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

If you're an estate planner, it's only a matter of time until someone asks you to turn over a deceased client's estate planning file. Don't automatically say "yes," you'd be surprised (horrified!) by the ethical traps lurking in this seemingly simple request (if you want to make sure you don't get sued for getting this wrong, read Florida Bar Advisory Opinion 10-3, which I've previously written about here).

And if you're a probate lawyer, sooner or later you're going to find yourself representing a personal representative, trustee or guardian on the receiving end of discovery requests demanding privileged communications (in which case you'll want to cite F.S. 90.5021, the evidentiary privilege rule specifically designed for fiduciaries, which I've previously written about here).

So what's the link between the ethical duty to keep client information confidential and the evidentiary rule shielding this information from disclosure? Think in camera (Latin for: "in a chamber") inspection. If there's a dispute, a court's going to have to decide which documents get turned over and which don't. In order to preserve the confidentiality of information claimed to be privileged during the process of determining the propriety of those claims, there's no other logical alternative than for the court to independently review the material in camera.

Can a court say NO to the in-camera review process? NO

Patrowicz v. Wolff, --- So.3d ----, 2013 WL 1352488 (Fla. 2d DCA April 05, 2013)

In this case the same lawyer was apparently estate planner for the decedent and counsel for the personal representative of his estate (which is common). So when the plaintiff subpoenaed his records, it was in his capacity as a non-party estate planner, not probate counsel. Why does this matter? Because it means the law governing if or when these records get turned over are the ethics rules dissected in Florida Bar Advisory Opinion 10-3, not evidentiary rule F.S. 90.5021. This distinction matters.

In any event, when the subpoena was challenged, no matter what law governs the ultimate outcome the path for getting there is the same: court must conduct an in camera review. So can a probate judge simply skip this step? NO, so sayeth the 2d DCA:

Sarah R. Patrowicz, as Personal Representative of the Estate of Joseph H. Winner, petitions this court for a writ of certiorari quashing a discovery order compelling the production of documents allegedly subject to the attorney-client privilege. Because the trial court departed from the essential requirements of the law by ordering the production of allegedly privileged documents without first conducting an in camera inspection to determine whether the privilege applies, we grant the petition and quash the order.

. . .

“A trial court's order erroneously compelling discovery of information protected from discovery by the attorney-client privilege is reviewable by certiorari.” Bennett v. Berges, 84 So.3d 373, 374–75 (Fla. 4th DCA 2012). A party claiming that documents sought by an opposing party are protected by the attorney-client privilege is entitled to have those documents reviewed in camera by the trial court prior to their disclosure. Id. at 375. This is equally true where the subpoena on its face requests communications between attorney and client. See Nationwide Mut. Fire Ins. Co. v. Hess, 814 So.2d 1240, 1243 (Fla. 5th DCA 2002). The failure to address whether a claimed privilege applies prior to ordering the disclosure of documents is a departure from the essential requirements of the law. See Snyder v. Value Rent–A–Car, 736 So.2d 780, 782 (Fla. 4th DCA 1999).

. . .

[T]he reason we must quash the order is that the trial court ordered production of the documents without first reviewing them and determining whether the attorney-client privilege applied. Not only did Linde specify that his objection was based on the attorney-client privilege, but the subpoena on its face explicitly requested communications between an attorney and his client. Consequently, the trial court was required to conduct an in camera inspection of the documents prior to ordering their disclosure. We therefore quash the order compelling the production of the documents and remand the case for further proceedings. 

OK, so if a court can't say no to the in-camera review process, can you? NO

Bennett v. Berges, --- So.3d ----, 2012 WL 832730 (Fla. 4th DCA March 14, 2012)

In probate litigation the same person is your judge and jury; these are all bench trials. So if you're worried something you told your lawyer is going to prejudice you in the eyes of your judge/fact-finder, having this same judge conduct the in camera review of your files isn't going to help much, the damage is done. Assuming this scenario, then maybe you're going to really want to block the in-camera review process. That may be so, but don't count on an appellate court coming to your rescue. If your judge says turn over the documents, that's it, you're done. So sayeth the 4th DCA:

Here, the trial court properly ordered an in camera review of the relevant documents claimed to be privileged. The order does not compel Petitioners to produce the documents to Respondents. After an in camera inspection, the trial court may determine that the documents are privileged and uphold Petitioners' objection to the discovery request. Accordingly, because the order requires a party to submit allegedly protected materials only for an in camera inspection, and the trial court may never require disclosure of the documents to the opposing party, we hold that the petition is premature. See Cape Canaveral, 917 So.2d at 340 (holding certiorari review was premature because no irreparable harm had been demonstrated where the order under review merely required documents to be produced for an in camera inspection and no discovery had yet been ordered); Gaton v. Health Coal., Inc., 774 So.2d 59 (Fla. 3d DCA 2000) (certiorari review of an order requiring submission of documents allegedly protected by the trade secret privilege to the courts for an in camera inspection was premature because no production had been ordered to the opposing party). But see Cebrian By & Through Cebrian v. Klein, 614 So.2d 1209 (Fla. 4th DCA 1993) (granting a writ of certiorari and quashing an order requiring in camera inspection of certain HRS investigation reports because the shield law found in section 415.52(2), Florida Statutes (1990), created a privilege for such reports; thus, an in camera inspection was not necessary to determine whether the material was or was not protected).

Whether the trial court has misapprehended the scope of the privilege is a question we need not decide because to date, no discovery has been ordered. Accordingly, the petition is denied.

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Welch v. Dececco, --- So.3d ----, 2012 WL 5969623 (Fla. 5th DCA November 30, 2012)

When and "if" a gift actually occurs can be a tricky, fact-intensive issue to decide. A few years ago I wrote here about a contested gift by former major league ball player Dennis L. Rasmussen to his ex-wife. This time around the case involves an alleged gift of Exxon-Mobil stock by a man to his nephew. After uncle's death nephew claimed the stock. One problem, the stock certificate remained registered in uncle's name at the time of his death. As far as the probate judge was concerned, this one fact decided the case: nephew loses. Not so fast says the 5th DCA.

Inter vivos gift of stock does NOT automatically fail if stock remained registered in donor's name at death:

Gifts are a function of "donative intent," and just because the stock remained registered in uncle's name at the time of his death doesn't automatically mean he didn't intend to gift it to nephew. Case reversed, here's why:

In this probate matter, Frank Welch appeals the trial court's order determining that ExxonMobil stocks had not been transferred to him by his uncle, Frank Kolbl, via inter vivos gift and, thus, belonged to Kolbl's estate. Because it is unclear from the order whether the court considered all the relevant evidence in arriving at this ruling, we reverse and remand for the trial court to clarify the basis of its ruling.

The elements of an inter vivos gift are present donative intent, delivery, and acceptance. See Mulato v. Mulato, 705 So.2d 57, 61 (Fla. 4th DCA 1997). Here, the trial court concluded that Welch failed to prove present donative intent, and that the evidence showed, at best, a failed testamentary intent. The court cited the fact that the stocks were still registered in Kolbl's name at his death. Although stock registration is properly considered in analyzing donative intent, it is not necessarily dispositive where, as here, other evidence is presented for and against such intent. See id. at 59–60, 62; Freedman v. Freedman, 345 So.2d 834, 836–37 (Fla. 3d DCA 1977); Sullivan v. American Tel. & Tel. Co., 230 So.2d 18, 18–21 (Fla. 4th DCA 1969); Kuebler v. Kuebler, 131 So.2d 211, 212–16, 218–19 (Fla. 2d DCA 1961); Eulette v. Merrill Lynch, Pierce, Fenner and Beane, 101 So.2d 603, 604–05 (Fla. 3d DCA 1958). It is unclear from the trial court's order whether the court focused exclusively on the stock registration, or properly considered it as one fact along with all the other evidence relevant to donative intent.

Accordingly, we reverse and remand this matter for the trial court to clarify whether it considered all the relevant evidence, and if not, to reconsider its ruling on the basis of the evidence presented.

When is a gift of stock complete for tax purposes?

It's impossible to predict with 100% certainty if your particular probate judge is going to consider the particular facts of your specific case and conclude the three elements of a completed gift have been proven: "present donative intent, delivery, and acceptance." One way to give your judge some guidance (and your client some sense of how weak or strong his case is) is to look to the detailed regulations and common law developed in the tax context for determining when a gift of stock is complete. If under the facts of your case the gift would have been complete for tax purposes, that's a powerful argument for the same conclusion as a matter of state law, and vice versa. Charities make it their business to put this kind of information on the web for potential donors of stock, so it's easily accessible if you know what you're looking for. See here, here, here and here for examples.

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Goodman v. Goodman, --- So.3d ----, 2013 WL 1222944 (Fla. 3d DCA March 27, 2013)

In a sharply worded opinion the 3d DCA struck down an order by Miami trial-court Judge Antonio Marin allowing embattled Palm Beach polo tycoon John B. Goodman to adopt his 42-year old girlfriend. The apparent intent behind the adoption was a ploy to qualify the girlfriend for a 1/3 share of a $300 million trust otherwise benefiting Mr. Goodman's two minor children from a prior marriage. According to the 3d DCA, judge Marin prohibited the minor children's mother/guardian from intervening in the adoption proceeding "because it would allow for endless intervention by the children to contest the judgment." What?! 

Thankfully the 3d DCA saw things differently. Not only did the 3d DCA rule mom should have been permitted to intervene, rather than sending the case back to judge Marin, they summarily voided the adoption as a fraud (I'll explain the fraud ruling in a moment).

Here's an excerpt from a SunSentinal piece reporting on the 3d DCA's ruling and the case's "back-story" entitled Goodman can't adopt 43-year-old girlfriend, court rules:

Embattled polo mogul John Goodman can't adopt his 43-year-old girlfriend after all, an appeals court ruled Wednesday.

The adoption would have enabled girlfriend Heather Hutchins to claim a third of a $300 million trust fund established for Goodman's two children, both younger than 18.

The 49-year-old multimillionaire's bid to assume parental custody of Hutchins was voided because he didn't notify his ex-wife Carroll Goodman, the mother of the children, until after the adoption appeals process had passed in January 2012, according to a Third District Court of Appeal ruling.

. . .

It's the latest episode in the ongoing legal saga surrounding Goodman, who was sentenced to 16 years in connection with the Feb. 12, 2010 death of Scott Patrick Wilson, 23. Goodman's Bentley ran a stop sign and collided with Wilson's Hyundai, killing Wilson.

Convicted of DUI/manslaughter in March 2012, Goodman remains on house arrest at his Wellington mansion on a $7 million appellate bond.

Earlier this year, he reached a $46 million settlement in a wrongful death lawsuit brought by Wilson's parents Lili and William — whose attorneys have said Goodman's adoption attempt was a brazen bid to shield his assets from the grieving parents.

The Wilsons, divorced since 2007, have been fighting in court over their late son's ashes. In February, a county court judge denied William Wilson's request to split up the ashes.

On Wednesday, the appellate court said Goodman's adoption of Hutchins "constituted a fraud on the court" because he intentionally concealed the adoption from his wife, who was entitled to be made aware of the action because it "directly, immediately, and financially impacted the children."

"Goodman's concealment of the adoption proceeding deprived the children of an opportunity to address the trial court and present their objections," the decision stated.

The adoption of Hutchins was approved in Miami in 2011, but the appeals court decided that because Carroll Goodman wasn't notified, she had no opportunity to protect her childrens' financial interests from being encroached upon by Hutchins.

Goodman, who founded the International Polo Club Palm Beach in Wellington, is heir to a multimillion-dollar Texas manufacturing fortune.

So why should trusts and estates lawyers care about adult adoptions?

Many states, including Florida (F.S. 63.042), allow adult adoptions. These laws were primarily intended for situations like a stepparent adopting a stepchild later in life. According to a rule of construction found in our probate code, adoptees are automatically presumed to be descendants of their adoptive parents for class gift purposes. F.S. 732.608. So if a will or trust benefits someone's "descendants" as a class (i.e., without specifically naming them), that class of beneficiaries is presumed to include adoptees. This rule of construction opens the door to manipulation of multigenerational trusts via adult adoptions.

For example, unable to legally marry in most states, some same-sex couples have used the adult-adoption process to establish inheritance rights for their partners. I previously wrote here about the last such case to make headlines; it involved a claim by an adult adoptee to a share of the trust created by Thomas John Watson, Jr., of IBM fame.

Now back to the 3d DCA's fraud ruling:

The adult-adoption order at the center of the 3d DCA's opinion wasn't voided on substantive grounds (e.g., it was contrary to the settlor's intent, or contrary to public policy, or otherwise per se illegal), it was voided for procedural reasons: Mr. Goodman's intentional lack of notice to interested parties (i.e., the minor children's mother/guardian). According to the 3d DCA, this intentional deception amounted to fraud upon the court.

Presumably Mr. Goodman knew his ex-wife wasn't going to stand idly by as he diluted their children's share of the family trust in favor of his girlfriend. Rather than face this objection head-on and honestly, Mr. Goodman kept the adoption proceeding secret until after the adoption order was entered and no longer subject to appeal. What's scary about this case (and instructive for litigators) is that this ploy actually worked at the trial-court level?! Even after the trial-court judge was made aware of Mr. Goodman's deception, he refused to do anything about it. Fortunately the 3d DCA was less willing to put up with this kind of gamesmanship.

[T]he guardian and Carroll were entitled to notice. It is undisputed that neither the guardian nor Carroll received timely notice of the adoption proceeding. Goodman notified them of the adoption proceeding in January 2012, after the period to appeal the Final Judgment of Adult Adoption had expired.[FN1] The adoption converted [Goodman's girlfriend] into an immediate beneficiary of the trusts and entitled her to one-third of the corpus of the trusts. It hardly could be said that this conversion did not threaten the financial interests of the minor children, whose interests decreased from one-half to one-third. Thus, we hold that . . . the guardian and Carroll were entitled to notice of the adoption proceeding, pursuant to section 63.182(2)(a).

FN1. This lack of notice can only be viewed as none other than an act of concealment, an act which Goodman purposefully instituted to suppress circumstances he knew fully well ought to have been made known to the guardian and Carroll. As we shall discuss further, Goodman committed fraud on the court in doing so.

. . .

The guardian and Carroll correctly pointed out that this lack of notice violated the minor children's due process rights. We reiterate that Hutchins' adoption directly, immediately, and financially impacted the children. Goodman's concealment of the adoption proceeding deprived the children of an opportunity to address the trial court and present their objections. . . .

Furthermore, we determine that the judgment entered in the adoption proceeding is void. This Court previously has stated that “[a] violation of the due process guarantee of notice and an opportunity to be heard renders the judgment void.” . . . This Court also has ruled that the failure to give due process notice and the failure to grant a necessary party's motion to intervene are defects that can render a judgment void. . . .

We therefore set aside the Final Judgment of Adult Adoption because Goodman's deliberate failure to provide notice of the adoption to the guardian and Carroll constituted a fraud on the court. In Florida, a decree of adoption may be set aside based on fraud in the proceedings. . . . Goodman committed extrinsic fraud on the court when he failed to give notice of the adoption to the appellants until after the appeals period had expired. See Richard v. McKesson, 774 So.2d 838, 839 (Fla. 4th DCA 2000) (holding that contingent beneficiary to a trust had standing to challenge the adoption had she known about and was not precluded from collaterally attacking the adoption). 

The only other Florida appellate decision involving an adult adoption in the trust context I could find was the 4th DCA opinion cited above by the 3d DCA: Richard v. McKesson, 774 So.2d 838 (Fla. 4th DCA 2000). In that case the adult adoption was also intended to give the adoptee inheritance rights under a pre-existing trust. As in this case, the adult adoption proceeding was kept secret from the pre-existing beneficiary of the trust. As in this case, that adoption order was subject to attack on fraud-upon-the-court grounds.

What about settlor intent?

But what if Mr. Goodman had given his ex-wife notice of the adoption proceeding? Would the result have been the same? Maybe, but not for the same reasons. It seems to me that regardless of whether or not the adoption is valid, the issue of settlor intent remains. At the time of the trust's creation, was it intended to benefit future adult adoptees? If the answer to that question is NO, then regardless of whether or not the adoption is valid, the adult adoptee gets nothing under the trust. That's what happened in a DNA case I wrote about here: no matter what the DNA science proved, settlor intent remained the outcome-determinitive question for trust-administration purposes. Same thing for adult adoptions: no matter how legally valid the adoption might be, settlor intent remains the outcome-determinitive question for trust-administration purposes.

Most courts that have addressed the issue in terms of settlor intent have ruled against the adult adoptee. See, e.g., Cross v. Cross, 177 Ill.App.3d 588, 126 Ill.Dec. 801, 532 N.E.2d 486 (1988) (Adoption of adult solely for purpose of making him heir of an ancestor under terms of testamentary instrument known and in existence at time of adoption is act of subterfuge, does great violence to intent and purpose of adoption laws, and should not be permitted.) But sometimes adult adoptees do win these cases. See, e.g., In re Trust Created by Nixon, 277 Neb. 546, 763 N.W.2d 404 (Neb. Apr 10, 2009) (Adult adopted by trust settlor's daughter was daughter's child, and thus adoptee became the sole beneficiary of trust upon daughter's death, under trust document which provided that, upon daughter's death, the trust was to be divided among her living children, where trust settlor's will did not specify that the term “children” was to exclude adopted children.)

How would a Florida appellate court rule in this scenario? Who knows. There are no Florida appellate opinions on point.

Lesson learned?

First, the law in Florida is now clear on at least one point in cases involving trusts and adult adoptees: you can't get these orders in secret, you must provide notice and an opportunity to be heard to all other pre-existing beneficiaries of the trust pursuant to section 63.182(2)(a).

