Florida Probate & Trust Litigation Blog

Florida Probate & Trust Litigation Blog

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

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5th DCA: Can a woman invalidate her own Texas adoption to win a Florida estate case?

Posted in Practice & Procedure

Kemp & Associates, Inc. v. Chisholm, — So.3d —-, 2015 WL 477856 (Fla. 5th DCA February 06, 2015)


Inheritance disputes tend to be deeply personal affairs, often involving challenges to a person’s core identity or “status” as a family member. (Illustration by Yane Calovski)

Inheritance disputes tend to be deeply personal affairs, often involving challenges to a person’s core identity or “status” as a family member. Past examples include cases turning on a person’s contested status as a lineal descendant (e.g., are you a “pretermitted” child (click here), or a validly “adopted” adult (click here, here), or a legitimate “descendant by blood” (click here), or a “posthumously” conceived child (click here)); or a person’s contested status as a parent (e.g., are you a “legally” recognized father (click here)); or a person’s contested status as a spouse (e.g., were you “legally” married (click herehere)). This case turns on a woman’s status as the “biological” daughter of her birth parents vs. her status as the “legal” daughter of her adopted parents.

Summer of love:

The backstory to this case stretches to the summer of 1960 when, as described by the 5th DCA, “a romance blossomed between J.K.T., a young, unmarried woman, and Teofil E. Shablowski.” So began a chain of events that led this young woman to the “Texas Mission Home & Training School, a home for unwed mothers,” her daughter’s adoption in 1961, and this daughter’s search decades later for her biological parents. Again from the 5th DCA:

[The romance] ended before J.K.T. discovered that she was pregnant. She never told Mr. Shablowski that she was pregnant, and they were never in contact again. Instead, she entered the Texas Mission Home & Training School, a home for unwed mothers, intending to place her child for adoption. A healthy baby girl was born to J.K.T. in January 1961. Shortly thereafter, that child was adopted by Thomas and Maxine Chisholm in accordance with Texas law, and named Lisa Lou Chisholm. Though J.K.T. gave the Mission Home Mr. Shablowski’s name and enough information to locate him, he received no notice of Ms. Chisholm’s birth or her subsequent adoption.

As Ms. Chisholm grew older, she became curious about her biological parents and eventually located J.K.T. With the information learned from J.K.T., and utilizing the services of a private investigator, Ms. Chisholm found Mr. Shablowski in 1997. Mr. Shablowski, unmarried and believing himself to be childless until then, acknowledged Ms. Chisholm as his biological daughter. They established a good relationship, had frequent telephone and written communication, and met in person twice before his death in 2010.

Whose daughter are you?

Shablowski was 77 years old when he died intestate, leaving no surviving spouse, legally-recognized lineal descendants (other than possibly Chisholm), parents, or siblings. Soon thereafter, Chisholm and a group of Shablowski’s distant cousins filed competing claims to his estate. Shablowski’s cousins argued Chisholm was entitled to 0% of the estate because she’d been adopted away in 1961. Under F.S. 63.172 and F.S. 732.108, an adoption terminates the legal relationship between the adopted child and her natural parents, so that for purposes of intestate succession the adopted child is no longer a legally-recognized lineal descendant of the natural parent. On the other hand, if Chisholm’s adoption were invalidated for any reason, her status would switch to sole surviving lineal descendant, meaning she’d get 100% of the estate under F.S. 732.103.

Chisholm argued her 1961 adoption was invalid because Shablowski, her biological father, wasn’t provided with prior notice of her adoption. While conceding this kind of notice wasn’t required under Texas law in 1961 (the same was true in Florida at that time), Chisholm argued it was required as a matter of constitutional due process. Notice to an unwed father of the pending adoption of his child has been required since the U.S. Supreme Court’s 1972 ruling in Stanley v. Illinois, 405 U.S. 645 (1972), a landmark case in which the Court held that the fathers of children born out of wedlock have a fundamental right to their children. In 1975 Florida amended its statutory notice requirements for adoptions under F.S. 63.062 in accordance with the Stanley decision, requiring notice to a putative father concerning a child’s adoption if he has acknowledged and supported the child.

Can you say “retroactivity”?

Chisholm’s argument hinged on whether the U.S. Supreme Court’s 1972 ruling in Stanley should apply retroactively to her 1961 adoption. If it does, she wins, getting 100% of the estate. If it doesn’t, she loses, getting 0% of the estate. Chisholm won at the trial court level. On appeal, her win evaporated, she now gets nothing. Why? Because the 5th DCA didn’t buy her retroactivity argument.

Ms. Chisholm would have us apply Stanley’s holding retroactively to challenge the validity of the Texas adoption judgment. We decline to do so. It is true that a ruling on an issue of federal law announced by the United State Supreme Court is to be given full retroactive effect in all cases “still open on direct review and as to all events, regardless of whether such events predate or postdate [the Supreme Court’s] announcement of the rule.” Harper v. Va. Dep’t of Taxation, 509 U.S. 86, 97 (1993). But, the 1961 Chisholm adoption case was closed long before the rule of Stanley was announced. And, the “event” here is Ms. Chisholm’s adoption, not Mr. Shablowski’s subsequent death.

Our decision is driven not only by constitutional precedents, but also by public policy considerations. “The state has a compelling interest in providing stable and permanent homes for adoptive children in a prompt manner [and] in preventing the disruption of adoptive placements ….” § 63.022(1)(a), Fla. Stat. (2010). Adoptive children also have a right to permanence in their adoptive placements, as adoptive parents have an interest in retaining custody of a legally adopted child. § 63.022(1)(c),(d), Fla. Stat. (2010). These statutes make clear that it is the Florida Legislature’s intent to “protect and promote the well-being of persons being adopted and their birth and adoptive parents and to provide to all children who can benefit by it a permanent family life.” § 63.022(3), Fla. Stat. (2010). Invalidating the 1961 Texas adoption judgment (or, adopting Ms. Chisholm’s more nuanced suggestion, refusing to recognize it) based on the lack of notice to the putative father, would substantially hinder the Legislature’s clearly stated goal of promoting the finality and permanence of adoptions.

Affirming the trial court’s judgment would permit Ms. Chisholm to inherit from her biological father, but would call into question the legal relationship between Ms. Chisholm and Thomas and Maxine Chisholm (and her siblings, if any). If a 1961 Texas adoption is not entitled to recognition in Florida, then adoption judgments under the laws of Florida and other states that did not require notice to putative fathers at the time of the child’s adoption, would also be of questionable validity. This would lead to increased litigation and disruptions to many families, both adoptive and biological. “The adoption decrees that have been entered without the consent of the natural father must number in the millions. An untold number of family and financial decisions have been made in reliance on the validity of those decrees…. [T]hose reliance interests unquestionably foreclose retroactive application of this ruling.” Caban v. Mohammed, 441 U.S. 380, 415–16 (1979) (Stevens, J., dissenting).

4th DCA: Does a surviving widow have “standing” to assert her predeceased husband’s homestead rights?

Posted in Homestead Litigation, Marital Agreements and Spousal Rights

Lyons v. Lyons, — So.3d —-, 2014 WL 5460621 (Fla. 4th DCA October 29, 2014)

“The Federal estate tax exemption is high enough, $5.43 million per person and double that per couple, that it only affects the very wealthiest people in the country – not even 1% – but an outdated estate planning technique meant to get around a much lower exemption in the 1980s and 90s has left a nasty surprise for anyone still using a qualified personal residence trust (QPRT).” How QPRTs Went From Effective Estate Planning To Time Bomb

This is one of two cases published in 2014 involving litigated homestead rights and property deeded to a qualified personal residence trust (QPRT). (The other was Stone v. Stone, which I wrote about here.) Prior to 2014 it had been over ten years since a Florida appellate court mentioned the word “QPRT” . . . and now all of a sudden we have two QPRT cases in one year. Coincidence? Maybe. It might also reflect the fact that this once common tax planning strategy is now backfiring on many families, and a spike in QPRT/homestead litigation is part of the collateral damage. Here’s an excerpt from How QPRTs Went From Effective Estate Planning To Time Bomb:

The Federal estate tax exemption is high enough, $5.43 million per person and double that per couple, that it only affects the very wealthiest people in the country – not even 1% – but an outdated estate planning technique meant to get around a much lower exemption in the 1980s and 90s has left a nasty surprise for anyone still using a qualified personal residence trust (QPRT).

. . .

