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

Lubee v. Adams, --- So.3d ----, 2012 WL 163911 (Fla. 2d DCA January 20, 2012)

Are you a "reasonably ascertainable" creditor or not? If the answer is YES, then under F.S. 733.710 you have up to 2 years after the decedent dies to file your claim against the estate. If the answer is NO, then under F.S. 733.702 you only have 3 months after the estate's "notice to creditors" is first published to file your claim. 3 months vs. 2 years. That's a big difference. 

This case is all about who has the burden of proving whether or not you're a "reasonably ascertainable" creditor.

Case Study:

Personal representatives have a duty under F.S. 733.2121 to search out the decedent's reasonably ascertainable creditors and personally serve them with a "notice to creditors." Once personally served, reasonably ascertainable creditors have 30 days to file their claims.

In this case Mr. Lubee, the creditor, wasn't identified by the personal representative as a reasonably ascertainable creditor of the estate, which means he was never served with a notice to creditors. Mr. Lubee saw things differently, arguing he was a reasonably ascertainable creditor, and as such he should have been personally served with a notice to creditors. Because he wasn't served with a notice to creditors, Mr. Lubee argued the 30-day post service deadline applicable to him (as a reasonably ascertainable creditor) was never triggered, which means he could file his claim any time within 2 years after the decedent's date of death (which he did).

Burden of Proof:

Mr. Lubee's argument works if you assume ALL creditors are reasonably ascertainable, and it's up to the estate to prove they're NOT. His argument fails if you assume NO creditor is reasonably ascertainable, unless proven otherwise. Unfortunately for Mr. Lubee, first the trial court, then the 2d DCA ruled creditors bear the burden of proof, so his claim failed.

According to the 2d DCA, because Mr. Lubee wasn't identified by the estate as a reasonably ascertainable creditor, he had two options: [1] file his claim within the 3-month post publication deadline generally applicable to all creditors; or [2] file for an extension of time under F.S. 733.702(3) within the 2-year window of F.S. 733.710, prove his status as a reasonably ascertainable creditor within the context of that proceeding, then subsequently file his creditor claim. He did neither, so his claim failed as a matter of law. By the way, this two-step process is the exact same formula previously adopted by the 1st DCA in Morgenthau v. Estate of Andzel, --- So.3d ----, 2009 WL 5151741 (Fla. 1st DCA Dec 31, 2009), which I wrote about here.

Bottom line, when in doubt, no one's a reasonably ascertainable creditor until a court says you are. Here's how the 2d DCA explained its ruling:

There is no dispute that Mr. Lubee did not file his claim in the probate proceeding within three months following the publication of notice to creditors and that he did not file a motion for extension of time or otherwise seek an extension. There is also no dispute that Mr. Lubee was not served with a copy of the notice to creditors pursuant to sections 733.702(1) and 733.2121(3)(a). However, Mr. Lubee contends that because he was a readily ascertainable creditor entitled to be served with a copy of the notice to creditors pursuant to those sections, he was only required to file his claim in the probate proceeding within thirty days after service of the notice on him or, at a maximum, within two years of the decedent's death. He argues that because he was never served with the notice to creditors, he timely filed his claim within the two-year window of section 733.710.

Because a notice to creditors was published on November 16, 2007, creditors not entitled to actual notice were required to file their claims on or before February 16, 2008. See § 733.702(1). Creditors who were served with the notice to creditors were required to file their claims within thirty days following service. See id. Because he was not served with a copy of the notice to creditors, Mr. Lubee was required to file his claim in the probate proceeding within the three-month window following publication. Alternatively, Mr. Lubee could seek an extension from the probate court pursuant to section 733.702(3) within the two-year window of section 733.710. See Morgenthau v. Estate of Andzel, 26 So.3d 628, 632 (Fla. 1st DCA 2009) [click here]; cf. Miller v. Estate of Baer, 837 So.2d 448, 449 (Fla. 4th DCA 2002) (affirming order enforcing claim against estate where creditor failed to file claim within three-month window of section 733.702(1) but did file motion for extension of time within two-year window of section 733.710). It is undisputed that he did neither. Mr. Lubee's filing of his claim in the probate proceeding within two years of the decedent's death did not amount to a request for an extension of time and did not otherwise comply with the requirements of section 733.702. Mr. Lubee's claim in the probate proceeding was untimely and therefore barred. As a result, the issue of whether or not Mr. Lubee was a readily ascertainable creditor was immaterial in the civil proceeding, and the trial court correctly granted partial summary judgment in favor of the personal representative. 

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Saewitz v. Saewitz, --- So.3d ----, 2012 WL 10854 (Fla. 3d DCA January 04, 2012)

Tortious interference with an expected inheritance is a relatively new cause of action that's still evolving. So anytime one of these cases makes it into a Florida appellate opinion, it's noteworthy. The last time was back in 2007, coincidentally also before the 3d DCA. See Schilling v. Herrera, --- So.2d ----, 2007 WL 981627 (Fla. 3d DCA 2007). In that case the issue on appeal was when probate proceedings will effectively bar a tortious interference claim [click here]. This time around the issue is damages; or more specifically, how the lack of concrete damages evidence can get your case tossed out of court.

The five elements of this cause of action are generally described as follows:

1. the existence of some sort of expectancy on the plaintiff's part involving an inheritance;
2. the defendant's intentional interference with such expectancy;
3. involvement of tortious conduct, such as fraud, duress, or undue influence, in the defendant's interference;
4. reasonable certainty that the plaintiff's expectancy would have been realized if not for the defendant's interference; and
5. damages. 

No damages = No case:

In this case the decedent's two daughters sued their stepmother for tortiously interfering with their expected inheritance. Both the trial court and the 3d DCA seem to concede that the first four elements of the plaintiffs' case were proved. However, just because you have evidence of wrongdoing doesn't mean you have a lawsuit. You also need to quantify - and prove - economic damages. I'm often contacted by potential plaintiffs with sad stories of some truly appalling conduct, but when you try to nail them down on how they've been hurt economically, they can't tell you. Just because you've been wronged, doesn't mean you have a lawsuit. You need to be able to quantify concrete economic damages. Here's how the 3d DCA put it:

The daughters' initial brief on this appeal persuasively chronicles the record evidence presented to the jury of manipulative activity taken by their stepmother during their father's dying days and preceding months to contravene their father's wishes with respect to the disposition of his estate. It is apodictic, however, that a plaintiff's initial proof of a prima facie case of both conversion and tortious interference in her case-in-chief requires more than proof of liability. Prima facie proof of damages is required as well.

For trusts and estates litigators, the primary value of this case is the 3d DCA's discussion of what kind of damages evidence you need to put on. First you need to define what expected inheritance the defendant defrauded you out of; then you need to prove with "reasonable certainty" the amount of economic damages you've suffered.

The substance of the evidence the daughters presented to the jury on the element of damages is found in the testimony of three witnesses: Jack Rosenberg, the decedent's accountant; Ron Goldstein, a friend of the decedent; and Lynn Saewitz. Rosenberg provided general testimony that the value of the assets involved in the litigation was “over a million dollars” or “in the millions [of dollars].” Goldstein similarly testified the value of the allegedly misappropriated assets at “seven figures.” Although denying any wrongdoing, Lynn Saewitz similarly indicated the value of the assets in question was in the “millions of dollars.” However, none of the testimony was tied to a legally relevant time period. . . . This omission alone deprives this testimony of any probative value.

Additionally, this testimony is insufficient to satisfy the “reasonable certainty” threshold necessary to be considered legally probative of the amount or extent of damages suffered by the daughters. “Under the reasonable certainty rule, ... recovery is denied where the fact of damages and the extent of damages cannot be established with a reasonable degree of certainty.” . . . The proof adduced must be sufficiently definite for a reviewing court to perform its review obligation. . . . In the case before us, the proof adduced by the daughters in their case-in-chief fails to meet this fundamental requirement. . . 

Improvise. Adapt. Overcome.

To say the decedent's daughters must have been crushed by the outcome of this case is probably putting it mildly. Why? Because according to them they weren't able to prove damages with reasonable certainty due to their stepmother's failure to turn over accounting documents she was supposed to produce during pre-trial discovery. In a lesson for all of us, this complaint got them nowhere. According to the 3d DCA counsel for the daughters needed to, as we used to say in the Marine Corps when things didn't go as planned: "improvise, adapt and overcome." In other words, if your opponent doesn't hand you the facts needed to prove your case, you don't just cry foul, you find some other way to get the job done: you improvise, you adapt, you overcome. Here's how the 3d DCA made this same point in the milder vernacular of appellate-court speak:

The daughters argued below, and renew their argument before us, that they were prevented from proving their damages in this case by the failure of counsel for the stepmother to engage in discovery in good faith. The daughters specifically point to the fact, revealed during the testimony of Jack Rosenberg, that defense counsel failed to inquire of him or his accounting firm for documents relating to the value of the decedent's assets in response to a request for production that indisputably included them. As trustee of the Max P. Saewitz Revocable Trust, [stepmother] had the legal obligation to make such an inquiry. . . . The testimony of Jack Rosenberg indicated his firm had responsive documentation. During the course of the argument on the motion for directed verdict, counsel for the daughters placed substantial reliance on this lapse by defense counsel to ask the trial court to either re-open the case to allow more evidence on the element of damages, or, alternatively, grant a new trial as a sanction against [the stepmother] and her counsel for abuse of discovery. The trial court denied relief.

* * * * *

[T]he precise identification of each asset at issue was known to counsel for the daughters well before trial. If a prima facie case of the value of these assets could have been proven through the records or testimony of the decedent's accountants, it follows the assets also could have been valued by experts retained by the daughters. Unless knowingly waived or excused by the daughters themselves, counsel's obligation to the daughters in this case included an independent obligation to be prepared to present a prima facie case on the value of the daughters' damage claim at trial. The actions of defense counsel, even if a violation of a legal or ethical obligation existed, were not the “but for” cause of the daughters' failure to present a prima facie case to the jury. 

Lesson learned? 

According to the 3d DCA, the "but for" cause of the plaintiffs' loss in this case wasn't their stepmother's stonewalling, "even if a violation of a legal or ethical obligation existed," it was their own failure to retain their own independent expert to prove damages. Bottom line, when all is said and done it's up to you to win your case. If your opponent doesn't make this easy for you, don't expect your judge to come to your rescue. Repeat after me, improvise, adapt and overcome . . . improvise, adapt and overcome . . . improvise, adapt and overcome . . . improvise, adapt and overcome . . . 

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Rosenkrantz v. Feit, --- So.3d ----, 2011 WL 6183525 (Fla. 3d DCA Dec 14, 2011)

As I reported here, on October 1, 2011 Florida overhauled its power of attorney (POA) statutory regime based in large part on the Uniform Power of Attorney Act. The new statute was supposed to clarify some of the ambiguities inherent to the old statute. Based on the 3d DCA's observations in this case, the new statute appears to be delivering on this front.

Less ambiguity = greater certainty for anyone seeking legal advice about POA's and what their rights, duties or obligations as an attorney-in-fact may be.  Win, lose or draw, certainty in the law is always a good thing.

Case Study:

In this case an elderly mother executed a POA naming her two children as her co-attorneys-in-fact. As long as everyone does their part, naming two children in your POA as co-attorneys-in-fact is OK and done all the time. Unfortunately, in this case one of the siblings (Sister) believed her brother was improperly blocking her attempts to account for their mother’s assets. What to do? Given the ambiguities inherent to the old statute, the answer was unclear. Bottom line, Sister was compelled to invest valuable time and money into filing a declaratory judgment action just to figure out who was supposed to do what under her mother's POA. On appeal, the legal issue was whether a declaratory judgment action was appropriate in this case. The 3d DCA said yes. The 3d DCA then went out of its way to point out how the ambiguities giving rise to Sister's declaratory judgment action in the first place have now been largely resolved by our new POA statutory regime. Less ambiguity = greater certainty = less time and money wasted on declaratory judgment actions. That's a good thing.

Here's an excerpt from the 3d DCA's opinion:

Gertrude Feit executed a Durable Power of Attorney when she began having memory loss. Gertrude named her daughter, Rosenkrantz, and her son, James Feit, as attorneys-in-fact to oversee her financial affairs. Gertrude and James live in Miami–Dade County, Florida. Rosenkrantz, who lives in New York, alleges that her brother refuses fully to account for their mother's assets, and objects to her efforts to obtain information directly from the financial institutions. Rosenkrantz contends that James' actions impair her ability to carry out her responsibilities as a co-attorney-in-fact, and she is in doubt as to her rights under the power of attorney.

*****

Rosenkrantz thus sought declaratory relief to determine: 1) the extent to which she can, as a co-attorney-in-fact, act without the concurrence of a co-attorney who may be acting in derogation of his fiduciary duty; and 2) whether she, as one co-attorney, is entitled to an accounting from the other co-attorney. If the allegations are proven as pled, it is clear that Rosenkrantz acted properly and prudently in seeking to fulfill her fiduciary role.FN2 . . .

FN2. It should be noted that the Florida Legislature addressed these very issues in its 2011 revisions to Chapter 709. Among the several significant changes, the new statutory scheme provides:

— A principal may designate two or more persons to act as co-agents, and unless the power of attorney otherwise provides, each co-agent may exercise its authority independently. § 709.2111(1), Fla. Stat. (2011).

— If a power of attorney requires that two or more persons act together as co-agents, one or more of the agents may delegate to a co-agent the authority to conduct banking transactions pursuant to the power of attorney. § 709.2111(6).

— An agent may be required by a co-agent to disclose receipts, disbursements, or transactions conducted on behalf of the principal. § 709.2114(6).

— An agent (including a co-agent) may petition a court to construe or enforce a power of attorney, review the agent's conduct, terminate the agent's authority, remove the agent, and grant other appropriate relief. § 709.2116(1).

— An agent's exercise of power may be challenged in a proceeding brought on behalf of the principal on the grounds that the exercise of the power was affected by a conflict of interest. § 709.2116(4).

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Layne v. Layne, --- So.3d ----, 2011 WL 5560563 (Fla. 1st DCA Nov 16, 2011) 

What "rights" do I have in an inheritance from my parents? Under Florida law, generally speaking the answer is none. At most I might expect or hope to one day maybe inherit a share of dad's estate, but an "expectancy" isn't a property right. These basic property-law and inheritance principles are at the heart of this case.

Case Study:

In this case "Son" owned a townhouse 50/50 with his "Dad" and Dad's wife at the time. A few years later, Son deeded his 1/2 share in the townhouse to Dad and Dad's now ex-wife, resulting in Dad and ex-wife each owning a 1/2 interest in the whole property as tenants in common. Dad dies intestate, survived by two heirs: Son and his sister. Son claims 1/2 of dad's intestate estate, including a share of Dad's interest in the townhouse. Ex-wife cries foul, saying Son shouldn't get any part of the townhouse. Why? According to ex-wife when Son deeded his share of the townhouse to Dad, he also deeded away his 1/2 share of Dad's future intestate estate (which included the townhouse). Sound crazy? Well, the trial court actually bought this argument and ruled against Son.

On appeal the 1st DCA reversed the trial court's ruling based in large part on the basic principles outlined above. Sometimes even the savviest judge can get the basics wrong. That's why opinions like this one are helpful, especially for practicing probate lawyers. The following is an excerpt from the 1st DCA’s linked-to opinion:

The court's order states that Appellant's quitclaim deed operated to “convey all of his interest” in the townhouse; thus, he is not entitled to any portion of the property that would otherwise pass to him as a beneficiary of his father's estate. Any right Appellant has to take an interest in the property as a beneficiary did not, however, exist at the time Appellant executed the quitclaim deed. A quitclaim deed conveys only that interest in a property held by the grantor at the time of the conveyance. See, e.g., Blitch v. Sapp, 142 Fla. 166, 194 So. 328, 330 (1940) (holding “a ‘quit-claim’ deed yields only such interest in land as the grantor had at the time of the making of such deed.”). In other words, “[t]he possibility that a person will inherit property from an ancestor is but an expectancy and not an interest in property. While a descendant may expect or hope to inherit, neither a present nor future interest in property actually exists in the absence of a conveyance.” Diaz v. Rood, 851 So.2d 843, 845 (Fla. 2d DCA 2003); see also § 732.101(2), Fla. Stat. (“The decedent's death is the event that vests the heirs' right to the decedent's intestate property.”).

We recognize that the court in Diaz also held that it is possible to convey an expectancy. 851 So.2d at 845. In that case, however, the assignment in question made it clear that the grantor was doing just that; here, the quitclaim deed conveyed only Appellant's interest in the townhouse as it existed at the time of the conveyance. It did not expressly convey any future right to the property Appellant may acquire by virtue of an expectancy, such as a will or via intestacy.

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SPCA Wildlife Care Center v. Abraham, --- So.3d ----, 2011 WL 6183491 (Fla 4th DCA Dec 14, 2011)

We all know charities are struggling to stay afloat these days, which means they're asserting themselves in court to a degree unheard of a generation ago (a topic of frequent discussion on this blog, click here). In the linked-to case above several charities, including the SPCA Wildlife Care Center (a Broward County animal shelter affiliated with the Humane Society), found themselves unexpectedly pushed into a corner by a probate court's insistence on adjudicating an issue no one asked it to rule on (lesson learned: always expect the unexpected when setting foot in a courtroom).

The question before the 4th DCA in the linked-to case above was whether a person's vaguely worded testamentary gift to charity can be enforced even if the named charity doesn't exist or the testatrix's charitable intent isn't worded as specifically as usually required for testamentary bequests. The trial court said NO. On appeal, the 4th DCA said YES, siding with the charity and reversing the trial court's decision based on the "cy-près" doctrine.

"Cy-près" Doctrine:

"Cy-près" is an old Norman French term meaning "as near as possible" or "as near as may be." When the original objective of the settlor or the testator becomes impossible, impracticable, or illegal to perform, the cy-près doctrine allows a court to amend the terms of a charitable trust as closely as possible to the original intention of the testator or settlor to prevent the trust from failing. For example, in Jackson v. Phillips, (1867) 96 Mass. 539, the testator bequeathed to trustees money to be used to "create a public sentiment that will put an end to negro slavery in this country." After slavery was abolished by the Thirteenth Amendment to the United States Constitution, the funds were applied cy-près to the "use of necessitous persons of African descent in the city of Boston and its vicinity."

Although unstated in the link-to 4th DCA opinion, the "cy-près" doctrine has been codified in Florida as part of our Trust Code at F.S. 736.0413. This provision is loosely based on section 413 of the Uniform Trust Code.

Case Study:

In the linked-to case above the decedent, Mary Ericson, executed a will that created a trust for the life-time benefit of her close friend, Emma Brown. Upon Ms. Brown's death, the trust's remaining assets were to be distributed to the "International Wildlife Society.” This is all fine, except there's no such thing as the "International Wildlife Society.” So does the charitable bequest fail?

According to Ms. Brown, “it was the intent of the decedent, Mary Ericson, to have the trust assets distributed to a local Broward County, Florida benevolent animal organization which would attempt to aid and care for animals and not consider destruction of animals except as a last resort.” Ms. Brown further attested that the decedent “often spoke of the Humane Society [of] Broward County.”

When the trust was brought before the court for clarification, several charities were notified and given an opportunity to file responses. One of these charities, the SPCA Wildlife Care Center, filed a response asserting that the assets of the testamentary trust should be distributed to it based on the cy-près doctrine. For some unexplained reason the trial court took it upon itself to simply rule the trust's residuary bequest was vague, and thus "failed". In other words, NO charity gets anything. What?! That logic may apply to non-charitable bequests, but not to charities. That's what the cy pres doctrine is all about; fixing vague charitable bequests. Fortunately, the 4th DCA "got it," reversing the trial court's order based on the following analysis.

The cy pres doctrine is the principle that equity will [a] make specific a general charitable intent of a settlor, and will, [b] when an original specific intent becomes impossible or impracticable to fulfill, substitute another plan of administration which is believed to approach the original scheme as closely as possible. Christian Herald Ass'n v. First Nat'l Bank of Tampa, 40 So.2d 563, 568 (Fla .1949). The doctrine is often applied where the named beneficiary is a corporation or institution that has ceased to exist at the time of the testator's death. See, e.g., Lewis v. Gaillard, 61 Fla. 819, 842–43, 56 So. 281, 288 (1911) (applying the cy pres doctrine and holding that the Florida State College for Women was entitled to receive income from the testator's estate, even though the testator's will named the college's predecessor institution, West Florida Seminary, as the beneficiary); Christian Herald, 40 So.2d at 568 (holding where testator devised property to dissolved charitable corporation, the successor in interest of the dissolved corporation became entitled to such property under the cy pres doctrine). Florida courts have held that “the misnomer of a devisee will not cause the devise to fail where the identity of the devisee can be identified with certainty.” Humana, Inc. v. Estate of Scheying, 483 So.2d 113, 114 (Fla. 2d DCA 1986). The cy pres doctrine, however, does not apply when the provisions of the will can be carried out, such as where the will provides an alternative that can be performed. See Jewish Guild for the Blind v. First Nat'l Bank in St. Petersburg, 226 So.2d 414, 416 (Fla. 2d DCA 1969); see also Sheldon v. Powell, 99 Fla. 782, 794, 128 So. 258, 263 (1930).

In the present case, the trial court erred in sua sponte determining that the residue of the testamentary trust would pass by intestacy instead of to a charitable organization for the benefit of animals. The hearing was not scheduled as an evidentiary hearing, and the only extrinsic evidence in the record on the issue of the decedent's testamentary intent consists of the affidavits of the income beneficiary and the attorney who prepared the will. Those would suggest that the court could fashion an alternative plan to effectuate the intent of the testator, where the testator's intent to provide for a charitable bequest to animals, and not to benefit any relatives or other parties, was express. Thus, there was not any evidentiary support for the trial court's conclusion that the residuary clause in Article Six, Paragraph C, of the will should fail.

From the language of the will and the affidavits in the record, it appears that the decedent had a general charitable intent for the residue of her testamentary trust to pass to a charitable organization for the benefit of animals. Even if it cannot be determined which organization the testator had in mind, the interested parties should have the opportunity to present evidence to demonstrate that the cy pres doctrine should apply and permit distribution to a claimant or claimants which can fulfill the original intent of the bequest as closely as possible. Based on the foregoing, we reverse and remand for an evidentiary hearing.

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Darian v. Weymouth, --- So.3d ----, 2011 WL 5554786 (Fla. 4th DCA Nov 16, 2011)

James Hughes and Martha Mayfield were married in 1999. They both had children from prior marriages. Prior to getting married, they entered into a prenuptial agreement. The terms of that prenuptial agreement may or may not have addressed testamentary gifts. The 4th DCA doesn't tell us. Anyway, Mr. Hughes subsequently executed a revocable trust that richly provided for Mrs. Hughes. According to the 4th DCA:

Upon his death, Martha would receive the family home in Florida, the country home in North Carolina, a sum of one million dollars, the contents of the residences, and various other items of personal property.

The couple was tragically murdered on September 3, 2004 by Thomas Kleingartner, Mrs. Hughes's adopted son from a prior marriage. Both died as a result of gunshot wounds to the head. Click here, here and here for more on this terrible crime and the ensuing criminal trial.

Because the coroner was unable to determine which spouse predeceased the other, pursuant to F.S. 732.601(1) the probate court deemed their deaths to be simultaneous and entered an order to that effect in the probate of Mr. Hughes' estate. Accordingly, Mr. Hughes' property was to be disposed of as if he survived Mrs. Hughes.

The order of death wouldn't have mattered in this case if F.S. 736.1106(2) had applied (the antilapse statute applicable to Florida trusts). Under that statute, Mrs. Hughes' heirs would have inherited her share of Mr. Hughes' estate, regardless of who survived who. However, this particular trust fell between the cracks of Florida's current and prior antilapse statute, thus the much harsher common law rule applied.

First, we note that the common law controls this case. Section 736.1106(2), Florida Statutes, Florida's antilapse statute, applies only to trusts which became irrevocable on or after July 1, 2009. Section 737.6035(2)(c), Florida Statutes, Florida's previous antilapse statute, applied only to trusts executed on or after June 12, 2003. The James E. Hughes Living Trust was executed in August of 2000 and became irrevocable in September of 2004. Thus, neither statute controls.

At common law, lapse occurs when the beneficiary or the devisee under the trust predeceases the grantor, invalidating the gift. The gift would instead revert to the residuary estate or be granted under the law of intestate succession. Bottom line, Mrs. Hughes' heirs get nothing under the common law rule.

Mrs. Hughes heirs tried to salvage their claim to Mr. Hughes' estate by claiming that her share of Mr. Hughes' revocable trust had somehow vested at the time Mr. Hughes executed the document. There was a lot of money at stake here, so you can see why Mrs. Hughes' heirs would take a shot at making this argument . . . and at the trial court level it actually worked!? Not surprisingly, the 4th DCA saw things differently and reversed, again leaving Mrs. Hughes' heirs with nothing.

In Florida, the creation of a living trust, standing alone, is not an event which vests the interests provided by a trust agreement. Travis et. Al. v. Ashton et al., 156 Fla. 529, 23 So.2d 725, 727 (Fla.1945) (holding that beneficiary of trust deed who predeceased grantors did not receive a vested interest at time of trust creation. Where element of futurity was annexed to substance of gift rather than enjoyment of it, vesting was suspended and the gift was “contingent .”); Brundage v. Bank of Am., 996 So.2d 877, 882 (Fla. 4th DCA 2008) (stating that the settlor of a revocable trust, of which he is the sole beneficiary until death, may change or revoke the trust at any time); Fla. Nat'l. Bank of Palm Beach Cty. v. Genova, 460 So.2d 895, 897 (Fla.1984) (stating that beneficiaries of revocable living trust do not come into possession of trust property until the death of the settlor, and even then their interest is contingent upon the settlor not exercising the power to revoke). A beneficiary's interest in a trust vests upon the death of the settlor. Sorrels v. McNally, 89 Fla. 457, 105 So. 106, 107 (Fla.1925).

In this case, no sufficient event existed to vest Mrs. Hughes' interest in the Trust prior to her husband's death. In Travis, the Florida Supreme Court held that an intended beneficiary's interest is suspended during the life of the grantor. 23 So.2d at 726. The intended beneficiary's interest lapses should the beneficiary predecease the grantor. Id. Mr. Hughes was the sole trustee and beneficiary under the Trust during his life. Mrs. Hughes was among the contingent residual beneficiaries whose interest came into creation only upon the death of Mr. Hughes and who were entitled to distribution of the then remaining corpus of the trust. Because it was judicially determined that Mrs. Hughes predeceased her husband, her interest in the Trust lapsed upon her death.

Lesson learned?

When a couple dies in a car accident or due to some other tragic event, it can be very difficult, perhaps impossible, to determine who died first, since they both died within moments of each other. It usually doesn't matter. In this case, it mattered big time for Mrs. Hughes' heirs. If they knew then what they know now, Mrs. Hughes' heirs might have pushed the coroner a little harder to make a call on who died first, or maybe hired their own independent expert to make the determination. Coroner and medical examiner offices have been especially hard hit by budget cuts; you don't have to accept their conclusions as gospel [click here]. In hindsight, the 2004 coroner's report in this case, which was probably viewed as a non-event at the time, was outcome determinative. No one said practicing law was easy.

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In re Amendments to Florida Rules of Appellate Procedure, No. SC11-192 (Fla. Nov. 3, 2011) 

A subcommittee of the Probate and Trust Litigation Committee has been looking at ways to add greater certainty to the question of when a probate/guardianship order is or is not appealable since 2007. That effort has finally borne fruit in the form of the Florida Supreme Court's new Florida Rule of Appellate Procedure 9.170, which goes into effect on January 1, 2012 (see linked-to opinion above).

To understand why this new rule was adopted and the problem it is supposed to address, you'll want to read an extremely thorough 38-page white paper [click here] produced by the Bar committee working on this project. Here's an excerpt:

By way of background, prior to the 1996 amendment to the Florida Rules of Appellate procedure, Rule 5.100 of the Florida Probate Rules governed when an order in a probate or guardianship case was appealable. Rule 5.100 provided in part that “all orders and judgments of the Court determining rights of any party in any particular proceeding in the administration of the estate of a decedent or ward shall be deemed final, and may, as a matter of right, be appealed to the appropriate district court of appeal.” The problem was, and really still is, that it is not clear exactly what qualifies as a final order and the case law does little to refine or define what finality is.

. . . . . 

Thus, the 3d DCA noted in its decision in Delgado v. The Estate of Garriaga, 870 So.2d 912, 914 n.5 (Fla. 3d DCA 2004),

Perhaps there should be further study of this problem with a view toward developing a rule further defining what constitutes a final order in a probate appeal. It appears wasteful to allow piecemeal appeals, one before and the other after the adversary action.

. . . . .

One approach to resolving this problem is to supplement the existing appellate rule with a non-exclusive list of types of probate and guardianship orders that would be included as orders that “determine a right or obligation of an interested person.” These “types” of orders would be identified by what they do rather than what they are called.

In new Appellate Rule 9.170 the Florida Supreme Court adopted the idea of including a non-exclusive list of types of probate and guardianship orders that would be deemed per se final, appealable orders "determining a right or obligation of an interested person.” The list is 24-orders long. Here's the relevant portion of the new rule, as set forth in the linked-to opinion above:

Orders that finally determine a right or obligation include, but are not limited to, orders that:

1. determine a petition or motion to revoke letters of administration or letters of guardianship;
2. determine a petition or motion to revoke probate of a will;
3. determine a petition for probate of a lost or destroyed will;
4. grant or deny a petition for administration pursuant to section 733.2123, Florida Statutes;
5. grant heirship, succession, entitlement, or determine the persons to whom distribution should be made;
6. remove or refuse to remove a fiduciary;
7. refuse to appoint a personal representative or guardian;
8. determine a petition or motion to determine incapacity or to remove rights of an alleged incapacitated person or ward;
9. determine a motion or petition to restore capacity or rights of a ward;
10. determine a petition to approve the settlement of minors’ claims;
11. determine apportionment or contribution of estate taxes;
12. determine an estate’s interest in any property;
13. determine exempt property, family allowance, or the homestead status of real property;
14. authorize or confirm a sale of real or personal property by a personal representative;
15. make distributions to any beneficiary;
16. determine amount and order contribution in satisfaction of elective share;
17. determine a motion or petition for enlargement of time to file a claim against an estate;
18. determine a motion or petition to strike an objection to a claim against an estate;
19. determine a motion or petition to extend the time to file an objection to a claim against an estate;
20. determine a motion or petition to enlarge the time to file an independent action on a claim filed against an estate;
21. settle an account of a personal representative, guardian, or other fiduciary;
22. discharge a fiduciary or the fiduciary’s surety;
23. award attorneys’ fees or costs; or
24. approve a settlement agreement on any of the matters listed above in (1)–(23) or authorizing a compromise pursuant to section 733.708, Florida Statutes.

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Steve Akers of Bessemer Trust is one of the best speakers you'll ever have the pleasure of running into as a trusts and estates lawyer. As a former private practice T&E lawyer himself, he knows what's important for those of us in the trenches. Which is why I was especially interested in his recent write up of Rev. Proc. 2011-48 (the new IRS guidance for preserving § 2053 estate tax deductions that are uncertain and have yet to be paid) poetically entitled Protective Claim for Refund Procedures for Section 2053 Claims.

If an estate is both subject to the estate tax and litigation, a key issue everyone needs to stay focused on from day one is ensuring all applicable tax deductions under IRC § 2053 are preserved. For example, IRC § 2053 tax deductions include attorney's fees and costs (usually a big sticking point in T&E litigation). Maximizing IRC § 2053 tax deductions creates win-win opportunities by mining the tax code for new funds with which to settle disputes.

. . . . .

Summary of Procedures Under Rev. Proc. 2011-48

1. Time Period For Filing Protective Claim. The protective claim for refund may be filed at any time within the period of limitations for filing a claim for refund under §6511(a) (i.e., the later of three years after the return was filed or two years after the payment of tax). Rev. Proc. 2011-48, § 4.01.

. . . . .

5. Identification of the Claim or Expense; Ancillary Expenses. Each claim or expense for which a protective claim for refund is made must be clearly identified with “an explanation of the reasons and contingencies delaying the actual payment to be made in satisfaction of the claim or expense.” Rev. Proc. 2011-48, § 4.05(1). For contested matters, the protective claim must identify the contested matter and potential liability by including the name of the claimant, the basis of the claim, “the extent or amount of the liability claimed,” and a brief statement of the status of the contested matter. (A copy of relevant court pleadings generally will be sufficient to identify the claim.) Rev. Proc. 2011-48, § 4.04(3).

There is no necessity that the protective claim “state a particular dollar amount.” The 2009 § 2053 regulation confirms that even though the “specific dollar amount” issue is not addressed in the Revenue Procedure. Treas. Reg. § 20.2053-1(d)(5). This is a very important consideration in crafting the protective claim because a request for a specific high dollar amount of deduction would likely be a “smoking gun” in the underlying litigation about the contingent claim.

Ancillary expenses (such as attorneys’ fees, court costs, appraisal fees, and accounting fees) “related to resolving, defending, or satisfying the identified claim or expense” are automatically included as part of the claim for refund without the need for separate identification of these ancillary expenses. Rev. Proc. 2011-48, § 4.04(2).

CCA 200848045, provides a general overview of protective claims. While Rev. Proc. 2011-48 does not specifically refer to this Chief Council Advice, it may nevertheless assist in understanding the type of information that the IRS is seeking in identifying claims. CCA 200848045 says that Reg. § 301.6402-2 does not require that a particular dollar amount be asserted but the claim must “identify and describe the contingencies affecting the claim.” This requirement “is interpreted liberally by the Service. So long as the claim is sufficiently clear and definite [to] apprise us of the essential nature of the claim, it will be accepted as having met the requirement.” (This is important because providing too much detail about what makes the claim contingent may give the other side in the litigation insight into the taxpayer’s perceived weaknesses in its case.)

. . . . .

10. Limited Scope of Review. Rev. Proc. 2011-48 confirms that “generally the Service will limit its review of the Form 706 to the deduction under section 2053 that was the subject of the protective claim.” Rev. Proc. 2011-48, § 5.01, referencing Notice 2009-84. However, very importantly, the limited review described in Notice 2009-84 and in § 5.01 does not apply to “[a] taxpayer that chooses not to follow or fails to comply with the procedures set forth in this revenue procedure.” Rev. Proc. 2011-48, § 3.

The explicit reference to Notice 2009-84 is important, because that Notice provides insight into why the IRS inserted the word “generally” in the sentence about limiting the scope of review. The Supreme Court has held that the IRS can examine each item on a return to offset the amount a refund claim, even after the period of limitations on assessment has run. Lewis v. Reynolds, 284 U.S. 281, 283 (1932). However, the IRS in Notice 2009-84 agreed that it would limit the review of protective claims for refund to preserve the ability to claim a deduction under §2053 “to the evidence relating to the deduction under section 2053,” and not exercise its authority to examine each item on the return to offset a refund claim. This limitation does not apply if the IRS is considering a claim for refund not based on a protective claim regarding a deduction under §2053 in the same estate. Also, the Notice says the limitation applies “only if the protective claim for refund ripens after the expiration of the period of limitations on assessment and does not apply if there is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact.” The Revenue Procedure is not as explicit but makes a passing reference to this requirement about the refund ripening after the period of limitations has run. It says the limited scope of review applies when determining “whether there is an overpayment of tax based on a timely-filed section 2053 protective claim for refund that becomes ready for consideration after the expiration of the period of limitation on assessment ...” (Accordingly, there may be an advantage in not having resolved the underlying lawsuit regarding the claim against the estate until after the period on additional assessments has run — to the extent that there may be items on other parts of the estate tax return that the IRS might question if it could.)

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Grisolia v. Pfeffer, --- So.3d ----, 2011 WL 5864806 (Fla. 3d DCA Nov 23, 2011)

The key to understanding this case is recognizing that one word: "homestead;" is used in three very different ways in Florida's constitution:

• Article X, §4(a) and (b) for creditor protection
• Article X, §4(c) for devise and descent
• Article VII, §6 for taxation

The same home can qualify as "homestead" under one constitutional homestead clause, while at the same time failing to qualify as "homestead" under another constitutional homestead clause. For example, for public policy reasons Florida's homestead tax exemption (Article VII, §6) is "strictly construed." In other words, when in doubt, courts must rule against homeowners claiming this tax benefit. By contrast, Florida's homestead creditor protection (Article X, §4(a) and (b)) is "liberally construed." When in doubt, courts must rule in favor of homeowners claiming this asset-protection benefit.

Courts get into trouble when they rely on a line of homestead case-law authority developed to address one facet of homestead law (e.g., taxes), to decide a case involving another facet of homestead law (e.g., creditor protection). That's what happened in the linked-to case above.

Case Study:

In the linked-to case above the decedent was a foreign national (Venezuelan) who moved to Florida in 2005 after his US-born son was almost kidnapped in Venezuela. In 2006 the decedent purchased an apartment in Florida, which he resided in with his family. In 2007 the decedent was loaned $500,000. In 2009 the decedent died intestate while still residing with his family in his Florida apartment. When the decedent's creditors tried to enforce their debt against his estate, his wife claimed the homestead creditor protection to shield the family's apartment from their claims.

A foreign national does not qualify for the homestead tax exemption unless he's a permanent US resident (i.e., Greencard holder), which the decedent wasn't. The trial court ruled against the family on the homestead creditor protection issue based in large part on the fact that the decedent never claimed, nor did he ever qualify for, the homestead tax exemption. Wrong answer, says the 3d DCA. Just because your "homestead" does not qualify for the tax exemption does not mean it fails to qualify for creditor protection.

In Florida, “courts have consistently held that the protections afforded by the ‘homestead exemption in article X, section 4 must be liberally construed.’“ Taylor v. Maness, 941 So.2d 559, 562 (Fla. 3d DCA 2006) (citation omitted). Furthermore, the homestead exemption jurisprudence of Florida courts “has long been guided by a policy favoring the liberal construction of the exemption: ‘Organic and statutory provisions relating to homestead exemptions should be liberally construed in the interest of the family home.’“ Taylor, 941 So.2d at 562 (citations omitted). Accordingly, the Florida homestead exemption from forced sale “is liberally construed for the benefit of those it was designed to protect.” Taylor, 941 So.2d at 562 (quoting Law v. Law, 738 So.2d 522, 524 (Fla. 4th DCA 1999)).

. . . . . .

Appellees cite to several bankruptcy cases where a debtor, because of his immigration status, could not formulate the requisite intent to make his property his permanent residence. These cases ignore that eligibility for the homestead exemption depends on the intent of the homesteader rather than that of the U.S. Citizenship and Immigration Services. See Cooke, 412 So.2d at 341.

. . . . . .

Other cases cited by Appellees are inapposite as they involve Florida's homestead exemption from taxation that is now set forth in article VII, section 6 of the Florida Constitution (“Tax Exemption”), rather than the homestead exemption from forced sale found in article X, section 4. For example, in Juarrero v. McNayr, 157 So.2d 79 (1963), the Florida Supreme Court held that a citizen and former resident of a foreign country, who is in the United States solely on the authority of a temporary visa, “has no assurance that he can continue to reside in good faith for any fixed period of time in this country ... [and, therefore] does not have the legal ability to determine for himself his future status and does not have the ability legally to convert a temporary residence into a permanent home.” Id. at 81. Likewise, in DeQuervain v. Desguin, 927 So.2d 232 (Fla. 2d DCA 2006), the court found that homeowners who held only temporary visas “could not form the requisite intent to become permanent residents for purposes of the [Tax Exemption].” Id. at 233. However, the Second District also clarified that “because the [Tax Exemption] provides relief from an ad valorem tax, we must construe the statute strictly against [the homeowners].” Id. (citing Capital City Country Club, Inc. v. Tucker, 613 So.2d 448, 452 (1993)). The strict construction applicable to the Tax Exemption stands in contrast to the liberal construction of the homestead exemption from forced sale at issue here. See Taylor, 941 So.2d at 562; Law, 738 So.2d at 524.

Similarly, at the evidentiary hearing the Appellees raised the fact that the Decedent had never claimed a Tax Exemption on the Property. They further argue on appeal that a person in the United States under a temporary visa cannot meet the requirement of permanent residence or home, and therefore, cannot claim the Tax Exemption. Fla. Admin Code R. 12D–7.007 (2002). We note that the portion of the Florida Administrative Code to which they cite applies to the Tax Exemption and not to the homestead exemption from forced sale at issue here. The probate court referenced in the order on appeal that “[i]n fact, the Decedent never claimed a [Tax Exemption] according to the Miami–Dade County Tax Rolls.” As we have previously stated, “[f]ailure to claim the [Tax Exemption] is not evidence that property is not, in fact, homestead.” Taylor, 941 So.2d at 563 (citing Pierrepoint v. Humphreys, 413 So.2d 140, 143 (Fla. 5th DCA 1982)). Clearly, “the homestead exemption from forced sale is different from the [Tax Exemption].” Taylor, 941 So.2d at 563 (citing S. Walls, Inc. v. Stilwell Corp., 810 So.2d 566, 569 (Fla. 5th DCA 2002)).

Under the specific facts of the this case, because the Decedent's American-born Son resided in the Property since its purchase, the Decedent and Widow had a visa which gave them the legal right to reside in Florida, and were actively pursuing permanent residence status prior to the Decedent's death, we find that the Decedent demonstrated the requisite intent to make the Property his family's permanent residence. Based upon the foregoing, we reverse the probate court's order denying the petition for declaration of homestead exemption. 

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Agee v. Brown, --- So.3d ----, 2011 WL 5554833 (Fla. 4th DCA Nov 16, 2011)

At the heart of this case is Florida Bar ethics Rule 4-1.8(c), which prohibits Florida lawyers from soliciting “substantial” gifts from their clients (“lunch on me” is OK) or drafting wills, trusts, deeds, etc. for their clients effectuating any such gift.

The common law rule in Florida is that gifts made to lawyers in violation of Rule 4-1.8(c) aren’t per se void, but they do trigger a rebuttable presumption of undue influence by the lawyer. If the lawyer can’t overcome this evidentiary hurdle, the gift is void. How do I know this? Because a couple of years ago I read what I consider to be one of the most thoughtful and scholarly probate-court orders I’ve ever come across in my career. The order, authored by Pinellas Circuit Judge Lauren Laughlin and later affirmed on a “PCA” basis by the 2d DCA in Carey v. Rocke, 18 So.3d 1266 (Fla. 2d DCA October 23, 2009), does a fantastic job of dissecting the intersection of Florida law and professional ethics in a will contest involving a possible Rule 4-1.8(c) violation. Judge Laughlin's order should be required reading for anyone involved in a case where a will contest involves a possible Rule 4-1.8(c) violation. Click here for a copy of Judge Laughlin's order and click here for my write up of the case.

Case Study:

At issue in the linked-to case above was a will and deed drafted by a lawyer in violation of Rule 4-1.8(c). The trial court ruled the will, and by implication the deed, were per se void as contrary to public policy. Not surprisingly, the 4th DCA reversed. Here’s the crux of their analysis:

Jon and Susan Agee appeal the trial court's order dismissing their petition to revoke probate of the last will of Herbert G. Birck based on a lack of standing. The trial court had found that the prior will upon which the Agees based their standing was void as contrary to public policy because Mr. Agee, in violation of the Rules Regulating The Florida Bar, had drafted that earlier will in which he and his wife were left a substantial bequest. The Florida Probate Code, however, does not provide for such an automatic exclusion. Because we conclude that the Agees have standing under a prior will to petition for the revocation of the decedent's last will, we reverse and remand for further proceedings.

. . .

In support of his position that a bequest to a drafting attorney must be deemed void as contrary to public policy, Brown argues that “[p]ublic policy demands protection of the public and the instilling of confidence in the legal profession.” The best way to protect the public from unethical attorneys in the drafting of wills, however, is entirely within the province of the Florida Legislature. The current statutory framework, contrary to Brown's implication, does contain some protections. See, e.g., § 732.5165, Fla. Stat. (2009) (“A will is void if the execution is procured by fraud, duress, mistake, or undue influence.”); § 733.107(2), Fla. Stat. (2009) (“The presumption of undue influence implements public policy against abuse of fiduciary or confidential relationships and is therefore a presumption shifting the burden of proof....”).

. . .

To the extent that the trial court agreed . . . that the deed drafted by Mr. Agee which transferred the remainder interest in an enhanced life estate to him and his wife was void as against public policy, we note that, just as with devises, the fact that Mr. Agee drafted the deed does not make the deed void per se, but rather raises a rebuttable presumption of undue influence. See Fogel v. Swann, 523 So.2d 1227, 1229 (Fla. 3d DCA 1988).

Lesson learned?

What this case and the 2d DCA's Carey case demonstrate is that there's a right way and a wrong way for clients to make substantial gifts to their lawyers. The wrong way opens the door for litigation and possibly frustrating a client's legitimate testamentary wishes. The right way makes sure the client isn't the victim of undue influence, and just as importantly, makes it much less likely the estate will find itself embroiled in costly litigation. So what's the right way? The Commentary to Rule 4-1.8(c) provides the following road map:

A lawyer may accept a gift from a client, if the transaction meets general standards of fairness and if the lawyer does not prepare the instrument bestowing the gift. For example, a simple gift such as a present given at a holiday or as a token of appreciation is permitted. If a client offers the lawyer a more substantial gift, subdivision (c) does not prohibit the lawyer from accepting it, although such a gift may be voidable by the client under the doctrine of undue influence, which treats client gifts as presumptively fraudulent. If effectuation of a substantial gift requires preparing a legal instrument such as a will or conveyance, however, the client should have the detached advice that another lawyer can provide and the lawyer should advise the client to seek advice of independent counsel. Subdivision (c) recognizes an exception where the client is related by blood or marriage to the donee or the gift is not substantial.

R. Regulating Fla. Bar 4-1.8, Comment
“Gifts to Lawyers.”

In terms of providing guidance for clients who for whatever reason legitimately want to write their lawyers into their wills, California has actually codified (and perhaps beefed up) the litigation-shield contained in the Commentary to our ethics Rule 4-1.8(c) by including it in its probate code. See Cal. Prob.C. §§21350-21356. For a comprehensive list of cases across the country dealing with some version of Rule 4-1.8(c), see ACTEC's Commentary on MRPC 1.8.

Bottom line, client gifts to lawyers are not illegal, but they are freighted with all sorts of baggage and litigation risks. Florida law and our ethics rules provide solid guidance for effectuating these gifts the right way. Sadly, these suggestions were apparently not followed in this case.

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Melican v. Parker, 289 Ga. 420 (May 31, 2011)

There are all sorts of reasons for why probate practice is interesting. Consider, for example, that even the simplest one-page will is governed by a complex body of law, developed over centuries, that appears nowhere within the four corners of the document, yet can have dramatic consequences. In Florida, this body of law, known as “rules of construction” (i.e., rules that apply when the will is silent, but which can be varied by the terms of the will), has been largely codified in Part VI of chapter 732 of Florida's Probate Code. 

The rule of construction at issue in the linked-to case is Florida's "nonademption" statute (F.S.732.606).

Ademption is a common law rule of construction used to determine what happens when a specific item of property gifted under a will is no longer in the testator's estate at the time of his death. In those cases the specific gift is considered "adeemed," and the gift fails. For example, if testator "X" signs a will specifically devising his condominium located in Marco Island to "Y," but later sells the Marco Island condominium and buys a replacement condominium for him and Y to enjoy in the Florida Keys, Y gets nothing: the will said Marco Island condo', not condo' in the Keys.

The ademption rule was simple, but often ended up disinheriting people in a way that seemed unfair and contrary to what testators would have wanted. The more modern view, reflected in section 2‑606 of the Uniform Probate Code, reverses the common law rule in certain cases.

For example, does Y get anything if X signed a sales contract to sell the Marco Island condominium before his death, but the sale didn't close until after he died? That's what happened in the linked-to Georgia Supreme Court case applying Florida law. Under the common law rule, Y gets nothing. Applying the UPC's modern view, Florida's nonademption statute completely changes this outcome: Y may not get the condominium, but when the deal closes, she gets the cash. Here's why:

Pursuant to Fla. Stat. § 732.606(2)(a) (the “nonademption statute”), “[a] specific devisee has the right to the remaining specifically devised property and ... [a]ny balance of the purchase price owing from a purchaser to the testator at death because of sale of the property.” Therefore, where, as here, a balance is owed to a testator from the sale of his or her real property located in Florida, the proceeds from this sale are due to the specific devisee who would have otherwise inherited the real property under the will. Id. See also Ott v. Ott, 418 So.2d 460, 462 (Fla.App.1982) (“The original intent of the [nonademption statute] ... was to prevent ademption in all cases involving sale ... of specifically devised assets when the testator's death occurred before the proceeds of the sale ... had been paid to the testator”) (citation and punctuation omitted; emphasis supplied). Accordingly, Melican, as the specific devisee of the Florida condominium under Strother's Will, was entitled to the proceeds from the sale of the condominium after Strother's death, as these proceeds had not yet been paid to Strother before he died. Fla. Stat. § 732.606(2)(a).

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Steffens v. Evans, --- So.3d ----, 2011 WL 4577938 (Fla. 4th DCA Oct 05, 2011)

In 2002 Mr. Steffens writes his wife into his will. Things get rocky, and in 2007 the couple enters into a post-nuptial agreement that contains a waiver of all inheritance rights. Mr. Steffens dies in 2009 and the issue becomes whether his 2007 post-nup' trumps his 2002 will. The trial court and the 4th DCA both say YES. Here's why:

Tracking the language in section 732.702(1), the Post–Nuptial Agreement refers to the parties waiving “all rights” several times:

Each party freely and voluntarily irrevocably waives all rights in the earnings, property and estate of the other as well as any right to alimony, support or any other monetary relief in the event of a dissolution of marriage or death, except as specifically provided herein.

....

4.1 Except as is otherwise specifically provided in this Agreement, each party waives, relinquishes and releases all right, title and interest in and to any and all of the other party's separate property (See Section 5) to which each party may otherwise be entitled as the spouse of the other party, widow or widower, heir at law, next of kin or distributee, upon or by virtue of a termination of the marriage of the parties by death, divorce, dissolution of marriage, annulment or otherwise....

....

4.2 The waiver contained herein is to be broadly construed pursuant to Section 732.702, Florida Statutes.

(emphasis added.) Accordingly, as Jeffrey's 2002 will was executed before the parties' 2007 Post–Nuptial Agreement, the Post–Nuptial Agreement waived any benefits that would have passed to Andrea under the 2002 will.

The Third District reached a similar result in Hulsh v. Hulsh, 431 So.2d 658 (Fla. 3d DCA 1983). In Hulsh, the court examined whether the language of a post-will antenuptial agreement between the decedent and the widow was effective to waive the widow's right to take under the will. Hulsh, 431 So.2d at 660.

...

Ultimately, relying on section 732.702(1), the court determined that it had “no difficulty in deciding that the language of the antenuptial agreement was sufficient to waive Marcella's rights to take under the provisions of Sheldon Hulsh's will.” Id. at 662 (footnote omitted). Similarly, we find that the language of the Post–Nuptial Agreement waived Andrea's rights to take under the provisions of Jeffrey's will.

The issue I found most interesting was how the court dealt with a "voluntary gifts" clause in the post-nuptial agreement permitting either spouse to make gifts to the other after the post-nup', and stating that those gifts would not be subject to the waivers contained in the post-nup. This is a common clause found in most marital agreements of any sophistication.

["voluntary gifts" clause]

Notwithstanding the terms of this Agreement, either party shall have the right to voluntarily transfer or convey to the other party any property or interest therein, whether Separate Property or other property, which may be lawfully conveyed or transferred during his or her lifetime, or by will or otherwise upon death. Neither party intends by this Agreement to limit or restrict in any way the right and power of the other to receive any such voluntary transfer or conveyance. Such gifts shall not constitute an amendment to or other change in this Agreement, regardless of the extent or frequency of such gifts. Any gifts given by one party to the other hereafter shall constitute the receiving party's separate property.

So if I write you into my will in 2002 but don't die until 2009, when did I make a gift? In 2002 or 2009? For tax and property law purposes, the law is clear: no gift until 2009. That same logic apparently doesn't extend to marital agreements. According to the 4th DCA, the gift was made in 2002 not 2009, thus the 2007 post-nup' clearly voids it.

Thus, [the post-nuptial agreement] unambiguously refers to transfers of property after the 2007 Post–Nuptial Agreement and would not reserve Andrea's beneficiary rights under the 2002 will.