Second, this type of case cries out for a drafting solution at the estate planning phase. Including a simple adoption clause in a client's will or trust should spare all involved the stress and financial strain inherent to any form of inheritance litigation. Here's the clause we use in my office, I'm sure there are lots of good alternate clauses floating around out there. Just pick one and use it.

Sample Adoption Clause:

Effect of Adoption. A legally adopted child (and any descendants of that child) will be regarded as a descendant of the adopting parent only if the petition for adoption was filed with the court before the child’s eighteenth birthday. If the legal relationship between a parent and child is terminated by a court while the parent is alive, that child and that child’s descendants will not be regarded as descendants of that parent. If a parent dies and the legal relationship with that deceased parent’s child had not been terminated before that parent’s death, the deceased parent’s child and that child’s descendants will continue to be regarded as descendants of the deceased parent even if the child is later adopted by another person.

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Certainty. It's the Holy Grail of estate planning and non-existent in any will contest. Here's how one judge put it over a century ago:

"[P]ost mortem squabblings and contests on mental condition . . . have made a will the least secure of all human dealings, and made it doubtful whether in some regions insanity is not accepted as the normal condition of testators." 

Lloyd v. Wayne Circuit Judge, 23 N.W. 28 (Mich. 1885).

Worst Evidence Rule = NO Certainty:

All litigation is uncertain, but why are will contests especially so? Think "worst evidence rule," a term coined by famed Yale Law professor John H. Langbein, in Will Contests, 103 Yale L.J. 2039 (1994). In most states (including Florida, see F.S. 732.518) you're barred as a matter of law from litigating the validity of a will until after the single most important witness -- the testator -- is dead. Which means we're forced to litigate these cases based in large part on the worst evidence available: the self-interested hearsay testimony of those claiming a right to the testator's estate.

So what's to be done? One possible solution is obtaining a final order validating a will in a guardianship proceeding while the testator is still alive; it worked in a California case I wrote about here. A better idea is adopting legislation expressly authorizing pre-death will contests.

Pre-Death Will Contest = Certainty:

State legislators have experimented with pre-death will contests for generations. According to Prof. Beyer in Will Contests - Prediction and Prevention, the first such statute was passed in 1883 in Michigan, and the National Conference of Commissioners on Uniform State Laws seriously considered the idea in the early 1980's. As explained by Prof. Beyer, if your goal is greater certainty, a pre-death will contest or "ante-mortem probate" is your best solution.

Today there are four states expressly authorizing pre-death will contests by statute: Arkansas, North Dakota, Ohio and Alaska. The pro's and con's of these statutes is the subject of a recent article in the ABA's Probate & Property Magazine entitled Before the Party's Over: The Arguments For and Against Pre-Death Will Contests. In my opinion, the best part of this article is the very funny cover illustration by Max Licht. On a more serious note, anything we can do to keep up the drumbeat in favor of this much-needed legislation is a good thing, and hopefully this article gets more people thinking about it.

Lesson learned?

If you're a working lawyer, it's easy to dismiss talk of pre-death will contests as theoretical mumbo jumbo only academics have the luxury of fooling around with. That would be a mistake. Wrapping our heads around the "worst evidence" problem makes us better practitioners, especially when we have our estate planning hats on. If the risk of a future challenge is present, we can't naively rely on the fact that there is no doubt the client has capacity and is acting of his own free will, we need to anticipate how the worst-evidence rule can undermine the best laid plans, and proactively stack the deck in the client's favor through smart defensive planning. For an excellent discussion of the more commonly used defensive-planning techniques you'll want to read Will Contests - Prediction and Prevention.

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In re Guardianship of Ansley, 94 So.3d 711 (Fla. 2d DCA August 17, 2012)

As I recently wrote here, a judge's attorney's fee order is automatically subject to reversal if it doesn't contain detailed findings of fact explaining why and how the judge arrived at his or her final fee-award conclusions.

Transparency in this context is not a luxury; it's the bare minimum we have a right to expect of our judiciary. Here's how our 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).

Can a judge cut your attorney's fees in a contested guardianship proceeding without explaining why? NO

Turning now to the linked-to case above. In this contested guardianship proceeding the former guardian's attorney's fees were contested. As explained by the 2d DCA, at the end of the fee hearing the petitioning attorney submitted a proposed fee order containing the kind of detailed findings of fact necessary for a properly drafted fee order. In other words, the petitioning attorney did his job. The trial judge then simply crossed out the $21,694.52 figure reflected at the end of the proposed fee order and wrote the amount of $16,520 above it. The trial judge gave no explanation for why he reduced the fee request by almost 1/4 or $5,174. In other words, as explained by the 2d DCA, the trial judge did not do his job.

The amount that the circuit court authorized the guardian to pay Mr. Martin is obviously less than the sum supported by the findings in the order concerning the reasonable hourly rates, the time expended, and the expenses incurred. Undeniably, there is an internal inconsistency in the order; the amount of fees and expenses awarded does not equal the amount of fees and expenses that the circuit court found were reasonable. 

. . .

A comparison of the amount of the actual award in the order under review and the amount requested by Mr. Martin indicates that the circuit court intended to award less than the full amount sought in the petition. However, we do not know what led to the circuit court's ruling. The above-noted internal inconsistency in the order results in the lack of any meaningful findings concerning the reasonable hourly rates and the number of hours compensated. The order also omits any statement of other factors that the circuit court considered in reducing the amount requested. These deficiencies make it impossible for this court to engage in meaningful appellate review of the order on appeal.  . . . 

In short, we are unable to determine the basis for the circuit court's award. It follows that we also cannot determine whether there is competent, substantial evidence in the record to support the award. Accordingly, we reverse the order under review. . . . We remand for the circuit court to enter a new order that sets forth the basis for the award, including the hours determined to be compensable, the hourly rate, and the other factors considered in arriving at the award. . . . The order must also itemize the costs allowed.

The 2d DCA obviously reached the right conclusion; all they're doing is telling the trial judge to explain his ruling. Which is why it was disappointing to read Judge Villanti's special concurrence in which he makes clear he doesn't really understand why it's so important for judge's to explain their fee rulings.

While Mr. Martin is entitled to ask the court to specify exactly why it chose the amount it did, what is really to be gained in so asking? In my view, a request for an order that identifies how Mr. Martin overcharged the ward's estate in the hopes that the trial court will suddenly agree that it abused its discretion in not awarding the full amount requested in the first instance is simply fodder for further litigation and a second appeal.

Respectfully, does Judge Villanti not understand that the amount of the fee ruling isn't the point of the majority's opinion (if properly drafted, the amount of a fee order is almost untouchable on appeal); what really matters in terms of this appellate decision is the message it sends to trial judges: how you explain your fee rulings is just as important as what your final rulings are. In fact, as stated by our supreme court, not explaining yourself in a fee order is "a species of social malpractice" that "brings the court into disrepute and destroys its power to perform adequately the function of its creation." So yes, there is much to be gained by sending this case back to the trial judge and ordering him to please explain the basis of his ruling.

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Bullock v. BankChampaign, N.A., 133 S.Ct. 526 (U.S. October 29, 2012) [docket]

Trusts and estates cases rarely make it to the U.S. Supreme Court, so when they do it's big news [e.g., see here]. This time around the Supreme Court's granted cert in a case arising out of our very own 11th Circuit in Bullock v. BankChampaign, N.A. (In re Bullock), 670 F.3d 1160 (11th Cir.2012). The case involves a former trustee (Mr. Bullock) who declared bankruptcy in order to wipe away a breach of trust judgment.

Under 11 U.S.C. § 523(a)(4) a judgment entered against a fiduciary for fraud or misappropriation of trust funds (i.e., "defalcation") is not dischargeable in bankruptcy. I've previously written about this rule here and here as applied both to trustees and personal representatives. 

What's interesting about this case is that all of the courts who have reviewed the facts agree the trustee's actions giving rise to the original judgment against him actually caused no economic harm to the trust's assets and that he apparently acted innocently at all times. For a good summary of the facts see here, here. Based on these facts, the U.S. Supreme Court's going to have to decide what level of mens rea (if any) is necessary to trigger the non-discharge rule for defalcation by trustees.

Here's how the "question presented" for the Supreme Court in this case was framed by the trustee:

What degree of misconduct by a trustee constitutes "defalcation" under §523(a)(4) of the Bankruptcy Code that disqualifies the errant trustee's resulting debt from a bankruptcy discharge - and does it include actions that result in no loss of trust property?

According to the 11th Circuit's opinion, there's a wide split among the circuit courts as to the meaning of defalcation under § 523(a)(4).

This Court recognizes that there is a split among the circuits regarding the meaning of defalcation under § 523(a)(4). . . .

The Fourth, Eighth, and Ninth Circuits have concluded that even an innocent act by a fiduciary can be a defalcation. . . .

The Fifth, Sixth, and Seventh Circuits require a showing of recklessness by the fiduciary. . . .

The First and Second Circuits require a showing of extreme recklessness. . . .

The Third Circuit has not addressed the issue, and the Tenth Circuit has made the brief statement in an unpublished opinion that defalcation requires some portion of misconduct. 

The trustee unsuccessfully argued in favor of the 1st and 2d Circuits' "extreme recklessness" standard, which apparently would have resulted in a win for him. The 11th Circuit instead adopted the non-extreme recklessness standard applied by the 5th, 6th and 7th Circuits. The 11th Circuit held the former trustee's judgment should NOT be discharged because even if he acted innocently, as a trustee he should have known his actions were improper, thus he acted recklessly.

Applying the recklessness standard for defalcation to the facts of the instant case, this Court concludes that the bankruptcy court was correct in determining that Bullock committed a defalcation by making the three loans while he was the trustee of his father's trust. Because Bullock was the trustee of the trust, he certainly should have known that he was engaging in self-dealing, given that he knowingly benefitted from the loans. Thus, his conduct can be characterized as objectively reckless, and as such, it rises to the level of a defalcation under § 523(a)(4). Accordingly, the bankruptcy court's order must be affirmed on the issue of whether the Illinois judgment debt was non-dischargeable under § 523(a)(4) as a debt arising from a defalcation while Bullock was acting in a fiduciary capacity. 

What do we mean by "defalcation" as applied to fiduciaries, and should we apply a strict-liability standard for culpability or require some level of intentional malfeasance? These are fundamental questions for any trusts and estates litigator, which will make the U.S. Supreme Court's take on this case a must-read even if (like me) you have no intention of ever setting foot in a bankruptcy court. Stay tuned for more . . . 

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Anyone can tell you what the current state of the law is when it comes to the federal estate and gift tax rules (news flash: for the first time in over a decade they're permanent, click here). For those of us in the trenches, the more interesting question is "what's next?" 

If I had to bet on what the next "big thing" in the estate-tax world is going to be, I'd go with one of the five "structural reforms" proposed by the President in his 2013 budget (and explained/scored in this recently published Congressional Research Service report). None of the ideas covered in the CRS Report is new, which means they've all demonstrated staying power (usually a good predictor of future enactment). And all of the proposed fixes have the added political bonus of increasing tax revenues without raising tax rates or lowering the exemption amount.

Want to know the future? Read on . . . 

CRS Report:

[T]he current size of the exemption and the rate of tax have been set in permanent tax law, and there is not much indication of a reconsideration. There are, however, some more narrow proposals aimed at abuse that have been included in some other legislation and in the President’s budget proposals. These provisions are described below. All of the estimates of revenue gain are for FY2013-FY2022 and are obtained from the FY2013 budget proposals. Most of the provisions were also estimated by the Joint Committee on Taxation and this source is used in the discussion below except in one case. Note that estimated budget effects would be altered and presumably reduced by the recent estate tax legislation.

[1] Grantor Retained Annuity Trusts

A Grantor Retained Annuity Trust (GRAT) is a trust that allows the grantor to receive an annuity, with any remaining assets transferred to the trust recipient. The value of the gift is reduced by the value of the assets used to fund the annuity. If the assets in the trust appreciate substantially, then virtually all of the gift can be reduced by the value of the annuity, while still providing a substantial ultimate gift to the recipient. If the grantor dies during the annuity period, the remaining value of the annuity is included in the estate. This trust approach could be a method of transferring assets roughly tax free if the assets appreciate at a rate faster than the discount rate used to value the annuity. The grantor needs to survive over the period of the annuity. To assure the latter will be likely to occur, many of these trusts have very short annuity periods, as short as two years. The GRAT proposal contained in H.R. 4849 in the 111th Congress and in the President’s budget proposals would impose a minimum annuity term of 10 years, disallow any decline in the annuity, and require a non-zero remainder interest. The provision was estimated to raise $3.6 billion over 10 years.

[2] Minority Discounts

There are existing restrictions to keep estates from engaging in artificial actions designed to reduce the value of estates (such as freezes on assets). As discussed above, courts sometimes allow estates to reduce the fair-market value when assets are left in family partnerships in which no one has a majority control. These discounts have even been allowed when assets are in cash and readily marketable securities, and the setting up of these family partnerships has become an estate tax avoidance tool. A provision in the Administration’s proposal would disallow these discounts. The JCT did not estimate this provision because of the lack of specific detail, but the Administration’s estimate was $18.1 billion over 10 years.

[3] Consistent Valuation

Currently, there is no explicit rule preventing a low valuation of fair-market value for an estate and a high valuation of the asset for purposes of stepped up basis in the hands of the heir. A low value of an asset reduces the estate tax, but a high value (because it reduces the amount of gain) reduces the capital gains tax. Requiring the same value for both purposes was projected to raise $3 billion over 10 years.

[4] Limit the Duration of Generation-Skipping Trusts

When generation-skipping transfers are made to a trust, the estate tax exemption applicable to them also exempts the associated earnings during the trust lifetime. In the past, a trust life has been limited because most states had a Rule Against Perpetuities that generally limited trusts to a 21-year life. Most of these laws have been eliminated. This Administration proposal would limit the life of a GST trust to 90 years. The revenue effect would be negligible over the next 10 years.

[5] Coordinate Grantor Trusts Income and Transfer Tax Rules

In a grantor trust, an individual is treated as owner for income tax purposes. However, the trust and the individual are treated as separate persons for purposes of the estate and gift tax. This proposal from the Administration would include the assets of the trust in the grantors estate and subject distributions to the gift tax if the grantor is the owner for income tax purposes. If the grantor ceases to be the owner, the assets would be subject to a gift tax. This proposal was projected to raise $3.3 billion over 10 years.

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Albelo v. Southern Oak Ins. Co., --- So.3d ----, 2013 WL 440199 (Fla. 3d DCA February 06, 2013)

Durable powers of attorney (DPOA's) empower disabled or incapacitated adults to manage their business and personal affairs privately and without court supervision. This includes handling litigation. That's the law. If you don't like it, get the law changed . . . but don't try to wish the issue away by making frivolous arguments in court.

In In re Estate of Schiver, 441 So. 2d 1105 (Fla. 5th DCA 1983), the 5th DCA held that an attorney-in-fact acting pursuant to a properly drafted DPOA could elect the principal's right to an elective share. According to the 5th DCA:

[DPOA's have] the beneficial effect of avoiding the time, expense and embarrassment involved in having to establish guardianships for incompetent persons. . . . The holder of a [DPOA] is appointed by the donor of the power, and essentially performs the same functions as would a court appointed guardian. While not a “guardian” in the legal sense, the attorney in fact has fiduciary duties similar in nature.

In Smith v. Lynch, 821 So. 2d 1197 (Fla. 4th DCA 2002), the 4th DCA upheld a probate judge's refusal to appoint a guardian for a legally incapacitated adult who had previously executed a valid DPOA. According to the 4th DCA "the appointment of a guardian would serve no useful purpose and would unnecessarily interfere with the family.” In support of its decision, the 4th DCA cited F.S. 744.344, which provides that an “order appointing a guardian must be consistent with the incapacitated person's welfare and safety, must be the least restrictive appropriate alternative, and must reserve to the incapacitated person the right to make decisions in matters commensurate with the person's ability to do so.”

Bottom line, our legislature intended DPOA's to be private, non-court supervised, less restrictive alternatives to guardianships. This is basic stuff for Florida probate lawyers. But is it so basic it's frivolous to even argue otherwise? YES.

3d DCA: 57.105 sanctions triggered by arguing against DPOA and for guardianship:

In the linked-to case above a 78-year old woman executed a valid DPOA in favor of her son. Acting under the authority of this DPOA, son sued mom's property-insurance company (Southern Oak Insurance Company) seeking to recover damages to mom's home caused by a burglary. By the time son filed suit on mom's behalf it was undisputed she was suffering from age-related cognitive disabilities. According to Southern Oak this meant mom's claim could only be prosecuted by a court-appointed guardian. For reasons unexplained in the 3d DCA's opinion, Southern Oak somehow convinced the trial judge to buy into its argument, resulting in a dismissal of mom's lawsuit. This is the kind of ruling that drives probate lawyers nuts. On appeal, it apparently  struck a nerve with the 3d DCA as well (in a bad way!).

This is an appeal by an octogenarian, Maximiliana Albelo, from a trial court order dismissing her premises liability complaint with prejudice, for failure to file a petition in probate to determine her own incapacity. We summarily reverse the order on appeal and grant Albelo's motion for an award of appellate attorney fees pursuant to section 57.105(1), Florida Statutes (2011). We write only to explain the reasons for our award of sanctions against Southern Oak Insurance Company and its counsel.

This is a garden-variety premises liability claim brought by Albelo for damages to her home caused by a burglary. The burglary and the existence of a loss are conceded. It is equally undisputed Albelo suffers from age-related cognitive disabilities. Although Southern Oak did not receive notice of the claim until more than a year after the burglary, the company paid $1690 on her claim. A few months later, Albelo filed a sworn proof of loss, supported by a public adjuster's estimate in the amount of $57,760.66. Southern Oak is of the view the sworn claim is fraudulent and instigated not by Albelo, but rather by her son. Southern Oak also is concerned about the binding effect a judgment obtained by Albelo might have against it in the future.

