Metaphors-make-your-pointPowers of appointment are the Swiss Army knife of modern estate planning. They’re deceptively simple yet adaptable to almost any planning contingency. And they’re ubiquitous, often incorporated into even the most basic trust agreements for all sorts of good reasons (see here). These clauses don’t get litigated all that often, but when they do, the stakes can be huge (see here).

Specific-reference requirement:

Because power-of-appointment clauses are so common, it’s easy to take the standard formulation for granted. For example, a standard power-of-appointment clause will almost always include some form of “specific-reference” requirement. Here’s a typical example, which was quoted by the 1st DCA in Cessac v. Stevens, a 2013 power-of-appointment case I wrote about here.

Upon the death of my daughter, SALLY, the Trustees shall transfer and deliver the remaining principal of this share of the trust, together with any accumulated or undistributed income thereon to or for the benefit of such one or more persons, corporations or other organizations, in such amounts and subject to such trusts, terms and conditions as my daughter may, by her will, appoint, making specific reference to the power herein granted . . .

Not only is the specific-reference requirement included in most power-of-appointment clauses, it’s also baked into our probate code at F.S. 732.607, which provides as follows:

A general residuary clause in a will, or a will making general disposition of all the testator’s property, does not exercise a power of appointment held by the testator unless specific reference is made to the power or there is some other indication of intent to include the property subject to the power.

Ever wonder where the specific-reference requirement came from? If you see it everywhere, it’s safe to assume it didn’t just get there by accident. Well look no further. As explained in an excellent RPTE Law Journal article that was just published entitled Using Equity To Aid The Exercise Of A Power Of Appointment that Fails To Specifically Refer To The Power, this requirement was originally meant to address a specific estate tax issue — that ceased to exist over half a century ago!

Federal estate tax law prior to October 21, 1942, provided that the value of property subject to a general power of appointment was included in the donee’s gross estate for federal estate tax purposes only if the general power was exercised. Thus, to prevent inadvertent exercise of the general power and inclusion of the appointive property in the donee’s gross estate, a specific-reference clause was usually added to the provision granting the general power.

Concern over inadvertent exercise of a general power of appointment for estate tax purposes disappeared for general powers of appointment created after October 21, 1942. Section 2041 of the Internal Revenue Code of 1986, as amended (Code), provides that the value of property subject to a general power created after October 21, 1942, is included in the donee’s gross estate irrespective of whether the power is exercised. Thus, “inadvertent exercise of a general power created after October 21, 1942, no longer has adverse estate tax consequences.” See Restatement (Third) of Property § 19.10 cmt. d.

Equitable exception doctrine to the rescue:

A typical will or trust agreement is going to be chock full of archaic sounding clauses that may or may not continue to serve a useful purpose. These clauses are usually harmless, but sometimes they’re not. Making specific reference to a power-of-appointment clause may not sound like much of a burden, but you’d be surprised how often this gets mucked up by sloppy drafting.

Rather than hammer family members (and other favored classes of beneficiaries) for these drafting mistakes, the English courts of chancery developed the “equitable exception” doctrine, which salvages bad drafting as long as the defective will or trust is arguably somewhere close to the mark. The doctrine’s been applied in the U.S. (but not Florida), and is articulated in Restatement (First) of Property § 347 as follows:

Failure of an appointment to satisfy formal requirements imposed by the donor does not cause the appointment to be ineffective in equity if (a) the appointment approximates the manner of appointment prescribed by the donor; and (b) the appointee is a wife, child, adopted child or creditor of the donee, or a charity, or a person who has paid value for the appointment.

If you ever find yourself litigating a power-of-appointment clause — no matter what side of the case you’re on — you’ll want to be aware of this equitable rule and how it might impact your case. And to do that you’re going to want to read Using Equity To Aid The Exercise Of A Power Of Appointment that Fails To Specifically Refer To The Power. For example, here’s what the author had to say about the significance of the 1st DCA’s opinion in Cessac v. Stevens:

In summary, the Cessac decision is important on three fronts. First, the decision revealed the court’s willingness to move from case precedent requiring strict compliance with a specific-reference requirement to use of the equitable rule when facts and circumstances permit. Second, the decision highlighted the fact that to have substantial compliance under the equitable rule, the donee must execute a document containing at least a blanket-exercise clause. Third, the decision determined that a state statute corresponding to Uniform Probate Code section 2-610 [such as F.S. 732.607] does not apply when a power contains a specific-reference requirement.

The willingness of the Florida District Court of Appeals in Cessac to move from case precedent requiring strict compliance with a specific-reference requirement to possible use of the equitable rule appears to have been influenced by three factors. First, the court’s willingness to even consider use of the equitable rule reflects its role as a court of equity as well as a court of law. Second, the court recognized that each decision regarding the effectiveness of an exercise of a power should be limited to the facts and circumstances of each case because the court wanted to apply the equitable rule after recognizing under the facts there that “Ms. Cessac will not receive the assets the decedent [donee] apparently intended for her to receive,” but could not apply the rule because the donee’s will failed to even refer to the powers of appointment there. Third, the court cited with approval In re Passmore, where the Supreme Court of Pennsylvania was also willing to move from prior Pennsylvania case precedent requiring strict compliance with a specific-reference requirement to use of the equitable rule when facts and circumstances permit. . . .

