller’s a big fan of F.S. 825.103 – when used properly – and was concerned my coverage of the statute in the context of the Franke case didn’t do it justice (see here). I invited her to share her thoughts with all of us in the form of an interview, and she graciously accepted.

[1] Can you give us some background of your experience with exploitation cases?

My experience with exploitation cases began when I became an attorney in private practice in 1995.  Before that time, I was a public defender.  During my first exploitation case, I learned that my 92-year-old client had been widowed and that her pastor had offered to assist her with managing her personal bank account.  Having never managed her own finances, she added him as a joint account holder on her account.  Shortly thereafter the pastor removed all of my client’s savings which totaled about $115,000.  Actually, he left $5,000 for “her spending money” in the account.  He moved the money into his own account indicating that he was doing it in order “to protect her from predators”.  He would not give the funds back, nor pay any of her bills.  After much research, I learned that by adding someone to her account, there was a presumption that the pastor had the ability to remove assets from the account.  After much litigation, and some horrifying discovery, mostly due to my client’s confusion and short term memory loss, we were able to settle the case by securing additional funds for her from the joint account, but it ended up that he retained approximately half of the joint account assets for himself.  This man is a predator. I would not be surprised if this was not the first time he had exploited someone.   This was one of the first experiences that I had with exploitation and one that prompted my interest in pursuing law changes in Florida, as well as pursuing exploitation cases.

At our firm we have probably done 30-40 exploitation cases from the civil/probate side.  We did these cases before the new statute was implemented and after.  The greatest addition to obtaining judgments and convictions from a criminal prosecution has been the revamping of the definition of exploitation under Fla. Stat. 825.103.  This revamping is important to civil/probate practitioners as well because it provides the basis of the definition of exploitation under the civil theft statute (F.S. 772.11), which provides for many more civil theft cases.  Civil theft, when properly plead provides for repayment of the stolen funds within 30 days or the victim is able to seek treble damages. This threat often gets the stolen funds back into the hands of older victims very quickly without the scary landscape of civil litigation dragging out for years.

F.S. 825.103 also includes the ability for us to get beyond the idea that “It’s a civil matter” simply because someone is a family member.  I noticed in your original blog post on this topic that you were talking about criminalizing civil disputes, but the reality is that if a person steals from another person, whether they are a brother who is a trustee who takes from a sister who is a beneficiary, or a son who buys fur coats for his wife from dad’s money because he is an agent under a durable power of attorney that says self-dealing is okay, these are theft cases and they should be prosecuted as criminal cases, not as civil disputes.

Entertainer Mickey Rooney testifies on Capitol Hill in Washington, Wednesday, March 2, 2011, about elder abuse, before the Senate Aging Committee. (AP Photo/Alex Brandon) Original Filename: Congress Aging Rooney.JPEG-07ca4.jpg

Entertainer Mickey Rooney testifies on Capitol Hill in Washington, Wednesday, March 2, 2011, about elder abuse, before the Senate Aging Committee. (AP Photo/Alex Brandon)

I think the same is true when we are talking about “over-criminalizing”.  The reality is, we are under-criminalizing exploitation cases and I think that is clear in the attached Senate Assessment of the law as it was pending in the legislature. This assessment gives some of the statistics with regard to the lack of prosecution of these cases, as well as a lack of reporting simply because people are afraid that their disabled parent, or they themselves, will not be listened to and then they will have some kind of stigma attached to them for reporting of a family member who is, in fact, abusing them.  I would encourage you to review Mickey Rooney’s testimony at the Senate Committee on Exploitation that was conducted six (6) years ago to understand how exploitation is perpetrated.

Most of the cases that we deal with usually involve isolation and financial pressure because no one else cares for the senior or they will have to go into a nursing home if the predator were to leave the situation.  Often the perpetrator will tell lies to the victim who often suffers from diminished capacity or full incapacity.

[2] Why is Adult Protective Services dedicated to prosecuting cases against fiduciaries?

Adult Protective Services is charged with protecting seniors who are vulnerable.  That is their only mission.  They are not charged with any powers to prosecute cases, but they can refer them to law enforcement or to the prosecutor’s office, not only to the State Attorney’s office, but also to the Medicaid Fraud Unit, the Attorney General’s office, whichever is appropriate, and they can make a recommendation, but they have no law enforcement powers.  They do not carry firearms, they do not have the ability to subpoena documents.  If a case involves a durable power of attorney under the Durable Power of Attorney statute there is some provision for Adult Protective Services to obtain accountings, but other than that, it is really up to law enforcement and prosecutors to pursue criminal charges.  So, Adult Protective Services is not in the role of prosecuting these cases criminally.  They do not have that ability, nor is that their mission.  Their primary goal is making sure that the vulnerable adult is safe.  They go in, they assess and if they have to relocate a person or if they need to take steps to make sure the person is safe, then they will go to court and do that, but their job is not to prosecute criminal cases.

[3] In my blog on this topic, I indicated that perhaps we should be advising fiduciaries to “Plead the Fifth” and advise clients to get with a criminal defense attorney in dealing with these matters.  Does that not appear to you as over-criminalization of inheritance litigation?