I'm not sure this logic adds up. If I were on the 4th DCA, I would have framed my analysis of the "voluntary gifts" clause in contract-construction terms. Did the post-nup' cover pre-existing wills or not? That how the Florida Supreme Court recently held courts are supposed to deal with beneficiary-designation forms benefiting ex-spouses. See Crawford v. Barker, --- So.3d ----, 2011 WL 2224808 (Fla. Jun 09, 2011), which I wrote about here. Instead, the 4th DCA hung its hat on "Andrea's beneficiary rights under the 2002 will."  What rights? She didn't have any "rights" until 2009?

Lesson Learned?

Until a Florida court says otherwise, the rule seems to be that a general waiver contained in a marital agreement is good enough to void a pre-existing will, even if the marital agreement says nothing specific about the pre-existing will. 

If your legal practice involves drafting marital agreements, you'll want to make sure your "voluntary gifts" clause specifically addressed pre-existing wills, trusts, etc. If the couple intends to void a pre-existing will, you'll want to explicitly say so. If that's not their intent, you'll want to say that too. Either way, specifically addressing the issue will hopefully spare all sides from the expense and stress inherent to the litigation the parties in this case lived through.

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Siegel v. JP Morgan Chase Bank, --- So.3d ----, 2011 WL 4949794 (Fla. 4th DCA Oct 19, 2011)

This is the third 4th DCA appellate opinion arising out of this one case (see here, here). This time around the issue of standing was front and center. The remainder beneficiaries of a revocable trust are suing JP Morgan Chase, who served as trustee of the trust prior to the settlor's death. The crucial facts from a trust administration point of view were the following:

Rautbord appointed JP Morgan Chase Bank as her trustee in 1995 . . . . At some point after the execution of the 1995 amendment, Rautbord developed severe dementia.

Because the settlor was incapacitated, she lacked the requisite mental capacity to knowingly consent to JP Morgan Chase's actions as trustee of her revocable trust. This lack of knowing, competent consent is what opened the door to the remainder beneficiaries' lawsuit against the bank after the settlor died. Here's how the 4th DCA explained the law in New York that allowed the remainder beneficiaries to sue JP Morgan Chase. As reflected here in a similar 4th DCA case involving Bank of America, the result would likely be the same under Florida law.

In Siegel I, Judge Gross detailed New York law and concluded that the brothers did have standing to challenge the trust distributions. Specifically, the opinion held:

[U]nder New York law, after the death of the settlor, the beneficiaries of a revocable trust have standing to challenge pre-death withdrawals from the trust which [1] are outside of the purposes authorized by the trust and which [2] were not approved or ratified by the settlor personally or through a method contemplated through the trust instrument. By outside the purposes of the trust we mean any expenditures that were not “appropriate or advisable for the support, maintenance, health, comfort or general welfare of” Mrs. Rautbord.

Id. at 95–96 (emphasis in original). Explaining this holding, Judge Gross relied on New York law, which governs the trust:

The court in Estate of Morse, 177 Misc.2d 43, 676 N.Y.S.2d 407, 409 (N.Y.Sur.1998), described the broad reach of New York's concept of standing:

In that light, it has been noted that “anyone who would be deprived of property in the broad sense of the word ... is authorized to appear and be heard upon the subject” of whether a will that would thus affect him adversely should be admitted to probate ( Matter of Davis, 182 N.Y. [468, 472, 75 N.E. 530 (N.Y.1905) ] ). Accordingly, standing to object to probate does not require an interest that is “absolute”; a contingent interest will be enough ( see Matter of Silverman, 91 Misc.2d 125, 397 N.Y.S.2d 319). In other words, the uncertainty of an interest should not preclude its holder from seeking to protect it, i.e., she should have standing to object to a propounded instrument that makes the possibility of benefit even more remote or eliminates such possibility entirely.

Id. at 95–96. Judge Gross noted, “With an interest in the corpus of the trust after the death of their mother, the Siegels have standing to challenge the disbursements; they have alleged a concrete and immediate injury, caused by Novak and the Bank, which could be redressed by the circuit court. Without this remedy, wrongdoing concealed from a settlor during her lifetime would be rewarded.” Id. at 96 (emphasis added).

The mentally incapacitated settlor of a revocable trust can never knowingly "approve or ratify" any actions. No informed consent = potential future lawsuits for trustee.

Need informed consent from incapacitated trust settlor? Think court-appointed guardian . . .

When you serve as trustee of a revocable trust, your risk exposure is considerably less because under F.S. 736.0603(1), as long as the settlor is alive he or she is the only person you owe any fiduciary duties to. However, the lack of exposure to claims by remainder beneficiaries of a revocable trust is premised on the settlor's ability to give informed consent to your actions. If the settlor is mentally incapacitated . . . EVERYTHING CHANGES!

So what can you do if you're the trustee of a revocable trust whose settlor is mentally incapacitated? Well, one option is to simply resign. Saying "yes" to service as trustee of a revocable trust while the settlor is healthy is a world away from saying "yes" to service as trustee of the revocable trust of an incapacitated settlor. If you're not going to resign, then you need to think about how you're going to get informed consent for your actions as trustee. The goal is to make sure that perhaps years in the future, after the settlor has died and the remainder beneficiaries are examining - in hindsight - every move you ever made as trustee, no one can ever claim "wrongdoing [was] concealed from [the] settlor during her lifetime."

The best (perhaps only) way to ensure the trustee has the informed consent of an incapacitated settlor is to petition for the appointment of a guardian and then account/report to that guardian (until the settlor dies, accounting/reporting to the revocable trust's remainder beneficiaries may violate your duty of confidentiality to the settlor).

Once you have a court-appointed guardian, you've put in place the foundation for legally binding informed consent (thus foreclosing future lawsuits by disgruntled remainder beneficiaries). Building on that foundation, any trust accounting you serve on the settlor's guardian that is subsequently approved of by court order in which all "interested persons" have been served (i.e., make sure you serve all of the revocable trust's remainder beneficiaries in the context of the guardianship proceeding), will then legally bind the settlor and all remainder beneficiaries. Presto! No future lawsuits. If JP Morgan Chase had coupled these protective measures with a trust-accounting "limitations notice" triggering the shortened 6-month statute of limitations period for all items fully disclosed in each respective accounting/report [see F.S. 736.1008(2)], my guess is that any real (or even arguable) wrongdoing would have been caught early, corrected to the court's satisfaction, and the beneficiaries of this trust would have been spared close to a decade of costly litigation after the settlor's death.

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Guy Bennett Rubin, P.A. v. Guettler, --- So.3d ----, 2011 WL 4577670 (Fla. 4th DCA Oct 05, 2011)

The Florida Bar ethics rules governing contingent fee agreements are found in Rule 4-1.5(f). Other than in divorce and criminal-defense cases [Rule 4-1.5(f)(3)], contingent fees are acceptable in any form of litigation, including contested probate and trust proceedings.

There's not a lot of Florida case law out there addressing contingent fees in probate cases. So the linked-to opinion above should be of special interest to any probate litigator taking cases on a contingency fee basis. What this case makes painfully clear is that Florida law shifts 100% of the risk of NOT getting paid in contingency cases to lawyers who are prematurely discharged by their clients, even if the discharge is without cause and the fee agreement contains a fallback hourly-fee payment clause (a “discharge clause”).

Case Study:

In the linked-to case above the law firm took this probate case on a contingency fee basis. The firm was then fired without cause and the litigation apparently abandoned by the client before any recovery was obtained. The law firm asked the trial court for an order compelling payment for work done prior to the discharge under the following discharge clause contained in its fee agreement.

["Discharge Clause"]

In the event I discharge the firm prior to resolution by judgment or settlement, or if I elect to no longer pursue the Anticipated Claims as identified herein-below, I agree to immediately thereafter pay LAW FIRM accrued hourly legal fees based upon the hourly rates as follows:

Services of Guy Bennett Rubin $500/hr., all other attorneys $400/hr., all paralegals $150/hr., all legal assistants $100/hr. listed in paragraph 4 immediately above.

[Nature of Claims]

ANTICIPATED CLAIMS: Dispute and contest the last will and testament of Leo Guettler Jr. and/or revocable trust of Leo Guettler Jr.; defense of claims b y Edna L. Guettler, Inc. and dissolution or liquidation of my interest in Edna L. Guettler, Inc.

Trial court said NO, concluding that the discharge clause constituted a penalty provision in violation of ethics rule 4–1.5, and was thus NOT enforceable as a matter of law. The 4th DCA agreed:

“An attorney shall not enter into an agreement for, charge, or collect an illegal, prohibited, or clearly excessive fee or cost....” Rule 4–1.5(a), Rules Regulating the Florida Bar. A termination-of-services clause in a contingency-fee agreement, which provides for the client to pay the discharged law firm for all services rendered up through the date of termination at the prevailing hourly rate for firm members, if the client abandons or dismisses the claim, violates rule 4–1.5 on its face. The Fla. Bar v. Hollander, 607 So.2d 412, 414 (Fla.1992).

In The Florida Bar v. Doe, 550 So.2d 1111 (Fla.1989), the contingency-fee contract included a “discharge clause” which permitted the client to discharge Doe only after paying him the greater of $350 per hour for all the time spent on the case or forty percent of the greatest gross amount offered in settlement. At the disciplinary hearing, the referee found that while the contingent fee contract violated rule 4–1.5 on its face, there was no testimony offered that Doe's actions were ever in violation of the rules; consequently, the referee found that Doe was not guilty of any ethical violation warranting disciplinary proceedings. Id. at 1112. However, on review, the supreme court disagreed because “the contract itself shows an ethical violation.” Id. The court found that the discharge provision had the effect of intimidating the client into not exercising her right of discharge and penalized the client for exercising this right. Id. at 1113. The court concluded that “[a]n attorney cannot exact a penalty for a right of discharge. To do so is contrary to our statement of policy in Rosenberg ....” Id. See also The Fla. Bar v. Spann, 682 So.2d 1070, 1072–73 (Fla.1996) (finding that a contingency-fee agreement that provided for payment based on a specified hourly rate upon termination by the client constitutes a penalty clause in violation of rule 4–1.5 because the client would be forced to pay the attorney upon discharge even where the contingency had never been met). 

***************

Even if the Agreement is unenforceable as a matter of law, Rubin argues that he should have been permitted to proceed on the theory of quantum meruit as pled in Count III of his complaint. “A Florida Bar member who has entered into an improper fee agreement is nonetheless entitled to receive the reasonable value of his or her services on the equitable basis of quantum meruit.” Patterson v. Law Office of Lauri J. Goldstein, P.A., 980 So.2d 1234, 1236, n. 1 (Fla. 4th DCA 2008) (citing Chandris, S.A. v. Yanakakis, 668 So.2d 180, 186, n. 4 (Fla.1995)). However, an action for quantum meruit “arises only upon the successful occurrence of the contingency. If the client fails in his recovery, the discharged attorney will similarly fail and recover nothing.” Rosenberg, 409 So.2d at 1022. Here, the trial court found that there was no evidence that the plaintiffs received anything as a result of the litigation. Instead, the Guettlers dismissed their claims against the estate and recovered nothing. Therefore, because the contingency did not occur, Rubin is not entitled to any quantum meruit recovery.

Lesson learned?

In Florida, if you agree to take a probate case on a contingency fee basis, you assume 100% of the risk of NOT getting paid for your work if your client decides to fire you and/or abandon the claim before the case is over, even if you've done nothing wrong. This risk may be worth taking, but Florida probate lawyers (who don't do contingency cases on a regular basis) need to know it exists. Adding insult to injury, not only might you not get paid, you might end up getting sanctioned by the Florida Bar if you include a discharge clause in your contingency fee agreement. It's telling that the 4th DCA cited to two such cases in its opinion (see above).

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Levin v. Levin, --- So.3d ----, 2011 WL 3477032 (Fla. 4th DCA Aug 10, 2011)

In both F.S. § 733.106(4) and F.S. § 733.6175(2), a probate judge is given the express statutory authority to determine from whose share of the estate attorneys fees incurred in wrongful, frivolous or bad faith litigation will be paid. This type of sanction against wrong doing is akin to a F.S. § 57.105 motion for fees, a comparison I previously wrote about here.

My experience has been that judges usually don't pull the trigger on this sort of sanction until things get really, really bad. By then, there's no doubt the wrongdoer is acting way out of bounds, and the court simply enters an order assessing the winning side's attorneys' fees against the losing side. What's wrong with this picture is that busy trial-court judges may be tempted to NOT include detailed findings of fact in their fee orders. Trial lawyers need to guard against this omission if they want to ensure their hard-fought-for fee orders stand up on appeal. The 3d DCA recently ruled that an attorney's fee order without supporting detailed findings is per se reversible error [click here].

In the linked-to opinion above the trial court's fee order was reversed NOT because the sanction wasn't warranted, but simply because the order failed to contain the requisite findings of bad faith, wrongdoing or frivolousness needed to make it stick on appeal.

In this probate case, appellant appeals a judgment assessing attorney's fees against her share of the estate as well as an order taxing costs against her. The trial court did not make the requisite finding of any bad faith, wrongdoing, or frivolousness before awarding fees against appellant's share of the estate. See Geary v. Butzel Long, P.C., 13 So.3d 149 (Fla. 4th DCA 2009); In re Estate of Lane, 562 So.2d 352 (Fla. 4th DCA 1990). Accordingly, we reverse and remand for the trial court to determine, either from the record or after an evidentiary hearing, whether appellant engaged in any bad faith, wrongdoing, or frivolousness in the pursuit of her claim. 

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If, when and how Civ. Pro. Rule 1.525, the rule setting a 30-day post-judgment deadline for filing attorney's fee motions in civil litigation, applies to contested probate, guardianship and trust proceedings, is an important question. The last thing any lawyer wants to do is blow a deadline for claiming fees on behalf of his client. Here’s what the rule says:

Any party seeking a judgment taxing costs, attorneys’ fees, or both shall serve a motion no later than 30 days after filing of the judgment, including a judgment of dismissal, or the service of a notice of voluntary dismissal.

Florida appellate courts have upheld application of Rule 1.525's 30-day deadline to all adversary probate and guardianship proceedings (there's never been any question that Rule 1.525 does NOT apply to NON-adversary probate/ guardianship proceedings), and arguably to all trust proceedings. See Price v. Austin, 43 So.3d 789 (Fla. 1st DCA 2010) (adversary guardianship proceeding, click here); Hays v. Lawrence, 1 So.3d 1176 (Fla. 5th DCA 2009) (adversary probate proceeding, click here); Donkersloot v. Donkersloot, 993 So.2d 126 (Fla. 2d DCA 2008) (trust litigation, click here).

However, a rule designed to apply in the general commercial litigation context didn't really work in the probate, guardianship and trust context, where fee petitions are appropriately filed all the time, not just after a final judgment is entered. To fix this glitch in 2011 legislative and rule changes were adopted completely eliminating Rule 1.525's 30-day deadline in the adversary probate and guardianship context, and limiting Rule 1.525's 30-day deadline to fee petitions filed in trust proceedings by anyone other than the trustee (e.g., a beneficiary suing the trustee for malfeasance).

[1]  Rule 1.525 NOT Applicable to ANY Probate or Guardianship Proceeding:

In In re Amendments to Florida Probate Rules, --- So.3d ----, 2011 WL 4467595 (Fla. Sep 28, 2011), the Florida Supreme Court amended subdivision (d)(2) of Probate Rule 5.025 (the rule governing adversary probate and guardianship proceedings), completely eliminating Rule 1.525's application in the adversary probate and guardianship context as follows:

(2) After service of formal notice, the proceedings, as nearly as practicable, must be conducted similar to suits of a civil nature, including entry of defaults. The Florida Rules of Civil Procedure govern, except for rule 1.525.

[2]  Rule 1.525 Applicable to ONLY Certain Contested Trust Proceedings:

In 2011 the Florida legislature adopted new subsection (6) to Fla. Stat. § 736.0201 specifically limiting Rule 1.525’s application to anyone other than the trustee (e.g., a beneficiary suing the trustee for malfeasance) as follows:

Fla. Stat. § 736.0201(6): 

Rule 1.525, Florida Rules of Civil Procedure, shall apply to judicial proceedings concerning trusts, except that the following do not constitute taxation of costs or attorney’s fees even if the payment is for services rendered or costs incurred in a judicial proceeding:

(a) A trustee’s payment of compensation or reimbursement of costs to persons employed by the trustee from assets of the trust.

(b) A determination by the court directing from what part of the trust fees or costs shall be paid, unless the determination is made under s. 736.1004 in an action for breach of fiduciary duty or challenging the exercise of, or failure to exercise, a trustee’s powers.

For more on the analysis that went into the new trust-code provision limiting Rule 1.525's 30-day deadline to only certain trust proceedings, you'll want to read Florida House of Representative's Staff Analysis of CS/HB 325.

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Basile v. Aldrich, --- So.3d ----, 2011 WL 3696309 (Fla. 1st DCA August 23, 2011)

At one time—under the Florida statute of wills of 1828, in force until the Revised Statutes took effect on June 13, 1892—a will was ineffective to devise Florida real estate that the testator had no interest in at the time the will was executed. Since June 13, 1892, however, a will containing a residuary clause has been effective to transfer after-acquired property. This rule is currently codified in F.S. 732.6005(2). Here's what the statute says; I've italicized the crucial text at the heart of the linked-to case above.

732.6005 Rules of construction and intention.—

(1) The intention of the testator as expressed in the will controls the legal effect of the testator’s dispositions. The rules of construction expressed in this part shall apply unless a contrary intention is indicated by the will.

(2) Subject to the foregoing, a will is construed to pass all property which the testator owns at death, including property acquired after the execution of the will.

Based on this statute the trial court in the linked-to case above ruled that a will devising certain specifically identified property to certain specifically named beneficiaries -- but containing no residuary clause -- resulted in the specific devisees taking everything. Wrong answer, says the 1st DCA.

The problem - a Will with NO residuary clause.

A residuary estate, in the law of wills, is any portion of the testator's estate that is not specifically devised to someone in the will, or any property that is part of such a specific devise that fails. It is also known as a residual estate or simply residue. The will may identify the taker of the residuary estate through a residuary clause or residuary bequest. The person identified in such a clause is called the residuary taker, residuary beneficiary, or residuary legatee. If no such clause is present, however, the residuary estate will pass to the testator's heirs by intestacy. That's what happened in this case.

Here's how the 1st DCA described the will at issue in this case:

On April 5, 2004, Ms. Aldrich wrote her will on an “E–Z Legal Form.” In Article III, entitled “Bequests,” just after the form's pre-printed language “direct[ing] that after payment of all my just debts, my property be bequeathed in the manner following,” she hand wrote instructions directing that all of the following “possessions listed” go to her sister, Mary Jane Eaton:

—House, contents, lot at 150 SW Garden Street, Keystone Heights FL 32656

—Fidelity Rollover IRA 162–583405 (800–544–6565)

—United Defense Life Insurance (800–247–2196)

—Automobile Chevy Tracker, 2CNBE 13c916952909

—All bank accounts at M & S Bank 2226448, 264679, 0900020314 (352–473–7275).

Ann also wrote: “If Mary Jane Eaton dies before I do, I leave all listed to James Michael Aldrich, 2250 S. Palmetto 114 S Daytona FL 32119.” Containing no other distributive provisions, the will was duly signed and witnessed.

Three years later, Ms. Eaton did die before Ann, becoming her benefactor instead of her beneficiary. Ms. Eaton left cash and land in Putnam County to Ms. Aldrich, who deposited the cash she inherited from Ms. Eaton in an account she opened for the purpose with Fidelity Investments. On October 9, 2009, Ann Dunn Aldrich herself passed away, never having revised her will to dispose of the inheritance she had received from her sister.

NO residuary clause = intestacy.

Whenever possible, courts will construe wills in a way that disposes of all of the testator's estate and avoids intestacy. The Florida Probate Code section that's supposed to make this all happen is F.S. 732.6005. When in doubt, this statute authorizes a court to interpret or "construe" an ambiguous will in a way that avoids intestacy. But if the will simply doesn't say what to do with the testator's residuary estate, the result is partial intestacy; F.S. 732.6005 does NOT authorize a court to fill a blank slate with its best guess as to what the decedent would have wanted. The trial court in this case failed to grasp that distinction. Wrong answer, says the 1st DCA. Here's why:

We hold that, where a will fails to dispose of all of a decedent's property (Ann's will has no residuary clause), “partial intestacy” results; and that property Ann owned at the time of her death not disposed of by her will passes to her heirs, in the manner prescribed by sections 732.101–.111, Florida Statutes (2009). Accordingly, we reverse and remand.

*****

Only subsection (1) of section 732.6005 applies to the dispute here: If discernible from the will, the testator's intent must be given effect, unless doing so would be illegal or otherwise contrary to public policy. . . . Subsection (2) of section 732.6005 does not apply because it is expressly “[s]ubject to” subsection (1), which provides: “The intention of the testator as expressed in the will controls the legal effect of the testator's dispositions.” § 732.6005(1), Fla. Stat. (2009). The language of Ann's will is unambiguous and its intent is clear.

Ms. Aldrich devised her house and lot in Keystone Heights, and bequeathed its contents, together with other personal property that the will identifies with painstaking specificity. Her will plainly evinces an intent to dispose of each particular item of property the will names. Equally plainly, the will manifests no intent to dispose of [her residuary estate], property the will does not allude to in any way.

*****

Synecdoche is a rhetorical device, not a judicial doctrine. “[I]f a will disposes of only one small specific item out of a large and valuable estate, it would be absurd to hold that the devisee of that one small item is entitled to the remainder of the estate.” Matter of Estate of Allen, 150 Mich.App. 413, 388 N.W.2d 705, 707 (1986). The same logic applies in the present case.

*****

A testator may choose to dispose of only a portion of his or her estate by will, allowing the balance to descend under the laws of intestate succession. . . . While the will does not dispose of all the property Ann Dunn Aldrich owned at her death, this circumstance is hardly unique to her or her estate and does not contravene any rule of law or public policy. Nor does the will reflect any mistake on her part.

*****

Section 732.6005(2) is, after all, a rule of construction. Rules of construction are to be resorted to only if the testator's intent cannot be ascertained from the will itself.  . . . The presumption against partial intestacy is designed to resolve ambiguities where they exist. The presumption should not be applied to create ambiguities in a will where none would otherwise exist.

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Common sense, and hard earned experience, tell us that clients can sign perfectly clear and unambiguous wills . . .  that are disasters waiting to happen. Why? Because even the simplest one-page will is governed by a complex body of law that appears nowhere within the four corners of the document, but can have devastating unintended consequences on even the simplest estate plan. 

This body of law, known as [1] “rules of construction” (i.e., rules that apply when the will is silent, but which can be varied by the terms of the will; see Part VI of chapter 732 of Florida's Probate Code for the rules of construction governing Florida wills) and the [2] "rules of law” (i.e., rules that cannot be modified by the terms of the will, such as Florida's strict homestead laws [see here]), is found in Florida's common law, Probate Code, Principal and Income Act and related accounting law, and "read into" every will signed in Florida . . .  even the $5-special you bought at Home Depot.

What can a family do when confronted by one of these time bombs? Until recently, not much. Courts had their hands tied; even if there was clear and convincing evidence that the unambiguous text of the will resulted in an outcome directly contrary to the testator's intent, Florida common law prohibited reformation of the will to fix the mistake.

Legislative Fix:

As explained in Florida House of Representative's Staff Analysis of CS/HB 325, effecitve July 1, 2011, we now have new legislation dramatically expanding the scope of judicial Will reformation actions to fix these mistakes.

The bill creates s. 732.615, F.S., to provide that a court may reform a will even if it is unambiguous. A person challenging the will would have to prove by clear and convincing evidence that both the testator's intent and the terms of the will were affected by a mistake of fact or law. A court may look to extrinsic evidence in these circumstances even if the evidence contradicts the plain meaning of the will.

In the example of [Azcunce v. Estate of Azcunce, 586 So.2d 1216 (Fla. 3d DCA 1991)], the changes provided in the bill may have allowed the court to look at the extrinsic evidence regarding the deceased's intent to not disinherit his daughter even though the will was unambiguous and the extrinsic evidence contradicted the plain meaning of the will.

The bill creates s. 732.616, F.S., to provide that any interested person may petition to modify a testator's will in order to achieve the testator's tax objectives, provided such modification is not contrary to the testator's probable intent. This change would allow a party to seek modification of the will in order to achieve a tax advantage intended by the testator so long as the modification is not contrary to the testator's probable intent.

The bill creates s. 733.1061, F.S., to provide that in the newly created actions under s. 732.615 and s. 732.616, F.S., "the court shall award taxable costs as in chancery actions, including attorneys fees and guardian ad litem fees." A chancery action for attorneys fees and costs is an action in equity that is similar to a prevailing party provision for attorneys fees and costs, but equity does give the court discretion if the circumstances demand. The new section would give the court the ability to charge attorneys fees and costs directly to a party. The bill also gives the court the discretion to tax the fees and costs against a party's interest in the estate or other property of the party that is not part of the estate.

For an excellent discussion of Florida's prior common law governing will-reformation actions and how this new legislation brings us into line with modern national trends, you'll want to read WILL REFORMATION LEGISLATION by Brian Felcoski (prepared with the assistance of Elisa F. Lucchi and Jon Scuderi). Here's an excerpt:

Restatement Third Property: Many states have adopted the approach in the Restatement Third which allows: (1) construction of wills where appropriate, and (2) reformation of wills for unilateral mistake by the testator (or the scrivener as the testator’s agent).

Restatement Third Property § 12.1: Allows for extrinsic evidence so long as there are safeguards to prevent against mistaken evidence through a strict burden of proof.

Rationale of Rest. 3d Prop. §12.1: The rationale is that admitting evidence outside the four corners of a will is inherently suspect but, possibly correct. Rest. 3d Prop. – WDT, §12.1, comment b. However, the law deals with evidence that is inherently suspect but possibly correct on one of two ways, namely: (1) to exclude evidence; or (2) to consider extrinsic evidence with safeguards to prevent against mistaken evidence through a strict burden of proof. Id.

a. The drafters of the Restatement Third believed that the consideration of extrinsic evidence was the only option which would give effect to the testator’s intent. Id. at comment b.

b. The standard of proof must be clear and convincing evidence in order to impose a heightened sense of responsibility on the trier of fact. Id. at comment e.

c. If the grounds are established by clear and convincing evidence, an order of reformation may be supported in addition to other equitable relief such as a constructive trust. Id. at comment f.

d. To support the remedy of reformation, the extrinsic evidence must establish by clear and convincing evidence: (1) that a mistake of fact or law affected the expression, inclusion, or omission of specific terms of the document, and (2) what the donor's actual intention was in a case of mistake in expression or what the donor's actual intention would have been in a case of mistake in the inducement. Id. at comment g.

e. A petition of reformation may be brought before or after the donor’s death. Id.

f. Unless otherwise stated, a judicial order of reformation will relate back to alter the text at the date of execution. Id. at comment f. 

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 LoCascio v. Estate of LoCascio, --- So.3d ----, 2011 WL 2555644 (Fla. 3d DCA June 29, 2011)

Silvia Locascio's brutally beaten corpse was found in her home on October 30, 2001. Eventually her husband and brother-in-law were found guilty of her murder - based in large part on the testimony of the couple's only son. Click here, here for more on the back story to this tragic case.

In this latest -- and hopefully final -- chapter of this very sad case, the 3d DCA reversed a probate order summarily removing the decedent's son as PR of her estate. This court order was just as summarily reversed by the 3d DCA in the following one-paragraph opinion:

Edward J. LoCascio appeals from an order removing him as successor personal representative of his deceased mother's estate. See LoCascio v. Sharpe, 23 So.3d 1209 (Fla. 3d DCA 2009); see also Golden & Cowan, P.A. v. In re Estate of Locascio, 41 So.3d 1113 (Fla. 3d DCA 2010). Because the “hearing” which preceded the ruling did not meet even the most rudimentary requirements of due process, including without limitation the presentation of evidence, it is reversed and the cause remanded with directions to reinstate the appellant as personal representative and for the prompt final resolution of this already over-protracted proceeding.FN1

FN1. We consider that this ruling obviates any reason for a curator or any other extraneous entity to administer the estate.

In order to understand this opinion I think you need to keep two points in mind.

First, the family tragedy at the heart of this case has been the subject of multiple criminal and probate trials plus 9 appeals as far as I can tell. By now -- 10 years after Mrs. Locascio's murder -- the 3d DCA is tired of this case and wants it to go away (note the court's gratuitous reference to "prompt final resolution of this already over-protracted proceeding" and its parting shot in FN1).

Second, the 3d DCA's emphasis on due process underscores the importance Florida law gives to the office of personal representative/PR. Probate judges do not have unfettered discretion to simply remove a PR because someone shows up in court and starts complaining. There needs to be evidence of wrongdoing, and that evidence needs to be presented at an evidentiary hearing affording all concerned with all of the due process protections Florida law affords to such litigants.

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Lituchy v. Estate of Lituchy, --- So.3d ----, 2011 WL 2135597 (Fla. 4th DCA Jun 01, 2011) 

I previously wrote here about whether a person should be required to hire a lawyer if he or she wants to petition a court to probate a will. In Florida the question is governed by Florida Probate Rule 5.030(a), which provides as follows:

(a) Required; Exception. Every guardian and every personal representative, unless the personal representative remains the sole interested person, shall be represented by an attorney admitted to practice in Florida. A guardian or personal representative who is an attorney admitted to practice in Florida may represent himself or herself as guardian or personal representative. A guardian advocate is not required to be represented by an attorney unless otherwise required by law or the court.

In this case the probate court denied the pro se petition for formal administration filed by the estate's sole beneficiary because he wasn't represented by an attorney. Wrong answer says Rule 5.030 (did no one point this simple rule out to the court?), and now the 4th DCA:

The trial court denied the pro se petition for formal administration of the estate of the appellant's wife, because the appellant was not represented by an attorney. We reverse, because the petition states that the appellant is his wife's sole beneficiary. Thus, he is entitled to file the petition without the necessity of an attorney. See Fla. Prob. R. 5.030(a) (“Every guardian and every personal representative, unless the personal representative remains the sole interested person, shall be represented by an attorney admitted to practice in Florida.”) (emphasis added); Benedetto v. Columbia Park Healthcare Sys., 922 So.2d 416 (Fla. 5th DCA 2006).

Reversed and remanded with directions to reinstate the petition for administration. 

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Hill v. Davis, --- So.3d ----, 2011 WL 3847252 (Fla. Sep 01, 2011)

I previously wrote here about the split between the 1st DCA and the 3d DCA regarding whether the 3-month statute of limitations period contained in F.S. 733.212(3) applies to personal-representative disqualification motions. The statute provides as follows:

(3) Any interested person on whom a copy of the notice of administration is served must object to the validity of the will, the qualifications of the personal representative, the venue, or the jurisdiction of the court by filing a petition or other pleading requesting relief in accordance with the Florida Probate Rules on or before the date that is 3 months after the date of service of a copy of the notice of administration on the objecting person, or those objections are forever barred.

3d DCA said NO, statute doesn't apply to PR disqualification motions, 1st DCA said YES it does. The Florida Supreme Court has now weighed in, holding that YES, the  the 3-month statute of limitations period contained in F.S. 733.212(3) DOES apply to personal-representative disqualification motions.

The issue before us is whether an objection to the qualifications of a personal representative of an estate is barred by the three-month filing deadline set forth in section 733.212(3), Florida Statutes (2007), a provision of the Florida Probate Code, when the objection is not filed within that statutory time frame. For the reasons explained below, we hold that section 733.212(3) bars an objection to the qualifications of a personal representative, including an objection that the personal representative was never qualified to serve, if the objection is not timely filed under this statute, except where fraud, misrepresentation, or misconduct with regard to the qualifications is not apparent on the face of the petition or discovered within the statutory time frame. Accordingly, because fraud, misrepresentation, or misconduct was not alleged in relation to the objection to the personal representative in this case, we approve the decision of the First District Court of Appeal in Hill.FN1 To the extent that the decision of the Third District in Angelus involved allegations of fraud and misrepresentation not revealed in the petition for administration, we approve the result in Angelus. However, we disapprove Angelus to the extent that it holds section 733.212(3) does not bar objections that a personal representative was never qualified to serve. We turn first to the facts of this case.

FN1. This case does not involve a proceeding filed under probate code sections 733.504, Florida Statutes (2007), and 733.506, Florida Statutes (2007), which provide for an adversary proceeding to remove a personal representative for reasons set forth in section 733.504. Thus, our decision in this case is limited to objections filed pursuant to section 733.212(3).

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Long v. Willis, --- So.3d ----, 2011 WL 3587411 (Fla. 2d DCA Aug 17, 2011) 

Most people (including most lawyers) assume that a minor's parents, i.e., a minor's "natural guardians" under F.S. 744.301, can make all decisions on behalf of their children, and that this authority extends to voting on behalf of their children under F.S. 733.301 with respect to who gets appointed personal representative (PR) of an estate when applying the "majority in interest of the heirs" test. WRONG answer: under subsection (2) of F.S. 733.301, a minor's parent/natural guardian is NOT authorized to vote on behalf of his or her child with respect to who gets appointed PR; you need a court-appointed guardian of the property to vote on behalf of the minor.

This all makes sense if you remember two points: [1] any time a minor (i.e., someone under 18) inherits $15,000+, a court-appointed guardian of the property is mandatory; and [2] a PR is only required for estates having a value of at least $75,000 (i.e., estates too large to qualify for summary administration). In other words, if the estate is too small to trigger the $15,000-guardian requirement, it's probably too small to need a PR, and vice versa.

Case Study:

In this case the parent/natural guardian of one of the decedent's heirs sought to vote on behalf of her three minor children for the appointment of PR of their father's estate. The decedent, who died intestate, had married and divorced twice prior to his death, so his only heirs were his two adult children from his first marriage and his three minor children from his second marriage. The appellant in this case was the decedent's second ex-wife and the mother of his three minor children.

The 2d DCA does an excellent job of dissecting the interrelated probate statutes and rules at play in this type of situation while also delivering solid practical advice for how the different (and apparently conflicting) timing requirements can all be made to work together in a reasonable manner. This kind of appellate-court-sanctioned statutory road map is gold for practicing probate lawyers.

[1.]  Is a court-appointed guardian of the property necessary to exercise a minor's vote in the appointment of a PR? YES

Ms. Long argues that as the natural guardian of Mr. Long's three minor children, she represents the majority in interest of the heirs and, therefore, has the right to select the personal representative. Significantly, the statute does not entitle a natural guardian to such a right. Rather, section 733.301(2) provides that “[a] guardian of the property of a ward who if competent would be entitled to appointment as, or to select, the personal representative may exercise the right to select the personal representative.” (Emphasis added.)

Ms. Long admits that the court never appointed her as the guardian of the property of her children, but she nevertheless claims that as their parent and natural guardian, under In re Estate of Phillips, 190 So.2d 15, 17 (Fla. 4th DCA 1966), she should have this power. In Phillips, which involved a dispute over the domicile of the decedent at the time of his death, the Fourth District affirmed that the decedent's five-year-old son, acting through his mother and natural guardian, the decedent's former spouse, was entitled to preference in selecting the administrator under section 732.44, Florida Statutes (1965), because he was the decedent's sole heir and next of kin. Id.

After the Phillips decision, the legislature replaced section 732.44, which gave appointment preference to the decedent's “next of kin” but provided no guidance for circumstances in which the next of kin was legally incompetent. The replacement statute, section 733.301, addresses the issue of legally incompetent heirs by clearly and unambiguously limiting the right to select a personal representative to the guardian of the property of such heirs, not to their natural parents. The legislature appears to have the right to create this limitation.

Thus, the probate court correctly ruled that Ms. Long could not vote for her children. 

[2.]  If a parent is served with a 20-day formal notice of someone else's petition for appointment as PR, does this parent have only 20 days to petition for and obtain an order appointing a guardian of the property and for that guardian to vote/object on behalf of the minor? NO

We conclude the probate court erred in ruling that Mr. Long's children were time-barred from challenging the right of their aunt to appointment and that it was without authority to allow these children to seek the appointment of a guardian of the property. First, although Florida Probate Rule 5.040(a)(2) provides that where an interested person on whom formal notice is served does not serve written defenses within twenty days, the probate court may consider the pleading ex parte, Florida courts treat this rule as merely procedural; it is “‘in no sense’ a statute of limitations or a mandatory non-claim provision.” Tanner v. Estate of Tanner, 476 So.2d 793, 794 (Fla. 1st DCA 1985). Applying this reasoning in Tanner, the First District held that where the decedent's beneficiaries filed a joint answer to the petition for administration asserting defenses five days after the time for answers had expired but before the hearing on the petition for administration and the order granting letters, the answer was timely filed. Id. Here, as in Tanner, Ms. Long, on behalf of Mr. Long's minor children, filed the objection to the appointment of Ms. Willis as personal representative just four days after the twenty-day answer period expired and well before the probate court issued the order granting letters. Accordingly, we conclude that the trial court had the authority to consider and should have considered the minor children's objection before the issuance of letters.

Second, we are convinced that the probate court had authority to allow Mr. Long's minor children the opportunity to participate in the vote of the heirs. See § 733.301(1)(b)(2). By requiring a guardian of the property, section 733.301(2) creates significant procedural impediments for minor children who wish to participate in the selection of a personal representative in a contested proceeding. When there is no conflict within a family, such children may well have time to obtain a guardian of the property before the petition for administration is filed. But in a case like this, even if the mother had understood the law, she could not realistically have obtained a guardian of the property for the children and allowed that guardian to vote for the children within the twenty-day response time. We conclude that the probate court had authority and should have allowed Ms. Long a reasonable time to obtain a guardian of the property to vote for the children.

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In 2008 the AARP's Public Policy Institute published a provocative report entitled Power of Attorney Abuse: What States Can Do About It.The AARP report highlighted what was wrong with existing POA statutes, how those failings lead to the exploitation of vulnerable adults, and urged state legislators to adopt the Uniform Power of Attorney Act or "UPOAA" as the best means for reform.

Florida heard the call for reform: effective October 1, 2011, we will be the latest state to adopt its version of the UPOAA at Part II of Chapter 709 of the Florida Statutes [click here].

For an excellent plain-English explanation of Florida's version of the UPOAA and how it will affect every new POA drafted in this state, you'll want to read THE FLORIDA POWER OF ATTORNEY ACT – MORE DURABLE THAN EVER by Tami Conetta, of Northern Trust in Sarasota. Ms. Conetta's paper also contains a copy of the Chapter 709 White Paper prepared by the Florida Bar's RPPTL Section. And for those of you who find yourselves litigating the new statute, you'll also want to read the official legislative white paper for the new statute contained in Florida Senate's Bill Analysis and Fiscal Impact Statement.

Here are some highlights from Ms. Conetta's excellent paper explaining our new POA statute (Part II of Chapter 709):

Existing POA's Grandfathered In: F.S. 709.2402

A power of attorney executed prior to the effective date of the Act will remain valid under the Act provided its execution complied with the law of Florida at the time of its execution. If the power of attorney is a durable (or springing) one, it will remain durable (or springing) under the new Act.

"Springing" POA's no longer valid (but existing POA's grandfathered in): F.S. 709.2108

Contingent, or “springing”, powers of attorney will not be authorized after the effective date of the Act. Those in existence prior to the effective date will continue to be recognized. 

New Co-agent and Successor Agent Provisions [F.S. 709.2111]; Automatic Revocation upon Divorce [F.S. 709.2109(2)(b)]:

Subject to the qualification requirements (natural persons who are 18 years of age or older and financial institutions with trust powers), the principal may designate a single agent or, if desired, the principal may designate two or more persons to act as co-agents. Unless the power of attorney provides otherwise, each co-agent may exercise its authority independently. This is a significant change from current law.

Even where the power of attorney requires two or more agents to act jointly, there is a special exception for banking transactions to allow any one of the agents to sign checks and otherwise handle banking matters with a single signature.

If an agent becomes unable to act as a result of the agent’s death, incapacity, resignation, declination, or failure to qualify, the appointed successor agent (if any) may commence serving as agent. The filing of a petition for dissolution of marriage terminates the authority of an agent who is married to the principal unless the power of attorney provides otherwise.

New Drafting Requirements for POA's containing "Superpowers": F.S. 709.2202

The Act clearly allows a principal to grant authority to the agent to take significant actions that can impact the principal’s estate plan or gifting program, but one must be careful in the drafting and implementation of these powers as there are additional execution formalities and restrictions on the authorization. Special note should be made of the application of these rules to powers of attorney executed on or after October 1, 2011. These rules do NOT affect existing powers of attorney prior to that date. [See F.S. 709.2202(5): "This section does not apply to a power of attorney executed before October 1, 2011."]

Minimum Requirements. The following mandatory minimum requirements must be met:

• The authority must be specific. For example, “My agent may create and fund a revocable trust on my behalf."
• [ ** NEW DRAFTING REQUIREMENT ** ]: The principal must sign or initial next to each specific enumeration of the authority.
• The agent may only exercise the authority consistent with the duty to preserve the principal’s estate plan.
• The exercise must not be prohibited by any governing document affected. For example, “My agent may amend or revoke my revocable trust.” But the trust agreement says the right of amendment or revocation is personal to the grantor and may not be exercised by anyone else. 

The Superpowers. The powers that may be granted to the agent under this provision include:

• Create an inter vivos trust.
• With respect to a trust created by or on behalf of the principal, amend, modify, revoke or terminate the trust, but only if the trust instrument explicitly provides for amendment, modification, revocation or termination by the settlor’s agent.
• Make a gift (subject to restrictions).
• Create or change rights of survivorship.
• Create or change a beneficiary designation.
• Waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan.
• Disclaim property and powers of appointment.

Modifiable Restrictions. If the agent is not related to the principal, the agent may not use these powers to benefit himself or anyone to whom the agent has a support obligation.

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Crawford v. Barker, --- So.3d ----, 2011 WL 2224808 (Fla. Jun 09, 2011)

In 1951 Florida enacted a statute automatically cutting divorced spouses out of each other's wills (currently at F.S. 732.507(2)). In 1989 Florida enacted a similar statute for revocable trusts (currently at F.S. 736.1105). The same inequities that lead to post-divorce automatic revocation statutes for wills and revocable trusts are now playing themselves out in cases involving beneficiary-designated non-probate assets benefiting ex-spouses.

Florida courts have traditionally applied classic contract interpretation rules to beneficiary-designated assets benefiting ex-spouses. In most cases this means the ex-spouse gets the assets. In Smith v. Smith, 919 So.2d 525 (Fla. 5th DCA 2005), which I wrote about here, the court articulated the majority approach in Florida as follows:

In the present, case the marital settlement agreement fails to make specific reference to the proceeds of the life insurance policy in question, and the decedent, in the words of the Florida Supreme Court, . . . "did just what he needed to ensure that the proceeds would go to [Ms. Smith]-he did nothing." [Cooper v. Muccitelli (Cooper II), 682 So.2d 77, 79 (Fla.1996)]. He had a year and a half to execute change of beneficiary forms as required by his policy of insurance, but for whatever reason, he did not do so. Thus, Ms. Smith is entitled to the proceeds of the life insurance policies.

The 3d DCA broke with the majority rule in Barker v. Crawford, 16 So.3d 901 (Fla. 3d DCA 2009), crafting a form of post-divorce automatic revocation rule based on the facts of the case. The Florida Supreme Court then stepped in, reversed the 3d DCA, and in the linked-to opinion above reiterated that the rule in Florida for these cases is the majority approach articulated in Smith v. Smith.

Case Study:

In the linked-to case above the decedent opened a deferred compensation fund while married and named his spouse as the beneficiary of that fund in the event of his death. He subsequently divorced and he and his spouse entered into a marital settlement agreement that provided in relevant part as follows:

“Husband shall retain retirement money with the Town of Surfside and the Deferred Compensation Fund f/ka/ [sic] Pepsco.”

The agreement also provided that the husband “shall retain annuity with Pacific Life.” The agreement did not contain a general waiver provision or any other provision referencing the pension, annuity, or the deferred compensation fund at issue in this case.

About a year after the divorce the decedent passed away, never having removed his ex spouse as the beneficiary of his deferred comp' plan. The 3d DCA ruled that the post-divorce ownership of his deferred comp' plan = ex wife didn't get the money unless husband re-affirmed his intent to benefit her post-divorce (which he hadn't, he'd done nothing). The Florida Supreme Court reversed the 3d DCA and instead reaffirmed the approach taken by the 5th DCA in Smith v. Smith.

Absent the marital settlement agreement providing who is or is not to receive the death benefits or specifying the beneficiary, courts should look no further than the named beneficiary on the policy, plan, or account. General language such as language stating who is to receive ownership is not specific enough to override the plain language of the beneficiary designation. Magic words are not required; however, if the parties wish to specify in a marital settlement agreement that a spouse will not receive the death benefits or wish to specify a particular beneficiary, this should be done clearly and unambiguously. Otherwise, the unifying principle of Cooper II, Smith, and Luszcz applies—that the spouse who receives the policy, plan, or account as part of the marital settlement agreement is free to designate whomever he or she chooses as the beneficiary.

...........

We now apply the rule of law to this case. Here, the settlement agreement provided: “Husband shall retain retirement money with” the deferred compensation fund. The agreement did not state who would receive the death benefits or who should be the beneficiary of the deferred compensation fund. However, the contract with Nationwide Retirement Solutions clearly designated Linda Crawford as the beneficiary. Accordingly, looking to the plain language of these documents, the beneficiary designation controls.

...........

In sum, we conclude, after reviewing the language of the marital settlement agreement, that the agreement gave Manuel Crawford ownership of the deferred compensation fund. As the owner, he had the right to designate the beneficiary of his choosing under the terms of the agreement—he was not obligated by the agreement to either maintain or change the beneficiary, and the agreement did not specify who was or was not to receive the death benefits. Thus, because the beneficiary designated on the deferred compensation fund is Linda Crawford, she is entitled to the death benefits.

Florida Needs to Adopt UPC 2-804:

It is inconsistent and illogical to have an automatic post-divorce revocation statute for wills (F.S. 732.507(2)), and revocable trusts (F.S. 736.1105), but not for beneficiary-designated non-probate assets benefiting ex-spouses. Clearly it is not the judiciary's role to create revocation law where none exists (which is what the 3d DCA tried to do). This problem needs a legislative fix.

The way to fix this problem in Florida is by adopting section 2-804 of the Uniform Probate Code, which is the UPC's version of an automatic post-divorce revocation statute applicable to beneficiary-designated non-probate assets. For an excellent discussion of why this is a good idea you'll want to read an article written by Tampa attorney Suzanne Glickman entitled A Fair Presumption: Why Florida Needs a Divorce Revocation Statute for Beneficiary-Designated Nonprobate Assets. Here's an excerpt from the introduction:

Life insurance and other nonprobate assets such as annuities, pay-on-death accounts, and retirement planning accounts have become increasingly popular as estate planning tools. In 2004, Americans purchased $3.1 trillion in new life insurance coverage, a ten percent increase from just ten years before. Purchases made by Floridians accounted for nearly $154 million of this national total. At the end of 2004, there was $17.5 trillion in life insurance policy coverage in the United States. However, it is likely that some of those policies will not provide security for the individuals for whom they were intended, especially if the policyholder resides in Florida. An unfortunate but familiar scenario occurs when a divorced individual fails to change the designated beneficiary on his or her life insurance policy or other contract-based estate planning tool, and the ex-spouse receives the insurance proceeds upon that individual’s death. Whether due to over-sight, mistake, or poor comprehension of the way contracts such as life insurance policies operate, the outcome is especially regrettable when the decedent policyholder leaves behind minor children or a financially struggling family.

While some jurisdictions have enacted legislation to avoid [this result], Florida has not. This Article will propose a Florida divorce revocation statute for nonprobate assets such as life insurance policies, annuities, IRAs and retirement-planning accounts, pay-on-death accounts, and any other type of contract-based asset designating an ex-spouse as beneficiary. By automatically revoking nonprobate asset beneficiary designations upon divorce, such a statute will more accurately enforce the deceased policyholder’s intent and avoid seemingly inequitable results . . . 

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A central issue driving almost every will or trust contest is whether the person signing the document knew what he was doing. In other words, did he have testamentary capacity? Any probate judge who has been on the job for more than 6 months will know the law governing these cases cold. What they need from us are the facts.

But which facts matter?

One way to answer that question is to work backwards from the legal definition for testamentary capacity. The problem with this approach is that legal definitions are by necessity general in nature, which means they are pretty useless when you're trying to figure out which facts really matter to your case. 

Another approach is to come at the problem from the clinician's viewpoint: what are the indicia of incapacity doctors and other therapists look for when diagnosing and treating adults with diminished capacity? In my opinion, this is the way to go; and the first place you'll want to look for guidance on how to bridge the gap between legal theory and clinical reality is a handbook published jointly by the the American Bar Association and the American Psychological Association: Assessment of Older Adults with Diminished Capacity: A Handbook for Lawyers. Here's an excerpt:

With the coming demographic avalanche of Boomers reaching their 60s and the over-80 population swelling, lawyers face a growing challenge: older clients with problems in decision-making capacity. While most older adults will not have impaired capacity, some will. Clear and relatively obvious dementias will impair capacity, and the prevalence of such dementias increases with age. But what about older adults with an early stage of dementia or with mild central nervous system damage? Such clients may have subtle decisional problems and questionable judgments troubling to a lawyer. This handbook offers a conceptual framework and practice tips for addressing problems of client capacity, in some cases with help from a clinician.

Some might argue that without training in mental disorders of aging and methods of formal capacity evaluation, lawyers should not be making determinations about capacity. Yet lawyers necessarily are faced with an assessment or at least a screening of capacity in a rising number of cases involving specific legal transactions and, in some instances, guardianship. Even the belief that “something about a client has changed” or a decision to refer a client for a formal professional capacity evaluation represents a preliminary assessment of capacity.

The 2002 revision of the ABA’s Model Rules of Professional Conduct, Rule 1.14, concerning the client with diminished capacity, recognizes the bind in which this places the attorney, and provides some guidance. The rule triggers protective action when an attorney reasonably believes that a client has diminished capacity, that there is a potential for harm to the client, and that the client cannot act in his or her own interest. However, the critical question is: how does the lawyer reach a reasonable belief that the client has diminished capacity? This handbook seeks to respond.

The handbook represents a unique collaboration of lawyers and psychologists. While it is a joint project of the ABA Commission on Law and Aging and the APA, its applicability is broad. It can be of use to elder law attorneys, trusts and estates lawyers, family lawyers, and general practitioners. It introduces lawyers to a wide spectrum of mental health professionals, including, but extending beyond, licensed psychologists. Interdisciplinary partnerships between lawyers and clinicians promise more informed approaches for helping older clients meet their legal needs.

And for those "visual" learners out there, the handbook is full of easy-to-follow charts and checklists to help organize your thinking. Here's one of my favorites:

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BankAtlantic v. Estate of Glatzer, --- So.3d ----, 2011 WL 1877839 (Fla. 3d DCA May 18, 2011)

When a business owner passes away you may be asked if this means the business needs to stop operating until the probate court appoints a personal representative or enters some other order having to do with the decedent's estate. The answer is usually NO.

Even when owned 100% by a decedent, corporations retain their separate legal existence, which means the corporation's asset don't automatically become assets of the probate estate. This rule is sometimes forgotten when probate courts deal with closely-held businesses. For example, earlier this year I wrote here about a probate judge getting reversed for failing to recognize the separate legal existence of a New York LLC for jurisdictional purposes, even if a Florida decedent owned 50% of the LLC.

In the linked-to case the dispute was over control of cash in a bank account held in the name of a deceased physician's professional association or "PA." A PA is a form of corporation. The probate judge ruled the cash in the PA's account had to be transferred to the estate's control, even though this cash had been pledged as security by the PA for a loan that came due when the physician died. As explained by the 3d DCA, this ruling ignored the separate legal existence of the PA, warranting reversal. Here's why:

The decedent personally guaranteed his professional association's promissory note, and his death constituted an event of default under that note. The orders requiring transfer of the funds to a different bank thus impaired BankAtlantic's right of setoff. Although the parties agreed that the deceased physician owned all of the shares of his professional association, there was no evidence presented to support a “piercing of the corporate veil” under Dania Jai–Alai Palace v. Sykes, 450 So.2d 1114 (Fla.1984), or any other alter ego theory. While the appellee Estate was apparently entitled to take possession of the professional association stock held by the doctor at his death, no such conclusion extended to the association's funds on deposit in the corporate name at BankAtlantic. In Gettinger v. Gettinger, 165 So.2d 757 (Fla.1964), the Supreme Court of Florida held that “the affairs of a corporation, even though substantially owned by a decedent, cannot be administered by decedent's executor as assets of the decedent's estate.” In this case, “substantially” is 100%, and the result is identical.