The problem is that QPRTs transferred ownership without an increase in basis. In other words, if a house was bought for $100,000 decades ago, transferred via QPRT, and later sold for $1 million (not at all unreasonable figures) the children would have to pay capital gains tax on the $900,000 increase. That might have made sense when there was the trade-off of avoiding estate taxes, but the rationale behind QPRTs has mostly disappeared.

Case Study:

In 1993 Richard and Norma Lyons, a husband and wife, signed a joint deed transferring title to their homestead property to Norma alone. On that same day Norma signed another deed transferring title for the homestead property to a QPRT. Richard and Norma had five children. Richard died in 2007. In 2010 Norma signed a deed transferring title to the homestead property to herself and one of the couple’s daughters, presumably bypassing their three sons. The sons objected; suing to set aside the 2010 deed. Norma defended her 2010 deed by claiming her original 1993 deed transferring the house to the QPRT was invalid because it violated her predeceased husband’s homestead rights, thus it remained her property to do with as she pleased.

Let me digress here a moment. Putting aside the standing issue that ultimately decided this case, the sons’ challenge to their mother’s 2010 deed probably would have prevailed anyway. First, the joint deed Richard and Norma signed in 1993 conveying title to their homestead property probably resulted in a valid waiver of dad’s homestead rights (see Stone v. Stone here). Second, once Norma conveyed the homestead property to the QPRT in 1993, it stopped being her property to give away in 2010 — it was trust property (see Aronson v. Aronson here).

Does a surviving widow have “standing” to assert her predeceased husband’s homestead rights to undo her own actions?

Now back to the case at hand. The trial judge was asked to decide if Norma had standing to challenge her own actions as a violation of her pre-deceased husband’s homestead rights. Norma said she did, her sons said she didn’t. Art. X, § 4(c) of the Florida Constitution and F.S. 732.4015(1) prohibit the devise of homestead property if the property’s owner is survived by: (1) a non-owner spouse or (2) minor children. Norma didn’t fall into either of these two protected classes, which means she lacked standing (as argued by her sons). The trial court judge didn’t see it that way, ruling in Norma’s favor. On appeal the 4th DCA reversed, here’s why:

In this case neither Norma nor the adult children were members of the class specifically protected by the constitutional provision. . . . As to Norma, although she is a surviving spouse, she owned the homestead and transferred the homestead to the QPRT. Article X, section 4(c) does not serve to protect Norma from her own actions in transferring her own homestead property.

The plain language of the constitutional provision describes and limits the actions of the owner of the homestead property. . . . The entire provision hinges on the conduct of the owner spouse, and the resultant protections to the non-owner surviving spouse or minor children.

Clearly, in the present case, Norma and her husband were owners of the homestead when they quit claimed the homestead to Norma. Norma then became the sole owner of the homestead and quit claimed the homestead to the QPRT. Norma cannot now claim the quit claim she then executed as sole owner was void ab initio, as she is not the non-owner surviving spouse. At the time of Norma’s quit claim to the QPRT, the only non-owner spouse was Richard.

If there were any infirmities in Norma’s action of quit claiming the homestead to the QPRT, only Richard as the non-owner spouse could rely on the provisions of article X, section 4(c). Clearly, Norma does not have standing to assert Richard’s potential rights had he been the surviving spouse. Norma, as the owner, should not be able to challenge her own acts, as she is not within the class of persons the constitutional provision is designed to protect.

Further, it would be absurd for the party who created the alleged infirmities in the quit claim deed to be able to attack the viability of the same quit claim deed. In other words, Norma should not be able to attack the quit claim deed as void ab initio, where she drafted, relied on, and was the sole signatory to it.

Lesson learned?

The 4th DCA never mentions failed tax planning in this opinion or its opinion in the Stone case, which is not surprising. Both cases turn on non-tax issues involving Florida homestead law. But that doesn’t mean tax issues weren’t driving either of these cases (whether consciously or unconsciously). An appellate decision is like the tip of an iceberg — we only “see” the 10% of a case that breaks the surface on appeal, the other 90% remains hidden (and remember, it was the unseen 90% that sunk the Titanic). Lesson learned? Never assume you know the whole story.

Florida needs to adopt the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act

Posted in Contested Guardianship Proceedings, Trust and Estates Litigation In the News

The Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (UAGPPJA) addresses a problem that needs fixing in Florida: inter-state forum shopping in contested guardianship proceedings. In 2014, three states adopted the UAGPPJA, bringing the total to 40 states plus the District of Columbia and Puerto Rico that have adopted the uniform statute. Unfortunately, Florida is one of the few remaining states that has yet to adopt the UAGPPJA.

For those of you who do much guardianship work, you’ll be interested in a recently-published legislative summary from the American Bar Association’s Commission on Law and Aging. Entitled STATE ADULT GUARDIANSHIP LEGISLATION: DIRECTIONS OF REFORM – 2014, the report does a good job of highlighting the strengths and weaknesses of Florida’s guardianship laws (F.S. Ch. 744) by shining a light on what other states are doing legislatively.

The ABA’s report includes information on 18 state enactments on adult guardianship from 15 states. The section I found most interesting focused on the growing problem of inter-state forum shopping in contested guardianship proceedings.

Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act:

Florida has existing legal theories for resolving multi-jurisdictional guardianship disputes on a case-by-case basis (as demonstrated in the Morrison case, which I wrote about here), but the best long-term solution is adoption of the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (UAGPPJA), which has pretty much been endorsed by just about every organization that might possibly have an interest in the issue, including the National College of Probate Judges, the Conference of Chief Justices and State Court Administrators, the National Guardianship Association, the ABA’s Commission on Law and Aging, the National Academy of Elder Law Attorneys, and the Alzheimer’s Association (see here). For what it’s worth, I’ve been advocating for Florida’s adoption of the UAGPPJA since 2009, when legislation adopting the uniform act was introduced by Representative Elaine J. Schwartz as HB 305, then inexplicably withdrawn (see here).

In 2014, three states adopted the UAGPPJA, bringing the total to 40 states plus the District of Columbia and Puerto Rico that have adopted the uniform statute. Unfortunately, Florida is one of the few remaining states that has yet to adopt the UAGPPJA. That’s a problem that needs fixing ASAP. Here’s an excerpt from the ABA report:

In our increasingly mobile society, adult guardianships often involve more than one state, raising complex jurisdictional issues. For example, many older people own property in different states. Family members may be scattered across the country. Frail, at-risk individuals may need to be moved for medical or financial reasons. Thus, judges, guardians, and lawyers frequently are faced with problems about which state should have initial jurisdiction, how to transfer a guardianship to another state, and whether a guardianship in one state will be recognized in another.

Such jurisdictional quandaries can take up vast amounts of time for courts and lawyers, cause cumbersome delays and financial burdens for family members, and exacerbate family conflict — aggravating sibling rivalry as each side must hire lawyers to battle over which state will hear a case and where a final order will be lodged. Moreover, lack of clear jurisdictional guideposts can facilitate “granny snatching” and other abusive actions.

1. Background on Uniform Act. To address these challenging problems, the Uniform Law Commission in 2007 approved the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (UAGPPJA). The UAGPPJA seeks to clarify jurisdiction and provide a procedural roadmap for addressing dilemmas where more than one state is involved, and to enhance communication between courts in different states.

. . .

2. Passage of Uniform Act by States. As it is jurisdictional in nature, the UAGPPJA cannot work as intended — providing uniformity and reducing conflict — unless all or most states adopt it. See Why States Should Adopt the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act.

  • In 2008, five states (Alaska, Colorado, Delaware, Utah and the District of Columbia) quickly adopted the Act.
  • In 2009, the eight states adopting the Act include Illinois, Minnesota, Montana, Nevada, North Dakota, Oregon, Washington, and West Virginia.
  • In 2010, seven states adopted the Act, including Alabama, Arizona, Iowa, Maryland, Oklahoma, South Carolina and Tennessee.
  • In 2011 another ten states enacted the UAGPPJA, including Arkansas, Idaho, Indiana, Kentucky, Missouri, Nebraska, New Mexico, South Dakota, Vermont and Virginia.
  • In 2012, six states passed the Uniform Act, including Connecticut, Hawaii, Maine, New Jersey, Ohio and Pennsylvania.
  • In 2013, two additional states, Wyoming and New York, joined the list

In 2014, three states passed the Uniform Act, bringing the total to 40 states plus the District of Columbia and Puerto Rico. The Act is pending in additional states.

  • Mississippi passed SB 2240, which was signed by the Governor in March.
  • Massachusetts passed SB 2249, which was signed by the Governor in August.
  • California SB 940, which was signed by the Governor in September.