My advice is that we should be advising clients, agents under a durable power of attorney, guardians, trustees, and joint account holders that expenditures that are made by fiduciaries should be for the benefit of the vulnerable adult, not the agent, trustee, guardian or joint account holder.

The Astor case is an excellent example of undue influence.  We cannot allow people to direct the incapacitated person to the point where they feel like they have no other choice, but to make a change to their estate plan, or end up on the street.  I would point out as well that the Astor estate changes were made at the very end of Brooke Astor’s life—she died at 105 years old.  Her grandson eventually stepped into protect her by establishing a guardianship. In reviewing the facts of that case, it is clear when we look at the Carpenter factors that the presumption shifted so that the beneficiary (Marshall Astor) had the burden of showing it was NOT undue influence. I agree with you that when we are talking about a future expectancy like an inheritance, it really is not a typical nor predicted scenario under Fla. Stat. 825.103.  I can tell you as one of the work group members who drafted the legislation, undue influence was not one of our considerations as it related to inheritance.  I am not sure that it really meets the definitions of exploitation because it is a future expectancy.  Anybody can change their estate plan at any time.

But that particular matter aside, the rest of these cases – when we are dealing with trustees who are literally stealing money from beneficiaries, attorneys-in-fact, and even guardians, this statute gives us the opportunity to create real remedies for these clients who otherwise really just get their lives stolen away from them and they must wait for years for any recompense.

[4] What does your typical exploitation case look like?

Typically, we start with an emergency temporary guardianship case and an ex parte motion to freeze assets, although some cases can proceed without a determination of incapacity depending on the exploitation definition, such as the joint account provision or negligent use of funds.  Once we get the emergency guardianship established, we subpoena documents, bank statements, and find everything that we can to assist the Assistant State Attorney, and then we wrap it up in a nice big package and send it over to them and say, “Hey, guys.  This is a case we would like you to look at.”  Then we proceed with the case on the civil side, by sending a Civil Theft Demand letter, then proceed with an action against the predator.  What we often find is that this is not the first person they have exploited in the family or as a caregiver.

What Elder Law and Probate and Trust litigators are able to do is to create publicity that ultimately can result in very positive results where people might think twice about exploiting.  There are actually seven (7) ways to define exploitation under the new statute, one of which is something called a “presumption of exploitation”.  I have yet to hear that this has been used in the criminal setting.  I am not sure any prosecutors have used it, simply because it is untested.  Prosecutors that are doing these cases are dedicated and now we are getting some judges on board across the state with the understanding that there is really no difference between theft from your parent versus theft from someone else, or physical or mental abuse of a child vs.  physical or mental abuse of a senior.  We really just need to get people on board to understand that theft is theft and we hope that this new law is going to help us change the way people consider these serious situations as civil matters.  I would encourage you to take a good look at that statute and talk to people who have actually prosecuted these cases.

In the Elder Law community, if you ask how many people know someone who has been exploited, or how many people have seen exploitation cases of ten (10) or more, nearly every hand in the room goes up.  We get referrals probably two to three times a week for these kinds of cases.  It is really exploding in Florida, which is why Fla. Stat. 825.103 is so important.

“Undue Influence and Financial Exploitation” by Dr. Bennett Blum; thoughts on litigation-avoidance estate planning

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

risk-too-muchPlease, please, PLEASE!! Spend a few extra bucks today to avoid tomorrow’s disastrous estate litigation. In the public health world it’s estimated every dollar spent on vaccines returns up to $44 dollars in savings over the long haul. My own totally subjective and unscientific walking-around sense of the world (based on 20 years of experience) tells me we get the same kinds of returns for every dollar spent on litigation-avoidance estate planning.

What’s litigation-avoidance estate planning?

So how can you “vaccinate” an estate against future litigation? It’s easier said than done. Why? Because your single most important witness in these cases — the testator — is dead (think: worst evidence rule). This problem is especially acute in undue influence cases, which are inherently fact-intensive and open to manipulation by unscrupulous litigants. Here’s how Dr. Bennett Blum, a forensic and geriatric psychiatrist and author of the Undue Influence Worksheet (which I wrote about here), described this threat and the need for smart preventive planning in his latest article, Undue Influence and Financial Exploitation:

[F]alse claims of undue influence are used by those who wish to dispute the wishes of someone who is impaired or has died. Undue influence claims undermine testator wishes, promote family feuds, and — when prominent individuals or families are involved — create media attention and public scrutiny of their private lives. In addition, contested wills, trusts, and estate plans are expensive to litigate and can significantly erode the corpus of an estate. Challenges are more likely to arise when late changes are made to an existing plan. Planning for the possibility of a will contest is both prudent and cost-effective.

There’s no one magic bullet for immunizing estates against litigation (for a comprehensive list of options, see here), and the level of preventive planning will depend in large part on the client’s risk profile and willingness to cooperate. In high-risk cases one of my favorite defensive planning techniques is a variation on the “golden rule” standard of care commonly followed in UK and Commonwealth jurisdictions: I arrange for a medical professional’s assessment of the client at the time the documents are executed and preserve this evidence in a stand-alone affidavit executed by the clinician.