. . . The point in this case is that the stock of the professional association is an asset of the Estate, but the funds of the professional association are a step removed from the Estate. The decedent's Estate essentially ignored the separate corporate existence of the professional association and that entity's obligations to its own creditors.

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TTSI Irrevocable Trust v. Reliastar Life Ins. Co., --- So.3d ----, 2011 WL 1810601 (Fla. 5th DCA May 13, 2011)

Trusts and estates lawyers usually focus on the estate-tax planning benefits of life insurance, especially when used to fund an irrevocable life insurance trust or "ILIT". What we don't often focus on are the non-tax, state law requirements peculiar to life insurance contracts, such as the insurable interest requirement. What makes this ILIT case interesting is that it has nothing to do with taxes. Instead it's all about how an ILIT can fall apart for non-tax reasons if you blow Florida's insurable interest requirement.

Insurable Interest:

Florida codified the insurable interest doctrine for life insurance contracts in F.S. 627.404, which requires that an insurable interest exist at the time the policy is applied for. An insurable interest is established when the purchaser of the policy will benefit more from that person being alive, whether emotionally or financially. The obvious point being that we don't want people buying life insurance contracts then killing the insured to collect on the policy [click here]. Without an insurable interest, a life insurance policy is considered void ab initio.

When an individual purchases a life insurance policy on himself or herself, there is automatically an insurable interest. An insurable interest can also be created under F.S. 627.404 when there is a strong relationship between the purchaser and the insured based on blood, marriage or pecuniary interest.

Case Study:

In this case a life insurance agent purchased a $370,912 life insurance policy on the life of his 85-year-old client. The life insurance was owned by an ILIT of which the life insurance agent and his children were the only beneficiaries. The case revolved around two primary issues:

1. Did insurance agent have an insurable interest in the life of his client?
2. If there was no insurable interest, was life insurance agent entitled to a refund of the premiums paid on the policy?

Under the facts of this case, the anwer to both questions was NO.

[1] Insurable Interest? NO

You can have an insurable interest in a non-family member's life under F.S. 627.404 if the insured is worth more to you alive than dead. Here's how the statute lays out this prong of the insurable interest test:

An individual has an insurable interest in the life, body, and health of another person if such individual has an expectation of a substantial pecuniary advantage through the continued life, health, and safety of that other person and consequent substantial pecuniary loss by reason of the death, injury, or disability of that other person.

Insurance agent argued he satisfied this prong of the insurable interest test because the insured was one of his "key" clients. Here's how the 5th DCA described the trial court's ruling and why this ruling meant the subject life insurance policy was void ab initio.

In January, 2009, TTSI filed a 3–count complaint against ReliaStar for breach of contract, anticipatory breach of contract, and declaratory relief, requesting that the court require ReliaStar to reinstate the policy. ReliaStar answered the complaint and later moved for summary judgment based on the argument that the policy was void ab initio because TTSI never had an insurable interest in Ms. Tennant's life. At the trial level, TTSI argued that Ms. Tennant was a “key client” of Mr. Moses and therefore it had an insurable interest in Ms. Tennant's life. The trial court rejected TTSI's argument and determined that no insurable interest existed. See § 627.404, Fla. Stat. (2004). That ruling is not challenged on appeal.

Where the owner of an insurance policy lacks an insurable interest in the life of the insured, the policy is void ab initio because it is considered a “wagering contract” and contrary to public policy. See, e.g., Knott v. State ex rel. Guar. Income Life Ins. Co., 136 Fla. 184, 186 So. 788, 789 (1939) (“[I]t has been uniformly held that a contract of insurance upon a life in which the insurer has no interest is a pure wager, that gives the insurer a sinister counter-interest in having the life come to an end.”); Lopez v. Life Ins. Co. of America, 406 So.2d 1155, 1158 (Fla. 4th DCA 1981) (“Florida law requires that an individual contracting for insurance on the life of another have an insurable interest ... The obvious purpose of that requirement is to prevent so-called ‘wagering’ contracts.”), approved, 443 So.2d 947 (Fla.1983); Aetna Ins. Co. v. King, 265 So.2d 716, 718 (Fla. 1st DCA 1972) (“The public policy of this state renders an insurance policy invalid when the insured has no insurable interest in the property or the risk insured on the grounds that same constitutes a wagering contract.”); Atkinson v. Wal–Mart Stores, Inc., No. 8:08–CV–691–T–30TBM, 2009 WL 1458020, at *3 (M.D.Fla. May 26, 2009) (“Florida courts have long held that insurable interest is necessary to the validity of an insurance contract and, if it is lacking, the policy is considered a wagering contract and void ab initio as against public policy.”).

[2] Void Life Insurance Policy = No Refunds

Insurance agent then argued that if the life insurance policy wasn't valid, at the very least he should be entitled to a refund of premiums paid. Strike two: trial court said NO to this too, and the 5th DCA agreed. Here's why:

TTSI argues that notwithstanding the invalidity of the insurance policy, it is still entitled to a refund of the premiums paid. In support thereof, TTSI cites to Gonzalez v. Eagle Ins., Co., 948 So.2d 1 (Fla. 3d DCA 2006), Perlman v. Prudential Ins. Co. of America, Inc., 686 So.2d 1378 (Fla. 3d DCA 1997), and Diaz v. Fla. Ins. Guar. Ass'n, Inc., 650 So.2d 675 (Fla. 3d DCA 1995) for the proposition that where a policy is rescinded or declared void, a refund of premiums paid, in part or in whole, is required in order to return to the status quo. These cases are readily distinguishable. In each of these cases, a party sought to rescind an insurance contract because of an alleged fraud in the inducement. Rescission is an equitable remedy where the primary obligation is to undo the original transaction and restore the former status of the parties. Billian v. Mobil Corp., 710 So.2d 984, 990 (Fla. 4th DCA 1998). Moreover, rescission is an elective remedy and the party may, but is not obligated to, exercise its right to rescind the transaction. See, e.g., Towers v. Clarendon Nat'l Ins. Co., 927 So.2d 913, 914 (Fla. 2d DCA 2006).

By contrast, the present case does not involve a voidable contract. Rather, neither party could elect to give effect to the policy at issue because it was void at the outset. Furthermore, as a general rule, contracts that are void as contrary to public policy will not be enforced by the courts and the parties will be left as the court found them. See, e.g., Harris v. Gonzalez, 789 So.2d 405 (Fla. 4th DCA 2001); Castro v. Sangles, 637 So.2d 989 (Fla. 3d DCA 1994). We see no reason to depart from the general rule where, as in the instant case, the party seeking to enforce the contract is the only party who engaged in deceptive and misleading conduct at the time the contract was entered into. See also Sec. Mut. Life Ins. Co. v. Little, 119 Ark. 498, 178 S.W. 418 (1915) (where party enters into unlawful contracts for insurance policies on the lives of persons on which it had no insurable interest, contracts are unenforceable and party is not entitled to recover amounts previously paid to insurer).

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Marger v. De Rosa, --- So.3d ----, 2011 WL 252942 (Fla. 2d DCA January 28, 2011)

A joint tenancy with right of survivorship (JTWROS) is a type of concurrent estate in which co-owners have a right of survivorship, meaning that if one owner dies, that owner's interest in the property will pass to the surviving owner or owners by operation of law, and avoiding probate. The deceased owner's interest in the property simply evaporates and cannot be inherited by his or her heirs.

Back in 1984 the 2d DCA ruled in Ostyn v. Olympic, 455 So.2d 1137 (Fla. 2d DCA 1984), that if a person owns homestead property as JTWROS, then at the point of death the decedent's interest in his homestead property evaporates, leaving nothing for a surviving spouse to assert homestead rights against. This time around the 2d DCA came to the same conclusion with respect to the decedent's minor children: at the point of death the decedent's interest in his homestead property evaporated, leaving nothing for the minor children to assert homestead rights against. Here's how the 2d DCA explained its ruling:

In 1995, Mr. De Rosa and his mother, Harriet S. De Rosa, purchased a home in Largo, Florida. The warranty deed to the house states that Mr. De Rosa and his mother own it as “joint tenants with full right of survivorship and not as tenants in common.” At the time of the conveyance, Mr. De Rosa had two minor children. When he died intestate in 2008, he had no surviving spouse, but he did have two minor children and one adult child.

Harriet S. De Rosa claimed title to the property when her son died. Mr. Marger forcefully argues that the house should have homestead status for the benefit of the children. We conclude that the trial court correctly applied our precedent in Ostyn v. Olympic, 455 So.2d 1137 (Fla. 2d DCA 1984), in holding that the house was not homestead and became the sole property of Harriet S. De Rosa at the instant of her son's death.

************

Article X, section 4(c), of the Florida Constitution provides that “[t]he homestead shall not be subject to devise if the owner is survived by spouse or minor child.” This language does not restrict the type of interests in real property a person may acquire or how a person may title his or her property. Instead, it restricts a person's attempt to devise property he or she owns when homestead status has attached to that property. Thus, even though Mr. De Rosa had children who were eligible for homestead protection at the time he purchased this property along with his mother, he was free to take the property as a joint tenant with the right of survivorship. In so doing, the property did not become homestead property when he and his mother purchased it. Thus, when Mr. De Rosa died, his interest in the property terminated, and it became the sole property of his mother as the surviving joint tenant without any life estate for the benefit of his children.

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Reid v. In re Estate of Sonder, --- So.3d ----, 2011 WL 1007137 (Fla. 3d DCA Mar 23, 2011)

The last time I wrote about this case the issue was whether a trustee, acting solely in her capacity as trustee, had standing to bring a trust reformation action under F.S. 736.0415 (Reformation to correct mistakes). Trial court said no, 3d DCA said YES.

After having won the right to bring her trust reformation action, the trustee is now back before the 3d DCA because the same judge who didn't think she had standing subsequently ruled against her on the merits, denying her claim for trust reformation under F.S. 736.0415 . . . even though the uncontroverted evidence of the drafting attorney and the testator's doctor (the only two witnesses to testify) unequivocally stated the trust contained a drafting mistake and the requested reformation was needed to carry out the testator's intent.

Case Study:

In this case the testator wanted the nurse who had cared first for his late wife and then for the testator himself to have the condo he lived in. Unfortunately, there wasn't enough cash left in the estate to satisfy all of the testator's cash gifts or "devises", including a $125,000 gift to the Hebrew Union College Jewish Institute of Religion. When this happens all gifts of equal priority are supposed to be reduced or "abated" equally. For example, if two people are each supposed to receive $100 and there's only $100 left in the estate, both devises are abated down to $50. Things are more complicated if one of the gifts is real property. In those cases you have to sell the property to abate it.

The order in which devises abate is governed by F.S. 733.805. This complex statute is a classic example of a “rule of construction” applicable to all Florida wills and trusts that is NOT part of the actual text appearing within the document the client signs.

In this case the trustee filed a petition under F.S. 736.0415 asking the trial court to fix a drafting error in the trust agreement. The requested fix would ensure the testator's condo was NOT subject to abatement, so it could be devised intact to the nurse. The trial court said NO, sell the condo, and on appeal the 3d DCA agreed. To make sense of the 3d DCA's ruling you need to read it against the backdrop of classic legal theory: we always presume testators understand and consent to every word in their wills or trusts.

[T]here is no evidence Sonder would not have been capable of understanding the trust as written. In fact, nothing in the record explains why Sonder, an articulate and precise businessman, would have approved the plain and simple trust terms if they did not reflect his intent.

Theory vs. Reality:

Is it fair to assume that a testator reading the "plain and simple" text of his trust agreement would also understand that if years in the future he died with less cash in the bank then he assumed on the date he signed his trust that Florida's rule of abatement (F.S. 733.805) would mean the gift of his condo to his nurse would no longer be effectuated? Of course not.

A lay person cannot be expected to read and "understand" a trust agreement the same way a lawyer with years of experience and specialized training can. So even if we assume a client has read his trust agreement, it is not fair to assume this same client was aware of and consented to any drafting mistakes that may be contained within the "plain and simple" text of the document -- especially if it's an error of "omission" (i.e., attorney accidentally leaves out clause that should have been included in trust agreement handed to client). Here's how the authors of A License to Deceive: Enforcing Contractual Myths Despite Consumer Psychological Realities explain this point as applied to consumer contracts in general:

To understand a contract, or even to know that they should look for certain pieces of information, consumers need some background knowledge. In particular, they need to know how contracts of this type—be they mortgage contracts, rental agreements, life or health insurance policies, etc.—are typically structured, the types of information and agreements that are typically codified in these contracts, and the alternative forms that these agreements can take. Cognitive psychologists call mental data structures that code information of this type “schemas,” and consumers need to have specific schemas to understand a mortgage contract, a rental agreement, a life or health insurance policy, and so forth. When consumers read contracts without this knowledge, they will not necessarily be able to identify when something is unusual or amiss.

Did the dissent get this one right? YES

In her dissent Judge Wells argued the majority got this one wrong and stated she would have granted the requested trust reformation. I found Judge Wells' analysis convincing and agree with her.

Florida's legislature adopted F.S. 736.0415 so judges could re-write trust agreements to correct mistakes. These mistakes go beyond simply fixing "typos". We know this because the statute says a judge can reform a trust agreement even if the text is unambiguous, if the end result is not consistent with the client's intent. For example, failing to account for Florida's statutory abatement statute is a mistake of omission. In order to counter Florida's default abatement rules the drafting attorney would have to add special language to the trust agreement. This is the type of mistake a lay person can't possibly be expected to catch by simply reading the clear text of his trust agreement. The 3d DCA's majority opinion fails to grasp this point. The dissent did not. Here's how Judge Wells explained this statutory construction point, which I believe is the better analysis:

The express purpose of section 736.0415 is to permit reformation of an otherwise clear, unambiguous written trust signed by a settlor where evidence exists that the “plain meaning of the trust instrument” does not evidence the settlor's intent. Thus the fact that this articulate, ninety-three-year-old former businessman signed a document that did not on its face encompass what he wanted is non-determinative.[FN5] The record is that this settlor knew what he wanted, questioned his attorney as to whether the document he signed encompassed that desire, and was repeatedly but incorrectly assured that it did.

Of course, a client is entitled to rely on the skill of his attorney to draft an agreement that encompasses his intent. In this case, the record confirms that this astute but elderly businessman, who was not a lawyer, retained a probate and estate lawyer not only to draft a new will after his wife died, but also to create a trust and then to have that same lawyer revise it at least four times. The record also confirms that between 1998 when the relationship began and 2005 when he died, this settlor frequently wrote to, spoke to, and met with his attorney, both at his home and at his attorney's offices. Most importantly, the record—without contradiction—is that this settlor told his attorney what he wanted, questioned his lawyer as to whether he was getting it, and was repeatedly assured by that lawyer—who himself had no idea that he had not accomplished his client's goals—that the settlor was getting what he wanted.[FN6] Therefore, the fact that this settlor was intelligent and precise, and the trust clear and unambiguous, does not support the instant denial of reformation under section 736 .0415 of the Florida Statutes.

***************************

[FN5]. As the Restatement (Third) of Property: Wills & Other Donative Transfers § 12.1 (2003), confirms, execution of a document, following review by a settler, should, for a number of reasons, carry no conclusive effect:

l. Donor's signature after having read document does not bar remedy. Proof that the donor read the document or had the opportunity to read the document before signing it does not preclude an order of reformation or the imposition of a constructive trust. The English Law Reform Committee, in recommending the adoption of a reformation doctrine for wills, stated well the rationale for this position:

We have also considered whether any special significance ought to be given to cases in which the will has been read over to the testator, perhaps with explanation, and expressly approved by him before execution. In our view it should not. Some testators are inattentive, some find it difficult to understand what their solicitors say and do not like to confess it, and some make little or no attempt to understand. As long as they are assured that the words used carry out their instructions, they are content. Others may follow every word with meticulous attention. It is impossible to generalise, and our view is that reading over is one of the many factors to which the court should pay attention, but that it should have no conclusive effect.

Law Reform Committee, Nineteenth Report: Interpretation of Wills, Cmnd. No. 5301, at 12 (1973).

[FN6]. The question and the testifying attorney's response confirmed the settlor's reliance on his counsel:

Q. This precise, articulate, strong-willed man could read and write English, and as you sit here today you have no reason to say that he didn't understand what you were doing?

A. That's not true. Sir, as I have testified over and over, Mr. Sonder told me what he wanted and he depended on me to put it in the correct document and phrase it correctly.

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Habeeb v. Linder, --- So.3d ----, 2011 WL 613392 (Fla. 3d DCA Feb 09, 2011)

UPDATE: This case was settled, prompting the 3d DCA to enter this order withdrawing its opinion. Trust and estates lawyer extraordinaire, Jeff Baskies, once again provides excellent commentary on this turn of events and what it all means for Florida homestead law.

Under Florida law a surviving spouse's rights in the couple's marital homestead residence are spelled out in Art. X, § 4(c) of the Florida Constitution, and F.S. 732.401. Spouses are free to contractually waive these rights, and often do for estate planning purposes (especially in second marriages where each spouse has children from a prior marriage). The specific statutory authority governing these types of estate planning marital agreements is found in F.S. 732.702. This statute is often the subject of litigation (and commentary on this blog, click here, here, here), and is at the heart of the linked-to opinion above.

The 3d DCA's opinion in this case has caused quite a stir in estate planning/probate circles. (For an excellent discussion see Jeff Baskies' commentary). Why? Because it's a great example of how NOT to draft a valid marital agreement under F.S. 732.702, and yet the court upheld the contested homestead-waiver. What happened?

The 3d DCA was asked to decide if a store bought form deed signed by a husband and wife could qualify as a valid marital agreement under F.S. 732.702, resulting in a valid waiver of the husband's homestead rights. There were two pivotal issues at play in this case:

[1] Fair Disclosure?

A homestead-waiver agreement executed after a couple has married is not valid unless each spouse provides the other with "fair disclosure" of his or her assets or "estate". F.S. 732.702(2). There was no formal financial disclosure between the spouses in this case. At issue was whether "fair disclosure" could be inferred from the facts and circumstances of their long-term marriage. Both the trial court and the 3d DCA said YES based on the following record:

[1] The 1979 deed was signed by both spouses many years into a long-term marriage and at a time when both occupied the condominium in question. [2] The deed was prepared for them by a Florida attorney. [3] Each spouse signed the instrument before two subscribing witnesses and a notary public. [4] The spouses also later prepared last wills and testaments reflecting the intended disposition of their respective assets based on the assumption that the 1979 deed effectively relinquished Mitchell's property rights, including homestead interests, in the condominium.

[5] A month after Virginia passed away in November 2008, Mitchell executed under oath a petition for administration of Virginia's estate and a petition to determine the continued homestead status of the condominium property. These documents further illustrated Mitchell's understanding that the 1979 deed had validly transferred all of his rights in the property to Virginia at that time, with the result that the devise of the property in her later will was also valid and effective.FN3

[6] FN3: Only when Mitchell passed away in January 2009 was it suggested that the 1979 deed failed to relinquish to Virginia, or waive, Mitchell's homestead rights.

From this record, the trial court properly concluded that the spouses made “fair” disclosure to each other, and there is certainly no evidence to the contrary.

By the way, there's all sorts of good law that says fair disclosure in the marital agreement context can be inferred from the facts and circumstances. See, e.g., Del Vecchio v. Del Vecchio, 143 So.2d 17 (Fla. 1962) (Basic issue as to validity of antenuptial agreement is concealment, not absence of disclosure by husband, and wife may not repudiate it if she is not prejudiced by lack of information.)

If you're drafting a marital agreement you NEVER want to rely on facts and circumstances to uphold the validity of your client's document; but if you're a litigator trying to uphold an improperly drafted agreement in court, the facts and circumstances of the couple's relationship just might win the day for you. It worked in this case.

[2] Legally Sufficient Waiver?

A homestead-waiver agreement is valid if it provides for a waiver of "all rights" or equivalent language. The form deed signed by the couple in this case way back in 1979 was described as follows by the 3d DCA:

The warranty deed, a “Ramco Form 01,” was a pre-printed form widely used by Florida practitioners in the days when “word processors” were human typists rather than compact machines.

Needless to say, the deed didn't contain any explicit homestead waiver language, but it did contain sweeping, boilerplate transfer language you find in old forms (such as a conveyance of all “heriditaments”). At issue was whether this sweeping boilerplate language satisfied the statute's waiver requirement. Again, both the trial court and the 3d DCA said YES. Here's an excerpt of the 3d DCA's analysis:

In this case . . . section 732.702 provides . . . specific guidance regarding the waiver of the particular constitutional rights involved, namely, the constitutional rights of one spouse in a marital homestead. The statute establishes, and the warranty deed satisfied, the requisite elements of a valid waiver as a matter of law.

The statute itself contemplates that a “written contract, agreement, or waiver” may be used to memorialize a relinquishment of a spouse's homestead rights. These alternatives demonstrate that “waive” is not a talismanic word within the statute, so that a contract or agreement may accomplish the same result. Neither the statute nor any interpretation of the statute supports the appellant's argument that Mitchell was required to execute a second “contract, agreement, or waiver” after (1) title had vested exclusively in Virginia's name, (2) she “formed the intention that the property would be her domicile or permanent residence,” and (3) he survived her. To the contrary, the Florida Supreme Court has concluded that a spouse's single agreement under section 732.701(1) “is the legal equivalent of predeceasing the decedent, for purposes of article X, section 4(c).” City National Bank of Florida v. Tescher, 578 So.2d 701, 702 (Fla.1991). In that case, as here, the surviving spouse had waived homestead previously and no minor children survived the decedent.

.  .  .

Article X, section 4(c) of the Florida Constitution expressly authorizes a husband and wife to alienate their homestead property “by mortgage, sale or gift,” and that is what both spouses did in 1979. In this case the term “heriditaments” in the 1979 warranty deed encompasses the homestead rights of each grantor as survivor. The term includes “anything capable of being inherited, whether it is corporeal, incorporeal, real, personal, or mixed.” 42 Fla. Jur.2d Property § 7 (2010).

The best way to make sense of this opinion is to read it from a litigator's point of view, not as an estate planner:

For litigators, this case underscores a truism that's repeated so often it's become a cliche: trials turn on their facts, not abstract legal principles. The winning side in this case put on a compelling, fact-intensive case, that compensated for the obvious legal deficiencies created by the couples' reliance on a store bought form document executed over 20 years ago.

For estate planners, the take-away from this case is that the family could have avoided the rancor, costs and delays inherent to any estate dispute pitting family members against each other with a minor investment in competent estate planning back in 1979, versus pouring huge sums of money into a trial and appellate proceeding in 2011. Whatever this litigation cost the family, I can guarantee you it's several orders of magnitude greater than what husband and wife would have paid a qualified estate planner back in 1979 to properly document their intended homestead waiver.

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Lauritsen v. Wallace, --- So.3d ----, 2011 WL 1195873 (Fla. 5th DCA Apr 01, 2011)

The general rule is that your heirs are last in line when it's time to distribute your estate. Before they get theirs, the costs of administering your estate (think PR fees, accounting and legal expenses), taxes, and creditor claims all have to be paid with assets of the estate. What's left over goes to your heirs.

For example, if your estate consists of $100,000 and the costs of administering your estate, taxes, and creditor claims all add up to $50,000, your heirs only get $50,000. Things get tricky when estates are insolvent. Assume again your estate has a value of $100,000, but the debts of your estate amount to $120,000. In that case your heirs get nothing and the estate's administration expenses, taxes and creditor claims are paid in the order of priority listed in F.S. 733.707.

Insolvent Estates: Case Study:

The linked-to case is an interesting example of the general principal that administrative expenses and creditor claims have priority over distributions to heirs. In this case the testator's son signed a promissory note agreeing to repay funds loaned to him by his dad. This promise of funds has value and is obviously an asset of dad's estate. Dad's will forgave son's debt. This is a common clause and usually isn't a problem. Unfortunately, in this case dad's estate was insolvent. The issue became whether the debt forgiveness clause in dad's will was enforceable. Here's how the PR teed up the issue for the probate court and how the court ruled:

The personal representative filed in the probate court a Motion to Determine Ownership of the Note and Status of Forgiveness under Decedent’s Will. The personal representative argued that the decedent’s one-half ownership of the note must be utilized to pay the estate’s debts, taxes, and expenses before the balance could be forgiven. The probate court ruled that the note was forgiven at the moment of the decedent’s death.

On appeal the 5th DCA reversed the probate court in a detailed opinion that does a great job of summarizing how Florida's Probate Code deals with insolvent estates. If you’re working with an insolvent estate, you'll want to read this opinion in its entirety. Here's an excerpt:

Several sections of the probate code support the conclusion that a devise cannot be elevated over administrative expenses and the rights of creditors. Section 731.201(10), Florida Statutes (2007), provides that “[a] devise is subject to charges for debts, expenses, and taxes[.]” Section 733.805(1) provides that “[f]unds or property designated by the will shall be used to pay debts, family allowance, exempt property, elective share charges, expenses of administration, and devises to the extent the funds or property is sufficient.” If no provision is made or the designated fund or property is insufficient, the statute sets forth a priority scheme on how devises abate. § 733.805, Fla. Stat. (2007). Section 733.707(1) provides that “[t]he personal representative shall pay the expenses of the administration and obligations of the decedent’s estate in the following order . . . .” The statute then identifies the eight classes of expenses and obligations and the order in which each is paid. The ruling by the lower court elevates the gift of forgiveness of an obligation to a superior status over the rights of legitimate creditors of the decedent, contrary to the priorities established in the Probate Code.

* * *

Therefore, we hold that a decedent can release a debt owed to the decedent through a testamentary devise only to the extent that the decedent’s estate is solvent to pay all debts and administrative costs of the estate.

Lesson learned?

Times are tough. Insolvent estates are now part of the landscape. If you're working with an insolvent estate, you need to make sure everything you do is guided by the payment priorities listed in F.S. 733.707 and the order of abatement listed in F.S. 733.805. If you're advising the PR, when in doubt, don't assume the risk of a wrong decision, do what the PR did in the linked-to case above: file a motion, serve it on all interested parties, and ask your probate judge for guidance.

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Figel v. Wells Fargo Bank, N.A., 2011 WL 860470 (S.D.Fla. Mar 09, 2011)

The statue at the heart of this case is F.S. 518.11, Florida's version of the Uniform Prudent Investor Act or "UPIA." The UPIA's primary purpose is to empower trustees to invest trust assets in accordance with modern portfolio theory.

If all trustees had to do was worry about maximizing investment returns, that would be hard enough. But we all know it's a lot more complicated than that. Why? Because trustees also have simultaneous and equally important duties to make sure their trusts are generating enough cash to provide for their current beneficiaries' immediate payment needs while also ensuring trust assets are properly preserved for remaindermen [click here for how savvy use of Florida's Principal and Income Act can help trustees make this all work].

Recognizing that perfection is not the standard by which trustees are judged, all the law demands of them is "prudence" in how they go about balancing their complex, and sometimes conflicting, fiduciary duties. This is a test of conduct, NOT performance.

It's not whether you win or lose, it's how you play the game:

Coming back to F.S. 518.11. Under this statute trustees aren't expected to be investment geniuses, just prudent. In this context being "prudent" = exercising “reasonable business judgment regarding the anticipated effect on the investment portfolio as a whole under the facts and circumstances prevailing at the time of the decision or action.” In other words, if the trustee exercises "reasonable business judgment" and takes all the steps a reasonable investor would take to properly manage his investment portfolio, it doesn't matter if the trust's stocks crater in value, he's done his job and can't be sued for damages. The linked-to case above tests this basic proposition. Here's how the court summarized the beneficiary's key claim:

Essentially, Plaintiffs claim that Wells Fargo could have earned a [$3-4 million] higher rate of return on the Figel Trust if it had invested the Figel Trust differently. Plaintiffs offer no other grounds for their claims. Importantly, Plaintiffs offer no evidence that Wells Fargo took any action in contravention of the terms of the Figel Trust.

If a trust beneficiary came to you with this kind of claim, you might be tempted to prove the trustee was a really lousy investor. That would be a mistake. In the trust context your focus needs to be on process, not performance. In this case the beneficiaries tried to win their case by proving that the trustee's ineptitude as an investor cost them $3-4 million. Not surprisingly, this argument didn't get them very far. The court concluded that even if they were right on the facts, as a matter of law their lawsuit failed. Here's why:

[LAW]:

The Florida Probate Code provides that a “trustee shall invest trust property in accordance with chapter 518.” Fla. Stat. § 736.0901. Section 518.11 provides that a trustee has “a duty to invest and manage assets as a prudent investor would considering the purposes, terms, distribution requirements, and other circumstances of the trust.” Fla. Stat. § 518.11(1)(a). “No specific investment or course of action is, taken alone, prudent or imprudent .” Id. § 518.11(1)(b). Rather, “investment decisions and actions are to be judged in terms of the fiduciary's reasonable business judgment regarding the anticipated effect on the investment portfolio as a whole under the facts and circumstances prevailing at the time of the decision or action.” Id. This is “a test of conduct and not of resulting performance.” Id.

[FACTS]:

No relevant disputed issues of fact exist in this case. Rather, the parties dispute the legal significance of the facts. In their supplemental brief, Plaintiffs submit the following:

Had Wells Fargo maintained a 70/30 split in asset allocation, with 70 percent in conservative investments, and 30 percent in equities, the Trust would have a market value of between approximately $3-4 million more than the value it currently has, and would have distributed approximately the same amount of money to Terry Figel.

DE 129 at 9.FN2 Accepting this fact as true, however, does not evidence a breach of trust. The record is replete with evidence that shows Wells Fargo invested the corpus of the Figel Trust in equities and other securities (i.e., in a manner consistent with the terms set forth in the Figel Trust and pursuant to Wells Fargo's buy list). The record is also replete with evidence that Wells Fargo sent Terry Figel quarterly account statements that revealed the state of the Figel Trust. Indeed, the undisputed facts show that Wells Fargo made the investment decisions that it did in an attempt to provide both income for Terry and growth, both to replace principal distributions and to provide growth to benefit Spencer as the remainderman. Stated differently, Wells Fargo's investment decisions were made largely to account for Terry's constant requests for corpus distribution (which were contemplated and authorized by the Figel Trust instrument). Thus, based on the record before the Court, no reasonable fact-finder could find that Wells Fargo failed to exercise “reasonable business judgment regarding the anticipated effect on the investment portfolio as a whole under the facts and circumstances prevailing at the time of the decision or action.”

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Henderson v. Elias, --- So.3d ----, 2011 WL 710190 (Fla. 4th DCA Mar 02, 2011)

Most civil litigators (and judges) spend most of their professional lives involved in cases based on in personam jurisdiction. Probate is different. In probate it's all about in rem jurisdiction. This fundamental distinction is often glossed over by practitioners and trial judges alike, leading to all sorts of unfortunate rulings. The linked-to opinion is an example of this fact of life.

The jurisdictional distinctions between probate and most other civil litigation come to a head whenever there's a disagreement involving a probate court's power over [a] someone's personal assets (vs. their share of the estate, click here), or [b] over foreigners/non-residents, click here).

In the linked-to opinion above the question was whether a Florida probate judge had jurisdictional authority to enter a freeze order over the assets of a NY LLC based solely on the allegation that the NY LLC was owned 50% by a FL decedent. The answer, by the way, is NO.

Here's the jurisdictional allegation made by the estate in support of its freeze-order petition. Note the emphasis on the court's inherent authority over assets of the estate, which is an in rem argument:

The amended petition is devoid of allegations that Stardale [the NY LLC] committed any act or omission within or directed towards Florida. The sole jurisdictional allegations found in the petition state that Stardale “is a foreign limited liability corporation owned 50% percent by the [e]state and 50% by Henderson” and that the court “has jurisdiction over the parties ... pursuant to its inherent jurisdiction to monitor the administration of the estate.” 

The 4th DCA didn't bite on the in rem reference, instead framing its analysis on the required two-part personal jurisdiction test I've written about before [click here]. This is an important point: framing the issue in terms of personal jurisdiction pre-determined the outcome of this appeal. Here's why:

We hold that these allegations in the amended petition are insufficient to state a basis for personal jurisdiction over Stardale. The estate made no allegations of conduct by Stardale which would subject the corporation to the jurisdiction of a Florida court under section 48.193(1). The fact that the corporation's two shareholders would be subject to personal jurisdiction in Florida in their individual capacities does not create personal jurisdiction over the corporation. Cf. Beasley v. Diamond R. Fertilizer, Co., 710 So.2d 1025, 1026 (Fla. 5th DCA 1998) (holding that the conduct of business in Florida by a corporation would not subject its shareholders to personal jurisdiction in Florida). The petition contains no allegations that Stardale is Henderson's alter ego. See, e.g., Nichols v. Paulucci, 652 So.2d 389, 393 (Fla. 5th DCA 1995). Likewise, no allegations of a principal-agent relationship were found in the petition. See, e.g., TRW Vehicle Safety Sys. Inc. v. Santiso, 980 So.2d 1149, 1152-53 (Fla. 4th DCA 2008). As the estate failed to allege facts bringing Stardale within the reach of the long-arm statute, we need not address whether the allegations, if proven, would demonstrate sufficient minimum contacts with Florida.

Because the allegations in the petition are insufficient, the trial court should have dismissed the amended petition as to Stardale without prejudice. See World Class Yachts, Inc. v. Murphy, 731 So.2d 798, 800 (Fla. 4th DCA 1999) (holding that dismissal of a complaint for insufficient jurisdictional allegations should be without prejudice to amend). As such, we need not decide whether the evidence adduced at the hearing was sufficient to establish jurisdiction. See Hall, 980 So.2d at 1291. We reverse and remand for further proceedings.

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In re Miller, --- B.R. ----, 2010 WL 5184798 (Bkrtcy.S.D.Fla.2010)

Assume Husband "A" and "B" are both recent widowers. Husband "A" inherited $100,000 from his wife. Husband "B" was completely cut out of his wife's will, but after claiming an elective share of his wife's estate (30% of the elective estate), he too received $100,000 from his wife's estate.

Now assume Husband "A" and "B" both declare bankruptcy shortly after their respective wives pass away. Who's financially better off?

According to the linked-to bankruptcy court opinion, Husband B is clearly better off. Why? Because it's legal for Husband B to intentionally delay his elective-share election until it's too late for his creditors to go after these assets, while Husband A's inheritance is automatically exposed to his creditor claims. Is this good public policy? I have my doubts. But apparently it's the law. Here's how the bankruptcy court explained its ruling.

[1] Why Husband A's inheritance is automatically exposed to creditor claims in bankruptcy:

With limited exceptions, § 541 of the Bankruptcy Code provides that property of the estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Pursuant to § 541(a)(5), this includes property that the debtor “acquires or becomes entitled to acquire within 180 days” of the petition date “by bequest, devise, or inheritance.” 11 U.S.C. § 541(a)(5).

[2] Why Husband B may intentionally time his elective-share election to cut out his creditors:

Under Florida law, the right of election is a personal right of the surviving spouse. See Harmon v. Williams, 615 So.2d 681, 682 (Fla.1993). As such, the “right of election, itself, is not a property interest of the debtor, and thus, not property of the estate.” In re Brand, 251 B.R. 912, 916 (Bankr.S.D.Fla.2000). Moreover, although an elective share interest “would constitute property of the estate[,]” “an elective share interest does not exist until the statutory right of election is properly exercised.” Id. at 915-16; see also In re McCourt, 12 B.R. 587, 589 (Bankr.S.D.N.Y.1981) (“Until the debtor exercises his personal statutory right to the election, no rights in his deceased wife's property are ascribable to the debtor.”). ...............

Although the Trustee asserts that the Debtor intentionally delayed filing the Election to avoid the 180 day period under § 541(a)(5), a review of the record indicates that the Trustee never filed a motion seeking to require the Debtor to file the Election. Even if the Trustee had filed such a motion, the Trustee cites no authority indicating that the Court has the power to require a debtor to exercise a right of election. Relevant case law indicates that the Court has no such power. See McCourt, 12 B.R. at 589 (denying trustee's motion to force the debtor to exercise the right of election).

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Beane v. Suntrust Banks, Inc., --- So.3d ----, 2010 WL 4483472 (Fla. 4th DCA Nov 10, 2010)

Estate planners and probate lawyers come across in-trust-for or "ITF" bank accounts (also known as Totten trusts) all the time. But if you actually try to dig into the Florida law defining these accounts, don't expect to find much. Which is why this case is interesting: it's all about what Totten trusts are, and just as importantly, what they're NOT.

SunTrust was sued for having transferred $150,000 out of a Totten trust account based on the following power of attorney:

In 2002, the decedent, Lillian Wilde, executed a durable power of attorney naming her niece, Deborah Lorenzo, as her attorney-in-fact. The durable power of attorney stated:

I, LILLIAN G. WILDE ... do hereby constitute and appoint my niece, DEBORAH LORENZO, my true and lawful attorney-in-fact for me in my name, place and stead and in any way which I myself could do if I were personally present with respect to the following matters:

...

4. To demand, sue for, collect, recover and receive all goods, claims, debts, monies, interest and demands whatsoever now due, or that may hereafter be due, or belong to me....

The next day, Lorenzo, utilizing the power of attorney, transferred $150,000 from Wilde's Totten trust account at SunTrust Bank, which named Frances Wallin as the beneficiary, to another account in the name of Orson Lorenzo.

Whether SunTrust was on the hook - or not - for the $150,000 transfer depended in large part on whether a Totten trust account was the type of estate-planning instrument covered by F.S. 709.08(7)(b)5. Here's how the issue was framed by the court:

[T]he appellant relied on section 709.08(7)(b) 5., Florida Statutes (2002), which states that an attorney-in-fact may not “[c]reate, amend, modify, or revoke any document or other disposition effective at the principal's death or transfer assets to an existing trust created by the principal unless expressly authorized by the power of attorney.” Appellant claimed that a Totten trust is a “disposition effective at the principal's death.”

The 4th DCA held that a Totten trust account is NOT a “disposition effective at the principal's death.” Here's why:

A Totten trust has been defined as “a tentative trust merely, revocable at will, until the depositor dies.” Seymour v. Seymour, 85 So.2d 726, 727 (Fla.1956) (quoting In Re Totten, 179 N.Y. 112, 71 N.E. 748, 752 (1904)). The act of “[p]lacing a bank account in the name of one individual ‘in trust for’ another individual creates a tentative or Totten trust.” Serpa v. N. Ridge Bank, 547 So.2d 199, 200 (Fla. 4th DCA 1989). A Totten trust is different from other trusts in that it is not created with any of the formalities of a trust or will. Further, it is specifically excluded from the provisions and restrictions that apply to revocable trusts under the Florida Trust Code. § 736.0102, Fla. Stat. (2007).

..................

Since an owner of a Totten trust can withdraw from the account without constraint, the prospective Totten trust beneficiary cannot object to the depositor's withdrawal from the Totten trust. As this court explained:

Like a depositor's withdrawal of funds from a Totten trust bank account, a settlor/trustee's withdrawal of funds from a revocable trust is tantamount to a revocation or termination of the trust with respect to the funds withdrawn. It is in this context that [In re Malasky, 290 A.D.2d 631, 736 N.Y.S.2d 151 (N.Y.App.Div.2002)] held that a prospective trust beneficiary has no standing to object to such a disposition of the property; the settlor retained the right to remove the property from the trust for any purpose and for any reason.

Siegel v. Novak, 920 So.2d 89, 95 (Fla. 4th DCA 2006). Because the depositor can change the beneficiary without constraint, and the prospective beneficiary has no standing to object to such changes, we therefore find that merely withdrawing money from the Totten trust does not, as a matter of law, change the “disposition effective at the principal's death.” The depositor, or in this case the attorney-in-fact, merely changes the amounts within the Totten trust, which is a right retained by the depositor at all times, or by the attorney-in-fact while the durable power of attorney is in force. SunTrust acted in reliance of the power of attorney, so it “must be held harmless by the principal from any loss suffered or liability incurred as a result of actions taken prior to receipt of written notice [of revocation.]” § 709.08(4)(g), Fla. Stat. (2002).

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O'Brien v. McMahon, --- So.3d ----, 2010 WL 3909644 (Fla. 1st DCA Oct 07, 2010)

In 1990 Calvin Todd purchased a life insurance policy from the Prudential Insurance Company and named his niece, Ms. O'Brien, and his daughter, Madison, as 50/50 beneficiaries.

In 1999 Mr. Todd signed a new beneficiary designation form, removing his niece and adding his newly adopted daughter, Heather, as a 1/2 beneficiary. When Mr. Todd died in 2007 only his two daughters were beneficiaries. Ms. O'Brien sued, claiming she was still a 1/2 beneficiary of her uncle's life insurance policy because the change-of-beneficiary form he filed in 1999 failed to comply with Prudential's contractual requirements.

Litigator's Toolbox:

From a litigator's point of view, there are two key issues addressed by the 1st DCA in this case that should be helpful for future litigants:

1. Who has standing to litigate these claims?
2. Is this a contract dispute or an inter vivos gift lawsuit?

[1] Who has standing to litigate these claims?

The first issue the court addresses is standing: did Ms. O'Brien have the right to file this lawsuit? She's claiming her uncle didn't comply with Prudential's contractual requirements for changing beneficiaries, making his 1999 change-of-beneficiary form invalid. But isn't that a claim only Prudential could assert? The 1st DCA seems to imply as much, but lets the issue go because it doesn't change the outcome (and apparently none of the parties raised this objection):

Ms. O'Brien grounds her entire position on Prudential's putative rights under the contract, rights which as to her are jus tertii. She asserts no rights that Prudential itself could not have asserted (if it had been so inclined) when she argues “that a beneficiary under a life insurance policy may be changed only by strict compliance with the conditions set forth in the policy.” . . . Yet Prudential does not make this argument or in any other way align itself with Ms. O'Brien's efforts to claim the policy proceeds (or a portion thereof) for herself. .  .  .  Pretermitting the question whether Ms. O'Brien should be heard to urge the rights of a third party who has elected to stand mute, we turn to the pertinent policy language.

Under traditional jus tertii jurisprudence, “In the ordinary course, a litigant must assert his or her own legal rights and interests, and cannot rest a claim to relief on the legal rights or interests of third parties.” Powers v. Ohio, 499 U.S. 400, 410, 111 S.Ct. 1364, 113 L.Ed.2d 411 (1991) (emphasis added). The 1st DCA seems to be hinting that if someone had raised the standing objection, they probably would have ruled Ms. O'Brien lacked standing and killed the lawsuit early.

[2] Is this a contract dispute or an inter vivos gift lawsuit?

How you frame a case will determine in large part what law governs your lawsuit. Sometimes this matters, sometimes it doesn't. For example, if Ms. O'Brien had framed her case as being about some sort of explicit or implied agreement by her uncle to make an inter vivos gift to her, she could have tapped into the body of law governing challenges to inter vivos gifts [click here, here]. She didn't do that, as noted by the 1st DCA:

Ms. O'Brien makes no claim here or below that her uncle was under any legal obligation to make or keep her as a beneficiary under the policy. See generally Palm Lake Partners II, LLC v. C & C Powerline, Inc., 38 So.3d 844, 849 (Fla. 1st DCA 2010) (“A ‘promisor and a promisee can by agreement create a duty to a beneficiary which cannot be varied without his consent. But in the absence of such an agreement the parties retain control over the contractual relation they have created.’ ”) (quoting Restatement (Second) of Contracts 311 cmt. f. (1981)).

Instead Ms. O'Brien framed her case as a contract dispute: did her uncle follow Prudential's contractual requirements for filing a change of beneficiary form? The important take-away from this decision is that this type of lawsuit will likely be governed by the rich body of law dealing with contract disputes, as specifically applied to insurance contracts.

In general, the right of an insured owner to change the beneficiaries of a life insurance policy “depends on the terms of contract between the insurer and insured as expressed in the insurance policy.” Martinez v. Saez, 650 So.2d 668, 669 (Fla. 3d DCA 1995) (quoting Shuster v. N.Y. Life Ins. Co., 351 So.2d 62, 64 (Fla. 3d DCA 1977)).

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Aronson v. Aronson, --- So.3d ----, 2010 WL 4226204 (Fla. 3d DCA Oct 27, 2010)

In July of 1996 Mr. Aronson deeded his condo (located on Key Biscayne, FL) to his revocable trust.  Upon Mr. Aronson's deth, his revocable trust created a life-time irrevocable marital trust for his spouse, remainder to his sons from a prior marriage. A few months later, in December of 1996, Mr. Aronson deeded this same condo directly to his spouse. This was a lawsuit waiting to happen.

Back in 2006, Mr. Aronson's sons scored a victory when the 3d DCA ruled the deed their dad originally executed transferring his condo to his trust controlled, thus ensuring they would receive the condo upon surviving spouse's death [click here]. Surviving spouse promptly fired back, filing suit to enforce all of her rights to the condo under the terms of the marital trust. This time around surviving spouse came out on top.

In the linked-to opinion above spouse sued for reimbursement of all of the condo-related expenses she had paid with her own funds and also for payment of all of her mandatory principal distribution rights under the marital trust. Because the trust owned only one asset (the condo), there's only two ways spouse could be made whole: [1] sell the condo and pay her from the sales proceeds or [2] transfer a % the condo's ownership interest to her. The sons wanted to go with option 1 (which would result in wife getting booted out of her home), spouse wanted to go with option 2. The sons won at trial, but lost on appeal. In an opinion that should be of interest to all estate planners, the 3d DCA ruled homestead property held in a marital trust does NOT lose its creditor protection, even if the creditor you're protecting against is the spouse:

[T]he trial court reasoned that because any sale would be for the purpose of paying a debt owed to the widow, Article X, Section 4 of the Florida Constitution would not bar the sale. Section 4(b) of Article X specifically states that the exemption from forced sale inures to a decedent's surviving spouse. There are only three recognized exceptions to this exemption, none of which apply here. See In re Adell, 321 B.R. 562, 571-72 (Bankr.M.D.Fla.2005). Accordingly, since the trial court erred in denying declaratory judgment on the homestead protection, we reverse on this point.

This case is noteworthy because it confirms once again that homestead property held in trust does NOT lose its creditor protection. As I previously explained here, the reason why opinions like this one are especially interesting to estate planners is because they chip away at the precedential value of In re Bosonetto, 271 B.R. 403 (Bankr.M.D.Fla.2001), a much-criticized Middle District Bankruptcy Court opinion ruling that homestead property held in trust lost its creditor protection.

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This is my running list of significant trust, probate and guardianship related appellate opinions for 2012. If you think I've missed an important appellate decision that deserves wider notice, please let me know. As new appellate decisions are published I'll add them to the list.

All of the appellate opinions listed below are hyper-linked to a copy of the opinion and my blog post commenting on the case.

1. Saewitz v. Saewitz, --- So.3d ----, 2012 WL 10854 (Fla. 3d DCA January 04, 2012) (tortious interference)
2. Lubee v. Adams, --- So.3d ----, 2012 WL 163911 (Fla. 2d DCA January 20, 2012) (Reasonably ascertainable creditor’s late claim)
3. McDonald v. Johnson, --- So.3d ----, 2012 WL 246468 (Fla. 2d DCA January 27, 2012) (Elective Share)
4. Aronson v. Aronson, --- So.3d ----, 2012 WL 280565 (Fla. 3d DCA February 01, 2012) (Surviving spouse’s homestead rights)
5. Rocca v. Boyansky, --- So.3d ----, 2012 WL 280752 (Fla. 3d DCA February 01, 2012) (Can’t admit will in face of caveat/objections)

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On December 17, 2010, President Obama signed H.R. 4853, the Middle Class Tax Relief Act of 2010, into law. This legislation extends the Bush-era Tax Cuts and it brings back the federal estate tax for two years at tax rate of 35% and with an exemption of $5 million.  It makes a number of other dramatic changes to wealth transfer taxes. Hani Sarji, author of Estate of Confusion, has created two excellent charts summarize these changes. For those of you looking for a quick reference source, these charts are worth holding on to.

In this blog post Mr. Sarji provides the following chart comparing the Estate, Gift and GST Tax rules in 2010 with those applicable in 2011.

In this blog post Mr. Sarji provides the following chart comparing the gift tax rules for 2010 with the new gift tax rules applicable in 2011 and 2012.

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Rossen v. Bilchik, --- So.3d ----, 2010 WL 4628288 (Fla. 4th DCA Nov 17, 2010)

Under Florida law, the custodian of a will is required to deposit the will with the clerk of the court having venue of the estate of the decedent within 10 days after receiving information that the testator is dead. And if you don't deposit the will, F.S. 732.901(2) says a court can order you to do it and make you pay the related attorneys fees and costs.

But two wrongs don't make a right. If you want to get a court order compelling someone to deposit a will, you have to give that person notice of the hearing and an opportunity to be heard. In the absence of that minimal due process, you order isn't valid. So says the 4th DCA:

These consolidated appeals arose out of a disagreement between two sisters after their father's death. Appellee Janice Bilchik filed a petition against appellant Betsy Ann Rossen under section 732.901, Florida Statutes (2008); subsection (2) of that statute provides:

Upon petition and notice, the custodian of any will may be compelled to produce and deposit the will as provided in subsection (1) [requiring deposit of a will “with the clerk of the court having venue of the estate of the decedent within 10 days after receiving information that the testator is dead”]. All costs, damages, and a reasonable attorney's fee shall be adjudged to petitioner against the delinquent custodian if the court finds that the custodian had no just or reasonable cause for failing to deposit the will.

Bilchik filed the petition with the clerk on January 11, 2008. Without a hearing and without any proof that the petition had been received by Rossen, on January 15, 2008, a circuit judge entered an order that was tantamount to a final judgment granting full relief under section 732.901 by requiring Rossen to produce the will and awarding $2,500 in attorney's fees against her. The entry of this order without due process generated a plethora of motions, hearings, and contempt orders.

Rossen appeared in the lawsuit, sometimes with an attorney and sometimes without. She . . . timely objected to the entry of the January 15 order entered without notice and without a hearing. She was entitled to have the order set aside under Florida Rule of Civil Procedure 1.540(b).

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Lorenzo v. Medina, --- So.3d ----, 2010 WL 4483470 (Fla. 3d DCA Nov 10, 2010)

At common law, lapse occurs when the beneficiary or the "devisee" under a will predeceases the testator, invalidating the gift. The gift would instead revert to the residuary estate or be granted under the law of intestate succession. Florida enacted F.S. 732.603, an anti-lapse statute, to ameliorate the potentially harsh effects of this common law rule. Rather than lapsing, gifts covered by the statute go to a pre-deceased beneficiary's descendants.

Florida's anti-lapse statute does not fix all lapsed gifts, only those made to immediate family members. Gifts to neighbors, friends, and in-laws do not benefit from this statute.

At issue in the linked-to case was a gift to the testatrix's sister-in-law, Juana R. Medina, who had predeceased the testatrix. The trial court ruled the sister-in-law's gift was saved by F.S. 732.603, thus resulting in her 50% share of the estate going to her children, the testatrix's niece and nephew. This may have seemed like an equitable outcome, but it failed as a matter of law. Gifts to in-laws are NOT saved by Florida's anti-lapse statute.

As a matter of common law, when a will provides for a bequest to a person who predeceases the testator, the gift lapses. Tubbs v. Teeple, 388 So.2d 239, 239 (Fla. 2d DCA 1980) (“When a legatee under a will predeceases the benefactor, the gift lapses.”). The potentially harsh effects of this common law rule are ameliorated to an extent by the operation of statute. When the predeceased devisee is a descendant of the testator's grandparents, section 732.603 will “save” the lapsed gift by creating a substitute gift in the devisee's descendants. § 732.603(1). Because section 732.603 is in derogation of the common law, we must strictly construe its provisions. Drafts v. Drafts, 114 So.2d 473, 476 (Fla. 1st DCA 1959) (“The antilapse statute being directly in derogation of ... the common law, the statute must be strictly construed.”).

*****

Pursuant to the common law rule outlined above, the bequest lapsed. And because Juana R. Medina is not a descendant of the Testator's grandparents, the niece and nephew cannot invoke the operation of section 732.603(1) to “save” the bequest and provide them with a substitute gift. Thus, we conclude that the niece and nephew are not entitled to the Testator's lapsed bequest. Accordingly, we reverse the order under review.