Albelo responds that in April 2007—one month before the burglary, when she was seventy-eight years old—she duly executed a Durable Power of Attorney (DPA) in favor of her son. Section 709.2119, Florida Statutes (2012), regulating powers of attorneys and similar instruments, provides explicit protection to Southern Oak in the circumstances of this case. It states:

(1)(a) A third person who in good faith accepts a power of attorney that appears to be executed in the manner required by law at the time of its execution may rely upon the power of attorney and the actions of the agent which are reasonably within the scope of the agent's authority and may enforce any obligation created by the actions of the agent as if:

1. The power of attorney were genuine, valid, and still in effect;

2. The agent's authority were genuine, valid, and still in effect; and

3. The authority of the officer executing for or on behalf of a financial institution that has trust powers and acting as agent is genuine, valid, and still in effect.

§ 709.2119. Southern Oak does not contest the formalities of execution and has not sought to rescind the power of attorney on the ground Albelo was incompetent at the time she executed the document. Southern Oak's and its counsel's persistence in arguing Albelo was required to seek a guardian for herself as a condition of continuing this action was frivolous.

Added Bonus:

For those of you caught up in a similar case, you may find the research reflected in the Appellant's winning Initial Brief on appeal helpful.

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Griffith v. Slade, 95 So.3d 982 (Fla. 2d DCA August 22, 2012) 

Contesting durable powers of attorney (DPOA's) is the kind of case that usually ends up on a probate litigator's desk. Probate matters are all in rem proceedings. Since in rem proceedings aren't based on personal jurisdiction, probate litigators (like me) get used to litigating cases without ever having to go through the trouble of personally serving anyone. Here's the problem: this mindset can be a trap when you run across a case that "feels" like a probate matter, but isn't. Prime example: DPOA litigation.

Is personal service of process needed to challenge a DPOA? YES.

When family members contest a DPOA's validity, it's usually a thinly-veiled inheritance dispute. This means these cases look and feel a lot like your standard probate case. They're not. One big difference: DPOA cases are NOT in rem proceedings; you need to personally serve opposing parties if you want your winning court order to mean anything. In the linked-to case above the contesting parties skipped this step, relying instead on the old probate standby: service by certified mail. This cut-to-the-chase approach may have worked with the trial judge, but it fell flat on appeal. Here's why:

[In this case], neither a summons nor other process was issued, and service of process was not accomplished. Griffith was sent a “Notice of Hearing” via certified mail. Although Florida Rule of Civil Procedure 1.070(i) provides that defendants may accept service of process by mail and waive formal service, the rule has strict requirements that were not followed here. For example, there is no evidence in the record that the “Notice of Hearing” was accompanied by the petition, requested that Griffith waive service of a summons, or informed Griffith of the consequences of compliance or failure to comply with the request to waive service. See [Shurman v. Atl. Mortg. & Inv. Corp., 795 So.2d 952, 954 (Fla.2001)]. Significantly, “[a] judgment entered without service of process is void and will be set aside and stricken from the record on a motion at anytime.” Myrick v. Walters, 666 So.2d 249, 250 (Fla. 2d DCA 1996) (quoting Kennedy v. Richmond, 512 So.2d 1129, 1130 (Fla. 4th DCA 1987)) (alteration added).

We have also considered the possible effect of the notice requirements contained in section 709.08, Florida Statutes (2010)[FN1]. Section 709.08(5) provides in pertinent part as follows:

(a) A notice, including, but not limited to, a notice of revocation, notice of partial or complete termination by adjudication of incapacity or by the occurrence of an event referenced in the durable power of attorney, notice of death of the principal, notice of suspension by initiation of proceedings to determine incapacity or to appoint a guardian, or other notice, is not effective until written notice is served upon the attorney in fact or any third persons relying upon a durable power of attorney.

(b) Notice must be in writing and served on the person or entity to be bound by the notice. Service may be by any form of mail that requires a signed receipt or by personal delivery as provided for service of process. Service is complete when received by interested persons or entities specified in this section and in chapter 48, where applicable.

The statute does not contemplate an alternative method for service of process, but rather it addresses the notice referenced by section 709.08(4)(a), which provides: “Any third party may rely upon the authority granted in a durable power of attorney that is not conditioned on the principal's lack of capacity to manage property until the third party has received notice as provided in subsection (5).” In other words, a notice may be issued that informs the recipient that a person may no longer have authority to act pursuant to a power of attorney. However, such notice is not sufficient to bring a person within the jurisdiction of a court for legal proceedings. Indeed, nothing in the statute suggests that it may be used instead of service of process to bring a person before the court.

Although we acknowledge the circuit court's concern over the alleged behavior of Griffith, “[p]rocedural due process requires that each litigant be given proper notice and a full and fair opportunity to be heard.” Carmona v. Wal–Mart Stores, E., LP, 81 So.3d 461, 463 (Fla. 2d DCA 2011). Griffith was afforded neither.

Because service of process was never properly accomplished or waived, we reverse the order terminating Griffith's power of attorney and the order denying her motion to strike and set aside the order terminating her power of attorney. 

[FN1]: In 2011, the Florida Legislature substantially revised and renumbered Chapter 709, and repealed sections 709.01, 709.015, 709.08 and 709.11. Ch.2011–210, § 33, at 3273, Laws of Fla. (2011) [click here]. These changes became effective on October 1, 2011, and are not applicable to the case at bar. 

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Bishop v. Estate of Rossi, --- So.3d ---- 2013 WL 132449 (Fla. 5th DCA January 11, 2013)

In Fla. Patient's Comp. Fund v. Rowe, 472 So.2d 1145 (Fla.1985), the Florida Supreme Court adopted the federal "Lodestar" method for determining the amount of reasonable attorney's fees and costs in contested proceedings. However, our supreme court also made clear that "how" trial judges go about explaining the reasons for their fee orders is just as important as what their ultimate rulings are. If a fee order's going to get reversed, it's almost always because the trial judge got the "how" part wrong.

How to draft attorney's fees and costs orders that won't get reversed on appeal:

In Fla. Patient's Comp. Fund the court held that the only way a trial judge can assure parties that the amount of attorney's fees/cost they're paying was determined in a just, objective and uniform manner is to enter orders containing detailed findings of fact as to the appropriate:

1. hourly rate,
2. number of hours reasonably expended, and
3. the appropriateness of reduction or enhancement factors listed in Rule 4-1.5(b) of the Rules of Professional Conduct.

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 the reasons why (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 (a contested probate proceeding) applying the fee-shifting rule found in Probate Rule 5.080, and why the order was reversed:

In awarding attorney's fees, the trial court made two distinct findings; first, entitlement to fees and, second, the reasonable amount of such fees. Entitlement to attorney's fees is largely a question of law. While specific factual findings are helpful when reviewing a determination of entitlement, such findings are not essential where, like here, “entitlement to attorney's fees is based on the interpretation of contractual provisions ... or a statute ... as a pure matter of law....” Hinkley v. Gould, Cooksey, Fennell, O'Neill, Marine, Carter & Hafner, P.A., 971 So.2d 955, 956 (Fla. 5th DCA 2007).

However, where the court sets the amount of the fee, “[t]he law is clearly established that an award of attorney's fees ‘must ... contain express findings regarding the number of hours reasonably expended and a reasonable hourly rate for the type of litigation involved.’” Quality Holdings of Fla., Inc. v. Selective Invs., IV, LLC, 25 So.3d 34, 37 (Fla. 4th DCA 2009) (citations omitted) (emphasis added). This lodestar method of determining reasonable attorney's fees, adopted by our state Supreme Court in Florida Patient's Comp. Fund v. Rowe, 472 So.2d 1145 (Fla.1985), applies equally to probate matters. See In re Estate of Platt, 586 So.2d 328, 335 (Fla.1991). Because the trial court here did not make written findings in the order in which it awarded $9,870.00 worth of attorney's fees against Bishop, it is not possible to ascertain from the face of the order whether the trial court considered and determined the reasonable number of hours expended and the reasonable hourly rate(s). 

Mitchell v. Mitchell, 94 So.3d 706 (Fla. 4th DCA August 15, 2012)

Our state court system is overworked and under-resourced. The probate bench is no exception. So if a probate judge believes some's asking for excessive attorneys fees, the temptation is to simply cut the request by a certain % and call it a day. Understandable, but counter to the full-disclosure ethos underlying Florida Patient's Comp. Fund. If a judge is going to cut your fees, same rules apply: NO detailed findings of fact explaining the reasons why = REVERSAL.

This case involved a contested guardianship proceeding in which the probate judge cut one co-guardian's attorney's fee request by 40% in an order that didn't contain detailed findings of fact explaining the reasons why. Maybe a 40% cut was the right call, maybe it wasn't. Under Florida Patient's Comp. Fund it doesn't matter if the order doesn't contain detailed findings of fact explaining itself. By the way, also note the parting reference to the need for itemized "cost" findings.

[T]he trial court's order contains insufficient findings; it does not comply with the requirement that the court make express findings regarding the number of hours reasonably expended and a reasonable hourly rate for the type of litigation involved. Furthermore, the trial court's order fails to explain the basis for a reduction in fees which the court determined was for “multiple lawyers on the same matter.” While this reduction may have been warranted, the trial court should make a specific finding explaining which work was duplicative. The mere fact that both a partner and an associate appeared at a particular proceeding does not necessarily mean that their work was duplicative.

Although the trial court utilized the correct legal standard in concluding that the legal services must be beneficial to the ward to be compensable, see § 744.108, Fla. Stat. (2010), Thorpe v. Myers, 67 So.3d 338, 345 (Fla. 2d DCA 2011), on remand, the trial court should make a specific finding as to which fees and costs were non-compensable on this ground. The trial court's conclusion that only 60% of the services of the father's attorneys benefitted the ward was not supported by any specific findings. In short, “[t]he circuit court's order must set forth the basis for the award, including the hours determined to be compensable, the hourly rate, and the other factors considered in arriving at the award.” Id. at 346. Additionally, as appellant points out, the order failed to itemize the costs allowed. On remand, the trial court “must also itemize the costs allowed.” Id.

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For the first time in over a decade we have permanent federal estate and gift tax rules.

For those of us who didn't make it to the Heckerling conference in Orlando this year (including me, I usually go every other year), you'll want a quick and easy way to explain what the heck happened to the estate and gift tax after the fiscal cliff deal. There's no shortage of folks willing to give you their two cents on the subject, but separating the wheat from the chaff can be challenging.

So I was happy to run across an article by Forbes staff writer Deborah L. Jacobs entitled After The Fiscal Cliff Deal: Estate And Gift Tax Explained. Ms. Jacobs does a good job of explaining the new law in the type of plain English, question-and-answer format, clients like to hear; but she's also thorough enough to keep an audience of lawyers and CPA's interested. Good stuff, highly recommend it. Here's an excerpt.

Who has to pay federal estate tax? Once you’re worth more than a certain amount, taxes shrink your estate. Under the 2010 tax law, we can each transfer up to $5 million tax-free during life or at death. That figure is called the basic exclusion amount, and it is adjusted for inflation. In 2012 it was raised to $5.12 million per person. The new tax law does not change how much you can pass tax-free. On Jan. 11 the IRS announced that, with the inflation adjustment, the estate tax exclusion amount for deaths in 2013 would be $5.25 million.

Do spouses have to pay the tax when they inherit from each other? The new law doesn’t change this either. There is an unlimited deduction from estate and gift tax that postpones the tax on assets inherited from each other until the second spouse dies. This marital deduction, as it is called, applies only if the inheriting spouse is a U.S. citizen.

How much can the second spouse pass tax-free? Here’s where things get a bit complicated — but in a good way. The 2010 tax law gave married couples a wonderful tax break, which the new law has made permanent. Widows and widowers can add any unused exclusion of the spouse who died most recently to their own. This enables them together to transfer up to $10.5 million tax-free. Tax geeks call this portability.

. . .

How does this relate to lifetime gifts? The lifetime gift tax exclusion and the estate tax exclusion are expressed as a total amount – currently $5.25 million per person – and it is possible to use this exclusion (sometimes called the “unified credit”) to transfer assets at either stage or a combination of the two. If you exceed the limit, you (or your heirs) will owe tax of up to 40%.

. . .

Are there lifetime gifts that don’t count? Absolutely, and this is a common source of confusion. We can each give another person $14,000 per year without it counting against the lifetime exemption. (The amount went up at the end of 2012, as I reported here.) Spouses can combine this annual exclusion to double the size of the gift. Don’t confuse it with the basic exclusion–that $5.25 million discussed above.

Added Bonus:

For those of you who live for tax stat's, you'll want to read this recently published Congressional Research Service summing up the economics of the current state of affairs as follows:

Compared with the $1 million exemption and 55% rate under pre-EGTRRA law, the new rules lose an average of about $37 billion over the next 10 years, a two-thirds reduction in estate tax revenues. Regardless of the exemption levels considered, few estates are affected by the tax. The estate tax is a highly progressive tax, with about three-fourths collected from estates in which decedents are in the top 1% of the income distribution. At a $5 million exemption, less than 0.2% of estates will be subject to the tax. Although concerns have been raised about the effects of the tax on small businesses and farmers, estimates indicate that only a small share of these decedents would be affected.

. . . . .

Only a small portion of high-income decedents would be affected by the tax under the $5 million exemption.

• The estate tax will affect less than 0.2% of decedents over the next decade.

• The estate tax is concentrated among high income taxpayers: 96% is paid by the top quintile, 93% by the top 5%, 72% by the top 1%, and 42% by the top 0.1%.

• About 0.2% of estates with half or more of their assets in businesses will be subject to the estate tax.

• About 65 farm estates (or approximately one per state) are projected to be subject to the estate tax, and constitute 1.8% of taxable estates. Less than a fourth (0.4%) is projected to have inadequate liquidity to pay estate taxes. Less than 1% (0.8%) of farm operator estates is projected to pay the tax.

• About 94 estates (about two per state) with half their assets in small business and who expect their heirs to continue in the business are projected to be subject to the estate tax; they constitute 2.5% of total estates. Less than a half (1.1%) is projected to have inadequate liquidity to pay estate taxes.

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Brennan v. Honsberger, --- So.3d ----, 2012 WL 5969617 (Fla. 5th DCA November 30, 2012) 

This is the second time this case has been up on appeal. The first time around the issue 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 it's OK. As I previously wrote here, the 5th DCA held that live witness testimony is required, it's NOT optional.

OK, so now we know affidavits aren't going to cut it; you need live witness testimony. But not just any old witness will do, under F.S. 733.207 your witness [1] must be "disinterested," and, just as importantly, [2] your witness must have firsthand knowledge of the "specific content" of the lost will. As the 2d DCA recently held in Smith v. DeParry [click here], if you don't nail both requirements, your lost will is going to stay lost.

Now back to our case. On remand, the trial judge again admitted the lost will to probate, this time based on witness testimony. So far so good. Here's what didn't happen: the witnesses had nothing to say about the content of the will they witnessed. Not surprisingly, the 5th DCA once again reversed the trial judge (is there a pattern here?). Bottom line, if your witness can't testify to the content of the lost will, game over:

On remand, the trial court conducted an evidentiary hearing at which Ms. Kessinger and Ms. Liles testified. Although both witnesses testified (consistent with their previously submitted affidavits) as to the execution of the will, neither had knowledge of its content.

In our prior opinion, we stated that as the proponent of a lost will, Ms. Honsberger was required to present the testimony of at least one disinterested witness to establish its content. Id. at 897. Because Ms. Honsberger failed to do so, the trial court erred in admitting the 2002 will to probate.

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Jasser v. Saadeh, 97 So.3d 241 (Fla. 4th DCA July 18, 2012)

Karim Saadeh, now in his eighties, emigrated from Jordan with his wife and lived the American dream: he raised a family of three children and became a very successful businessman. Saadeh and his wife were wealthy at the time of his wife's death in 2007. After his wife's death, Saadeh met a younger woman through one of his wife's relatives. Apparently, his children weren't happy about the new girlfriend. When they found out he was loaning her money, they took matters into their own hands, admittedly transferring "over a million dollars" from his bank accounts (they had co-signing authority) to accounts they controlled alone. And according to their father, that's not all they did:

Saadeh was upset when he discovered that his children had drained his accounts. Around the same time, he discovered that substantial money and jewelry located in a safe were missing. Because his children had the combination to his safe, he suspected that they had likewise taken these assets. He called the police, who then made a report of the theft. In the report, the children denied taking the money and jewelry from the safe; however, they admitted transferring the monies from the bank accounts. The police report states that the officer found that Saadeh appeared in control of his faculties. Still angry about what he considered his children's deceit, Saadeh removed his remaining funds from the bank to prevent his children from acquiring more of his money.

If you're wealthy, old, your memory is failing (whose isn't?), and your children are worried about your new girlfriend getting her hands on "their" inheritance, here are the facts of life:

1. At some point one or all of your children will probably sue to have you adjudicated mentally incapacitated (which means you lose control of your money); and
2. No matter what you've heard about how totally screwed up a guardianship proceeding can get if there's enough money at stake . . . real life can be far worse. This dog's breakfast of a case is a prime example.

When Saadeh's lawyer sent his children a letter demanding they return their father's money and presumably also threatening an "or else" (and yes, there is an "or else," click here, here), they fought back by (surprise!) filing a petition to have dad adjudicated incapacitated.