This kind of planning requires a good amount of logistical coordination, client buy-in, and flexibility from all concerned, but it pays huge dividends in future cost savings. In Undue Influence and Financial Exploitation Dr. Blum describes the value of this technique using two real-world examples:

[A] careful and well-documented assessment covering all the relevant behavioral issues, not just medical or cognitive concerns, can prevent years of litigation and unnecessary delays in executing the client’s desires, and avoid associated public scandals. Two examples:

In one case, a man separated from his wife and wanted to change his estate plan, but believed that his wife would challenge the new will.  An assessment was performed at the time that the will was executed.  When he died several years later, the former wife indeed said he had been unduly influenced.  However, she withdrew her legal challenges after reviewing the expert’s report.

In another case, a wealthy and high profile woman who had suffered a mild stroke wanted to divide her estate equally amongst her children, but also gave one adult child large amounts of cash.  Knowing that there was animosity towards this child from his siblings, the mother agreed to an undue influence assessment.  After she died, the siblings claimed their brother had committed elder financial abuse.  Again, the claims were withdrawn after seeing the report.

In these cases, as well as many others, the estates were preserved, the client’s wishes were carried out, and privacy was maintained.

What’s the takeaway?

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 families. 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 jumped from $650,000 per person in 2001 to $5.43 million per person in 2015). By contrast, the potential wealth-destroying risk posed by estate litigation is exponentially greater. In fact, according to a study cited in a WSJ piece entitled When Heirs Collide it’s a risk that actually impacts as many as 70% of all families (see here).

Bottom line, it’s litigation — not taxes — that most families need to worry about. And to build your tool box for this kind of planning you’ll want to start following authors like Dr. Blum. His clinician’s view of the world is indispensable to working estate planners and litigators alike.

The 35th Annual Attorney Trust Officer Liaison Conference

Posted in Musings on the Practice of Law

breakerstodayI’m going to be one of the speakers at next week’s 35th Annual Attorney Trust Officer Liaison Conference at the Breakers Hotel in Palm Beach (my all time favorite venue). This year’s organizers have put together a great program. If you’re able to attend, you should. It’ll be time well spent. For a link to the ATO Brochure and registration information, click here.

4th DCA says no to criminalizing inheritance litigation; reverses 7-year prison sentence

Posted in Practice & Procedure

Franke v. State, — So.3d —-, 2016 WL 358614 (Fla. 4th DCA January 27, 2016) 

prison-553836_1280As lawyers, one of our jobs is anticipating the “worst case scenario” and counseling our clients appropriately. For trusts and estates lawyers the worst that can happen usually involves a client losing a sizable inheritance, paying unnecessary taxes, getting surcharged for doing something wrong as a fiduciary, or otherwise suffering some other form of economic setback. We’re not thinking jail time. Well, maybe it’s time we did.

Under F.S. 825.103 just about any kind of dispute your average trusts and estates lawyer encounters in an average year can get your client arrested and sent to prison for a very long time. And there’s a state agency dedicated to prosecuting these cases; it’s called Adult Protective Services and their motto is: “report elder abuse — it’s a crime.”

Criminalizing what most of us would consider to be civil disputes is a growing problem (see here), and the trusts and estates world is no exception (as demonstrated by the Astor case). Which means in the future we may need to consider teaming up with criminal defense attorneys much more frequently than we have in the past, start advising our clients to “plead the 5th” at the first sign of trouble (see here), and take steps to make sure we don’t get prosecuted ourselves (see here).

The 4th DCA’s opinion in this case involves a scary example of what can go terribly wrong when F.S. 825.103 — a broadly-worded statute meant to protect the elderly from financial exploitation — gets used to prosecute what should be a garden variety civil dispute involving a contested inheritance.

A case study in “overcriminalization”

This case involves an elderly widow named Mary Teris who had a “mother/daughter-type relationship” with a woman named Cynthia Franke, her stockbroker and friend of over thirty years. In 1996 Ms. Teris created a special needs trust for her two disabled adult sons and a separate revocable trust apparently naming family members as the residuary beneficiary of her $10 million estate. At issue in this case are changes Ms. Teris made to her existing estate plan in 2009, which the 4th DCA described as follows:

Teris met with [estate planning attorney] Mr. Friedman and made multiple changes to the trust. At issue are changes made on June 22, 2009, when Teris changed the trustee of the trust from her sister to Franke and made Franke a residuary beneficiary of the trust. According to Mr. Friedman, Teris made the changes because her sisters were close to her age and would be unable to manage her property if something happened to her. She wanted someone she could trust to manage her assets and take care of her sons, so she chose Franke. Teris named Franke as residuary beneficiary because her sons were already taken care of with the special needs trust, her sisters did not need her money, and Franke had always been there for her.

Now assume Ms. Franke walks through your door, tells you she needs to update her estate plan to account for the sizable inheritance she’s expecting, and also tells you about troubling rumors she’s heard regarding accusations of undue influence by irate family members. “What’s the worst that can happen?” she asks. If you’re an estate planner, I’m guessing you might respond by discussing the evils of the estate tax and a possible challenge to the trust after the settlor passes away. Here’s what you probably wouldn’t say, “you could be criminally prosecuted and face up to 30 years in prison.” Well, that’s exactly what happened.