Accordingly, the Cessac and Passmore decisions reveal that the equitable rule can be considered and applied by a state court even though precedent applicable to that court may advocate strict compliance with a specific-reference requirement.

Good stuff, well worth holding on to.

STEP-conference-2017I recently had the pleasure of speaking at the STEP Caribbean Conference. I co-presented with Cayman Islands trust litigator Rachael Reynolds. We had fun going through the practical “what ifs” a Caribbean trustee should consider if faced with the prospect of getting pulled into a Florida courtroom.

The Society of Trust and Estate Practitioners or “STEP” is a global organization of international trust and estate lawyers, bankers, accountants and other professionals that originated in the UK, which explains why STEP isn’t nearly as well known in the US as it should be. If your practice involves international trust and estate matters, you need to be in STEP (I’m a member of STEP’s Miami Branch).

electronic-willsSilicon Valley entrepreneurs and venture capitalists have deployed digital tech to change the way we live, eat, and shop. And they’ve aggressively moved into crucial professional services industries like healthcare and finance. But the  practice of law is one slice of the economy that’s remained stubbornly resistant to disruption. That’s slowly changing.

Case in point: Florida’s new Electronic Wills Act, which promises to make wills affordable and accessible to the more than half of all U.S. adults who don’t currently have wills. (As currently drafted the statute won’t go into effect until April 1, 2018.)

For families who don’t require particularly complex estate planning, electronic wills will likely become the norm in the not too distant future, as recognized by the Uniform Law Commission, which recently formed a drafting committee to work on a uniform electronic wills act.

Not surprisingly, this disruptive change isn’t being driven by lawyers, it’s driven primarily by the young tech savvy entrepreneurs behind an internet startup called Willing, a web-based company that allows users to complete their own estate planning documents online.

Willing’s legal advisory board is made up of two giants of the trusts and estates academic world, Profs. John H. Langbein (Yale Law) and Robert H. Sitkoff (Harvard Law), and a representative of one of Wall Street’s most influential law firms, Daniel L. Mosley, a partner in Cravath’s NYC trusts and estates department. Together they’ve co-authored a white paper laying out the practical and public policy arguments in favor of electronic wills, posted here on Willing’s website. Here’s the abstract:

To make a valid will, all American states require a person to comply with a set of formalities that trace back to a pair of statutes enacted by Parliament centuries before the invention of the light bulb. These formalities generally require a will to be in writing, signed by the testator, and witnessed by at least two people. There are good reasons for requiring formalities to make a will. Nevertheless, the traditional will formalities have not adapted to an evolving technological context in which nearly all transactions—including massive end-of-life transfers under pension plans, brokerage accounts, life insurance policies, and the like—can be made electronically. Accordingly, this paper argues in favor of legislation authorizing electronic wills made in compliance with a set of electronic formalities suited to the modern age. These reforms would improve access to will-making while facilitating the integration of wills with the many other methods of deathtime transfer that operate outside the law of wills.

Florida Bar Calls for Additional Safeguards:

The Real Property, Probate and Trust Law Section of The Florida Bar (“RPPTL Section”) came out publicly against the Florida Electronic Wills Act, arguing in this white paper that as originally drafted the act didn’t contain sufficient safeguards to protect testators from exploitation. The RPPTL Section was especially concerned about the act’s authorization of witnessing via remote video webcam technology, in lieu of requiring physical presence. Here’s how the section summed up its concerns:

If the Florida Legislature were to decide that witnesses no longer need to sign a will in the testator’s physical presence, the Proposed Act will still need to include specific changes to prevent fraud and exploitation during the will execution process, including safeguards to protect testators against fraud, undue influence and duress. Those safeguards should include, at a minimum, requirements that the testator be asked a list of fundamental questions confirming that their act in signing the will is voluntary and free of undue influence, to identify all other persons present with the testator, and provide a 360-degree view of the room as part of the execution ceremony. The Proposed Act must also include safeguards aimed at confirming that testators possess sufficient testamentary capacity at the time of executing an electronic will.

The drafters of the Florida Electronic Wills Act apparently took the Bar’s concerns seriously, and have incorporated extensive safeguards into the final version of the statute. For example, under subsection 732.525(1)(8) of the act a testator is required to provide verbal answers to all of the following questions while being videotaped:

  • Are you over the age of 18?
  • Are you under the influence of any drugs or alcohol that impairs your ability to make decisions?
  • Are you of sound mind?
  • Did anyone assist you in accessing this video conference? If so, who?
  • Has anyone forced or influenced you to include anything in this document which you do not wish to include?
  • Are you signing this document voluntarily?

And the video of the electronic execution ceremony must be recorded and stored for future reference, which goes way beyond the current traditional safeguards for executing wills. Here’s an excerpt from that portion of the new act (732.525(1)(9)):

A time-stamped recording of the entire video conference must be identifiable with the document being signed and stored in the electronic record containing the document by a qualified custodian in the manner required pursuant to s. 732.527(1)(c) for the storage of electronic records containing electronic wills.

What’s next?

I’m guessing the act’s 2018 effective date is no accident. This gives everyone another year to iron out any remaining statutory kinks before it all goes live. For more commentary on Florida’s electronic wills statute and electronic wills generally, see here, here, here. I expect we’ll be hearing a lot more about electronic wills over the next year. Stay tuned for more . . .

