Florida Probate & Trust Litigation Blog : Florida Probate Litigation, Will Contest Lawyer & Attorney : Juan C. Antúnez : Serving Miami, Jacksonville, Tampa Saint Petersburg, Orlando, Fort Lauderdale

Rice v. Greene, 2006 WL 3327665 (Fla. 5th DCA Nov 17, 2006)

It's not often that a probate-related case forces the parties to distinguish between Equitable Title in real property (i.e., the present right to possession with the right to acquire legal title once a preceding condition has been met) and Marketable Title in real property.  Well that's exactly what happened in this case.

Here widow inherited real property from her husband in 1994 pursuant to her late husband's will . . . but she never got around to probating the will.  Ten years later widow sells the same property to two different buyers.  "Buyer A" bought the property in June 2004 and received a warranty deed from widow.  A few months later in October of 2004 widow sold same property to "Buyer B" and also gave him a warranty deed.  Buyer B recorded his deed before Buyer A. 

So who owns what?

• Upon husband's death, widow instantly vested as an equitable owner of the property . . . even though she never probated his will.  F.S. 732.514.
• Although she had equitable ownership, widow's failure to probate her husband's will meant she never acquired marketable title.  F.S. 733.103(1).
• Buyer A was out of luck under Florida's recording statute (F.S. 695.01(1)), because Buyer B recorded his deed first.  This doesn't mean Buyer B had clear title, only that Buyer A is now out of the picture and Buyer B has first dibs on working with one apparently easily confused widow on cleaning up the title mess she created.

Here are a few excerpts from the linked-to case summarizing the points above:

[Buyer A] is correct that under section 733.103, Mr. Schwartz's unprobated will was ineffective to “prove title” to the property, under section 732.514. But, it was Mr. Schwartz's death that vested Mrs. Schwartz's rights in the property. Reading these statutes in concert, it is clear that because Mrs. Schwartz never offered Mr. Schwartz's will for probate, she lacked marketable title to the property. However, she clearly acquired equitable title to the property upon her husband's death, assuming, as have the parties, that Mr. Schwartz's will, which was presented to the court below, is authentic. Admittedly, because Mrs. Schwartz's title was not marketable, under certain circumstances, it might have been subject to divestment for the payment of claims, expenses of administration or taxes. Regardless, those are matters that affect the quality of the title, which is not at issue here. Instead, the only issue is which party has a priority claim to the property as between [Buyer A] and [Buyer B].

**********
“[A]n unrecorded deed is not good or effectual in law or equity against creditors or subsequent purchasers for valuable consideration who are without notice of the transaction.” Fryer v. Morgan, 714 So.2d 542, 545 (Fla. 3d DCA 1998). Therefore, because [Buyer B] had no notice of the earlier warranty deed between [Buyer A] and Mrs. Schwartz and paid valuable consideration for the property, [Buyer B's] recording of his warranty deed before [Buyer A] gives [Buyer B] priority to the property. Since there is no genuine issue of material fact and [Buyer B] is entitled to judgment under section 695.01(1), the trial court did not err in granting [Buyer B's] motion for summary judgment.

We do note that the language of the final judgment is overly broad, in that it purports to quiet title to the property in [Buyer B]. While the final judgment adjudicated the dispute between [the buyers] .  .  .  much more work is necessary before [Buyer B] will have marketable title to the property.

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I previously wrote here about the very public battle going on between the family of a very wealthy donor and Princeton University.  The same public relations issues at play in that case were also at play (albeit on a much smaller scale) in a probate case involving the University of Wisconsin, as reported in Woman wins probate fight with UW:

The case highlights a dilemma for nonprofit groups: how hard to pursue money they believe is theirs. Fight too hard and they risk antagonizing potential donors, but too soft might mean they lose money for their cause.

The "dilemma" faced by charities is a product of the different expectations the public has when it comes to non-profits: they aren't supposed to be driven solely by economic concerns.  Unlike private litigants, we seem to expect more from charities.  Note how the opposing side in the UW case expressed indignation at the university's "inexplicable" decision to "needlessly" litigate the contested inheritance:

The foundation's tactics drew harsh criticism from North Central Trust Co., the administrator of Mennes' estate. In July, company lawyers told the high court in a brief the foundation was "inexplicably" fighting the case even after losing several rounds. They said the litigation was draining the estate of money meant for the university and his daughter.

"If the foundation develops a reputation for needlessly engaging family members in litigation, it is less likely that people will provide for the University of Wisconsin (as opposed to other worthy causes) in their estate plans," the lawyers wrote.

Lesson learned:

There's no getting around the different expectations the public . . . and judges . . .  have when charities are involved in probate litigation.  Whether the charity is your client or the opposing side, simply being aware of this dynamic may make or break your case.

Thanks to Chicago-area attorney Joel A. Schoenmeyer, author of Death and Taxes - The Blog, for bringing this article to my attention in his blog post entitled Charitable Beneficiaries Play Hardball.

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Divorce and its unintended probate-litigation aftermaths are a recurring topic on this blog (see here, here & here).  The subtext to these prior posts should be fairly obvious: every divorcing client needs estate planning!  However, just in case the message wasn't getting across Florida attorney Jeffrey Baskies was  kind enough to write a Florida Bar Journal article entitled Every Divorcing Client Needs Estate Planning that does a good job of underscoring the interconnections between divorce and estate planning.  Here's the concluding paragraph to Mr. Baskies' article:

[T]here are many compelling reasons every divorcing client needs estate planning. Clients involved in a divorce need to consider and address their changed circumstances and their changed estate planning objectives. Any lawyer representing a client in a divorce should advise the client to see a qualified estate planning attorney. Indeed, no divorcing client should ignore the complicated legal issues relating to estate planning that are made acute by the initiation of the divorce proceedings. For all of these reasons, estate planning should be a top concern for divorce lawyers and should be addressed immediately with their clients.