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Johnson v. Amritt, --- So.3d ----, 2010 WL 4861745 (Fla. 3d DCA Dec 01, 2010)

In contested trust and estate proceedings the fiduciary in charge of the estate (i.e., the trustee, personal representative or guardian) hires the lawyer, but the estate's beneficiaries pay those fees (the fiduciary's attorney's fees are paid from the estate).

Because the party paying the fiduciary's legal fees did not participate in negotiating the fee arrangement, there's a built in tension every time a court is asked to rule on their reasonableness. Recognizing this tension, Florida's Trust Code (F.S. 736.1007) and Probate Code (F.S. 733.6171) both contain specific guidelines to aid trial judges in setting attorney fees.

One of the primary social values promoted by these statutes is assuring the public that judges are making fee decisions in an objective and uniform manner. Here's how the Florida Supreme Court articulated this crucially important point in Fla. Patient's Comp. Fund v. Rowe, 472 So.2d 1145 (Fla.1985):

[G]reat concern has been focused on a perceived lack of objectivity and uniformity in court-determined reasonable attorney fees. Some time ago, this Court recognized the impact of attorneys' fees on the credibility of the court system and the legal profession when we stated:

There is but little analogy between the elements that control the determination of a lawyer's fee and those which determine the compensation of skilled craftsmen in other fields. Lawyers are officers of the court. The court is an instrument of society for the administration of justice. Justice should be administered economically, efficiently, and expeditiously. The attorney's fee is, therefore, a very important factor in the administration of justice, and if it is not determined with proper relation to that fact it results in a species of social malpractice that undermines the confidence of the public in the bench and bar. It does more than that. It brings the court into disrepute and destroys its power to perform adequately the function of its creation.

Baruch v. Giblin, 122 Fla. 59, 63, 164 So. 831, 833 (1935).

Although the amount of an attorney fee award must be determined on the facts of each case, we believe that it is incumbent upon this Court to articulate specific guidelines to aid trial judges in the setting of attorney fees.

The only way a trial judge can assure parties involved in a contested trust or estate proceeding that the amount of attorney's fees they're paying was determined in an objective and uniform manner is to enter orders containing detailed findings as to [1] the hourly rate, [2] the number of hours reasonably expended, and [3] the appropriateness of reduction or enhancement factors. If a fee order doesn't contain these findings it is per se erroneous and subject to reversal.

In other words, even if the trial judge's fee order reaches the right conclusion, if it doesn't explain in detail how the judge arrived at his conclusion (thereby giving all interested parties confidence in the ruling's fairness), the order is per se wrong. That's what happened in the linked-to case above, and why the trial judge's fee order was reversed:

We review the trial court's order “approving and authorizing the payment of attorney's fees” to the former emergency temporary guardian's counsel. After a thorough review of the record, we hold that the trial court did not make the requisite findings for an award of attorney's fees. See Fla. Patient's Comp. Fund v. Rowe, 472 So.2d 1145, 1151-52 (Fla.1985). “An order awarding attorneys' fees is ‘fundamentally erroneous on its face’ when the trial court fails ‘to make specific findings as to the hourly rate, the number of hours reasonably expended, and the appropriateness of reduction or enhancement factors as required by [Rowe, 472 So.2d at 1151].” Parton v. Palomino Lakes Prop. Owners Ass'n, Inc., 928 So.2d 449, 453 (Fla. 2d DCA 2006) (quoting Baratta v. Valley Oak Homeowners' Ass'n at the Vineyards, Inc., 891 So.2d 1063, 1065 (Fla. 2d DCA 2004)). We reverse the order on appeal and remand with instructions for the trial court to make the requisite findings set forth in Rowe and its progeny and state the basis for awarding any such attorney's fees.

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Stalley v. Williford, --- So.3d ----, 2010 WL 4967982 (Fla. 2 Dist. Dec 08, 2010)

Probate courts can get reversed for refusing to appoint as personal representative (PR) the person with preference under F.S. 733.301. Don't get me wrong, probate courts do have the inherent authority to override this statute, but only if there are specific findings of fact - developed in the context of a formal evidentiary hearing - that the statutorily preferred person lacks the "qualities and characteristics" necessary to serve as PR [click here].

In the linked-to case the probate court attempted to exercise its inherent authority to override the PR-preference statute, but failed to support its order with evidence suggesting the statutorily preferred person was unfit to serve as PR. No evidence of unfitness = reversal. Here's why:

Pamela Lynn Williford died in 2008, leaving two minor children as the sole heirs of her intestate estate. Douglas Stalley was tendered by the children as a suitable personal representative, but the circuit court appointed Williford's father, Harrison Williford, instead. This appointment was contrary to the statute prescribing the order of preference for appointment of a personal representative in this case. Accordingly, we reverse.

The statute, section 733.301, Florida Statutes (2008), sets forth the following order of preference in appointment of a personal representative of an intestate estate:

1. The surviving spouse.

2. The person selected by a majority in interest of the heirs.

3. The heir nearest in degree.

§ 733.301(1)(b).

There was no surviving spouse in this case. Douglas Stalley was the person selected by both heirs, acting through the guardians of their property as authorized under section 733.301(2). Thus, Stalley should have been appointed unless otherwise disqualified. Cf. §§ 733.302, 303 (providing qualifications for personal representative); In re Estate of Snyder, 333 So.2d 519, 521 (Fla. 2d DCA 1976) (holding, under earlier version of statute, that court did not abuse its discretion in declining to appoint person with statutory preference where he lacked “the qualities and characteristics necessary to properly perform the duties”).

There was a complete absence of evidence to suggest that Stalley was unfit to serve. Thus, the court abused its discretion by appointing the decedent's father rather than the representative chosen by the heirs.

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Deathbed marriages can be the ultimate weapon for those looking to prey on the elderly. In Florida you can marry someone minutes before their death and automatically vest into the right to live in the decedent's homestead residence rent-free for the rest of your life, a 50%-100% share of the decedent's estate under Florida's intestacy statute or pretermitted spouse statute, or at the very least a 30% share of the decedent's estate under Florida's elective share statute.

What may come as a shock to most lawyers is that under Florida common law heirs are stopped cold on a per se basis from challenging deathbed marriages -- no matter how ugly the circumstances may be. This, by the way, is the traditional rule applicable in most U.S. jurisdictions (see How Do I Love Thee, Let Me Count the Days: Deathbed Marriages in America).

Efforts have been under way since 2008 aimed at closing this loophole [click here], culminating in 2010 with the creation of F.S. 732.805. This statute is a dramatic change from existing Florida law. For the first time in state history a decedent's heirs will have legal standing to challenge a deathbed marriage on the grounds of fraud, duress or undue influence.

Florida probate lawyers would do well to familiarize themselves with F.S. 732.805; and for those of you looking for a little help on that front, you'll want to check out this 2008 Bar-committee White Paper and the 2010 Florida Senate Bill Analysis covering the new statute. Here's an excerpt from the Senate Bill Analysis:

The bill creates s. 732.805, F.S., which provides that a surviving spouse found to have procured a marriage to the decedent by fraud, duress, or undue influence is not entitled to certain rights or benefits that inure solely by virtue of the marriage or the person’s status as surviving spouse, unless the marriage is subsequently ratified. Specifically, the surviving spouse is not entitled to the following:

[1]  Any rights or benefits under the Florida Probate Code, including entitlement to elective share or family allowance; preference in appointment as personal representative; inheritance by intestacy, homestead, or exempt property; or inheritance as a pretermitted spouse.

[2]  Any rights or benefits under a bond, life insurance policy, or other contractual arrangement if the decedent is the principal obligee or the person upon whose life the policy is issued, unless the surviving spouse is provided for by name in the bond, life insurance policy, or other contractual arrangement.

[3]  Any rights or benefits under a will, trust, or power of appointment, unless the surviving spouse is provided for by name in the document.

[4]  Any immunity from the presumption of undue influence that a surviving spouse may have under state law.

If the surviving spouse is found to have procured the marriage by fraud, duress, or undue influence, then any of the above rights or benefits that would have passed solely to the surviving spouse by virtue of the marriage shall pass as if the spouse has predeceased the decedent.

Any interested person may bring a challenge to a surviving spouse’s rights as a defense, objection, or cause of action. The contestant has the burden of establishing, by a preponderance of the evidence, that the marriage was procured by fraud, duress, or undue influence. If the surviving spouse raises ratification as a defense, the spouse has the burden of establishing, by a preponderance of the evidence, the subsequent ratification by both parties. A challenge made under this section must be commenced within four years after the decedent’s death, unless the claim is barred sooner by adjudication, estoppels, or a provision of the Florida Probate Code or Florida Probate Rules.

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Piloto v. Lauria, --- So.3d ----, 2010 WL 4103017 (Fla. 4th DCA Oct 20, 2010)

Increasing numbers of people have connections with one country, but live and work in another, frequently owning property or investments in several countries. So it shouldn't come as a surprise to anyone that every day more and more Florida estates are impacted by multi-national issues.

What's a probate lawyer to do?

Focus on a couple of guiding principles that only apply to multinational estates; then work the case like you would any other ancillary estate under Ch. 734 of Florida's Probate Code. In Nahar v. Nahar, 656 So.2d 225 (Fla. 3d DCA 1995), the court identified the two guiding principles that apply to any Florida court attempting to reconcile the separate arrangements for ownership, taxation, and succession governing multinational estates.

1. “Administration of an estate is governed by the law of the decedent's domicile”; and
2. “[w]here a party has had notice and opportunity to be heard and the foreign court has satisfied Florida's jurisdictional and due process requirements[,] their orders will be entitled to comity.” Id. at 229-30.

These principles were very much in play in this case. Here's how the 4th DCA summarized the key facts and foreign probate judgment at issue:

The decedent was survived by his wife and four adult children from a prior marriage. He died intestate, that is, without a will. The probate of his estate occurred in his domicile of Venezuela. A Venezuelan court entered a judgment finding that his wife and children were the sole heirs of his estate. The face of the judgment, however, makes no further findings and does not appoint a personal representative for the estate.

Key take-away points from this summary:

1. Decedent's domicile: Venezuela.
2. Decedent died intestate, i.e., without a will.
3. Limited scope of Venezuelan probate judgment: the Venezuelan probate judgment did NOT appointment a personal representative (PR) for the decedent's estate.

Both the probate judge and the 4th DCA agreed the Venezuelan probate judgment did NOT appointment a personal representative (PR) for the decedent's estate. As such, the key legal issue here in Florida was who should be appointed PR.

F.S. 734.102 governs the appointment of PR's for ancillary estates. According to that statute, if the decedent dies intestate you're supposed to apply the rules generally applicable in Florida for the appointment of PRs, which are found in F.S. 733.301. Under that statute the surviving widow is first in line to be PR, and that's how the Florida probate court ruled. Right answer!, says the 4th DCA. Here's why:

[The] first four sentences [of subsection (1) of F.S. 734.102] all address a situation in which the decedent dies testate, that is, with a will. Subsection (1)'s fifth sentence . . . is the only sentence which addresses what occurs “[i]f the decedent dies intestate.” In that situation, “the order of preference for appointment of a personal representative as prescribed in this code shall apply.” As the circuit court found, that language directs us to section 733.301(1)(b), Florida Statutes (2008), which provides that, in granting letters of administration in intestate estates, the order of preference is “[t]he surviving spouse” followed by “[t]he person selected by a majority in interest of the heirs.” Such an interpretation does not conflict with [subsection (4) of F.S. 734.102]'s insistence that “[a]ll proceedings for appointment and administration of an estate shall be as similar to those in original administrations as possible.” Here, the original administration did not involve the appointment of any personal representative, so appointing the wife as the ancillary personal representative does not conflict with the original administration.

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Covenant Trust Co. v. Guardianship of Ihrman, --- So.3d ----, 2010 WL 3564731 (Fla. 4th DCA Sept. 15, 2010)

Clients and lawyers alike must contend with an underfunded court system where procedural due process is often viewed as an unnecessary luxury. So what can you do? First, make sure you do your part to help your judge do his part (see Persuading a Cold Judge). Second, insist on evidentiary hearings (not just argument of counsel) to decide contested issues of fact. Sounds like pretty basic stuff; you'd be surprised how often it doesn't happen: click here, here, here, here.

Evidence, Evidence, Evidence . . .

In this case a probate judge entered multiple orders -- all on issues clearly requiring evidentiary hearings -- based on nothing other than argument of counsel. Not surprisingly the 4th DCA reversed all of these orders. The obvious take-away from this case is that evidentiary hearings matter. The less obvious point -- but really the more important one -- is that it's up to counsel to make sure they anticipate the tendency in probate proceedings to bypass evidentiary hearings and compensate accordingly. Your worst enemy is the rushed 15-minute hearing where the judge ends up entering an order that takes you the next 12 months to get reversed on appeal.

In this case Covenant Trust Company, an Illinois corporate trustee, got sucked into a contested Florida guardianship proceeding when it received a petition in the mail (i.e., no legal service of process) from the Florida guardian accusing it of breaching its fiduciary duties and asking the Florida probate judge to immediately take control of the trust by, among other things, ordering the trustee to pay guardianship-related expenses in Florida and ordering the trustee to no longer use trust funds to pay its lawyers.

Here's how the 4th DCA deconstructed each of the probate court's rulings: all of which were reversed for lack of evidence.

[1] Can a court haul a foreign trustee into a Florida court without evidence? NO

The Illinois trustee argued it shouldn't be subject to the Florida court's jurisdiction because it didn't have enough contacts with Florida to fall under F.S. 48.193, our long-arm statute. Both sides filed conflicting affidavits on this issue, as required under Florida law. Once you have conflicting affidavits, the trial court is required to conduct an evidentiary hearing to sort it all out. That didn't happen.

Here, Guardian's and Covenant's affidavits cannot be reconciled, as Guardian attested Covenant conducted business in Florida, and Covenant denied this. The trial court only held hearings and decided the issue based on the attorneys' arguments. See Ralph v. McLaughlin, 756 So.2d 240, 241 (Fla. 2d DCA 2000) (where trial court only heard the arguments of counsel before deciding the motions to dismiss based on lack of personal jurisdiction, the Second District, pursuant to Venetian Salami, reversed and remanded the case so the trial court could hold a limited evidentiary hearing on the minimum contacts issue to resolve the conflicting affidavits); Sonson v. Hearn, 17 So.3d 745, 747 n. 1 (Fla. 4th DCA 2009) (citing Leon Shaffer Golnick Adver., Inc. v. Cedar, 423 So.2d 1015, 1017 (Fla. 4th DCA 1982)) (unsworn statements by an attorney at a hearing do not establish facts upon which the trial court can rely). Therefore, the trial court erred by not conducting a limited evidentiary hearing to determine if Covenant had the required minimum contacts to expect to be haled into court in Florida. See Golant v. German Shepherd Dog Club of Am., Inc., 26 So.3d 60, 62-63 (Fla. 4th DCA 2010) (with regard to minimum contacts, due process is met if a non-resident defendant would reasonably anticipate being haled into a Florida court).

Even assuming the Florida court had jurisdiction over the Illinois trustee, it still had to contend with Florida's special venue statute for trust litigation: F.S. 736.0205. Under this statute the presumption is that you have to sue foreign trustees in their home states (click here, here, here). According to the 4th DCA, the trial court seems to have skipped this point too.

Assuming the trial court has the requisite in personam jurisdiction, Covenant argues section 736.0205 requires this action be brought in Illinois, unless all parties could not be bound by litigation in the courts where the trust is registered. . . . It is not clear from the record if “all interested parties could not be bound by litigation in the courts of the state where the trust is registered or has its principal place of administration.” Thus, if the trial court determines it has in personam jurisdiction, it will next need to determine if the interested parties could be bound by litigation in Illinois. . . . We reverse and remand the case to the trial court with directions to hold an evidentiary hearing on the issue of jurisdiction over Covenant.

[2] Can a court bar a trustee from using trust funds to pay its legal fees without evidence? NO

In trust litigation one of the biggest advantages a trustee-defendant has is its ability to pay for its legal defense with trust funds, while the plaintiff is left to pay for its side of the litigation out of its own pocket. Plaintiffs can level the playing field by getting the court to enter an order cutting the trustee off from trust funds to pay legal fees. This tactic was so troubling to Florida's trustee community that in 2008 it resulted in a brand new stand-alone statute intended to make sure trustees weren't unfairly treated in these proceedings: F.S. 736.0802(10). I wrote about the lead-up to this statute and its eventual passage here.

A key procedural protection built into F.S. 736.0802(10) is the trustee's entitlement to an evidentiary hearing. Again, that didn't happen. Again, the 4th DCA reversed. Here's why:

To obtain an order prohibiting Covenant from paying any more attorney's fees from the trust assets, section 736.0802(10)(b) states that the “party must make a reasonable showing by evidence in the record or by proffering evidence that provides a reasonable basis for a court to conclude that there has been a breach of trust.” No evidence was provided or proffered showing a breach of trust.  . . . Accordingly, the trial court erred in entering this order without making any such finding of breach of trust.

[3] Can a court force a trustee to pay guardianship fees without evidence of the payments being mandated or the trustee acting arbitrarily? NO 

It's not unusual for probate courts to force the trustees of an incapacitated grantor's revocable trust to pay for some or all of the grantor's guardianship costs. This case demonstrates that although that practice may be common, it's at odds with long-standing Florida law if done over the legitimate objections of the trustees. This is an important point all trustees involved in guardianship proceedings need to remember. Finally, when reading the 4th DCA's analysis of this issue note again how we come back to the "no-evidence" theme.

In Cohen v. Friedland, 450 So.2d 905, 906 (Fla. 3d DCA 1984) (citing White v. Bacardi, 446 So.2d 150, 155 n. 5 (Fla. 3d DCA 1984)), the Third District explained that “[a] trustee, in the strictest sense, holds legal title to property which he administers for the named beneficiary in accordance with the terms of the instrument creating the trust.” The trust agreement provided that the beneficiary would receive the trust income and the trustees had sole discretion to invade the trust principal for the beneficiary's maintenance, comfort, and welfare. Id. But “[i]n the absence of proof that the trustee has failed to perform, or has performed arbitrarily, a court is without authority to remove trust assets from control of the trustee to be administered by the court or other guardian.” Id.

In Giglio v. Perretta, 493 So.2d 470, 470 (Fla. 4th DCA 1986), we held the “trial court erred in requiring the trustee to use trust assets to reimburse the guardian of the trust beneficiary for guardianship administration expenses, attorneys fees, and other costs.” We explained that although paying some of these costs may have been allowed, in the trustee's discretion, these payments were “not legally mandated by the trust provisions,” so the court had “no authority to compel the trustee to make such payments,” nor any authority for the attorney's fees award. Id. (citing Cohen, 450 So.2d 905).

Further, in Johnson v. Guardianship of Singleton, 743 So.2d 1152, 1153 (Fla. 3d DCA 1999), the Third District, citing Cohen, held that there was “no statutory or other satisfactory legal justification for the award” of legal expenses, where the trial court ordered the trustee “to pay from trust assets the legal expenses incurred” by the guardian.

Here, Covenant, as trustee, was granted, within the trust provision, the discretion to make payments from the trust assets. There was no evidence that Covenant acted arbitrarily. Therefore, the court lacked the authority to order Covenant to remove trust assets. As explained in Giglio, these payments were not legally mandated in the trust terms. Further, as in Johnson, there was no statutory or other legal authority for the court to order the payments. Because the trust did not provide for the payment of attorney's fees, and Covenant could make payments in its discretion for Lillian's best interests, the court was without authority to order Covenant to pay Guardian's attorney $10,000 from the trust assets.

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In un-contested probate proceedings, there are all sorts of issues you can resolve via affidavits without incurring the costs and delays inherent to hauling in live witnesses for an evidentiary hearing. By contrast, the minute probate proceedings morph into litigation the rules of evidence apply in full force. Which means you can't get away with using affidavits unless there's some sort of applicable hearsay exception. For example, the 5th DCA recently made the point here that affidavits won't cut it to prove a "lost" will. You need live witnesses for that kind of case.

In a will contest the estate has the initial burden of proving the formal execution and attestation of the will. Once the estate’s done that, the burden of proof then shifts over to the contestant. But what do you do if the will at issue was executed years (perhaps decades) earlier and you simply can’t track down the witnesses? In the past it was an open question as to whether you could use an affidavit to establish prima facie the formal execution and attestation of the will. Here's how this Legislative White Paper explained the problem:

In proceedings contesting the validity of a will, Florida Statutes § 733.107 provides that "the burden shall be upon the proponent of the will to establish prima facie its formal execution and attestation." Occasionally, at the time of testator's death, witnesses to the execution and attestation of a will are dead or otherwise unavailable (i.e. they cannot be located, are incapacitated, or perhaps have no recollection of the signing ceremony). Because the rules of evidence are applicable to probate proceedings, a self proving affidavit or oath of an attesting witness taken outside of the probate proceedings could be excluded as hearsay making it difficult or impossible for the proponent of the will to meet the burden of presenting prima facie proof of due execution and attestation in a will contest, particularly for wills that were executed many years or even decades ago. Should the present unavailability of the attesting witness, who has previously given a sworn statement regarding due execution and attestation, thwart the testator's constitutional right to dispose of his property by will as recognized by the Florida Supreme Court in Shriners Hospital For Crippled Children v. Zrillic, 563 So.2d 64 (Fla. 1990). The proposed legislation amends Florida Statute §733.l07 to permit self-proving affidavits and oaths of attesting witnesses executed in compliance with the Florida Probate Code to be admitted into evidence to establish the prima facie evidence needed to meet the initial burden of proving formal execution and attestation in contested probate proceedings.

Fear no more, the hearsay problem's been fixed statutorily in the following new sentence to Florida Statutes § 733.107:

A self-proving affidavit executed in accordance with s. 732.503 or an oath of an attesting witness executed as required in s. 733.201(2) is admissible and establishes prima facie the formal execution and attestation of the will.

"But wait, there's more!"

Palm Beach County board certified trusts and estates attorney Pete Matwiczyk responded to this blog post with an insightful warning: the new legislation's a good start, but not a complete fix. To understand why you need to read Mr. Matwiczyk’s comments. With his permission, I’ve quoted them below.

This legislation puts a patch on the problem, but not a complete fix. I brought the issue to the attention of Lee McElroy and the probate litigation committee of RPPTL. Lee was the prime mover and (I believe) the draftsperson of the white paper. After the legislative patch, only wills with self proving affidavits, or with living witnesses who are available to give an affidavit can be saved. Be very careful about the wills in your will vault, especially if they were drafted by the long retired and deceased partner who drafted wills before the adoption of the Florida Probate Code, in 1974, which allowed for and popularized the use of self proving affidavits.

Consider a challenge that is otherwise completely without merit, but that succeeds only because the proponent cannot meet the strict evidentiary requirements to establish due execution. The legislation falls short. In that case, even the new 733.107 does not save the document after the burden shifts to the proponent.

Section 733.107 is derived, in part, from the UPC. States other than Florida have developed or adopted solutions so that wills that otherwise qualify as valid wills under the statute of wills, are not rendered invalid just because a challenge is filed and there are no witnesses to overcome the hearsay rule. For example, not all states have adopted an absolute burden shift approach once a contest is filed. The burden shift need not be absolute, but could be the subject of a proffer type proceeding, just like was enacted as part of 736.0802 (10) prohibiting payment of trustee attorney fees.

Another possible Florida specific remedy would be an amendment to the evidence code, for a limited exception (of some type) but reaching beyond the probate code, into the evidence code. According to what I heard, the evidence code was a more ambitious undertaking that would have apparently taken too long with an unpredictable outcome.

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Back in 2007 I wrote here about a provocative Florida Bar Journal article [click here] by renowned trusts and estates attorney Jeffrey A. Baskies sounding the alarm on the unfair economic burden borne by widows and widowers receiving life estates in homestead property and the inability of these surviving spouses to use partition actions to remedy their situations. Here's how Mr. Baskies summed up the problem:

Florida’s homestead laws have created a new trap for surviving spouses — the life estate that was designed to protect them has instead trapped them in homes they no longer want and can no longer afford.

This situation has become acute as a result of the convergence of several developments over the past five years. There has been a tremendous increase in property taxes statewide. While many homesteads have benefitted from the “save our homes” cap on ad valorem property taxes, for those that were purchased in the last few years, the base for property taxes may already be inflated. Homeowners’ insurance costs for everyone have increased as much as several hundred percent. For many surviving spouses, there have been special assessments for condo and homeowners’ associations for hurricane damage. For those in single family homes, many have had to pay for significant repairs not covered by insurance. Floridians benefitting from the “save our homes” cap on their property taxes have a generalized fear of moving, because to do so could result in significantly increased taxes as a result of purchasing a new home (even a less expensive one). Finally, as a result of increased property values, many surviving spouses who want to move fear they cannot find a reasonable alternative place to live.

Combined, these factors have created a difficult situation for many Florida residents. But, when coupled with an inability to alter or sell their life interests, many surviving spouses are trapped in their homesteads. If they no longer desire to live in their homes or they can no longer afford to do so, what can they do and where can they go?

Legislators responded to Mr. Baskies' call to action by amending F.S. 732.401 to allow a surviving spouse to opt out of a life estate and instead take a 50% tenancy-in-common interest in the homestead property. As explained in this Legislative White Paper, taking a 50% tenancy-in-common interest in lieu of a life estate can offer significant benefits to surviving spouses. If the surviving spouse is incapacitated, F.S. 744.444(9) has been amended to empower her guardian to make the election for her.

A key provision of this new legislation is the applicable deadline: the election must be made within 6 months after the decedent’s death and during the surviving spouse’s lifetime. Bottom line, the new statute and the Legislative White Paper explaining how it works should be required reading for all Florida probate lawyers.

But What about Post-death Disclaimers of Homestead Rights?

Another way surviving spouses have always been able to opt out of homestead property rights is via a post-death disclaimer. However, there's been conflicting trial-court rulings on exactly what happens as a matter of law when a surviving spouses disclaims his or her homestead-property rights. Here's how the conflcting authority was summarized in this Legislative White Paper:

In reviewing the effect of a spouse's disclaimer of his or her homestead interest, circuit courts have reached conflicting results. See In Re: Estate of Joseph T Ryerson, Jr., No. 93-307 (Fla. 15th Cir. Ct., June 17, 1993), affd, per curiam, No. 93-2074 (Fla. 4th DCA July 20,1994) and In re: Estate of Frances N Janien, 12 Fla. 1. Weekly Supp. 221 (February 28, 2005), Case No. 502004CP000973 (Fla. 15th Cir. Ct., (December 6, 2004), in which the courts held that where homestead was invalidly devised, a post death disclaimer of the surviving spouse's life estate in homestead did not divest the decedent's descendants of their vested remainder interests. At least one other circuit court has reached an opposite result under similar facts and held that the spouse's disclaimer would divest the decedent's descendants of their interests and give effect to the otherwise invalid devise. See In Re: Estate of Harry Sudakoff, No. 91-87 (Fla. 12th Cir. Ct. March 25, 1994), affd, per curiam, No. 94-02102 (Fla. 2d DCA, March 10, 1995). 

New legislation addresses this conflicting authority by codifying the Ryerson approach in new subsection (4) of F.S. 732.401 and new subsection (3) of F.S. 732.4015.

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Magill v. Dresner, --- So.3d ----, 2010 WL 3025111 (Fla. 3d DCA Aug 04, 2010)

Planning for incapacity - not just death - is a cornerstone of modern estate planning. And let's be clear, the type of incapacity most likely to affect any of us is dementia. According to the Alzheimer's Association's 2010 report: 5.3 million people in the US have Alzheimer's, it's the 7th leading cause of death, it's annual cost to our society is 172 billion dollars, and 10.9 million unpaid caregivers bear most of the burden.

What's scary about dementia is that you're vulnerable to the worst forms of abuse and exploitation by your own caregivers. The single most effective way to plan against this risk is choosing the right person - in advance - to be your legal guardian in the event of incapacity. The way you do that under Florida law is by executing a "Declaration Naming Preneed Guardian" in which you make known to the world the one person (or group of persons) you think is best suited to serve as your guardian if at some later date you become incapacitated.

Here's the statutory scheme controlling how these documents work in real life:

• F.S. 744.3045: This is the key statute. It creates a statutory presumption in favor of appointing your designated preneed guardian. This directive's been interpreted as requiring a probate judge to appoint your designated preneed guardian unless there's "substantial, competent evidence" establishing that:
• your designated preneed guardian is disqualified from serving as a matter of law under F.S. 744.309 (e.g., a felony conviction will automatically disqualify you); or
• the court determines under F.S. 744.312 that it's NOT in your best interest to appoint your designated preneed guardian (which is what happened in this case).

Preneed guardianship designations work fine most of the time. The linked-to case above is an example of when things go wrong. Rather than waiting to actually read the ward's Declaration Naming Preneed Guardian, the court simply relied upon a verbal summary of the document provided by counsel for one of the parties (which turned out to be wrong!) and then proceeded to rule on the merits of the case in the absence of "substantial, competent evidence."

The 3d DCA reversed this ruling, ultimately honoring the ward's preneed guardian designation. Nice to know, but not especially helpful to practicing lawyers called upon to actually litigate these cases. What lawyers need to know is what kind of evidence is outcome determinative. Once you know that, you can plan ahead for your next trial. Here's what the 3d DCA had to say about that:

We find that the probate court abused its discretion in appointing Dresner as Shirley's plenary guardian. First, the probate court failed to properly consider the Declaration prior to appointing Dresner. It is undisputed that the Declaration was not filed with the probate court until June 24, 2009, eight days after the hearing on the petition. Therefore, the probate court did not have the Declaration before it when it concluded that the Declaration required all three daughters to act in unison as guardian. Instead, the probate court based its conclusion on representations made by Tew concerning the Declaration as well as other testamentary documents Shirley executed. This was error.

Translation: Representations of counsel aren't evidence, if you don't have the actual Declaration in evidence, your judge shouldn't rule.

Second, contrary to the probate court's belief, the Declaration is clear that it is Shirley's wish that in the event of her incapacitation her three daughters are to serve as her guardian. The probate court did not make a factual finding that any of the daughters was unqualified, unwilling, or unable to serve as guardian. Rather, the probate court based its conclusion on a belief that the Declaration required them to act in unison, and that because one of the sisters, Maureen, was not in agreement with the appellants concerning their mother's living arrangement, she could not appoint all three to serve as guardian. Because the Declaration does not require unanimity among the daughters in order to be appointed or serve as guardian, this conclusion was also erroneous.

Translation: A court can't ignore a person's preneed guardian designation in the absence of a factual finding - based upon substantial, competent evidence - that the designated preneed guardian is "unqualified, unwilling, or unable to serve as guardian."

Finally, there was no evidence that the appointment of the daughters as guardian would not be in Shirley's best interest. The record reveals simply that the appellants and Maureen are in disagreement concerning one aspect of their mother's life-her living arrangement. As already explained, the Declaration does not require that they be in agreement on all aspects of their mother's life or care. Because Dresner and Nguyen agreed with Maureen's proposal for her mother's living arrangement and the probate court ultimately appointed Dresner as plenary guardian, the probate court's ruling has the effect of allowing the minority of the designated preneed guardians to control the majority. This result, however, is contrary to the plain language of the Declaration, which clearly allows for decisions concerning guardianship matters to be made by majority rule rather than minority. Additionally, the probate court's finding that Shirley's assets will “dissipate very quickly” because the appellants and Maureen cannot agree on this one aspect of their mother's life has no basis in fact in the record.

Translation: A court can't ignore a person's preneed guardian designation in the absence of a factual finding - based upon substantial, competent evidence - that appointing the designated preneed guardian would NOT be in the ward's "best interests."

For the above reasons, the record lacks substantial competent evidence to overcome the statutory presumption that the designated preneed guardians, as set forth in Shirley's Declaration, are entitled to serve as her plenary guardian. Accordingly, we reverse the order on appeal appointing Dresner the plenary guardian and reverse with directions to the probate court to appoint all three daughters, the appellants and Maureen, as the plenary guardian of their mother, Shirley.

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Price v. Austin, --- So.3d ----, 2010 WL 3120212 (Fla. 1st DCA Aug 10, 2010)

Over the last few years probate lawyers have been scratching their heads wondering if, when and how Civ. Pro. Rule 1.525, the rule setting a 30-day post-judgment deadline for filing fee motions in civil litigation, applies to contested probate and trust proceedings. This is an important issue; the last thing any lawyer wants to do is blow a deadline for claiming fees on behalf of his client. Here's what the rule says:

Any party seeking a judgment taxing costs, attorneys' fees, or both shall serve a motion no later than 30 days after filing of the judgment, including a judgment of dismissal, or the service of a notice of voluntary dismissal.

By now there's no question the rule applies in any "adversary" probate proceeding and in all trust litigation. In 2008 the 2d DCA held here that the rule applies in Trust litigation, then in 2009 the 5th DCA held here that the rule applies in adversary probate proceedings, and now in the linked-to opinion the 1st DCA has come to the same conclusion with respect to adversary guardianship proceedings:

[A] notice that the proceeding for incapacity was adversary was served on June 12, 2008. On July 7, 2008, the court entered an order determining total incapacity. Over a year later, on September 18, 2009, appellant served a verified petition to approve payment of fees. Florida Probate Rule 5.025(d)(2) provides that, once a proceeding under the probate rules has been declared to be adversarial, it “shall be conducted similar to suits of a civil nature and the Florida Rules of Civil Procedure shall govern, including entry of defaults.” Florida Rule of Civil Procedure 1.525 requires a motion for attorney's fees to be filed “no later than 30 days after filing the judgment....” In Hays v. Lawrence, 1 So.3d 1176, 1177 (Fla. 5th DCA 2009), the court held that, in a proceeding declared as adversarial, rule 1.525 governed a motion for attorney's fees filed pursuant to section 733.106(2) and affirmed a denial of a claim for attorney's fees as untimely under the rule. Although Hays involved a different fee statute than the case before us, section 733.106(2) and section 744.108, applicable here, are similar. Both statutes are legislative expressions of the desirability of the payment of attorney's fees for services rendered under the specified proceeding. Accordingly, because the petition for attorney's fees was untimely filed under rule 1.525, the trial court's order denying fees is AFFIRMED.

Must be an "adversary" proceeding:

An important point to keep in mind with respect to contested guardianship (and probate) proceedings is that Rule 1.525 only applies to "adversary" proceedings (assume the rule applies to all trust proceedings). So if someone tries to block your fee petition by citing to this rule, make sure your judge understands it simply does NOT apply to probate and guardianship proceedings that have NOT been declared adversarial in accordance with Florida Probate Rule 5.025.

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Brennan v. Estate of Brennan, --- So.3d ----, 2010 WL 2866987 (Fla. 5th DCA Jul 23, 2010)

When you can and can't use affidavits is one of those technical questions probate lawyers don't often ask themselves. Especially when you're talking about neutral third-party witnesses (such as the witnesses to a will signing), my sense is that most lawyers will opt for affidavits whenever possible to avoid the expense and inconvenience of hauling live witnesses into court.

The issue in this case was whether live witness testimony is required as a matter of law to prove a lost will, or whether affidavits alone will do if your probate judge says OK. But first a short recap on the law governing lost wills in Florida:

1. When an original will that is known to have existed cannot be located after the death of the decedent, the presumption is that the testator destroyed the will with the intent to revoke it.
2. The proponent of the lost will has the burden of introducing competent, substantial evidence to overcome the presumption of revocation.
3. The first step in overcoming the presumption of revocation is by the establishment and admission to probate of the lost or destroyed will pursuant to F.S. 733.207.
4. Under F.S. 733.207, if you can come up with a copy of the lost will, then all you need is "the testimony of . . . one disinterested witness" to prove up the terms or "content" of the lost will you're trying to probate.

For prior blog posts covering lost/destroyed wills click here, here, here, here.

5th DCA says NO to affidavits:

The 5th DCA ruled that "the submission of affidavits was insufficient pursuant to section 733.207 to establish [a] lost will." In other words, live witness testimony is required, it's NOT optional. Here's how the 5th DCA explained its ruling:

In In re Estate of Parker, 382 So.2d at 654, the supreme court, interpreting an earlier version of section 733.207, discussed the proof required to establish a lost will in the presence and absence of a correct copy of the will, explaining: “A draft which is an accurate and correct reflection of the contents of a lost will is not the same as a ‘correct copy.’ To prove the former the statute requires the testimony of two witnesses. To prove the latter, the testimony of one witness suffices.” (Emphasis added.)

The Third District took the same position in In re Estate of Hatten, 880 So.2d 1271, 1275 (Fla. 3d DCA 2004), when it stated: “As explained by the statute, establishment of a will can be accomplished only if there is the testimony of a disinterested witness plus a copy of the will, or if there is the testimony of two disinterested witnesses.” (Emphasis added.) See also In re Estate of Musil, 965 So.2d 1157 (Fla. 2d DCA 2007) (niece failed to present testimony of at least one disinterested witness to prove execution and content of will as required to establish lost or destroyed will); In re Estate of Kero, 591 So.2d 675 (Fla. 4th DCA 1992) (testimony of one subscribing witness to original will's proper execution proved content of original).

In this case, the only testimony in support of the petition to establish lost will came from Ms. Honsberger, who had an interest in the outcome of the case. The statute requires the testimony of at least one disinterested witness, which she was not. Although the trial judge indicated, and the parties agreed, that an additional evidentiary hearing would be scheduled so that Ms. Honsberger could present the testimony of a disinterested witness, no such hearing was conducted. Instead, the trial court admitted the lost 2002 will to probate upon the submission of witness affidavits alone. These affidavits merely stated that the witnesses saw the decedent execute the will and that they signed as witnesses immediately thereafter. Appellants did not stipulate to the submission of affidavits in lieu of testimony. Accordingly, we find an evidentiary hearing should have been conducted and that the submission of affidavits was insufficient pursuant to section 733.207 to establish the lost will.

Lesson learned?

A case about affidavits may seem trivial. It's not. Why? Because it's the type of "in-the-trenches" know how experienced lawyers bring to bear when meeting with new clients and estimating how long a case will take to litigate and how much it's going to cost. If your client knows - up front - that you can't get a lost will admitted to probate in the absence of a mini-trial with live witnesses, and that mini-trials are expensive and can take a long time to litigate, then all is well. If not, then all will not be well once everyone realizes what was supposed to be a simple "on the papers" proceeding you could knock out with a few affidavits . . . is anything but simple.

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Congress shocked everyone by letting the estate tax lapse in 2010. What I've found most interesting about this state of affairs are the unintended consequences:

First, no estate tax in 2010 is great news for the super rich, like George Steinbrenner's heirs, but bad news for the moderately wealthy, people who have assets between $1.3 million and $3.5 million. For these families dying in 2010 likely means higher taxes. This is a federal tax issue only Congress can address.

Second, no estate tax in 2010 could lead to the unintended disinheritance of widows and widowers, which could in turn lead to expensive legal fights among family members. Potential inheritance litigation caused by Congressional inaction is a state-law issue that state legislators can step in and fix. And that's exactly what they've been doing.

Increased probate litigation threat: Florida's statutory fix: 733.1051 & 736.04114

As reported by Forbes in States Race To Clean Up Congress' Estate Tax Mess, state legislators have been busy passing legislation aimed at avoiding the unintended disinheritance of widows and widowers caused by the unforeseen lapse of the federal estate tax in 2010. Florida has now joined the club with passage of two new pieces of legislation: 733.1051 (governing wills), and 736.04114 (governing trusts). This White Paper does a good job of explaining the reasoning behind the new legislation.

Most states enacted simple one-size-fits-all statutes. The upside to this approach is that it's less expensive to implement. Here's how these statutes were described in the Forbes piece:

Most of the new emergency laws would set a default rule for interpreting wills and trusts while the federal estate tax is repealed, if the document itself doesn't spell one out. The rule: Any tax terms or formulas should be read as if the estate tax law of 2009 were still in effect. The proposed emergency laws also typically include a backstop provision allowing any potential beneficiary or executor to go to court, within a year from the date of death, if he or she doesn't think that this default is what the deceased really wanted.

The downside to the one-size-fits-all approach is that saving court costs is given priority over ensuring the testator's intent is followed. Maybe the testator knew exactly what would happen if he died in 2010 and intended that outcome? A one-size-fits all statute could essentially strip this testator of his testamentary freedom.

Florida didn't adopt a one-size-fits-all statute, opting instead for a more nuanced approach aimed at determining the testator's probable intent from all of the facts and circumstances. If your primary goal is effectuating testator intent, Florida's approach makes sense. But it comes at a cost: Florida's legislation makes it impossible to avoid the time and expense of a judicial construction proceeding. Here's how the Forbes piece described Florida's approach:

One renegade state--Florida--is proposing to send folks with ambiguous documents to court from the start to determine the deceased's intent, instead of assuming the deceased wanted to follow the estate tax law of 2009. The court could consider outside evidence, such as the estate attorney's testimony. The proposed law would allow estate assets to be used to pay for this proceeding and says that heirs might have to wait for distributions pending the outcome of the court's decision.

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Townsend v. Morton, --- So.3d ----, 2010 WL 2218327 (Fla. 5th DCA Jun 04, 2010)

Deeds are common will-substitutes, so no surprise they come up with some frequency in inheritance disputes . . .  and this blog [click here, here, here]. This case is about when a court will let you unwind a deed that was "procured by fraud, deceit, trickery, or artifice." All common accusations in inheritance disputes.

The property at the center of this family drama was a 46.3 acre cattle farm mom had inherited from her father. In exchange for son paying over $137,000 of mom's debts, she executed a deed conveying a remainder interest in the cattle farm to son, retaining a life estate for herself. Some time later son figures out that the guy who's been living with mom is actually married to her. According to the 5th DCA, mom had repeatedly "lied to him about her marital status." Although unstated in the opinion, mom's marital status is significant. Why? Because § 4(c) of Article X of Florida's Constitution requires both spouses to sign any deed conveying an interest in homestead property. Oops! I'm guessing son - a licensed real estate broker for 16 years - spotted this homestead issue, so he got mom and her husband to both sign a new deed. So far so good. 

Here's the problem: The third deed conveyed full title to son, no life estate for mom; he now owned the farm all by himself. Mom cried foul, saying she had no idea she'd just signed over the family farm.

As a lawyer for mom, if you heard this story you'd know there's a lawsuit in here somewhere. The tough part is figuring out how to fit these facts into a cause of action your client can successfully pursue in court. Well, look no further. Think "Rescission". And here's your road map courtesy of the 5th DCA:

Rescission is an equitable remedy adopted long ago by the courts, and the continued vitality of cases of ancient vintage that have applied this remedy is a testament to its age. See, e.g., Smith v. Richards, 38 U.S. (13 Pet.) 26, 36, 10 L.Ed. 42 (1839); Columbus Hotel Corp. v. Hotel Mgmt. Co., 116 Fla. 464, 156 So. 893, 897 (1934). Over the many years that the courts have utilized the equitable remedy of rescission, some principles have been firmly established regarding its applicability.

The courts have established that rescission is a proper remedy to relieve a party from obligations and provisions of an instrument procured by fraud, deceit, trickery, or artifice. Smith; Columbus Hotel. As the court explained in Columbus Hotel:

Equity will grant to a complaining party rescission of an agreement procured through fraud, deceit, artifice, or trickery practiced upon him by the opposite party, even after it had been partially executed, in cases where it is made to appear that the complaining party would not have entered into such agreement, nor changed his position thereby, if it had not been for the influence of such fraud, deceit, artifice, or trickery so practiced upon him.

156 So. at 897; see Smith, 38 U.S. (13 Pet.) at 36 (“In 1 Maddock's Chancery, 208, it is thus stated. If, indeed, a man, upon a treaty for any contract, make a false representation, whether knowingly or not, by means of which he puts the party bargaining under a mistake upon the terms of bargain, it is a fraud, and relievable in equity.”); see also Webb v. Kirkland, 899 So.2d 344, 346-47 (Fla. 2d DCA 2005) (holding that rescission of a warranty deed procured by fraud is appropriate); Bass v. Farish, 616 So.2d 1146, 1147 (Fla. 4th DCA 1993). The courts also have established that in order to grant rescission of an instrument, the other party must be restored to the position it occupied prior to its execution. See Webb; Bass; Lang v. Horne, 156 Fla. 605, 23 So.2d 848, 853 (1945).

Townsend claims that the third deed was obtained by fraud and should be rescinded. The elements that must be established to prove a claim of fraud are: “(1) a false statement concerning a material fact; (2) the representor's knowledge that the representation is false; (3) an intention that the representation induce another to act on it; and, (4) consequent injury by the party acting in reliance on the representation.” Johnson v. Davis, 480 So.2d 625, 627 (Fla.1985); see also Webb, 899 So.2d at 346; Taylor Woodrow Homes Fla., Inc. v. 4/46-A Corp., 850 So.2d 536, 542 (Fla. 5th DCA 2003); Lopez-Infante v. Union Cent. Life Ins. Co., 809 So.2d 13, 15 (Fla. 3d DCA 2002).

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Bessard v. Bessard, --- So.3d ----, 2010 WL 1875627 (Fla. 3d DCA May 12, 2010)

Durable powers of attorney (POAs) are an integral part of modern estate planning. The prevalence of POAs means they come up with some frequency in estate-related litigation [click here]. That's what happened in the linked-to case. What's interesting about this case is it's focus on F.S. 709.08(11), a little-known subclause of Florida's durable POA statute entitling the prevailing party in POA litigation to attorney's fees and costs. Here's what the statute says:

(11) DAMAGES AND COSTS.-- In any judicial action under this section, including, but not limited to, the unreasonable refusal of a third party to allow an attorney in fact to act pursuant to the power, and challenges to the proper exercise of authority by the attorney in fact, the prevailing party is entitled to damages and costs, including reasonable attorney's fees.

In this case a father signed a durable POA granting his son ("Joseph") authority over his property while he underwent treatment for leukemia, tuberculosis "and other medical infirmities." The POA was challenged in court by Joseph's mother and two sisters. Before the court could rule on the merits of the case, Joseph's father died. At that point Joseph sought to have the case dismissed as moot. Joseph also filed a "renunciation" of his powers under the POA.

The trial court granted Joseph's motion to dismiss, but also granted a motion for attorney's fees and costs filed by his mother and sisters as the prevailing parties. On appeal the 3d DCA affirmed the trial court's attorney's fee order as follows:

As to the attorney's fees and costs awarded to the appellees as the prevailing parties, we also affirm. Section 709.08(11), Florida Statutes (2007), provides that the prevailing party in power of attorney litigation is entitled to attorney's fees and costs. The determination of the prevailing party for the purpose of awarding attorney's fees and costs is based on whether the party seeking fees succeeded on any significant issue(s) in the litigation. See Moritz v. Hoyt Enters., Inc., 604 So.2d 807, 810 (Fla.1992) (holding “that the party prevailing on the significant issues in the litigation is the party that should be considered the prevailing party for attorney's fees”); Boxer Max Corp. v. Cane A. Sucre, Inc., 905 So.2d 916, 918 (Fla. 3d DCA 2005) (“The ‘prevailing party,’ for purposes of attorney's fees, is a party which the trial court determines prevailed on significant issues in the litigation.”).

Joseph contends that because the trial court never determined whether the signature on the power of attorney was executed by Mr. Bessard, and if executed whether it was done so knowingly and voluntarily, the trial court erred in granting the appellees attorney's fees and costs as the prevailing parties. We disagree. The appellees sought to have the power of attorney declared void, contending that the document was a fraud. When Joseph renunciated the powers granted to him under the power of attorney, agreed that the document be declared null and void, and destroyed the original and all copies, his actions necessarily mooted the complaint and was the functional equivalent of a judgment or verdict in favor of the appellees. See Augustin v. Health Options of S. Fla., Inc., 580 So.2d 314, 315 (Fla. 3d DCA 1991) (finding that when the defendant changed its position in the matter and made full payment as prayed for in the plaintiff's complaint, it necessarily mooted the complaint and was the functional equivalent of a judgment or verdict in favor of the plaintiff entitling the plaintiff to an award of attorney's fees as the prevailing party); see also Smith v. Adler, 596 So.2d 696, 697 (Fla. 4th DCA 1992) (holding that “it is [the] results, not [the] procedure, which govern the determination” of which party prevailed for purposes of awarding attorney's fees).

Lesson learned?

Litigation can be very expensive. Any time your client has a shot at getting the losing side to pay his or her attorney's fees, it's a BIG deal. Just as importantly, the downside risk of F.S. 709.08(11) needs to be understood by all at the outset. This disclosure should be prominent in your retainer agreements.

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Timmons v. Ingraham, --- So.3d ----, 2010 WL 2217637 (Fla. 5th DCA Jun 04, 2010)

As reported here by the WSJ, "When it comes to blended families, estate planning can be a special kind of hell." A corollary to that observation: blended families are always at risk for probate litigation. Yes, I said always! This case is an example of the type of probate litigation blended families can find themselves in and why these cases need to be treated like ticking time bombs both at the estate-planning phase and in the probate context.

Blended Family Red Flag: Stepmother as Beneficiary of Dad's Marital Trust = Estate Planning Trouble:

In 1999 "Frank Sr." died married to "Myrtle". Frank Sr. had two adopted children from a prior marriage, and Myrtle had four children of her own, whom Frank Sr. had never adopted. Frank Sr's will provided that at his death all assets would go in trust for Myrtle for life, and at her death everything would go to the couple's six children in equal shares. Frank Sr's will also gave Myrtle a "power of appointment" that could be exercised only in favor of his "descendants." Simple plan; the sort of thing traditional families put in place every day and no one ever contests. But this was a blended family, which means things are never simple.

Fast forward to 2007: Stepmother Myrtle is now attempting to use her power of appointment to disinherit her stepchildren (Frank Sr's two adopted children) in favor of her own four children. Think about these facts: we're not talking about Myrtle's personal assets here, this case is about Myrtle's attempt to give 100% of her former husband's estate to her children and 0% to Frank Sr's children. Yeah, not exactly a pretty picture.

Legal Definition: Stepchildren ≠ Descendants

The technical issue at play in this case was whether the term "descendants" should be interpreted or "construed" to include Frank Jr's stepchildren, thus allowing Myrtle to disinherit Frank Sr's children. Myrtle won at the trial court level, but lost on appeal. Here's how the 5th DCA explained its ruling:

In determining the intent of the settlor, a technical term used in a trust instrument should be accorded its legal definition, unless obviously used by the settlor in a different sense. Knauer v. Barnett, 360 So.2d 399, 406 (Fla.1978). “Lineal descendant” or “descendant” is defined to mean “a person in any generational level down the applicable individual's descending line.” It includes children, grandchildren, or more remote descendants but excludes collateral heirs. § 731.201(9), Fla. Stat. (2007). Adopted children come within the definition of lineal descendants. Lewis v. Green, 389 So.2d 235, 241 (Fla. 5th DCA 1980).

The co-trustees acknowledge that step-children do not ordinarily fall within the definition of “lineal descendants,” but contend that by expressly expanding the definition of “children” to include his step-children for purposes of his will, Frank Sr. similarly intended to expand the definition of “lineal descendants” to include his step-children and their descendants.” We reject this argument.

While Frank Sr.'s will expressly provided for a different definition of the term “children” than its common or legal definition, no similar attempt was made to modify the common or legal definition of the term “lineal descendants.” The lack of an attempt to redefine “lineal descendant” reflects an intent to have the term interpreted in accordance with its legal definition. Furthermore, Frank Sr. used the term “lineal descendants” on only two other occasions in his will. In one paragraph, Frank Sr. bequested his personal property, in the event Myrtle predeceased him, “to my children who survive me, or if none of my children survive me, then to their lineal descendants, per stirpes.” In a different paragraph, Frank Sr. bequested certain shares of stock “to my son Frank Timmons, Jr., or his lineal descendants per stirpes.” Thus, in both of these instances, the term “lineal descendants” was used in a manner consistent with its legal definition. Finally, there is no language elsewhere in the will reflecting an intent on the part of Frank Sr. to grant Myrtle the power to disinherit his children in favor of her own children.

As previously observed, a technical term used in a trust instrument should be accorded its legal definition unless obviously used by the settlor in a different sense. Knauer. Here, we believe that Frank Sr.'s testamentary document did not reflect an intent (and certainly not an “obvious” one) to expand the definition of lineal descendants to include step-children. Therefore, Myrtle's purported exercise of the limited power of appointment in favor of her natural children was invalid.

Lessons learned?