Full Disclosure:

I’m not an unbiased observer when it comes to electronic wills. I believe they’re inevitable, they’re good public policy, and they shouldn’t be viewed as a business threat by trusts and estates lawyers (for more on this last point, see From Data to Wisdom). Based on those beliefs I’ve agreed to serve as an advisor to Willing and my firm owns a tiny stake in the company.

Most of us would agree that most divorced spouses don’t want their ex’s to hit the jackpot after one of them’s died because someone forgot to update his or her estate planning documents. You’d be surprised how often this happens.

So in 1951, when wills were the dominant estate planning tool, Florida enacted a statute automatically cutting divorced spouses out of each other’s wills (currently at F.S. 732.507(2)). Then revocable trusts grew in popularity, leading in 1989 to the revocable-trust version of that statute (currently at F.S. 736.1105).

In today’s world the dominant estate planning tool for most of us isn’t a will or trust, it’s life insurance or some other pay-on-death financial product (like annuities, pay-on-death brokerage or savings accounts, and retirement planning accounts). Which means a whole lot of Floridians found themselves litigating “who got what” when an ex-spouse forgot to change his or her beneficiary designation forms (see here, here, here). In 2012 we finally closed that legislative loophole with F.S. 732.703 (see here for my write up of that legislation).

There’s been zero case law in Florida testing the new statute’s constitutionality, but given the huge sums of money at stake, it’s probably only a matter of time. This line of attack’s been tried in lots of other states, with mixed results. After a few early wins, the tide has very much turned against the constitutional-challenge argument. And how do I know that? Because I read a great article by Donna L. Eng and Scott Konopka entitled Is F.S. §732.703 Susceptible to a Constitutional Challenge by a Former Spouse Whose Claim for Benefits is Denied? Their conclusion? Don’t bet on winning a constitutional challenge in Florida. Here’s an excerpt summarizing their findings:

Although no Florida courts have addressed the constitutionality of F.S. §732.703, it would appear that . . . if a former spouse were to challenge [the statute] by arguing that [its] retroactive application . . . violates his or her rights as a designated beneficiary, or that the [statute] violates his or her rights to freedom of contract, as was argued in [Parsonese v. Midland Nat’l Ins. Co., 706 A.2d 814 (Pa. 1998)] and [Whirlpool Corp. v. Ritter, 929 F.2d 1318 (8th Cir. 1991)], such contentions should fail. As noted above, courts in other states and outside the 11th Circuit have noted the flaws in the Parsonese and Whirlpool analysis: 1) Beneficiaries to a life insurance policy have only an expectancy interest, and no vested rights in the policy; 2) decedents should expect that their policy designations would be regulated by the legislature; 3) public policy favors revocation on divorce statutes, as such statutes recognize the intent of a divorced spouse to revoke the designation of a former spouse as a beneficiary under the policy; 4) a revocation on divorce statute would not violate a beneficiaries’ freedom of contract because beneficiaries are not parties to the contract, and have no standing to raise such a claim; and, 5) revocation on divorce statutes do not violate the decedent’s freedom of contract because the statute only affects the donative transfer aspect of the life insurance policy.

Edwards v. Maxwell, — So.3d —-, 2017 WL 1201873 (Fla. 1st DCA March 31, 2017)

adoption-family-treeTo understand this case you need to keep two basic points in mind.

First, adoptions are sometimes used to “add” individuals to the class of eligible beneficiaries of  what are otherwise closed, irrevocable trusts (see here, here). According to a rule of construction found in our probate code (F.S. 732.608), adoptees are presumed to be descendants of their adoptive parents for inheritance purposes. When this rule’s applied to a trust benefiting someone’s descendants as a class (i.e., without specifically naming them), that class of beneficiaries is presumed to include adoptees.

Second, the “contingent” nature of the trusts at issue in this case determined the outcome. At the center of this case are three multi-generational trusts designed to be discretionary in nature, as in the trust beneficiaries don’t have any fixed or vested property rights. If, when and how a discretionary beneficiary gets access to any of his trust’s assets (if ever) is 100% contingent on the trustee’s independent judgment. In Florida the statutory test for whether or not you have a discretionary trust is found in F.S. 736.0504. Multi-generational discretionary trusts (often referred to as “dynasty” trusts) are the darlings of the estate planning world (see here); over the long term they deliver unbeatable tax savings and creditor protection benefits for most families (see here; here).

Case Study:

This case involves three irrevocable discretionary trusts created by the great-grandparents of John Edwards, who in 2004 adopted a son named Brindley Kuiper, which had the legal effect of adding Kuiper to the class of eligible beneficiaries for these trusts. Edwards’ biological son, Ryan Maxwell, a pre-existing member of the class of eligible beneficiaries for these same trusts, filed suit in 2014 claiming the adoption was a sham that diluted his stake in the family trusts. Maxwell argued he should have received notice of the adoption in 2004, which would have given him an opportunity to fight it in court. The trial court agreed and vacated Kuiper’s adoption order.