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Morgan v. Cornell, --- So.2d ----, 2006 WL 2987107, 31 Fla. L. Weekly D2632 (Fla. 2d DCA Oct 20, 2006)

Estate planning and probate litigation are two sides of the same coin.  The planner needs to understand the underlying substantive property rights being conveyed and how to draft documents that accurately describe what those property rights are and to whom they are being conveyed.  In the event of a dispute, the litigator needs to understand the same: what are the underlying substantive property rights being disputed and does the operative document effectuate a legally enforceable conveyance.

That's why this case is equally instructive to the planner and the litigator.  The litigation revolved around whether the decedent had validly devised a life estate in two properties he owned as tenants-in-common with his girlfriend.  The properties at issue were a home in Naples, Florida and a second home in New Hampshire (i.e., the amount in controversy likely exceeded seven figures).  The decedent's children argued -- and won at the probate-court level - that the devise was invalid and thus girlfriend got nothing.  Girlfriend argued the opposite . . .  and won where it really counted, before the 2d DCA, which reversed the probate court's order.

Here's how the 2d DCA articulated the issue on appeal:

The specific devises at issue state:

If I own the home [in New Hampshire/Florida] at my death, I leave said home and real estate together with the contents therein to Julia H. Morgan for the term of her life, subject to the obligation to pay all real estate taxes, upkeep, insurance and ordinary costs of ownership, with a remainder interest in fee simple as Tenants in Common to her children ···, per stirpes.

**********

The personal representative of Mr. Cornell's estate, his daughter Elizabeth L. Cornell, filed a petition seeking construction of these conditional devises, alleging that the condition-“If I own the home”-is unclear in extent, nature, and meaning. On one hand, the word “own” could be read to mean “to the extent I own the home,” so that the specific devises would be effective for whatever interest the testator possessed at his death. On the other hand, the word “own” could be interpreted more strictly, so that the condition would be fulfilled only if the testator were the sole owner of each home at the time of his death. If the second interpretation were operative, the condition would fail and the testator's interest in the homes would become part of the residuary estate and pass to his three children.

The 2d DCA rejected the children's interpretation -- and the probate court's order -- by holding that the word "ownership" was a broad enough term to encompass a tenants-in-common interest.  This is the part of the 2d DCA's opinion that is most instructive to future planners/drafters and litigators because it articulates in clear, unambiguous language what a "tenants-in-common" interest is and how it can be devised:

The parties in this case agree that Mr. Cornell and Ms. Morgan owned the real properties as tenants in common. When two persons own property as tenants in common,

A and B each owns in his own name, and of his own right, one-half of Blackacre···· It means that each owns separately one-half of the total ownership···· Each is entitled to share with the other the possession of the whole parcel of land. Each may transfer his undivided one-half interest as he wishes so long as the transfer does not impair the possessory rights of the other tenant in common. Each may transfer his undivided one-half interest by will···· The central characteristic of a tenancy in common is simply that each tenant is deemed to own by himself, with most of the attributes of independent ownership, a physically undivided part of the entire parcel.

Thomas F. Bergin & Paul G. Haskell, Preface to Estates in Land & Future Interests 58-59 (1966). The estate of a tenant in common is both inheritable and devisable. Tyler v. Johnson, 61 Fla. 730, 55 So. 870 (1911).

As a tenant in common, Mr. Cornell owned a physically undivided part of each entire parcel in New Hampshire and in Naples. Without question, Mr. Cornell did “own” the property at the time of his death; the ownership condition was fulfilled; and each devise validly passed a life estate in his undivided half interest to Ms. Morgan-just as he intended.

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As reported here in Forbes a musician's highest earnings years may come long after he or she has passed away.  Here's an excerpt from the linked-to Forbes piece:

A nail in the casket is hardly the end for some stars. Instead, their work, as well as their iconic images, continues to appeal to fans who remember them, and to those born long after they died.

The 13 icons on our sixth annual Top-Earning Dead Celebrities list collectively earned $247 million in the last 12 months. Their estates continue to make money by inking deals involving both their work and the rights to use their name and likenesses on merchandise and marketing campaigns. To land on this year’s list, a star needed to make at least $7 million between October 2005 and October 2006.

Which is why the on-going legal battles involving the Hendrix estate shouldn't be viewed as an isolated event.  If you're luck enough to find some success as an artist, what happened to Hendrix's estate could happen to you.  As reported in Hendrix Estate Wins Effort to Halt Sale of Star's Songs after soaring to success and then overdosing and dying all by the age of 27, Hendrix also left behind a "world of controversy":

The dispute dates back to 1965. The then-unknown electric guitarist, whose music ushered in a new era in blues rock, signed a one-page recording agreement with PPX Enterprises, an entity controlled by Edward Chalpin and based in New York.

According to Judge Kaplan's decision, Hendrix agreed to "produce and play and/or sing exclusively for Enterprises" for a three-year period. He gave Enterprise exclusive rights to the masters produced, in exchange for a royalty of 1 percent of the retail selling price of the records so produced.