4th DCA: Should post-nuptial waivers of homestead rights be assumed anytime spouses sign a joint deed?

Posted in Homestead Litigation, Marital Agreements and Spousal Rights

Stone v. Stone, — So.3d —-, 2014 WL 5834826 (Fla. 4th DCA November 12, 2014)

4th DCA: Joint deed = valid homestead waiver under F.S. 732.702

Under Florida law a surviving spouse’s testamentary rights in the couple’s marital homestead residence are spelled out in Art. X, § 4(c) of the Florida Constitution and F.S. 732.4015(1). Spouses are free to contractually waive their homestead rights, and often do for estate planning purposes. The statutory requirements governing these waivers are found in F.S. 732.702.

Is “waive” a “talismanic” word within F.S. 732.702?

For the second time in less than 5 years, a Florida appellate court has issued a potentially game-changing homestead decision involving the application of F.S. 732.702 to joint deeds. The first was issued in 2011 by the 3d DCA in Habeeb v. Linder (which I wrote about here). We now have a follow-up opinion from the 4th DCA. If these rulings are broadly applied, post-nuptial waivers of homestead rights should be assumed in virtually all spousal transfers via any kind of “joint” deed (i.e., a deed signed by both the husband and the wife).

At issue in Habeeb and again in this case is whether a joint deed must at the very least include the word “waiver” somewhere within the four corners of the document to qualify as a valid waiver under F.S. 732.702. According to the 3d DCA’s originally-published opinion in Habeeb the answer is NO:

The statute itself contemplates that a “written contract, agreement, or waiver” may be used to memorialize a relinquishment of a spouse’s homestead rights. These alternatives demonstrate that “waive” is not a talismanic word within the statute, so that a contract or agreement may accomplish the same result.

Case Study:

In this case a husband and wife (Jerome and Alma) executed a joint warranty deed in March 2000 splitting title to their homestead residence into two one-half tenancy in common interests and then subsequently transferred their respective one-half interests to two separate qualified personal residence trusts (“QPRTs”), each having a 5-year term. QPRTs are commonly-used estate planning vehicles. The homestead issues in this case turn on whether the joint deed was a valid waiver under F.S. 732.702.

Jerome and Alma had two children, Ross and Nancy. Jerome died in February 2005, just shy of his QPRT’s fifth year anniversary date. This meant Jerome’s half of the homestead property reverted back to his estate. Jerome devised his entire estate, including his half of the homestead property, to Alma in trust. When Alma died in 2009, these assets all went to Nancy — Ross was cut out. Ross tried to undo his disinheritance (at least in part) by arguing that his father’s devise of his half of the homestead property didn’t comply with the homestead-devise restrictions found in Art. X, § 4(c) of the Florida Constitution and F.S. 732.4015. If Ross was right, under F.S. 732.401(1) he’d be entitled to one-half of his father’s retained interest in the homestead property. If Ross was wrong, Nancy keeps it all. Nancy argued Ross was wrong because their mother had validly waived her testamentary homestead rights under F.S. 732.702 when she executed the joint deed.

4th DCA: Joint deed = valid homestead waiver under F.S. 732.702:

The joint deed Alma signed with her husband didn’t say a word about waiving anyone’s homestead rights, but it did include the kind of antiquated catchall conveyance phrases lawyers have been using in deeds for centuries, confirming transfer of all tenements, hereditaments, and appurtenances in any way pertaining to the couple’s homestead property. In Habeeb the 3d DCA concluded that this kind of boilerplate text — even in the absence of any reference whatsoever to any kind of “waiver” — satisfied the statutory requirements governing homestead waivers found in F.S. 732.702 (see here). A single appellate court’s statutory interpretation can be written off as a fluke. Not so when it’s confirmed by another district court of appeal, which is what happened here when the 4th DCA basically came to the same conclusion:

The trial court . . . found that Alma waived her homestead rights for the purpose of the homestead devise restrictions and, therefore, the disposition of the residence was not in violation of the devise restrictions. We agree.

Alma waived her homestead rights by executing the March 27, 2000 warranty deed splitting the property into two one-half tenancy in common interests and then transferring her interest into her QPRT. Section 732.702, Florida Statutes, provides in part, that “[t]he rights of a surviving spouse to … homestead … may be waived, wholly or partly, before or after marriage, by a written contract, agreement, or waiver, signed by the waiving party in the presence of two subscribing witnesses.” § 732.702(1), Fla. Stat. (2011). Further, “[u]nless the waiver provides to the contrary, a waiver of ‘all rights,’ or equivalent language” may constitute a waiver of all homestead rights that would otherwise pass to the waiving spouse by intestate succession. Id. The deed Alma executed on March 27, 2000, provided that she “grants, bargains, sells, aliens, remises, releases, conveys, and confirms” the property “together with all the tenements, hereditaments, and appurtenances thereto belonging or in anywise appertaining.” We agree with the trial court that this constituted a waiver of any constitutional homestead rights Alma had in Jerome’s one-half interest in the property.

Do we need a legislative fix?

Rohan Kelley, one of Florida’s foremost experts on homestead law, was on the losing side of Habeeb. Based on the 3d DCA’s opinion one of Mr. Kelley’s arguments opposing the type of deed-waiver we saw in Habeeb (and see again in this case) is that it amounts to an unintended “gotcha” waiver:

The appellant’s parade of horrible hypotheticals following such transactions (which he characterizes as “gotcha waivers”) is . . . unavailing.

One way to address the gotcha-waiver problem is to legislatively amend F.S. 732.702, statutorily requiring that any waiver by deed of homestead rights have some reference to homestead or at least require the use of the term “waive” or “waiver.” Apparently there’s some talk in Bar circles of doing just that. Prominent Boca Raton probate attorney Charles (Chuck) Rubin wrote about the 4th DCA’s opinion in the Stone case here, in which he provides the following thoughts on whether the gotcha-waiver problem requires a legislative fix:

“From a policy standpoint, there has already been some discussion among Florida attorneys about whether a statutory amendment is advisable to require that any waiver by deed of homestead rights have some requisite reference to homestead or at least require the use of the term “waive” or “waiver.” Having personally seen on more than one occasion such joint deeds sought to be applied against the homestead rights of a surviving spouse when the spouse did not realize that signing on the deed constituted a waiver, I would be in favor of it . . .”

Stay tuned for more.

4th DCA: Contracts vs. Testamentary Instruments: If you promise property one way by Contract and another way in your Revocable Trust, who wins?

Posted in Practice & Procedure

Blechman v. Estate of Blechman, — So.3d —-, 2015 WL 71730 (Fla. 4th DCA January 07, 2015)

4th DCA: “As to the construction of the [LLC operating] Agreement, the parties have provided no . . . law to contradict the general principle that express language in a contractual agreement ‘specifically addressing the disposition of [property] upon death’ will defeat a testamentary disposition of said property.”

A revocable trust is a form of testamentary instrument that’s used as a will substitute, and it’s treated as such in this case, which involves a family-owned LLC. The LLC was half owned by Bertram Blechman, who died in 2011. Under the terms of the LLC’s operating agreement (last amended in April 2010), at his death Blechman’s 50% share automatically vested exclusively in his two adult children. Under the terms of Blechman’s revocable trust (last amended a few months later in August 2010), this same property item was gifted in part to Blechman’s girlfriend (costing his children $89,500 in LLC income distributions). So who wins?

Contracts vs. Revocable Trusts:

Probate judges deal with testamentary instruments, like revocable trusts, all day long. LLC operating agreements effectuating non-probate dispositions rarely show up in probate proceeding. So (perhaps not surprisingly), the probate judge in this case ruled in favor of the familiar: revocable trust wins. Not so fast says the 4th DCA. Under Florida law contracts (such as LLC operating agreements) trump testamentary instruments (including revocable trusts):

As to the construction of the [LLC operating] Agreement, the parties have provided no . . . law to contradict the general principle that express language in a contractual agreement “specifically addressing the disposition of [property] upon death” will defeat a testamentary disposition of said property. Murray Van & Storage, Inc. v. Murray, 364 So.2d 68, 68 (Fla. 4th DCA 1978).

Which means Blechman’s revocable trust is nullified to the extent it’s contradicted by the LLC’s contractual provisions, but otherwise the document remains valid:

In this case, by virtue of [the LLC’s operating agreement], the Deceased’s membership interest immediately passed outside of probate to his children upon his death, thus nullifying his testamentary devise as an attempted disposition of property not subject to his ownership. See In re Estate of Corbitt, 454 S.E.2d 129, 130 (Ga.1995) (“The effect of the invalidity of a bequest (or the ademption thereof) would be to render the bequest void, but not to invalidate the will and it is no ground of caveat to the probate of a will that a devise to a particular person may be void.” (internal quotation omitted)).