For reasons not important to the ultimate outcome of this case, the judge authorized two separate rounds of examining committee evaluations. That's six separate examiners. One died before he could submit his report (again, how/why is not important to the case). Here's the important part: the other five examining committee members were unanimous . . . Saadeh was legally competent. Unfortunately, dad was put through the ringer before exiting a free man at the other end of this case.

The "prisoner's dilemma" as metaphor for settlement agreements in guardianship litigation:

In trusts and estates litigation parties are eventually confronted with the following stark reality: it doesn’t matter how “right” you are, the costs, heartache, and uncertainties inherent to actually litigating your case through to trial can be worse than simply paying the other side to make it all go away. That’s the choice Saadeh was presented with by his children: agree to our terms and get your life back. The way the deal was structured was that Saadeh would sign a trust agreement and other documents transferring all of his earthly belongings to an irrevocable trust controlled by a third party trustee. Under the trust agreement Saadeh was the sole lifetime beneficiary and his children were the remainder beneficiaries. In other words, to get his life back, dad had to agree to an immediate irrevocable gift of a remainder interest in all he owned to his children and he had to agree to give up control of his own money for the rest of his life.

Here’s how the standard settlement logic breaks down in guardianship litigation. As a matter of law, while dad is subject to a guardianship he lacks the legal right to contract (the guardianship strips him of that right). Because dad can’t sign a contract, his children have no legal certainty he’ll live up to his side of the bargain until after they’ve agreed to terminate the guardianship. In other words, all sides have to trust each other. The “dilemma” faced by the parties is that, whatever the other does, each is theoretically better off reneging on its side of their non-legally-binding bargain (dad can take 100% of his property back once the case is dropped; children can be 100% sure dad can never take his property back by keeping the guardianship in place indefinitely after dad signs trust). However, assuming a fair deal, the outcome obtained if both sides renege is worse for everyone (no one’s guaranteed to get what they want; litigation continues) than the outcome obtained if both sides honor their bargain (both sides guaranteed to get some of what they want; end of litigation). This is a classic example of the “prisoner's dilemma.” This kind of deal is based on trust (not a binding contract), so it won’t work if one side believes it wasn’t treated fairly or was pressured into something it never really wanted. Unfortunately, that’s what happened in this case.

According to the 4th DCA, when the trial court entered an order authorizing the trust "it was not informed of catastrophic gift tax consequences if the trust was created, nor was it informed that the trust could not be revoked by Saadeh himself." Also, although the facts surrounding creation of the trust were "disputed," Saadeh: 

. . . continually testified that he was misled as to the terms of the trust and that his execution was not voluntary. He was told that the execution of the trust was the only way he could end the guardianship proceedings and get his life back to normal. . . .

[Saadeh's] court-appointed attorney . . . admitted that he told him that if he signed the trust, the proceedings would be over.

After Saadeh's legal rights were reinstated he, not surprisingly, attacked the trust he'd signed prior to termination of the guardianship proceeding. Again not surprisingly, the trial court ruled in his favor. According to the trial judge the trust was void because at the time Saadeh signed the trust agreement he lacked the legal right to pretty much do anything . . . including signing a contract. Here's how the 4th DCA connected the legal dots:

We agree with the trial court that when the court conferred the ward's rights on the ETG, it removed them from the ward; both cannot simultaneously exercise those rights. Section 744.3031(1) provides that the court shall specify the rights to be exercised by the ETG. In this case, the order delegated to the ETG all legal rights, reserving only the right to vote to the ward. Thus, the court removed the ward's right to contract. The fact that the court removed his right to contract was specifically discussed not only in the original hearing appointing the ETG but in almost every other hearing thereafter.

. . .

As found by the trial court in granting summary judgment, at the time of the execution of the trust, the right to contract had been removed from Saadeh, as the parties acknowledged to the court the day that the trust was signed. Section 736.0402(1), Florida Statute (2008), provides that “[a]trust is created only if: (a) the settler has capacity to create a trust.” § 736.0402(1)(a), Fla. Stat. (2008) (emphasis added). Thus, because Saadeh had no legal right to execute the trust, the trust was invalid and void. The trial court's ruling was correct. 

Jasser v. Saadeh, --- So.3d ----, 2012 WL 6601383 (Fla. 4th DCA December 19, 2012)

I’m guessing Saadeh's children were caught flat footed by their father’s success in unwinding a “deal” they probably believed was final. If dad were a regular litigant, they’d be right: settling parties are bound by the deals they agree to. But dad wasn’t a regular litigant; he was the “ward” of the court-appointed ETG. You can’t have it both ways in guardianship litigation. Either the ward is incapacitated or he’s not. He can’t be incapacitated for purposes of the threat of ongoing litigation, but NOT incapacitated for purpose of your settlement agreement. Anyway, not willing to leave well enough alone, the children filed a separate declaratory judgment action seeking to force dad to live by the trust agreement the judge had just set aside in the guardianship proceeding. Again the trial judge ruled against them, this time on res judicata grounds. In a separate opinion linked-to above, the 4th DCA again sided with the trial judge. Here’s why:

This Court has explained that “[f]our identities are required for res judicata to be applicable to a case: ‘(1) identity of the thing sued for; (2) identity of the cause of action; (3) identity of the persons and parties to the actions; and (4) identity of the quality or capacity of the persons for or against whom the claim is made.”’ Tyson v. Viacom, Inc., 890 So.2d 1205, 1209 (Fla. 4th DCA 2005) (quoting Freehling v. MGIC Fin. Corp., 437 So.2d 191, 193 (Fla. 4th DCA 1983)).

In this action all four identities are present. As to identity of the thing sued for, the children sued to establish the validity of a trust over the assets of their father in both the prior proceeding and this proceeding. As to identity of the cause of action, they sought a declaratory judgment to determine the validity of the trust executed by Saadeh and the management of the trust assets. At the least, the claims they raise in the second suit could have been brought in the first suit and could have been properly litigated in that suit.

As to the identity of the persons and parties to the action, in the first case, they sued individually, and in this case they sued in their capacity as trustees. “The term ‘parties' has frequently been given a much broader coverage than merely embracing parties to the record of an action[.]” Seaboard Coast Line R.R. Co. v. Indus. Contracting Co., 260 So.2d 860, 863 (Fla. 4th DCA 1972). As the supreme court explained later, “[f]or one to be in privity with one who is a party to a lawsuit or for one to have been virtually represented by one who is party to a lawsuit, one must have an interest in the action such that she will be bound by the final judgment as if she were a party.” Stogniew v. McQueen, 656 So.2d 917, 920 (Fla.1995) (citing Se. Fid. Ins. Co. v. Rice, 515 So.2d 240 (Fla. 4th DCA 1987)). The children, as trustees, fit within that broad definition. While the children also added their father's corporation as a defendant because it was an asset of the void trust, it too can be considered a party for res judicata purposes.

Finally, the quality and capacity of the persons for and against whom the claim is made remain the same. In this case, the “real party in interest” on each side remained the same. We conclude that the court did not err in dismissing on the ground of res judicata.

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Shuck v. Smalls, --- So.3d ----, 2012 WL 6027820 (Fla. 4th DCA December 05, 2012)

In civil litigation you usually have years to file your complaint: most statute of limitations periods fall within the 2-6 year range. Not surprisingly, most civil litigators assume the same rules apply to probate litigation. Big mistake! For example, under F.S. 733.212(3) you've only got 3 months to file a will contest after you've been formally served with the petition for administration. This ultra-short limitations period is a huge trap for the unwary and - not surprisingly - a recurring topic on this blog [click here, here].

Can the 5-day mail rule buy you more time to file your will contest? NO

When you miss a filing deadline by just a few days, the 5-day grace period for mailed service under Probate Rule 5.042(b) can be a life saver. Not so for will contests. Why? Because the 5-day mail rule doesn't apply to pleadings and motions served by formal notice. In this case the petition for administration was served by certified mail on the will challengers. This counts as formal notice. Bottom line: no 5-day grace period. So saith the 4th DCA:

In this case, appellants' petition challenging the will and the qualifications of the personal representative were untimely under section 733.212(3), Florida Statutes. On February 10, 2006, counsel for Smalls served the Notice of Administration by certified mail on appellants Charles Shuck, Carol Shuck, and Sandra Walker. Charles and Carol Shuck received the Notice of Administration on February 13, 2006, and Sandra Walker received it on February 14, 2006. However, appellants' petition was not filed until May 19, 2006, which was over three months after the Notice of Administration.

Appellants suggest that their petition was timely because Florida Probate Rule 5.042 (2006) provided for an additional five-day grace period because service was achieved by mail. This argument is without merit. The relevant version of rule 5.042(d) provides:

(d) Additional Time After Service by Mail. Except when serving formal notice, or when serving a motion, pleading, or other paper in the manner provided for service of formal notice, when an interested person has the right or is required to act within a prescribed period after the service of notice or other paper on the interested person and the notice or paper is served by mail, 5 days shall be added to the prescribed period.

Fla. Prob. R. 5.042(d) (2006) (emphasis added).

Here, the Notice of Administration was served on appellants by formal notice. Because appellants received formal notice, the five-day grace period provided by rule 5.042 was inapplicable and the three-month limitations period expired before the petition was filed.

Can filing a time-barred will contest get you (and your lawyer) sanctioned under 57.105? YES 

In this case the parties challenging the will somehow managed to convince the trial judge to give them a pass on their time-barred will contest; the trial court denied a motion to dismiss. At the time, this probably felt like a big win. Not so in retrospect. According to the 4th DCA, just because you managed to pull a fast one on your trial judge at the beginning of the case doesn't mean you get a free pass from then on.

Because the petition was clearly time-barred, we agree with appellees' argument on cross-appeal that the trial court abused its discretion in failing to award section 57.105 attorney's fees from the inception of the case. Cf. Zweibach v. Gordimer, 884 So.2d 244 (Fla. 2d DCA 2004) (a time-barred claim may expose a party to an award of fees under section 57.105). Even though appellants were able to persuade the trial court to deny the motion to dismiss, this does not change the fact that their claims were clearly time-barred and were objectively frivolous at the inception of the case. That appellants were able to convince the trial court to make a legally incorrect ruling on the motion to dismiss should not shield them from liability under section 57.105.

Also, because the case was time barred, the attorneys should have known better . . . which means they're personally on the hook for 50% of the $441,500 in attorney's fees, plus cost and expert witness fees ultimately awarded against their clients. Here's why:

Finally, we note that section 57.105(1), Florida Statutes (2007), shifts attorney's fees and costs to “a losing party and the losing party's attorney” in equal amounts when the court finds that a claim or defense was not supported by the material facts necessary to establish it, or that it would not be supported by applying then-existing law to those material facts. However, the losing party's attorney is not personally responsible if he or she has acted in good faith, based on the representations of his or her client as to the existence of those material facts. Id. “Fees must be assessed against counsel as provided by statute unless the attorney can show good faith. This places the burden where it should be.” Horticultural Enters. v. Plantas Decorativas, LTDA, 623 So.2d 821, 822 (Fla. 5th DCA 1993).

In this case, the fees awarded under section 57.105 presumptively should have been awarded against both appellants and their counsel. Furthermore, because appellants' claims were time-barred, this precludes appellants' attorneys, as a matter of law, from asserting any good faith reliance upon the representations of their clients.

Does a sanctions order under F.S. 57.105 = a fee-shifting order under F.S. 733.106(4)? YES

Under F.S. 733.106(4) a probate judge can shift the cost of litigating frivolous probate claims against the losing side's share of the inheritance by directing "from what part of the estate they shall be paid." As I wrote here, according to the 4th DCA "this section does not give the trial court unbridled discretion to award fees from any part of the estate," so it's reversible error to shift legal fees under F.S. 733.106(4) in the absence of a finding of "bad faith, wrongdoing, or frivolousness."

In this case the losing side tried to get the fee-shifing order under F.S. 733.106(4) reversed because the judge didn't make a specific finding of "bad faith, wrongdoing, or frivolousness." True enough, said the 4th DCA, but this kind of finding is basically implied any time a judge sanctions you under F.S. 57.105. So if you're already getting sanctioned under that statute, the specific findings needed for a fee-shifting order under F.S. 733.106(4) are satisfied by default. Bottom line: if you're getting nailed with a 57.105 sanction in a probate case, expect to also get it under 733.106(4). Here's why:

Section 733.106(4), Florida Statutes (2007), provides that “[w]hen costs and attorney's fees are to be paid from the estate, the court may direct from what part of the estate they shall be paid.” In In re Estate of Lane, 562 So.2d 352, 353 (Fla. 4th DCA 1990), however, we limited a trial court's discretion under section 733.106(4) to circumstances in which the will contestant engaged in “bad faith or wrongdoing.” FN3 More recently, we reaffirmed the bad faith requirement pronounced in Lane, but clarified that frivolous litigation would support an assessment of fees under section 733.106(4). See Geary v. Butzel Long, P.C., 13 So.3d 149, 153 (Fla. 4th DCA 2009).

Appellants contend that the trial court should not have awarded fees against only their share of the estate under section 733.106(4), because the trial court did not make any specific finding that appellants' claims were frivolous or filed in bad faith. However, because we have concluded that appellants' claims were frivolous from their inception, this is sufficient to satisfy the “bad faith or wrongdoing” requirement of Lane. See Geary, 13 So.3d at 153. Thus, the trial court did not abuse its discretion in assessing fees against appellants' share of the estate under section 733.106(4).

FN3. Although the Florida Supreme Court did not specifically mention a “bad faith” requirement when it discussed section 733.106(4) in Carman v. Gilbert, 641 So.2d 1323, 1326 (Fla.1994), we do not read Carman as explicitly or implicitly overruling Lane. The issue of whether Lane correctly interpreted section 733.106(4) was not before the court in Carman.

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Jacobson v. Sklaire, --- So.3d ----, 2012 WL 1414447 (Fla. 3d DCA April 25, 2012)

Will I personally have to pay the other side's legal fees if I lose this lawsuit?

That's a question we usually don't have to grapple with because Florida, like the rest of the U.S., follows the "American rule": win or lose, all sides pay their own legal fees unless there's specific statutory (or contractual) authority saying otherwise. For trustees, the prospect of being personally liable for an opposing party's legal fees is doubly remote. They usually don't even have to pay their own legal fees (the trust is usually on the hook for that expense), let alone someone else's.

Everyone pays their own legal fees, and trustees get to pay their fees from trust assets. That's the norm, and where you need to start from if you're representing a trustee in any litigation. But you can't stop there. From beginning to end, each decision made in any case involves its own distinct litigation risk analysis. And one of the biggest risks trustees will want managed/analyzed in any case is personal liability for legal fees. So if your trustee client is facing the prospect of litigation, he needs to know that NO, trustees don't always get their legal fees paid from trust assets [click here], and YES, he could be personally liable for a beneficiary's legal fees if the case is lost. It's this second risk your trustee clients will probably find most surprising, and it's also the focus of the 3d DCA opinion linked-to above.

Can a trustee be personally liable for a beneficiary's legal fees in a breach of trust lawsuit?

It doesn't happen often, but under F.S. 736.1004 it is possible for a trustee to end up being personally liable for a beneficiary's legal fees, which is what happened in this case. Here's how the 3d DCA summed up the operative facts and its ruling in three short paragraphs:

Jacob Sklaire died in 2004. He created the Jacob Sklaire Trust, in which he gifted to his wife, Joyce [the Beneficiary], $475,000. At his death, the Trust contained approximately $636,000. Michelle and Aline, daughters, are Co–Trustees and remainder beneficiaries of the Jacob Sklaire Trust. After Jacob died, the Co–Trustees refused to distribute the gift to the Beneficiary, who then filed a complaint to compel distribution of the gift from the Trust. The Co–Trustees answered, asserting defenses of lack of capacity, undue influence and fraud, and counterclaimed for funds allegedly wrongfully taken by the Beneficiary from trust assets during Jacob's life. The trial court denied the affirmative defenses and dismissed the counterclaim with prejudice. The Beneficiary prevailed at trial, and the trial court awarded her costs and fees from the Trust. The Co–Trustees appealed the final judgment and this Court affirmed.

The Co–Trustees thereafter agreed to an order taxing the Beneficiary's costs against the Trust, and agreed to pay the Beneficiary's attorney's fees from the Trust. The Co–Trustees had, however, without court approval paid their own attorney's fees out of the same Trust during the course of the litigation, counterclaim and appeal, leaving less than necessary to pay the Final Judgment and orders on attorney's fees and costs. The Beneficiary filed motions to compel payment, and moved to hold the Co–Trustees personally liable for the amounts, asserting breach of fiduciary duty. The trial court awarded the Beneficiary's appellate fees and costs against the Trust and deferred ruling on the Co–Trustees' individual liability.

The bulk of the money that was improperly diverted from the Trust was ultimately repaid by the Co–Trustees' original law firm, and by the Co–Trustees themselves. There were, however, insufficient funds left in the Trust to completely satisfy a balance of about $112,000 remaining from the original amounts ordered repaid, i.e., what was improperly removed from the Trust originally, plus attorney's fees, plus post-judgment interest. Following an evidentiary hearing, the trial court rendered the order on appeal here, which found that the Co–Trustees in this breach of trust action were jointly and severally liable to the Beneficiary for attorney's fees and costs pursuant to [F.S. 736.1004]. Finding no error, we affirm.

Does there have to be a finding of "bad faith, wrongdoing, or frivolousness" before a court can shift fees under F.S. 736.1004?