There's an obvious practice pointer here for estate planners: terms such as "children" and "descendants" are so crucial, they need to be defined in every will or trust. And if you're working with a blended family, it's imperative that you do so. Below is the standard form of "family" definitional clause used at my firm. This is the very first clause of every will and trust we draft.

I am married to MARY DOE, who is referred to as "my wife" in this Will. My wife and I are both citizens of the United States. My wife has been previously married and has two children from that marriage, CHILD 1 and CHILD 2, whom I have not adopted. References to "my wife's children" mean only her children named above. I have been previously married and have two children from that marriage, ADULT CHILD #1 and ADULT CHILD #2. References to "my children" mean only my children named above, as well as any other children of mine born or adopted after the execution of this Will; references to "my descendants" mean my children and their descendants.

If Frank Sr's will had had this kind of clause, tailored to reflect his exact wishes, this litigation could have probably been avoided.

Will and trust construction disputes are one of the most common forms of estate litigation, and - not surprisingly - a recurring theme on this blog. If you unpack the 5th DCA's opinion, you get a good example of how to argue a will-construction case. It's a convincing mix of law and logic, and certainly worth holding on to for the next time you find yourself litigating a similar case.

[1] 5th DCA: When in doubt, technical terms must be used in accordance with their legal definitions.

In this case, Frank Sr's will did NOT redefine the word "descendants". Ergo: you have to apply the statutory definition (which includes adoptees, but excludes step-children).

[2] 5th DCA: When in doubt, terms should be used consistently within the same document.

In this case the word "descendants" was used 3 times in Frank Sr's will. Once in the clause being litigated, then an additional 2 times in unrelated clauses. In the 2 uncontested clauses, the word descendants was used in accordance with its legal definition. Ergo: the legal definition of descendants should also apply to the contested clause as well.

[3] 5th DCA: Documents should be read in their entirety. When in doubt, terms should be used in a way that conforms with the rest of the estate plan.

In this case the 5th DCA noted: "[T]here is no language elsewhere in the will reflecting an intent on the part of Frank Sr. to grant Myrtle the power to disinherit his children in favor of her own children." Ergo: the word descendants should NOT be construed in a way that disinherits Frank Sr's children.

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Olmstead v. F.T.C., --- So.3d ----, 2010 WL 2518106 (Fla. Jun 24, 2010)

Limited liability companies or "LLCs" have long been touted as the ultimate entity for investors and business owners alike: combining the best asset protection qualities and tax benefits of corporations and partnerships into a single hybrid entity. One of the big asset-protection selling points for LLCs is that they're entitled to the same "charging order" creditor protection partnerships are entitled to.

This Florida Supreme Court case involved a $10 million judgment obtained by the FTC against the debtors for having "operated an advance-fee credit card scam." Assets of these debtors were frozen and placed in receivership. Among the assets placed in receivership were several single-member LLCs. To partially satisfy its judgment the FTC obtained an order compelling the debtors to endorse and surrender to the receiver 100% of their right, title, and interest in their LLCs.

The debtors cried foul, arguing that the most the FTC was entitled to under Florida's LLC Act was a charging order against their single-member LLCs. The case was appealed to the Eleventh Circuit, which in turn asked the Florida Supreme Court to rule on the charging-order issue. In what is sure to be a controversial opinion, the Florida Supreme Court ruled charging-order protection does NOT apply to single-member LLCs. Here's a key excerpt explaining the court's thinking:

Since the charging order remedy clearly does not authorize the transfer to a judgment creditor of all an LLC member's “right, title and interest” in an LLC, while section 56.061 clearly does authorize such a transfer, the answer to the question at issue in this case turns on whether the charging order provision in section 608.433(4) always displaces the remedy available under section 56.061. Specifically, we must decide whether section 608.433(4) establishes the exclusive judgment creditor's remedy-and thus displaces section 56.061-with respect to a judgment debtor's ownership interest in a single-member LLC.

As a preliminary matter, we recognize the uncontested point that the sole member in a single-member LLC may freely transfer the owner's entire interest in the LLC. This is accomplished through a simple assignment of the sole member's membership interest to the transferee. Since such an interest is freely and fully alienable by its owner, section 56.061 authorizes a judgment creditor with a judgment for an amount equaling or exceeding the value of the membership interest to levy on that interest and to obtain full title to it, including all the rights of membership-that is, unless the operation of section 56.061 has been limited by section 608.433(4).

Section 608.433 deals with the right of assignees or transferees to become members of an LLC. Section 608.433(1) states the basic rule that absent a contrary provision in the articles or operating agreement, “an assignee of a limited liability company interest may become a member only if all members other than the member assigning the interest consent.” See also § 608.432(1)(a), Fla. Stat (2008). The provision in section 608.433(4) with respect to charging orders must be understood in the context of this basic rule.

The limitation on assignee rights in section 608.433(1) has no application to the transfer of rights in a single-member LLC. In such an entity, the set of “all members other than the member assigning the interest” is empty. Accordingly, an assignee of the membership interest of the sole member in a single-member LLC becomes a member-and takes the full right, title, and interest of the transferor-without the consent of anyone other than the transferor.

Section 608.433(4) recognizes the application of the rule regarding assignee rights stated in section 608.433(1) in the context of creditor rights. It provides a special means-i.e., a charging order-for a creditor to seek satisfaction when a debtor's membership interest is not freely transferable but is subject to the right of other LLC members to object to a transferee becoming a member and exercising the management rights attendant to membership status. See § 608.432(1), Fla. Stat. (2008) (setting forth general rule that an assignee “shall have no right to participate in the management of the business affairs of [an LLC]”).

Section 608.433(4)'s provision that a “judgment creditor has only the rights of an assignee of [an LLC] interest” simply acknowledges that a judgment creditor cannot defeat the rights of nondebtor members of an LLC to withhold consent to the transfer of management rights. The provision does not, however, support an interpretation which gives a judgment creditor of the sole owner of an LLC less extensive rights than the rights that are freely assignable by the judgment debtor. See In re Albright, 291 B.R. 538, 540 (D.Colo.2003) (rejecting argument that bankruptcy trustee was only entitled to a charging order with respect to debtor's ownership interest in single-member LLC and holding that “[b]ecause there are no other members in the LLC, the entire membership interest passed to the bankruptcy estate”); In re Modanlo, 412 B.R. 715, 727-31 (D.Md.2006) (following reasoning of Albright).

Our understanding of section 608.433(4) flows from the language of the subsection which limits the rights of a judgment creditor to the rights of an assignee but which does not expressly establish the charging order remedy as an exclusive remedy. The relevant question is not whether the purpose of the charging order provision-i.e., to authorize a special remedy designed to reach no further than the rights of the nondebtor members of the LLC will permit-provides a basis for implying an exception from the operation of that provision for single-member LLCs. Instead, the question is whether it is justified to infer that the LLC charging order mechanism is an exclusive remedy.

On its face, the charging order provision establishes a nonexclusive remedial mechanism. There is no express provision in the statutory text providing that the charging order remedy is the only remedy that can be utilized with respect to a judgment debtor's membership interest in an LLC. The operative language of section 608.433(4)-”the court may charge the [LLC] membership interest of the member with payment of the unsatisfied amount of the judgment with interest”-does not in any way suggest that the charging order is an exclusive remedy.

Did the Florida Supreme Court get this one right?

According to the dissent's lengthy opinion, they didn't. The dissent focused on a strict construction of Florida's LLC Act. However, if you step back and think about why partnerships are entitled to charging order protection in the first place, you have to admit the rationale doesn't seem to apply to single-member LLCs. Although this policy argument isn't explicitly stated in the Florida Supreme Court's majority opinion, I think it goes a long way towards explaining why they ruled the way they did.

For those of you interested in understanding the charging-order policy issue I think is lurking in the background of the Florida Supreme Court's ruling, STARTrightLLC.com is an excellent starting point. Below is an excerpt from that website explaining why charging-order protection makes sense in a multi-member LLC scenario, and why it doesn't make sense for single-member LLCs.

The charging order protects the company and the member’s investment if one of the members is sued in his or her personal life. . . . The original charging order philosophy protected guys A, B from having to accept D as an unwanted partner if C, the person they originally went into business with gets sued. They don’t want to have to deal with D. To prevent this unwanted member . . . the charging order is all D can get out of C’s membership . . . The charging order limits D. He must wait for A and B to decide to distribute money. No distributions = no money.

The Single Member Hitch: When a the member of a single member LLC is sued, there is no other member to protect from D. Two bankruptcy courts have used this flaw in the LLC protection to allow creditors of a business owner to completely take over his LLC and liquidate it for cash. The first case was in Colorado and the nation held its breath to see what would happen next. The next case was in Idaho and actually used the Colorado case to base its decision on. This means the trend is starting to move in the direction of denying charging order protection to single member LLCs.

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Fernandez v. Guardianship of Fernandez, --- So.3d ----, 2010 WL 2178831 (Fla. 3d DCA Jun 02, 2010)

Contested guardianship proceedings are bench trials, which means the same person is both your fact finder and lawgiver: the judge. As explained in When the Judge Is the Jury, there are real advantages to bench trials:

“And one of the biggest advantages over the traditional courtroom is that the lawyers get to ‘read the jury’ all through the case. And since the judge can—and often will—ask questions, you’re always aware of what’s on the jury’s mind,” said Standwell."

I think most practicing lawyers have mixed feelings about questions from the bench. When the questions make clear the judge is leaning your way, you love 'em! When the opposite is true, you know it's going to be a bad day. Love 'em or hate 'em, questions from the bench are a fact of life and explicitly authorized under F.S. 90.615.

But when does questioning from the bench go too far? The answer to that question depends in large part on the facts and circumstances of your particular case, so hard and fast rules are difficult to come by. But most of us know it when we see it . . . and so does the 3d DCA. Here are the facts the appellate court was confronted with in the linked-to contested guardianship case:

[The trial court] decided that the hearing would proceed more expeditiously if the trial court conducted the examination of witnesses instead of allowing counsel to do so. The trial court swore the witnesses and denied the daughter's request to invoke the rule of exclusion of witnesses. The court called and questioned the witnesses, affording almost no opportunity for examination or cross-examination by the parties. There were no opening or closing statements.

According to the 3d DCA, this was too much. Questioning from the bench is proper, but if it's done to the exclusion of everyone else in the room, the parties aren't getting their fair day in court. Here's how the 3d DCA put it:

Respectfully, this was not proper procedure. The Florida Probate Rules provide that in adversary proceedings, “the proceedings, as nearly as practicable, shall be conducted similar to suits of a civil nature and the Florida Rules of Civil Procedure shall govern....” Fla. Prob. R. 5.025(d)(2). See generally In re Guardianship of King, 862 So.2d 869, 870-71 (Fla. 2d DCA 2003); The Florida Bar, Litigation Under Florida Probate Code § 1.6 (7th ed.2009); 28 Fla. Jur.2d Guardian and Ward, § 35 (updated Feb. 2010). “The adjudicatory hearing must be conducted at the time and place specified in the notice of hearing and in a manner consistent with due process.” § 744.331(5)(a), Fla. Stat. (2008).

As this was an evidentiary hearing in a contested proceeding, the matter should have been tried as is customary in a bench trial. The parties should have been given an opportunity to make opening and closing statements. Each party should have been given an opportunity to present evidence, call and question witnesses, and cross-examine the other side's witnesses. When the guardian ad litem gave her report, cross-examination by the parties should have been allowed.

At the start of the hearing, the daughter invoked the rule of exclusion of witnesses [under F.S. 90.616]. The trial court denied that request. The request should have been granted.

Lessons learned?

First: contested guardianship proceedings are treated like any other kind of bench trial under Florida law, and need to be adjudicated accordingly. The parties are entitled to all of the due-process rights any litigant is entitled to in a Florida court room, including at a bare minimum:

1. The opportunity to make opening and closing statements.
2. The opportunity to present evidence, call and question witnesses, and cross-examine the other side's witnesses.
3. The opportunity to cross examine the guardian ad litem.
4. The exclusion of witnesses from the courtroom in accordance with F.S. 90.616.

Second: lawyers on the wrong end of an overactive judge have to object. To put it mildly, this kind of objection needs to be handled "delicately." So what's a lawyer to do? The Winter 2009 edition of the ABA's Litigation magazine has an excellent article by Houston, Texas litigator Martin J. Siegel that speaks directly to this question. Entitled When Judges Want to Get in the Game: Lessons from Another Court, Mr. Siegel's article is thoughtful, well written, and well researched. Here's an excerpt:

“[L]awyers on the wrong end of the overactive judge have to object. As with questions from opposing counsel, failure to object to improper examination from the bench will waive the error. Ditto with remarks to the jury. On appeal, if no objection was made, review will be for plain error, and only those errors resulting in an unfair trial will merit reversal. Courts recognize that objecting to the judge’s questions and comments can be touchy and difficult, but still require counsel to give it a go. If the judge wishes to examine witnesses at any length, there is precedent for seeking a sidebar out of the hearing of the jury or a recess and asking the court to inform counsel of the desired line of questioning so that the examination will come from the lawyers and not carry the imprimatur of the court.

To the extent possible, lawyers should also make sure the objectionable conduct is fully on the record, even the little things that will add flavor to the appeal but may not always come through on the cold page, like the judge’s demeanor, tone, or volume. For example, in one case, the judge’s repeated pointing to the defendant’s lawyer in an effort to prompt him to object made it into the record because the plaintiff’s lawyer, finally exasperated with the court’s unusual theatrics, said, ‘Your Honor, I haven’t even finished my question, and you’re pointing to the defense counsel to object to my question.’ Nationwide Mutual, 174 F.3d at 808.”

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Baillargeon v. Sewell, --- So.3d ----, 2010 WL 1727842 (Fla. 2d DCA Apr 30, 2010)

As a probate lawyer, you're often the low man on the totem pole in cases involving large, complex matters. The firm representing the estate on the civil litigation side of the case could be (and often is) a large firm with hundreds of lawyers on the payroll, staffing your particular matter with a team of high-powered litigators. And then there's the probate lawyer. Often a sole or small-firm practitioner, usually working the case alone or (at most), with the help of a single associate and a paralegal.

David vs. Goliath

This case is a prime example of the disproportionate impact a good probate lawyer can have on the course of events. The estate was on the receiving end of a $150 million class action claim. I have no idea how much cost and delay is involved in defending against this type of claim in the United States District Court for the Middle District of Florida (which is where it was being litigated), but I'm sure it's huge. Undaunted, an alert probate lawyer spotted an opportunity to save the estate hundreds of thousands of dollars in legal defense fees by ending the case immediately in the probate court. Here's how he did it:

[1] Does Florida's Probate Code permit the filing of class action claims against a decedent's estate? 2d DCA says NO

Two creditors of the decedent filed a statement of claim in an estate administration proceeding on behalf of themselves and a class of persons similarly situated. The personal representative of the estate moved to strike the claim to the extent that it attempted to assert claims on behalf of persons other than the claimants. The probate judge disagreed, and let the class-action portion of the claim stand. On appeal the 2d DCA disagreed, ruling that Florida's Probate Code does NOT permit the filing of class action claims against a decedent's estate. Here's why:

In [In re Estate of Gay, 294 So.2d 668 (Fla. 4th DCA 1974)], the Fourth District held that the filing of a class claim was inconsistent with the requirements of section 733.16, Florida Statutes (1971). Id. at 670. Section 733.16 appeared in the former Florida Probate Law. The Fourth District also said that the filing of a class claim was in conflict with the public policy of this state favoring the speedy administration of decedents' estates. Id.

*     *     *     *     *

Despite the Code's comprehensive coverage of the administration of decedents' estates in general and creditors' claims in particular, it is silent on the subject of class claims. As we have already noted, the Fourth District's decision in Gay is the only reported authority in Florida on the subject of the filing of class claims in probate. The Gay case was decided under the Florida Probate Law in 1974, more than thirty-five years ago. Thus it is pertinent to note “that the legislature is presumed to know the judicial constructions of a law when enacting a new version of that law.” Brannon v. Tampa Tribune, 711 So.2d 97, 100 (Fla. 1st DCA 1998) (citing Collins Inv. Co. v. Metro. Dade County, 164 So.2d 806 (Fla.1964)). “Furthermore, the legislature is presumed to have adopted prior judicial constructions of a law unless a contrary intention is expressed in the new version.” Id. (citing Deltona Corp. v. Kipnis, 194 So.2d 295 (Fla. 2d DCA 1966)). Thus, in the absence of any reference to the filing of class claims in the Code either when it was enacted or in the multiple subsequent amendments to it, the legislature must be presumed to have adopted the Fourth District's holding in Gay that class claims may not be filed in probate. Accordingly, we conclude that any change in the probate claims process to allow the filing of class claims must come from the legislature instead of through a judicial construction of the Code by this court that would be at odds with the Fourth District's holding in Gay.

[2] If a lawsuit is pending against the decedent when he died, do you still need to file a separate creditor claim against his estate? 2d DCA says YES

When the decedent died, he was one of several defendants named in a class action that was then pending in the United States District Court for the Middle District of Florida. Randolph Sewell and Daphne Sewell (the Sewells) had filed the class action on May 30, 2007, on behalf of themselves and all others similarly situated against a number of entities and individuals, including the decedent. After letters of administration were issued to the personal representative, she was promptly substituted as a party defendant in the pending action. The Sewells then filed a first amended class action complaint specifically naming the personal representative as a defendant.

On these facts the probate judge ruled that the filing of the claim was unnecessary because a federal action asserting the class claim was pending against the decedent at the time of his death and because the personal representative of the estate was promptly substituted as a party defendant in the federal action.

Strike two for the probate judge. On appeal the 2d DCA reversed him on this issue as well, holding that the probate judge's ruling was based on old case law that no longer applied.

The circuit court's rationale for accepting the Sewells' argument that it was unnecessary to file a claim on behalf of the unidentified members of the class was as follows: “[T]he estate had notice ... the action was pending when the [Decedent] died and the [Personal Representative] has been joined in the federal class [action].” However, the circuit court's reliance on the decision in [In re Estate of Shaw, 340 So.2d 506 (Fla. 3d DCA 1976),] for this proposition was misplaced. In the Shaw case, the result was controlled by the former Florida Probate Law's section 733.16, the predecessor to current section 733.702.

*     *     *     *     *

[T]he exception for actions pending at the death of the decedent is no longer in effect, and Shaw and similar cases that applied the exception in section 733.16(1)(a) are no longer authoritative on this question. See Spohr v. Berryman, 589 So.2d 225, 228-29 (Fla.1991); Roberts v. Jassy, 436 So.2d 394, 395-96 (Fla. 2d DCA 1983); Am. & Foreign Ins. Co. v. Dimson, 645 So.2d 45, 47 (Fla. 4th DCA 1994); Lasater v. Leathers, 475 So.2d 1329, 1330 (Fla. 5th DCA 1985).

It follows that the filing of a claim on behalf of the unidentified members of the class was not made unnecessary by the pendency of the class action at the death of the decedent and the prompt substitution of the personal representative in the pending federal action. The circuit court erred in ruling to the contrary.

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Hill v. Davis, --- So.3d ----, 2010 WL 1347314 (Fla. 1st DCA March 31, 2010)

In civil litigation you usually have years to file your complaint: most statue of limitations periods fall within a range of 2 to 6 years. Not surprisingly, most civil litigators assume the same rules apply to probate litigation. Big mistake! In probate litigation your statute of limitations period can be as little 30 days, with the norm being 3 months. These ultra-short limitations periods are unforgiving traps for the unwary and - not surprisingly - a recurring topic on this blog [click here, here].

Personal Representative Disqualification Motions:

In this case, the issue was whether the 3-month statute of limitations period contained in F.S. 733.212(3) applied to personal-representative disqualification motions. In contested probate proceedings the party serving as personal representative has significant advantages. So knowing when the window of opportunity closes to file a disqualification motion is very important.

According to the 3d DCA in Angelus v. Pass, 868 So.2d 571 (Fla. 3d DCA 2004), a case I wrote about here, the answer is NO, this 3-month statute of limitations period does NOT apply. In the linked-to case above, the 1st DCA comes to the opposite conclusion, explicitly rejecting the 3d DCA's ruling in Angelus and certifying a conflict between the DCAs.

[W]e disagree with the sweeping holding in Angelus because it effectively renders part of section 733.212(3) meaningless. . . . The statute clearly states that interested persons such as appellant “must object to ... the qualifications of the personal representative” within three months of the service of the notice of administration or such an objection is “forever barred.” A claim that a nonresident is not qualified to serve as a personal representative pursuant to section 733.304 is an objection to “the qualifications of the personal representative” and should be subject to the clear and unambiguous provisions of section 733.212(3). . . . Contrary to the Third District's decision in Angelus, we find nothing in Florida Probate Rule 5.310 or sections 733.304 and 733.3101, Florida Statutes, which would preclude the application of the three-month statute of limitations period contained in section 733.212(3) to appellant's claim that appellee was not qualified to serve as a nonresident personal representative pursuant to section 733.304 where the factual basis for the claim was known to appellant and could have been raised within the three-month period. This is not a situation where the factual basis for the claim of disqualification was concealed from appellant or arose after the three-month period had expired. Because appellant's motions to disqualify appellee as personal representative were time barred under section 733.212(3), we affirm the trial court's denial of the motions on that basis. We also certify conflict with Angelus.

Lesson learned?

If your client is contemplating a personal-representative disqualification motion, you have to assume the 3-month statute of limitations period contained in F.S. 733.212(3) applies (unless you're in the 3d DCA). If your case is being litigated in a court that doesn't fall under either the 1st DCA or the 3d DCA, you now have two different approaches you can argue depending on what side of the case you're on.

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Yawt v. Carlisle, --- So.3d ----, 2010 WL 1879697 (Fla. 4th DCA May 12, 2010)

In probate proceedings you don't need to file a new complaint every time you want your probate judge to rule on some new issue. Why? Because probate is an in rem proceeding where the Florida Rules of Civil Procedure generally don't apply. That's NOT how it's supposed to work in trust litigation. Subject to a few clearly-defined exceptions, F.S. 736.0201 says "proceedings concerning trusts shall be commenced by filing a complaint and shall be governed by the Florida Rules of Civil Procedure."

Probate Custom vs. Trust Litigation

Here's the problem: most trust litigation takes place before probate judges, and probate judges are - quite naturally - accustomed to playing by the rules that apply to probate proceedings, NOT the Florida Rules of Civil Procedure applicable to trust litigation. This clash between probate-court custom and the procedure governing trust litigation is at the heart of what went wrong in the linked-to case above.

In the linked-to case above the probate judge entered a final judgment approving the sale of trust property. After this final judgment was entered, the purchaser received the results of its environmental inspection and declined to close under the approved agreement. The trustee and potential purchaser negotiated and entered into a new contract, which significantly reduced the purchase price and extended the closing date. The trustee then sought court approval of the new agreement by filing an unsworn “Petition for Approval of Amended Contract.”

This approach could work in a probate proceeding, but NOT in trust litigation. Here's how counsel for the objecting beneficiaries, Stephen Zimmerman, argued this point:

MR. ZIMMERMAN: ... The current proceeding that's before the Court right now was initiated by a motion in a case that's already closed and then by only a couple of days notice without even a chance to respond. We're not even having an evidentiary hearing, we're just having attorneys argue about this, so it's entirely inappropriate for the Court to dispose of this matter in a summary way like this without an evidentiary hearing, without a new case being filed, without a pleading.

THE COURT: What would be the purpose of an evidentiary hearing, what are we going to establish?

MR. ZIMMERMAN: Establish whether this is a fair price for this property. I mean, the Court is just relying upon attorneys coming in here and talking. We think this is not a fair price for this property....

New claim = New pleadings

Mr. Zimmerman was right, of course. No pleadings, no discovery, no evidence: that's not the way to try a case. Unfortunately the probate judge didn't see it his way and ruled against him. Wrong answer says the 4th DCA. Here's why:

Appellants rely upon the provisions in Florida Rule of Civil Procedure 1.110(h) for their argument that appellees needed to file subsequent or supplemental pleadings for the relief they sought. This rule provides as follows:

When the nature of an action permits pleadings subsequent to final judgment and the jurisdiction of the court over the parties has not terminated, the initial pleading subsequent to final judgment shall be designated a supplemental complaint or petition. The action shall then proceed in the same manner and time as though the supplemental complaint or petition were the initial pleading in the action, including the issuance of any needed process. This subdivision shall not apply to proceedings that may be initiated by motion under these rules.

Fla. R. Civ. P. 1.110(h).

The Committee Note to this rule states, in pertinent part:

Subdivision (h) is added to cover a situation usually arising in divorce judgment modifications, supplementary declaratory relief actions, or trust supervision.... The last sentence exempts post judgment motions under rules 1.480(c), 1.530, and 1.540, and similar proceedings from its purview.

Fla. R. Civ. P. 1.110(h), Committee Note, 1971 Amendment.

Appellants argue that appellees failed to comply with this statute and that the trial court erred in granting relief based on their mere filing of a petition. They sufficiently preserved this issue for appeal, as they similarly argued below that the case was not procedurally ripe because appellees did not file a new pleading or afford them an opportunity for discovery and an evidentiary hearing.

*     *     *     *     *

Because appellees have sought different relief than that originally pled, they were required to re-serve appellants in the same manner as they did originally and give them a new opportunity to respond ...

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Hall v. Maal, --- So.3d ----, 2010 WL 1212794 (Fla. 1st DCA March 30, 2010)

Just because someone says they were married to the decedent, doesn't make it so. In contested probate proceedings you simply can't take this fact for granted; the economic implications are too big. A surviving spouse has [1] the right to homestead property (at least a life estate in the decedent's homestead residence), [2] a right to an elective share (30% of the decedent's augmented elective estate), [3] a right to take as a pretermitted spouse (up to 100% of the estate under Florida's laws of intestacy), [4] a right to a family allowance, [5] a right to exempt property, and [6] priority in preference in selecting a personal representative. In addition, as I recently wrote here, Florida courts have long held that a presumption of undue influence in a will contest "cannot arise in the case of a husband and wife" because the requirement of active procurement would almost always be present.

So how do you "test" the validity of a marriage?

The 1st DCA made clear in the linked-to case above that determining if a couple "acted" married is NOT the way to test a marriage's legal validity. In this case the couple had a formal wedding ceremony, lived together, had children together, walked around telling anyone who would listen they were man and wife, executed a mortgage as husband and wife, and in all other respects "acted married," but they never got around to getting a marriage license. So were they "legally" married? NO says the 1st DCA. Why? Because 741.211, Florida Statutes (2002) says common-law marriages aren't valid in Florida. So if you don't have a marriage license, you're not married.

Acting Married

If there were ever two people who acted married, it was the couple in this case:

Ms. Hall and Dr. Maal were engaged to be married on March 2, 2002, at Old Christ Church in Pensacola. Leading up to their wedding date, they went through many of the familiar activities of those who intend to marry. They arranged for the church, engaged a minister, sent out invitations, arranged for flowers and a photographer, and attended pre-marital counseling. They attended at least two wedding showers. And, as some couples do, they started to work out a pre-nuptial agreement.

The week before the wedding, the couple was scheduled to go to the office of the county court clerk to get a marriage license. However, on that day, Dr. Maal called Ms. Hall at work and told her that they were not going to be able to get a marriage license because they had not agreed on the pre-nuptial agreement. Ms. Hall was understandably upset by this-all of the arrangements had been made and many of the guests were already in Pensacola for the ceremony. Dr. Maal persuaded her to go ahead with the ceremony, reassuring her that “everything will be alright.” On March 2, 2002, Dr. Maal and Ms. Hall participated in a full wedding ceremony performed by a minister at the church with numerous family members and friends present, complete with attendants, music, and flowers, and followed by a very nice reception. They did this knowing that they had not ever applied for nor received a marriage license.

In the years following the 2002 ceremony, two children were born of the relationship, Dr. Maal referred to Ms. Hall as his “wife,” and she referred to him as her “husband.” The mortgage on the parties' home referred to them as “husband and wife.” Ms. Hall was referred to as “Mrs. Maal” in her workplace, although she had not legally changed her name. The parties continued to file separate tax returns.

A year after the “marriage” ceremony, the parties appeared before the clerk of the court and applied for and received a marriage license. However, the license was neither solemnized nor returned to the clerk of the court to be made part of the official records of the county.

No Marriage License = You're NOT Married

These two may have walked, talked and looked married . . . but they weren't. As explained by the 1st DCA, in the absence of a marriage license validly "solemnized" in accordance with Florida law: you're NOT legally married.

Since 1967, when the Florida legislature abolished common law marriage, there has been only one method of producing a legally cognizable marriage in Florida. See generally §§ 741.01-.212, Fla. Stat. (2002). Persons desiring to be married are required to apply for a marriage license which can be issued by a county court judge or the clerk of the circuit court. See § 741.01, Fla. Stat. (2002). After issuance, a license is valid for 60 days within which time the marriage must be solemnized. See § 741.041, Fla. Stat. (2002). Marriage may be solemnized by ordained clergy, judges, clerks of court, or notaries public. See § 741.07, Fla. Stat. (2002). After solemnization, the officiant shall certify on the license that the marriage has been performed and deliver it, within 10 days, to the clerk or judge that issued it. See § 741.08, Fla. Stat. (2002). The county court judge and the clerk of the circuit court are required to keep a correct record of all licenses issued and of the licenses returned as certified by the officiant. See § 741.09, Fla. Stat. (2002). There are also provisions for proving up a marriage when the certificate is not completed on the marriage license, when the certified license is lost or when death or other cause prevents a certificate from being made. See § 741.10, Fla. Stat. (2002).

*     *     *     *     *

The parties were not in substantial compliance with Chapter 741. Whether substantial compliance exists is a fact-based inquiry. However, in order for there to be substantial compliance, there has to be some compliance. Some compliance would, at a minimum, entail the parties applying for and receiving a license.

*     *     *     *     *

To the extent that the dissent would hold that a marriage ceremony without a license, coupled with living together and “acting married,” results in a valid marriage, it would recreate a species of common-law marriage in violation of section 741.211, Florida Statutes (2002).

Hat tip to Eric Virgil

Coral Gables probate litigator extraordinaire Eric Virgil recently posted a summary of this case on the list service for the RPPTL section of the Dade County Bar Association. That's how I became aware of it. Thanks Eric.

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Miller v. Kresser, --- So.3d ----, 2010 WL 1779899 (Fla. 4th DCA May 05, 2010)

Multigenerational spendthrift trusts - often referred to as "dynasty trusts" - are fast becoming the cornerstone of modern estate planning. This is not some esoteric issue of interest only to tax lawyers: it's big business. A 2005 study I wrote about here estimated that these trusts attracted over $100 Billion in new assets over a relatively short period of time.

The fact that spendthrift trusts hold vast amounts of wealth and that there's an ever growing number of them means lawyers of all stripes, be they divorce attorneys, bankruptcy attorneys, estate planners or probate litigators, will want to take notice of the 4th DCA's opinion linked-to above. Why? Because it's all about when and how a Florida court will let you crack one of these trusts open and yank out its assets.

4th DCA says trust agreement controls; bad facts irrelevant

A spendthrift trust works as an asset-protection shield because the trustee - not the beneficiary - controls the trust's assets. But what if a creditor proves conclusively that this is not in fact the case? What if regardless of what the trust agreement may say, the actual facts on the ground demonstrate that the beneficiary is exercising complete "dominion and control" over his trust? Under those "bad facts" maybe a creditor should be permitted to pierce a spendthrift trust's asset-protection shield? That, by the way, is one of the most common lines of attack against spendthrift trusts.

To my knowledge the linked-to opinion is the first Florida appellate decision - applying Florida's new trust code provisions governing spendthrift trusts - to state in no uncertain terms that bad facts do NOT matter; the only thing that matters are the words on the page of the trust agreement. If the trust agreement has a valid spendthrift clause, end of discussion, creditor loses; the level of control a beneficiary exerts over his trust is simply irrelevant as a matter of law.

Here's how the 4th DCA summarized the underlying facts and why the trial court allowed the creditor in this case to crack open the target spendthrift trust:

The trial court conducted a non-jury trial .  .  .  at which the relevant issue was whether the spendthrift provision in the James Trust could be invalidated or pierced and the trust's assets executed upon .  .  .  In a written final judgment, the trial court found that the spendthrift provision in the James Trust was valid at the time the trust was settled.

The trial court then set forth a detailed account of James's significant control over the James Trust and over Jerry, as trustee. The court found that Jerry had almost completely turned over management of the trust's day-to-day operations to James. James controlled all important decisions concerning the trust assets, including investment decisions. Jerry never independently investigated these decisions to determine whether they were in the best interest of the trust, and some of the decisions have turned out to be unwise. The trial court concluded that Jerry simply rubber-stamped James's decisions and “serve[d] as the legal veneer to disguise [James's] exclusive dominion and control of the Trust assets.”

Ultimately, the court held that James's exclusive dominion and control over the James Trust served to terminate the trust's spendthrift provision, allowing Kresser to reach all of the trust's assets to satisfy his judgment.

And here's why the 4th DCA said the trial court got it wrong:

While we agree that the facts in this case are perhaps the most egregious example of a trustee abdicating his responsibilities to manage and distribute trust property, the law requires that the focus must be on the terms of the trust and not the actions of the trustee or beneficiary. In this case, the trust terms granted Jerry, not James, the sole and exclusive authority to make distributions to James. The trust did not give James any authority whatsoever to manage or distribute trust property.

*     *     *     *     *

To conclude otherwise would ignore the realities of the relationship between a beneficiary and trustee of a discretionary trust-the beneficiary always pining for distributions which he feels are rightfully his, and the trustee striving to allow only those distributions that coincide with the settlor's express intent, as set forth in the trust documents. It is the settlor's prerogative to choose the trustee she believes will best fulfill the conditions of the trust. In the case before us, it is not the role of the courts to evaluate how well the trustee is performing his duties. We are instead limited, by statute, to evaluating the express language of the trust to determine the extent of the beneficiary's control and the extent to which a creditor may reach trust assets. It is the legislature's function to carve out any exceptions to the protections afforded by discretionary and spendthrift trusts.

So what's it all mean?

First, if you're an estate planner, this case is good for your clients (and good for business): it underscores the rock solid asset-protection values of a Florida spendthrift trust. Second, if you're a litigator defending a spendthrift trust against attack - this case is pure gold! Why? Because it should dramatically reduce the level of uncertainty and expense inherent to litigating this type of case. Rather than having to go through a full blown trial on the purely subjective question of how much beneficiary "dominion and control" is too much; now all you have to do is point to the trust agreement. If it has a valid spendthrift clause, game over, your client wins.

Bonus material

And last but not least, thanks to the excellent work done by counsel on both sides of this case we now have an exhaustive summary of Florida law - both for and against - the "dominion and control" argument for piercing a spendthrift trust.

1. Appellant's Initial Brief
2. Intervenor Appellants' Initial Brief
3. Appellee's Answer Brief

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Kentucky and Florida estate planning lawyer/blogger C. Carter Ruml recently wrote an interesting summary of Robertson v. Deeb, 16 So.3d 936 (Fl. Dist. Ct. App. 2 Dist. 2009), a pro-creditor decision that pokes a hole in Florida's well-earned reputation as an asset-protection haven. The blog post is entitled Creditor Protection Denied for Florida Debtor’s Inherited IRA, and it's well worth reading in its entirety. Here's an excerpt:

KYEstates has been following issues of creditor protection for inherited IRAs closely (see here and here), and we haven’t hidden the fact that on this issue, we’re biased in favor of the debtor. Before today, our series was tied at Debtor 1, Creditor 1. With today’s report, the score regrettably changes to Debtor 1, Creditor 2. The bad news comes in the form of Robertson v. Deeb, 16 So.3d 936 (Fl. Dist. Ct. App. 2 Dist. 2009), a pro-creditor decision that illustrates the risks facing beneficiaries of inherited IRAs seeking creditor protection for their accounts.

*     *     *     *     *

In Robertson, the account holder (Robertson) was sued by Deeb (payee under a promissory note made by Robertson).  The creditor obtained a judgment and served a write of garnishment on RBC Wealth Management, custodian of the debtor’s inherited IRA.  The debtor filed a claim of exemption and argued that the IRA, which the debtor had inherited from his father, was exempt from garnishment under F.S. 222.21(2)(a). [For more on Florida asset protection, consult this KYEstates chart.]

Even though F.S. 222.21(2)(a) protects “money or other assets payable to an owner, a participant or a beneficiary” in a fund or account that is maintained as an IRA pursuant to a plan or governing instrument that is exempt from taxation under certain provisions of the Internal Revenue Code, the trial court found that this statutory protection does not extend to an inherited IRA, and denied the debtor’s claim of exemption.

The Second District Court of Appeals upheld the trial court, concluding that F.S. 222.21(2)(a) “does not apply to inherited IRAs because the plain language of that section references only the original ‘fund or account’ and the tax consequences of inherited IRAs render them completely separate funds or accounts.”

And while we're talking about asset-protection and inherited IRAs, Florida practitioners should take note of an excellent discussion addressing this precise issue in the May/June 2010 editition of the ABA's Probate and Property magazine. In a column entitled Retirement Benefits Planning Update, Detroit, MI estate planning attorney Harvey B. Wallace II discussed the Robertson v. Deeb case and possible "work around" planning options. Here's an excerpt:

The degree to which the creditors of a beneficiary of an inherited IRA have access to the IRA account in a nonbankruptcy context depends on the interpretation of state statutes, which, in many cases, seem on their face protective of inherited IRAs but, when interpreted by the courts, are not. The protective provisions of the BAPA that appear to exempt an inherited IRA from a beneficiary’s bankruptcy estate have yet to be subjected to extensive judicial scrutiny. If an account owner has concerns that the beneficiary or one of the beneficiaries who may inherit all or a portion of an IRA may have creditor problems, the use of a trusteed IRA that restricts post-death distributions and contains a spendthrift clause may, depending on the applicable state law and its interpretation, afford creditor protection. The naming of a properly drafted conduit trust or discretionary trust as the beneficiary of an inherited IRA invokes full protection of the state’s spendthrift law and provides the maximum possible protections from the creditors of a beneficiary of the trust.

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United States v. Guyton, Jr., 2010 WL 1172428 (11th Cir. March 26, 2010)

In this case a father sold his McAlpin, Florida poultry farm in January of 2000 and died six months later. Before his death dad deposited the sales proceeds in a joint account held with his son "Blake." These joint account funds went directly to Blake after dad's death. In other words, none of this cash ever became a part of dad's probate estate. After dad's death another son, "Guyton", was appointed personal representative or PR of dad's probate estate.

As dad's PR, Guyton was responsible for reporting the farm sale on dad's "final" 1040 income tax return and paying the income tax triggered by that sale. Along with this responsibility comes personal liability: as dad's PR, Guyton was personally liable for dad's unpaid taxes. This is all text book tax law, which I've written about here from a risk-management viewpoint and is also summarized nicely in Beneficiary and Fiduciary Liability for Income, Gift and Estate Taxes by Lakewood Ranch, FL estate planning attorney Marc J. Soss.

So what went wrong?

Brother Guyton, who appeared before the court on a pro se basis (in other words, without a lawyer), just could not understand why he was responsible for paying taxes on non-probate funds that went directly to his brother Blake. Unfortunately for Guyton, the IRS didn't buy his "it's just not fair" argument. By the time this case got to the 11th Circuit, the unpaid taxes, penalties and interests Guyton was fighting totaled a little over $50,000.

Here's how the 11th Circuit summarized Guyton's tax argument:

Guyton argues that, because Guyton, Sr. deposited the proceeds from the sale of his farm into a joint bank account prior to his death, the beneficiary of that bank account, Blake Guyton, is liable for the tax on those proceeds as “income with respect to a decedent,” under 26 U.S.C. § 691.

Income in respect of a decedent (IRD) is the name given to all types of taxable income earned, but not received by the decedent by the time of his or her death. If the farm-sale proceeds were IRD, then Blake would be on the hook for these taxes. If the farm-sale proceeds were NOT IRD, then Guyton is on the hook for paying these taxes . . . irrespective of the fact that this cash never flowed through dad's probate estate. The 11th Circuit ruled the farm-sale proceeds were NOT IRD:

When a taxpayer dies during the tax year, his personal representative must file a Form 1040 for the tax year in which the taxpayer died. See 26 U.S.C. § 6012(b)(1). That “final” 1040 will contain all gross income realized by the decedent, but only for the period in which the decedent was alive: the tax year effectively ends on the date of the taxpayer's death. 26 U.S.C. §§ 441(b)(3), 443(a)(2); see also Treas. Reg. § 1.443-1(a)(2) (generally, “the return of a decedent is a return for the short period beginning with the first day of his last taxable year and ending with the date of his death”). Thus, any income realized by the taxpayer after the date of death is “income in respect to a decedent.” See 26 U.S.C. § 691(a), (b); I.R.S. Pub. 559 at 9, 15-16. Accordingly, § 691 is inapplicable for income realized prior to the decedent's death because such income is properly reported on the decedent's final Form 1040. 26 U.S.C. § 691(a), (b); I.R.S. Pub. 559 at 9; Treas. Reg. § § 1.691(a)-1(a), (b) (defining “income in respect to a decedent” as income “not properly includible in respect of the taxable period in which falls the date of his death”) (emphasis added).

Because Guyton, Sr., realized a gain from the sale of his farm prior to his death [and actually received the sales proceeds prior to his death], .  .  .  his estate must pay the tax. Blohm v. C.I.R., 994 F.2d 1542, 1549 (11th Cir.1993). Depositing the proceeds into a joint bank account did not relieve or transfer his obligation to pay taxes on that gain. Id. Thus, summary judgment was proper on this issue and we affirm.

Lesson learned?

Although unstated in the 11th Circuit's opinion, my guess is that Guyton got himself into trouble by distributing most of dad's estate assets to himself and his siblings prior to being absolutely sure all of the estate's tax debts were paid up. As I explained here, there's a lot you can do to limit a PR's personal tax-exposure risk. But the number one most important lesson all PR's need to know is this: never ever distribute estate assets to the heirs until you're absolutely sure you've paid all of the decedent's taxes. Forget that lesson and you'll find yourself in the same boat as the poor PR in this case.

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Carey v. Rocke, 18 So.3d 1266 (Fla. 2d DCA October 23, 2009)

I first wrote about this case here when it hit the papers in 2008. According to newspaper accounts this will contest revolved around allegations of undue influence and related attorney ethics violations. The decedent's attorney wrote himself and his paralegal into a client's will for what ultimately morphed into a $7.2 million bequest between the two of them, which is a big "no-no" under Fla. Bar Rule 4-1.8(c). That ethics violation played a central role in the outcome of this case. Which shouldn't be surprising. For a comprehensive list of cases across the country dealing with the same ethics rule, see ACTEC's Commentary on MRPC 1.8.

Unfortunately, the 2d DCA's opinion linked-to above provides zero insight into this extraordinary case, simply affirming "without discussion" the trial-court's first order and sending it back to the trial-court judge to address one open item. And that's where for all intents and purposes the public side of this story would have ended but for a lucky break. I had the good fortune of running into Fort Lauderdale probate litigator Lawrence Livoti, who was tangentially involved in the case. He was kind enough to provided me with copies of the trial-court orders [click here, here], both of which are discussed below.

The trial-court judge in this case was Pinellas Circuit Judge Lauren Laughlin. If you're a probate lawyer or estate planner, you need to understand both the ethics rule and legal issues at play in this extraordinary case. And there's no better way to do that than to carefully read both of Judge Laughlin's scholarly and well-reasoned orders.

[1] First Order: Does an ethics violation = undue influence?

You can't get sued because you violate an ethics rule, but it's powerful evidence against you. That is the crux of Judge Laughlin's analysis in her first order. Here's an excerpt:

The issue of whether an attorney may draft a will in which he is named as a beneficiary is not a new or novel question. Under Roman law, the scrivener of a will could not inherit under it. See Dig. 48.15 (supplement to the lex cornelia ordered in edict by Emperor Claudius). Although Florida law does not necessarily prohibit such a practice, an attorney naming themselves a beneficiary of a client’s will opens himself/herself up to a charge of undue influence because of the peculiarly confidential relationship between an attorney and client. “The greatest trust between man and man is the trust of giving counsel”. SIR FRANCIS BACON, Of Counsel, in Essays, Civil and Moral Ch. XX (Charles W. Eliot, ed. 1909-1914), at p. 181 (1846). “The duty to deal fairly, honestly, and with undivided loyalty superimposes onto the attorney-client relationship a set of special and unique duties, including maintaining confidentiality, avoiding conflicts of interest over the lawyer’s.” In re Cooperman, 633 N.E. 2d 1069 (N.Y. 1994). Indeed, “the lawyer may not place himself in a position where a conflicting interest may, even inadvertently affect, or give the appearance of affecting, the obligations of the professional relationship.” In re Kelly, 244 N.B. 2d 456. 460 (N.Y. 1968).

The nature of the attorney-client relationship in matters testamentary is a particularly circumspect matter for the courts. The decisions that go into the drafting of a testamentary instrument are inherently private. Because the testator will not be available to correct any errors that the attorney may have made when the will is offered for probate, a client is especially dependent upon an attorney’s advice and professional skill when they consult an attorney to have a will drawn. A client’s dependence upon, and trust in, an attorney’s skills, disinterested advice, and ethical conduct exceeds the trust and confidence found in most fiduciary relationships. Seldom is the client’s dependence upon and trust in his attorney greater than when, contemplating his own mortality, he seeks the attorney’s advice, guidance and drafting skill in the preparation of a will to dispose of his estate after death. These consultations are among the most private to take place between an attorney and his client. “The client is dealing with his innermost thoughts and feelings, which he may not wish to share with his spouse, children and other next of kin.” Kirschbaum v. Dillon, 567N.E. 2d 1291, 1296 (Ohio 1990).

The Florida Bar has adopted ethical standards to provide professional guidelines for lawyers who find themselves in the situation of a client wishing to leave them a bequest.

Gifts to Lawyer or Lawyer’s Family. A lawyer shall not solicit any substantial gift, or prepare on behalf of a client an instrument giving the lawyer or a person related to the lawyer any substantial gift unless the lawyer or other recipient of the gift is related to the client.

R. Regulating Fla. Bar4-1.8(c)

The Comment to Rule 4-1.8(c) . . . provided a suggested procedure which might be curative of the inherent conflict of interest of an attorney/beneficiary.

If a client offers the lawyer a more substantial gift, subdivision (c) does not prohibit the lawyer from accepting it, although such a gift may be voidable by the client under the doctrine of undue influence, which treats client gifts as presumptively fraudulent. If effectuation of a substantial gift requires preparing a legal instrument such as a will or conveyance, however, the client should have the detached advice that another lawyer can provide and the lawyer should advise the client to seek advice of independent counsel.

R. Regulating Fla. Bar 4-1.8, Comment
“Gifts to Lawyers.”

The court recognizes that a violation of a rule of professional conduct does not constitute per se proof of undue influence. The rule and its comment should be instructive to any lawyer on how to properly effectuate the testamentary wish of a client who wishes to make a gift to their lawyer without encumbering his client’s estate with the time and expense of a will contest. Sadly, these suggestions were not followed in this case.

*     *     *     *     *

The respondent has argued that a violation of the Rules of Professional Conduct does not provide a basis for a finding of undue influence in this case. This court agrees. In Florida, a violation of the Rules does not directly prove undue influence. The attorney-client relationship simply establishes one element of undue influence. The Rules establish a standard of conduct which, if followed, might avoid allegations of undue influence. To ignore that established standard of care when, in fact, the Rules are common knowledge within the profession, and one has been advised of the ethical problems, demonstrates a consciousness of the conflict of interest. The behavior demonstrated by the alleged undue influencers, in the face of knowledge of the curative steps which could have been taken to insure a valid bequest, was no more than a halfhearted attempt to comply with the ethical standard expected of the legal profession. This bears on the credibility of the testimony and the knowing, planned and measured conduct of the two beneficiaries in question: Jack Carey and his legal, assistant, Gloria DuBois.

It is difficult to completely separate the allegation of undue influence from the disciplinary rule because of the inherently confidential nature of the attorney-client relationship, which is an element of undue influence. Additionally, the attorney whose bequests are at issue in this case was himself sixty-eight years old and retired at the time of the 1994 will. This court must acknowledge that Mr. Carey has had an exemplary career in the legal profession. He enjoys a reputation as an honest professional and a civic-minded citizen of great integrity. For this reason, deciding the facts and issues in this case has been especially painful and troubling. The court cannot help but speculate on whether the lawyer made a cost/benefit analysis, weighing the risks of being charged with a disciplinary infraction (having no intention of continuing to practice law) against the economic benefits to be derived from the conduct. 

[2] Second Order: Will the doctrine of "dependent relative revocation" ALWAYS apply?

On remand the 2d DCA asked Judge Laughlin to enter a second order explaining why her original ruling resulted in the $7.2 million residuary value of this estate passing by intestacy rather than pursuant to the residuary clause of one of the decedent's multiple prior wills. Here again Judge Laughlin does a masterful job of deconstructing Florida law, this time focusing on the "dependent relative revocation" doctrine [a recurring topic on this blog], and explaining why it did NOT apply in this case. The key point here is that this doctrine should only apply if the decedent's prior will was NOT materially different from the will that's being set aside. If that's not the case (and for most serial testators it often isn't), then the doctrine doesn't apply. Here's how Judge Laughlin summarized the law on this point:

The doctrine of dependent relative revocation (DRR) is essentially based upon a fiction: " ... where a testator revokes a valid will, and the new will is found to be invalid, the prior will may be re-established on the ground that the revocation was dependent on the validity of the new will, and the testator would have preferred the earlier will to intestacy." Denson v. Fayson, 525 So. 2d 432 (Fla. 3d DCA 1988). It is not a rule of law, but rather, a rule of presumed intention. That presumption is rebuttable and can be overcome if contrary evidence concerning the testator's intent is admitted. In re Lubbe's Estate, 142 So. 2d 130, 135 (Fla. 2d DCA 1962). Application of DRR is dependent upon a showing that the testator only conditionally revoked the old will believing the new will would be effective. The proper application of the doctrine depends upon a sufficient showing that the provisions of the invalid will are not materially different from the prior will. If they are materially different, the doctrine is not applicable and the presumption is rebutted. See id.

The doctrine of DRR is more understandable when it is referred to by another name, such as ineffective revocation, the doctrine of retroactive revival, or revocation under mistake. See e.g., RESTATEMENT (THIRD) OF PROPERTY 4.3 cmt. a (1999) (ineffective revocation). See also Frank L. Schiavo, Dependent Relative Revocation Has Gone Astray: It Should Return to Its Roots, 13 WIDENER L.Rev. 73, 96 (2006) (doctrine of retroactive revival); Joseph Warren, Dependent Relative Revocation, 33 HARV. L. REV. 337,337 (1920). Historically the doctrine has dealt with cases of mistake: where there has been a revocation by physical act under a mistaken belief of fact or law or invalidity because of a defect in execution. Because of "mistake," all of the early cases go to a total, rather than partial, revocation of the subsequent will and reinstatement of the prior will. Onions v. Tyrer, 23 Eng. Rep. 1085 (Ch.); Hairston v. Hairston, 30 Miss. 276 (1855); Stewart v. Johnson, 194 So. 869,870 (Fla. 1940); In re Estate of Johnson, 359 So. 2d. 425 (Fla. 1978); In re Estate of Pratt, 88 So. 2d 499 (Fla. 1956); In re Estate of Lubbe, 142 So. 2d 130 (Fla. 2d DCA 1962); First Union Nan Bank v. Estate of Mizell, 807 2d 78 (Fla. 5th DCA 2001).

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If you're an estate planner, it's not unusual to get asked if the fees being proposed by trust company "X" are reasonable. We usually have a sense of what the going rate is in our market, but it's mostly a "guesstimate." So I was glad to see an excellent piece of market research published on The Trust Advisor Blog. In a blog post entitled Who's Charging What for Trust Services? trust advisor Jerry Cooper provides a comprehensive chart of the fee estimates he obtained from numerous well-established trust companies and an easy-to-understand explanation of how the various fees stack up. Good stuff to keep handy for the next time you're asked about corporate trustee fees.

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Foundation For Developmentally Disabled, Inc. v. Step By Step Early Childhood Educ. And Therapy Center, Inc., --- So.3d ----, 2010 WL 1135901 (Fla. 2d DCA Mar 26, 2010)

In the 1980's Florida philanthropist Edwin H. Bower made large charitable donations to the Foundation for the Developmentally Disabled, Inc. (the “Foundation”) through his charitable foundation, The Bower Foundation. Mr. Bower intended that his donations be used to acquire land and construct a facility to benefit pre-school-aged children with disabilities who participated in a program referred to as Step by Step. However, he never created a written trust or gift agreement when he made those donations. Mr. Bower died in 2003.