OK, so now we know the answer: contracts trump revocable trusts. But it’s the “why” of it all that’s most interesting. Revocable trusts are, as their name implies, “revocable” at any time prior to the settlor’s death. Which means all a beneficiary has under one of these documents is a non-enforceable “expectancy” (and expectancies, as I’ve previously written here, have zero property value). By contrast, contracts irrevocably transfer legally-enforceable property rights the instant they’re created. Which means the property rights you’ve transferred by contract don’t belong to you anymore. In other words, once you sign a contract, the subject property stops being yours to give away, and nothing you say to the contrary in your revocable trust is going to change that fact. Here’s a quote from a NJ appellate opinion relied on by the 4th DCA to make this point:

A contract operates immediately to create a property interest in the premises while a will is . . . inoperative or ambulatory until the death of the testator, at which time it operates to create a property interest in the beneficiary. . . . The undertaking of a party under a contract is made in consideration of something to be paid or done by or on behalf of the other party, so that the obligation to and the right to require performance are reciprocal. A contract creates a present, enforceable and binding right over which the promisor has no control without the consent of the promisee, while a testamentary disposition operates prospectively . . . An instrument which does not pass any interest until after the death of the maker is essentially a will. But not every instrument which provides for performance at or after death is testamentary in character. If the instrument creates a right in the promisee before the death of the testator, it is a contract . . . [T]here is nothing in the statute of wills that prevents the creation by contract of a bona fide equitable interest in property and its enforcement after the death of a contracting party, even though the date of death is agreed upon as the time for transfer.

And if Blechman’s share of the LLC wasn’t controlled by his will or rev trust, it’s not a “probate” asset. Rather, it’s just one more variation on the non-probate revolution that’s been changing the face of testamentary law for decades now. Again from the 4th DCA:

The Florida Probate Code broadly defines the probate “estate” as encompassing the decedent’s property “that is the subject of administration.” § 731.201(14), Fla. Stat. (2011). In deciphering a probate estate’s parameters, the deciding factor is the decedent’s ownership interest in property. § 731.201(32), Fla. Stat. (2011). If the subject property will pass either intestate or by way of a will, then it is part of the decedent’s probate estate. Cf. In re Estate of Riggs, 643 So.2d 1132, 1134 (Fla. 4th DCA 1994) (noting that an “estate” does not include property passing outside of probate).

Estate planners frequently use non-probate mechanisms to transfer a decedent’s property outside of the probate system. This can be accomplished in a myriad of ways, such as: “inter vivos gifts . . . , Totten trusts, joint tenancy, life insurance, employee benefit and other annuity beneficiary designations, payable on death or transfer on death accounts, and” any other contractual means. Nathaniel W. Schwickerath, Public Policy and the Probate Pariah: Confusion in the Law of Will Substitutes, 48 Drake L.Rev. 769, 798 (2000) (quoting Jeffrey N. Pennell, Minimizing the Surviving Spouse’s Elective Share, 32 Inst. on Est. Plan. (MB) 900, 904 (1998)). The common thread of such non-probate mechanisms is that the assets to which they apply are “distributed to the designated beneficiaries immediately upon the transferor’s death” without the need for judicial intervention. Roberta Rosenthal Kwall, The Superwill Debate: Opening the Pandora’s Box? 62 Temp. L.Rev. 277, 278 (1989).

3d DCA: Can you sue a Spanish PR personally for showing up in a Miami courtroom in his representative capacity?

Posted in Practice & Procedure

Juega v. Davidson, — So.3d —-, 2012 WL 6601969 (Fla. 3d DCA December 19, 2012)

United States real estate appeals to foreign buyers, and a large number of them settled on property in Florida – about 25 percent of all international U.S. home purchases to foreign buyers, according to the 2014 report “Profile of International Home Buyers in Florida.”

Florida is a perennial favorite for international home buyers and Snow Birds migrating from the Northeast to the South. Which means a lot of people own property in Florida, but reside and work in another state or country, frequently owning property in several jurisdictions. So it shouldn’t come as a surprise to anyone that multi-jurisdictional estates (be it the state-to-state or country-to-country variety) are a large part of our practice here in Florida. The jurisdictional issues these cases raise in probate and non-probate proceedings are dramatically different. This case highlights what can go wrong when a jurisdictional clause found in our Probate Code is plucked out of context and used in a non-probate civil lawsuit.

Case Study:

Simon Davidson died a resident of the Costa del Sol town of Marbella, Spain. A Spanish court appointed Luis M. Juega — a Spanish citizen and resident of Marbella — to serve as administrator of Simon’s estate. According to Juega, when Simon died his brother, Stanley Davidson, owed him $5 million, based on a loan secured by property located in Miami, Florida. So Juega packed his bags and came to Miami, suing Stanley for payment of the $5 million debt. Juega’s foray into Miami’s court system wasn’t without its setbacks (which I’ve previously written about here).

This time around the issue was whether Juega could be sued individually in Florida. Apparently believing that a good offense is the best defense, Stanley countersued Juega individually for civil conspiracy and conversion. Juega cried foul, asserting he couldn’t be sued individually because the Miami court lacked personal jurisdiction over him. Stanley argued Juega — who originally appeared in this case as a foreign personal representative or “PR” — was in fact subject to the Miami court’s personal jurisdiction based on F.S. 734.201(3), which provides as follows:

Jurisdiction by act of foreign personal representative.—A foreign personal representative submits personally to the jurisdiction of the courts of this state in any proceeding concerning the estate by: . . . (3) Doing any act as a personal representative in this state that would have given the state jurisdiction over that person as an individual.

Under Florida law if you actively participate in Florida litigation, you’ve submitted yourself to the court’s personal jurisdiction. The 3d DCA’s opinion doesn’t give us much detail, but I’m guessing Stanley’s lawyers argued that Juega’s participation in the Miami lawsuit would have subjected him to the court’s personal jurisdiction if he’d acted individually, so this same conduct as a foreign PR meant F.S. 734.201(3) was triggered. Bottom line: trial court ruled it had personal jurisdiction over Juega.

Not so fast said the 3d DCA. Why? Because F.S. 734.201 is part of Florida’s Probate Code. Like any other provision of our Probate Code, it only applies if there’s a pending Florida probate proceeding. And was there a Florida probate proceeding pending in this case? NO. According to the 3d DCA:

Here, there was no ancillary estate opened in Florida, nor was Juega ever appointed a “personal representative” by the circuit court.

And if there’s no Florida probate proceeding, you can’t cherry pick a Probate Code clause to litigate your non-probate civil case. This is an important point that often gets lost in non-probate lawsuits (like trust cases) that usually get litigated before our probate judges. According to the 3d DCA:

Juega correctly argues that the Probate Code is, in this case, inapplicable. As the Florida Supreme Court has stated, “[t]he Florida Probate Code constitutes a unified statutory scheme intended to govern all probate matters—section 731.102, Florida Statutes (2007), expressly states that the probate code ‘is intended as unified coverage of its subject matter.'” Hill v. Davis, 70 So.3d 572 (quoting § 731.102, Fla. Stat. (2007)) (emphasis added). There is simply no basis for the appellees’ assertion that by virtue of participating in a civil action in capacities other than as an individual, Juega submitted to the jurisdiction of the court under the Probate Code. See also Crescenze v. Bothe, 4 So.3d 31, 33 (Fla. 2d DCA 2009) (addressing a different section of the Probate Code but finding that “[i]t is clear from the language of the statute and its place in Chapter 733 of the Probate Code that section 733.710(1) applies exclusively to claims against an estate in a probate proceeding and has no application in a civil action to terminate a trust.”) (emphasis added).

OK, so we can all agree this ruling makes sense as a general proposition, but how do you get around the plain text of F.S. 734.201, which seems to apply to “foreign” PRs — like Juega. If you’re a probate geek (like yours truly!), this is where the opinion really gets interesting.