Hendrix shot to international fame two years later. In June 1967, he performed at the Monterey International Pop Festival and wowed the audience with his rendition of "Wild Thing." His whirlwind success was short lived: He died of a drug overdose in 1970 at the age of 27.

"A WORLD OF CONTROVERSY"

Judge Kaplan noted that after Hendrix's untimely death the musician "left a body of musical works and world of controversy." Hendrix's estate and Chalpin and PPX Enterprises, an entity based in New York, have been engaged in a series of lengthy legal battles in Great Britain and the United States over the rights to Hendrix's songs.

I have no doubt a minimal amount of estate planning would have avoided much of the controversy swirling around the Hendrix estate.  By the way, ASCAP has a good estate-planning primer for musicians at Estate & Trust Planning Issues For Music Copyright Owners. 

I of course recognize that the odds of a twenty-something rock super star sitting down to plan his or her estate are basically zero.  So perhaps the most these die-young super stars can teach us from a planning perspective is to highlight all the things that can go wrong.

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The Wills, Trusts & Estates Prof Blog had this interesting post on the Robertson v. Princeton website, a classic example of litigation public relations.  It seems to me that trust/probate litigation involving charities is especially ripe for this tactic.  By the way, it should also be noted that in a sharp break from prior law, under Florida's new trust code settlors of charitable trusts will now have standing to sue the charitable beneficiaries of their trusts under F.S. 736.0405(3).

Back to the main point of this blog post.  Here's a sampling of what the Robertson family website has to say in their war-of-words against Princeton:

In a subsequent amended complaint, filed in New Jersey Superior Court on November 12, 2004, the plaintiffs expanded their charges, alleging that Princeton has:

• Wrongfully spent more than $100 million of the Robertson Foundation’s money on programs, projects, salaries, bonuses, buildings, equipment and “overhead” costs that have little or nothing to do with the Robertson Foundation mission.
• Engaged in an fraudulent cover-up scheme, involving several Princeton administrations, to hide the improper spending.
• Similarly misused other donors’ gifts in what appears to be a systemic university-wide “pattern and practice of diverting [donations] from their intended purpose.”

In January 2006, the estimate of more than $100 million in improper spending was more than doubled, to more than $207 million (nearly $500 million in 2006 dollars).

Not to be out gunned on the PR front, this is a sampling of Princeton's rebuttal:

Today’s briefs show that the University paid many costs that it could have charged to the Robertson Foundation under the Foundation’s Certificate of Incorporation. As a result, the Foundation was charged some $235 million less than it might have been—an amount greater than all of the “overcharges” alleged by plaintiffs combined.

Clearly the PR battle going on here is an integral aspect of the case . . . and both sides seem to believe success in the courtroom/settlement conference room will turn in large part on who wins the PR battle.   I also think that the first side to realize PR would play a large role in this case probably had the first-mover advantage (based on the clippings excerpted in the Robertson family website, I would guess they were probably the first to go on the PR offensive).

Note to self:  when it comes to litigation PR, be the first mover.

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Baldwin v. Estate Of Winters, 2006 WL 3299834 (Fla. 4th DCA Nov 15, 2006)

So what is it, cash or tangible property?  The linked-to case demonstrates this seemingly basic/esoteric question can have a real-life impact on who gets what from an estate.  The contested writing was described as follows by the 4th DCA:

On May 22, 1999, two copies of a typewritten letter were prepared on the testator's personal stationery. They directed the same personal representative “to give to Allan Baldwin a new car of his choice from [her] estate.” Each copy was signed by the testator, witnessed, and notarized.

If this document devised tangible property, then F.S. 732.515 governs, if it devises a monetary amount, then the general rules governing codicils under F.S. 732.502 governs.  The probate court ruled it was a devise of a monetary amount, NOT tangible property, thereby rejecting Mr. Baldwin's argument for application of the less demanding rules applicable to devises of tangible property under F.S. 732.515.

Here's how the 4th DCA summarized its ruling:

[W]e agree with the probate court's initial ruling that the separate writing was not a proper devise of tangible property, pursuant to section 732.515. Because the devise was of a monetary amount, it could not be effectuated through a separate writing under the 1997 version of section 732.515.

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Every once in a while we need to be reminded that estate planning documents aren't simply technical instruments effectuating the tax efficient transfer of assets from one generation to another.  Which brings me to this wonderful description of a will in Strangers in Paradise: How Gertrude Stein and Alice B. Toklas got to Heaven, The New Yorker, Nov. 13, 2006, at 57:

Wills are uncanny and electric documents. They lie dormant for years and then spring to life when their author dies, as if death were rain. Their effect on those they enrich is never negligible, and sometimes unexpectedly charged. They thrust living and dead into a final fierce clasp of love or hatred. But they are not written in stone—for all their granite legal language—and they can be bent to subvert the wishes of the writer.

Source: Wills, Trusts & Estates Prof Blog

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Now that both the House and Senate are in Democratic hands I think it's safe to say that estate tax repeal is a dead issue, a view shared by USA Today among others (see also here).  What does have a fighting chance is estate tax reform that excludes most taxpayers while retaining most of the revenue currently generated by the tax, as reported in the USA Today piece:

While Democrats have opposed full repeal of the estate tax, many support increasing the exemption amount, says Clint Stretch, managing principal of tax policy at Deloitte Tax in Washington. Rep. Charles Rangel, the New York Democrat who's expected to chair the House Ways and Means Committee, favored estate tax reform as far back as 2001, Stretch notes. "Clearly, he would be supportive of a significant increase in the exemption amount."