A dispute arose over whether Step by Step was entitled to rent-free use of the facility specifically constructed for it with Mr. Bower's donations. In the absence of a gift or trust agreement supporting Step by Step's claim to rent-free use of its facility, The Bower Foundation argued the existence of an implied trust under all three of the following theories:

1. Implied charitable trust
2. Resulting trust
3. Constructive trust

The 2d DCA shot down all three arguments. If a disgruntled donor asks you to consider suing a charity in the absence of a a written trust or gift agreement, you'll want to consider these arguments and understand why they failed in this case. Here's how the 2d DCA explained Florida law on all three:

[1] No implied charitable trust:

The Fifth District addresses a similar situation in Persan v. Life Concepts, Inc., 738 So.2d 1008, 1009 (Fla. 5th DCA 1999),[FN3] where a group of about twenty donors gave land to the Central Florida Sheltered Workshop, Inc. (“CFSW”), so that living facilities could be constructed for disadvantaged adults. CFSW also solicited the community for $200,000 to pay for the construction of the homes. Id. After the homes were operated for approximately fifteen years, a decision was made to sell the property. Id. As in the present case, there was evidence presented at trial that the donors gave the land with the intent that the land be used for the specific purpose of providing living facilities for disadvantaged adults, but a written trust was never created. Id. at 1010. In Persan, the court noted that there was no evidence of an intent to create any type of trust and that the evidence established only an intent to donate land and money for the homes to be constructed. Id. In holding that a charitable trust was not created, the court stated as follows:

Making a gift to a charity for a specific project or purpose does not create a charitable trust. For this court to suggest that it does would create havoc for charitable institutions. A charity has to be able to know when a donation is a gift and when it is merely an offer to fund a trust for which the charity is taking on fiduciary responsibilities. The creation of such a trust must be express.

Id.

[FN3.] In its amicus brief, the [Florida Attorney General] contends that Persan v. Life Concepts, Inc., 738 So.2d 1008, 1009 (Fla. 5th DCA 1999), was wrongly decided. However, it acknowledges that in the ten years following the decision in Persan, the legislature has made no changes to Florida law regarding constructive and resulting trusts.

[2] No resulting trust:

The Fifth District further concluded that a resulting trust was not established. “The evidentiary burden to prove a resulting trust is ‘clear, strong and unequivocal,’ beyond a reasonable doubt.” Id. To establish a resulting trust, the parties must “actually intend to create the trust relationship but fail to execute documents or establish adequate evidence of the intent.” Wadlington v. Edwards, 92 So.2d 629, 631 (Fla.1957). A typical example of a resulting trust is where one party “furnishes the money to buy a parcel of land in the name of another with both parties intending at the time that the legal title is held by the named grantee for the benefit of the unnamed beneficiary.” Id.

A resulting trust arises when the legal estate in property is disposed of, conveyed or transferred, but the intent appears or is inferred from the terms of the disposition, or from accompanying facts and circumstances, that the beneficial interest is not to go to or be enjoyed with the legal title. In such a case a trust is implied or results in favor of the person whom equity deems to be the real owner.

Howell v. Fiore, 210 So.2d 253, 255 (Fla. 2d DCA 1968).

In the case at bar, there was no evidence that the parties intended to create a trust relationship. In fact, the evidence was to the contrary-that Mr. Bower did not intend that his gifts to the Foundation be held in trust. Consequently, the trial court erred in finding that Step By Step established that there was a resulting trust as to the property.

[3] No constructive trust:

Unlike a resulting trust, a constructive trust does not have the element of intent or an agreement, either oral or written, to create a trust relationship. Wadlington, 92 So.2d at 631. “The trust is ‘constructed’ by equity to prevent an unjust enrichment of one person at the expense of another as the result of fraud, undue influence, abuse of confidence or mistake in the transaction that originates the problem.” Id. Here, there was no evidence of fraud, undue influence, abuse of confidence or mistake in the transaction. As a result, the trial court also erred in finding that there was a constructive trust between the parties. 

Lesson learned?

The big take-away from this case for potential plaintiffs is that absent a written trust or gift agreement, don't waste time and money on a lawsuit; donors should expect they'll have little to no say over how charities administer their donations once the gift is made - unless they document that retained right in a written trust or gift agreement. Here's how the 2d DCA made this general point:

We note the inherent problems that would be created if an individual who donates to a charitable organization with merely a stated intent that the donation be used for a specific purpose were able to control, or their heirs were able to control, that corporation in perpetuity. Although The Bower Foundation donated a significant amount of money to the Foundation, it was a small percentage of the money the Foundation used to construct and expand the facility. The board of directors of a nonprofit corporation has the responsibility to determine what is in the best interest of the corporation going forward, and therefore, absent a written trust agreement, it should not be bound by the intent of donors who gave many years ago when such is no longer in the best interest of the corporation.

What can charities do to avoid disputes?

The last thing a charity wants is to waste precious resources on litigation or alienate future donors as a result of a dispute over how a past donation is being administered. So what could the charities in this case have done differently? Good question. And the authors of The Unraveling of Donor Intent: Lawsuits and Lessons provide some solid answers. If you work with charities the article is well worth reading in its entirety. As to the specific question of what the charities could have done differently in this case, the authors recommend the following:

It is almost inevitable that charities will experience a need to make changes to long-term gifts. The need for change may result for a variety of reasons. The gift’s purpose may no longer effectively support the charity’s mission; the cost to administer the gift may outweigh the charitable benefits of the gift or the lack of funds may cause harm to the gift property; or the charity’s needs have dramatically shifted so that the gift revenue is no longer needed (or no longer needed at the level provided). When problems arise, charities should understand the options for resolution. In order of facility, those include: 1) change of gift terms negotiated with living donors; 2) provision for change pursuant to the gift agreement; 3) relief under the de minimus provisions of the Uniform Prudent Management of Institutional Funds Act; or 4) court approved changes.

[1.] Negotiating change of purpose with living donors. While donors who make gifts relinquish all control over contributed property, the provisions of UMIFA and UPMIFA allow charities to negotiate a change of purpose in long-term gift agreements with living donors. This means charities with living-donor gift may have the opportunity to examine existing documents renegotiate gift terms to provide flexibility over time, a moderation of purpose, or an alternative purpose if they act in a timely manner. This approach not only honors donor intent, but positions the charity as accountable and a good steward for the gift’s life. It is also the option with the lowest expense ratio.

[2.] Making changes pursuant to terms of the gift agreement. If possible, gift agreements should contain flexibility to make non-judicial changes with an emphasis on the triggers for change and clear direction on how that decision is made. For planners, this adds an extraordinary drafting challenge since it is difficult to take the gift through a period of 10, 25, 50 or even 100 years without knowing the environmental, cultural, and economic changes that will occur over that time. The alternatives may include secondary uses for the gift at the same institution, a gift over transferring proceeds to a succeeding charitable institution, or other creative alternatives.

The document should designate individuals responsible for making changes to the gift purpose. This group may be the same group set out in the paragraph above (who determine it is time to make a change) or it may be a different group. The document should also designate the type of changes that are appropriate without court approval, and what to do if there is conflict among the appointed group. Placing discretion in a group qualified to make those decisions based on the facts and circumstances at the time is a principal used in multi-generational trusts and makes those trusts effective long after the grantor is there to make decisions.

[3.] Seeking relief under the Uniform Prudent Management of Institutional Funds Act (UPMIFA). In 1972, the Uniform Management of Institutional Funds Act (UMIFA) was adopted at the 1972 Annual Meeting of the National Conference of Commissioners on Uniform State Laws. UMIFA (and its successor UPMIFA), adopted in whole or in part by all states except Alaska and Pennsylvania, governs long-term funds held by charitable institutions. Section Seven of the model statute permitted a “release of limitations that imperil efficient administration of a fund or prevent sound investment management if the governing board can secure the approval of the donor or the appropriate court” and had four parts:

• Restrictions can be released with the written consent of the donor.
• If the donor’s written consent cannot be obtained, a court of appropriate jurisdiction can release the restriction if the restriction “is obsolete inappropriate, or impracticable.”
• A release cannot change the use of the funds to non-charitable purposes.
• The section does not limit the court’s application of the cy pres doctrine.

In July 2006, The Commissioners on Uniform State Laws approved a revised version of UMIFA entitled the Uniform Prudent Management of Institutional Funds Act (UPMIFA) that made changes in areas from investment management standards, to provisions allowing the release of gift restrictions under certain circumstances. UPMIFA is rapidly replacing UMIFA across the country; more than 43 states have adopted a version of UPMIFA at last count [but NOT Florida].

UPMIFA expanded the power to release or modify donor gift restrictions in Section 6, allowing change under four circumstances:

• Donor release: “With the donor’s consent in a record”, the charity can release a restriction in whole or in part, so long as the gift is still used for the organization’s charitable purposes.
• Doctrine of deviation: If a modification to a gift agreement/document will enhance the furtherance of the donor’s purposes, or a restriction is “impracticable or wasteful and impairs the management or investment of the fund”, the charity can ask a court to modify the restriction. The Attorney General must be notified and allowed to be heard, and the modification must reflect the donor’s “probable intention.”
• Doctrine of cy pres: If the purpose or restriction becomes “unlawful, impracticable, impossible to achieve, or wasteful”, the court may use the cy pres doctrine to modify the fund purposes. The Attorney General must be notified and allowed to be heard.
• Small funds: For funds with a value less than $25,00036 that have been in place more than 20 years, court action is not required if the charity determines a restriction is “unlawful, impracticable, impossible to achieve, or wasteful” so long as the charity waits 60 days after notice to the state Attorney General of the intention to make the change, and the change is designed to be a good faith reflection of the expressed charitable purposes.

[4.] Seeking court approved changes. Although court action is generally perceived to the action of last resort, it may be the charity’s only solution when resolution is not available through one of the options above. Generally the state Attorney General will be a party to the action to represent the public’s charitable interests. These hearings may not only be costly, but unpredictable. (See the result in the Fisk/Georgia O’Keeffe Museum dispute described earlier.) Ultimately, the decision to seek court approval is a decision to make with legal counsel considering the burden or problems with the gift terms, the donor and donor family’s response, the public’s reaction to the request, and the potential downside if the court makes a ruling counter to the charity’s goals.

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Pajares v. Donahue, --- So.3d ----, 2010 WL 934101 (Fla. 4th DCA Mar 17, 2010)

A will provision devising Florida homestead property is valid ONLY if BOTH elements of the following two-part test are satisfied:

1. The homestead was subject to devise. In other words, the restrictions on the devise of homestead contained in Sect. 4(c), Article X, of the Florida Constitution and F.S. 732.401, F.S. 732.4015 do NOT apply. (When in doubt as to this point, refer to Kelley's Homestead Paradigm.)
2. The will contains a specific power directing that the homestead property be sold and the sales proceeds distributed to the estate's beneficiaries.

The will at the heart of the linked-to opinion wasn't exactly a picture of clarity (thus the litigation). What's interesting about this case is the lengths to which first a probate court and then the 4th DCA went to carry out the decedent's intent, as clearly set forth in her will, even though the will lacked the sort of explicit homestead-sales clause discussed by the Florida Supreme Court in McKean v. Warburton and quoted by the 4th DCA below.

First, here's the less-than-clear text at issue in this case. The homestead property is a home in Delray Beach whose address is 202 N.W. 18 Street, Delray Beach, Florida 33444. To make sense of this opinion you'll need to focus on all references to that property:

Article One of the will stated that Kuhnreich's husband was deceased and she had no children.

Article Three, entitled “Specific Bequests of Real and/or Personal Property,” concerned two parcels of real property. First, a West Palm Beach condominium unit was devised outright to two named devisees. Second, “[f]rom the sale of: 202 N.W. 18 Street[,] Delray Beach, Florida 33444,” the will bequeathed specific dollar amounts to five persons: Robert Kuhnreich, $5,000; “Lane Abbot, AKA Orlando Abad,” $10,000; “David Mears, AKA David Abad,” $10,000; “Connie Abad, AKA Conchita Abad,” $30,000; and Maria De Cuena, $5,000. Article Three ended with this sentence: “In the event that I do not possess or own any property listed above on the date of my death, the bequest of that property shall lapse.”

Article Four was entitled “Homestead or Primary Residence.” It stated:

I will, devise and bequeath all my interest in my homestead or primary residence, if I own a homestead or primary residence on the date of my death that passes through this Will, to see above primary residence. If I name more than one person, they are to receive the property [X] equally, after all estate taxes, debts are satisfied.

And here's how the 4th DCA got to the "right" conclusion (if by "right" we mean: carrying out the decedent's testamentary intent vs. strictly enforcing Florida's restrictions on the devise of homestead property):

Where the decedent has no surviving spouse or minor children, homestead property may “pass as a general asset of the estate by a specific devise.” McKean, 919 So.2d at 345. “[W]hen the testator specifies in the will that the homestead is to be sold and the proceeds are to be divided[,] ... the homestead loses its ‘protected’ status.” Id. at 346-47 (citation omitted). “Thus, where the will directs that the homestead be sold and the proceeds added to the estate, those proceeds are applied to satisfy the specific, general, and residual devises, in that order.” Id. at 347 (citations omitted).

Reading Articles Three and Four together, we find that Kuhnreich specified that the Delray Beach property was to be sold and the proceeds divided according to the provisions of the will. With the italicized and underlined language, “see above primary residence,” Article Four specifically references the treatment of the residence in Article Three. Article Three indicates that the specific bequests will be paid from “the sale” of the Delray Beach home. In fact, the will provides for the Article Three bequests only through a sale of the real property: the will provides that if the decedent did not own one of the two properties on the date of her death, then “the bequest of that property shall lapse.” Article Four does not expressly say that the Delray Beach Property is to pass to Pajares and Donahue free of claims of the decedent's creditors, a hallmark of homestead property. See In re Estate of Hamel, 821 So.2d 1276, 1278 (Fla. 2d DCA 2002). Rather the devise is subject to “debts.” The will does not therefore demonstrate an intent to preserve the advantages of homestead for the property.

For these reasons, we affirm the order of the circuit court, which harmonized Articles Three and Four of the will.

Lesson learned?

If a client walks into your office with case involving freely-devisable homestead and a will that at first blush appears to lack the type of explicit homestead-sales clause discussed in McKean v. Warburton, don't be too quick to throw in the towel. Scour the will for language that could be read to imply the decedent intended or expected the homestead property would have to be sold. If you're dealing with freely-devisable homestead property, a decedent's testamentary intent shouldn't be frustrated simply because his or her will wasn't perfectly drafted. That's the argument, anyway. It worked in this case, it might work in yours.

Bonus:

Amy B. Beller of Beller Smith, P.L., in Boca Raton, Florida, was on the winning side of this case both at the trial-court level and on appeal. In this interview I invited Amy to share some of the lessons she drew from this case with the rest of us and she was kind enough to accept.  You can also download her appellate brief: APPELLEES' ANSWER BRIEF

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Thomas v. Thomas, --- So.3d ----, 2010 WL 391833 (Fla. 5th DCA Feb 05, 2010)

There are certain key milestones in a probate proceeding where Florida's probate rules build in ultra-short limitations periods designed to bring disputes to a head quickly or forever bar them. One of those milestones is when the personal representative files his final accounting. Probate Rule 5.401 says that anyone wanting to object to a final accounting has only 30 days to file an objection, and 90 days from the filing of the objection in which to serve a notice of hearing. Miss those deadlines and you're out of luck, no matter how legitimate your objections may be. Here are the relevant portions of Rule 5.401:

Rule 5.401. Objections to . . . Final Accounting

(a) Objections. An interested person may object to the . . . final accounting within 30 days after the service of the later of the . . . final accounting on that interested person.

*     *     *

(d) Hearing on Objections. Any interested person may set a hearing on the objections. Notice of the hearing shall be given to all interested persons. If a notice of hearing on the objections is not served within 90 days of filing of the objections, the objections shall be deemed abandoned and the personal representative may make distribution as set forth in the plan of distribution.

In the linked-to opinion the parties objecting to the final accounting argued that because the accounting wasn't complete, it didn't count as a "final" accounting, so Rule Rule 5.401's ultra-short limitations periods didn't apply. Clever, but no cigar. The probate judge didn't buy this argument, and neither did the 5th DCA. Here's how the 5th DCA explained its ruling:

On December 3, 2008, the court entered a final judgment granting .  .  .  the motion to strike the objection to the final accounting. The Appellee argues that the court based its ruling on the fact that the objection to the final accounting was not timely filed. That is, the accounting was filed June 16, 2006, and the objection was not filed until October 12, 2006, well beyond the 30 days in which to object as provided by rule 5.401(a).

Appellants contend that the final accounting filed in this case was not complete and, therefore, it was not a final accounting. The Appellants cite no authority for their position and this Court disagrees.

It is clear that a final accounting was filed June 19, 2006, and if infirmities in the final accounting existed, the Appellants had 30 days in which to file an objection, and 90 days from the filing of the objection in which to have a hearing. They did neither. The court found that the objection was waived.

But Wait, There's More!

I received a comment to this blog post from über probate litigator Brian Felcoski. He makes an important point that goes to the 5th DCA's construction of the rule's 90-day requirement.

Hi Juan. I saw your post concerning the Thomas decision. The language in the decision suggesting one needs to have a hearing within 90 days from filing the objection to accounting does not appear to be consistent with Florida Probate Rule 5.401. The language of the rule speaks to service of the notice of hearing and not the actual hearing itself. The committee notes reflect that (d) was amended “to clarify that 90-day period pertains to service of hearing notice, not the actual hearing date.” You might want to make an editor’s note on your probate litigation blog to make your readers aware of this issue. I am copying Tae Bronner, Chair of the Section’s probate law and procedure committee, and asking that her committee review the issue and determine if action is warranted to clarify the rule further. Best regards. Brian Felcoski

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Grainger v. Wald, --- So.3d ----, 2010 WL 479862 (Fla. 1st DCA Feb 12, 2010)

The linked-to opinion is yet another example of yet another plaintiffs lawyer seeing his trial-court win go up in smoke because he blew a deadline in probate court. The last time I wrote about this problem was a med-mal case [click here]. This time around it was a personal injury case arising out of an automobile/ motorcycle accident.

Plaintiffs suing estates often fail to realize that they're really litigating their claims in two separate courts in front of two separate judges:

1. The trial court adjudicating their lawsuit (this is where the decedent's liability is established); and
2. The probate court administering the decedent's probate estate (this is where you go to collect on your judgment).

In the linked-to opinion above the plaintiff eventually prevailed in his lawsuit, but the judgment wasn't rendered until after the decedent's death. In order to collect on his judgment, plaintiff needed to file a creditor claim against the probate estate of the now deceased defendant. This is where things went south for the plaintiff (and a good probate lawyer working for the estate snatched victory from the jaws of defeat!!).

At some time during the course of the litigation plaintiff's personal injury attorney was served with a "creditors notice" in connection with the probate proceeding. The personal injury lawyer apparently ignored this notice, which ultimately resulted in his trial court win being forfeited (ouch!!).  Here are the key facts/dates as recounted by the 1st DCA:

Wald was involved in an automobile/motorcycle accident with the decedent and brought a personal injury lawsuit to recover damages. Wald eventually prevailed in his lawsuit, but the judgment was not rendered until after the decedent’s death. Some time after obtaining the judgment, Wald filed a claim against the probate estate. 

The personal representative argued she had served notice on Wald's attorney as required by Florida Probate Rule 5.041(b) (2009) on May 23, 2007, thus triggering the time constraints of section 733.702(1). Therefore, under the statute, Wald had until June 22, 2007, to file any claim he might have. Since Wald's claim was not filed until July 2, 2007, the personal representative argued it was untimely and forever barred.

So far so good for the estate. But then the probate judge did something the 1st DCA characterized as "bizarre": he declared the estate's creditor notice wasn't valid because plaintiff's personal injury attorney had been served instead instead of plaintiff's probate attorney. What?! Yeah, that's what the 1st DCA said too.

There are two reasons why the probate court erred in finding the time constraints of section 733.702(1) inapplicable.

[1] First, the Florida Probate Rules do not make any distinction based on the scope of an attorney's representation of a client. A personal representative would have no way of knowing such information. These descriptive labels, such as “probate” attorney or “personal injury” attorney do not appear in the Rule 5.041(b), which governs the service of pleadings and papers in probate actions. Instead, the Rule simply requires that if a creditor is represented by an attorney, service must be on the attorney and not on the creditor. The language of Rule 5.041(b) states that “when service is required or permitted to be made on an interested person represented by an attorney, service shall be made on the attorney unless service on the interested person is ordered by the court.” (emphasis added).

*     *     *

[2] Second, regardless of whether the attorney served was labeled the “probate” or the “personal injury” attorney, the record reflects that Wald had actual notice and that he received notice in time to file the claim. Wald received all process that was due. The record contains Wald's original statement of claim against the estate. Although the claim was not filed until July 2, 2007, Wald signed the claim on June 16, 2007-at least six days before the time for filing claims was to expire. “[D]ue process requires the personal representative to give notice by any means that is certain to ensure actual notice of the running of the non-claim period.” Estate of Ortolano, 766 So.2d 330, 332 (Fla. 4th DCA 2000) (emphasis added). Considering the date of Wald's signature, he had actual notice and sufficient time to file a claim within the 30-day statute of limitations. Therefore, any failure was not in the service of the notice, but in the untimely filing of the claim. Since there was no excuse for Wald's failure to file the claim in a timely manner, it should have been declared time barred under section 733.702(1).

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Doe v. Suntrust Bank, --- So.3d ----, 2010 WL 323031 (Fla. 2d DCA Jan 29, 2010)

Sometimes courts will ignore DNA test results as a matter of law [click here, here]. And then there are those cases where who wins or loses can turn on a DNA test. Not surprisingly, if the estate is being litigated and a DNA test could help one side win, the other side may not voluntarily hand over a DNA sample. In those cases you'll need a court order compelling the DNA test.

Until now Florida law's been very muddy on exactly what you need to do to get a court order compelling a DNA test in probate litigation. Into this gap stepped the 2d DCA, delivering an excellent road map for Florida probate lawyers confronted with this problem.

DNA Testing & Probate Litigation: 2d DCA's Five-Step Road Map:

1. Frame the issue as a discovery request to test human bodily fluids
2. Rely on Civil Procedure Rule 1.360 (Examination of Persons)
3. Satisfy rule 1.360's "in controversy" requirement
4. Satisfy rule 1.360's "good cause" requirement
5. Satisfy rule 1.360's "balancing-the-interests" requirement

In the linked-to opinion a guardian ad litem sought to compel the decedent's two legitimate children to provide a DNA sample (via a buccal swab) to establish the paternity of "Madeline Doe": a nine-year old out-of-wedlock child whose mother was claiming she was the decedent's child. The 2d DCA framed the issue this way:

We view [the] motion for DNA testing as a discovery request and the trial court's order as one compelling discovery.

Having framed the issue as a discovery request the court then tells us what discovery rule we need to rely on: Civil Procedure Rule 1.360 ("Examination of Persons"). By the way, in almost every appellate decision involving DNA testing in probate litigation the lawyers and the trial court always get this wrong, mistakenly focusing on the wrong discovery rule or failing to even state exactly which discovery rule they’re operating under (probably because they’re not sure). No one should repeat that mistake after reading this opinion.

Procedurally, this case is similar to Wicky v. Oxonian, 34 Fla. L. Weekly D1612 (Fla. 2d DCA Aug.14, 2009). In Wicky, the personal representative of an estate pursuing a wrongful death claim filed a discovery request seeking permission to test an existing sample of the defendant's blood. The personal representative's motion did not identify the rule of civil procedure that authorized the testing, although it mentioned rule 1.280, the general discovery rule. The defendant thought the request was made under rule 1.350, which addresses the production of documents and things. This court concluded that neither rule governed the request, and that “a request to test human bodily fluids in a civil action must satisfy the requirements of rule 1.360, ‘Examination of Persons.’ “ Id. at D1612.

The 2d DCA then did something you don't often see. It went on to explain in detail what kind of evidence a working probate lawyer would need to put in front of his or her probate judge to satisfy all of rule 1.360's requirements as applied to DNA testing in a contested probate proceeding. For those of us in the trenches this kind of guidance is pure gold, so I'm providing all of it. It's a relatively long excerpt but well worth reading.

["in controversy" requirement]

First, we note that the issue of whether Madelin is Doe's child, and thus a beneficiary of his trusts, is clearly at the heart of this litigation. However, thus far, it appears that the only pleadings suggesting she may be his child are the Trustee's verified complaint, which simply attests to the Trustee's knowledge that Madelin claims to be Doe's child and her verified motion to compel testing which states only that she “maintains she is a child born out of wedlock” to Doe. We believe something more is required, for example, an affidavit from Madelin's mother alleging paternity and setting forth facts establishing a reasonable possibility of the requisite sexual contact with Doe. See § 742.12(2) (requiring a sworn statement or declaration under penalty of perjury alleging paternity and setting forth facts establishing a reasonable possibility of the requisite sexual contact between the parties as a perquisite to obtaining an order for scientific testing). Such an affidavit would satisfy the requirement that the subject matter of the test be “really and genuinely” in controversy. See Schlagenhauf, 379 U.S. at 119.

["good cause" requirement]

Madelin will also have to demonstrate “good cause” for her request that Adrian and Evelyn be required to provide a buccal swab sample for testing. In the typical paternity action, a compelled DNA test is dispositive of the issue in controversy, and thus good cause for the test is established. See Wicky, 34 Fla. L. Weekly at D1613. This case is not, however, a typical paternity case because it is the legitimate children of the deceased putative father who are being asked to submit a sample of their DNA for testing. Under these circumstances, we believe two considerations are important in determining the existence of good cause. First, it would seem appropriate that Madelin provide some evidence that a comparison of her DNA with the DNA of Doe's legitimate children could produce a result that would tend to prove or disprove the existence of a genetic link between Doe and Madelin. Second, it would also seem appropriate to require that she make some showing of need. For example, in the arguments presented to this court, Madelin and the Trustee have indicated that Doe was cremated, thus eliminating the possibility of any comparison with a sample derived from his remains. As far as we can tell, this fact was not presented as evidence in the trial court. Likewise, while the Trustee's verified complaint suggests that no official documentation exists that would allow Madelin to establish that Doe is her father, it seems reasonable to require a more definitive statement to that effect, perhaps from Madelin's guardian ad litem.

["balancing-the-interests" requirement]

Finally, as we explained in Wicky, in all discovery matters the competing interests of the parties must be balanced. 34 Fla. L. Weekly at D1613. Doe did not name specific beneficiaries in his trusts; instead he instructed that the assets in the trusts be divided among his children. Other language in the trusts indicates he contemplated the possibility of having children other than Adrian and Evelyn. Given that this is an action to determine the beneficiaries of his trusts, consideration should be given to effectuating his intent as expressed in the trusts. As for Madelin, if she is in fact Doe's child, her rights with respect to the trusts are equal to those of Evelyn and Adrian. Further, her interests are akin to those of an out of wedlock child seeking to share in the intestate estate of a parent. Florida recognizes the right of an out-of-wedlock child to share in a parent's estate. See § 732.108(2). Florida also recognizes the right of a child born out of wedlock to establish paternity after the death of the father. See § 732.108(2)(b). For that right to be meaningful, the child must have a fair opportunity to prove that the deceased is her father. What is fair may vary from case to case, but any evaluation should take into account the heightened burden of proof imposed on out-of-wedlock children who seek to establish paternity after the death of the putative father. See Berkey v. Odom (In re Estate of Odom ), 397 So.2d 420 (Fla. 2d DCA 1981) (holding that in an action to establish paternity after the death of the father, proof of paternity shall be by clear and convincing evidence), disapproved on other grounds, Wilson v. Scruggs ( In re Estate of Smith ), 685 So.2d 1206 (Fla.1996).

On the other hand, Adrian and Evelyn have a privacy interest they seek to protect. In considering the weight to afford that interest, several factors are important. First, the intrusion is minimal-the test Madelin seeks is noninvasive, and the purpose of the test is limited to comparing her DNA to theirs. Second, rule 1.360(a)(3) provides that the court, upon request, may establish protective rules governing an examination. Thus far, Adrian and Evelyn have only asserted a generalized complaint that submitting a DNA sample invades their privacy, however, if they are able to articulate any specific privacy concern, they have the ability to ask the court to fashion protective rules to address that concern. Third, Adrian and Evelyn have affirmatively denied that Madelin is Doe's child, and they have actively opposed all efforts by her or Maria to prove that they are his children. Having taken that position, it is questionable whether they should be permitted to withhold the evidence that may put Madelin's claim and their defense to rest once and for all. They have the alternative of conceding that Madelin is a beneficiary should they wish to avoid the test.

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Morrison v. West, --- So.3d ----, 2010 WL 532792 (Fla. 4th DCA Feb 17, 2010)

The linked-to opinion above is the last gasp of bitter litigation swirling around the $100 million estate of Palm Beach socialite Pedro Morrison, who died in 2003 [click here, here].  This time around the issue was whether North Carolina sole practitioner William E. West could keep his million dollar legal fee. His former client, the decedent's widow - Carla Morrison, fired him the day after he settled her case in mediation.

At first things looked good for West. Here's how the Palm Beach Post reported on his trial-court win in Morrison widow miffed:

The Palm Beach County Circuit Court judge says Morrison "behaved despicably" toward her former lawyer, North Carolina attorney William E. West, and must pay his $1 million legal fee.

Ouch! What would prompt [Judge] Winikoff to call Morrison's testimony and demeanor "outrageous?"

How about Morrison firing her lawyer the morning a mediation settlement he hammered out was to be filed with the court. Or Morrison's refusal to pay West his $1 million legal fee, as she had agreed. Or Morrison's claim she needed the $1 mil for living expenses - then later admitting she spent the cash on a a bracelet worth between $140,000 and $250,000.

That was then, this is now. On appeal West lost it all. And all because he didn't want to spend a few bucks on associating with a Florida lawyer and getting admitted pro hac vice.

The supreme court explained its holding in [Chandris, S.A. v. Yanakakis, 668 So.2d 180 (Fla.1995)], as supporting policy concerns related to protection of the public. The prohibition on the unauthorized practice of law in Florida derives not only from the Rules of Professional Conduct, but also from statutory law. The court in Chandris noted that section 454.23, Florida Statutes (1983), provided that “[a]ny person not licensed or otherwise authorized by the Supreme Court of Florida who shall practice law ... shall be guilty of a misdemeanor of the first degree.” FN2 Relying on long established precedent requiring admission to the bar, the court said:

Florida has a unified bar, and all persons engaged in the practice of law here must be members of that bar. Petition of Florida State Bar Ass'n, 40 So.2d 902 (Fla.1949). More than thirty years ago, we enunciated why we prohibit those who are not members of The Florida Bar from engaging in professional activities in Florida which are within the boundaries of the practice of law. This Court noted in State ex rel. Florida Bar v. Sperry, 140 So.2d 587, 595 (Fla.1962), rev'd on other grounds, 373 U.S. 379, 83 S.Ct. 1322, 10 L.Ed.2d 428 (1963), that:

The reason for prohibiting the practice of law by those who have not been examined and found qualified to practice is frequently misunderstood. It is not done to aid or protect the members of the legal profession either in creating or maintaining a monopoly or closed shop. It is done to protect the public from being advised and represented in legal matters by unqualified persons over whom the judicial department can exercise little, if any, control in the matter of infractions of the code of conduct which, in the public interest, lawyers are bound to observe.

Chandris, 668 So.2d at 184. Despite the experience and qualifications of the unlicensed lawyer in Chandris, the court held that he could not recover under a contingent fee contract.

In a footnote, the court conceded that while a member of The Florida Bar may not claim attorney's fees under a void contingent fee agreement, a Florida Bar member may still be entitled to the reasonable value of his or her services in quantum meruit. Id. at 186 n. 4. While West seeks to expand this footnote to claim entitlement to his quantum meruit fee, his interpretation is clearly wrong. While a contract between a Florida Bar member and a client might be illegal, the Bar member's provision of legal services in Florida is not illegal. In contrast, the provision of legal services by a non-Florida Bar member is illegal. See § 454.23, Fla. Stat. To award fees for illegal activities is contrary to public policy. See Spence, Payne, Masington & Grossman, P.A. v. Philip M. Gerson, P.A., 483 So.2d 775 (Fla. 3d DCA 1986).

*     *     *     *     *

West argues that he anticipated securing a Florida attorney but simply did not do so before the matter settled in mediation. Although in September 2004 West drafted a motion for appearance pro hac vice and forwarded it, and a proposed order for admission, to McDonald & Crawford, that Fort Lauderdale firm was never actually retained by Morrison. After an e-mail from the firm to West discussing its fee, the Florida firm did not have further conversations with West until well after the mediation. In fact, West did not even seek pro hac vice admission to present the settlement agreement to the probate court for approval.FN4 This can hardly be deemed a technical error when he was admitted pro hac vice in another case involving Morrison and the trust right before he was terminated by Morrison. He knew that such admission was necessary. We can only assume that [West] chose to ignore [getting admitted pro hac vice] to avoid the payment of a fee to McDonald & Crawford.

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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.

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Here's something you don't see every day: an acknowledgment by a credible source usually not associated with the "liberal media" (Rupert Murdoch's the WSJ) reporting that repeal of the estate tax is not a free ride, there are consequences: taxes will be shifted from a wealthier segment of the U.S. population to a less wealthy segment of the U.S. population. As reported by the WSJ in Why No Estate Tax Could Be a Killer:

Congress shocked everyone by letting the estate tax lapse on Jan. 1.

Now, here is the real stunner: For many, the lapse actually will raise taxes.

Under last year's law, estates up to $3.5 million, or $7 million for married couples, were exempt from federal tax. This year that law has been replaced by a fiendishly complex levy raising taxes on the assets of those with little as $1.3 million. It will affect the heirs of at least 50,000 U.S. taxpayers who die this year, whereas the old law affected only about 15,000 estates a year, according to the Tax Policy Center.

"The new system is far worse for many people who have assets between $1.3 million and $3.5 million," says veteran estate lawyer Ronald Aucutt, of McGuire Woods.

The linked-to article does a good job of walking readers through a simple hypothetical demonstrating how differently this year's and last year's regimes treat the same asset held by two fictional widows: Ms. Bentley has total assets of $20 million, while Ms. Subaru's total is $2 million. Guess who is paying more taxes this year?

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Burgess v. Prince, --- So.3d ----, 2010 WL 199422 (Fla. 2d DCA Jan. 22, 2010)

Access to trust funds is usually a zero-sum game: If I pay trust funds to one party, there's less money for everyone else. We usually think of this problem in terms of conflicting claims between trust beneficiaries: if I pay $$ to beneficiary "A," there's less $$ for beneficiary "B."

So is there a way to boost payments to beneficiary A without diminishing beneficiary B's share of the trust? Yes!

One option is to "grow the pie," so there's more to go around for everyone [click here]. Another option is to pay beneficiary A to do some of the trust-administration work being done by third parties. As long as beneficiary A can do the job, this transaction is an economic wash as far as beneficiary B is concerned. So why not "keep the money in the family" by paying a trust beneficiary - rather than an unrelated third party - to do the work? Professionals who take the time to understand this opportunity can become heroes to their trust-beneficiary clients. The linked-to opinion is an example of this second option in action.

Trust beneficiary as Business Manager:

In the linked-to opinion the trust owned Salt Creek Art Works, a large art studio and gallery. One of the trust's beneficiaries was serving as trustee of the trust and business manager for Salt Creek Art Works. The trust agreement provided that a beneficiary may not receive compensation for serving as trustee, but there was nothing stopping her from getting paid for the work she did as business manager. In fact, the trust agreement specifically authorized a trustee/beneficiary to hire herself to do any work the trust required.

When the trustee/beneficiary was removed as trustee she was also stripped of her business-manager fees. On appeal the 2d DCA reversed this ruling by simply applying the clear text of the trust agreement.

Section 6.2 of the Trust provides that a beneficiary may not receive compensation for serving as Trustee:

Any Trustee, whether an individual or corporate trustee, who may serve under the Trust shall be entitled to receive compensation for its services as Trustee in accordance with its schedule of rates in effect at the time the services are rendered, including minimum fees and additional compensation for special investment and interests in a closely-held business. Any Trustee who is also a beneficiary under the Trust shall serve without compensation.

(Emphasis added.) Our record demonstrates, however, that Ms. Burgess did not receive compensation for her service as Trustee. Rather, she received a modest monthly payment from the Trust for operating the ongoing business of Salt Creek Art Works. The payments she received were not contrary to the terms of the Trust. Indeed, the Trust allows compensation to a Trustee serving in other capacities. Section 6.4 empowers the Trustee:

[T]o employ accountants, actuaries, appraisers, attorneys, brokers, building contractors, custodians, investment managers, realtors, and other agents including any Trustee, if such employment be deemed necessary or desirable and to pay reasonable compensation for their services without diminution of any fiduciary's commissions....

(Emphasis added.)

Finally, section 6.5 allows the Trustee to compensate a beneficiary for business management duties:

To determine in his or her discretion the manner and extent of his or her active participation in the business, and to delegate all or any part of his or her power to supervise and operate to such person or persons as he or she may select, including any associate, partner, officer or employee of the business.

To hire and discharge officers and employees, fix their compensation and define their duties; and to employ, compensate and discharge agents, attorneys, consultants, accountants and such other representatives as the Trustee may deem appropriate; including the right to employ any beneficiary or individual fiduciary in any capacity.

(Emphasis added.)

Relying on the plain language of the Trust document, we must conclude that the trial court erred in ruling that Ms. Burgess could not be compensated for managing Salt Creek Art Works.

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As reported by Forbes in States Race To Clean Up Congress' Estate Tax Mess, several states - including Florida - aren't waiting around for Congress to get its act together on the estate tax front.

While Congress dilly dallies, the states are racing to come to the aid of families whose estate plans have been thrown into disarray by the Jan. 1 lapse of the federal estate tax. That lapse could, among other things, lead to the unintended disinheritance of spouses, which could in turn lead to expensive legal fights among family members and, ultimately, the impoverishment of some widows or widowers. It could also, ironically, force some families to pay extra state estate taxes.

Legislators in a handful of states, led by Virginia [click here], have already introduced legislation to try to head off such bad results. Virginia's House of Delegates passed its "emergency" bill unanimously Tuesday and the state's Senate is expected to take it up immediately [click here]. Similar bills are pending in Maryland, Nebraska, South Dakota, Tennessee and Washington. Other states, including Florida and New York, have somewhat different legislation pending.

By the way, Forbes has a very cool interactive map showing state-level estate tax laws for 2010 [click here].

Florida's Statutory Fix

At this year's Heckerling conference one of the giants of the Florida trusts and estates bar, Bruce Stone, reported on Florida's statutory fix (CS/HB 361) in an excellent presentation entitled The Clock Struck Midnight: Now What Do We Do?  You can track the status of CS/HB 361 here. Full text of the bill is here.  The following is the proposed trust-code provision as reported by Bruce:

The following is a draft as of noon Monday, January 18, 2010, of a statute to be proposed for adoption in Florida, addressing the uncertainties and potential liabilities of fiduciaries caused by repeal of the estate and generation-skipping transfer taxes. The proposed statute may be submitted to the Florida legislature for its regular session which convenes on March 2, 2010.

Section I - section 736.04114 shall be created as follows:

736.04114 Limited judicial construction of irrevocable trust with federal tax provisions.--

(1) Upon the application of a trustee or any qualified beneficiary of a trust, a court at any time may construe the terms of a trust that is not then revocable to define the respective shares or determine beneficiaries, in accordance with the intention of the settlor, if a transfer occurs during the applicable period and the trust contains a provision that:

(a) includes a formula devise referring to the "unified credit", "estate tax exemption," "applicable exemption amount," "applicable credit amount," "applicable exclusion amount," "generation-skipping transfer tax exemption," "GST exemption," "marital deduction," "maximum marital deduction," or "unlimited marital deduction;"

(b) measures a share of a trust based on the amount that can pass free of federal estate tax or the amount that can pass free of federal generation-skipping transfer tax;

(c) otherwise makes a devise referring to a charitable deduction, marital deduction, or a similar provision of federal estate tax or generation-skipping transfer tax law; or

(d) appears to be intended to reduce or minimize federal estate tax or generation skipping transfer tax.

(2) For the purpose of this section:

(a) "applicable period" means a period beginning January 1, 2010 and ending on the earlier of (i) December 31, 2010, or (ii) the date that an act becomes law that repeals or otherwise modifies or has the effect of repealing or modifying Section 901 of The Economic Growth and Tax Relief Reconciliation Act of2001.

(b) a "transfer occurs" when an interest takes effect in possession or enjoyment.

(3) In construing the trust, the court shall consider the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and the settlor's probable intent. In determining the settlor's probable intent, the court may consider evidence relevant to the settlor's intent even though the evidence contradicts an apparent plain meaning of the trust instrument.

(4) This section does not apply to a transfer that is specifically conditioned upon no federal estate or generation skipping transfer tax being imposed at the time of the transfer.

(5) Unless otherwise ordered by the court, during the applicable period and without court order, the trustee administering a trust containing one or more provisions described in subsection (1) may (a) delay or refrain from making any distribution, (b) incur and pay fees and costs reasonably necessary to determine its duties and obligations (including compliance with provisions of existing and reasonably anticipated future federal tax laws), and (c) establish and maintain reserves for the payment of these fees and costs and federal taxes. The trustee shall not be liable for its actions as provided in this subsection made or taken in good faith.

(6) The provisions of this section are in addition to, and not in derogation of rights under the Florida Trust Code or the common law to construe a trust.

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Foster v. Estate of Gomes, --- So.3d ----, 2010 WL 322170 (Fla. 5th DCA Jan. 29, 2010)

Prenuptial agreements limiting themselves solely to spousal inheritance rights are governed by F.S. § 732.702. All other prenuptial agreements are governed by the more burdensome requirements of Florida's Premarital Agreement Act, found at F.S. § 61.079.

Generally speaking, inheritance-rights prenup's are a whole lot simpler to draft, less costly for clients, and easier to enforce. Why? One big reason is that these agreements (if executed prior to the marriage) don't require prospective spouses to go through all of the financial disclosure normally needed to make prenup's governed by Florida's Premarital Agreement Act stick. This distinction is often lost on attorneys used to litigating prenup's in divorce proceedings, and was at the heart of the court's ruling in the linked-to opinion.

Prior to their marriage, Lora Foster and Edward Gomes entered into an antenuptial agreement in which Ms. Foster waived all right to Mr. Gomes's property, including her right to an elective share. Although not required by Florida law, Mr. Gomes disclosed the bulk of his assets when they entered the agreement, omitting one asset valued at approximately $10,000.

*     *     *

Florida law does not require prior disclosure of assets for an antenuptial agreement. § 732.702(2). Recognizing this, Appellant argues that a disclosure, once made, albeit voluntarily, if inaccurate or fraudulent, invalidates the antenuptial agreement, citing Stregack v. Moldofsky, 474 So.2d 206 (Fla.1985) (Ehrlich, J., dissenting). Unfortunately for Appellant, that dissenting opinion has not garnered a consensus either within the Florida Legislature or Florida courts. We prefer, instead, to rely upon the binding majority opinion which stated, “[n]ondisclosure, whether fraudulent or not, is precisely what the legislature intended to eliminate from consideration on the validity of antenuptial agreements.” Stregack, 474 So.2d at 207. In so holding, the law continues to accommodate the desires of older Florida residents to marry again without risking an unwanted disposition of a lifetime's assets due to a partial disclosure. See id.

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Rachid v. Perez, --- So.3d ----, 2010 WL 173776 (Fla. 3d DCA Jan 20, 2010)

We've all been there: you've been locked in mediation for hours and an unreasonable/ irrational litigant refuses to settle, even if - given the risks and benefits - it's plain to everyone that he ought to accept the settlement offer on the table. The linked-to case addresses this type of situation.

Since most working probate lawyers will find themselves on both sides of this conundrum at one point or another in their career, I thought the best way to think about this case was from both perspectives.

Scenario 1: What if I represent the side that refuses to settle, no matter how reasonable the offer?

No matter how frustrating this situation may be, you have to fight the temptation to subtly "lean" on your client until he accepts a deal you know - without question - is in his best interest. When the dust settles and your unhappy client re-reads the settlement agreement he never really wanted to sign in the first place, you may find yourself on the receiving end of a malpractice lawsuit. Based on the following excerpt from the linked-to opinion, it looks like that's where this case may be headed:

Here, Rachid does not claim that any party misled or induced her to enter into the settlement agreement. Rather, she contends that her attorney misled or induced her.

Blogger and mediator Victoria Pynchon expands here on the likely consequences of those cases where a litigant believes his lawyer "mislead or induced" him to accept a settlement offer.

Here's the bad news. If a litigant is unhappy with the outcome of mediation, he or she is far more likely to bring a complaint (or lawsuit) against his or her own attorney.

In a 2006 article in the Ohio Journal on Dispute Resolution TAKE IT OR LEAVE IT. LUMP IT OR GRIEVE IT: DESIGNING MEDIATOR COMPLAINT SYSTEMS THAT PROTECT MEDIATORS, UNHAPPY PARTIES, ATTORNEYS, COURTS, THE PROCESS, AND THE FIELD Paula M. Young, Assistant Professor at the Appalachian School of Law cites Mel Rubin on "settle and sue" cases which Rubin suggests are on the rise among clients unhappy with the outcome of a mediation. Rubin "also suggests that if a client is unhappy with the outcome of mediation, he or she is more likely to sue his or her attorney for malpractice. Id.

The gist of Victoria's advise - which I agree with - is to make sure your client feels he was treated fairly in mediation, that he wasn't "ganged up on" by the mediator (or you), and that he walks away feeling he was ultimately in control of the final outcome. To that advice I would add: if you think your client is being irrational, the right thing to do may be to tell him to find a new lawyer. As the 3d DCA pointed out not too long ago in a case involving an out-of-control probate litigant, “'just say no' applies to some clients and matters, just as to drugs" [click here].

Scenario 2: What if I represent the side that's trying to enforce a settlement agreement?

If you're counsel for the good guy, the last thing you want is protracted litigation to enforce a settlement agreement. To nip this sort of challenge in the bud, you'll want to point the other side to the linked-to opinion and let him or her know that in the absence of truly outrageous circumstances, Florida law forces litigants to live with the deals they've struck . . . no matter how badly they may be suffering from buyer's remorse.

First, Rachid's burden when seeking rescission of a settlement agreement on this legal theory is a particularly difficult one. See Tilden Groves, 816 So.2d at 660 (“[C]ases settled in mediation are especially unsuited for the liberal application of a rule allowing rescission of a settlement agreement based on unilateral mistake.”); see also Sponga v. Warro, 698 So.2d 621, 625 (Fla. 5th DCA 1997).

Second, Rachid's argument is without merit as the record does not support the legal remedy of rescission on the basis that the settlement agreement was the product of a unilateral mistake. Under Florida law, the party seeking rescission based on unilateral mistake must establish that:

(1) the mistake was induced by the party seeking to benefit from the mistake, (2) there is no negligence or want of due care on the part of the party seeking a return to the status quo, (3) denial of release from the agreement would be inequitable, and (4) the position of the opposing party has not so changed that granting the relief would be unjust.

Lechuga v. Flanigan's Enters., Inc., 533 So.2d 856, 857 (Fla. 3d DCA 1988). Here, Rachid does not claim that any party misled or induced her to enter into the settlement agreement. Rather, she contends that her attorney misled or induced her. Thus, her claim fails as a matter of law. Rachid also cannot demonstrate that there was “no negligence or want of due care” on her part because she had an obligation to read and know the legal parameters regarding the validity and application of the prenuptial agreement prior to mediation. Leff v. Ecker, 972 So.2d 965 (Fla. 3d DCA 2007) (holding that where the plaintiff entered into a mediated settlement agreement with a limited knowledge of the relevant facts, the plaintiff bore the risk of mistake). Additionally, Rachid was represented by counsel at mediation, and she failed to demonstrate that denial of rescission would be inequitable or that granting relief would be unjust. Thus, we conclude that even if Rachid had properly preserved her claim of unilateral mistake, on appellate review her claim would have failed on the merits.

We . . . address the argument that Rachid did raise-that there was no meeting of the minds. As to the trial court's rejection of this argument, we find no abuse of discretion. See Tanner v. Tanner, 975 So.2d 1190 (Fla. 1st DCA 2008) (holding that “ ‘[b]uyer's remorse’ is not a sufficient basis for overturning a marital settlement agreement freely and voluntarily entered into”); see also BMW of N. Am., Inc. v. Krathen, 471 So.2d 585 (Fla. 4th DCA 1985) (rejecting BMW's appeal to set aside a judgment based on BMW's failure to include a condition in its settlement offer). We therefore affirm the order under review. 

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This is my running list of significant Florida trusts-and-estates appellate opinions for 2011. The criteria for inclusion is somewhat subjective, so I'm certainly not guaranteeing that I've identified every case that could conceivably be related to contested probate or trust matters in Florida. However, if you think I've missed an important appellate decision that deserves wider notice please let me know. As new appellate decisions are published they'll be added to the list.

All of the appellate opinions listed below are hyper-linked to a copy of the opinion and my blog post commenting on the case.