Does a future expectancy in a will or trust fall under F.S. 825.103’s purview?

Ms. Franke was arrested in 2010, criminally prosecuted, and ultimately convicted by a jury under F.S. 825.103 for exploitation of an elderly person (see here). After the charges were filed, Ms. Franke lost her job and was stripped of her license as a broker. Adding to the nightmare, she was eventually sentenced to seven years in prison, and spent close to two years behind bars before the 4th DCA reversed her conviction (see here).

When the case finally got to the 4th DCA Ms. Franke’s conviction was reversed for technical reasons best understood by criminal defense attorneys. But the 4th DCA also made a point of commenting on whether this kind of case should have ever been prosecuted to begin with, focusing on fundamental property-law principals familiar to most practicing trusts and estates lawyers:

Finally, we note that Franke would not have received any of Teris’s property until after Teris passed away. Even then, Franke would receive something only if anything remained in the trust. Although we need not decide the issue in this case, it does not seem that obtaining the future expectancy of property under a will or trust falls under the purview of the statute. Prior reported cases which we have found addressing section 825.103 have concerned a present transfer of property, not a future expectancy in a will or trust. See Guarscio v. State, 64 So.3d 146, 147 (Fla. 2d DCA 2011) (defendant used victim’s proceeds from refinancing mortgage on a house); Bernau v. State, 891 So.2d 1229, 1230 (Fla. 2d DCA 2005) (victim endorsed $847,000 check to defendant); McNarrin v. State, 876 So.2d 1253, 1254 (Fla. 4th DCA 2004) (defendant cashed $6000 check signed by victim); Everett, 831 So.2d at 739–40 (defendant closed out one of victim’s bank accounts in the amount of $38,604.79 at the victim’s request).

What’s the takeaway?

We all know the promise of a future inheritance isn’t something you own today, it’s an “expectancy” that entitles you to zero current property rights until the inheritance is actually received — if ever (see here). So how can you get convicted and sent to prison if all we’re talking about are conflicting claims to a future expectancy under a revocable trust? Until now I would have said that’s impossible. And I’d have been wrong.

Overcriminalization isn’t a problem only criminal defense attorneys need to deal with; that’s the point, it can happen to anyone. So the first takeaway from this case is that if you’re a trusts and estates lawyer and someone involved in a case somehow involves Adult Protective Services, criminal prosecution is a risk you need to incorporate into your thinking, no matter how far fetched the alleged “crime” may seem.

The second takeaway is more positive. The 4th DCA’s decision didn’t turn on whether a future expectancy in a will or trust falls under F.S. 825.103’s purview, but the court strongly hinted it did NOT. That kind of “hint” is gold for working lawyers, and it’s certainly something you’ll want to add to your toolbox.

How to litigate deed-to-trust cases in Florida

Posted in Will and Trust Contests

land-trustJust because a deed says property’s being transferred to a “trustee” doesn’t make it so. If the deed doesn’t comply with F.S. 689.07′s disclosure requirements, the named trustee is deemed to own the property in fee simple, which means it’s his to do with as he pleases.

Under F.S. 689.07(1) a deed-to-trust that conveys property to a trustee but does not name the trust’s beneficiaries, or identify the nature and purposes of the trust, or identify the subject trust by title or date, fails. The theme here is disclosure. But this disclosure requirement runs head on against one of the primary reasons families use trusts to begin with: privacy.

So how does F.S. 689.07 balance the minimum public disclosure needed to ensure marketable title against the natural desire to keep family trusts private? It lets you keep a trust “secret” until it’s challenged, at which time anyone with a stake in the outcome can cure the lack of disclosure by recording a copy of the trust agreement in accordance with subsection (4) of F.S. 689.07, which provides in relevant part as follows:

Nothing herein contained shall prevent any person from causing any declaration of trust to be recorded . . . after the recordation of the instrument evidencing title or ownership of property in a trustee . . .

How and when this curative provision gets used in the midst of litigation is the subject of the 1st DCA’s opinion in the Heiskell case.

Can you rely on F.S. 689.07(4)’s “cure” clause 30 years after the original deed was recorded and after a lawsuit’s been filed? YES

Heiskell v. Morris, — So.3d —-, 2015 WL 9258277 (Fla. 1st DCA December 18, 2015)

The property at issue in this case is a 1,360-acre estate in northern Florida known as the “Morris Grove Plantation” that’s been owned by the same family for over a hundred years. In 1983 six siblings took title to the property from their parents and simultaneously conveyed the property to a revocable trust they all signed and were all beneficiaries of. Two of the siblings were appointed co-trustees and they took title to the property as “trustees”.  The trust contained a “non-recordation” clause that was intended to keep the trust’s provisions out of public view. Apparently these clauses were common back in the day.