Here's how a leading Democratic reform proposal was described in June 2006 in Estate tax reform not dead, despite vote:

Many Democrats may be amenable to raising the exemption level, but far fewer seem to be in favor reducing the tax rates, due to concern over how much revenue would be lost. The tax rate, not the exemption level, is what would cause the sharpest reductions in revenue, according to the liberal Center for Budget and Policy Priorities.

The latest proposed compromise comes from Sen. Tom Carper (D-Delaware). He offered an amendment to the repeal bill that would freeze the estate tax at 2009 levels: specifically, a $3.5 million exemption at a top rate of 45 percent.

The Urban-Brookings Tax Policy Center estimates that if the 2009 estate tax provisions were made permanent ($3.5 million exemption with a top rate of 45 percent) that would protect the smaller estates that otherwise would be subject to estate tax under pre-2001 law, and it would cost 60 percent less than permanent repeal.

If the estate tax were frozen at 2009 levels, only 0.3 percent of all estates would have any tax liability, according to CBPP.

My prediction:

Estate tax will be frozen at 2009 levels: $3.5 million exemption at a top rate of 45 percent.  By the way, this is reportedly the estate-tax reform approach favored by none other than Rep. Rangel himself:

Mr. Rangel has also supported estate-tax relief that would raise the exemption level to $3.5 million ($7 million for couples), thus exempting an estimated 99.7 percent of Americans from paying the so-called death tax.

See What Charlie Rangel hasn't said

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Fleck-Rubin v. Fleck, 933 So.2d 38, 31 Fla. L. Weekly D1369 (Fla. 2d DCA May 12, 2006)

The trial court in this case ruled that an estate tax marital deduction trust (obviously designed to qualify as a "general power of appointment marital deduction trust") failed to give the surviving spouse an unlimited withdrawal power over these trust assets . . . . in spite of the fact that in the absence of such withdrawal power the entire tax-savings design of the trust would fall apart?!

Estate-tax planning is a HUGE (and usually the primary) consideration driving how most trusts are drafted.  Failing to understand the estate tax issues underlying the entire design of a trust document is like trying to order off a Chinese menu with no English translations . . . you know it's a menu, but have only the vaguest idea of what's actually being said on a given page.  The same applies to the construction of most trust documents: if you don't understand the tax planning concepts driving the trust's design and drafting, then how can you possibly be expected to correctly construe the trust's text?  Short answer: you can't.

Although the 2d DCA achieves the right result, in a classic example of missing the forest for the trees it grounds its reversal of the trial court's mistaken order on the meaning of the word "shall" without ever once discussing the single most important indication of the settlor's intent:  estate tax planning.  For the record, here's how the 2d DCA explained its ruling:

In this appeal, we are asked to determine whether the terms of the trust agreement permitted Sondra to remove all the funds and assets of Trust A without her cotrustee's consent. The trial court considered two provisions in determining that Sondra did not have the authority to unilaterally remove the funds and assets of Trust A-paragraph 3(a)-(e) and paragraph 9(f). Paragraph 3(b) provides that “[t]he Trustees shall make distributions to my wife from the principal of Trust A, even to the complete exhaustion thereof····” (Emphasis added.) Paragraph 9(f) provides:

9. The following additional provisions and limitations, when applicable, shall govern the administration and disposition of the trust property:

····

(f) Notwithstanding any provision to the contrary elsewhere contained in this instrument, neither my wife nor any lineal descendant of mine shall, while serving as a Trustee hereunder, participate in the exercise by the Trustees of any discretionary power or authority conferred upon the Trustees by any provision of this instrument with respect to the distribution, or the withholding from distribution, of the principal of any trust estate held hereunder for the benefit of such one or with respect to the distribution, the withholding from distribution, or other application of the net income therefrom; and all such powers and authorities shall be exercised solely by the other Trustee.

(Emphasis added.)

The trial court determined that paragraph 9(f) required Sondra to obtain the authorization of the cotrustee, Aaron, for the transfer of the funds and assets from Trust A to herself since she was then the beneficiary and a cotrustee of that Trust. Paragraph 9(f), however, applied only to a trustee's exercise of any discretionary authority. The unambiguous language of paragraph 3(b) allowed Sondra to demand distributions from Trust A “even to the complete exhaustion thereof.” Such distributions were not subject to the approval or discretion of Aaron, as cotrustee, since paragraph 3(b) provided that the trustees “shall make distributions” requested by Sondra. Because the trustees had no discretion under paragraph 3(b), paragraph 9(f) was inapplicable.

Lesson learned:

Trust litigation is demanding: not only do you have to know how to litigate a case, you also have to understand the complex estate-tax issues underlying almost all trust design and drafting.

