UK insurance giant Lloyd's of London stymied by strategic use of Florida's 2-year non-claim statute
In re Estate of Harrison, Slip Copy, 2010 WL 503077 (Bankr.M.D.Fla. Jan 29, 2010)
An overarching theme of Florida’s probate code is the tension between basic due-process rights on the one hand and Florida’s strong public policy favoring the speedy administration of estates on the other. Florida’s 2-year non-claim statute [F.S. 733.710] epitomizes this tension because of its simplicity and utter disregard for equitable considerations. When it comes to unsecured creditors, after 2 years it's game over . . . period, no exceptions.
In the linked-to opinion the unsecured probate creditor - UK insurance giant Lloyd's of London - cried foul when the debtor's son strategically waited two years and one day! to commence his father's probate proceeding . . . thereby automatically triggering application of Florida’s 2-year non-claim statute . . . thereby automatically barring all of his father's unsecured creditor claims, including Lloyd's. Lloyd's argued that the debtor's son - the designated personal representative under his father's will - had an affirmative duty to advise his father's creditors that they needed to open a probate proceeding in Florida and file a claim within two years of the debtor's date of death.
While a personal representative does have affirmative duties to estate creditors after he's appointed, those duties don't apply before he's appointed. This was the hole in Lloyd's argument, and why the estate won this one. Here's how the judge summarized the key legal issues:
As a matter of law, Randolph Harrison, as the beneficiary and named personal representative, had no affirmative or fiduciary duty before his appointment as personal representative. Florida Statute 733.601 is clear that a personal representative's duties commence upon appointment. Prior to his official appointment, Randolph Harrison had no affirmative duty as a fiduciary; he had no fiduciary relationship with the English Creditors; and he had no duty to notify them of the Florida legal structure or their opportunity to open a probate estate or file a claim. The only allegation against Randolph Harrison is that he kept his silence for two years and a day. The Court holds as a matter of law that that is not a breach of any duty. Additionally, his silence about Florida law is not fraud. There is no statutory or common law requirement to urge a creditor, who obviously knew about the death of its obligor and who apparently knew about assets in Florida, to open probate in Florida. . . . It was incumbent upon the English Creditors to familiarize themselves with Florida law, open a probate and file a claim. For whatever reason, the English Creditors elected not to do so.
There was simply no fraud in Randolph Harrison waiting to open the Florida probate. There is absolutely no requirement under probate law that creditors of a decedent be paid before beneficiaries receive anything. In fact, the statutory scheme suggests the opposite. The whole substance of having a non-claims bar like Section 733.710 is to allow a beneficiary to receive assets free of creditor claims after the two-year period. For a beneficiary to take advantage of that legal structure is not fraud.
Lesson learned?
If you're going to try to run the 2-year non-claim statute clock on your creditors, don't even open the estate. Do nothing. Unless a creditor takes the extraordinary step of commencing a probate proceeding just to collect on his debt, the estate wins by default.
What effect would assuming the trusteeship of a funded revocable trust have? Could the trust vehicle be used to avoid the necessity of filing for two years, effectively eliminating unsecured creditors?
While this may not technically be considered fraud under Florida law, it nonetheless meets the criteria for fraud when the party given preference to appointment as PR by the will intentionally holds off on opening the estate for the sole purpose of denying legitimate known creditors an opportunity to collect on debts owed to them. Placing the responsibility for knowledge of the intricacies of Florida probate law on the shoulder of those individuals and/or companies to whom the decedent owed a debt creates an unfair advantage for the estate.
Perhaps it could be argued that a company like Lloyds was in a position where they should have known better, but the vast majority of creditors/claimants neither have the resources of a Lloyds nor do they regularly in the normal course of their business have occasion to deal with a debtor's estate, if ever, prior to such incident. Consequently, the courts' interpretation holding the creditors to strict compliance strikes me as nothing more than a court-sanctioned "Gotcha". This is most particularly evident and egregious where it can be shown that the intended PR had knowledge of the likely creditor/claimant and the basis for such claims and knowledge of the effect of the 2-year limitation and where there was absolutely no legitimate cause to delay opening the estate other than to gamble that the potential claimants are ignorant of their rights and the law to secure those rights. In the case where the intended PR is also a named beneficiary under the will and/or trusts where such deliberate conduct serves to benefit that PR personally, it is especially morally abhorrent, IMHO.
It is beyond my imagination to believe that this was the intent of the legislature rather than a loophole deviously exploited and blessed.
Under Florida Probate Statutes, actions taken by the intended PR after death of settlor but prior to issuance of letters, once named as PR, he/she is granted retroactive authority to have been acting in a fiduciary position to the Estate. (FS 733.601) It is absolutely contrary to public policy for an individual or corporate trustee to be permitted the benefits of retroactive fiduciary authority without holding them accountable for the duties of a fiduciary retroactive to the same time period.
Just as the law requires the POTENTIAL candidate for PR to file formal notice of their intent to apply for letters of administration in a form which specifically is required to include clear notice of the interested parties rights to object and deadline for filing such objections with the court, (FS 722.212 (2)(a,b,& c) ) so too should the statutes be amended to require such filing and notice to all known creditors/claimants in a timely manner so that they are afforded the full period before limitation expires (i.e. tolling should begin from date of service of this expanded proper notice.) Anything less than that is a sham.
**Disclaimer** I am not a lawyer in Florida or elsewhere. Whether that helps or hurts my credibility on the above opinion, I leave up to you and your readers.
I disagree with the above opinion. As a Florida probate lawyer in the UK, it is often simpler to await the expiration of the two year period and avoid the complication of filing a formal ancillary probate, etc. Often where an intended PR does not contact us until 1 and 1/2 years have passed, it makes sense to consider waiting the expiration of the two year period and not because of the creditors. In any event, Lloyds didn't even have to deal with someone in the USA, there are Florida lawyers throughout the UK.