1. Marger v. De Rosa, --- So.3d ----, 2011 WL 252942 (Fla. 2d DCA January 28, 2011) (Homestead Rights vs. Joint Tenancy Rights)
2. Relinger v. Fox, --- So.3d ----, 2011 WL 439428 (Fla. 2d DCA Feb 09, 2011) (Abating trust actions)
3. Habeeb v. Linder, --- So.3d ----, 2011 WL 613392 (Fla. 3d DCA Feb 09, 2011) (Does deed signed by both spouse = homestead waiver)
4. Henderson v. Elias, --- So.3d ----, 2011 WL 710190 (Fla. 4th DCA Mar 02, 2011) (Florida probate court’s lack of jurisdiction over non-residents)
5. Figel v. Wells Fargo Bank, N.A., 2011 WL 860470 (S.D.Fla. Mar 09, 2011) (Trustee’s investment duties)
6. Reid v. In re Estate of Sonder, --- So.3d ----, 2011 WL 1007137 (Fla. 3d DCA Mar 23, 2011) (Trust Reformation)
7. Lauritsen v. Wallace, --- So.3d ----, 2011 WL 1195873 (Fla. 5th DCA Apr 01, 2011) (Can decedent’s will forgive debts of his insolvent estate)
8. Levin v. Levin, --- So.3d ----, 2011 WL 1772245 (Fla. 4th DCA 2011 May 11, 2011) (Insane delusion)
9. TTSI Irrevocable Trust v. Reliastar Life Ins. Co., --- So.3d ----, 2011 WL 1810601(Fla. 5th DCA May 13, 2011) (Insurable Interests)
10. Shapiro v. Tulin, --- So.3d ----, 2011 WL 1878014 (Fla. 4th DCA May 18, 2011) (Agreement to make a will)
11. Drucker v. Duvall, --- So.3d ----, 2011 WL 1878144 (Fla. 4th DCA May 18, 2011) (Venue; Fee Agreement Disputes)
12. BankAtlantic v. Estate of Glatzer, --- So.3d ----, 2011 WL 1877839 (Fla. 3d DCA May 18, 2011) (Corporate funds vs. estate funds)
13. Melican v. Parker, 289 Ga. 420 (May 31, 2011) (Ademption)
14. Lituchy v. Estate of Lituchy, --- So.3d ----, 2011 WL 2135597 (Fla. 4th DCA Jun 01, 2011) (Can PR go pro se?)
15. Crawford v. Barker, --- So.3d ----, 2011 WL 2224808 (Fla. Jun 09, 2011) (Marital settlement agreement vs. beneficiary designation forms)
16. U.S. v. Jicarilla Apache Nation, --- S.Ct. ----, 2011 WL 2297786 (U.S. Jun 13, 2011) ("fiduciary exception" to the attorney-client privilege)
17. Hirchert Family Trust v. Hirchert, --- So.3d ----, 2011 WL 2415787 (Fla. 5 Dist. Jun 17, 2011) (Equitable exception to Florida's homestead creditor protection)
18. Bright v. Baltzell, --- So.3d ----, 2011 WL 2462760 (Fla. 4th DCA Jun 22, 2011) (Voluntary Dismissal: Costs v Fees)
19. LoCascio v. Estate of LoCascio, --- So.3d ----, 2011 WL 2555644 (Fla. 3d DCA June 29, 2011) (PR removal; due process rights)
20. Hancock v. Share, --- So.3d ----, 2011 WL 2650887 (Fla. 5th DCA July 8, 2011) (Guardian’s authority to approve structured settlement binding ward after age 18)
21. Thorpe v. Myers, --- So.3d ----, 2011 WL 2731937 (Fla. 2d DCA Jul 15, 2011) (Guardian’s statutory entitlement to compensation + payment of attorneys fees/costs)
22. Faulkner v. Faulkner, --- So.3d ----, 2011 WL 2937302 (Fla. 1st DCA Jul 22, 2011) (Assessing examining committee fees in emergency temporary guardianships)
23. Levin v. Levin, --- So.3d ----, 2011 WL 3477032(Fla. 4th DCA Aug 10, 2011) (Assessing attorney's fees against beneficiary’s share of estate)
24. Long v. Willis, --- So.3d ----, 2011 WL 3587411 (Fla. 2d DCA Aug 17, 2011) (Rights of minors when appointing PR’s)
25. Basile v. Aldrich, --- So.3d ----, 2011 WL 3696309 (Fla. 1st DCA August 23, 2011) (Does will without residuary clause = partial intestacy?)
26. Hill v. Davis, --- So.3d ----, 2011 WL 3847252 (Fla. Sep 01, 2011) (Limitations period; objecting to Personal Representative’s appointment)
27. Ortmann v. Bell, --- So.3d ----, 2011 WL 4104908 (Fla. 2d DCA Sep 16, 2011) (Sufficient evidence: Breach of Trust)
28. In re Amendments to Florida Probate Rules, --- So.3d ----, 2011 WL 4467595(Fla. Sep 28, 2011) (Changes conforming to new legislation)
29. Guy Bennett Rubin, P.A. v. Guettler, --- So.3d ----, 2011 WL 4577670 (Fla. 4th DCA Oct 05, 2011) (Contingency fee agreement in probate litigation)
30. Steffens v. Evans, --- So.3d ----, 2011 WL 4577938 (Fla. 4th DCA Oct 05, 2011) (Waiver of marital inheritance rights)
31. Siegel v. JP Morgan Chase Bank, --- So.3d ----, 2011 WL 4949794 (Fla. 4th DCA Oct 19, 2011) (Revocable trust's remainder beneficiary’s standing to sue)
32. Lehman v. Lucom, --- So.3d ----, 2011 WL 5061182 (Fla. 4th DCA Oct 26, 2011) (PR’s breach of fiduciary duty)
33. In re Amendments to Florida Rules of Appellate Procedure, No. SC11-192 (Fla. Nov. 3, 2011) (New/expanded appellate rule 9.170 for probate & guardianship proceedings)
34. Davis v. Estate of James Davis, --- So.3d ----, 2011 WL 5375110 (Fla. 3d DCA Nov 09, 2011) (Attorney’s fee claims)
35. Darian v. Weymouth, --- So.3d ----, 2011 WL 5554786 (Fla. 4th DCA Nov 16, 2011) (Lapse of interest in revocable trust)
36. Agee v. Brown, --- So.3d ----, 2011 WL 5554833 (Fla. 4th DCA Nov 16, 2011) (Ethics violation does not equal void will)
37. Layne v. Layne, --- So.3d ----, 2011 WL 5560563 (Fla. 1st DCA Nov 16, 2011) (Does quit claim deed trump intestacy rights)
38. Grisolia v. Pfeffer, --- So.3d ----, 2011 WL 5864806 (Fla. 3d DCA Nov 23, 2011) (Homestead creditor protection for non-citizens)
39. Corya v. Sanders, --- So.3d ----, 2011 WL 6057899 (Fla. 4th DCA Dec 07, 2011) (Trustee’s duty to provide annual accountings)
40. SPCA Wildlife Care Center v. Abraham, --- So.3d ----, 2011 WL 6183491 (Fla 4th DCA Dec 14, 2011) (cy pres doctrine)
41. Rosenkrantz v. Feit, --- So.3d ----, 2011 WL 6183525 (Fla. 3d DCA Dec 14, 2011) (Rights/duties of attorneys-in-fact)
42. Rothman-Browning v. Marshall, --- So.3d ----, 2011 WL 6373038 (Fla. 4th DCA December 21, 2011) (Right to hearing on objections to guardianship reports)

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The WSJ's Wealth Report Blog posted here on litigation swirling around the trust/estate of billionaire mall magnate Mel Simon. What I found especially interesting was the implication of possible undue influence by his surviving spouse, Bren Simon. Here's an excerpt:

Months before he died of cancer last September, billionaire mall magnate Mel Simon made some big changes to his will.

The changes boosted the share of his fortune left to his wife, Bren Simon. Originally she was to get a third. After the changes, she was to half.

The changes also cut out Melvin’s three children from his first marriage—Deborah, David Simon and Cynthia Simon-Skjodt—and left charitable giving to Bren’s discretion. The earlier will earmarked one-third of the estate for charity.

Mr. Simon’s estate is valued at somewhere from $1 billion to $2 billion, and it has increased since his death since the stock in the company he founded–Simon Property Group–has rebounded.

The changes to the will sparked an escalating Simon-family feud, as this Chicago Tribune article lays out.. Mr. Simon’s daughter Deborah is suing her stepmom, Bren Simon, alleging she persuaded Mel Simon to change his will to reduce the children’s inheritances. The suit claims her dad was suffering from dementia at the time and needed help signing the document.

Now, Bren Simon’s latest court filing [click here] says Mr. Simon “voluntarily and of his own free will signed a valid will and trust in February.” She acknowledges that Mr. Simon needed help with his signature, but said Parkinson’s symptoms in his right hand were to blame.

Spousal Undue Influence Claims in Florida:

I have no idea what the law is on spousal undue-influence claims in Indiana (where Mr. Simon's estate is being litigated), but in Florida they're very tough to prove. For starters, you can't rely on the "confidential relationship" between spouses to trigger the presumption of undue influence. There's a solid, common sense reason for this rule: in its absence every will benefiting a spouse could potentially be challenged on undue influence grounds. Here's how the 3d DCA explained Florida's approach in Tarsagian v. Watt, 402 So.2d 471 (Fla. 3d DCA 1981):

The holding of Goertner v. Gardiner, 125 Fla. 477, 170 So. 112, reh. den., 126 Fla. 412, 170 So. 844 (1936), that the confidential relationship which exists between a husband and wife is not one which may be considered in the law governing will contests, accord, In re Estate of Knight, 108 So.2d 629 (Fla. 1st DCA 1959), is, in our view, still extant. Since a confidential relationship is one necessary requirement which must be met before a presumption of undue influence arises, under Goertner the presumption cannot arise in the case of a husband and wife. Were the confidential relationship between spouses not exempted from that presumption of undue influence rule, the presumption would arise in nearly every case in which the spouse is a substantial beneficiary, since the required active procurement would almost always be present. One would naturally expect to find a spouse to be present at the execution of the will, present when the testator expresses a desire to make a will, knowledgeable about the contents of the will prior to its execution, involved in its safekeeping, and perhaps even involved in the recommendation of an attorney-preparer and consultation with an attorney-preparer. These, of course, are among the criteria for determining if one is engaged in active procurement. See In re Estate of Carpenter, supra.

On the other hand,  I don't think this means a spousal undue influence claim is impossible in Florida; you just can rely on the presumption. Instead, you'll need to prove your case directly. A case that suggests a finding of undue influence against a surviving spouse, although not based on a presumption, is In re Auerbacher's Estate, 41 So.2d 659 (Fla. 1949). 

But what if the marriage itself is procured by fraud, undue influence, or duress?

By the way, if someone is intent on preying upon another's wealth, the best way to go about doing it isn’t mucking around with estate planning documents, it’s marrying the guy. The mother of all inter-spousal estate grabs is the marriage itself. Once you’re hitched, you’re automatically entitled to all sorts of goodies as a surviving spouse, no matter what the estate planning documents may say.

This is where we hit a brick wall in Florida: the current state of the law seems to be that marriages procured by fraud, undue influence or duress can’t be challenged after a person’s death. Click here for an excellent white paper prepared by über probate litigator William (“Bill”) T. Hennessey and his team over at Gunster summarizing Florida law on this issue and a proposed legislative fix. Here’s an excerpt:

The mere status of surviving spouse affords a myriad of significant financial benefits under Florida law, including the right to homestead property (at least a life estate in the decedent's homestead residence), an' elective share (30% of the decedent's augmented elective estate), to take as a pretermitted spouse (up to 100% of the estate under the laws of intestacy), family allowance, exempt property, and priority in preference in selecting a personal representative. In addition, Florida courts have held that a presumption of undue influence in a will contest "cannot arise in the case of a husband and wife" because the requirement of active procurement would almost always be present. Jacobs v. Vaillancourt, 634 So. 2d 667, 672 (Fla. 2d DCA 1994); Tarsagian v. Wall, 402 So. 2d 471, 472 (Fla. 3d DCA 1981).

Most of these benefits are well deserved. It has often been said that Florida has a strong public policy in favor of protecting a decedent's surviving spouse. See, e.g., Via v. Putnam, 656 So. 2d 460, 462 (Fla. 1995). However, what happens when a marriage is procured by undue influence, fraud or exploitation? Is Florida's public policy furthered, in such an instance? This report will discuss the current state of Florida law on the ability to challenge the validity of a marriage after the death of one of the parties to the marriage. It will also examine how other states have addressed this issue.
. . . . .

In sum, Florida follows the common law and majority rule which only allows void marriages to be challenged after death. In most instances, Florida courts have held that marriages procured by fraud, duress, and undue influence are merely voidable, affording potential heirs no ability to challenge a marriage after death. Given the extensive rights available to a surviving spouse, a wrongdoer can profit significantly by simply inducing or influencing an elderly person to enter into a marriage. The Subcommittee recommends that the full committee consider and discuss legislation to address this issue.

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Estate of Madrigal v. Madrigal, --- So.3d ----, 2009 WL 4061747 (Fla. 3d DCA Nov 25, 2009)

I recently wrote here about the "Undue Influence Worksheet," a tool for probate litigators and their clients to organize their thinking and zero in on the key evidence determining the outcome of their undue influence case. Why is this so important? Because when it comes to pure fact questions, such as whether your client did or did not unduly influence the testator, expect you'll only get one shot at winning your case: at trial. As the linked-to case makes clear, it doesn't matter if a panel of appellate judges would have called your case a different way, as long as your trial judge's factual determinations are supported by competent substantial evidence, that's it, game over: the trial judge's order stands.

In the instant case, following an evidentiary hearing, the trial court entered an order making specific findings of facts and concluding that the sole beneficiary procured the testator's last will and testament by undue influence. As the trial court's findings of fact are supported by competent, substantial evidence, and the findings of fact support the trial court's conclusion of undue influence, we affirm the order under review. See Estate of Brock, 692 So.2d 907, 913 (Fla. 1st DCA 1996) (“[O]ur scope of review requires us to accept the factual findings of the trial court so long as there is support for them by competent substantial evidence. It is axiomatic that the trial court's resolution of conflicting evidence will not be disturbed by a reviewing court in the absence of a clear showing of error, or that the conclusions reached are erroneous.”).

What's going on here is pretty basic to how our court system is supposed to work: trial judges decide fact issues, appellate judges decide legal issues. If your case turns on a pure fact issue, don't expect a "do over" on appeal. This division of labor was at the heart of the Florida Supreme Court's thinking when it articulated the competent-substantial-evidence standard in Shaw v. Shaw, 334 So.2d 13, 16 (Fla. 1976):

It is clear that the function of the trial court is to evaluate and weigh the testimony and evidence based upon its observation of the bearing, demeanor and credibility of the witnesses appearing in the cause. It is not the function of the appellate court to substitute its judgment for that of the trial court through re-evaluation of the testimony and evidence from the record on appeal before it. The test ... is whether the judgment of the trial court is supported by competent evidence. Subject to the appellate court's right to reject "inherently incredible and improbable testimony or evidence," it is not the prerogative of an appellate court, upon a de novo consideration of the record, to substitute its judgment for that of the trial court.

OK, you ask, so what's competent substantial evidence?

Here's how the phrase was broken down and defined by the 5th DCA in the context of a probate case in Lonergan v. Estate of Budahazi, 669 So.2d 1062, 1064 (Fla. 5th DCA 1996):

The term "competent substantial evidence" does not relate to the quality, character, convincing power, probative value or weight of the evidence but refers to the existence of some evidence (quantity) as to each essential element and as to the legality and admissibility of that evidence. Competency of evidence refers to its admissibility under legal rules of evidence. "Substantial" requires that there be some (more than a mere iota or scintilla), real, material, pertinent, and relevant evidence (as distinguished from ethereal, metaphysical, speculative or merely theoretical evidence or hypothetical possibilities) having definite probative value (that is, "tending to prove") as to each essential element of the offense charged.

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Morgenthau v. Estate of Andzel, --- So.3d ----, 2009 WL 5151741 (Fla. 1st DCA Dec 31, 2009)

I recently wrote here about Florida's ultra-short deadlines for filing creditor claims against probate estates and how they can be unforgiving traps for the unwary. These deadlines are scary because they can fly by without a creditor ever being the wiser.

But, some of you may ask, what about an estate's duty under F.S. 733.2121 to give "reasonably ascertainable" creditors actual notice of the filing deadline? If I'm a reasonably ascertainable creditor and the estate didn't give me notice, do I get a free pass? NO says the 1st DCA in the linked-to case above.

In this case the holder of an unpaid promissory note filed a creditor claim against the debtor's probate estate over a year after the estate first published its notice to creditors in a local newspaper. Clearly the creditor had blown past the generally applicable 3-month claims-filing deadline under F.S. 733.702. The creditor argued he shouldn't be bound to this deadline because he was a reasonably ascertainable creditor and the estate hadn't complied with its duty under F.S. 733.2121 to give him actual notice of the filing deadline.

Sorry, says the 1st DCA. Unless a creditor asks for an extension to file his claim (and "insufficient notice of the claims period" is one of the grounds for getting an extension), he's out of luck. Here's why:

Here, appellant filed a statement of claim past the three month filing window. As such, according to section 733.702(1), the claim was untimely as appellant did not receive actual notice of the claim and was, thus, a creditor who fell in the three month filing window following publication. See also Miller v. Estate of Baer, 837 So.2d 448, 449 (Fla. 4th DCA 2002) (holding creditors who do not receive actual notice have until the close of the three month publication window to file a claim regardless of whether creditor asserts it was entitled to actual notice).

Further, appellant did not file a motion for extension of time to file the claim or otherwise seek an extension. All Florida cases since [May v. Illinois Nat. Ins. Co., 771 So.2d 1143 (Fla.2000)] dealing with the forgiveness of a timeliness issue as to a creditor's claim where the creditor asserts he or she was a reasonably ascertainable creditor subject to actual notice reach the issue through review of the creditor's request for an extension, not through creditor's filing of a statement of claim. Faerber v. D.G., 928 So.2d 517, 518 (Fla. 2d DCA 2006) (reversing a trial court's grant of creditor/appellee's motion for extension of time to file a claim where no evidence was considered prior to the grant); Simpson v. Estate of Simpson, 922 So.2d 1027 (Fla. 5th DCA 2006) (reviewing trial court's denial of appellant's motion for extension of time based on the allegation he was a readily ascertainable creditor who should have received actual notice of decedent's death); Longmire v. Estate of Ruffin, 909 So.2d 443 (Fla. 4th DCA 2005) (same); Strulowitz, 839 So.2d 876 (same); Miller, 837 So.2d at 448-50 (same).

While the Statement of Claim listed facts upon which a probate court could grant an extension, the Statement of Claim did not request an extension. Further, at no point in either the initial brief or the reply brief does appellant argue his Statement of Claim should be converted or modified to be read as a motion requesting an extension of time. The proper procedural course for untimely claims is the filing of an extension request prior to the filing of a statement of claim. § 733.702(1)-(3), Fla. Stat. (2007). Under the plain language of the statute, once appellant's claim fell outside the three month claim period, regardless of his arguments for delay, his claim could only be considered after the probate court's grant of an extension. Because appellant chose to file only a Statement of Claim and never requested an extension of time to file that claim, the probate court was bound by the relevant statutes to deny the claim. § 733.702(1)-(3), Fla. Stat. (2007).

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The law governing undue influence claims in Florida is a frequent topic of discussion on this blog [click here, here, here, here]. But for those of us in the trenches, we know clever legal arguments rarely carry the day; these cases are won and lost on the strength of your evidence.

So here's the problem: there aren't many tools out there designed to help probate litigators and their clients organize their thinking and zero in on the key facts they'll need to build a winning case. One such tool I recently discovered is the Undue Influence Worksheet developed by forensic psychiatrist Bennett Blum, M.D. In this short article Dr. Blum explains the thinking underlying his worksheet:

The “Worksheet” is based upon the IDEAL protocol, which combines knowledge from the fields of psychiatry, psychology, and sociology regarding the mechanisms of human manipulation, with extensive review of statutes, case law, and legal theory. IDEAL describes those psychological and social factors that commonly co-exist in undue influence situations. These factors are: Isolation; Dependency; Emotional manipulation and/or Exploitation of a vulnerability; Acquiescence; and Loss. 

Case Study:

When I'm teaching I find nothing beats a good case study for explaining new ideas. So I was happy to see Dr. Blum included the following case study in his article applying his Worksheet:

The following is a true case, although extreme in its clarity. The issue of undue influence is obvious, but the case is presented to help show how a fact pattern is considered within the IDEAL protocol:

Mr. Jones is an affluent, 88 year-old retired professor. His beloved wife of 60 years died two years ago, and since then he has been very lonely. Mr. Jones has a good and loving relationship with his three adult children, and though they live in other States he speaks with each every week. Mr. Jones moved to a retirement community four years earlier, and because of his wife’s illness and subsequent death, he has no significant social contacts in his current community. His long-time friends live several hundred miles away. Mr. Jones has multiple medical problems – diabetes, heart disease, high blood pressure, and difficulty walking due to arthritis – but has no apparent cognitive impairment.

Mr. Jones meets Ms. Smith, a 62 year-old divorced woman. She moves into his home six months later. She provides physical care in the form of preparing meals, cleaning the house, taking him to physician appointments, and ensuring he takes his medications properly. During the next six months, Ms. Smith begins asking for “tokens of appreciation” and purchases a new car, wardrobe, and jewelry with Mr. Jones’ money. She also demands that he give her his late wife’s jewelry, which he had intended to give to his grandchildren. At the same time, Mr. Jones stops telephoning his children, and they in turn find it more and more difficult to speak with him. Ms. Smith is now the only person to answer the telephone, and when the children call they often are told their father is unavailable or does not feel well enough to talk. Eventually, they are not allowed to speak to him at all. Two months later, after repeated angry exchanges with Ms. Smith, the eldest child receives a telephone message from Mr. Jones. In the message, Mr. Jones says, “She says I cannot call any of you anymore. If I do she will leave me and she says that at my age no one else will care for me, and that I will be alone. The same thing will happen if I stop giving her money. I know what she is doing, but I was so lonely after your mother died. I couldn’t bear to be that lonely again. I just hope that I can hold back enough money so she will stay until I die.” These were Mr. Jones’ last words to his children. He subsequently changed his estate plan – bequeathing everything to Ms. Smith.

Applying IDEAL to these facts:

Isolation – Mr. Jones’ children and friends live far away, he has no significant social contacts in his current living environment, his mobility is limited due to illness, Ms. Smith intercepts his telephone calls, and he is not allowed to talk to his children.

Dependency – Mr. Jones is emotionally dependent upon Ms. Smith, and she provides for his physical needs (food, cleaning, appointments, medicine). 

Emotional manipulation/Exploiting a weakness – Ms. Smith threatens to abandon Mr. Jones using his fear of loneliness.

Acquiescence – Mr. Jones agrees to Ms. Smith’s demands because he is frightened of being lonely, dependent upon her, and isolated from other social contacts and family. As a result, he gives her money and property, and makes her the sole beneficiary of his estate.

Loss – Mr. Jones suffers financial losses because of Ms. Smith’s threats and coercion. In this case, although criminal charges might have been pursued in some jurisdictions (ex. for elder abuse), the issue of “loss” was used only to support civil litigation.

Caveats and Suggestions:

Although it may seem obvious – do not rely only upon the litigants for information. The “Undue Influence Worksheet” and IDEAL are more effective if there are corroborating statements and observations by 3rd-parties, circumstantial evidence, and/or self-incriminating statements by the litigants. A case may be argued without such corroboration, but the use of IDEAL would be quite limited.

If more sophisticated analysis is needed, an expert should be contacted for advice regarding the development of both general and specific manipulation tactics, their relative impact, and assessment of pertinent cognitive issues (note: impaired cognition is common, but is not essential). These topics require extensive individual attention, and will not be presented in this introductory article.

Also, be cautious when retaining an expert on the issues of manipulation or undue influence. These are specialized fields and very few people are actual experts. Unfortunately, many well-intentioned mental health professionals claim this expertise without knowing how much training and knowledge is necessary.

Some attorneys report successful use of IDEAL without employing associated experts. In these cases, the attorney uses the information obtained through IDEAL and the “Worksheet” to craft a powerful and compelling argument – for either settlement or trial.

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Mack v. Perri, --- So.3d ----, (Fla. 1st DCA Dec 22, 2009)

Plaintiffs suing estates often fail to realize that they're really litigating their claims in two separate courts in front of two separate judges:

1. The trial court adjudicating their lawsuit (this is where the estate's liability is established); and
2. The probate court administering the decedent's probate estate (this is where you go to collect if you win in the trial court).

What's scary about this dual-court approach is that it creates a huge trap for the unwary: you can spend years and a fortune in fees litigating claims against an estate in a trial court and never be the wiser to the fact that you've blown past one of the ultra-short limitations periods applicable in a probate court (733.702(1), 733.710(1)); which means no matter how spectacular your win might be at trial, you'll never be able to collect on your judgment in the probate court.

That's the trap the plaintiffs in the linked-to opinion apparently fell into. Here are the key dates/facts as summarized by the 1st DCA:

The decedent, George Watts, a physician, died on November 18, 2004. The first notice to creditors was published on May 14, 2005. On October 31, 2005, the Macks first filed their claims against the Estate based on alleged medical malpractice in connection with surgery Dr. Watts performed on Susan Mack's ankle. The Macks filed a malpractice action against the Estate on January 30, 2006. In February 2009, the Estate filed a petition in the probate court to limit the Macks' claim in the malpractice action to the proceeds of malpractice insurance, see section 733.702(4)(b), Florida Statutes (2005), and the Macks filed petitions seeking to strike the Estate's objections to their claims.

Wrapped up into that one short paragraph are three important takeaways for anyone involved in litigation against a Florida probate estate:

Lesson #1: Never, ever forget F.S. § 733.710(1): Florida's two-year non-claim statute:

In the linked-to case the estate waited until February 2009, almost five years after the decedent died, to spring its trap on the unsuspecting plaintiffs. By then the two-year non-claim period for the estate had clearly run making it impossible for the plaintiffs to get the extension needed to preserve their claim against the probate estate. Here's how the 1st DCA explained this point:

We agree with the trial court that the Macks' claims against the estate are barred by sections 733.702(1)(3), and 733.710(1), Florida Statutes (2005). The Macks' claims were filed more than three months from the date the notice to creditors was first published. See § 733.702(1). Further, the Macks did not file a request for an extension of time under section 733.702(3) until after the running of the two-year non-claim period in section 733.710(1). As the Supreme Court held in May v. Illinois National Insurance Company, 771 So.2d 1143, 1157 (Fla.2000), “section 733 .710 is a jurisdictional statute of nonclaim that automatically bars untimely claims and is not subject to waiver or extension in the probate proceeding.” The May court explained that this statute “represents a decision by the legislature that 2 years from the date of death is the outside time limit to which a decedent's estate in Florida should be exposed by claims on the decedent's assets.” Id. (quoting Comerica Bank & Trust, F.S.B. v. SDI Operating Partners, L.P., 673 So.2d 163, 167 (Fla. 4th DCA 1996)). Here, the Macks' claims were untimely filed under section 733.702(1). Although section 733.702(3) provides for an extension, the claim and motion for an extension must be filed before the operation of the two-year non-claim provision. May, 771 So.2d at 1157.

Lesson #2: Never say never: Florida's two-year non-claim statute doesn't bar ALL claims:

Even if you blow past the two-year mark for perfecting your claim against a probate estate, all may not be lost. In the linked-to case the estate recognized that even though the plaintiffs were barred by F.S. § 733.710(1) from asserting claims against the decedent's probate estate, the decedent's malpractice insurance was still fair game under F.S. § 733.702(4), which provides as follows:

(4) Nothing in this section affects or prevents:

(a) A proceeding to enforce any mortgage, security interest, or other lien on property of the decedent.

(b) To the limits of casualty insurance protection only, any proceeding to establish liability that is protected by the casualty insurance.

(c) The filing of a cross-claim or counterclaim against the estate in an action instituted by the estate; however, no recovery on a cross-claim or counterclaim shall exceed the estate's recovery in that action.

Lesson #3: The clock starts ticking as soon as the first notice to creditors is published:

Under F.S. § 733.702 creditors have three months after the notice of creditors is fist published to file their claims. But F.S. § 733.2121 says publication "shall be once a week for 2 consecutive weeks." So when does the "publication" clock start ticking? After the first or second week? The plaintiffs tried to salvage their claim by arguing for week two. Nice try, but no cigar says the 1st DCA:

We also reject the Macks' assertion that their claim was timely filed when measured from the date of publication of a second notice to creditors by the estate. The time period under section 733.702(1) runs from “the time of the first publication of the notice to creditors.” As the Supreme Court held in Estate of Williamson v. Murphy, 95 So.2d 244, 247 (Fla.1957), a second publication will be deemed “unnecessary surplusage” which has no “affect [on] the validity or effectiveness of the first notice published.”

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At a top current rate of 45%, the federal estate tax automatically makes the IRS the single largest creditor of most large estates. If the estate tax is looming in the background it's imperative that every decision made by the parties and their lawyers with respect to how they characterize and prosecute their trust/probate claims be considered against this backdrop. I recently presented a national NBI seminar on this very same topic [click here].

At long last probate litigators and their clients have clearer guidance from the IRS on exactly how to make sure they maximize the tax-deduction benefits of estate litigation. The IRS has issued final regulations under IRC § 2053 governing estate tax deductions for administration expenses and claims against estates. Click here for a link to the new reg’s, which became effective on October 20, 2009.

In its background summary for the new reg's [click here] the IRS explained its thinking for why they were needed:

The amount an estate may deduct for claims against the estate has been a highly litigious issue. See the Background in the notice of proposed rulemaking published in the Federal Register on April 23, 2007 (REG-143316-03, 2007-1 C.B. 1292 [72 FR 20080]). Unlike section 2031, section 2053(a) does not contain a specific directive to value a deductible claim at its value at the time of the decedent’s death. Section 2053 specifically contemplates expenses such as funeral and administration expenses, which are only determinable after the decedent’s death.

The lack of consistency in the case law has resulted in different estate tax treatment of estates that are similarly situated, depending only upon the jurisdiction in which the executor resides. The Treasury Department and the IRS believe that similarly-situated estates should be treated consistently by having section 2053(a)(3) construed and applied in the same way in all jurisdictions.

Accordingly, in an effort to further the goal of effective and fair administration of the tax laws, the Treasury Department and the IRS published proposed regulations in the Federal Register on April 23, 2007. In formulating the proposed rule, the Treasury Department and the IRS carefully considered: the statutory framework and legislative history of section 2053 and its predecessors; the existing regulatory provisions under section 2053, particularly those that are generally applicable to all amounts deductible under section 2053; the numerous judicial decisions involving an issue under section 2053(a)(3) and the analysis and conclusion in each; and, the practical consequences of various possible alternatives for determining the amount deductible under section 2053(a)(3).

To help us make sense of it all estate-tax gurus Steve R. Akers and Jonathan G. Blattmachr/Mitchell M. Gans published excellent materials pointing out opportunities and pitfalls built into the new reg's for practitioners and clients alike [click here, here].

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Buroz-Henriquez v. De Buroz, --- So.3d ----, 2009 WL 3271354 (Fla. 3d DCA Oct 14, 2009)

It's not unusual in probate litigation for parties to underestimate the importance of complying with discovery deadlines. However, this frustrating fact of life is also an opportunity: I recently won a case simply by obtaining an ex parte order compelling a recalcitrant will-challenger to respond to my pending discovery requests. For reasons that remain unclear to me, this bit of pressure was enough to get this guy out of the case: he voluntarily withdrew his claim with prejudice in lieu of complying with my discovery order. The basis for my order was a local rule applicable in Miami (Admin. Order 06-09), but the underlying authority should be applicable anywhere in Florida.

In the linked-to case the winning side used a discovery-sanctions order to not only default the sitting personal representative out the estate, they also walked away with an order compelling the estate to pay $25,875 in attorneys fees. All that just because the losing side couldn't get its act together when it came to responding to discovery deadlines.

Lesson learned? Use an opponent's recalcitrance to your advantage. Push him to respond to discovery deadlines by relying on the kind of authority cited in Admin. Order 06-09; and once you've got your first order -- follow the example of the winning side in the linked-to case: move for a default judgment and other sanctions if it's ignored.

In the linked-to opinion the 3d DCA explains what kind of findings need to be included in a probate judge's order defaulting an opponent out of a case as a discovery sanction. The order in this case didn't contain the necessary findings, so it got bounced back to the trial judge for a "do over."

It is well established that before a court may dismiss a cause or default a party as a sanction, it must first consider each of the following six factors set forth in Kozel v. Ostendorf, 629 So.2d 817, 818 (Fla.1993):

[1] whether the attorney's disobedience was willful, deliberate, or contumacious, rather than an act of neglect or inexperience; [2] whether the attorney has been previously sanctioned; [3] whether the client was personally involved in the act of disobedience; [4] whether the delay prejudiced the opposing party through undue expense, loss of evidence, or in some other fashion; [5] whether the attorney offered reasonable justification for noncompliance; and [6] whether the delay created significant problems of judicial administration.

Accord Ham v. Dunmire, 891 So.2d 492 (Fla.2004). Moreover, before a trial court enters the extreme sanction of dismissal or default, it must set forth explicit findings of fact in the order imposing the sanction. Alvarado v. Snow White & The Seven Dwarfs, Inc., 8 So.3d 388 (Fla. 3d DCA 2009) (reversing and remanding dismissal for findings on all six Kozel factors); Coconut Grove Playhouse, Inc. v. Knight-Ridder, Inc., 935 So.2d 597 (Fla. 3d DCA 2006) (quashing order tantamount to default and remanding for trial court to make express findings). “Express findings are required to ensure that the trial judge has consciously determined that the failure was more than a mistake, neglect, or inadvertence, and to assist the reviewing court to the extent the record is susceptible to more than one interpretation.” Ham, 891 So.2d at 496 (citing Commonwealth Fed. Savings & Loan Ass'n v. Tubero, 569 So.2d 1271, 1273 (Fla.1990)).

Because the order on appeal contains no findings of fact concerning any of the Kozel factors, we are compelled to reverse the order and remand for consideration of the Kozel factors. In doing so, we do not address the merits of the underlying claims for contempt and sanctions made by the appellee below. If, on remand, the trial court determines that, after considering the Kozel factors, sanctions of dismissal and/or default are appropriate, then the trial court shall include in its order findings of fact with respect to each factor. See Alvarado, 8 So.3d at 389.

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Wells v. Wells, --- So.3d ----, 2009 WL 2949277 (Fla. 4th DCA Sep 16, 2009)

Florida's declaratory-judgment act (F.S. Chapter 86) is based on the Uniform Declaratory Judgment Act, which was finalized almost a hundred years ago in 1922 [click here].  The early 20th Century vintage of this statute explains why it uses archaic phrases rooted in medieval English jurisprudence, like cestui que trust, when the "Plain English" version of the phrase: "trust beneficiary", would do just as well (for more on the post-1970s "Plain English Movement" click here).  For all you trusts-and-estates Geeks out there, click here for more on the etymology of "cestui que trust".

The Uniform Declaratory Judgment Act's use of obscure legalese (adopted without change by Florida) may also explain why the trial court judge in the linked-to case dismissed a claim for declaratory judgment filed by a trust beneficiary (i.e., a cestui que trust), when F.S. § 86.041 specifically authorizes a cestui que trust to file these sorts of claims. Anyway, we now have an appellate opinion confirming what should be an obvious point of statutory construction. Here's how the 4th DCA summed up its ruling:

Section 86.041, Florida Statutes (2007) provides, in part:

Any person interested as or through an executor, administrator, trustee, guardian, or other fiduciary, creditor, devisee, legatee, heir, next of kin, or cestui que trust, in the administration of a trust, a guardianship, or of the estate of a decedent, an infant, a mental incompetent, or insolvent may have a declaration of rights or equitable or legal relations in respect thereto:

(1) To ascertain any class of creditors, devisees, legatees, heirs, next of kin, or others; or

(2) To direct the executor, administrator, or trustee to refrain from doing any particular act in his or her fiduciary capacity; or

(3) To determine any question arising in the administration of the guardianship, estate, or trust, including questions of construction of wills and other writings.

Id. In King v. Pinellas Central Bank & Trust Co., 339 So.2d 712 (Fla. 2d DCA 1976), the court interpreted section 86.041 as follows:

This statute is specific that any person ... may bring a suit for declaratory judgment to have his rights declared under the trust and to direct the trustee to refrain from doing any particular act in his fiduciary capacity. The trustee is presumed to protect the rights of all of the beneficiaries of a trust and, therefore, we hold that all antagonistic and adverse interests were before the court through the trustee.

Id. at 713. Furthermore, “[t]he declaratory judgment act is to be liberally administered and construed.” Dent v. Belin, 483 So.2d 61, 62 (Fla. 1st DCA 1986). Thus, we hold that pursuant to section 86.041, Fla. Stat., Cheryl, as a beneficiary and potentially wrongfully removed co-Trustee, has standing as an interested person to bring a cause of action for declaratory judgment in the present case.

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Vaughn v. Boerckel, --- So.3d ----, 2009 WL 3364856 (Fla. 4th DCA Oct 21, 2009)

This is the second time the running trust-and-estate litigation between the decedent's widow (his second wife) and his children and grandchildren from his first marriage has gone to the 4th DCA. The first time around the widow came out on top [click here]. This time around she wasn't so lucky.

In the linked-to opinion above the probate judge was confronted with the following basic question: can the decedent's widow be sued individually and held personally liable for damages she may have caused as trustee of the decedent's trust and/or as the life tenant of several items of real property left to her by the decedent? The probate judge said NO; on appeal the 4th DCA said YES.

Life Tenant's Personal Liability:

I've written before about the potential lopped-sided unfairness resulting from how Florida law treats life estates in homes; and to make matters worse, under Florida law a life tenant can't force a sale of the property through a partition action.  Ft. Lauderdale attorney Jeffrey A. Baskies published in excellent article in the June 2007 edition of the Florida Bar Journal that summed up the current state of affairs as follows:

[S]urviving spouses — who are ostensibly “protected” by the Florida Constitution and statutes (given the “right” to live “rent-free in a homestead”) — are required to bear 100 percent of the burden of the state’s two largest fiscal crises: the escalation in property taxes and homeowners’ insurance. In addition, costs of ordinary upkeep, interest payments on mortgages and, in many cases, virtually all of the special assessments are also the burden of the surviving spouse. Further exacerbating the situation, many widows live in communities which have charged (and are still charging) assessments to repair common areas damaged by the hurricanes the state faced these past few years — with the promise of active hurricane seasons for the foreseeable future.

Click here for my prior blog post with a link to the Baskies article.

So what happens if a life tenant decides to simply not pay up, can the remaindermen sue her for damages? YES says the 4th DCA:

Among other duties, life tenants are legally bound to pay property taxes during the continuance of their estate. Chapman v. Chapman, 526 So.2d 131, 135 (Fla. 3d DCA 1988). A life tenant who commits an unreasonable act which results in damage to the corpus of the property or the remaindermen may be liable for damages. Id.

Trustee's Personal Liability:

Florida's common law subjecting trustee's to personal liability was codified in Florida's new trust code at F.S. 736.1002(1), which states that the trustee's liability is the greater of any profit the trustee made from the breach and the amount required to restore the trust to what it would have been but for the breach, including lost income, capital gain, or appreciation that would have resulted from a property administration. In the linked-to opinion above the 4th DCA summarized Florida's pre-code basis for holding trustee's personally liable as follows:

[The widow's potential personal liability as a life tenant] is independent of the law making a trustee personally liable for defalcations in handling the trust. See Flagship Bank of Orlando v. Reinman, Harrell, Silberhorn, Moule Graham, P.A., 503 So.2d 913, 916 (Fla. 5th DCA 1987) (citing Restatement (Second) of Trusts § 205 as to liability of a trustee for breaches of trust causing losses to trust); see also Beaubien v. Cambridge Consol., Ltd., 652 So.2d 936, 938 (Fla. 5th DCA 1995) (holding that it was error to dismiss complaint against individual defendants who had acted as agents of corporate trustee, who could be held “personally liable”).

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Copeland v. Buswell, --- So.3d ----, 2009 WL 2243701 (Fla. 2d DCA Jul 29, 2009)

Under Florida law the personal representative is the central figure in all things having to do with the probate estate. No matter how inconvenient that fact may be, you can't ignore the PR in the hopes of cutting a better deal for yourself. That's the basic take-away from this case.

In this case the estate's largest creditor (Tampa General Hospital claimed $492,224 in unpaid medical bills) tried to cut a better deal for itself by bypassing the PR and dealing directly with a third party that owed the estate money (a tortfeasor). Under the side deal the hospital got a bigger chunk of its claim paid ($300,000) and the tortfeasor cut its liability exposure to the estate by almost $200,000. Sounds clever. Everybody wins right? Wrong!

Why is the estate the big loser in this deal?

• First, by cutting out the PR the estate basically got nothing. Which means the PR had no funds with which to pay her own lawyers, or pay herself a PR's fee, or basically pay any other creditor whose claim had priority over the hospital's under Florida's probate code.
• Second, by cutting out the PR the estate was deprived of the full value of its claim. At the wrongful-death trial the judge ruled that the decedent had in fact incurred 100% of the $492,224 in unpaid medical bills being claimed by the hospital. In other words, the estate's damages claim would have been for the full amount, NOT the lower figure agreed to in the side deal.

The 2d DCA said no way to the deal, and unwound the whole thing by focusing on how it basically did an end run around the priority-of-payments scheme built into Florida's probate code:

Under section 733.707, Tampa General's claim for medical expenses would be designated as a class 4 claim to be paid after class 1, 2, or 3 claims. See § 733.707(1)(a)-(d). In this case, by virtue of [the side deal], Tampa General's class 4 claim for medical expenses improperly took precedence over class 1 claims for costs of administration and class 2 claims for funeral expenses, in contravention of the priorities established in section 733.707.

The majority's opinion does a good job of explaining the law, but they don't really comment how this deal was too cute by half. For that you need to read Judge Concurs' concurrence. Here's an excerpt:

[A]s the majority points out, once an estate is opened the decedent's creditors must settle any claims with the personal representative of the estate pursuant to Florida's probate rules and statutes. No creditor of an estate is entitled to enter into a sweetheart deal with any entity owing money to the estate that would circumvent the statutory priority of creditors set forth in section 733.707(1)(a). This prohibition on “side deals” is especially important in cases when apportionment issues among creditors could arise, such as when there are insufficient estate assets to pay all claims. Principles of equity, order, and decorum should rule the apportionment process, not insider knowledge and arbitrary favoritism.

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Buettner v. Fass, --- So.3d ----, 2009 WL 3446478 (Fla. 4th DCA Oct 28, 2009)

Why??!!, your clients will ask, do you have to start a new partition action in front of a new judge to adjudicate an existing dispute involving a decedent's homestead property if everything else the decedent owned is already subject to the probate judge's authority?

And your answer will be: "Hey, if it made sense, it wouldn't be homestead." Well, maybe that's what your inside voice would say. Your outside voice would hopefully say something like: "Because that's the law, so don't waste your time and money litigating a dispute involving homestead property in a probate court." At which point you can now point to the linked-to opinion as an example of what NOT to do:

Appellant .  .  .  appeals an order evicting him from the entire premises of the apartment building and directing the personal representative to recover possession of the entire premises. Although no transcript is provided, and the appellant failed to appear at the hearing on the eviction, the order is fundamentally erroneous on its face in that it purports to evict appellant from the homestead premises and place them in the possession of the personal representative. As the court had already determined that the property was homestead, and thus not part of the decedent's estate, the personal representative had no possessory interest in it. See Herrilka v. Yates, 13 So.3d 122 (Fla. 4th DCA 2009); Harrell v. Snyder, 913 So.2d 749 (Fla. 5th DCA 2000).

We reverse the order of eviction with instructions to modify the order to exclude that portion of the property which the court has already designated as homestead. While the personal representative claims that appellant is thwarting the personal representative's ability to maintain the remainder of the property, remedies must be sought other than to dispossess appellant from his own property where the personal representative has no ownership interest in the homestead. See, e.g., Wescott v. Wescott, 487 So.2d 1099 (Fla. 5th DCA 1986) (holding that husband could seek partition of property despite wife's claim of homestead). 

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LoCascio v. Sharpe, --- So.3d ----, 2009 WL 3448111 (Fla.App. 3 Dist. Oct 28, 2009)

Silvia Locascio's brutally beaten corpse was found in her home (pictured below) on October 30, 2001. Eventually her husband and brother-in-law were found guilty of her murder - based in large part on the testimony of the couple's only son. Click here, here for more on the back story to this tragic case.

Eight years after his mother's murder Edward J. LoCascio (Son) argued that under F.S. 732.802 (Florida's "slayer statute") his father had forfeited all property rights in the couple's marital assets effective as of the date of the murder. The end-goal of this strategy was to claw back the hundreds of thousands of dollars in legal fees father spent on his defense prior to his murder conviction [click here].

I recently wrote about a Georgia case where that state's slayer statue was also cited as the basis for clawing back attorney fees paid by a surviving widow who ultimately plead guilty to murdering her husband. The slayer-statute argument didn't work in Georgia [click here], and according to the 3d DCA, it won't work in Florida either.

[1] Does a Murdering Spouse Forfeit His 50% Share in Couple's Home? NO

When a person murders his or her spouse, under Florida law the couple's jointly-titled residence is deemed converted into tenants-in-common property. Result: murderer doesn't inherit the couple's house; instead the house is deemed owned 50/50 by the murderer and the deceased spouse's estate. In the linked-to case Son argued that under Florida's slayer statue his father's 50% share of the couple's residence was forfeited to his mother's estate as of the date of her death. Both the trial-court judge and the 3d DCA rejected this argument:

The Son commenced two appeals to this Court. In case no. 3D08-1711, the Son argues that the marital residence (the decedent's and murderer's homestead) passed in full to him as the mother's sole heir. The Son bases this argument on the phrase in subsection 732.802(1) [of Florida's slayer statute] that “the estate of the decedent passes as if the killer had predeceased the decedent.” Had [his father] predeceased [his mother], the Son argues, then [his mother's estate] would have been vested with sole title to the residence at the time of her death, and that exclusive title would then have passed to the Son under Florida's law of intestate succession.

We have previously rejected this argument. In Capoccia v. Capoccia, 505 So.2d 624 (Fla. 3d DCA 1987), this Court reconciled subsections (1) and (2) of the statute, explaining that “the express language of subsection (2) does not call for the complete termination of the killer's interest in the property but merely the termination of the right of survivorship.” Id. at 624-25. Subsection (2) states that the killing “effects a severance of the interest of the decedent,” codifying a prior equitable doctrine that the property in such a case is “treated as if it had been formerly held as a tenancy in common.” Id. at 624.

[2] Does a Murdering Spouse Forfeit 100% of All Marital Assets? NO

Son also argued that his father had forfeited 100% of his property rights in the couple's marital assets effective as of the date of his mother's death. Again Son lost at the trial-court level and before the 3d DCA. In the quoted-text below the focus on clawing back legal fees becomes clear.

In the second appeal, Case No. 3D09-118, the Son maintains that the then-personal representative, plaintiff in the civil lawsuit, was erroneously denied relief against Edward S. LoCascio's property. Specifically, the personal representative sought a constructive trust over all marital property, including Edward S. LoCascio's rights or interests in that property. Instead, the final judgment of constructive trust was limited to all assets of the decedent, including any such assets “titled or assigned in the name of the defendant Edward S. LoCascio.” The Son maintains that the significance of this alleged error-otherwise appearing moot because of the estate's judgment liens in amounts tens of millions of dollars greater than the murderer's known assets-is that the constructive trust over his father's assets would relate back to the date of his mother's death.FN6

[FN6.] During the years between the date of the murder and the entry of the judgment liens against Edward S. LoCascio for over $75,000,000, he apparently incurred substantial indebtedness to one or more law firms for his defense in the murder trial and representation in the probate and wrongful death cases.

The slayer statute is not, as presently written, a forfeiture statute awarding all of a killer's property to the estate of the victim. Nor does the pre-statutory equitable principle that “no one shall be permitted to profit by his own wrongdoing” include any such forfeiture of the killer's separate property. Capoccia, 505 So.2d at 624. Accordingly, we find no error in the limitation imposed by the trial judge in the final judgment of constructive trust against Edward S. LoCascio.

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In re Barrett, Slip Copy, 2009 WL 2448153 (Bankr. S.D.Fla. Aug 06, 2009)

The ultimate ace in the hole for any debtor is bankruptcy. But the bankruptcy card isn’t full proof. Last year a Florida bankruptcy judge ruled that a probate judge’s money judgment against a former personal representative was NOT dischargeable under Bankruptcy Code Section 523(a)(4) because the state court judgment was the product of the PR’s “fraud or defalcation while acting in a fiduciary capacity.” [click here] In the linked-to case above another bankruptcy judge came to the same conclusion with respect to a probate judge's money judgment against a former trustee.

Collateral Estoppel:

In both cases the winning side at the probate-court level was able to win its Bankruptcy Code Section 523(a)(4) argument without going through a new trial by relying on [1] its state court judgment and [2] the doctrine of collateral estoppel. How? The bankruptcy judge concluded the state court judgment was based on the trustee’s “fraud or defalcation while acting in a fiduciary capacity,” so there was no need to re-litigate that issue in the bankruptcy proceeding. 

Lesson learned? Anticipate the Bankruptcy Filing

If you’re representing the party suing a trustee, you’ll want to make sure your money judgment has the kind of findings you’ll need to win a Section 523(a)(4) challenge on collateral estoppel grounds.  Just as importantly, if you’re representing a trustee who’s on the losing side of a probate judge’s money judgment, if there are legitimate grounds to do so, you want to make sure that money judgment can’t inadvertently be used against your client in a bankruptcy proceeding.  Either way, these cases demonstrate why keeping an eye on the bankruptcy issues is a good idea even in probate litigation.

For those looking for more detail, here's how the estoppel issue was framed in the linked-to case above:

[C]ollateral estoppel clearly applies in discharge proceedings. Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). When determining whether collateral estoppel applies to a state court judgment, as with res judicata, state law applies. St. Laurent v. Ambrose (In re St. Laurent), 991 F.2d 672, 673-76 (11th Cir.1993). However, “[w]hile collateral estoppel may bar a bankruptcy court from relitigating factual issues previously decided in state court, the ultimate issue of dischargeability is a legal question to be addressed by the bankruptcy court in the exercise of its jurisdiction.” Hartnett v. Mustelier (In re Hartnett), 330 B.R. 823, 829 (Bankr.S.D.Fla.2005).

“In Florida, the doctrine of collateral estoppel bars relitigation of the same issues between the same parties in connection with a different cause of action.” Topps v. State, 865 So.2d 1253, 1255 (Fla.2004).

Collateral estoppel is a judicial doctrine which in general terms prevents identical parties from relitigating the same issues that have already been decided. The essential elements of the doctrine are that the parties and issues be identical, and that the particular matter be fully litigated and determined in a contest which results in a final decision of a court of competent jurisdiction.

Dep't of Health & Rehabilitative Serv. v. B.J.M., 656 So.2d 906, 910 (Fla.1995) (citations omitted). See also Dadeland Depot, Inc., v. St. Paul Fire & Marine Ins. Co., 945 So.2d 1216 (Fla.2006).

In the context of an action brought pursuant 11 U.S.C. § 523(a), “[a] bankruptcy court could properly give collateral estoppel effect to those elements of the claim that are identical to the elements required for discharge and which were actually litigated in the prior action.” Grogan v. Garner, 498 U.S. at 284, 111 S.Ct. 654.

The Trust Plaintiffs seek a determination that the Probate Judgment is non-dischargeable pursuant to 11 U.S.C. § 523(a)(4), and because the Probate Judgment gives rise to a claim for recoupment. Section 523(a)(4) provides that a debtor cannot discharge a debt, “for fraud or defalcation while acting in a fiduciary capacity.” Thus, in order to determine whether the parties are collaterally estopped from relitigating the issues posed herein, I must determine whether each of the elements of collateral estoppel have been met with respect to whether the Debtor: (a) committed fraud or defalcation while acting in a fiduciary capacity, which acts gave rise to a debt; or (b) whether the State Court Judgments gave rise to a right of recoupment and are therefore non-dischargeable.

Finally, to really get your arms around how the collateral estoppel doctrine works in this context, you need a contrasting example: a case involving a state-court judgment against a fiduciary that did NOT collaterally estop the fiduciary from discharging his judgment debt in bankruptcy; for that read a recent short article entitled High Court Takes Pass on Circuit Split Over Defalcation Case by Rudolph J. Di Massa, Jr. and Adrian C. Maholchic of Duane Morris discussing the U.S. 2nd Circuit's decision in Denton v. Hyman, (In re Hyman) [click here].

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Turchin v. Turchin, --- So.3d ----, 2009 WL 2871564 (Fla. 4th DCA Sep 09, 2009)

If I buy an investment property with my own pre-marital funds but jointly title the property with my wife, what was my intent?  Did I intend to gift a 1/2 interest in the property to her, or did I put her name on the deed for convenience purposes only?  Especially when the person who put up all the money is dead, it's next to impossible to establish with certainty what exactly were his intentions when the deed was signed.

We could spend years litigating each of these cases, or we could assume that most people who jointly title property intend to make a gift, and let those who believe otherwise bear the burden of proving no gift was intended.  In Florida we've opted for the latter approach: a gift is presumed whenever property is jointly titled. The side that benefits from this presumption in litigation has a huge advantage, which explains why these cases often turn on the evidentiary-presumption issue [click here, here, here, here].

Can a valid pre-nup' trump the default presumptions governing joint property under Florida law?

One of the primary reasons people sign marital agreements is to reverse or otherwise alter the default presumptions applicable to property acquired before or after marriage. So it would have been a big deal if when put to the test - as in the linked-to opinion - a marital agreement's property distribution scheme failed to work as intended; not because of some drafting error, but because it simply didn't comport with Florida law.

Fortunately the agreement worked. As framed by the 4th DCA the question at issue in the linked-to opinion was simple:

Can a decedent's surviving spouse rely on Florida's "gift presumptions" to ignore the terms of her valid pre-nup' and claim as her own the sales proceeds of jointly-titled property purchased by her deceased husband with his separate premarital assets? 

According to the probate judge the answer was clearly NO. The 4th DCA agreed, here's why:

Sharyn Turchin now appeals, arguing, among other things, that the trial court erred in failing to apply a gift presumption when the properties were jointly titled in the names of husband and wife. Although Sharyn Turchin is correct that a gift is presumed under Florida law when property is purchased by one spouse but placed in both names, this presumption does not apply when the antenuptial agreement specifically designates how the jointly held property is to be distributed. See Bowen v. Bowen, 345 S.C. 243, 547 S.E.2d 877, 881 (2001); cf. Hannon v. Hannon, 740 So.2d 1181, 1187 (Fla. 4th DCA 1999) (“As a general matter, the provisions in chapter 61 on alimony do not exist to displace nuptial agreements; rather the statutes exist to set the principles when there is no agreement.”). “A primary purpose of an [antenuptial] agreement is to modify or shrink the general discretion of [a] judge in doing equity between the parties. The agreement itself is intended to define the mutual equities, and the trial judge is not free to ignore its provisions or to render them ineffective.” Hannon, 740 So.2d at 1187. Because the antenuptial agreement in this case unambiguously provided for the manner of distribution of jointly held property based upon who funded the acquisition, the presumption does not apply. Accordingly, the trial court properly declined to apply the gift presumption. We therefore affirm.