The probate code version of F.S. 736.1004 is F.S. 733.106. Most trusts and estates litigators would consider these statutes as being analogous, with the only difference being one applies in trust actions and the other in probate proceedings. Under F.S. 733.106, a probate judge can shift fees against the losing side by directing "from what part of the estate they shall be paid." As I wrote here, according to the 4th DCA "this section does not give the trial court unbridled discretion to award fees from any part of the estate," so it's reversible error to shift legal fees under F.S. 733.106 in the absence of a finding of "bad faith, wrongdoing, or frivolousness." This precondition doesn't appear anywhere within the text of the statute, but according to the 4th DCA it's necessary for the reasons explained in Geary v. Butzel Long, P.C., 13 So.3d 149 (Fla. 4th DCA 2009):

In In re Estate of Lane, 562 So.2d 352 (Fla. 4th DCA 1990), we examined the propriety of a probate court's order assessing attorney's fees from a will contest proportionally against the specific beneficiaries as well as the residuary estate. We noted that section 733.106(4), Florida Statutes, permits the court to direct from what part of an estate a fee assessment shall be paid (just as section 733.6175(2) does). However, we explained:

This section does not give the trial court unbridled discretion to award fees from any part of the estate. Before the trial court may assesses fees against a beneficiary's share of an estate there must be a finding of bad faith or wrongdoing by the beneficiary or other circumstances which would warrant such an assessment.

Id. at 353. Despite our use of “bad faith and wrongdoing,” we relied on and agreed with Cohen v. Schwartz, 538 So.2d 922 (Fla. 3d DCA 1989), in which the court suggested that in trying to close a prolonged estate, the trial court could assess attorney's fees against a beneficiary's portion of the estate for frivolous litigation consistent with section 733.106(4). We agree that if the litigation pursued is frivolous, then the court would have the authority under that section to assess fees against a specific beneficiary's portion of the estate.

We don't know if the trial court in the Sklaire case predicated its fee-shifting ruling on a finding of "bad faith, wrongdoing, or frivolousness," nor do we know if the issue was even addressed by the litigants in their appellate briefs. It's simply not mentioned in the 3d DCA's opinion. However, given the amount of attention the 4th DCA's F.S. 733.106 rulings have attracted in certain probate Bar circles (a lot!), I think it's only a matter of time before someone argues the same precondition should apply to F.S. 736.1004. Unlike the 4th DCA's critics, I don't think this is a big deal.

As a practical matter, most trial judges aren't going to assess legal fees against a losing party unless someone's really made a mess of things or gone way beyond the bounds of acceptable behavior. So if your trial judge is inclined to assess fees, he or she is probably not in a good mood to begin with, which means it shouldn't be all that difficult to also get a finding of "bad faith, wrongdoing, or frivolousness" if you ask for it. So why not ask? If your fee order gets appealed, you'll be glad you did.

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Hirchert Family Trust v. Hirchert, --- So.3d ----, 2011 WL 2415787 (Fla. 5 Dist. Jun 17, 2011)  

The one crack in the almost impenetrable shield protecting Florida homestead property from creditors is the amorphous "equitable lien" doctrine. In In re Gosman, 2007 WL 707365 (Bankr.S.D.Fla. Mar 05, 2007), the bankruptcy court articulated the following two-part test for determining "the very narrow circumstances warranting the imposition of an equitable lien" on homestead property under Florida law:

1. that the money was obtained fraudulently or through egregious conduct, and
2. that the money obtained was utilized to invest in, purchase or improve the targeted homestead property.

Does a trustee's breach of fiduciary duty = "fraud" for equitable lien purposes? YES!

What's interesting about the linked-to case above, especially for trusts and estates litigators, is that the 5th DCA held that a trustee's breach of fiduciary duty is a form of "constructive fraud" warranting imposition of an equitable lien on the trustee's Florida homestead property if, as happened in this case, the money obtained as a result of the breach was used to invest in, purchase or improve the targeted homestead property.

Contrary to the trial court's conclusion, we believe that a breach of fiduciary duty is “constructive fraud” and thus may form the basis to apply the exception to the homestead protection. As this court explained in First Union National Bank of Florida v. Whitener, 715 So.2d 979, 982 (Fla. 5th DCA 1998):

Constructive fraud is the term typically applied where a duty under a confidential or fiduciary relationship has been abused, or where an unconscionable advantage has been taken. Constructive fraud may be based on misrepresentation or concealment, or the fraud may consist of taking an improper advantage of the fiduciary relationship at the expense of the confiding party.

In Allie v. Ionata, 466 So.2d 1108, 1110 (Fla. 5th DCA 1985), this court further explained:

Florida courts have recognized that constructive fraud may exist independently of an intent to defraud. It is a term which is applied to a great variety of transactions that equity regards as wrongful, to which it attributes the same or similar effects of those that follow from actual fraud and for which it gives the same or similar relief.

(Emphasis added). 

So what can you do with an equitable lien on homestead property? THINK FORCED SALE

Once you're granted an equitable lien on homestead property, your judgment or "debt" is now secured to the extent of the value of the homestead property. This debt can be satisfied just like any other secured debt, subject to whatever equitable conditions your trial judge may impose. For example, you could obtain a court order compelling a sale of the targeted homestead property by a court-appointed receiver to satisfy the debt owed to you. That's what the plaintiff/successor trustee in the linked-to case did.

[T]he [trial] court entered a postjudgment order (“Postjudgment Order”) that is in essence a mandatory injunction requiring Appellee to convey the Kissimmee Property to a court-appointed Receiver, who was instructed to sell the property.

By the way, this type of enforcement order isn't an outlier. It's exactly the type of order you'd expect to get if your judge follows the approach accepted in most jurisdictions, as reflected in section 56 of Restatement (Third) of Restitution & Unjust Enrichment, comment "c":

Enforcement of equitable lien. An equitable lien has the ordinary characteristics of a lien for security, the obligation secured being the defendant's liability for unjust enrichment in the amount determined by the court. The lien is accordingly subject to the defendant's right of redemption: the lien may be discharged, and the property freed from the encumbrance, if the defendant pays the claimant the amount of the underlying liability. If the judgment is not satisfied, the claimant/lienholder can obtain a judicial sale of the property subject to lien, the proceeds being applied to the satisfaction of the defendant's obligation to the claimant. If the proceeds are inadequate for this purpose, the claimant has an unsecured claim against the defendant for the deficiency.

. . .

Restitution via equitable lien is a flexible and adaptable remedy, because the court that imposes the lien can establish whatever conditions to its enforcement (or “foreclosure”) may be appropriate in the circumstances of the case. In particular, an equitable lien that may be foreclosed only on stated conditions can be used to shield an innocent recipient from the prejudicial effect of personal liability in various circumstances. 

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Estate of Bates v. Comm'r, T.C. Memo. 2012-314, 2012 WL 5445778 (U.S.Tax Ct. Nov. 7, 2012)

While we know what the federal estate tax rules are until the end of 2012, what happens in 2013 and beyond is anyone's guess. Under current law the estate tax exemption is scheduled to drop significantly from $5,120,000 in 2012 to $1,000,000 in 2013, and the top estate tax rate is scheduled to jump from 35% to 55%.

At a top rate of 55%, the federal estate tax automatically makes the IRS the single largest creditor for most large estates. That's the bad news. Here's the good news: as I've previously explained here and here, with a reasonable amount of sensitivity to the tax issues looming in the background of every taxable estate, litigation can often be shaped to create win-win opportunities by mining the tax code for "free money" to settle cases.

Consider the economics of the settlement agreement reached in the Tax Court case linked-to above. In this case the estate settled a will/trust contest by paying the challenger approximately $500,000 to drop his claims. The decedent in this case died in 2005, when the top estate tax rate was 47%. If the $500,000 settlement is a tax deductible expense, the heirs get a 47% deduction = to $235,000. Bottom line, if done right a $500,000 settlement payment "costs" the heirs only $265,000 after taxes. This is the kind of math that gets deals done and makes probate litigators look like geniuses . . . or not.

When the estate filed its estate tax return, instead of characterizing the $500,000 settlement payment as a validly deductible creditor claim under IRC § 2053, the exact opposite was done. The payment was characterized as a NON-deductible payment to an estate beneficiary as follows:

FUNDS PAID TO REGGIE LOPEZ IN EXCESS OF BEQUEST BY DECEDENT IN SETTLEMENT OF TRUST CONTEST LAWSUIT TO SETTLE TITLE TO BENEFICIARIES

As explained by the Tax Court, there's no way this kind of payment was ever going to fly as an estate tax deduction.

The estate contends that the settlement payment to Mr. Lopez is deductible. Pursuant to section 2053(a)(3), a claim against an estate is deductible if it is supported by adequate consideration and not attributable to the testator's testamentary intent. See sec.2053(c)(1)(A); Estate of Huntington v. Commissioner, 100 T.C. 313, 316, 1993 WL 99962 (1993), aff'd, 16 F.3d 462 (1st Cir.1994); Estate of Lazar v. Commissioner, 58 T.C. 543, 553, 1972 WL 2476 (1972); Estate of Pollard v. Commissioner, 52 T.C. 741, 745, 1969 WL 1656 (1969). The settlement payment to Mr. Lopez is not deductible because the payment lacked adequate consideration and was consistent with decedent's testamentary intent. See sec.2053(c)(1)(A); Estate of Huntington v. Commissioner, 100 T.C. at 316; Estate of Lazar v. Commissioner, 58 T.C. at 553; Estate of Pollard v. Commissioner, 52 T.C. at 745.

In support of his determination, respondent cites Estate of Huntington and Estate of Lazar, where the Court concluded that settlement payments to beneficiaries were not deductible. The estate contends that these cases are distinguishable because the settlement payments were paid to family members. While the settlement payments in these cases were to family members, the Court's reasoning is equally applicable to cases involving nonfamily members. Decedent had a longstanding and extremely close relationship with Mr. Lopez, expressly provided that he would receive estate assets, and memorialized her testamentary intent in both the First Trust and the Second Trust. In addition, the superior court resolved the amount of estate assets that Mr. Lopez was entitled to receive, and the settlement payment was paid in full satisfaction of any claim relating to the First Trust or the Second Trust. Furthermore, on the estate tax return, the estate reported that Mr. Lopez was a beneficiary and the settlement payment was paid to settle title to beneficiaries. During decedent's lifetime Mr. Lopez was paid for the services he rendered, and no part of the settlement payment related to a claim for unpaid services. In short, Mr. Lopez's claim represented a beneficiary's claim to a distributive share of the estate rather than a creditor's claim against the estate. See Estate of Lazar v. Commissioner, 58 T.C. at 552. 

Lesson learned?

If you're dealing with a taxable estate, 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 is considered against this backdrop. Whether a dispute is resolved through litigation or settlement, the nature of the underlying action determines the proper tax consequences. The taxability of a settlement is controlled by the nature of the litigation. The nature of the litigation is in turn controlled by the origin and character of the claim that gave rise to the litigation. And it’s the parties – not the IRS – that ultimately control this initial link in the causal chain.

Is it possible to frame the same set of facts as either a creditor claim against the estate or a will contest? If the answer is yes, one type of case is tax deductible (creditor claim), the other isn't (will contest). Did the contestant's lawyer only prosecute the challenger's individual interests or did this lawyer help the estate properly administer the estate for everyone's benefit? If it's the former, no tax deduction; if it's the latter, challenger's legal fees may be tax deductible (think more free money to settle). Get these questions right, everyone wins. Get them wrong . . . not so good.

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Miami Children's Hosp. Found., Inc. v. Estate of Hillman, --- So.3d ----, 2012 WL 4795648 (Fla. 4th DCA October 10, 2012)

In April 2004 Elaine B. Hillman amended her trust, including the following charitable bequest:

TWENTY–FIVE PERCENT (25%) to MIAMI CHILDREN'S HOSPITAL FOUNDATION, CRANIAL/FACIAL FOUNDATION, located at 3000 S.W. 62nd Avenue, Miami, FL 33155, ATT: Dr. Anthony Wolf [sic].

In January 2006  -- almost two years later -- a new not-for-profit calling itself the Miami Care Foundation was incorporated. Ms. Hillman died on July 13, 2007. According to the 4th DCA, the Miami Care Foundation contested Miami Children's Hospital Foundation's claim to the charitable bequest on the following grounds:

Ms. Hillman wanted Dr. Wolfe to have the ability to direct and control the assets of the pourover trust and Dr. Wolfe was now the head of [the Miami Care Foundation].

Drafting error or ambiguity?

If "Ms. Hillman wanted Dr. Wolfe to have the ability to direct and control" her charitable bequest, her trust agreement could have easily been written to say so. It wasn't. To me, this sounds like a drafting error that could have been addressed under F.S. 736.0415, a Florida Trust Code provision I've previously written about here allowing judges to re-write or "reform" trust agreements to the extent needed to conform the text to the settlor's intent. A judge's authority under this statute goes way beyond simply fixing "typos". We know this because the statute specifically says a judge can reform a trust agreement even if the text is un-ambiguous. In other words, the key question is what's the settlor's intent, NOT whether the text is ambiguous. This last point is especially important in light of the 4th DCA's ultimate ruling in this case.

For reasons unexplained in the appellate opinion, the Miami Care Foundation chose to litigate its claim under an ambiguous-trust theory. OK, so maybe the clause as drafted wasn't a picture of clarity, but that alone doesn't get you to a legal finding of ambiguity (i.e., the document is open to more than one reasonable interpretation). The text was clear, it just didn't say what the settlor intended it to say.

At the trial court level the Miami Care Foundation won on the facts (the judge found in its favor on the issue of settlor intent), but on appeal the law caught up with it (no legal finding of ambiguity), resulting in reversal and the ultimate failure of its cause. Here's how the 4th DCA put it:

In Scheurer v. Tomberlin, 240 So.2d 172 (Fla. 1st DCA 1970), the court quoted 35 Fla. Jur., Wills, Section 253, as follows:

A court may, in proper case, look beyond the face of a will if there is an ambiguity as to the person to whom it is applicable; if there is a latent ambiguity as to the identity of a legatee or devisee, or a mere inaccuracy in the designation or description contained in the will, extrinsic evidence is admissible to explain the ambiguity or inaccuracy and identify the person designated. Thus, parol evidence is admissible to explain the meaning of a description of a beneficiary named in a will that might apply to each of several persons, or to rectify a mistake made in the description of a beneficiary.

Scheurer, 240 So.2d at 175. However, “the general rule is that misnomer of a legatee will not defeat a bequest where the one intended can be identified with certainty.” Mass. Audubon Soc'y v. Ormond Vill. Imp. Ass'n, 152 Fla. 1, 10 So.2d 494, 495 (1942).

The bequest in Ms. Hillman's First Amendment to Trust which is at issue in this case states: “TWENTY–FIVE PERCENT (25%) to MIAMI CHILDREN'S HOSPITAL FOUNDATION, CRANIAL/FACIAL FOUNDATION, located at 3000 S.W. 62nd Avenue, Miami, FL 33155, ATT: Dr. Anthony Wolf [sic].” This appears to unambiguously name MCHF as the beneficiary.

We therefore reverse and remand and direct the trial court to vacate its order determining that Miami Care Foundation, Inc. was the beneficiary of the pourover trust, and enter an order designating Miami Children's Hospital, Inc. as the beneficiary of the pourover trust.

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Connell v. Connell, --- So.3d ----, 2012 WL 3101842 (Fla. 2d DCA August 01, 2012)

Joint bank accounts and other forms of joint property get litigated all the time in contested probate proceedings, which means they end up as recurring topics on this blog [see here, here, here, here]. This time around the issue was who owned a $58,350 men's Rolex watch and $19,386 men's diamond ring the decedent purchased with funds from a joint checking account shortly before his death.

Back Story:

The decedent at the heart of this case was a 95 year old retired jeweler who enjoyed wearing expensive jewelry. In August 2009 while shopping with his wife (a woman 26 years his junior he married eleven months prior to his death) the decedent purchased a $58,350 men's Rolex watch. In February 2010 he purchased a $19,386 men's diamond ring. On both occasions the decedent used funds from a checking account titled jointly with his wife. According to the 2d DCA:

The decedent wore the watch and ring every day. Before he went to bed he took them off and put them in a pocket of one of his suits. In the two weeks before his death, the decedent was hospitalized twice. Before going to the hospital, he gave the watch and ring to Fana to put away, and she put them in her purse.

Decedent died in March 2010. Decedent's son/personal representative (PR) asked surviving spouse to return the watch and ring. Wife said no; PR sued.

So who gets the watch and ring?

Decedent and surviving spouse had signed an Antenuptial Agreement, which contained the following joint-property clause:

“Upon the death of one party during the continuation of the marriage and prior to any divorce, dissolution or separation of the parties, the survivor shall succeed to the entire interest of the deceased party in all other jointly-owned property.”

However, according to the Antenuptial Agreement, any property the decedent owned individually at death was all his, to dispose of as he pleased.

Bottom line, wife gets the watch and ring if they're joint property; son/PR gets them if they weren't. Seems simple right? It's not. 

2d DCA Speaks:

The first question that needs to get answered is whether the watch and ring were purchased with joint funds. Answer: NO. Here's why:

It is undisputed that the joint checking account was a joint tenancy with a right of survivorship, not a tenancy by the entireties. When a joint account holder withdraws funds from a bank account that is held as a joint tenancy with the right of survivorship, it “terminates the ‘joint tenancy nature of the [funds] and severs the right of survivorship as to the funds withdrawn.’” Wexler v. Rich, 80 So.3d 1097, 1100 (Fla. 4th DCA 2012) (quoting Sitomer v. Orlan ex rel. Sitomer, 660 So.2d 1111, 1114 (Fla. 4th DCA 1995) (alteration in Sitomer)). When a joint tenant conveys an interest to a stranger, it “destroys the unities of possession and title.” Sitomer, 660 So.2d at 1114. We also note that Fana consented to the withdrawal of the funds for the jewelry purchases, so the decedent was not liable to her for her share of the joint account. See Nationsbank, N.A. v. Coastal Utils., Inc., 814 So.2d 1227, 1230 (Fla. 4th DCA 2002) (stating that “the withdrawing joint tenant is liable to the joint owner for that person's share of the withdrawn funds”). Thus, once the funds were withdrawn from the Connells' joint checking account, the funds lost their joint character.