Not so fast said the 1st DCA. Because discretionary trust beneficiaries don’t have any fixed or vested property rights in their trusts, Maxwell can’t say for sure he would have been any better off if Kuiper’s adoption had never happened. And because he can’t be certain Kuiper’s adoption actually had an economic impact on him, Maxwell didn’t have legal standing to challenge it in court. No standing = reversal, so saith the 1st DCA:

In this case, Mr. Maxwell lacks standing to set aside the 2004 adoption because he wasn’t entitled to notice in the first place. He had no direct, immediate, and financial interest in the adoption. The interests Mr. Maxwell possesses as an eligible beneficiary to three family trusts are all contingent. See Stefanos, 673 So.2d at 13; Dennis v. Kline, 120 So.3d 11, 22-23 (Fla. 4th DCA 2013). The trusts are solely administered at the discretion of trustees. And Mr. Maxwell has no direct or immediate right to funds in the trust or control over trust-disbursement decisions. The trustees possess unilateral discretion to determine, for instance, if disbursements are made, when disbursements are made, and to whom (among the eligible beneficiaries) disbursements are made. See Blechman v. Estate of Blechman, 160 So.3d 152, 159 (Fla. 4th DCA 2015) (defining a contingent interest partly on the basis of whether it involves an event in the future, which may never happen and which lies entirely outside the control of the beneficiary to bring about with certainty). Because Mr. Maxwell does not possess direct, financial, and immediate interests in the trusts, he had no concomitant right to receive notice about the adoption that added Mr. Kuiper as an eligible beneficiary. And he cannot now have the adoption order vacated.

What’s the takeaway?

Being the beneficiary of a discretionary trust is usually nothing but upside. But you can’t have it both ways. If you can’t be taxed and your creditors can’t get at your trust assets because, as a discretionary beneficiary, you don’t have any fixed or vested property rights, then you can’t turn around and sue someone for diluting your non-existent property rights.

Birchfield v. Armstrong, No. 4:15-cv-00615-RH-CAS, —- WL —– (N.D. Fla. March 23, 2017)

James Merrick Smith and Hal F.B. Birchfield
Hal Birchfield and James Merrick Smith

Florida’s widows and widowers whose same-sex spouses died before the U.S. Supreme Court’s 2015 ruling in Obergefell v. Hodges declaring that state bans on same-sex marriage are unconstitutional, can now have the Florida death certificates of their loved ones changed without having to go to court.

The plaintiffs in this case sought to have the death certificates of their same-sex spouses show they had been married, but the state argued that Florida law prohibited officials from changing the documents without a separate court order for each death certificate. “Not so,” said U.S. District Judge Robert Hinkle. Here’s why:

As the Supreme Court said long ago, 42 U.S.C. § 1983 affords a person whose federal constitutional rights have been violated “a federal right in federal courts.” Monroe v. Pape, 365 U.S. 167, 180 (1961); see also Ex parte Young, 209 U.S. 123 (1908) (allowing injunctive relief against a state official for violations of federal law). In short, a federal court has jurisdiction to remedy a federal violation, including, when otherwise proper, through a class action. There are exceptions, but none applies here.

This is precisely such a case. The plaintiffs are entitled to appropriate injunctive relief correcting the state’s prior, unremedied violation of the plaintiffs’ constitutional rights. To the extent the defendant state officials simply need a clear resolution of the perceived conflict between the federal constitutional requirement and the state statute, this order provides it.

The state of course has every right to insist on appropriate documentation before amending a death certificate. In Rule 64V-1.007(3)(e), 3(f), and (5), the state has provided that a death certificate’s information about marital status or a spouse’s identity, but not both, can be corrected without a court order upon ubmission of an application, affidavit, and appropriate documentary evidence. This order provides that, upon submission of the same materials, the defendants must correct a constitutional error that affected a death certificate’s information on both marital status and a spouse’s identity.

For the backstory to this case see Federal Judge Rules Florida Must Add Same-Sex Spouses to Death Certificates:

James Merrick Smith and Hal F.B. Birchfield lived together in Florida for 42 years. They married in New York in 2012, and Smith died in Florida in 2013. At the time, Florida refused to recognize same-sex unions—so Smith’s death certificate listed him as unmarried with no surviving spouse. After the Supreme Court ruled in Obergefell v. Hodges in 2015 that the Constitution protects same-sex couples’ right to marry, Birchfield asked the state to correct Smith’s death certificate. But Florida refused, declaring that it would not correct any death certificate that falsely listed an individual as unmarried with no surviving spouse unless compelled to do so by an individual court order.

Birchfield and another gay widower, Paul Mocko, sued on behalf of themselves—and all other Floridians whose deceased same-sex spouses’ death certificates listed them as unmarried. And on Thursday, U.S. District Judge Robert Hinkle ruled in their favor and ordered the state to correct these death certificates. The state must now re-issue an accurate death certificate for Smith and all other people who were incorrectly designated unmarried at time of death because their spouses were of the same sex.

LGBTQ advocates cheered the court’s decision, as reported in Lambda Legal’s press release:

“We are thrilled that the Court has put an end to the way the State of Florida was erasing whole lives spent together when it refused to issue corrected death certificates recognizing married same-sex couples unless the surviving spouse obtained a court order,” said Karen Loewy, counsel for Lambda Legal. “Hal and Paul and other Florida widows and widowers like them suffered at the hands of the state all because their spouses died before the state’s marriage ban was struck down.”

“These surviving same-sex spouses should never have been forced to bear the burden of the state’s discrimination, but that discrimination ends today,” Loewy continued. “Hal, Paul, and other surviving same-sex spouses in Florida can’t get their loved ones back, but now all Florida surviving same-sex spouses will have the respect and dignity of accurate death certificates that recognize their relationships.”