Our Probate Code’s teaming with defined terms of art. A word or phrase that may have one meaning in general conversation can have a totally different meaning in the specific context of our Probate Code. Case in point: “foreign personal representative”. Most of us would think that phrase applies to people like Juega, who were appointed by a Spanish court to administer a Spanish estate. And we’d be wrong. Why? Because under our Probate Code you’re not a “foreign personal representative” unless a Florida court’s appointed you to serve as PR of a Florida ancillary estate. If there’s no Florida ancillary estate, there’s no “foreign personal representative” as far as our Probate Code’s concerned. Which means F.S. 734.201 doesn’t apply. Here’s how the 3d DCA makes this hyper-technical statutory construction point:

The Probate Code defines “foreign personal representative” as “a personal representative of another state or a foreign country.” § 731.201(17), Fla. Stat. The code further defines “personal representative” as “the fiduciary appointed by the court to administer the estate and refers to what has been known as an administrator, administrator cum testamento annexo, administrator de bonis non, ancillary administrator, ancillary executor, or executor.” § 731.201(28), Fla. Stat. Furthermore, “court” is defined in the statute as “the circuit court.” § 731.201(7), Florida Statutes.

Lesson learned?

Judges are generalists. Show them a statute, and they’ll do what it says. Ask them to get into the weeds of statutory construction, and their eyes glaze over. And current case loads mean you should assume your beautifully researched statutory-construction brief isn’t going to get read by anyone. Which means this kind of issue-specific appellate decision can be very helpful; you can pull it out in the middle of a hearing and say “see judge, it says right here you’re supposed to read the statute this way.” That doesn’t mean you’re guaranteed to win the argument, but it helps. If you do much international work you’ll want to hold onto this opinion.

Note to readers:

The linked-to order was published in 2012. 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.

Downbeat Legacy for James Brown, Godfather of Soul: A Will in Dispute

Posted in Trust and Estates Litigation In the News

James Brown died nearly eight years ago at the age of 73. He left an estate estimated to be worth anywhere from $5 million to over $100 million that’s been at the center of heated litigation ever since — in spite of the carefully crafted estate plan he put in place prior to his death. As reported by the NYT in Downbeat Legacy for James Brown, Godfather of Soul: A Will in Dispute:

James Brown’s will was meant to be everything his life was not. . . . The manic energy that fueled a career of funk classics, pyrotechnic dancing and relentless touring as the Godfather of Soul also contributed to a trail of broken marriages, estranged children, tax liens and brushes with the law over drugs, weapons and domestic violence.

By comparison, his will was as orderly as a book of prayer. . . . The bulk of his estate, worth millions of dollars — perhaps tens of millions — was to go to a trust to provide scholarships to needy children here in his native state and in Georgia, where he grew up. But nearly eight years after his death, at 73, on Dec. 25, 2006, the I Feel Good Trust has not distributed a penny to its intended recipients.

After James Brown’s death in 2006, his body was taken to the stage of the Apollo Theater in Harlem, drawing thousands to a public viewing. Credit Justin Lane/European Pressphoto Agency

One of the many lessons this case has to offer is that no matter how crystal clear a person’s testamentary intent may be, or carefully drafted his estate-planning documents might be, it’s all for naught if they’re not properly enforced in the event of a dispute. Which means shaping the dispute-resolution process should always be a planning priority. And how do we do that? Step one: recognize that our underfunded and overworked probate courts are susceptible to being hijacked by litigants having little interest in actually carrying out a testator’s last wishes, which is what’s apparently happened in the Brown case. Again as reported by the NYT:

In 2008, Henry McMaster, then the South Carolina attorney general, intervened. He said that Mr. Brown’s charitable goals had been endangered by the court challenges filed by his family.  . . . Under a proposed settlement with the family, he redirected a quarter of the estate’s assets to Mr. Brown’s children and grandchildren and a quarter to the singer Tommie Rae Hynie, whom Mr. Brown married in 2001 but had left out of the will.

[B]ut last year the South Carolina Supreme Court threw out the attorney general’s settlement. It described the state’s entry into administration of the estate as “an unprecedented misdirection” of the attorney general’s authority that had led to “the total dismemberment of Brown’s carefully crafted estate plan and its resurrection in a form that grossly distorts his intent.” Based on what it had reviewed, the court said that there was no evidence that Mr. Brown had been unduly influenced or that the will was anything but a true expression of his intent.  . . .

“It’s pernicious,” said Virginia Meeks Shuman, who teaches estate law at the Charleston School of Law. “This idea that you can just completely disregard the testator’s wishes is fine if we are going to live in a country where people don’t have a right to say what happens with their assets when they die.”

By the way, this kind of wholesale post-litigation rewrite of a person’s estate plan isn’t limited to celebrities or South Carolina’s courts. It’s a risk anyone caught up in the uncertainties inherent to estate litigation has to deal with. For example, according to most observers the same thing happened in a 1980s will contest litigated in New York City’s probate court system involving the Johnson & Johnson pharmaceutical fortune of J. Seward Johnson, Sr., who died at age eighty-seven in 1983. As famed NYC attorney William D. Zabel wrote here:

[T]he parties decided to settle. The Will was, to put it charitably, totally rewritten by the contestants. The result: any resemblance to Seward Johnson’s actual last Will seemed purely coincidental. Mr. Johnson should be a veritable whirling dervish in his grave, because all his expressed intentions were flouted.

Lesson learned?

One of the most important elements of any estate plan has to be litigation prediction and prevention. But as the Brown case demonstrates, while this kind of focus may be a necessary precondition to good planning, it’s not sufficient all by itself. Inheritance disputes are not rare — they impact a significant percentage of all estates (some estimates are as high as 70%). Once litigation breaks out, it doesn’t matter what the documents say if the dispute-resolution process is flawed. Which means we aren’t doing our jobs if we don’t also plan for this contingency. How do we do that?

I’m a big believer in privatizing the dispute-resolution process whenever possible (see here, here). Battle-scarred veterans of actual courtroom encounters usually “get” this idea immediately; planners (who rarely step into a court room) have more trouble with it. Regardless, one way or another these disputes will get resolved. As those caught up on the Brown estate litigation are learning, planning for that eventuality requires a focus on process, not just prevention.

4th DCA: Can “trust protectors” be used to privatize Florida trust-construction disputes?

Posted in Will and Trust Contests, Will Construction Litigation

Minassian v. Rachins, — So.3d —-, 2014 WL 6775269 (Fla. 4th DCA December 03, 2014)

Trust protectors are a standard feature in offshore trusts, but they’re found less frequently in domestic trusts. The 4th DCA’s opinion in Minassian v. Rachins might change that — at least in Florida.

In what could be a ground breaking decision, for the very first time we now have a Florida appellate court explicitly sanctioning the use of trust protectors in a domestic trust proceeding. Historically, trust protectors were a standard feature in offshore trusts, but rarely used domestically. Times are changing. Over the last few years there’s been a trend towards wider use of trust protectors in domestic trusts, and this 4th DCA opinion may go a long way towards accelerating that trend.

In this case the authority for resolving any ambiguities in the trust agreement was shifted from the courts to the trust protector, thereby effectively privatizing the dispute-resolution process. As readers of this blog know, I’m all for privatizing inheritance litigation whenever possible. The tool I’ve pointed to in the past for getting that job done is mandatory arbitration (see here). We now have another court-sanctioned tool that’s potentially even more powerful: a trust protector authorized to resolve trust-construction ambiguities by amending or terminating the trust after the settlor’s death.

Case Study:

In this case the settlor named his estate planning attorney (i.e., the professional with most knowledge regarding his testamentary intent) as his trust protector. According to the estate planning attorney, his client had very specific intentions regarding how his trust should be administered after his death for the benefit of his wife, and he also expected his children might be less than thrilled with his plans (especially one estranged daughter). 4th DCA:

The trust protector testified in a deposition that he met with the husband twice, first in person to discuss his estate planning desires, and second over the phone to discuss and execute the documents he had drafted. During the husband’s life, the husband and wife’s “lives revolved around horse racing and legal gambling,” and, in the trust, the husband wanted “to provide for [the wife] in the way they had lived in the past….” . . . The trust protector also stated, “This challenge by the children is exactly what [the husband] expected.” The trust protector noted that the husband referred to his daughter in derogatory terms, and that the daughter had not seen her father in years.

When husband died, the litigation he feared (and wisely planned for) materialized in the form a lawsuit filed by his children against his wife (the trust’s sole trustee) alleging she’d breached her fiduciary duties as trustee by improperly administering the trust. Both sides filed summary judgment motions claiming the trust agreement supported their side of the case. When the trial court ruled against wife, she triggered the trust protector clause to simply re-write the trust agreement in a way that favored her litigation position (effectively doing an end run around the trial court’s adverse ruling). 4th DCA:

In the midst of litigation in which the trustee of a family trust was being sued for accountings and breach of fiduciary duty, the trustee appointed a “trust protector,” as allowed by the terms of the trust, to modify the trust’s provisions. These modifications were unfavorable to the litigation position of the beneficiaries, and they filed a supplemental complaint to declare the trust protector’s modifications invalid.