Fast forward 30 years. The siblings are deadlocked over how to manage the property. One of the co-trustees filed a partition action asserting that the property was conveyed to him in fee simple — not as trustee — because the 1983 deed didn’t comply with F.S. 689.07′s disclosure requirements. A month after the lawsuit was filed — and 30 years after the original deed was recorded — the other co-trustee recorded the subject trust in an attempt to trigger F.S. 689.07(4)’s “cure” clause. So does this after-the-fact defensive move work? Yes, so saith the 1st DCA:

Though no reported case has mentioned subsection (4) since its addition over five decades ago, its apparent purpose was to temper potentially harsh readings of subsection (1) that could marginalize the interests of trust beneficiaries. . . . [S]ubsection (4) says that nothing in the statute precludes any person from recording a trust agreement before or after the recordation of a deed or other “instrument evidencing title or ownership of property in a trustee[.]” It thereby permits the recordation of a trust agreement after a deed’s recordation, even decades later, which is what happened here. . . . Subsection (4) counterbalances subsection (1) in two important ways. One is that it allows previously unrecorded trusts (“secret” trusts discussed below) to be recorded as a means of protecting the interests of beneficiaries and innocent third parties by providing public notice of a trust’s existence. The other is its recognition that trusts, even if unrecorded, may be enforced by beneficiaries against their trustees. In either instance, a focus of subsection (4) is the protection of beneficiaries.

But what about the trust’s non-recordation clause? Does it void the statute’s after-the-fact cure provisions? NO:

The Trust Agreement stated that it “shall not be placed on record in the county in which the Trust property is situated or elsewhere, but if it is so recorded such recording shall not be considered as notice of the rights of any person under this Agreement derogatory to the title or powers of the Trustees.” This type of clause, which is commonplace in private trusts, see, e.g., Florida Jurisprudence Forms Legal & Business, Recordation of Trust Instrument § 34:594 (2015) (providing standard language for prohibiting recordation of a trust instrument), is designed to advance the settlor’s intent of preventing public disclosure of the terms of a trust and thereby protecting the privacy of beneficiaries. See generally Frances H. Foster, Trust Privacy, 93 Cornell L.Rev. 555 (2008) (discussing the pros/cons of the use of trust privacy provisions). Trust privacy has many benefits, which a non-recordation clause advances. But circumstances exist where a trust agreement must be recorded, as the language in the Trust Agreement envisions (“but if it is so recorded”), such as when a beneficiary is attempting to establish the enforceability of a trust, as was done here. Recordation for such a purpose does not violate the central purpose of the trust’s non-recordation clause.

Does a Personal Representative (PR) have standing to litigate deed-to-trust cases under F.S. 689.07? YES

Giller v. Giller, — So.3d —-, 2016 WL 1658754 (Fla. 3d DCA April 27, 2016) 

This case involves the estate of famed Miami architect Norman Giller. Prior to his death he transferred title to various parcels of real estate to himself as trustee of his own revocable trust. The deeds didn’t comply with F.S. 689.07′s disclosure requirements, identifying the transferee only as “Norman Giller, Trustee”. After Giller’s death two of his children filed a declaratory-judgment action in their representative capacities as PRs of his estate asking the court to rule on whether the deeds failed, which means the properties would become assets of the probate estate.

Giller’s third child (Brian) filed a motion to dismiss asserting that the PRs lacked standing to file suit under F.S. 689.07. His theory was that the statute’s designed to protect “subsequent parties” who might innocently buy property that’s subject to some kind of secret trust, not the property owner’s PRs. Was he right? NO, so saith the 3d DCA:

Brian asserted in his Motion to Dismiss that section 689.07(1) has no application to this case, and the Personal Representatives are not “entitled” to relief under section 689.07(1), because they are not parties who relied on the public records in acquiring an interest in the properties. In support of his argument, Brian cites to language in various cases addressing the purpose of section 689.07(1). . . . Notably, none of these cases address the issue of standing or “entitlement” of the personal representatives of a decedent-grantee to seek relief based on the operation of section 689.07(1), and none limit the class of parties entitled to relief under subsection (1) to “subsequent parties.”

Moreover, this Court’s precedent supports our conclusion that a grantee’s personal representative may seek a determination regarding ownership under section 689.07(1). In Turturro v. Schmier, 374 So.2d 71 (Fla. 3d DCA 1979), the personal representative of the decedent’s estate claimed title to the property under section 689.07 by virtue of a deed conveying a remainder to the decedent, “Morris Siegel, as Trustee,” and specifically alleged that the estate was the fee simple title holder to which the property reverted upon the demise of the holder of the life estate. . . .

In reaching its conclusion, this Court noted that the purpose of the statute is “to prevent a fraud from being perpetrated on a subsequent transferee who might rely on the record and be unaware of a secret trust creating ownership in another.” Id. The fact of whether a subsequent transferee did or did not rely on the deed, however, did not contribute to this Court’s analysis—the personal representative was not required to be a “subsequent party” in order to seek relief under section 689.07(1).

Trust protectors; they’re like trustees, but not quite. So can they get sued?

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

good-faith-2It used to be so simple. Back in the day trust lawyers had to contend with only three possible players: the settlor, the trustee, or the beneficiary. Today that trio’s often joined by a new creature we’re still not exactly sure what to make of: a trust protector.