For Mocko, who was with his husband Greg Patterson for 26 years before Patterson’s death in 2014, the victory means that the state cannot place further financial burdens on him as a prerequisite to amending his husband’s death certificate.

Mocko had been told he could not amend the certificate without first obtaining a court order, which would have required him to obtain legal representation and spend $401 in filing fees. The federal court rejected that interpretation of the law, saying no such court order was necessary.

“This is great news,” said Mocko. “I didn’t know where i would have found the money to pay for an accurate death certificate for Greg. It is a relief to know that I won’t have to get a court order just to have the State respect our relationship.”

Lopez v. Flores, — So.3d —-, 2017 WL 1018492 (Fla. 3d DCA March 15, 2017)

client-and-lawyerOur ethics rules evolved in the civil litigation context, which means the rules assume a lawyer has only one client involved in a particular matter, and that lawyer’s never tainted by representing anyone else whose interests are unaligned with his or her one client as it relates to the matter at hand. It’s rarely that simple for trusts and estates lawyers.

For example, it often makes sense for one estate planner to serve as “family” counselor for an entire family, which means several family members are represented jointly by the same lawyer. But no matter how closely knit a family might be, our ethics rules still assume everyone’s entitled to be treated like they’re our one and only client, each with his or her own separate right to our undivided loyalties. Forget that fact and someone else’s family fight could morph into your very own malpractice suit (see here, here).

Another common scenario that comes up in the inheritance-ligation context is for separate family members to confer with the same lawyer or small group of lawyers while everyone’s trying to figure out what to do next. This kind of family-group thinking may seem reasonable, but it comes with its own set of risks for the lawyers involved; namely our ethical duties to “prospective” clients under rule 4-1.18(c), which provides in relevant part as follows:

A lawyer … may not represent a client with interests materially adverse to those of a prospective client in the same … matter if the lawyer received information from the prospective client that could be used to the disadvantage of that person in the matter …. If a lawyer is disqualified from representation under this rule, no lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in the matter ….

This rule’s the focus of the 3d DCA’s ruling in the Lopez case linked-to above.

Case Study:

This case involves an elderly father’s marriage to a younger woman, the validity of which was challenged by his children. In my book, this is an inheritance dispute. According to counsel for the children in December 2015 he spoke at length with a friend of his at the Kluger Firm about this case:

[H]e began speaking with his longtime friend, the Kluger Firm attorney, about serving as the Children’s co-counsel in the proceeding. He testified that he revealed to the Kluger Firm attorney “facts, strategy that I was intending to employ, and giving him a road map of where I thought he would fit into the case to help me out as co-counsel.” The Children’s attorney further testified that he disclosed facts to the Kluger Firm attorney that are currently not available to the public.

In February 2016 the children, acting as their father’s plenary co-guardians, filed suit against “Flores”, the new wife. Six months later in August 2016 the Kluger Firm stepped into the fray — as counsel for Flores! Counsel for the children, apparently believing this must all be a big mix up, wrote to the Kluger Firm asking them to voluntarily withdraw from the case, and they basically told him to take a hike in an email the 3d DCA said contained the following invitation: “File your motion. We will seek fees.”

What’s it take for a prospective client to conflict you out of a case? Not much

When, as the 3d DCA put it, the children “accepted” the Kluger Firm’s invitation to file a motion to disqualify them, the firm deployed two defenses, both of which are intuitively appealing, but neither of which ultimately worked.

First, the Kluger Firm argued that because counsel for the children didn’t say exactly what confidential information was shared, the trial court didn’t have enough facts to disqualify them. In other words, general conclusory statements shouldn’t be enough to conflict you out of a case, you need to give specifics.

Sounds reasonable . . . and it worked at the trial court level. Not so on appeal. Why? Because parties don’t have to waive their attorney-client privilege rights to prosecute a disqualification motion. Once a prospective client tells you about his case, it doesn’t matter what the details are, you’re presumed to have confidential information that can — and will — be used against him. So saith the 3d DCA:

While we understand the trial court’s concern that the Children’s attorney’s testimony . . . was bereft of detail and somewhat conclusory, we note that a disqualification standard requiring the movant’s attorney to testify, in open court, as to the specifics of any shared confidential communications would only exacerbate disclosure issues. Thus, we decline Flores’s invitation to recede from those cases holding that there is an “irrefutable presumption that confidences were disclosed” once it is shown that an attorney-client relationship existed. State Farm Mut. Auto. Ins. Co. v. K.A.W., 575 So.2d 630, 633 (Fla. 1991); Metcalf v. Metcalf, 785 So.2d 747, 749 (Fla. 5th DCA 2001); Garner v. Somberg, 672 So.2d 852, 854 (Fla. 3d DCA 1996). We further decline to recede from those cases employing that irrefutable presumption even though the attorney with whom presumed confidences were disclosed is not subsequently employed. Metcalf, 785 So.2d at 749–50; Garner, 672 So.2d at 854; Dean v. Dean, 607 So.2d 494, 497 (Fla. 4th DCA 1992).

Can a Chinese Wall cure the conflict? NO

The Kluger Firm’s second line of defense comes up indirectly in the 3d DCA’s opinion. When the children initially lost their disqualification motion, they asked the trial court judge to stay the case pending their appeal. Trial court judge said no, but he did try to split the baby, ordering the specific attorney at the Kluger Firm who had previously conferred with counsel for the children to wall himself off from the rest of the firm when it came to this case.