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Cone v. Anderson, 2006 WL 2986471, 31 Fla. L. Weekly D2621 (Fla. 1st DCA Oct 20, 2006)

The 1st DCA's opinion provides no facts whatsoever to explain what was going on when the trial court entered an order enjoining the trustee-defendant from seeking compensation without prior court approval (which begs the question: why even publish an opinion that provides close to zero guidance to future litigants??).  However, reading between the lines I think what happened here was that the appellee obtained the injunctive order on an ex parte basis . . . which is a no-no in the absence of the compelling circumstances required by Civ. Pro. Rule 1.610 for ex parte injunctive relief:

Florida Rule of Civil Procedure 1.610 governs injunctions. If the language of an order is injunctive in nature, the order must comply with the requirements for the issuance of an injunction, even if the trial court merely intended to preserve the status quo in the order. See Spradley v. Old Harmony Baptist Church, 721 So.2d 735, 737 (Fla. 1st DCA 1998). In the present case, the trial court “enjoined” Cone from seeking any and all compensation until “further order of this Court or any other Court of competent jurisdiction.” Clearly, the language of the order is injunctive in nature. Appellee concedes that the trial court did not comply with rule 1.610. Accordingly, we REVERSE the order and QUASH the injunction.

Lesson learned:

Just because you've figured out the underlying substantive trust or probate law doesn't mean you can't get tripped up on the civil procedure.

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A sale to an intentionally defective grantor trust is a very effective and flexible estate-tax planning device.  Moreover, if the sale is reported on one of the more than 99% of gift tax returns that are NOT audited by the IRS and the transferor dies more than three years after the gift tax return is filed, the IRS will generally be precluded from raising valuation or other issues related to the sale on an audit of the transferor’s estate tax return.  (In 2005, approximately 0.8% of gift tax returns filed with the IRS were audited. Approximately 8% of estate tax returns were audited. See Treasury Inspector General for Tax Administration, Trends in Compliance Activities Through Fiscal Year 2005, Figures 45 and 46.)

In the Wills, Trusts & Estates Prof Blog Prof. Beyer posted on a report in the October 2006 RPPT eReport by Amy E. Heller (Weil, Gotshal & Manges LLP) on the new Form 706.  Bottom line, all the arguments in favor of reporting grantor-trust sales on a gift tax return are even more compelling in light of new line 12(e) of part 4 of the new Form 706.  Although Ms. Heller's report was published before the new 706 was adopted (see here for the new Form 706 as adopted), her comments remain relevant because new Line 12(e) of part 4 was in fact incorporated into the final form:

[L]ine 12(e) of part 4 of the draft form asks an executor whether a decedent at any time during his or her lifetime transferred or sold an interest in a partnership, a limited liability company or a closely-held corporation to a trust that was in existence at the decedent’s death and that was (1) created by the decedent during his or her lifetime or (2) created by someone other than the decedent under which the decedent possessed any power, beneficial interest or trusteeship. If the answer to this question is yes, the executor is required to provide the EIN of the entity in which the interest was transferred.

As a result of new line 12(e), certain gratuitous transfers to trusts that are reportable on a gift tax return will need to be reported for a second time on the transferor’s estate tax return. More significantly, certain sales to trusts for which no gift tax return was filed will need to be disclosed on the seller’s estate tax return. For example, an individual’s sale of a partnership interest to his or her grantor trust for fair market value will need to be reported on the individual’s estate tax return, regardless of whether the sale was required to be reported on a gift tax return. ***

[Because new line 12(e) was in fact incorporated into the new Form 706], practitioners who do not currently advise clients to report sales of interests in partnerships, LLCs or closely-held corporations to grantor trusts on gift tax returns may wish to consider doing so. Reporting these sales will help to close the statute of limitations on IRS challenges more quickly and may even reduce the risk of such challenges. If a sale is reported on one of the more than 99 percent of gift tax returns that are not audited and the transferor dies more than three years after the gift tax return is filed, the IRS will generally be precluded from raising valuation or other issues related to the sale on an audit of the transferor’s estate tax return. Furthermore, in the event that the IRS does successfully challenge a sale disclosed on a gift tax return, it may be possible to make adjustments to a client’s estate plan that would not be possible if the challenge arose after his or her death.

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Hayes v. Guardianship of Thompson, 2006 WL 3228916 (Fla. Nov 09, 2006)

This case is important for two reasons.

Conflict Resolved:

First, the Florida Supreme Court resolved a conflict among the DCAs regarding who has standing to litigate fees (both attorney's and guardian's) in guardianship proceedings.  Here's how the Court summarized its holding, which has the effect of expanding the class of potential litigants (i.e., more people have standing to litigate, thus expect more litigation to follow in guardianship proceedings):

Although we cannot provide specific criteria, we reject the bright-line rule adopted by the Third District in [McGinnis v. Kanevsky, 564 So.2d 1141 (Fla. 3d DCA 1990)] that precludes an heir from participating in a proceeding for guardian's or attorney's fees. Implicit in the Third District's reasoning is that heirs of a ward should never be afforded standing to participate in proceedings for guardian's or attorney's fees because there are sufficient built-in procedural safeguards to protect the interests of the ward:

[J]ust as it is obviously for the competent person to spend or misspend his assets as he pleases, so it is up to the guardianship estate, regulated by the guardian and the court, to do the same without the interference or concern with the totally non-altruistic wishes of the ward's relatives or legatees.