OK, so if the watch and ring weren't purchased with joint funds, were they owned jointly? Because items of personal property, such as watches and rings, don't have documentation of title, you're left litigating whether the facts and circumstances indicate the couple intended joint vs. separate ownership. According to the 2d DCA, the facts weighed in favor of separate ownership. End result: PR gets the watch and ring.

The trial court's determination that the decedent did not make a gift of the watch and ring to Fana is not at issue on appeal. The trial court made a factual determination in the original order to the effect that the decedent's delivery of the watch and ring to Fana prior to his hospitalization was not made with the intention of gifting the property to her, but rather it was a temporary delivery for the purpose of safekeeping while he was in the hospital. The trial court did not change this ruling on rehearing.

*  *  *  *  *

Moreover, the fact that the decedent purchased the watch and ring with funds from the joint checking account (and a small contribution of cash from Fana) while they were shopping together does not make the watch and ring the joint property of the Connells. Rather, it is for whom the watch and ring were purchased rather than how they were purchased that is important. . . . Fana seems to equate the term “acquired jointly” with her being “involved” in the purchases that were made when they were together at the jewelry stores. However, the circumstances reveal that she was merely assisting the decedent buy a watch and ring for himself, not that they intended to jointly own the jewelry.

A joint tenancy has the characteristic of survivorship and to create a joint tenancy four unities must be present: the unities of possession, interest, title, and time. Beal Bank, SSB v. Almand & Assocs., 780 So.2d 45, 53 (Fla.2001). The unity of possession is joint ownership and control. Id. at 52. Here, the unity of possession was not present in either the watch or the ring. The watch and ring were intended for the decedent's exclusive use. The decedent had been in the jewelry business, and he enjoyed expensive jewelry. He had the possession and use of the watch and ring. In fact, the trial court even made the oral finding on rehearing that the items were “personal to the decedent.”

Furthermore, the watch and ring were jewelry items designed for a man. Fana never wore or used the watch and ring. And she referred to the items as “his” jewelry. When the decedent was not wearing the watch and ring, he put them in the pocket of one of his suits. Fana only took possession to store them for safekeeping before the decedent went to the hospital. The trial court found in its original order that if the decedent had returned from the hospital, “he would have again resumed using both the ring and watch.” In the original order the trial court also determined that the circumstances indicated the decedent's “intention, consistent with his actions, to use these items of jewelry for his personal benefit.”

The circumstances here failed to show the unity of possession as to Fana with respect to the watch and ring. Therefore, the watch and ring were the separate property of the decedent. 

Lesson learned?

The law governing joint property cases is tricky and litigating them can be a fact-intensive undertaking (think depositions, subpoenas, production requests, interrogatories, etc.) Translation: these cases are rarely viable from a purely economic perspective (then again, litigants are rarely logical purists, see here). Even if the law and facts are a "slam dunk" in your favor, these cases are inherently uncertain and expensive to litigate. Consider the basic facts of this case: lawsuit was first filed in 2010, trial took place in 2011 (PR lost), appeal decided in 2012 (PR wins). In other words, two years after his father's death (and after having to overcome a trial-court loss by again rolling the dice on an appeal), PR finally gets the watch and ring back. Hope it was worth it.

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There's a good reason why homestead litigation is a recurring theme on this blog: it’s a non-intuitive thicket of complexity that can trip up even the best and brightest lawyers and judges [click here]. One way to cut through this complexity is to rely on trustworthy charts that graphically summarize the key "do's" and "don’ts" in a single easy-to-read snapshot. The granddaddy of all homestead-law charts is Kelley's Homestead Paradigm, by renowned Florida homestead-law expert Rohan Kelley. We now have another excellent resource to work with in Charles Rubin's homestead chart, poetically entitled Restrictions on Transfers of Florida Homestead Property. Both are reliable, user-friendly tools for the practicing probate lawyer. Good stuff, highly recommended.

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Beekhuis v. Morris, --- So.3d ----, 2012 WL 2121258 (Fla. 4th DCA June 13, 2012)

F.S. 736.0201 tells us that "judicial proceedings concerning trusts shall be commenced by filing a complaint and shall be governed by the Florida Rules of Civil Procedure." It's a simple rule, which I've been writing about for years [click here].

If you want to get your hands on trust property, all you have to do is file a complaint and follow the Rules of Civil Procedure. Is that really too much to ask for? Apparently it was in this case. In the midst of a contested guardianship proceeding, and in response to nothing more than a motion filed by the guardian, the probate judge simply entered an ex parte order compelling the ward's trustee to hand over trust assets. Wrong answer! So saith the 4th DCA:

Beekhuis argues that the probate court did not have jurisdiction over the trust or its trustee because she “filed no pleadings and sought no relief in her capacity as [t]rustee and did not subject either herself or the trust to the jurisdiction of the probate court.” See Chaffin v. Overstreet, 982 So.2d 11, 14 (Fla. 5th DCA 2008) (explaining that appearing before the probate court in one capacity does not subject that party in a separate capacity to the jurisdiction of the court); see also Mfrs. Nat. Bank of Detroit v. Moons, 659 So.2d 474, 475 (Fla. 4th DCA 1995) (holding that the probate court did not have jurisdiction over the trustees because there was no service of process on trustees and the trustees did not voluntarily submit to the jurisdiction of the court).

We conclude that it was error for the probate court to assert jurisdiction over the trust property and Beekhuis, in her capacity as trustee, when the original pleadings never raised any claim over the trust or its property, and Beekhuis continually asserted that the court lacked jurisdiction over the trust and trustee. See Chaffin, 982 So.2d at 14.

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The competitive pressures and technical complexities of a sophisticated estate planning practice can be daunting. Not surprisingly, estate planning is one of the most common areas for legal malpractice claims. 

For me, what really matters is not whether you've ever made a mistake (no one's perfect), it's what you do after you realize you've made a mistake that really counts. While we've all learned that the cover-up is usually worse than the crime, if we're not careful, very human frailties can overcome ethics, one lie can lead to another, and before you know it a bad - but manageable - situation has morphed into a career-ending catastrophe. 

That's the bitter lesson Suzanne P. Land, a successful estate planning attorney, first female capital partner of her large Cincinnati, OH law firm, active community volunteer and single-mother of two young children (click here, and scroll down), is learning.

Back Story:

Land did estate planning work for a wealthy couple involving the creation of family limited liability companies ("LLC's"). The LLC's were supposed to lower the family's estate tax bill by creating valuation discounts. Although this kind of estate tax planning is fairly common, it's not without its complexities and hidden traps [click here for a sample memo explaining how it's all supposed to work]. One of those traps caught Land unawares; causing the LLC's to fail from a tax planning perspective. This mistake will likely cost Land's clients an extra $1.1 million in estate taxes.

When Land's mistake came to light during an estate-tax audit, rather than admit her mistake and deal with it head on, she tried to cover it up. The cover up included:

• Forging client signatures to create false, back-dated amendments to the LLC operating agreements
• Lying to the IRS about the forged LLC documents
• Creating fake client correspondence and legal invoices to reflect work she never performed, then providing these fake documents to the IRS to authenticate the forged LLC documents
• Providing two false affidavits to the IRS to authenticate the forged LLC documents

Cover Up = Criminal Prosecution:

No one should make light of how scary and professionally embarrassing a potential $1+ million malpractice claim must have appeared to Land. But no matter how bad the malpractice claim may end up being, it's nothing compared to the career-ending catastrophe the cover up lead to. After the cover up unraveled, Land eventually pled guilty to one count of tax obstruction (26 USC § 7212(a)). This type of felony can result in up to a three year prison sentence.

A DOJ press release described Land's conduct as follows:

According to the [unsealed portion of her plea agreement] and statements made in court, to conceal from the IRS the deficiencies in the documents that she drafted for her wealthy clients, Land forged the posthumous signatures of both her deceased clients and their living children on amendments to the documents. Land also misled an appraiser as to the value of the estates, created fake legal invoices that reflected work she never performed, and lied to the IRS about the circumstances surrounding the creation of the amendments. According to the terms of the plea agreement, Land admitted that the "relevant and foreseeable" tax loss that could have resulted from her obstruction was approximately $1,140,636.

According to the felony conviction/final judgment, Land was sentenced to 5 years of probation, including 3 years of what amounts to house arrest. It could have been much worse; at least she's not going to jail (unlike the Texas attorney I wrote about here, who was sentenced to two years in federal prison for intentionally falsifying an estate tax return).

At the time she pled guilty the local NBC affiliate reported here that Land's defense attorney stated she had voluntarily ceased practicing law and was "looking forward to getting this process through to the end." I'm not sure how "voluntary" this last step was. Land's felony conviction resulted in the automatic suspension of her law license in Ohio and Kentucky, effectively ending her legal career for the foreseeable future.

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There's trouble brewing over a bank account and vacant lot "Widow" claims she owned jointly as "tenancy by the entireties" or "TBE" property with her now deceased husband. The call with Widow's family lawyer went well, so you agree to meet with her to discuss the case. You won't have a prayer of properly evaluating this case if you don't know the dramatically different evidentiary rules applying to TBE cases involving personal property vs. real property. The most important decision any probate litigator makes happens long before the first pleading is filed: it's deciding when to say NO and when to say YES to a new case.

Fortunately for you and your prospective client, the 4th DCA recently published two opinions in separate cases explaining in plain English the very different evidentiary rules controlling TBE cases involving personal property vs. real property. This is your road map for successfully evaluating TBE cases.

[1] Joint Bank Account Cases (Personal Property):

Wexler v. Rich, --- So.3d ----, 2012 WL 555482 (Fla. 4th DCA February 22, 2012)

In Beal Bank, SSB v. Almand and Assocs., 780 So.2d 45 (Fla.2001), the Florida supreme court receded from its prior law that created no presumption of a tenancy by the entireties when a husband and wife opened a joint bank account. The court held that unless the signature card on the account expressed a contrary intent, an account opened by a husband and wife creates a presumption that the account is held by the entireties, assuming that the other unities of time, title, and possession are present. “The presumption we adopt is a presumption affecting the burden of proof pursuant to section 90.304, Florida Statutes (2000), thus shifting the burden to the creditor to prove by a preponderance of evidence that a tenancy by the entireties was not created.” Beal Bank, 780 So.2d at 58–59. The court's holding in Beal was later codified in a 2008 amendment to F.S. 655.79(1), providing that "[a]ny deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entirety unless otherwise specified in writing."

So here's the question, what does a bank account opening form have to say to qualify as having "specified in writing" that a husband and wife joint account is NOT a TBE account? Answer: if the form had an option for TBE ownership and a separate option for "joint account," and the married couple checks the joint account box, even if they didn't have the foggiest idea of what they were doing legally, that's enough. They've "specified in writing" that they did not want their joint account to be deemed a TBE account. Here's how the 4th DCA made this point in the linked-to case above.

This case demonstrates [one] type of express disclaimer contemplated by Beal Bank. Bank United provided the Riches with account agreements containing the option of a tenancy by the entireties, but that option was not selected. Rather, the agreements established joint tenancies with right of survivorship. The Riches signed the agreements after having had a chance to review them. Freedom of contract “includes freedom to make a bad bargain.” Posner v. Posner, 257 So.2d 530, 535 (Fla.1972). Florida adheres to the principle that a “party has a duty to learn and know the contents of a proposed contract before he signs” it. Mfrs.' Leasing, Ltd. v. Fla. Dev. & Attractions, Inc., 330 So.2d 171, 172 (Fla. 4th DCA 1976). Therefore, “[o]ne who signs a contract is presumed to know its contents.” Addison v. Carballosa, 48 So.3d 951, 954 (Fla. 3d DCA 2010). When the Riches signed the account agreements, they “expressly select[ed]” a form of account ownership other than a tenancy by the entireties, within the parameters set by the Supreme Court in Beal Bank.

The trial judge found no express disclaimer of tenancies by the entireties primarily because the bank employee did not discuss or explain the account ownership options with the Riches. As it applies to the mechanics of the bank-customer relationship in the opening of accounts, Beal Bank does not require a bank to explain the legal ramifications of the various account options. Only a handful of attorneys in Florida are able to describe the differences between a tenancy by the entireties bank account and a joint account with right of survivorship. The bank's obligation is to clearly provide customers with the option of a tenancy by the entireties account, not to assist them in making a considered choice. To paraphrase the old proverb, a bank's duty under Beal Bank is to lead the horse to water, not to make him drink it.

The parties have not argued the application of section 655.79(1), Florida Statutes (2009), apparently believing it is inapplicable because an amendment to it did not become effective until October 1, 2008. This 2008 amendment provides that “[a]ny deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entirety unless otherwise specified in writing.” Ch. 2008–75, § 8, Laws of Fla. (2008). We note that if the statute were to apply here, the signed account agreements containing the option of a tenancy by the entireties and designating the accounts as “Multiple–Party Account[s] with Right of Survivorship” would satisfy the statutory requirement that an alternative form of account ownership be “specified in writing.” 

Lesson learned?

TBE cases involving joint bank accounts will turn on the boilerplate text of the account opening form, regardless of what the parties were actually thinking when they checked the box and signed at the bottom. If you're thinking about taking one of these cases on, step 1 is to review the account opening form.

[2] Joint Deed Cases (Real Estate):

Bridgeview Bank Group v. Callaghan, --- So.3d ----, 2012 WL 1020044 (Fla. 4th DCA March 28, 2012)

What's interesting about joint real estate cases is that it all boils down to the deed. If the deed doesn't mention some form of ownership other than TBE, then the real property is deemed to be owned as TBE, and that presumption is NOT rebuttable by evidence of contrary intent. The only way to get around this TBE presumption for deeds is if you can prove it's the product of fraud. Proving fraud is orders of magnitude more difficult than the evidence-shifting rule applicable to joint bank accounts. In other words, once the presumption of TBE ownership is triggered by the deed . . . your case is probably over. Here's how the 4th DCA articulated this point in the linked-to case above.

Beal recognized the rule with respect to real property, stating “[w]here real property is acquired specifically in the name of a husband and wife, it is considered to be a ‘rule of construction that a tenancy by the entireties is created, although fraud may be proven.’” 780 So.2d at 54 (quoting First Nat. Bank of Leesburg v. Hector Supply Co., 254 So.2d 777, 780 (Fla.1971)). Beal also cited with approval to In re Suggs' Estate, 405 So.2d 1360, 1361 (Fla. 5th DCA 1981), that “‘[a] conveyance to spouses as husband and wife creates an estate by the entirety in the absence of express language showing a contrary intent.’” 780 So.2d at 54 (emphasis supplied).

Based upon the foregoing, the conveyance to Daniel and Milea created a tenancy by the entireties, and no express language in the deed showed a contrary intent. Therefore an estate by the entireties is presumed. That presumption is not rebuttable, according to [Losey v. Losey, 221 So.2d 417 (Fla.1969)], although it could be set aside if fraud were proven. Bridgeview did not even attempt to prove fraud in this case with respect to the creation of the tenancy by the entirety in 2004.

Beal does not change this result. First and foremost, Beal did not overrule Losey, and the supreme court does not intentionally overrule itself sub silentio. Puryear v. State, 810 So.2d 901, 905 (Fla.2002). Second, Beal involved personal property in the form of bank accounts. . . . . [In Beal] the court established a rebuttable presumption for bank accounts, involving the burden of proof, not the rule of construction established in Losey for real property.

Applying a rule of construction for real property instead of a burden-shifting presumption can be explained by the real property transaction itself. The use of a rebuttable presumption applied to the title to real property would cause significant problems with titles, which are recorded and serve as notice to the world of the ownership of property. Which title insurer could feel secure in insuring property having a conveyance to a husband and wife in the chain of title, if that title could be rebutted by evidence extrinsic to the deed itself? The integrity of the title to real property could be called into question when titles could be overturned in litigation by rebuttable presumptions.

Lesson learned?

In a TBE case involving real estate, it's all about the deed. If it names husband and wife, the TBE presumption is irrevocably triggered in the absence of fraud (which is never easy to prove). When one of these cases comes your way, you won't know enough to figure out the fraud question until you've dug into the facts, but by simply knowing what question to ask ("is there fraud?"), you've won half the battle. What you don't want to do is find yourself on the losing end of one of these cases because you didn't even know fraud was an issue, which is apparently what happened to the creditor in the linked-to case above. As noted by the 4th DCA, "Bridgeview did not even attempt to prove fraud in this case." Oops!

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Pasquale v. Loving, --- So.3d ---- 2012 WL 933030 (Fla. 4th DCA March 21, 2012)

The popularity of revocable trusts and pour-over wills as "package deals" creates interesting strategic choices when challenging their validity; all of which revolve around legitimately exploiting the procedural and substantive differences between probate actions (think will contest) and tort actions (think trust contest). As I recently wrote here, although the public policy merits of this kind of forum shopping potential remain very much in dispute among academics, it's a fact of life working probate litigators can't ignore. This case is another example of that dynamic.

Case Study:

In this case the defendants tried to turn the probate vs. tort action forum-shopping tactic on its head with the following elegant argument:

1. If the decedent executed a pour-over will and revocable trust (she did), and 
2. if the decedent's trust was incorporated by reference into her will if needed to give it effect (it was), and
3. if the plaintiffs filed suit challenging only her trust, but not her will (the appeal turned on this question), and
4. if the plaintiffs are now time barred by the probate rules from challenging the will (they are),
5. then even if the plaintiffs challenging the revocable trust win their case, the now bullet proof pour-over-will will in all events "save" the trust and give it effect.
6. Ergo: the trust contest should be dismissed.