In denying the Children’s stay request . . . the trial court ordered the Kluger Firm attorney—with whom the allegedly confidential information had been shared—not to participate in the case in any way and not to discuss the case with anyone at the Kluger Firm.

As law firms get bigger, it’s natural to assume just because you share confidential information with one lawyer doesn’t mean everyone else at the firm knows your business. But then again, we can’t be sure. Under 4-1.18(c) there’s no guess work, if one lawyer’s conflicted out, the entire firm’s out: “If a lawyer is disqualified from representation under this rule, no lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in the matter.”

In other words, under 4-1.18(c) it’s all or nothing. The Chinese wall approach doesn’t work — either no one’s conflicted out or everyone’s conflicted out, but there’s no in between; at least not with the 3d DCA:

The trial court’s sequestration of the Kluger Firm attorney from other Kluger Firm members is simply irreconcilable with the trial court’s conclusion that no confidential information had been shared with the Kluger Firm attorney. Sequestration would not be necessary had no confidential information been disclosed. . . . In this case, the record plainly and irrefutably demonstrates that confidential information was shared with an attorney of the Kluger Firm. Because that attorney of the Kluger Firm was disqualified from representing Flores, no attorney of the Kluger Firm can represent Flores in this case.

Lesson learned?

As a practicing lawyer, one of the best risk-management tools available to you are the ethics rules. Not because you need someone to tell you it’s a bad idea to lie, steal or cheat; but because you need someone to point out the pitfalls that are NOT self evident. And to get the best thinking on how to apply our generally applicable ethics rules to the specifics of a trusts and estates practice, you’ll want to read the ACTEC Commentaries on the Model Rules of Professional Conduct.

For example, if, as in the Lopez case, you get a call from another lawyer in town who wants to talk to you about a possible case, ACTEC’s got some advice on how you might take that call without conflicting your firm out of ever representing the other side in that same case. By the way, I’m not sure ACTEC’s proposed solution would actually work in a Florida court room, but it’s worth considering.

ACTEC COMMENTARY ON MRPC 1.18

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Lawyers Contacted by Other Lawyers as a Consultant. Another lawyer (the “consulting lawyer”) will occasionally contact the lawyer for advice concerning one of the consulting lawyer’s cases. When the consulting lawyer seeks advice concerning estate planning issues, given the non-adversarial nature of estate planning services, there is little risk of MRPC 1.18 precluding the lawyer from later representing a party adverse to the consulting lawyer’s client under the circumstances proscribed in MRPC 1.18. See Estate Litigation Lawyers and Prospective Clients above. When the consulting lawyer seeks advice concerning estate disputes, litigation or administration matters, whether the consulting lawyer’s client is a prospective client of the lawyer will depend on the facts and circumstances. Generally, if the consulting lawyer uses hypothetical questions and makes no promise to compensate the lawyer, the lawyer should not be precluded from representing a client adverse to the consulting lawyer’s client. Under those circumstances, the consulting lawyer’s client and the consulting lawyer do not have a reasonable expectation that the lawyer will consider that he or she is being asked to be a lawyer for the consulting lawyer’s client. However, if the consulting lawyer discloses the name of the client and other relevant facts or offers to pay for the advice obtained, depending on the facts and circumstances, the consulting lawyer’s client may be considered a prospective client of the lawyer. Thus, the lawyer may decide to limit the amount of confidential information disclosed by the consulting lawyer to prevent the disclosure of confidential information “significantly harmful” to the consulting lawyer’s client. This would protect the lawyer’s ability to represent a client adverse to the consulting lawyer’s client in the same or a substantially related matter.

Spradley v. Spradley, — So.3d —-, 2017 WL 913632 (Fla. 2d DCA March 08, 2017)

legal-entityYou’ll often hear lawyers speak in terms of suing “the estate,” or transferring property to “the estate,” or collecting a bill that’s payable by “the estate.” This kind of loose talk usually doesn’t matter, but sometimes it does. To be clear, under Florida law there’s no such thing as a separate legal entity known as an “estate.”

If you want to sue, get paid from, or transfer property to, an “estate,” all of that needs to happen via the estate’s court-appointed personal representative (PR).

Skip the PR and you could end up getting your lawsuit dismissed, which is exactly what happened in the linked-to case above. Lucky for the plaintiff the 2d DCA said that was a bit harsh, he should have been given a chance to amend his complaint and sue the right party. So saith the 2d DCA:

[T]o the extent that Mr. Spradley attempted to sue his mother’s estate, we find that the trial court erred in failing to grant Mr. Spradley leave to amend his complaint to substitute the proper party. Although there does not seem to be a Florida case directly on point, it is well-settled that “an ‘Estate’ is not an entity that can be a party to litigation. It is the personal representative of the estate, in a representative capacity, that is the proper party.” Ganske v. Spence, 129 S.W.3d 701, 704 n.1 (Tex. App. 2004) (citations omitted); see also § 733.608, Fla. Stat. (2016) (describing the general power of the personal representative); Reopelle v. Reopelle, 587 So.2d 508, 512 (Fla. 5th DCA 1991) (highlighting that only the personal representative of a decedent’s estate would have the right to intervene in litigation for the benefit of all the beneficiaries of the decedent’s estate); 31 Am. Jur. 2d Executors and Administrators § 1141 (2016) (“Since estates are not natural or artificial persons, and they lack legal capacity to sue or be sued, an action against an estate must be brought against an administrator or executor as the representative of the estate.”); 18 Fla. Jur. 2d Decedents’ Property § 721 (2016) (same). Here, Mr. Spradley not only failed to sue the proper party, but he also failed to allege that the estate had been opened and a personal representative appointed. Despite these deficiencies, the trial court should have granted Mr. Spradley leave to amend his complaint before dismissing his action. See Coby v. Food World, Inc., 746 So.2d 570, 572 (Fla. 1st DCA 1999); Reed v. Mims, 711 So.2d 169, 172 (Fla. 3d DCA 1998) (“[W]here it appears that a pleading’s deficiencies can be cured by an amendment, a reasonable opportunity for amendment should be allowed.”).

This should be basic stuff, but you’d be surprised how often lawyers (and judges) get this wrong. The next time that happens you’ll want to have this case handy.

Depriest v. Greeson, — So.3d —-, 2017 WL 672155 (Fla. 1st DCA February 21, 2017)

Safe driving strategy, woman properly grips car steering wheel, selective focus

One of the first things any beginning probate lawyer learns is to make sure no one’s driving the decedent’s car. Why? Because the estate can get sued if the car’s involved in an accident. The source of this liability is Florida’s “dangerous instrumentality doctrine,” which the 1st DCA defined as follows:

Florida’s dangerous instrumentality doctrine is a creature of common law that “imposes … vicarious liability upon the owner of a motor vehicle who voluntarily entrusts that motor vehicle to an individual whose negligent operation causes damage to another.” Aurbach v. Gallina, 753 So.2d 60, 62 (Fla. 2000) (citing S. Cotton Oil Co. v. Anderson, 80 Fla. 441, 86 So. 629, 638 (1920) (On Petition for Rehearing)). An owner voluntarily entrusts a vehicle to another when it gives that person authority to operate the vehicle by “either express or implied consent.” Id. (citing Hertz Corp. v. Jackson, 617 So.2d 1051, 1053 (Fla. 1993)).

In the probate context you usually don’t have to worry about actual consent (if someone asks, the answer’s easy: NO!), if your estate’s going to get sued it’s probably because your personal representative (PR) didn’t make sure no one could do something stupid with the decedent’s car while the PR wasn’t looking, which in legal parlance translates into implied consent. According to the 1st DCA, in implied-consent cases courts will focus on the following factors:

Most vehicle cases involving implied consent examine factors such as what a car owner knows about the driver’s prior use of the vehicle, the location and accessibility of the keys, the nature of any familial relationship between owner and driver, and the conduct of the parties after an accident occurs. Ming v. Interamerican Car Rental, Inc., 913 So.2d 650, 656 (Fla. 5th DCA 2005).

Case Study:

The decedent in this case and his wife lived with his adult daughter. His car and its keys were kept at his daughter’s house and she occasionally drove her father’s car with his permission. About a month after her father’s death daughter was driving his car and got into an accident. The decedent’s nominated PR was a step-son who lived in South Carolina. He hadn’t been appointed PR at the time of the accident.

Because a PR has no legal duties prior to his appointment, the nominated PR in this case had no duty to prevent his step sister from driving her father’s car. That fact determined the outcome of this case, so saith the 1st DCA:

We conclude that because Decedent’s stepson had no legal duty to prevent Decedent’s daughter from using Decedent’s car, Appellants cannot demonstrate implied consent, which is an essential element of their claim under the dangerous instrumentality doctrine.

But what about Florida’s relation-back doctrine, which allows nominated PRs to act on behalf of estates even before they’re actually appointed by court order (see here). If a nominated PR has the option to act, does that mean he can get sued if he didn’t jump into action the moment dad dies? NO:

To say that implied consent arises from a nominated personal representative’s failure to act . . . is to create a duty to act prior to appointment, directly contrary to the Probate Code’s distinction between authority and duty. § 733.601, Fla. Stat.; Richard, 193 So.3d at 968–69 [see here]. Appellants’ argument could subject nominated personal representatives to liability from which the Legislature intended to shield them in the period after a death and before issuance of letters of administration formally appointing them as personal representatives. The law does not impose such a duty on facts such as those presented here.

Lesson learned?

This was an unusual case; the accident happened in the gap period between the decedent’s death and the date his estate was opened and a PR was appointed. Once a PR’s appointed, everything changes. At that point you can’t sit on your hands and hope for the best, if anyone’s going to drive the decedent’s car you better make sure the PR and all the beneficiaries (i.e., the people who can sue him) are aware of the risks and are willing to accept them. Sometimes that makes sense; usually it doesn’t. In most cases you’ll want to make sure your PR takes control of the decedent’s car and actually prevents anyone from using it. If the PR doesn’t take steps to prevent anyone from driving the decedent’s car, consent could be implied. You’ve been warned.

In re Estate of Arroyo v. Infinity Indemnity Insurance Company, — So.3d —-, 2017 WL 192019 (Fla. 3d DCA January 18, 2017)

stop-goFlorida’s survival statute (F.S. 46.021) tells us that “[n]o cause of action dies with the person. All causes of action survive and may be commenced, prosecuted, and defended [against the decedent’s estate].” However, how you go about prosecuting a case changes dramatically after someone dies.