564 So.2d at 1144 n. 9 (emphasis supplied).

We disagree. As the Fourth and Fifth Districts recognized in [Bachinger v. Sunbank/South Florida, N.A., 675 So.2d 186 (Fla. 4th DCA 1996)] and [Sun Bank & Trust Co. v. Jones, 645 So.2d 1008, 1017 (Fla. 5th DCA 1994)], “[c]ourts must scrupulously oversee the handling of the affairs of incompetent persons under their jurisdiction and err on the side of over-supervising rather than indifference.” Bachinger, 675 So.2d at 188 (quoting Jones, 645 So.2d at 1017). Moreover, although courts must approve petitions for guardian's and attorney's fees, “it is highly unrealistic to assume that such an ex parte procedure would involve any high level of scrutiny.” Bachinger, 675 So.2d at 187. Thus, depending on the circumstances of the case and the specific issues involved, heirs of a ward may be considered “interested persons” for the purpose of participating in a guardianship proceeding, including a proceeding for guardian's or attorney's fees. See, e.g., Bachinger, 675 So.2d at 188 (beneficiaries under the ward's will, who cared for her before she became incompetent, were interested persons for the purpose of filing objections to guardian's petition for final discharge).

Probate v. Guardianship: Different Priorities = Different Outcomes

This opinion is also important because it highlights how different public-policy priorities in probate and guardianship proceedings can result in courts erring on the side of less litigation when possible (probate) and erring on the side of more litigation if needed (guardianship).

This is how the Florida Supreme Court described the public-policy priority underlying all guardianship proceedings:

In guardianship proceedings, the overwhelming public policy is the protection of the ward. See § 744.1012, Fla. Stat. (2006) (declaring that the purpose of the Florida Guardianship Law is “to promote the public welfare by establishing a system that permits incapacitated persons to participate as fully as possible in all decisions affecting them; that assists such persons in meeting the essential requirements for their physical health and safety, in protecting their rights, in managing their financial resources, and in developing or regaining their abilities to the maximum extent possible; and that accomplishes these objectives through providing, in each case, the form of assistance that least interferes with the legal capacity of a person to act in her or his own behalf”).

Viewed from this perspective, it's almost inevitable that the Florida Supreme Court would construe Florida law in a way that errs on the side of making sure all "interested persons" are given the opportunity to participate in contested guardianship proceedings -- as long as the goal is to better the ward's welfare.  The litigant that understands and incorporates this perspective into his or her case has a clear advantage.

By contrast, in probate proceedings the public-policy priority is efficiency: when in doubt, err on the side of less litigation not more.  Here's how the Florida Supreme Court encapsulated this public policy directive in 2000:

There is a “strong public policy” in this state “in favor of settling and closing estates in a speedy manner.” May v. Illinois Nat'l Ins. Co., 771 So.2d 1143, 1151 (Fla.2000).

As I've noted over and over again on this blog, this public-policy priority plays itself out most clearly in probate litigation involving creditor claims.  Again, the litigant that understands and incorporates this perspective into his or her case has a clear advantage.

Briefs:

• Initial Brief of Appellants
• Amended Appellee's Answer Brief
• Reply Brief of Appellant

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Pisciotti v. Stephens, 2006 WL 3077750 (Fla.App. 4 Dist. Nov 01, 2006)

I plead the Fifth!!! Ahh, those immortal words of American jurisprudence.  Well, if you thought your friends in the criminal defense bar were the only ones who got to have fun with this bit of legal jargon . . . think again.  In this case brother figures out sister may have stolen a few checks while mom was alive.  Brother filed an adversary proceeding to remove sister as PR of mom's estate and then sued sister for theft.  Brother then gets an order from probate court requiring sister to answer deposition questions and file a final accounting . . . overruling sister's refusals based on her Fifth Amendment constitutional right against self-incrimination.  Wrong answer says the 4th DCA, which reversed the probate court's order on both counts.  Here are a couple of key excerpts from the 4th DCA's opinion:

Sister's first argument on appeal is that the trial court's order requiring her to answer deposition questions violates her Fifth Amendment privilege against self-incrimination, particularly in light of her brother's comments regarding criminal prosecution of her. We agree.

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Here, given the potentially incriminating nature of the evidence, coupled with brother's professed intent to seek criminal prosecution, sister had reasonable grounds to fear that her deposition testimony could be used as a link in a chain of evidence against her in a later criminal proceeding.  .  .  .  Thus, in this case the trial court failed to recognize that there was a reasonable possibility of prosecution, and ultimately applied the wrong law.

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Second, sister argues that the trial court's order requiring her to file final accountings also violates her Fifth Amendment privilege. Generally, the privilege does not apply to documents that are required under the law to be prepared by a PR to carry out a fiduciary duty. [In re Rasmussen, 335 So.2d 634, 636 (Fla. 1st DCA 1975)].

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Yet given the fundamental nature of the Fifth Amendment's constitutional guarantees, we perceive grave difficulties in applying the privilege to the deposition questions but not to the related final accountings. To refuse to apply the privilege to the order for a final accounting document in this case would have the rather perverse effect of protecting sister from giving testimonial answers conceivably providing a link in the chain of evidence but then refusing the same protection by requiring her to file accountings yielding the same information. Because of the facts and circumstances of this case, we distinguish Rasmussen.

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This recently published story, Elderly Man's Malpractice Suit Over Estate Advice Dismissed, underscores the "damned if you do, damned if you don't" risk inherent to the estate planning field and why even the slightest whiff of a client's diminished mental capacity has to be treated very, very seriously.

On the one hand, you can get sued for allegedly luring your very wealthy, but also very elderly, client into too much estate planning, i.e., transactions that may save millions in estate taxes, but are too complex for the client to understand and thus not something the client would have agreed to if his or her lawyer had adequately explained all the various permutations of the proposed planning strategy.  That's essentially what happened in the case discussed in the linked-to article, as excerpted below:

A Manhattan appellate court has dismissed a legal malpractice suit on behalf of an elderly man who claimed his lawyers misled him into signing away control of his estate, but a dissenting judge said the majority's decision "risks undermining the confidence of the public in the profession."