The trial court judge accepted this argument and dismissed the trust contest with prejudice.

What's most interesting about this case is that the 4th DCA does not reject the underlying logic of the argument resulting in dismissal. Instead, the 4th DCA read the operative complaint in the most expansive terms possible, allowing them to "see" a will contest hidden within its four corners, thus saving the plaintiffs from dismissal of their case on pleading grounds alone (something courts try to avoid whenever possible).

We note, first, that the Pasquales could not challenge the validity of the trust without also contesting the will. The trust was incorporated by reference into the 2005 will. See Lewis v. SunTrust Bank, Miami, N.A., 698 So.2d 1276, 1277 (Fla. 3d DCA 1997) (“A writing in existence when a will is executed may be incorporated by reference if the language of the will manifests this intent and describes the writing sufficiently to permit identification.”) (quoting section 732.512(1), Florida Statutes (1995)). . . . 

. . .

While the complaint at issue is not a model of clarity, we find that it adequately constituted a will contest. “A petition for revocation of probate shall state the interest of the petitioner in the estate and the facts constituting the grounds on which revocation is demanded.” Fla. Prob. R. 5.270(a). “All technical forms of pleadings are abolished” and “[n]o defect of forms impairs substantial rights.” Fla. Prob. R. 5.020(a). Though the complaint does not specifically identify the 2005 will, count I challenges the validity of all testamentary documents executed after 2000[, thus by implication challenging the 2005 will] . . . Additionally, the complaint was filed in response to the notice of administration of the 2005 will, wherein the decedent completely revoked the Pasquales' interest in the trust. Compare Feather v. Sanko's Estate, 390 So.2d 746, 747 (Fla. 5th DCA 1980) (interpreting older version of probate code, finding that pleading filed by decedent's disinherited child, entitled “Notice of Appearance,” was sufficient to contest will where pleading stated that she had interest in estate, and the will at issue disinherited her, making it clear that she opposed it). . . .

. . . In reversing and remanding this cause for further proceedings, we, of course, express no opinion as to the merits of appellants' petition for revocation of probate.

 Lesson learned?

If you're playing offense and your client hires you to challenging a revocable trust, always check the residuary clause of the underlying pour-over will as well. It will almost certainly contain a sentence incorporating the trust into the will if needed to give it effect. I don't think I've ever read a Florida pour-over will that didn't contain this boilerplate savings language in its residuary clause. Here's the residuary clause from the pour-over-will at issue in this case, which contains the typical savings language.

I give all the residue of my estate, including my homestead, to the Trustee then serving under my revocable Trust Agreement dated October 26, 1999, as amended or hereafter amended (the “Existing Trust”), as Trustee without bond . . . The residue shall be added to and become a part of the Existing Trust, and shall be held under the provisions of said Agreement in effect at my death, or if this is not permitted by applicable law or the Existing Trust is not then in existence, under the provisions of said Agreement as existing today. If necessary to give effect to this gift, but not otherwise, said Agreement as existing today is incorporated herein by reference. 

As noted by the 4th DCA, these clauses are statutorily sanctioned by F.S. 732.512(1). Lesson learned? When in doubt, always challenge both the pour-over will and revocable trust.

If you're playing defense and only the trust is challenged, you may want to take another shot at the argument employed by the defendants in this case. Although the argument eventually failed on appeal, it worked at the trial court level and its underlying logic seemed to be accepted on appeal by the 4th DCA. Food for thought.

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Morey v. Everbank, --- So.3d ----, 2012 WL 3000608 (Fla. 1st DCA July 24, 2012)

Florida has a well earned reputation for being almost ridiculously generous when it comes to creditor protection. Our unlimited homestead protection usually gets most of the attention, but the goodies don't end there. For example, under F.S. 222.13 Florida residents can leave their heirs unlimited amounts of life insurance money . . .  without a penny going to their creditors. In other words, a Florida resident can die bankrupt, but leave his heirs millions in creditor-exempt life insurance proceeds. This exemption applies regardless of whether the insurance proceeds are paid directly to your heirs or go to them via a revocable trust. See F.S. 733.808(4).

But is it possible to blow this valuable creditor-protection statute? YES! It's a free country, and if you want to hand otherwise protected funds over to your creditors, no one's going to stop you. In fact, that's exactly what happened in this case.

Case Study:

This case involves a multimillion dollar estate . . .  that's bankrupt. Back in 2000 the decedent purchased life insurance and named his revocable trust as the beneficiary of the insurance proceeds. So far so good. However, for reasons that in retrospect turned out to be mistaken, the decedent's revocable trust stated that his life insurance proceeds could be used to pay his creditors.

After the decedent's death in 2008, the trustee of his revocable trust (his brother) asked the court if the life insurance proceeds remained creditor protected. Answer: NO. Why? Because the decedent waived the creditor-protection shield by the terms of his own revocable trust (oops!).

While life insurance proceeds are not payable directly to the estate or subject to obligations of the estate merely by virtue of being directed to a grantor trust, here the clear and explicit terms of the trust make the policy proceeds available to satisfy obligations of the estate, pursuant to section 733.808(1).

. . .

An insurance policy is a contract. The right to select the beneficiary of a life insurance policy is an aspect of the freedom to contract. The statutory exemption does not purport to restrict that freedom. The owner of an insurance policy may waive the section 222.13 exemption [1] merely by designating the insured or one or more of the insured's creditors as a beneficiary or beneficiaries, [2] by naming the insured's estate as a beneficiary of the policy or, as here, [3] by naming as beneficiary a trust whose terms direct distribution of the trust assets to the personal representative, if requested.

At my firm we use the Lawgic drafting software for our wills and trusts. When drafting revocable trusts, Lawgic provides the following standard clauses designed to make sure life insurance proceeds paid to a revocable trust don't lose their creditor-exempt status. If the revocable trust at the heart of this case contained similar clauses, there never would have been a problem.

Standard Insurance Clauses:

Allocation of Death Benefits. If any life insurance proceeds . . . included in my gross estate for federal estate tax purposes become payable to the Trustee, those proceeds are to be allocated between the Marital Trust and the Family Trust according to the formula [contained herein], and to be made available for the payment of expenses of administration and taxes. These proceeds may not be used for payment of claims against my estate. . . .

Excluded Property. If any funds become available to the trustees of any trust, including without limit, life insurance . . . and those funds are not otherwise included in my gross estate for federal estate tax purposes, then none of those funds may be used to pay, directly or indirectly, any debts, taxes, or expenses of mine or my estate.

If in hindsight the trust’s waiver language turns out to be a mistake, what about judicially modifying the trust agreement to fix the problem?

It's safe to assume that back in 2000, when the decedent signed his revocable trust and years before his death in 2008, he didn't expect to die bankrupt. If he knew then what his trustee knows now, he obviously would have done things differently. Hindsight is 20/20: why not just ask the Court to judicially modify the trust agreement to fix the problem?

This is actually the most interesting question raised by this opinion, and it's governed by F.S. 736.0415 (which I've previously written about here). It's the type of question lawyers should expect to get asked any time their clients find themselves in a mess caused by drafting we all agree - in hindsight - would have been done differently if the decedent knew then what we know now. Here's the problem: you don't get a "do over" if the facts don't pan out as planned; the types of drafting "mistakes" court's are authorized to fix are mistakes based on facts existing at the time the document was signed . . .  not years later. Strike two for trustee:

Reviewing the record in the present case, it is clear that a reasonable trier of fact could have been left—as the learned trial judge was—without a firm belief or conviction that the trust terms were contrary to the decedent's intent at the time he executed the (last amendment to the) trust declaration.FN11

FN11. The time the governing documents were executed is the pertinent point in time. The Restatement provides the following illustration:

3. G's will devised his government bonds to his daughter, A, and the residue of his estate to a friend. Evidence shows that the bonds are worth only half of what they were worth at the time of execution of the will and that G would probably have left A more had he known that the bonds would depreciate in value.

This evidence does not support a reformation remedy. G's mistake did not relate to facts that existed when the will was executed.

Restatement (Third) of Prop.: Wills & Other Donative Transfers § 12.1 cmt. h, illus. 3 (2003).

. . .

“A reformation relates back to the time the instrument was originally executed [or amended] and simply corrects the document's language to read as it should have read all along.” Providence Square Ass'n, Inc. v. Biancardi, 507 So.2d 1366, 1371 (Fla.1987).

. . .

The trial court did not err in ruling that deterioration in the decedent's financial circumstances between the time he executed estate planning documents and the date of his death —which in the event resulted in a lack of any residuum with which to fund the Morey Family Trust—did not constitute a “mistake” requiring reformation of the trust documents. Reformation is not available to modify the terms of a trust to effectuate what the settlor would have done differently had the settlor foreseen a change of circumstances that occurred after the instruments were executed. See, e.g., Restatement (Third) of Prop.: Wills & Other Donative Transfers. at cmt. h (2003) (Reformation is not “available to modify a document in order to give effect to the donor's post-execution change of mind ... or to compensate for other changes in circumstances.”).

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Kountze v. Kountze, --- So.3d ----, 2012 WL 3111681 (Fla. 2d DCA August 01, 2012)

It says it right in the trust code: trust litigation must be conducted like any other form of civil litigation. F.S. § 736.0201(1). The problem is that many of these cases are litigated before probate judges, who on a day-to-day basis adjudicate un-contested probate matters governed by the less stringent probate rules. Result? Basic due process protections assumed to apply in any piece of civil litigation are often brushed aside in trust cases [see here, here, here.]

In this case the trustee apparently did a good job of upsetting the probate judge, which resulted in the trustee's summary removal. Can the judge do this in the absence of evidence, adduced at a properly noticed evidentiary hearing? NO

Section 736.0706(1), (2)(c), Florida Statutes (2010), provides that “a trustee may be removed by the court on the court's own initiative ... if ... [d]ue to the unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries.” The statute therefore suggests that a factual finding must be made by the trial court as to the trustee's unfitness, unwillingness, and persistent failure to administer the trust effectively.

On appeal, Edward Kountze argues that it was error for the trial court to make such a finding and remove him as Trustee without providing him notice and an opportunity to be heard. We agree. Edward was put on notice of a hearing on Charles' motion to compel discovery. In that motion, Charles did seek a sanction against Edward for his failure to comply with discovery, but that sanction—the only sanction of which Edward was aware—was the imposition of an attorney's fee award, not removal as Trustee. Additionally, in a prior contempt order entered in this case, the trial court had given Edward twenty days to comply with the discovery request then at issue and had stated that if he failed to do so “Defendant shall pay to Plaintiff $100.00 per day beginning the day after such items are due, and shall continue to pay Plaintiff $100.00 each day until Defendant has fully complied with this order.” There is nothing in the record to put Edward on notice that removal as Trustee was a possible sanction. As such, Edward had no reason to be prepared to defend against such a sanction.

Furthermore the trial court's order expressly states that this sanction is being imposed not only for Edward's failure to provide Charles with the requested trust accounting but also for failing to comply with previous court orders. As such, the sanction is analogous to an indirect civil contempt order, which does require notice and an opportunity to be heard. See Bresch v. Henderson, 761 So.2d 449, 451 (Fla. 2d DCA 2000) (“[A] person facing civil contempt sanctions is ... entitled to a proceeding that meets the fundamental fairness requirements of the due process clause.... Such fundamental fairness includes providing the alleged contemnor with adequate notice and an opportunity to be heard.”); Whitby v. Infinity Radio, Inc., 961 So.2d 349, 355 (Fla. 4th DCA 2007) (reviewing order finding appellant in indirect civil contempt and concluding that “[a] person facing civil contempt sanctions is entitled to notice and an opportunity to be heard”).

Lesson learned?

First, the due process issues at the heart of this trustee-removal case also come up all the time in personal-representative removal cases, and (fortunately) the law is the same: you can't boot the PR out of office in the absence of a trial on the merits [see here]. Bottom line: people have a right to pick who their fiduciaries are going to be, and that choice can't be brushed aside lightly.

Second, if you're already in front of a probate judge and it looks like a related trust may be affected by the probate litigation, you need to anticipate the procedural issues unique to trust cases and make a choice: either file a petition getting your trust in front of the same probate judge or file a separate trust action in the general-jurisdiction division of the circuit court and get your trust in front of a different judge. There are pros and cons to either choice, but at least you've dealt with the procedural issues head on.

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Smith v. DeParry, --- So.3d ----, 2012 WL 1521541 (Fla. 2d DCA May 2, 2012) 

This is a lost will case. The pitfalls lurking under the surface of these often seemingly simple cases can trip up the best of us. See here, here. For those brave souls willing to take one of these cases on, here's a short recap of the controlling law:

[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. That process is governed by F.S. 733.207, which provides as follows:

Any interested person may establish the full and precise terms of a lost or destroyed will and offer the will for probate. The specific content of the will must be proved by the testimony of two disinterested witnesses, or, if a correct copy is provided, it shall be proved by one disinterested witness.

See also Fla. Prob. R. 5.510 (stating additional requirements for the establishment and probate of a lost or destroyed will).

Case Study:

The decedent in this case owned two fox red Labrador Retriever dogs. On October 24, 2007 he executed a codicil to his will providing for a $40,000 bequest to establish a pet trust for the health, care, and welfare of his dogs. The decedent's estate planning attorney, who was also one of his co-personal representatives, subsequently lost the originally executed copy of the codicil. The initial trustee of the pet trust was also one of the co–personal representatives. By the time the co–personal representatives filed a petition to establish the lost codicil; $40,000 of the estate's money had already been transferred to fund the pet trust. The GAL appointed to represent the decedent's minor grandson contested the petition to establish the lost codicil.

The petition to probate the lost-codicil was denied on two grounds: [1] probate judge ruled a computer copy is categorically excluded from the definition of "correct copy" under F.S. 733.207; and [2] because personal representatives are by definition always "interested persons" of an estate under F.S. 731.201(23), probate judge ruled they are categorically excluded from the definition of "disinterested witness" under F.S. 733.207. Wrong answer, on both points. But none of that mattered because, according to the 2d DCA, even though the probate judge pretty much got every legal issue in this case wrong, the judge still managed to reach the correct result. Why? Because there weren't enough disinterested witnesses to prove up the lost codicil.

Does an unsigned document stored on your computer count as a "correct copy" under F.S. 733.207? YES

The probate court ruled the unsigned copy of the codicil generated from the drafting attorney's office computer did not qualify as a "correct copy" under F.S. 733.207 based on a 1980 Florida Supreme Court decision defining a "correct copy" as follows:

The word “copy,” then, means a double of an original instrument, such as a carbon or photostatic copy. The word “correct” modifies and qualifies the word “copy.” It strengthens the already strong word “copy.” We therefore conclude that the words “correct copy” means a copy conforming to an approved or conventional standard and that this requires an identical copy such as a carbon or photostatic copy.

See In re Estate of Parker (Parker II), 382 So.2d 652 (Fla.1980).

Just because carbon copies and photo copies were the dominant form of document retention in 1980, doesn't mean we're supposed to be frozen in time. A lot's changed since 1980, of course computer copies are acceptable in today's digital world. Did we really need an appellate decision to establish this obvious point? Anyway, this is the kind of basic law you'll want to keep handy for your practice. Here's how the 2d DCA put it:

[First], the probate court misconstrued the portion of the supreme court's holding in Parker II referring to the requirement of “an identical copy such as a carbon or photostatic copy.” 382 So.2d at 653. Both the probate court and the GAL read this language as exclusive. In their view, the only type of copy that can be used to prove the content of a lost will or codicil under the statute is a carbon copy or a photocopy. Such an interpretation would preclude the use of a computer-generated copy. However, the supreme court's language in Parker II is not so restrictive. In the court's reference to “an identical copy such as a carbon or photostatic copy,” the carbon copy and the photostatic copy are merely examples of identical copies. See The American Heritage Dictionary of the English Language 1729 (4th ed. 2000) (defining the idiom, “such as” to mean “[f]or example”). However, the carbon copy and the photocopy are not the only kind of copy that can qualify as an identical copy of an original document. Unquestionably, a copy of a document generated on a computer can be identical to—and indistinguishable from—the original.

[Second], the supreme court decided the Parker II case in 1980. Although some personal computers were sold in the late 1970s, the personal computer did not come into general use in law offices and other businesses until the 1980s, after Parker II was decided.[FN3] We do not think that the supreme court's reference in 1980 to carbon copies and photostatic copies as examples of “an identical copy” was intended to limit for all time the types of copies that could be used to establish the contents of a lost instrument, regardless of future technological developments. Indeed, the legal profession in Florida is now reported to be on the brink of a transition to the paperless office and the paperless courthouse. See Gary Blankenship, E-filing's Time is Now, Fla. B. News, Jan. 15, 2012, at 1; Gary Blankenship, E-filing's Proponents: Get Ready, It's Coming, Fla. B. News, Dec. 1, 2011, at 1. As we face this transition, it would be an anachronism to adopt a rule that a copy of a lost will or codicil retrieved from the hard drive of a computer or from a cloud database[FN4] cannot be a “correct copy” within the meaning of section 733.207.

FN3. See History of personal computers (Jan. 26, 2012, 8:38 p.m.), http://en.wikipedia.org/wiki/History_of_personal_computers.

FN4. “A cloud database is a database that typically runs on a Cloud Computing platform, such as Amazon EC2, GoGrid and Rackspace.” Cloud database (Jan. 11, 2012, 7:00 p.m.), http://en.wikipedia.org/wiki/Cloud_database. “Cloud computing is the delivery of computing as a service rather than a product, whereby shared resources, software, and information are provided to computers and other devices as a metered service over a network (typically the Internet).” Cloud computing (Feb. 6, 2012, 4:38 a.m.), http://en.wikipedia.org/wiki/Cloud_computing.