And here’s how the 4th DCA summarized the operative trust-protector clause:

After the trial court denied the motion, the wife appointed a “trust protector” pursuant to Article 16, Section 18 of the trust. This section authorizes the wife, after the husband’s death, to appoint a trust protector “to protect … the interests of the beneficiaries as the Trust Protector deems, in its sole and absolute discretion, to be in accordance with my intentions….” The trust protector is empowered to modify or amend the trust provisions to, inter alia: (1) “correct ambiguities that might otherwise require court construction”; or (2) “correct a drafting error that defeats my intent, as determined by the Trust Protector in its sole and absolute discretion, following the guidelines provided in this Agreement[.]” The trust protector can act without court authorization under certain circumstances. The trust directs the trust protector, prior to amending the trust, to “determine my intent and consider the interests of current and future beneficiaries as a whole,” and to amend “only if the amendment will either benefit the beneficiaries as a group (even though particular beneficiaries may thereby be disadvantaged), or further my probable wishes in an appropriate way.” The trust provided that “any exercise … of the powers and discretions granted to the Trust Protector shall be in the sole and absolute discretion of the Trust Protector, and shall be binding and conclusive on all persons.”

After wife pulled the trigger on the trust-protector clause, plaintiffs cried foul, and the trial court agreed with them, overriding the trust protector’s actions. Wrong answer says the 4th DCA. Here’s why:

  1. trust protectors are authorized by Florida law;
  2. the powers granted to the trust protector in this case are authorized by Florida law; and
  3. the settlor’s intent to use a trust protector (instead of our courts) to resolve this dispute works under Florida law.

Each of these points is a big deal for Florida trusts and estates attorneys (be it as planners or litigators). What makes the 4th DCA’s analysis so useful to working lawyers is its heavy reliance on Florida’s existing Trust Code, which means we now have a statutory road map — blessed by an appellate court — for using trust protectors in Florida trust agreements. You’ll want to hold on to this opinion.

Trust Protector — OK? 4th DCA: YES:

The Florida Trust Code provides: “The terms of a trust may confer on a trustee or other person a power to direct the modification or termination of the trust.” § 736.0808(3), Fla. Stat. (2008) (emphasis added). This section was adopted from the Uniform Trust Code, which contains identical language in section 808(c). See Unif. Trust Code § 808 (2000). The commentary to this section states:

Subsections (b)-(d) ratify the use of trust protectors and advisers…. Subsection (c) is similar to Restatement (Third) of Trusts Section 64(2) (Tentative Draft No. 3, approved 2001)…. “Trust protector,” a term largely associated with offshore trust practice, is more recent and usually connotes the grant of greater powers, sometimes including the power to amend or terminate the trust. Subsection (c) [as enacted in section 736.0808(3), Florida Statutes] ratifies the recent trend to grant third persons such broader powers….

The provisions of this section may be altered in the terms of the trust. See Section 105. A settlor can provide that the trustee must accept the decision of the power holder without question. Or a settler could provide that the holder of the power is not to be held to the standards of a fiduciary….

Id. at Editors’ Notes (emphasis supplied). See generally Peter B. Tiernan, Evaluate and Draft Helpful Trust Protector Provisions, 38 ESTATE PLANNING 24 (July 2011).

Trust Amendment — OK? 4th DCA: YES:

The children make two arguments as to the inapplicability of section 736.0808(3). First, they contend that this provision conflicts with “the black letter common law rule … that a trustee may not delegate discretionary powers to another.” Second, they argue that sections 736.0410–736.04115 and 736.0412, Florida Statutes, provide the exclusive means of modifying a trust under the Florida Trust Code. We reject both arguments.

As to the conflict with the common law, which precludes non-delegation of a trustee’s discretionary powers, this argument fails for two reasons. First, it is not the trustee that is delegating a duty in this case, but the settlor of the trust, who delegates his power to modify to a third person for specific reasons. Second, “The common law of trusts and principles of equity supplement [the Florida Trust Code], except to the extent modified by this code or another law of this state.” § 736.0106, Fla. Stat. (2008) (emphasis added); see also Abraham Mora, et al., 12 FLA. PRAC., ESTATE PLANNING § 6:1 (2013–14 ed.) (“The common law of trusts supplements the Florida Trust Code unless it contradicts the Florida Trust Code or any other Florida law.”). Thus, section 736.0808, Florida Statutes, supplements common law, and to the extent the common law conflicts with it, it overrides common law principles.

Sections 736.0410–736.04115 and 736.0412, Florida Statutes, provide means of modifying a trust under the Florida Trust Code. The children argue the terms of the trust cannot prevail over these provisions, so as to add a method of modification via trust protector, because section 736.0105 provides, “The terms of a trust prevail over any provision of this code except … [t]he ability to modify a trust under s. 736.0412, except as provided in s. 736.0412(4)(b).” § 736.0105(2)(k), Fla. Stat. (2008). Yet section 736.0808(3), Florida Statutes, expressly allows a trust to confer the power to direct modification of the trust on persons other than trustees. “[A] court must consider the plain language of the statute, give effect to all statutory provisions, and construe related provisions in harmony with one another.” Hechtman v. Nations Title Ins. of New York, 840 So.2d 993, 996 (Fla.2003). These provisions of Chapter 736 can be harmonized by concluding that the sections on modifying trusts do not provide the exclusive means to do so, at least insofar as a trust document grants a trust protector the power to do so. Otherwise, section 736.0808(3) would have no effect. Therefore, we conclude that the Florida Statutes do permit the appointment of a trust protector to modify the terms of the trust.

Privatizing dispute-resolution process — OK? 4th DCA: YES:

It was the settlor’s intent that, where his trust was ambiguous or imperfectly drafted, the use of a trust protector would be his preferred method of resolving those issues. Removing that authority from the trust protector and assigning it to a court violates the intent of the settlor.

We therefore reverse the partial final judgment of the trial court and remand with directions that the trust protector’s amendments are valid. We reject all other arguments made by the children against the validity of these provisions, although not ruling on any matters beyond that issue.

Lesson learned?

The overwhelming majority of trusts established in international financial centers include trust-protector clauses. Domestically, this tool has yet to gain much traction (trust protectors aren’t even mentioned in Florida’s Trust Code). I predict competitive market forces are going to change all that. If I’m right, we can expect to see more and more trust protectors in our domestic trust agreements, and cases like this one — providing a detailed statutory road map for their use — are going to pave the way for that change.

For those who may not be all that familiar with trust protectors and how they work, a good starting place to learn more about them is the article by Florida attorney Peter Tiernan cited in the 4th DCA’s opinion: Evaluate and Draft Helpful Trust Protector Provisions, 38 ESTATE PLANNING 24 (July 2011). Here’s an excerpt:

Trust protectors are no longer a feature of only offshore asset protection trusts. Now trust protectors are being used more and more in domestic trusts as well. The expansion of time that a trust can exist without violating the rule against perpetuities in many states is one reason to consider using trust protectors. A lot can change if a trust is to last for a hundred years or more. Appointing a trust protector (or in this case a series of trust protectors) is an excellent way to deal with those changes.

This expanded use of trust protectors leads to some interesting questions:

  • Who should be appointed as trust protector?
  • What powers should be given to them?
  • Are a protector’s powers fiduciary powers, and should they be?
  • Assuming that fiduciary powers are involved, to what standard of conduct should the trust protector be held?
  • What liability is there to a trustee who blindly follows the directions of a protector?
  • If requested by a prospective trust protector to give an opinion as to whether to accept the position of trust protector, what advice should be given?

4th DCA: Ignorance of the law is no excuse. Just because you don’t know you’re legally entitled to trust accountings doesn’t mean you get sit on your hands for years before suing your trustee for never accounting to you.

Posted in Practice & Procedure

Corya v. Sanders, — So.3d —-, 2014 WL 5617045 (Fla. 4th DCA November 05, 2014)

We all know that, generally speaking, ignorance of the law is no excuse. But does this ancient maxim apply to Florida trust-accounting cases as well? Yes! According to the 4th DCA, just because you don’t know you’re legally entitled to trust accountings doesn’t mean you get sit on your hands for years before suing your trustee for never accounting to you.