Jack E. Maurer, who died last year at age 86, sued the firm formerly known as Goodkind Labaton Rudoff & Sucharow in 2003 for allegedly failing to explain to him the import of estate planning documents he signed. He also claimed the firm was conflicted because it represented his wife Rona, who he named as a co-defendant in the suit.

According to Mr. Maurer's lawyer, Lawrence H. Silverman, the documents at issue gave Ms. Maurer control over a trust containing her husband's major assets, a $12 million Central Park West apartment and a $3 million house in Quogue, N.Y., and placed restrictions on Mr. Maurer's access to other retirement funds.

But a four-judge majority of the Appellate Division, 1st Department, ruled Tuesday that, despite Mr. Maurer's "apparent failure to make any effort at all to read the documents," he was bound by the "clear and unambiguous" documents he signed.

On the other hand, you can also get sued by upset heirs if they think you didn't do enough to save taxes -- even if mom and dad explicitly told lawyer "to keep it simple."  That's essentially what I think happened in a case involving one of Florida's most well respected law firms, which I previously wrote about in Gannett Newspaper Fortune: Probate Administration Malpractice Update #2.

Lesson learned:

Estate planning can be very complex, involving esoteric tax concepts, lengthy trust instruments, complex financial and insurance arrangements, etc.  Estate planning can also involve very elderly clients.  Combine these two elements and you end up with the type of "perfect storm" ethics conundrum that is loads of fun in law school, but extremely challenging to navigate in real life. Florida Bar Ethics Rule 4-1.14 (Client Under a Disability) offers little real concrete guidance, and as far as I can tell their isn't much on-point case law out there either.  See The Florida Bar v. Betts, 530 So.2d 928, 13 Fla. L. Weekly 579 (Fla. Sep 22, 1988); Vignes v. Weiskopf, 42 So.2d 84 (Fla. Jul 19, 1949).

I think the best anyone can do is to be on the look out for warning signs of incapacity and incorporate appropriate safety measures into your office procedures -- and your engagement agreement -- to manage this risk as much as possible.  For example, the following is the "diminished capacity" portion of my firm's standard engagement agreement:

The ethics rules that govern attorneys state that if you become unable to make adequately considered decisions, whether because of mental disability or other reasons, we may attempt to continue a normal attorney-client relationship with you as much as is possible. Those rules also state that we may seek the appointment of a guardian or to take other actions to protect your interests if we reasonably believe that to be necessary.

You can designate other persons to act on your behalf under a durable power of attorney and to make decisions for you concerning your estate planning, such as making gifts of your assets and signing trust agreements on your behalf. If you authorize someone to act on your behalf, and if we believe their authority is broad enough to allow them to instruct us on your estate planning, you agree that we can continue to do estate planning work for you by dealing with them, and that we can rely on instructions from them. You agree that we can communicate with them and disclose information they need to make informed decisions on your behalf, including information that is protected by the attorney-client privilege. However, if we believe that they do not have the authority to act on your behalf, or if we believe they are not acting in your best interests, we reserve the right to refuse to act on their instructions and instead to take whatever action that we reasonably believe is necessary to protect your interests.

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I previously wrote here about a well respected North Carolina attorney facing serious jail time for allowing himself to get enmeshed in a fraudulent offshore trust scheme.  Continuing with the "let's bash" offshore trusts theme, Jonathan Alper's blog, the Florida Asset Protection Blog, had the following to say about a recently published Senate Committee Report (401 pages!) examining abusive offshore trust schemes:

I occasionally get email questions about offshore trusts for people interested in sheltering income taxes. My reply always is that asset protection planning is income tax neutral, and that an asset protection plan is not designed to reduce taxes. Nevertheless, there are promoters and attorneys who market various plans to reduce income tax involving one or more offshore legal entity. There is a well know website called Quatloos.com which reports on tax evasion scams and the prosecution of their promoters. In a November 1, 2006, post Quatloos includes a report on offshore tax havens written by the U.S. Senate committee investigating income tax scams.

The Senate report is lengthy but very interesting. Anyone who is thinking of involvement in an offshore legal structure promising to reduce income tax should read portions of the Senate report. The report is very detailed in its description of abusive offshore tax schemes, and it names the promoters and attorneys responsible.

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Janien v. Janien, 2006 WL 2956304 (Fla. 4th DCA Oct 18, 2006)

Under Florida law a surviving widow or widower is entitled to at least 30% of the decedent spouse's estate.  If done properly, an "elective share trust" allows a person to satisfy his or her surviving spouse's elective share rights, while still retaining the right to say what happens to the elective-share assets when the surviving spouse dies.   This planning device  can be especially useful  where a person wants to provide for a second  wife or husband, but make sure the family assets go back to his or her children when the surviving spouse dies.

The issue in this case was whether the following clause created an elective share trust within the meaning of F.S. 732.2025(2).  The drafting attorney who prepared this instrument testified that at the time he did the drafting he'd never heard of an elective share trust.  So the question was did the decedent "accidentally" get it right?

ARTICLE SECOND: If my husband, Cedric Janien, survives me:

A. I devise and bequeath my beneficial interest in the North Chatham Realty Trust, together with all furniture, fixtures, antiques and other items of personal property in said residence, to my Trustee, with the right in my husband to exclusively live in and occupy such residence for the period of his life, and provided that he is financially able to do so, he shall be responsible for all maintenance charges and taxes assessed against the residence during his lifetime. If he does not have the financial ability to pay such expenses and taxes, them my Trustee is authorized and is directed to mortgage the premises for the purpose of paying such maintenance charges and taxes.