Over the last few years there’s been a trend towards wider use of trust protectors (see here for why), and the 4th DCA’s opinion in the Minassian case (which I wrote about here) may go a long way towards accelerating that trend — especially in Florida.

This new phenomenon raises fundamental questions our courts have yet to grapple with. The most important of which is whether trust protectors assume the same fiduciary duties as trustees, or no fiduciary duties at all, or something in between. This isn’t an esoteric point. A trust protector’s liability exposure is directly proportionate to the scope of his fiduciary duties.

So where do we draw the line? Prof. Frolik provides the best answer I’ve seen so far. In an article entitled Trust Protectors: Why They Have Become “The Next Big Thing”, he argues for a middle of the road “good faith” standard of care. In other words, a trust protector isn’t subject to all the duties of a trustee, but he doesn’t get a free pass either. Prof. Frolik’s argument works because it falls squarely within our existing statutory framework (he cites to the Uniform Trust Code). Here’s an excerpt summarizing his argument with my links to corresponding Florida Trust Code provisions:

[F.S. 736.0105(2)(b)] states that the terms of a trust prevail over the provisions of the state statute, except, inter alia, for “the duty of a trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.” This seems to permit a settlor to lower the liability bar for a trustee, but not below the standard of good faith. And if the settlor can exculpate the trustee from fiduciary status, it would seem to follow that the same degree of exculpation can be provided to a protector.

If the protector is not subject to fiduciary obligations, the protector is nevertheless subject to judicial review and is still held to some judicially reviewable standard of behavior. Looking to the law governing trustees and the need to protect the interest of the beneficiary, the bedrock standard for a protector must be to act in good faith. [F.S. 736.0801] requires the trustee to “administer the trust in good faith”; a protector should be held to a similar standard. The good faith standard of care demanded of trustees is so fundamental to trust law that exoneration clauses designed to insulate a trustee from liability do not relieve the trustee for acting in bad faith. [F.S. 736.0105(2)(b)] permits the trust provisions to prevail over the Code, except for a list of powers that includes the “duty of a trustee to act in good faith.” A protector who, like a trustee, has powers that can affect the beneficial enjoyment of the trust, should be required to act in good faith.

Even if the trust is silent and says nothing about the protector’s standard of care, the protector must act in good faith because the absence of good faith is bad faith. There is nothing in between: either the protector is acting in good faith or the protector is acting in bad faith. And no court is going to permit a protector to act in bad faith because to do so would compromise the beneficial interest of the beneficiary.

Good faith is variously described. A Wyoming court, in need of a definition of good faith for a case involving a trustee, looked to the Restatement (Second) of Contracts section 205, comment a (1981), which stated good faith was “faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving ‘bad faith’ because they violate community standards of decency, fairness or reasonableness.”

In a will contest, a Texas jury was instructed that “good faith” meant “an action which is prompted by honesty of intention or a reasonable belief that the action was probably correct.” This is an objective test; merely believing you are doing the right thing is not enough; the belief must be reasonable. If this were not so, acting negligently, that is, failing to act reasonably, would violate the good faith standard.

Those who do not want a protector to be treated as a fiduciary, however, may also want to ensure that mere negligence will not create liability. The settlor is free to define what is meant by “good faith” and should be able to provide that an act of ordinary negligence does not violate good faith. However, [under F.S. 736.1011] the settlor cannot exculpate a trustee, or presumably a protector, from liability for acts made in bad faith or with reckless indifference (gross negligence).

As trust-protector clauses get incorporated into more and more trust agreements, sooner or later we’ll have to figure out what do when one of these trust protectors goes off the rails. When that happens, don’t count on much case law for guidance. For now, the best we can do is work with what we’ve got: Florida’s trust code. And Prof. Frolik’s article is an excellent roadmap for doing just that. Good stuff, well worth holding on to.

Bove Responds:

Alexander Bove is an internationally known and respected trust and estate attorney with over thirty-five years of experience, and the author of Trust Protectors: A Practice Manual with FormsBack in 2012 Mr. Bove published an article provocatively entitled The Case Against the Trust Protector, that grappled with the same question at the heart of Prof. Frolik’s piece: are trust protectors subject to fiduciary duties? In Mr. Bove’s opinion the answer is a resounding “yes!”

Mr. Bove contacted me to express his concerns with the analytical approach reflected in Prof. Frolik’s article. I asked him if I could share his written comments on the blog, and he graciously said yes (see here). Here’s an excerpt:

In conclusion, I would like to express my belief that it is a disservice to practitioners to perpetuate what I call the fear of fiduciary duty. We readily serve to act as estate fiduciaries and trustees without such fears—why not protectors? Furthermore, it is common knowledge that exposure to liability can be reduced to a minimum, which would place more risk on the trustee and beneficiaries than on the protector. If we look at the definition of “willful misconduct” under Delaware law, for example, we would be hard pressed to justify any realistic concerns over liability. Perhaps if we stop trying to teach professionals how to fit a round peg into a square hole and instead show them how to assist clients without the fear of fiduciary duty, we would be rendering a better service to everyone.