Before someone dies you usually only have to sue them in one courtroom. After they’ve died you’ll usually have to sue them in two separate court proceedings, often before two separate judges:

  1. First, you’ll need to litigate the merits of your case in the court in which you file your lawsuit (in post-death litigation this is where you establish the decedent’s liability; this case is considered an “independent action” and in larger circuits (like Miami) that have separate court divisions this part of your case usually plays out in the Civil Division, see here).
  2. Second, you’ll need to litigate your collection rights in the probate proceeding administering the defendant’s estate (in larger circuits having separate divisions this part of your case happens in the Probate Division). This is where you stake your claim to a piece of the probate “pot”.

Trap for the unwary:

The two-pronged process for litigating claims post death is a huge trap for the unwary. Why? Because you can spend years (and a fortune) litigating the merits of your independent action in the Civil Division and never be the wiser to the fact that you’ve forfeited your ability to collect on your judgment in the Probate Division because you’ve blown past F.S. 733.702‘s statute of limitations for probate claims and/or F.S. 733.710‘s 2-year “statute of repose” for probate claims; which means no matter how spectacular your win might be at trial, you’ll never see a dime because you can’t enforce your judgment in probate. Does this nightmare scenario ever actually happen? YES! see here, here.

One way to get around the ultra-short probate claims periods is to target non-probate assets. A life insurance policy, annuity contract or individual retirement account that is payable to a specific beneficiary is NOT a probate asset (the transfer’s self-effectuating, there’s nothing for a probate judge to do). The probate-avoidance strategy is most commonly used in cases where the plaintiff is going after the decedent’s insurance policy (a non-probate asset) instead of the assets of the decedent’s probate estate. Sounds good in theory, but does it work in real life? That’s the question answered by the 3d DCA in this case.

Case Study:

The backstory to this case involves a “Coblentz agreement, which is a type of settlement deal that lets you settle someone’s lawsuit against you while simultaneously throwing your own insurance company under the bus for refusing coverage and leaving you to fend for yourself. Here’s how this part of the story was summarized by the 3d DCA:

On February 11, 2011, Reyes filed a personal injury negligence lawsuit (“the negligence lawsuit”) in the circuit court against the Estate, but never filed a written claim in the probate court. Although the Estate tendered the defense of the negligence claim to Infinity, Infinity declined to defend the claim. In January 2013, the Estate settled the negligence lawsuit by entering into a Coblentz agreement with Reyes, in which Reyes and the Estate agreed to the entry of a consent judgment, Reyes agreed not to execute the judgment against the Estate, and the Estate assigned any rights it had against Infinity to Reyes. After Reyes and the Estate entered into the Coblentz agreement and obtained the consent judgment, Reyes sued Infinity in circuit court pursuant to the assignment of rights provision in the Coblentz agreement, alleging in part that Infinity had demonstrated bad faith by failing to defend the Estate in the negligence lawsuit (“the bad-faith lawsuit”).

Can I sue a decedent’s insurance company if my probate creditor claims are time barred? YES

The decedent died in 2009. The negligence lawsuit against his estate wasn’t filed until 2011, and the plaintiff never filed a creditor claim with the probate court. In short, the plaintiff’s claim against the estate was time barred. So does this mean the claim is dead? NO. Why? Because the plaintiff’s going after the decedent’s insurance coverage — which is a non-probate asset — which means the probate creditor-claim deadlines don’t apply. Bottom line, the lawsuit against the insurance company (Infinity) survives, so saith the 3d DCA:

We conclude that although . . . Reyes did not file a claim against the Estate in the probate court within the two-year limitations period, [his judgment] is enforceable against Infinity if coverage is established and there was no fraud or collusion. Our conclusion is fully supported by not only footnote 12 in May, but also by the Fourth District Court of Appeal’s decision in Pezzi v. Brown, 697 So.2d 883 (Fla. 4th DCA 1997).

In Pezzi, the Fourth District held that the plaintiff’s failure to comply with sections 733.702 and 733.710 did not place limitations on the plaintiff’s ability to recover against the decedent’s insurer. Id. at 886. Specifically, the Fourth District held that the jurisdictional limitation under section 733.710 “is specific to the decedent’s estate, the personal representative, and the beneficiaries; the limitation does not extend to the decedent’s insurance policy.” Id. at 885 (emphasis added).

In reaching this conclusion, the Fourth District was “guided by the principle that statutes restricting access to the courts must be narrowly construed in a manner favoring access.” Id. at 886 (citations omitted). Thus, the court held that while:

Section 733.10 represents a decision by the legislature that 2 years from the date of death is the outside limit to which a decedent’s estate in Florida should be exposed by claims on the decedent’s assets … [t]here is no indication that section 733.10 represented a legislative decision to undermine the rights of plaintiffs to recover under tortfeasors’ insurance policies.

Id. at 886 (quotations, citations, and emphasis omitted). . . .

In conclusion, the Fourth District in Pezzi held that, because the plaintiff was not seeking recovery from the estate’s assets, the personal representative individually, or the beneficiaries, “[n]either section 733.702 nor section 733.710 precludes plaintiffs from bringing this cause of action and recovering to the extent that [the deceased tortfeasor] was covered by liability insurance.” Pezzi, 697 So.2d at 886.