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I've recently been lecturing on tax issues in play in probate and trust litigation [click here]. After giving this lecture a couple of times I noticed a pattern: the single tax question most probate lawyers were concerned with was how to limit a personal representative's personal tax-exposure risk, which is inherent to all probate administrations.

Here's the problem:

A personal representative ("PR") is personally liable for paying the decedent's remaining tax bills, be they income taxes, gift taxes or estate taxes. See 31 U.S.C. §3713(b) and IRS Manual 5.17.13.8 (10-16-2007). That's right, when you say "yes" to being someone's PR, you also say "yes" to personally guaranteeing the IRS that all of their taxes are paid up. But how can a PR make sure the decedent wasn't cheating on his or her taxes? And how can a PR make sure he's uncovered all those skeletons in the closet before distributing any assets of the estate to the heirs?

Solution:

There are three risk-management tools every probate lawyer needs to know about and incorporate into his or her practice:

• IRS Form 56,
• IRS Form 4810, and
• IRS Form 5495.

Even if you're working with a CPA who's supposed to be taking the lead on all the tax issues, you need to know these protective measures exist and ensure your PR gets the full benefit of them. Here's why.

IRS Form 56 [click here]

A Form 56 needs to be filed twice: when your PR first gets appoint to let the IRS know who your PR is and where to send all tax notices; and again when your PR finishes his job and is discharged. What you're doing here is making sure that any correspondence from the IRS having to do with the decedent's taxes gets to your PR right away; the last thing you want is your PR to get sued for failing to pay the decedent's back taxes because the deficiency notices went to the wrong address. Also, the instructions to Form 56 state that the filing of a Form 56 when your PR is discharged will “relieve [the PR] of any further duty or liability as a fiduciary.”

IRS Form 4810 [click here]

Not only do you want to make sure the IRS knows your PR exists and that this is the person they need to contact for all matters related to the decedent, you'll also want to "shake the bushes" to make sure there are no unpaid back taxes involving the decedent. You do this by filing a Form 4810 (Request for Prompt Assessment for Income and Gift Taxes). A cautious PR will wait for the IRS to respond to this assessment request prior to making any distributions to the estate's beneficiaries. You don't want all the cash to go out the door only to be surprised by some huge tax assessment that puts your PR in the uncomfortable position of having to ask heirs to give money back to pay back taxes.

IRS Form 5495 [click here]

At the same time your PR files a Form 4810, he'll also want to simultaneously (but separately) file a Form 5495 (Request for Discharge from Personal Liability for Decedent’s Income and Gift Taxes). This is another way to make sure your PR gets the heads up on any of the decedent's unpaid back taxes. If Form 5495 is properly filed, the IRS has nine months in which to notify the PR of any deficiency for the decedent’s applicable income or gift tax returns. If the PR pays the additional tax, or if no notice is received from the IRS within nine months from the date of filing Form 5495, the PR is then discharged from personal liability.

For an excellent in-depth explanation of all three of these forms and how they work together to minimize a PR's personal tax-exposure risk (as well as other helpful hints), you'll want to read Minimizing a Personal Representative’s Personal Liability to Pay Taxes, Part I & Part II, by Florida trusts and estates attorneys William C. Carroll and John “Randy” Randolph.

But what payments can you make while you're figuring out the tax issues?

If the PR distributes any portion of the estate to the beneficiaries before all of the federal taxes are paid, he or she could be held personally liable to the extent of the distribution.  Personal liability under 31 USC § 3713(b) is the "muscle" behind the federal priority under 31 USC § 3713(a).

One way to manage a PR's personal tax-liability risk is to not pay a cent to anyone until every conceivable tax issue is identified and taken care of. But we all know this isn't possible. In order to properly manage an estate there are certain payments that can't wait.  Primary examples include court costs, reasonable compensation for the PR and the PR's attorney, and expenses incurred to collect and preserve assets of the estate. Fortunately PR's don't have to guess which payments they can and can't make without exposing themselves to personal liability. If a PR follows F. S. §733.707, which lists the distribution priorities for in-solvent estates under Florida's Probate Code, he'll be alright. Why? Because the payment priorities under Florida law are, for the most part, consistent with the payment priorities under 31 USC § 3713(a), as construed by the IRS (see IRS Manual 5.17.13.6 (10-16-2007)).

The only discrepancy between Florida's and the IRS's list of priority payments has to do with the payment of a family allowance. Under F. S. §733.707, a family-allowance payment is considered a "Class 5" priority, below the U.S. Government "Class 3" priority, but the IRS considers a reasonable family allowance payment to have priority over its claims for payment of taxes (see IRS Manual 5.17.13.6 (10-16-2007)). In other words, the IRS approach is more lenient than Florida's Probate Code.

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Chin v. Estate of Chin, --- So.3d ----, 2009 WL 2382326 (Fla. 3d DCA Aug 05, 2009)

Will construction litigation is supposed to be all about figuring out what the dry words on a piece of paper called a "will" are supposed to mean. We can't ask the testator what the words mean, he's dead. So "we" (i.e., lawyers sitting as judges or representing clients) do what we've been trained to do: we rely on a body of law that sets up a series of analytical tools and evidentiary presumptions aimed at hopefully delivering the most just result possible for all concerned. Florida's rich body of law governing all aspects of how testamentary documents are supposed to be construed is a frequent topic of discussion on this blog [click here, here, here, here, here].

But by focusing too much on the "law" can we end up missing the forest for the trees?

Will Construction Litigation as Morality Play:

The lesson to draw from the linked-to case is that we shouldn't lose sight of the fact that no matter what the law may say, at the end of the day we're all human, which means we're all swayed by an inherent sense of justice and fair play. The result that seems most "just" and "fair" always has a better chance of persuading the one-person jury that decides every Florida probate case: your probate judge; this is true no matter what the law may say is the correct doctrinal result. Here's how this point was made in an ABA Journal piece entitled When the Judge Is the Jury:

"The first lawyer to make the facts come alive in a bench trial has a tremendous advantage. .  .  . 

“You are talking directly to a fellow human being about the ‘gut stuff’ of life. What’s right and what’s wrong. Fair and unfair. Just and unjust. This is all about the power of a story to grab the heart of a fellow human—not something that is going to be measured for its adequacy by a professor who is checking to see if you found all the possible legal theories in the case. You already did that weeks ago with your pleadings.

“Remember, the power of persuasion lies in creating a sense of injustice. Judges—like juries—want to right wrongs. If you represent the plaintiff, show—don’t tell—your jury how the defendant hurt the plaintiff. And if you represent the defendant, your point is, it’s wrong for him to pay for what he didn’t do.

“Facts—not arguments, legal conclusions or academic pedantry—are what have the power to persuade."

With this (long!) introduction in mind, read how the 3d DCA summarized the key facts of the linked-to case and the rationale underlying its ruling.

On April 12, 1989, Adolph Chin drafted a Will in Jamaica. When he died in 1997, he co-owned property in Miami-Dade County as tenants in common with his sister, Mary Chin. Adolph and Mary both lived on this property. David Chin, Adolph's son, was named personal representative of Adolph's estate. . . .

Paragraph seven of the Will states:

I direct that property held by me in co-ownership with my brother the said Earl Anthony Chin and with my sister, Mary Victoria Chin, shall not be sold as long as my said brother or sister desires to occupy same.

David Chin argues that paragraph seven only applies to property which was co-owned by Adolph, Earl, and Mary concurrently. Mary argues that Adolph devised a life estate to each sibling with whom he co-owned property. If a court finds the language of a will ambiguous, “[t]he Testator's intent is the guiding and dominating factor in the construction of a Will.” See In re Roger's Estate, 180 So.2d 167, 170 (1965). When interpreting ambiguous provisions of a will, courts may look upon the situation of the parties, such as ties and affection between the testator and his or her legatees. Id.

On de novo review, we agree with the trial court's finding that paragraph seven grants a life estate to Mary Chin. Adolph shared a separate residence with each sibling. The trial court found this to be strong evidence that he did not have the intent to dispossess his siblings of their homes after his death. Additionally, to construe paragraph seven to apply only if there were co-ownership of property by all three individuals asks the Court to adopt the notion that Adolph Chin inserted a restriction into his Will with full knowledge that it had no meaning. This Court simply cannot adopt this explanation.

Thus, we agree with the lower court that Mary Chin has a life estate in the property and we affirm the lower court's Amended Order of Summary Administration.

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A bitter chapter in the litigation swirling around Brooke Astor and her estate - worth more than $180 million when she died two years ago - came to a close this week when Anthony Marshall was found guilty on criminal charges that he defrauded his mother and stole tens of millions of dollars from her as she suffered from Alzheimer’s disease in the twilight of her life.

As reported by the NY Times in Brooke Astor's Son Guilty in Scheme to Defraud Her:

The jury’s verdict means that Mrs. Astor’s son, Anthony D. Marshall, 85, faces a sentence of at least a year and as many as 25 years. A co-defendant, Francis X. Morrissey Jr., a lawyer who did estate planning for Mrs. Astor, was also convicted of a series of fraud and conspiracy charges, as well as one count of forging Mrs. Astor’s signature on an amendment to her will.

And it won't be long now before round two of this litigation heats up: a direct challenge to Brooke Astor's last will, again as reported by the NY Times:

Because many of the convictions were related to changes to Mrs. Astor’s will that prosecutors said the defendants procured through fraud, Mr. Marshall would seem to be compromised when the battle over Mrs. Astor’s estate — worth more than $180 million when she died two years ago — shifts to Surrogate’s Court in Westchester County.

Of the changes to the will, prosecutors vigorously objected to one executed in January 2004 that gave Mr. Marshall outright control of $60 million of his mother’s estate upon her death.

Paul Saunders, a lawyer for Mrs. de la Renta, said the main defense argument — that Mrs. Astor understood and consented to what her son was doing — had been undermined by the criminal verdict. “The jury clearly found that she did not,” he said. “That’s important because her mental capacity is the central issue in the will contest.”

Lesson learned?

This is only the latest development in a case that's been grabbing headlines for years [click here, here, here, here]. Will contests rarely have lasting significance beyond the families directly caught up in them, and this case is no exception. But I think those of us who make our living in the trusts and estates world may come to remember the Astor case as a very high profile example of a trend I predict we'll see more of in years to come: inheritance disputes morphing into criminal prosecutions. 

Whether trusts and estates lawyers think this is good or bad public policy is almost beside the point; it's a fact of life we'll have to deal with. Which means probate litigators will need to start teaming up with criminal defense attorneys much more frequently, advise their clients to "plead the 5th" at the first hint of trouble [click here], and consider what steps they as lawyers need to take to avoid becoming prosecution targets themselves [click here].

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I previously wrote here about the so-called “Jewish Clause” at the heart of an Illinois probate battle that’s received a good amount of national attention. The first time around an intermediate appellate court ruled the clause was not enforceable. In Estate of Max Feinberg, the Illinois Supreme Court has now reversed that court in a unanimous ruling upholding the clause.

In a 24-page opinion, Justice Rita Garman wrote that "Max and Erla were free to distribute their bounty as they saw fit and to favor grandchildren of whose life choices they approved" even though their decision might be "offensive" to other family members or to outsiders.

As reported by the LA Times in Jewish disinheritance upheld by Illinois high court:

Steven Resnicoff, co-director of the DePaul College of Law's Center for Jewish Law & Judaic Studies, hailed the court decision as consistent with Illinois public policy.

"It's not just a Jewish clause. It's a Catholic clause. It's a Muslim clause," Resnicoff said. "It's not uncommon that people want to encourage children to follow in their footsteps. [The] decision emphasizes the principle that, with some exceptions, a person is free to allocate his or her assets as the person sees fit."
 

For those looking to dig a little deeper, Ft. Lauderdale estate planning attorney David Shulman provides an excellent in-depth analysis of the case on his blog, the South Florida Estate Planning Blog, here and here.

Special thanks to Miami estate planning attorney Lucelly Dueñas for bringing this story to my attention.

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McMullen v. Bennis, --- So.3d ----, 2009 WL 2837426 (Fla. 3d DCA Sep 2, 2009)

In the linked-to case a will was being contested by a party claiming a stake to the estate as a "virtually adopted" heir. (For an excellent explanation of what the virtual adoption doctrine is and how it works, see Virtual Adoption: Not Just for Netizens [click here]).

If the will contestant in this case successfully set aside the will but lost on her virtual-adoption claim, she would still end up with nothing. Apparently hoping to avoid the expense and delay of a potentially meaningless will contest, the contestant asked the court to rule on her virtual adoption claim up front, prior to adjudicating the will contest. Makes sense to me; and apparently it made sense to the probate judge as well, because she granted that request and ruled in her favor on the virtual adoption claim. Bad idea, says the 3d DCA; here's why:

The parties admit there is a will of record purportedly executed by the decedent, and that they are poised to engage in a contest over its validity if necessary. But, because they are of the opinion that obtaining a final determination on Bennis' petition for determination of beneficiaries is less labor intensive for them and, by their reckoning, would be dispositive of the final distribution of estate assets, they asked the trial court to adjudicate the virtual adoption question before considering the validity of the will. The trial court acceded to the request.

Upon our review, we decline to accept the “reckoning” of the parties as to the ultimate distribution of the assets of this estate. Much can occur in a probate proceeding between any particular point in time and a final distribution order  .  .  .

* * * * *

In this case, the validity of the decedent's will is unresolved. Whether Bennis is a virtually adopted daughter becomes material to the probate proceeding only if the decedent's will is invalid. Consideration of the validity of the decedent's will necessarily must be the court's first order of business. If the court determines the will is invalid, Bennis then may proceed as she deems appropriate.

Order vacated without prejudice and case remanded for further proceedings.

Did the 3d DCA get this one right?

The basis for the 3d DCA's ruling in this case appears to be its conclusion that the virtual-adoption question "becomes material to the probate proceeding only if the decedent's will is invalid." As explained in Virtual Adoption: Not Just for Netizens [click here], being someone's "heir" has all sorts of implications in a probate proceeding:

"[V]irtual adoption is intended to put the virtually adopted person in the same position as that of a person naturally born of or formally adopted by the decedent as that relationship is affected by the intestacy statutes. Such a status would necessarily include not just inheritance rights, but [all] the rights, duties, and obligations inherent in administering the estate of an intestate parent, particularly the right to preference in appointment as personal representative under the Florida Probate Code."

In short, a the probate judge's virtual adoption ruling in this case was NOT material "only if the decedent's will is invalid." Until the will challenge is resolved, the court's ruling is potentially material to ALL aspects of probating this estate. This point was either missed by the 3d DCA or simply not reflected in its opinion.

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Brian R. Dolan and Joel M. Commerford have just published an interesting article entitled Virtual Adoption: Not Just for Netizens. Virtual adoption's one of those probate doctrines that most people don't know about, but it can be very useful in the right circumstances. So what is "virtual adoption"?

No Florida court has specifically defined the term “virtual adoption.” A good working definition, however, is “a court given name to a status arising from and created by contract where one takes and agrees to legally adopt the child of another but fails to do so.” While the term has not been specifically defined, the elements of virtual adoption are well established in Florida. The Fifth District Court of Appeal concisely listed the following elements necessary to establish an effective virtual adoption:

[1] An agreement [to adopt] between the natural and adoptive parents;

[2] Performance by the natural parent[s] of the child in giving up custody;

[3] Performance by the child by living in the home of the adoptive parents;

[4] Partial performance by the foster parents in taking the child into the home and treating the child as their child; and

[5] Intestacy of the foster parents.

All five elements must be present, and these elements must be proven by clear and convincing evidence.

Think Laterally: Virtual Adoption = Heir = PR?

The obvious, straight-line application of the virtual adoption doctrine is to establish a claim to an intestate share of an estate. If the authors had stopped there, they would have had a solid article, but not particularly noteworthy. So I was happy to see they went in a different direction; focusing on a less direct - but perhaps equally important - application of the doctrine.

Being someone's "heir" has all sorts of implications in a probate proceeding; probably the most important from a litigation standpoint being how it plays into who gets appointed personal representative ("PR"). In probate litigation the significance of who's appointed PR can't be overstated. The PR can use estate funds to pay his lawyers, the other side has to pay his own way. This one factor alone can often mean the difference between victory and defeat. So yeah, this is a big deal.

And here's how the authors link the virtual adoption doctrine to the question of who gets appointed PR:

It is a natural extension of the established principles that virtual adoption should also embrace the collateral issues of the appointment of personal representatives and other issues under the intestacy statutes. Florida courts have never addressed the question of whether virtual adoption confers upon the virtually adopted person eligibility to be appointed as personal representative of the estate. Close reading of the various authorities, however, suggests that virtual adoption should be extended to confer such eligibility upon the virtually adopted person.

The Third District Court of Appeal has stated that, “what can be enforced by such an action [virtual adoption] is the establishment of filiation where the child can be shown to have been virtually adopted.” As such, the virtually adopted child should be treated under the intestacy statutes as any other child of the decedent.

While scarce, courts have recognized applications of virtual adoption status to issues outside the immediate scope of the intestacy statutes. For instance, in Williams v. Dorrell, 714 So. 2d 574 (Fla 3d DCA 1998), the Third District Court of Appeal reasoned that a virtually adopted person was entitled to the rights of an heir under the homestead provisions of the Florida Constitution and Florida Statutes, ruling that descent of homestead property inures to the benefit of a virtually adopted child in the same manner as to natural or legally adopted children of an intestate decedent. Though not at issue in that case, presumably the protection from claims of the decedent’s creditors adhering to homestead property would likewise inure to the benefit of a virtually adopted child. Moreover, Georgia has recognized the virtually adopted child’s right to file a caveat in a probate action to protect the virtually adopted child’s rights. The Georgia Supreme Court stated:

[a] person claiming an interest in the estate of a testatrix, by reason of a virtual adoption, has such an interest in the estate as will authorize him to file a caveat to the will of the testatrix, when by the probate of such will he will be deprived of such interest. A contrary holding would deny to a party at interest in the estate, other than as heir, an opportunity to attack the probate, and thereby as against such party make the probate conclusive, thus defeating his interest in the estate of the testatrix.

The Florida Probate Code provides that preference in appointment of personal representative in intestate estates be given to “[t]he heir nearest in degree.” It is indisputable that a person deemed to have been virtually adopted is an heir in the second degree (behind the surviving spouse) for inheritance purposes. As an heir, it is a natural adjunct, then, that a virtually adopted person would hold the same position as any other heir with regard to appointment as personal representative. The court’s reasoning in Dorrell supports this conclusion. Furthermore, the Florida Probate Code provides that the first priority (after the surviving spouse) is “the person selected by a majority in interest of the heirs.”

*     *     *     *     *

Combining all these disparate parts into one cogent whole, then, it could reasonably be stated that virtual adoption is intended to put the virtually adopted person in the same position as that of a person naturally born of or formally adopted by the decedent as that relationship is affected by the intestacy statutes. Such a status would necessarily include not just inheritance rights, but the rights, duties, and obligations inherent in administering the estate of an intestate parent, particularly the right to preference in appointment as personal representative under the Florida Probate Code.

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Littell v. Law Firm Of Trinkle, Moody, Swanson, Byrd and Colton, 2009 WL 2749666 (11th Cir.(Fla.) Sep 01, 2009)

The linked-to opinion is the culmination of litigation involving a "Joint Trust" created by a husband and wife in 1992 that has played itself out in two different courts for over 8 years.

Stage One: Probate Court Trust-Construction Action: Littell Loses

Stage one of the litigation was a trust-construction action before a probate judge in which the court ruled that the Joint Trust was NOT "amendable" after the first spouse died. This issue isn't as simple as it sounds, as demonstrated in another joint-trust revocation case I wrote about earlier this year [click here].

In the trust-construction action the drafting estate planning attorney (Byrd) testified that he had been instructed to draft the Joint Trust in a way that would allow it to be amended after the first spouse's death. In other words, based on the probate court's ruling, he apparently admitted to a drafting mistake. The second estate planning attorney involved in the matter (Stuart) testified that she thought the Joint Trust was amendable, and advised her client accordingly. In other words, again based on the probate court's ruling, she apparently admitted to having mistakenly interpreted the trust agreement. Both admissions are significant in light of the results of the second action.

Stage Two: Malpractice Action v. Estate Planning Attorneys: Littell Loses Again:

The linked-to opinion involves this second stage of the litigation. In this action Plaintiff Littell argued that if the Joint Trust agreement was NOT amendable, then he should be able to sue the estate planning attorneys for malpractice. The trial court judge ruled against him, dismissing his claims against both of the estate planning attorneys.

[1] Lack of Standing = No Claim v. Byrd:

The ruling that will probably be of most interest to Florida estate planners is this one. Here the court ruled that an heir that is NOT mentioned in the operative will or trust agreement (a "disinherited" heir), does NOT have standing as a third-party beneficiary to sue the estate planning attorney for malpractice.

Whether any heir ever has standing as a third-party beneficiary to sue an estate planning attorney for malpractice was unclear under Florida law, until the 4th DCA's 2007 ruling in the Gunster case [click here]. But what if the heir is NOT a named beneficiary of the operative will or trust agreement, does he still have standing to sue? Earlier this year I wrote about a California appellate opinion that ruled there was NO standing in those cases [click here]. The 11th Circuit ruled the same way in this case, concluding that under Florida law a plaintiff that is NOT a named beneficiary of the operative will or trust agreement, does NOT have standing as a third-party beneficiary to sue the estate planning attorney for malpractice.

Applying [Florida] law to the case at hand, we conclude that Littell does not have third-party beneficiary standing to bring a malpractice action against Byrd and Trinkle Moody. Florida's narrowly defined exception to the privity requirement limits an attorney's professional liability to foreseeable plaintiffs, namely, to clients and to those persons that the client apparently intended to be third party beneficiaries of the attorney's services. See Rosenstone, 560 So.2d at 1230 (limiting privity exception to “one who [the attorney] knows is the intended beneficiary of his services”) (emphasis added); Angel, Cohen & Rogovin, 512 So.2d at 193 (noting that attorney's professional liability is limited to clients and to those who can demonstrate that the apparent intent of the client in engaging the services of the lawyer was to benefit that third-party); see also Machata v. Seidman & Seidman, 644 So.2d 114 (Fla.Dist.Ct.App.1994), rev. denied, 654 So.2d 919 (Fla .1995) (liability of an accountant for negligence is expanded beyond persons in privity to include those persons the accountant knows intend to rely on the accountant's opinion for a specific purpose).  .  .  .  In this case, Littell points to no evidence indicating that he was an apparent intended beneficiary of the services Byrd provided to the Hermans or that the Hermans engaged Byrd intending to benefit Littell. At best, Littell was only an incidental third-party beneficiary of Byrd's services and the “Florida courts have refused to expand [the privity] exception to include incidental third-party beneficiaries.” Angel, Cohen & Rogovin, 512 So.2d at 194. [Because Littell was not named in the documents drafted by Byrd], Littell was not an apparent third-party beneficiary of Byrd's services. For this reason, the district court properly found that Littell has no standing to bring a malpractice action against Byrd and Trinkle Moody.

[2] Do Over Ruling = No Claim v. Stuart: "Heads I win, tails you lose"

This is the leg of the case that must have driven the plaintiff (and his attorney) crazy. With respect to the malpractice claim against the second estate planning attorney (Stuart), the court ruled there was no claim because this court interpreted the Joint Trust exactly opposite to the way the same instrument had been interpreted by the probate court. In the probate court the plaintiff had lost because the judge concluded the Joint Trust was NOT amendable after the first spouse's death. This time around the plaintiff lost - AGAIN - because the court concluded the Joint Trust WAS amendable after the first spouse's death, so the estate planning attorney (Stuart) did nothing wrong; ergo: malpractice action dismissed.

Littell also asserts that the district court erred in finding that the Trust was amendable by the sole surviving settlor and that therefore Stuart and Gray Robinson were not negligent in executing amendments to the Trust.FN2

FN2. Although the probate court reached the opposite conclusion, the district court properly found that because Stuart and Gray Robinson were not parties in the probate case, the probate court's decision has no preclusive effect in this case. See Albrecht v. State, 444 So.2d 8 (Fla.1984) (noting that issue preclusion applies only when the identical parties wish to relitigate issues that were actually litigated as necessary and material issues in a prior action).

Lesson learned? THINK "JOINDER OF PARTIES"

It's unfair to second guess anyone after 8 years of litigation. Viewed in retrospect, no one is perfect; and perfection isn't the standard we're supposed to be judged by. However, looking forward, what lessons can trusts and estates litigators draw from this case? I was especially struck by the "heads I lose, tails you win" nature of this case. It's OK for a judge to rule against you; smart, reasonable minds can disagree on how to interpret a trust agreement. It happens every day. But it's not OK if two different judges rule in exactly opposite ways on the same trust agreement: and you lose no matter what.

One way to avoid the risk of inconsistent results among different judges adjudicating the same trust agreement is to make sure all related claims are tried in one lawsuit before the same judge. That way, no matter how the judge rules, everyone has to live with that ruling for all purposes. How do you do that? Florida's joinder-of-parties rule. Under Fl. Civ. Pro. Rule 1.210(a), any person can be made a defendant who has or claims an interest adverse to the plaintiff and any person can, at any time, be made a party if that person's presence is necessary or proper to a complete determination of the cause. If the same judge had adjudicated both the trust-construction action and the malpractice action, each side would have won one and lost one, but no one would have been stuck with the "heads I lose, tails you win" outcome the plaintiff walked away with in this case.

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Doe v. Doe, --- So.3d ----, 2009 WL 2841190 (Fla. 2d DCA Sep 04, 2009)

As DNA testing becomes evermore widespread, Florida probate judges and practitioners alike can expect they'll have to grapple with its implications with greater frequency. For example, does DNA testing trump a prior paternity adjudication for purposes of intestate succession? In a 2007 opinion (Glover v. Miller) the 4th DCA said "NO" [click here]. (For an excellent discussion of DNA testing within the context of divorce proceedings see The Presumptions of Privette: Have They Perished with the Coming of Daniel and Disestablishment of Paternity.)

This time around - in a case of first impression - the question was whether DNA testing trumps traditional trust construction doctrine as applied to the phrase "descendants by blood". In the linked-to opinion the 2d DCA said "NO".

Believe it or not, for trust construction purposes someone can be your "blood relative," even if DNA testing proves conclusively that you're not biologically related to that person. Does this make sense? Yes, if your primary goal is to figure out the settlor's testamentary intent at the time he signed his trust agreement. When construing a trust agreement it's what was going on in the settlor's head at the time he signed the document that matters most, not the empirically-verifiable facts in existence years later at the time the trust is being administered.

Two points addressed in the linked-to opinion warrant special attention.

1.  Do you think we can get a court order compelling a DNA test?

If you're a probate lawyer and you haven't had someone ask you this question yet, just wait, sooner or later someone will. And when they do, consider the strong hint given by the 2d DCA on how it would have ruled if someone had given it a chance to block the DNA test compelled in this case:

FN3. Catherine did not seek review by certiorari of the circuit court order directing her to submit to further DNA testing [under Florida Rule of Civil Procedure 1.360(a)]. Moreover, Catherine has not challenged the propriety of that order on this appeal. In any event, the testing order is moot. The testing has already occurred, and the results have been disclosed to the parties and to the court. For these reasons, we express no opinion on the propriety of the circuit court's order for compulsory DNA testing. Cf. Contino v. Estate of Contino, 714 So.2d 1210, 1214 (Fla. 3d DCA 1998) (holding that the personal representative of an intestate estate was not entitled to an order for the DNA testing of a child born into wedlock to establish whether the decedent was the child's biological father).

2.  The "lessons of legal history" vs. DNA testing: Who wins?

In the linked-to opinion the trustees argued that if DNA testing proves that a person isn't biologically related to the settlor, then she's automatically disqualified from being considered one of the settlor's "descendants by blood." The 2d DCA does a great job of deconstructing that argument and coming to its apparently counter-intuitive conclusion in a way that should make sense to most trusts and estates lawyers.

The Trustees' argument overlooks the meaning of the term “descendants by blood” and similar expressions as they have been used historically in wills and trusts in connection with the limitation of class gifts to persons related to the testator, the settlor, or some other designated person. Before the advent of modern genetic testing in the last twenty to thirty years, a challenge such as the one the Trustees have brought against Catherine-challenging the paternity of a child born in wedlock-would have been all but unthinkable. The legitimacy of a child born in wedlock is one of the strongest rebuttable presumptions known to the law. See Eldridge v. Eldridge, 16 So.2d 163, 163-64 (Fla.1944). In addition to facing a very high level of proof, the challenger would have found it difficult-if not impossible-to assemble the evidence necessary to prove such a claim. See Chris W. Altenbernd, Quasi-Marital Children: The Common Law's Failure in Privette and Daniel Calls for Statutory Reform, 26 Fla. St. U.L.Rev. 219, 236 (1999). Only with the relatively recent development of genetic testing has the proof necessary to overcome the presumption of legitimacy become generally available. Id. at 237; Mary R. Anderlik, Disestablishment Suits: What Hath Science Wrought?, 4 J. Center for Fams., Child. & Cts. 3, 3-4 (2003).

Of course, the use of terms such as “descendants by blood” and similar expressions to limit class gifts began long before genetic testing became available. Such expressions are terms of art that have been traditionally used-sometimes successfully and sometimes unsuccessfully-to limit class gifts to persons related to the testator, settlor, or other designated person by a blood relationship and thus to exclude adopted persons. See, e.g., Papin v. Papin, 445 S.W.2d 350, 352-53 (Mo.1969) (holding that a class gift in a trust to “heirs at law by blood related to the grantor” excluded adopted persons); Fifth Third Bank v. Crosley, 669 N.E.2d 904, 909 (Ohio Ct.Com.Pl.1996) (holding that a trust provision limiting a class gift to the “lawful issue of the blood of the Trustor” excluded adoptees); Trust Agreement of Cyrus D. Jones Dated June 24, 1926, 607 A.2d 265, 270 (Pa.Super.Ct.1992) (holding that a trust agreement limiting a class gift to the “lawful issue of the blood” did not exclude adopted descendants). In the modern era, the trend has been away from a focus on blood relationships and toward treating the adoptee as a full member of his or her adoptive family. See Jan Ellen Rein, Relatives by Blood, Adoption, and Association: Who Should Get What and Why, 37 Vand. L.Rev. 711, 713-17 (1984). However, modern legal forms continue to recognize the traditional use of the “blood” restriction by defining “descendants” to include persons whose relationship to the designated ancestor is by blood or by adoption. See, e.g., 20A Am.Jur. Legal Forms 2d § 266:53, p. 370 (2009) (“Whenever used in this Will, the word “descendants” or the word “issue” shall mean legitimate descendants of whatever degree, including descendants both by blood and by adoption.”). Thus, by expanding the definition of “descendants” to include adoptees, adopted persons may be included within the terms of class gifts to descendants.

The Trustees' expansive reading of Article XVIII's restriction of the trusts' class gifts to “descendants by blood” as requiring genetic testing to determine membership in the class ignores the lessons of legal history. Because the blood restriction came to be used in wills and trusts to exclude adoptees from class gifts long before genetic testing became available, the meaning of these old expressions cannot reasonably be extended beyond the exclusion of adopted persons to disqualify descendants such as Catherine who were not adopted and who would otherwise qualify as a beneficiary of the class gifts but who happen to lack the requisite genetic profile from the settlors.FN5 Thus a proper interpretation of the limitation of the trusts' class gifts to “only children and descendants by blood” does not support the Trustees' argument.FN6

To put it in a nutshell, the trusts' Article XVIII appears in legal instruments, not in a technical paper on genetics. The phrase “descendants by blood” is a legal term of art, not a scientific one. As a legitimate child of one of the settlors' sons, Catherine qualifies as one of the settlors' “descendants by blood.”

*     *     *     *     *

Because Catherine is the legitimate child of her legal father, Chester III, she is, by operation of law, the “blood issue” of Chester III. It follows that she is a “descendant by blood” of the settlors and is within the class of persons entitled to take under the trusts. To paraphrase what another court said in a case involving similar facts, Catherine cannot be Chester III's daughter for only some purposes. See In re Trust Created by Agreement Dated Dec. 20, 1961, 765 A.2d 746, 759 (N.J.2001). Thus the circuit court erred as a matter of law in determining that Catherine was not a “descendant by blood” of Chester Jr. and Eleanor.

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Tax issues loom large in trusts & estates litigation, especially when the estate tax is in play. So on Monday, September 14, 2009, I'm teaching a 90-Minute National Teleconference entitled Tax Issues in Trust and Probate Litigation [click here for seminar materials].

In this seminar we'll examine how an awareness of the tax issues lurking in the background of almost every contested proceeding can be leveraged to maximum advantage for all concerned.  Click here to sign up.  I hope you can join me.

Bonus Materials:

The written materials for this seminar [click here] include a copy of the Mediation Settlement Agreement discussed in Private Letter Ruling 200844010, in which the IRS ruled that if you split a single "QTIP" marital trust into five separate sub-trusts and then terminate just one of those sub-trusts, IRC § 2519 is triggered only with respect to the terminated sub-trust [see also here for related commentary on this case/ terminating a marital trust that's been QTIP'd]. The significance of this state of the art sample settlement agreement is that it provides an excellent real-life example of how to elegantly navigate all the issues you need to both anticipate and deal with in any settlement agreement involving a termination of a marital trust that's been QTIP'd. This sample document alone is worth the price of admission.

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Boulis v. Blackburn, --- So.3d ----, 2009 WL 2382358 (Fla. 4th DCA Aug 05, 2009)

The decedent at the heart of this probate battle, Konstantinos "Gus" Boulis, was a Greek immigrant and self-made millionaire who had started as a dishwasher in Canada and ended up in Florida, where he built an empire of restaurants, hotels and cruise ships used for offshore casino gambling. His 2001 gangland-style murder was allegedly linked to the $147.5 million sale of his company, SunCruz Casinos, to a partnership including disgraced Republican über lobbyist Jack Abramoff.

Apparently Boulis wasn't very fond of his wife: he completely cut her out of his estate. Lucky for her Boulis died a Florida resident, so she was able to claim a 30% share of his estate under F.S. § 732.201. That's the good news. The bad news is that she may have to fork over close to half of her share in estate taxes.

The Elephant in the Room: Estate Tax Allocation:

In large estates the elephant in the room is always: "who's going to pay the estate tax?" Considering that the top marginal estate tax rate is 45%, whose share of the estate gets used to pay this tax bill is a huge big deal. For example, if Boulis's widow was awarded a $10 million elective share, how the estate-tax allocation question is answered could mean the difference between her walking away with $10 million or $6.5 million!

Usually zero estate taxes are allocated to a widow's elective share because of the unlimited estate-tax marital deduction. However, Boulis's widow wasn't a U.S. citizen, so the normal rules don't apply. But even for non-citizens, it's pretty easy to avoid paying any estate tax by creating a qualified domestic trust or "QDOT" to hold the widow's share of the estate. For reasons not explained by the 4th DCA, this hasn't happened in this case.

Having failed to dodge the estate-tax bullet by relying on the federal tax code provisions governing QDOTs, Boulis's widow fell back on two state-level statutory-construction arguments involving F.S. 733.817, Florida's estate-tax allocation statute.

[1]  Is an elective share ever liable for estate taxes?

Because elective-share assets going to a surviving spouse almost never trigger any estate tax, F.S. 733.817 doesn't have a specific clause addressing those rare instances where a tax is triggered. Boulis's widow argued this omission means taxes are NEVER allocated to elective share assets. Wrong answer says the 4th DCA, here's why:

Appellant argues that certain probate code sections relieve her elective share of any liability for estate taxes. Section 733.817, Florida Statutes (2000), governs the apportionment of estate taxes. Subsections (5)(a), (5)(b), and (5)(c) apply to the apportionment of taxes on property passing under the decedent's will, property passing under the terms of any trust created in the decedent's will and homestead property, respectively.

*     *     *

“The purpose of section 733.817 is to ensure that all estate and inheritance taxes are shared on a ratable basis by the beneficiaries receiving the property subject to those taxes.” Tarbox v. Palmer, 564 So.2d 1106, 1108 (Fla. 4th DCA 1990). As appellant is not entitled to the marital deduction on her elective share, then that elective share is subject to tax. The net tax on an elective share is not apportioned under paragraphs (5)(a), (5)(b), or (5)(c), and it is not otherwise excluded. Therefore, the net tax attributable to the elective share is apportionable under section 733.817(5)(f).

[2]  But what if the decedent waived the normal tax allocations rules?

Boulis's widow then argued that even if her share of the estate was taxable, her husband's will trumped application of the Florida tax allocation statute because it directed that the payment of taxes attributable to property NOT passing under his will (such as her elective share) must be paid from property passing under his will (read: tax everyone else but the widow). This allocation argument has a long and storied past here in Florida. Unfortunately for Boulis's widow, by now it's pretty well settled that the language in the will has to be extremely specific for this argument to work. In this case it wasn't, so she lost this argument as well.

In his will, the decedent “direct[s][his] Personal Representative to pay out of the property which would otherwise become a part of the Residuary Estate, all estate, inheritance, transfer and succession taxes, including interest and penalties thereon, which may be lawfully assessed by reason of my death.” Appellant argues that pursuant to section 733.817(5)(h)1., Florida Statutes (2000), this provision of the will directs appellees to pay the taxes on the elective share out of the residuary estate. The trial court held that section 733.817(5)(h)4., Florida Statutes, is the applicable provision and, under that section, the decedent has not effectively directed the payment of taxes attributable to property not passing under the governing instrument from property passing under the governing instrument.

Section 733.817(5)(h), Florida Statutes, provides in pertinent part:

(h)1. To be effective as a direction for payment of tax in a manner different from that provided in this section, the governing instrument must direct that the tax be paid from assets that pass pursuant to that governing instrument, except as provided in this section.

*     *     *

4. For a direction in a governing instrument to be effective to direct payment of taxes attributable to property not passing under the governing instrument from property passing under the governing instrument, the governing instrument must expressly refer to this section, or expressly indicate that the property passing under the governing instrument is to bear the burden of taxation for property not passing under the governing instrument. A direction in the governing instrument to the effect that all taxes are to be paid from property passing under the governing instrument whether attributable to property passing under the governing instrument or otherwise shall be effective to direct the payment from property passing under the governing instrument of taxes attributable to property not passing under the governing instrument.

In In re Estate of McClaran, 811 So.2d 799 (Fla. 2d DCA 2002), the Second District addressed the issue of whether the direction in the decedent's will was effective under section 733.817(5)(h) to override the statutory method of apportionment of estate taxes. McClaran's will provided in pertinent part:

My personal representative shall pay from the residue of my estate ... estate and inheritance taxes assessed by reason of my death, except that the amount, if any, by which the estate and inheritance taxes shall be increased as a result of the inclusion of property in which I may have a qualifying income interest for life or over which I may have a power of appointment shall be paid by the person holding or receiving that property.

Id. at 800 (emphasis in original).

*     *     *

Just as in McClaran, the direction in the decedent's will does not include an express indication that the property passing under the will is to bear the burden of taxation for property not passing under the will.

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Aguilar v. Aguilar, --- So.3d ----, 2009 WL 2169133 (Fla. 2d DCA Jul 22, 2009)

If you're going to contest a will one of the first questions you have to ask yourself is "am I too late?"

If the will you want to contest has already been admitted to probate and your client's been served with a "notice of administration," F.S. 733.212 says you've only got 3 months to object. But the mechanics of objecting to a will involve two basic steps: [1] filing your objections with the court and [2] serving "formal" notice of your objections on the opposing party.

In the linked-to opinion the will contestant (the decedent's wife) filed her objections within the 3-month limitations period, but didn't get around to serving formal notice of her objection on the other side until about 4 months later. So was she too late? According to the probate judge the answer was yes, so Wife's objections were dismissed with prejudice. Wrong answer says the 2d DCA. Here's why:

The Wife contends that the statute, section 733.212(3), Florida Statutes (2006), requires only the “filing” of objections within three months and that her failure to serve her motion by formal notice within the three-month deadline is not fatal to her claim. She further contends that even if service by formal notice were required within the three-month period, the Daughters waived the requirement by engaging in protracted litigation before raising their objection to the service. The Daughters respond that section 733.212 is implemented by Florida Probate Rules 5.025, 5.040, and 5.041(d), which require that an objection be served with formal notice by the three-month deadline.

Section 733.212(3) provides:

Any interested person on whom a copy of the notice of administration is served must object to the validity of the will, the qualifications of the personal representative, the venue, or the jurisdiction of the court by filing a petition or other pleading requesting relief in accordance with the Florida Probate Rules on or before the date that is 3 months after the date of service of a copy of the notice of administration on the objecting person, or those objections are forever barred.

(Emphasis added.)

The Wife's motion was an adversary proceeding as defined in rule 5.025(a), and therefore she was required to serve formal notice pursuant to rule 5.025(d)(1). Rule 5.040 sets out the requirements for serving formal notice. It provides in subsection (a)(3)(A) that formal notice shall be served “by sending a copy by any commercial delivery service requiring a signed receipt or by any form of mail requiring a signed receipt.” Rule 5.041(d) governs filing and provides that “[a]ll original papers shall be filed either before service or immediately thereafter.”

None of these rules contain a time requirement for serving formal notice. Further, the trial court's conclusion that section 733.212(3) requires service of formal notice within three months is erroneous because the statute requires only the “filing” of objections within three months after the notice of administration is served. It does not require both filing and service of formal notice within the three-month period. It is undisputed that the Wife's motion was timely filed. We therefore reverse the order dismissing the Wife's motion and direct that it be reinstated.

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Rust v. Brown, --- So.3d ----, 2009 WL 2031288 (Fla. 4th DCA Jul 15, 2009)

It's not unusual for courts to enter orders simply "granting" a summary judgment motion. Which may be gratifying to the winning side, but technically speaking, the order is meaningless. Why? Because it hasn't actually entered judgment for or against a party. Which means it's a non-final, non-appealable order. Here's how the 4th DCA explained the rule in Shroff v. Winn Dixie Stores, Inc., 570 So.2d 1135 (Fla. 4th DCA 1990):

With great reluctance, this appeal is dismissed on the authority of White Palms of Palm Beach v. Fox, 525 So.2d 518 (Fla. 4th DCA 1988), and Russell v. Russell, 507 So.2d 661 (Fla. 4th DCA 1987). Once again we caution trial judges and attorneys alike that this court lacks jurisdiction over an order granting a motion for summary judgment, when that order does not contain the requisite words of finality indicating that the complaint is dismissed.

Unfortunately, the parties (and the judge) in the linked-to probate case overlooked this bit of sage advice. Here again the 4th DCA was presented with an order that simply "granted" a summary judgment motion, and again the 4th DCA sent everyone packing with instructions to try to get it right the second time around:

The decedent died in a motor vehicle accident, which gave rise to a wrongful death claim. The personal representative of the estate is one of the decedent's three adult sons, and a residuary beneficiary of the estate. The surviving spouse is a non-citizen.

The trust beneficiaries executed a Distribution Agreement. The agreement's purpose was to convert a revocable trust into a qualified domestic trust (QDT) to preserve the marital deductions that are inapplicable to non-citizens and to save the estate money. See 26 U.S.C. § 2056A. The agreement specifically allocated the QDT administration expenses to be paid by the three sons. It did not address the proceeds of the wrongful death claim, despite everyone being aware of it prior to entering into the agreement.

Subsequently, the wrongful death claim settled for two million dollars, leaving $1.298 million for the estate. A dispute then arose over the responsibility for the administration expenses related to the QDT.

The surviving spouse filed a motion to compel the personal representative to sign the settlement checks. In response, the personal representative prepared an apportionment plan for the settlement proceeds. The second amended apportionment plan allocated $962,366 to the estate for reimbursement of the QDT's administration expenses and $335,634 to the surviving spouse.

The surviving spouse filed an objection to the plan and moved for summary judgment, attaching the Distribution Agreement, a letter written by her attorney, an estate inventory which included the value of the wrongful death claim, and an economist's report.

The personal representative filed a response, indicating that, “[p]rior to the settlement of the wrongful death action, the Parties entered into an oral agreement. As part of the Oral Agreement, [the surviving spouse] agreed to pay the expenses of the Estate out of the proceeds of the wrongful death action.” He attached his affidavit, attesting to the oral agreement. The court entered an order granting the surviving spouse's motion for summary judgment, giving rise to this appeal.

Rule 9.110(a)(2) of the Florida Rules of Appellate Procedure provides for “review of orders entered in probate and guardianship matters that finally determine a right or obligation of an interested person as defined in the Florida Probate Code.” “Significantly, the committee note explains that the 1996 amendment to the rule ‘does not abrogate prior case law holding that a party's right of appeal arises when there is a termination of judicial labor on the issue involved as to that party.’ “ Klingensmith v. Ferd & Gladys Alpert Jewish Family, 997 So.2d 436, 437 (Fla. 4th DCA 2008) (quoting Walters v. Edwards, 700 So.2d 434, 435 n. 1 (Fla. 4th DCA 1997)).

An order merely granting a motion for summary judgment is not a final order because it does not enter judgment for or against a party. White Palms of Palm Beach, Inc. v. Fox, 525 So.2d 518, 519 (Fla. 4th DCA 1988), abrogated on other grounds by Dobrick v. Discovery Cruises, Inc., 581 So.2d 645 (Fla. 4th DCA 1991).

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Lanning v. Pilcher, --- So.3d ----, 2009 WL 1941210 (Fla. 1st DCA Jul 08, 2009)

The “Save Our Homes” (SOH) amendment to Florida's constitution sets a 3% maximum limit on annual valuation increases of homestead property for ad valorem tax purposes. Over time, the SOH cap has created huge disparities in property taxes paid by Florida residents vs. non-Florida residents. Consider these 2002 stat's, as reported in Protecting and Preserving the Save Our Homes Cap:

Statewide in the year 2002 the Save Our Homes (SOH) cap protected about $80 billion in assessed value from taxation. That is up 68.50 percent over the year 2001, when it was about $47.9 billion.

But is it constitutional?

The discriminatory effect of Florida's property tax scheme on non-residents is obvious, which makes it an easy target for constitutional attack. That's basically what happened in the linked-to opinion. Unfortunately for the tax-challengers in this case all of their arguments have been tried before . . . and failed. And as explained by the 1st DCA, they didn't work this time either:

The main appeal consists of a series of federal constitutional challenges to Article VII, Section 4(d), but all of the supporting arguments have been rejected before in comparable cases. For example, the Supreme Court held in Nordlinger v. Hahn, 505 U.S. 1 (1992), that a California constitutional amendment limiting real property tax increases to 2% per year, in the absence of a change of ownership, did not violate the Equal Protection Clause. And this court held in [Reinish v. Clark, 765 So.2d 197 (Fla. 1st DCA 2000)] that the Florida homestead exemption did not violate the Equal Protection Clause, the Privileges and Immunities Clause, or the Commerce Clause. Although Reinish dealt with the application of the $25,000 homestead exemption, while this case involves a challenge to the 3% tax cap on increases in the assessment of homestead property, the analysis is the same. In both cases, the tax benefit is based on the way the property is used, not on the status of the landowner as a resident or nonresident.

The homestead exemption and the 3% tax cap apply only to property that is used as a primary residence and therefore qualifies as a homestead. A Florida resident who owns vacation property or business property in the state will not be entitled to claim any tax benefit under Article VII, Section 4(c) and will be in the same position with respect to that property as a nonresident. The plaintiffs argue that the existence of a benefit for homestead property, when combined with the tax treatment of non-homestead property, gives Florida residents a tax advantage, but this is essentially an argument that the homestead exemption is itself unconstitutional, a point rejected in Reinish.

For these reasons we hold that Article VII, Section 4(c) of the Florida Constitution is valid under the United States Constitution and that it does not violate a nonresident's rights under the Equal Protection Clause, the Privileges and Immunities Clause, or the Commerce Clause. Likewise, we hold that section 193.155, Florida Statutes, the law implementing Article VII, Section 4(c), is constitutionally valid.

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Zoldan v. Zohlman, --- So.3d ----, 2009 WL 1310995 (Fla. 3d DCA May 13, 2009)

In this case "husband" sued his second wife's estate on undue influence grounds trying to get out of a post-nuptial agreement he signed obligating him to leave a share of his $40 million estate to second wife's daughter. Husband died after filing his lawsuit, and his sons were substituted in as plaintiffs.

So by now the litigation is between two estates: husband's estate vs. wife's estate. But those are only legal titles, this fight is really between two sets of heirs: husband's sons from a prior marriage (representing his estate) vs. wife's daughter from a prior marriage (representing her estate). As the WSJ recently reported in The Right Steps, blended families are often a volatile mix (see also here), which may explain why the two estates battling it out in this case have by now gone through two full blown trials followed by two trips to the 3d DCA.

Wife's estate won the first round [click here]. Perhaps emboldened by this win, wife's estate then tried to make the best of its win by arguing that its share of husband's estate (25% of a $40 million family limited partnership) shouldn't be subject to the standard valuation discounts applicable to FLPs, but should instead be measured on a "fair value" basis (i.e., no discounts for lack of marketability or minority status) under F.S. 620.2114(1).  Nice try, but no cigar. This time around husband's side won:

Originally, the Estate disputed Ms. Zoldan's right to obtain anything other than what each of the three sons had inherited, i.e. an interest in the limited partnership. Eventually, however, the Estate took the position that if monetary damages were ordered, it was a “fair market valuation” that should be utilized in determining that award. The parties attached a dollar amount to each valuation method, concluding that the “fair market valuation” of the interest was $2,247,573, while the “fair valuation” of the interest was $6,450,937. Thus, by mutual agreement, the only question before the trial court was which valuation method should be applied.

.   .  .  .  .

While the partnership agreement does not permit a limited partner to withdraw and demand distribution from the partnership, Mr. Zohlman's sons, one of whom is the general partner with “sole and exclusive control of the Limited Partnership,” nevertheless agreed to distribute to Ms. Zoldan the “fair market value” of a one quarter interest of Mr. Zohlman's 99% limited partner interest in the partnership, i.e., the amount a full limited partner would receive if that partner took the interest and attempted to sell it on the open market. FN4 See Rothschild v. Kisling, 417 So.2d 798, 801 (Fla. 5th DCA 1982) (recognizing that fair market value is generally “what a willing buyer would pay a willing seller” for an interest). Such a distribution would be consistent with paragraph 12 .03 of the partnership agreement which provides that although “[n]o Partner shall be entitled to demand a distribution be made in partnership Property ... the General Partner may make or direct property distributions to be made, using the property's fair market value as of the time of the distribution[ ] as a basis for making the distribution[ ].”

It would also be consistent with that portion of the partnership agreement governing permitted sales of limited partnership interests, which obligates limited partners to establish the market value of their interests by obtaining a bona fide offer from a willing buyer in the marketplace:
. . . . .

Here, the stipulated fair market value of Ms. Zoldan's interest was put at $2,247,573. Based on the foregoing analysis, we find no error in the methodology used to make this determination.

We also reject the notion that there was no competent, substantial evidence to support the trial court's determination that Ms. Zoldan's interests should be valued using the fair market value method. The Estate presented the expert testimony of David Pratt, a seasoned trust and estate lawyer, who testified that fair market value is the valuation standard used when distributing trust assets and the assets of an estate. More specifically, Pratt testified that fair market value is the exclusive valuation method used for the purpose of determining distributions from a limited family partnership that is part of a trust or an estate.

Thus, we find no error in the valuation method used by the trial court. The promise made and broken was that Mr. Zohlman name Ms. Zoldan an heir equal to his three sons. Ms. Zoldan was offered and rejected an interest in the limited partnership which would have put her in the exact same position as the Zohlman brothers. Having rejected that offer, the Estate maintained that the measure of Ms. Zoldan's damages would be the “fair market value” of the interest she rejected. With no dispute as to the dollar amount attached to the use of a “fair market valuation,” with that method being identified in the partnership agreement itself, and with that valuation method being supported by expert testimony, we conclude that it was properly employed. Accordingly, we find the trial court's order was correct in its entirety, and affirm the order awarding Ms. Zoldan $2,247,573, plus pre-judgment interest.

Lesson learned?

Valuation issues involving FLPs are a BIG DEAL! to estate planners and probate lawyers alike. Florida trusts and estates lawyers will want to take note of this important valuation case. The 3d DCA's opinion is fine as far as it goes, but doesn't go into much detail explaining the losing side's "fair value" argument, for that you'll want to read Appellees' Answer Brief.