 

Can Florida arbitrators decide “validity” challenges to a will or trust?

Posted in Settling, Mediating & Arbitrating Inheritance Cases

Arbitration-3AAA’s rules for arbitrating wills and trusts specifically authorize arbitrators to decide the validity of the will or trust at issue in a given dispute. Since an arbitrator’s jurisdictional authority in that kind of case is a product of the document’s validity, in essence the arbitrator’s deciding his own jurisdictional authority. Here’s an excerpt from section 7 of the AAA rules:

The arbitrator shall have the power to determine the existence or validity of a trust or will in which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitrator that the contract is null and void shall not for that reason alone render invalid the arbitration clause.

By contrast, F.S. 731.401, Florida’s enabling legislation for arbitration clauses in wills and trusts (which I’m a big fan of), carves validity issues out of the statute’s scope of operation:

A provision in a will or trust requiring the arbitration of disputes, other than disputes of the validity of all or a part of a will or trust, between or among the beneficiaries and a fiduciary under the will or trust, or any combination of such persons or entities, is enforceable.

Do commercial arbitrators decide validity issues? YES

The sharp contrast between the AAA rules and Florida’s enabling statute highlights an issue the commercial arbitration world’s been grappling with for decades: does an arbitrator have jurisdictional authority to determine his own jurisdictional authority? In the commercial world the doctrine developed to answer this question has a cool German name: kompetenz/kompetenz.

Prof. Rutledge of the University of Georgia School of Law recently published an interesting article entitled The Testamentary Foundations of Commercial Arbitration, which does a great job of comparing and contrasting arbitration in the estate context vs. the commercial context. One of the points of differentiation is the kompetenz/kompetenz doctrine, which he describes as follows:

Stripped to its essence, the doctrine of kompetenz/kompetenz provides that an arbitrator has jurisdiction to determine her own jurisdiction. Though seemingly tautological, the doctrine is essential to the proper functioning of any arbitral system. The arbitrator draws her authority from the contractual agreement of the parties. Despite the source of this authority, cases regularly arise that challenge the enforceability of the arbitration clause . . . In these cases, the arbitrator will sometimes conclude that the defense is valid and, thus, the arbitration clause is unenforceable. This conclusion presents a logical conundrum: if the arbitrator derives her power from the arbitration clause, but then concludes that the arbitration clause is unenforceable, how can her award (so concluding) have any force? The doctrine of kompetenz/kompentenz solves this conundrum by providing that the arbitrator has the power to rule on challenges to her own jurisdiction.

In the United States, the [Federal Arbitration Act (“FAA”)] does not contain a specific provision addressing this issue. Instead, the rule emerged through an amalgam of case law and contractual practice. The seminal decision is typically seen to be the Supreme Court’s 1995 decision in [First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995)]. There, the Court held that courts, rather than arbitrators, presumptively have the power to rule on challenges to the arbitration clauses. However, if the agreement contains clear and unmistakable evidence that the parties intended for the arbitrators to rule on such matters, then courts must defer to that contractual allocation of authority. As a matter of practice, most sets of arbitral rules attempt to allocate decisions of this sort to arbitrators, and United States courts, relying on FirstOptions, generally have found these allocations sufficient.

Are estate cases so different we can’t arbitrate validity issues as well? NO

So if the FAA doesn’t bar arbitrators from deciding validity issues, and the U.S. Supreme Court’s decision in First Options also allows parties to arbitrate validity issues, and the AAA rules allow parties to arbitrate validity issues, why does F.S. 731.401 take such a different tack?

Prof. Rutledge points to a California Supreme Court decision from over a hundred years ago for a possible explanation. In Carpenter v. Bailey, 60 P. 162 (Cal. 1900), a dispute among heirs involving the validity of a will was decided by arbitration. When the winning side asked the court to enforce its arbitration award, the court refused, declaring that:

[T]he matter of the contest cannot be submitted to arbitration. The matter of the probate of a will is a proceeding in rem, binding on the whole world. A few individuals, claiming to be the heirs, cannot by stipulation determine such controversy.

So maybe it’s the in rem nature of a will or trust contest that sets these cases apart. If it is, I don’t find that reasoning convincing. In any estate proceeding the parties involved can choose to accept or reject the validity of the decedent’s last will. When those private parties make that decision, the contested will either gets probated or it doesn’t. That decision then gets incorporated into an uncontested probate court order, which is “binding on the whole world.” Bottom line, private parties have always had the ability to decide “validity” disputes by agreement (the vast majority of cases settle — from 80%-92% by some estimates), so there’s no logical reason why those same parties shouldn’t be able to use arbitration to reach the same result.

A more likely reason for why the Carpenter case was decided the way it was is that it reflects a general bias against arbitration that was prevalent a century ago. Times have changed. As noted by Prof. Rutledge, “[m]ore recently, a spate of U.S. Supreme Court decisions have facilitated the expansion of arbitration into previously verboten areas, including employment disputes, consumer disputes, and most disputes involving statutory claims under federal and state law.” Federal law favoring arbitration of disputes whenever possible, even if deemed contrary to Florida public policy, leads me to believe a Florida court operating in today’s pro-arbitration world should uphold an arbitrator’s ruling on validity (especially if the AAA rules are incorporated by reference into the clause). Time will tell.