Case Study:

At its core, the job of trustee is as much about keeping beneficiaries adequately informed as anything else.  Most trust litigation can be traced back to a trustee’s inability to adequately explain him or herself to the trust’s beneficiaries, and this case is no different. It involves several family trusts that had been irrevocable for decades before suit was filed — one dating back to 1953 — for which the trustee had never prepared accountings. When the trustee was finally sued, the plaintiff demanded trust accountings going back decades to each trust’s respective start date.

While there’s no denying trust accountings are a good thing, asking an individual trustee (in this case the plaintiff’s mother) to reconstruct (and justify) every financial decision she’s made going back decades is going too far. So what’s to be done? Limit the accounting obligation to a reasonable window of time, which our legislature’s defined as being four years. There are two ways a defendant trustee can limit her accounting risk-exposure to just four years: on statute of limitations grounds or the “laches” affirmative defense.

SOL = 4 Years:

As explained by the 4th DCA, the applicable statute of limitations period for trust-accounting actions is four years:

Regardless of whether the breach is deemed to be the result of negligence or an intentional act, the statute of limitations for a legal action alleging breach of trust or fiduciary duty is limited to four years. §§ 95.11(3)(a), (o), (p), Fla. Stat. (2008).

That’s the good news; now here’s the bad. As explained by the 3d DCA in Taplin (which I wrote about here), trustees only get to rely on the statute-of-limitations defense if they comply with the two-part test currently found in F.S. 736.1008(1)(b). If your trustee’s never prepared accountings, he or she isn’t going to qualify for this defense, which is what happened here (and in Taplin). The fallback defense is the statutory-laches affirmative defense found in F.S. 95.11(6), which the 4th DCA tells us applies to trust-accounting actions:

We have previously held that section 95.11(6), referred to as “statutory laches,”[FN4] applies to an action for an accounting by a trustee. Patten v. Winderman, 965 So.2d 1222, 1225 (Fla. 4th DCA 2007). Section 95.11(6), Florida Statutes (2008), states:

 (6) Laches.—Laches shall bar any action unless it is commenced within the time provided for legal actions concerning the same subject matter regardless of lack of knowledge by the [defendant] that the [plaintiff] would assert his or her rights and whether the [defendant] is injured or prejudiced by the delay. This subsection shall not affect application of laches at an earlier time in accordance with law.

[FN4.] In Corinthian Investments, Inc. v. Reeder, 555 So.2d 871, 872 (Fla. 2d DCA 1989), the Second District referred to section 95.11(6) as “statutory laches.” See also Nayee v. Nayee, 705 So.2d 961, 963–64 (Fla. 5th DCA 1998) (discussing the inapplicability of section 95.11 to actions against trustees until amended in 1974 to add section 95.11(6)).

Laches = 4 Years:

And because the statutory-laches defense applies, we get looped back to a 4-year statute of limitations for trust-accounting actions:

Because an action for accounting seeking to enforce a breach of trust or fiduciary duty entitles a beneficiary to damages, the application of section 95.11(6) [statutory laches] bars an action seeking an accounting from a trustee more than four years before the action is filed.[FN7]

[FN7.] Even though an action for an accounting is considered an equitable proceeding, it has the features of a legal action. § 736.0106, Fla. Stat. (2008) (“The common law of trusts and principles of equity supplement this code, except to the extent modified by this code or another law of this state.”) (emphasis added). “An action for an accounting was formerly cognizable both at law and in equity.” Nayee, 705 So.2d at 963 (citing Campbell v. Knight, 92 Fla. 246, 109 So. 577 (1926)).

Laches = Evidentiary Hearing = Cost + Delay + Uncertainty:

All things being equal, it’s faster and cheaper to cut off claims on statute of limitations grounds vs. laches. Why? Because the first defense gets decided purely on the pleadings depending only how much time has elapsed prior to the lawsuit being filed, while laches is an affirmative defense turning on factual issues requiring an evidentiary hearing and all of the delays and expense that entails.

And here’s another drawback to evidentiary hearings: even if the facts and law are on your side, there’s no guarantee your judge is going to get it right. Anytime you have an evidentiary hearing things can go sideways on you, which is exactly what happened in this case when the trial court concluded the laches defense didn’t apply because “[plaintiff’s] testimony [was] credible that he did not know he was entitled to an accounting until he met with a Florida attorney in April, 2007.” Based on this ruling the trial court ordered the defendant trustee to prepare trust accountings going back decades.

Ignorance of the law = NO excuse:

According to the 4th DCA, the trial judge got this one wrong. Defendant trustee is only required to prepare accountings going back four years. Why? Because a plaintiff’s ignorance of the law (for example, his legal right to annual trust accountings) doesn’t toll the laches clock until he finally gets around to consulting a lawyer — decades after learning the operative facts for an accounting action:

[Plaintiff] does not dispute that he had actual knowledge that he was a beneficiary of all four trusts for many years before filing suit against [the defendant trustee]. What he claimed at trial and on appeal is that he did not have actual knowledge he was entitled to accountings for each trust until he consulted with a Florida attorney in April 2007.  . . . His failure to know the law or consult with an attorney is not a lack of actual knowledge of the facts (no accountings given to him) upon which the claim is based. See § 95.031, Fla. Stat. (2008) (stating a cause of action accrues when the last element constituting the cause of action occurs). Knowledge of the law is not an element to be proven to establish entitlement to an accounting by a trustee. [Plaintiff’s] lack of knowledge of the law had nothing to do with his knowledge that the accountings were not being given to him each year. . . . Research has not revealed a Florida case which holds that a lack of knowledge of the law is grounds to extend the period for laches or toll the running of the statute of limitations. . . . [T]he trial court concluded laches did not apply because [plaintiff] was not aware of the law. This was error.

S.D.Fla.: Can you prosecute an “unjust enrichment” claim in a case involving contested life insurance proceeds?

Posted in Practice & Procedure

Kowalski v. Jackson Nat. Life Ins. Co., 2013 WL 5954380 (S.D.Fla. November 07, 2013)

If you’re a trusts and estates lawyer, a larger and larger share of your practice is going to have little — if anything — to do with our probate code. Why? Think: non-probate revolution. In today’s world most inherited wealth is transferred from one generation to the next by non-probate transfers, which are not subject to probate, are not governed by a person’s will, and are not subject to challenge under our probate code.

Adapt or Perish:

Take for example life insurance policies, a classic example of a non-probate transfer. Vast sums are controlled by these contracts, most of which will never see the light of day in a probate proceeding. According to the latest ACLI statistics, as of year-end 2013 there was $19.7 trillion of life insurance in force in the U.S. and payments that year totaled $107 billion. Trusts and estates litigators who don’t adapt to this dramatically changing legal landscape risk becoming irrelevant.

So what’s to be done? Think transferable skills. Apply the professional experience you’ve developed litigating traditional probate disputes to the non-probate arena. And we do that by learning to prosecute legitimate inheritance grievances in non-traditional forums (such as federal court, a growing trend) involving creative legal arguments that work with non-probate assets (like insurance policies). That’s exactly what happened in the linked-to case above.

Case Study: 

At the heart of this case is a $175,000 life insurance policy on a mother’s life (the “Insured”) bought and paid for by her son (Edward Kowalski) and his wife (Lisa Kowalski, who’s referred to as “Kowalski” in the court’s order). Edward, the sole owner and beneficiary of the life insurance policy, predeceased his mother. After her husband died, Kowalski did everything she was supposed to do under the terms of the life insurance contract to transfer the policy’s ownership to herself, but for reasons unexplained in the court’s order she didn’t follow up on changing the beneficiary designation to herself as well. When mom died, the insurance policy proceeds automatically defaulted to son Edward’s estate — NOT Kowalski. The beneficiaries of Edward’s estate (the “Estate”) apparently included a woman named “Wilson” who wasn’t about to walk away from her share of the life insurance money. To resolve this dispute, Kowalski sued the insurance company, Jackson Nat. Life Ins. Co. (“Jackson”), in federal court seeking a declaratory judgment reflecting that she was the life insurance policy’s sole owner and beneficiary.

Unjust enrichment claim — succeeds:

The key argument addressed in the court’s order was Kowalski’s unjust enrichment claim against the Estate. Did it work? Yes! Here’s why:

[T]o establish a claim for unjust enrichment, Kowalski must establish that she: (1) conferred a benefit on the Estate, which had knowledge of the benefit; (2) the Estate voluntarily accepted and retained the benefit; and (3) under the circumstances, it would be inequitable for the Estate to retain the benefit without paying for it. See Shands Teaching Hosp. & Clinics, Inc. v. Beech St. Corp., 899 So.2d 1222, 1227 (Fla.Dist.Ct.App.2005). Because the Court concludes that the undisputed record establishes each of these elements, the Court will grant summary judgment for Kowalski on her claim for unjust enrichment.