The trial court ruled this trust did NOT qualify as an elective share trust.  The 4th DCA agreed, providing the following valuable guidance:

First, Article Second (A) fails to satisfy the requirement of section 732.2025(2)(a), because .  .  .  Cedric is entitled neither to the “use” of the property within the meaning of the statute, nor to “income” derived from the property.

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Article Second (A) created something less than a life estate in the Massachusetts property.

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We also hold that Article Second (A) does not satisfy the requirements of section 732.2025(2)(b). That section requires that the purported elective share trust be “subject to the provisions of former s. 738.12 or the surviving spouse has the right under the terms of the trust or state law to require the trustee either to make the property productive or to convert it within a reasonable time.”

Lesson learned: 

The technical requirements for a valid elective share trust are such that you're probably not going to have a qualifying clause unless the drafting attorney knew what he or she was doing.  By way of contrast, the following is a form of elective share trust that actually works:

Despite any other provision of this Trust Agreement, if my wife or her designated representative elects the Elective Share in my estate, any trust created under this Trust and not qualifying for the federal marital deduction in which my wife is a beneficiary will be divided into two parts, with the least amount of that trust as is needed to satisfy the balance of the Elective Share unpaid by other sources under Section 732.2075 of the Florida Statutes being held as a separate trust (the “Elective Share Trust”) and administered so as to qualify under Section 732.2025 of the Florida Statutes (including the right for my wife to require the Trustee to make the trust property productive or to convert it within a reasonable time). Unless the original trust already provides for a qualifying invasion power or a qualifying power of appointment for my wife, the Personal Representative in its discretion may elect to create an invasion power for the Elective Share Trust for purposes of valuation under Section 732.2095 of the Florida Statutes. If an invasion power is created, the Personal Representative shall designate that such a power is to apply by filing a notice with my wife and in the probate court within 6 months after the election by my wife of the Elective Share.

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Aronson v. Aronson, 930 So.2d 766, 31 Fla. L. Weekly D1317 (Fla. 3d DCA May 10, 2006)

Revocable trusts are widely used in Florida for estate planning purposes.  The standard procedure is to title large assets in the name of the revocable trust to avoid having to probate those assets when the settlor dies and also to make it easier for a successor trustee to administer those assets for the benefit of an incapacitated settlor.  On the other hand, because clients can change or "revoke" their revocable trusts at any time and revocable trusts offer zero asset protection from creditors, some may feel that titling assets in the name of the trust is a technical matter with no real-life significance.  Wrong answer . . .  as demonstrated by this case.

Mr. Aronson titled his condo located on Key Biscayne (read: $500,000+ FMV real estate) in July of 1996 to his revocable trust.  I'm assuming this trust mostly favored his children.  A few months later, in December of 1996 Mr. Aronson deeded this same condo to his second wife.  Perhaps inevitably, Mr. Aronson's children and second wife ended up in litigation over who owns the condo: the trust or second wife?  At trial, the court ruled in favor of second wife.  On appeal, the 3d DCA reversed, ruling that an individual can't deed a property in his individual capacity if he's previously deeded it over to his revocable trust, even if he had the authority at any time to revoke his own trust.  The following are a few excerpts from the 3d DCA's opinion:

Here, the Settlor executed a warranty deed conveying the property to himself, as trustee. Thus, the Settlor, in his capacity as trustee, became the legal title holder of the trust property. See Buerki, 570 So.2d at 1063. Once the Settlor held the property as trustee, for the benefit of the beneficiaries of the trust, he no longer possessed the power to convey the property in his individual capacity.

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However, assuming that the Trust reserved to the Settlor and the Trustee certain powers to dispose of trust assets, there is no question that Mr. Aronson failed to withdraw the property in strict compliance with the Trust instrument as it required the Settlor to deliver a written document to the Trustee in order to withdraw the Trust assets. See Bongaards, 793 N.E.2d at 339. Instead, Mr. Aronson conveyed real property in his individual capacity, which he did not legally own in that capacity. Accordingly, the subsequent transfer was invalid as a matter of law.

We need not and, indeed, cannot attempt to glean Mr. Aronson's intent in transferring the property to the trust, or subsequently to Ms. Aronson in his individual capacity. Here, there was no ambiguity in either the original transfer of the property to the Trust by warranty deed or the subsequent transfer of the property to Ms. Aronson by quit claim deed. See Dolphins Plus, Inc. v. Hobdy, 650 So.2d 213, 214 (Fla. 3d DCA 1995)(noting that unambiguous language of a written instrument is not subject to judicial construction or interpretation). Having created a valid trust and being familiar with the powers he retained therein, as well as the law in this area, Appellants contend that Mr. Aronson's intent was to appease his second wife and effectuate a sham transaction he knew to be legally invalid. Conversely, it is argued that Ms. Aronson was the natural object of Mr. Aronson's bounty and that the subsequent transfer must be held to be valid to give meaning to Mr. Aronson's actions. These and other explanations may exist in attempting to ascertain the true motive behind Mr. Aronson's actions. However, the choice of any particular scenario to explain and give meaning to Mr. Aronson's intent involves guesswork that is not likely to produce enduring legal principles under which to consider future cases.

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