4th DCA: Can a probate judge use his “equitable powers” to override our Probate Code?

Posted in Creditors' Claims, Practice & Procedure

Oreal v. Steven Kwartin, P.A., — So.3d —-, 2016 WL 1239756 (Fla. 4th DCA March 30, 2016)

certaintyHaving your case decided against you because a well-intentioned judge chose not to apply some provision of our Probate Code for “equitable” reasons is to stare into the abyss. Why? Because there’s no certainty if we can’t rely on our statutes being followed when they’re most needed — in the midst of conflict. And if there’s no legal certainty, there’s no rule of law. It’s that simple.

Uncertainty breeds litigation:

Certainty is especially important in estate proceedings because one of our primary goals as lawyers in these cases should be to avoid litigation. The collateral damage suffered by families involved in estate litigation is often devastating and irreversible. When parties differ in their predictions of the outcome of a disputed issue, they’re more likely to litigate because no one knows for sure which way the judge’s going to rule.

Also, we operate within an underfunded and overworked court system (in Miami-Dade – on average – each probate judge took on 3,122 NEW cases in FY 2014-15). We simply can’t afford to waste precious judicial resources litigating cases that should’ve been resolved by applying the clear text of our Probate Code.

Bottom line, our Probate Code might seem harsh at times (it is), but in the long run abiding by its mandates is the most “equitable” option for all concerned — and it’s the law. So saith the 4th DCA.

Case Study:

In this case a creditor filed a claim against an estate to collect on an unpaid promissory note. At the time the claim was filed the unpaid principal amount was $375,000, with an accrued interest amount of $397,000, for a total of $772,500. The estate didn’t file a timely objection to the claim, and the probate judge denied the estate’s motion for an extension of time to file an objection. But the judge was apparently unhappy with how the debt was pursued, so he exercised his “equitable powers” and reserved the right to determine whether a set-off against the creditor’s “interest component [was] appropriate due to any unexcused and excessive delay exercised by [the creditor] in attempting to perfect and collect on [its] valid unpaid claim.”

Clearly reading the tea leaves, the estate filed a motion for equitable set-off which (surprise!) the judge granted, finding that the creditor had an equitable duty to prevent the accumulation of interest. According to the 4th DCA, this ruling was directly contrary to the terms of the subject promissory note and section 733.705(9) of our Probate Code:

Section 733.705(9), Florida Statutes, provides that “[i]nterest shall be paid by the personal representative on written obligations of the decedent providing for the payment of interest.” In First Union National Bank of Florida v. Aftab, 689 So.2d 1137 (Fla. 4th DCA 1997), the claimant filed a statement of claim, seeking principal and interest due under two promissory notes executed by the decedent. The estate did not object to the claims. The probate court disallowed default interest. This court reversed, reasoning that “section 733.705(8) [now section 733.705(9)] provides for the payment of interest by a personal representative on a claim that is ‘founded on a written obligation of the decedent providing for the payment of interest.’ Thus, the statute requires that the personal representative pay interest in accordance with the written instrument.” Id. at 1139.

Can a probate judge use his “equitable powers” to override our Probate Code? NO:

OK, so the judge’s ruling ran head on against the law on the books, but what if that law’s unfair. In other words, if the end result is just and equitable, can a probate judge use his “equitable powers” to override our Probate Code? NO, so saith the 4th DCA:

Just as a court cannot rewrite a contract to relieve a party from an “apparent hardship of an improvident bargain,” see Dickerson Fla. ., Inc. v. McPeek, 651 So.2d 186, 187 (Fla. 4th DCA 1995), a court cannot use equity to remedy a situation the court perceives to be unfair.

As the Florida Supreme Court has explained:

[W]e cannot agree that courts of equity have any right or power under the law of Florida to issue such order it considers to be in the best interest of ‘social justice’ at the particular moment without regard to established law. This court has no authority to change the law simply because the law seems to us to be inadequate in some particular case.

Flagler v. Flagler, 94 So.2d 592, 594 (Fla.1957) (en banc). “Where the legislature has provided” “a plain and unambiguous statutory procedure … courts are not free to deviate from that process absent express authority.” Pineda v. Wells Fargo Bank, N .A., 143 So.3d 1008, 1011 (Fla. 3d DCA 2014).

In the instant case, section 733.705(9) plainly and unambiguously provides for the payment of interest and does not provide any judicial discretion. Because “there is a full, adequate, and complete remedy at law,” equity has no role. U.S. Bank Nat’l Ass’n v. Farhood, 153 So.3d 955, 958 (Fla. 1st DCA 2014) (quoting Wildwood Crate & Ice Co. v. Citizens Bank of Inverness, 98 Fla. 186, 123 So. 699, 701 (Fla.1929)). “The imposition of sanctions which contravene … statutes … exceed a trial court’s discretion and require reversal.” Id at 959.