First, the Court finds that Kowalski conferred a benefit on the Estate which had knowledge of the benefit. . . . [T]he benefit conferred on the Estate is the policy proceeds themselves. . . . The undisputed record before the Court further reflects that Kowalski, and her husband, Edward Kowalski, were the sole source of the premium payments which led to the payment of the policy proceeds. . . . Indeed, the Insured herself confirmed in a conversation with a Jackson representative that Lisa Kowalski was paying the premiums. Transcript of July 18, 2010 Call [DE 126–10] at 2 (“my daughter-in-law pays the insurance on my life-but she’s not listed as the beneficiary yet.”); 5 (“I said, You’ve been paying on it, but I don’t think you have the ownership on it.”).

Second, the undisputed record further establishes that the Estate has accepted this benefit. This is evidenced by Wilson’s participation in this litigation as personal representative of the Estate.

Third, the Court finds that under the circumstances it would be inequitable under for the Estate to retain the policy proceeds without having contributed anything towards payment of the policy premiums. . . . To allow the Estate to retain the policy benefits would represent a windfall to the Estate when the undisputed record before the Court reflects that none of the Insured’s heirs contributed anything to the payment of the policy premiums. See Sharp, 511 So.2d at 365. . . . Thus, it would be inequitable for the Estate to retain the policy proceeds. Because Kowalski has established all the elements of unjust enrichment, the Court will grant summary judgment for Kowalski on this claim.

In most disputes involving life insurance proceeds, the terms of the contract control — no matter how unfair the outcome or counter to the policy owner’s testamentary intent. Which means a standard unjust enrichment claim is usually going nowhere in a life insurance case. Where this problem came up most often in the past was in the post-divorce context. A couple would divorce, but one of them would forget to change his or her life-insurance beneficiary designation forms, often resulting in an unintended windfall for the surviving ex-spouse. If someone tried to challenge these obvious mistakes in court, they’d inevitably lose (see here). Eventually Florida passed a post-divorce statutory fix (see here).

This isn’t a post-divorce case, so the statutory fix doesn’t apply. Because there’s a contract in place here, that should have been the end of the unjust-enrichment claim. But it wasn’t. Why not? If you litigate inheritance disputes, this is the single most important question raised by this case.

Contract defense — fails:

The default proposition is that Florida law bars unjust enrichment claims in cases involving parties to a contract:

Wilson asserts that the existence of the insurance policy bars any claim for unjust enrichment. . . . Florida courts have held that contracts barring the unjust enrichment claim must be between the parties to the unjust enrichment claim. See, e.g., Moynet v. Courtois, 8 So.3d 377, 379 (Fla.Dist.Ct.App.2009) (“[W]here there is an express contract between the parties, claims arising out of that contractual relationship will not support a claim for unjust enrichment.”); Diamond “S” Dev. Corp. v. Mercantile Bank, 989 So.2d 696, 697 (Fla.Dist.Ct.App.2008) (same); Shands Teaching Hosp. & Clinics, Inc., 899 So.2d at 1227 (same).

The defense didn’t apply in this case because the person whose life was insured — was not a party to the insurance policy contract. And just because the Insured signed a statutorily-required written consent to the policy, doesn’t mean she’s a party to the contract. And if the Insured wasn’t a party to the contract, her Estate isn’t either.

The Court agrees with Kowalski that the Insured was not a party to the insurance policy. Although the Insured did sign the insurance policy application, as Kowalski points out, her consent was required under Florida law for her son, Edward, to obtain a policy on her life. (Fla. Stat. § 627.404(5)). The policy itself is clear that all rights under the policy belong to the Owner: “[w]hile the Insured is living, all rights of this Policy belong to the Owner.” . . . Edward Kowalski is listed as the applicant/owner on the insurance policy application. . . . Thus, there is no support for the proposition that the Insured was a party to the insurance policy.

Third-party beneficiary defense — fails:

OK, so the Estate wasn’t a direct party to the insurance contract, but was it a party by implication? In other words, was the Estate a third-party beneficiary of the contract? In the law of contracts a third-party beneficiary is a person who may have the right to sue on a contract, despite not having originally been an active party/signatory to the contract.

In this case the insurance policy proceeds had been paid by default to the Insured’s Estate. Did this make the Estate a third-party beneficiary of the insurance contract? Answer: NO. Even though the Estate obviously “benefited” from the contract (it received the insurance proceeds), the Estate wasn’t a “contractual” third-party beneficiary in the sense that would apparently preclude an unjust-enrichment claim. Here’s why:

There is also no evidence that the Estate or the Insured is a third party beneficiary under the policy. Under Florida law, “[t]he beneficiary has no beneficial interest or right in the policy or to the proceeds. The beneficiary possesses only an expectancy during the insured’s life.” Ross v. Ross, 20 So.3d 396, 398 (Fla.Dist.Ct.App.2009) (citing Pendas v. Equitable Life Assurance Soc’y, 129 Fla. 253, 176 So. 104 (1937); Lindsey v. Lindsey, 342 Pa.Super. 72, 492 A.2d 396, 398 (1985) (“the naming of a beneficiary on a life insurance policy vests nothing in that person during the lifetime of the insured; the beneficiary has but a mere expectancy”)). Moreover, to be considered a third party beneficiary under a contract, “a party must demonstrate that the agreement to be enforced shows a clear intent and purpose on the part of the contracting parties that one of them should become the debtor of a third. One who benefits only indirectly from the provisions of a contract made by others for their own benefit, and not for the benefit of such third party, cannot maintain an action upon the contract.” Deanna Constr. Co. v. Sarasota Entm’t Corp., 563 So.2d 150, 151 (Fla.Dist.Ct.App.1990) (citations omitted). “[A] party claiming third party beneficiary status must be shown to be a direct and intended beneficiary of the agreement, not merely an incidental beneficiary; that in order to find the requisite intent to entitle a party to sue as a third party beneficiary, it must be shown that both contracting parties agreed to benefit the asserted third party.” Id. Here, the Estate is only an incidental beneficiary to the policy because the named beneficiary, Edward Kowalski, predeceased the Insured. Thus, the existence of the insurance policy does not preclude Kowalski’s claims against the Estate, a non-party to the contract.

Unilateral mistake defense — fails:

Having struck out on its contract defenses, the Estate then argued you can’t prosecute an unjust-enrichment claim when it’s your own mistake that caused the problem. Kowalski argued the insurance company bore some of the fault for the beneficiary-designation form never having been changed after her husband’s death. The court didn’t buy it. According to this judge, the only party that made a mistake was Kowalski — but it didn’t matter. Even if the Estate’s unjust enrichment was due solely to Kowalski’s unilateral mistake, the Estate doesn’t get to keep the loot.

Florida courts have permitted unjust enrichment claims based upon the unilateral mistake of one of the parties to stand where the other party received an undeserved windfall. See Sharp v. Bowling, 511 So.2d 363, 365 (Fla.Dist.Ct.App.1987) (relying upon unjust enrichment to force an employee to reimburse her employer for moneys the employer had to pay the IRS as a result of an error in reporting the amount of federal income taxes withheld from the employee’s wages. Although the mistake had been a unilateral one made by the employer, the employee, who had received a tax refund from the IRS as a result of the mistake, was unjustly enriched and “[i]n equity and good conscience … should be required to reimburse her employers.”).[FN6]

[FN6.] Wilson attempts to distinguish Sharp on the grounds that Kowalski does not seek the premiums erroneously paid, but rather the full contract amount. . . . The Court does not find this distinction meaningful because it ignores the fact that the Estate, like the employee in Sharp, will receive a windfall in the amount of the policy proceeds, not the premiums paid.

Lesson learned?

Times have changed. Today, life insurance and other beneficiary-designated non-probate assets such as annuities, pay-on-death accounts, joint accounts and retirement planning accounts have become the dominant wealth transfer mechanism for most middle class families (wills and trusts remain prevalent  for the top 1%). This is the single most significant paradigm shift shaping the day-to-day reality of most trusts and estates lawyers and their clients (not the latest incarnation of our federal transfer-tax system, which impacts only the wealthiest 0.14% of Americans — fewer than 2 out of every 1,000 people who die). Cases like the one linked-to above are excellent examples of what more and more inheritance disputes may look like in the future. We ignore them at our peril.

Note to readers:

The linked-to order was 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.