By the way, the 2d DCA also pointed out that a "correct copy" doesn't have to be signed:

A copy need not be conformed to qualify as a correct copy under the statute. In other words, there is no requirement that the copy bear the signature of the testator or the signatures of the witnesses. Carlton v. Sims (In re Estate of Carlton), 276 So.2d 832, 833 (Fla.1973); Stewart v. Johnson, 142 Fla. 425, 194 So. 869, 872 (1940); Brittingham v. Jarvis (In re Estate of Maynard), 253 So.2d 923, 924 (Fla. 2d DCA 1971); Bury, 591 So.2d at 676–77.

Can a personal representative be a "disinterested witness" under F.S. 733.207? YES

The probate judge got this one wrong too. In one section of our probate code the word "interested" is used to establish who has standing to participate in a particular probate proceeding. That's how the word is used in the definition of "interested persons" found in F.S. 731.201(23). In another section of our probate code, the word "interested" is used to distinguish between witnesses who have a personal stake in the outcome of a trial, and those we would otherwise consider to be neutral (and thus more trustworthy). That's how the word is used in F.S. 733.207 when referring to a "disinterested witness." This is an important distinction, which the 2d DCA does a good job of explaining.

There is a significant distinction between the concept of an “interested person” under section 731.201(23) and the concept of “disinterested witnesses” as used in section 733.207. Under the Probate Code, the term “interested person” refers to a person's or entity's standing, i.e., the right to notice and an opportunity to be heard in a particular proceeding pending in a probate or guardianship matter. See Hayes v. Guardianship of Thompson, 952 So.2d 498, 507–08 (Fla.2006).

On the other hand, a person may be described as “disinterested” when he or she is “[f]ree from bias, prejudice, or partiality; not having a pecuniary interest.” Black's Law Dictionary 536 (9th ed. 2009). It follows that a “disinterested witness”—as the term is used in section 733.207—refers to a person “who has no private interest in the matter at issue.” Black's Law Dictionary 1740 (9th ed. 2009). To put it differently, a “disinterested witness” has no stake in the outcome of the matter in which he or she offers evidence. See The American Heritage Dictionary of the English Language 519, usage note (4th ed. 2000) (“In traditional usage, disinterested can only mean ‘having no stake in an outcome,’....”). The probate court's ruling erroneously assumed that an “interested person” under the Probate Code could not simultaneously be a “disinterested witness.”

. . . Thus the personal representative can be an interested person but still participate in a proceeding as a disinterested witness. In reaching its ruling in this case, the probate court overlooked this significant distinction.

Did drafting attorney qualify as a "disinterested witness" under F.S. 733.207? NO

So why did the co-personal representatives lose this case, even though the 2d DCA disagreed with every legal ruling made by the probate judge? No evidence. Or more precisely, there weren't any "disinterested witnesses" available to prove up the lost codicil. But, you might ask, what about the drafting attorney ("Mr. Allen")? Why couldn't he testify? Due to bad luck or lack of foresight, by the time the lost-codicil petition got to trial, Mr. Allen (who was also one of the co-personal representatives) had his own problems to worry about. According to the 2d DCA, depending on how the trial came out, he was facing at least two different law suits.

Mr. Allen's personal interest in the outcome derives from at least two factors. First, Mr. Allen was directly responsible for the loss or destruction of the codicil from which Mr. Smith was to benefit. An adverse ruling on the petition might result in a claim by [the estate] against Mr. Allen for damages. . . . Second, if [the other co-personal representative] failed to return the $40,000 to the estate with interest, the beneficiaries might make a claim against Mr. Allen, as Co–Personal Representative, predicated on the default of his fellow fiduciary. . . . Thus Mr. Allen . . . did not qualify as a disinterested witness because of his direct stake in the outcome of the pending proceeding.[FN5]

FN5. Of course, we express no opinion on the merits of either of the potential claims against Mr. Allen. The possibility that such claims could be advanced and plausibly maintained is sufficient to give him a “private interest in the matter at issue.” See Black's, supra (defining a disinterested witness as a person with no such interest). 

But what about the typist who wrote up the lost codicil, or the lady who witnessed the decedent's execution of the document?

This last point is especially important for practicing probate litigators. In order to prove up a lost will, F.S. 733.207 sets two conditions for your witnesses: [1] they have to be "disinterested," and, just as importantly, [2] they need to have firsthand knowledge of the "content" of the lost document and the decedent's acceptance of this content. Once the drafting attorney was knocked out as a potential witness, the rest of the case quickly caved in. Here's why:

The remaining witnesses were unable to prove the content of the lost codicil as required by section 733.207. Deborah Stegmeier, Mr. Allen's office assistant, prepared the codicil, as well as several other documents for execution by the decedent, on her computer in Mr. Allen's Orlando office. However, Ms. Stegmeier did not accompany Mr. Allen to St. Petersburg for the execution of the codicil. She remained behind at his Orlando office. Thus, as the probate court observed, Ms. Stegmeier did “not have firsthand knowledge of what document may or may not have been presented to the [d]ecedent for his signature.” Instead, Ms. Stegmeier's knowledge was limited to the documents prepared on her computer.

Jennifer Torres was one of the witnesses to the execution of the codicil and to a separate trust agreement. Ms. Torres candidly admitted that she did not read any of the documents to which she was a witness. Thus Ms. Torres could not testify to the content of the codicil signed by the decedent. Cf. Bury, 591 So.2d at 677 (holding that the testimony by a witness to the execution of a will that the carbon copy produced at the hearing was identical to the original will executed by the decedent was sufficient to meet the requirements of a “correct copy” under the statute for proving the content of the lost original). The Co–Personal Representatives did not call the other witness to the execution of the will to testify at the hearing.

To summarize, the Co–Personal Representatives proffered a “correct copy” of the lost codicil in support of their amended petition. However, they failed to prove the content of the lost codicil with the testimony of at least one disinterested witness as required by section 733.207.

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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). These statutes were all we needed when most people relied on a will or revocable trust to provide for their heirs.

Times have changed. Today, life insurance and other beneficiary-designated non-probate assets such as annuities, pay-on-death accounts, and retirement planning accounts have become the dominant wealth transfer mechanism for most middle class families (wills and trusts remain dominant for the wealthy). As reported by by Tampa attorney Suzanne Glickman in A Fair Presumption: Why Florida Needs a Divorce Revocation Statute for Beneficiary-Designated Nonprobate Assets:

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.

Against this backdrop, it was inconsistent and illogical to have automatic post-divorce revocation statutes for wills and revocable trusts, but not for beneficiary-designated non-probate assets. As I reported here, attempts to fill this gap in the courts failed. The problem needed a legislative fix. Now we have one.

As reported in this Florida Senate Legislative White Paper, effective July 1, 2012 new F.S. 732.703 came into effect, accomplishing the following:

[F.S. 732.703] generally nullifies upon divorce or annulment the designation of a spouse as a beneficiary of nonprobate assets such as life insurance policies, individual retirement accounts, and payable on death accounts. State-administered retirement plans are exempt from [F.S. 732.703]. If the provisions of [F.S. 732.703] apply, an asset will pass as if the former spouse predeceased the decedent.

[F.S. 732.703] also specifies criteria for a payor of a nonprobate asset to use in identifying the appropriate beneficiary. [F.S. 732.703] specifically provides that the payor is not liable in some circumstances for transferring an asset to the beneficiary identified through the bill’s criteria.

*****

[F.S. 732.703] voids the designation of a former spouse as a beneficiary of an interest in an asset that will be transferred or paid upon the death of the decedent if: [1] The decedent’s marriage was judicially dissolved or declared invalid before the decedent’s death; and [2] The designation was made before the dissolution or order invalidating the marriage.

Click here for a link to the Florida Senate's webpage for this new legislation and links to the actual text of the bill. 

F.S. 732.703 is not all encompassing, it only applies to the following beneficiary-designated non-probate assets:

• a life insurance policy, qualified annuity, or other similar tax-deferred contract held within an employee benefit plan;
• an employee benefit plan;
• an individual retirement account;
• a payable-on-death account;
• a security or other account registered in a transfer-on-death form; and
• a life insurance policy, annuity or other similar contract that is not held within an employee benefit plan or tax-qualified retirement account.

F.S. 732.703 does NOT apply:

• to the extent federal law provides otherwise;
• if the governing instrument as defined in the bill expressly provides that the interest will be payable to the designated former spouse after the order of dissolution or order declaring the marriage invalid and the instrument expressly provides that benefits will be payable to the decedent’s former spouse;
• to the extent the disposition of the assets are governed by a will or trust;
• if a court order required the decedent to acquire or maintain the asset for the benefit of the former spouse or children of the marriage;
• if under terms of the order of dissolution or order declaring the marriage invalid, the decedent did not have the ability to unilaterally terminate or change the beneficiary or pay-on-death designation;
• if the designation of the decedent’s former spouse as beneficiary is irrevocable under applicable law;
• if the contract or agreement is governed by the laws of another state;
• to an asset held in two or more names as to which the death of one co-owner vests ownership of the asset in the surviving co-owner or co-owners [i.e., joint accounts]; or
• if the decedent remarries the person whose interest would otherwise have been revoked as a former spouse under the bill and the decedent and that person are married to one another at the time of the decedent’s death.  

Trap for the unwary: Joint Survivor Accounts:

The F.S. 732.703 exception probate lawyers will want to focus on is for joint survivor accounts. Here's what Jeff Baskies, one of Florida's preeminent estate planning gurus, had to say about this issue:

Obviously, the most important and potentially controversial exception relates to joint accounts. A decision was made not to address those accounts in this context. While I believe Florida law currently provides that tenancy by the entireties accounts (which might otherwise be covered by [the joint-account exception] above) are converted to tenancies in common upon a divorce, I do not believe there is a similar rule for joint accounts with rights of survivorship. If this issue creates ongoing problems or a trap for the unwary, perhaps subsequent “clean-up” legislation will address joint accounts. 

[Click here for Jeff's entire commentary on the new statute].

"Catch me if you can . . . " 

The second big point probate lawyers will want to keep in mind is enforcement. F.S. 732.703 is specifically designed to keep banks and insurance companies out of the line of fire if a family dispute erupts over any beneficiary-designated non-probate asset covered by the statute. If an ex-spouse swoops in and improperly cashes a life-insurance check before anyone is the wiser, you won't be able to sue the insurance company, you'll have to chase down the ex-spouse and sue him or her directly to get the money back.

Here's how the statute's "payor" immunity is described in this Florida Senate Legislative White Paper:

[F.S. 732.703] provides that in the case of pay-on-death accounts, securities or other accounts registered in transfer-on-death form, and life insurance policies, annuities or other similar contracts not held within an employee benefit plan or a tax-qualified retirement account, the payor is not liable for making any payment on account of, or transferring any interest in, such assets to any beneficiary.

A payor’s immunity for making a payment in accordance with the criteria in [F.S. 732.703] applies notwithstanding the payor’s knowledge that the person to whom the asset is transferred is different from the person who would own the interest due to the dissolution of the decedent’s marriage or declaration of the marriage’s validity before the decedent’s death. As such, a secondary beneficiary will have a cause of action against the former spouse who receives the payment or transfer of the assets described in [F.S. 732.703] if the beneficiary designations was made void upon divorce or annulment.

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United States v. MacIntyre, ___ F.Supp.2d ___, 2012 WL 2403491 (S.D. Tex. June 25, 2012)

A personal representative ("PR") is personally liable for paying the decedent's remaining tax bills, be they income taxes, gift taxes or estate taxes. That's right, when you say "yes" to serving as someone's PR, you also say "yes" to personally guaranteeing their back taxes are paid up. Not to worry though, as I previously wrote here, if you take advantage of the risk-management tools built into the tax code, this is a problem no one need lose sleep over. But get this wrong, and things can turn ugly real fast.

Is the IRS bound by your bad legal advice? NO

In 1995, J. Howard Marshall, II made a $35 million taxable gift to certain family members, including his ex-wife Eleanor Pierce Stevens ("Stevens"). For better or worse, Marshall Sr is probably best known for having been married to Anna Nicole Smith during the last 14 months of his life. If you're a trusts and estates lawyer, you can thank the Marshall estate and Anna Nicole Smith for some of the most high profile probate litigation in years [click here, here]. The Marshall name is shaking up the probate world again: this time around it's fiduciary liability for a decedent's unpaid taxes.

Marshall Sr never paid the tax due on his $35 million gift, and neither did his estate. By operation of law liability for Marshall Sr's tax liability shifted to the gift's recipients or "donees," including Stevens [click here for the back story]. Stevens died in April 2007, shifting her tax liability to her estate. E. Pierce Marshall, Jr. (“Marshall Jr”) became the sole executor of her estate and Finley L. Hilliard (“Hilliard”) was the trustee of her revocable trust. By its terms, Stevens' revocable trust was liable for her estate's taxes.

So what went wrong?

At some point Marshall Jr and Hilliard were told by their lawyers the IRS couldn't collect on the estate's unpaid gift-tax liability, so they went ahead and distributed estate assets without paying the tax. When the IRS came after them personally for the estate's unpaid taxes, they claimed ignorance. Not because they didn't know the gift-tax liability existed, but because they relied on their lawyer's bad tax advice. Wrong answer. Legal opinions are great ways to shift risk to your lawyers, but that's all you're doing. Tax opinions aren't shields against tax claims; the IRS isn't bound by your bad legal advice.

The Tax Court has articulated the elements of § 3713 liability as (1) a fiduciary; (2) distributed the estate's assets before paying a claim of the United State and (3) knew or should have known of the United States' claim. Huddleston v. Comm'r, T.C. Memo.1994–131, 1994 WL 100520 at *6 (U.S. Tax Ct.1994); see also Leigh v. Comm'r, 72 T.C. 1105, 1110 (U.S. Tax Ct.1979). “[I]n order to render a fiduciary personally liable under 31 U.S.C. [§ 3713], he must first be chargeable with knowledge or notice of the debt due to the United States....” Leigh, 72 T.C. at 1109 (construing a virtually identical earlier version of the statute). “The knowledge requirement ... may be satisfied by either actual knowledge of the liability or notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the unpaid claim of the United States.” Id. at 1110.

**********

As explained above, the knowledge requirement is not actual knowledge. Leigh, 72 T.C. at 1110. It is sufficient to show that the fiduciary had “notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the unpaid claim.” Id. Neither Marshall nor Hilliard contend that they were never told that the IRS might try to make a claim against Stevens for the unpaid gift taxes on the Gift. In fact, they admit that they were both told that the IRS might try to assert a claim against Stevens's Estate for donee liability on the Gift. Instead they argue that they did not believe the IRS's claim against Stevens was valid for various reasons. But, as the government points out, Marshall and Hilliard's belief in the validity of the government's claim is not the test. Marshall and Hilliard had sufficient notice of the claim to put a reasonably prudent person on notice. It is regrettable that they received incorrect advice on that point, but poor legal advice is not a defense. Despite their belief that the government's claim was not valid, Marshall and Hilliard were required by § 3713 to preserve the funds to pay the government's claim-should it be proved valid. Accordingly, Marshall and Hilliard both meet the test for individual liability under § 3713 and are therefore personally liable for distributions made from Stevens's Estate and Trust.

Is failing to pay taxes a breach of fiduciary duty? YES 

This probably comes as a surprise to most PR's, but a decedent's unpaid creditors, including the IRS, have standing to sue you for breach of fiduciary duty if you screw up. And not paying taxes qualifies as a major screw up. So to make matters worse, if you muck up an estate's taxes, not only are you personally on the hook for this mess, you may also get sued for breach of fiduciary duty. That's what happened in this case.

The government argues that Marshall, as Executor of Stevens Estate, breached his fiduciary duty to pay the taxes due the IRS on the estate in the order and manner they were due. In effect, it urges that Marshall's breach is coterminous with his personal liability under § 3713. The court agrees. Insofar as the court held above that Marshall was individually liable to the government pursuant to § 3713, he has also breached his fiduciary duty as an Executor under state law. See In re Tomlin, 266 B.R. 350, 354 (N.D.Tex.2001).

The question is, why would the IRS go through the trouble of suing you for breach of fiduciary duty if you're already personally liable as a matter of federal tax law? Answer: to make sure you don't dodge this bullet by declaring bankruptcy. As I previously wrote here, here, a breach-of-duty judgment against a PR (or trustee) is NOT dischargeable in bankruptcy. Why? Because under bankruptcy code section 523(a)(4) this kind of judgment is deemed the product of “fraud or defalcation while acting in a fiduciary capacity.”

Lesson learned? Forewarned is forearmed:

The best way to win a tax case is to not get sued by the IRS in the first place. You can't do that with a legal opinion. You can do that by making the IRS tell you in advance if there are any unpaid taxes. How do you do that? Click here. Forewarned is forearmed.

“The truly wise man, we are told, can perceive things before they come to pass; how much more than those that are already manifest.”

Sun Tzu, The Art of War

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Geraci ex rel. Geraci v. Sunstar EMS, --- So.3d ---- 2012 WL 2401793 (Fla. 2d DCA June 27, 2012)

Once again we have a homestead case where the key to understanding what went wrong is 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

Courts get into trouble when they rely on a line of homestead case-law authority developed to address one facet of Florida homestead law (e.g., taxes), to decide a case involving another facet of Florida homestead law (e.g., creditor protection). That's what happened in a 3d DCA case I previously wrote about here.

Case Study:

This time around the confusion stems from In re Estate of Wartels, 357 So.2d 708, 710 (Fla.1978), in which the Florida Supreme Court held that the devise and descent restrictions applicable to homestead property (Article X, §4(c)) only apply to fee simple ownership interests in real property. Based on that authority, the probate judge ruled that the decedent's condo, which was subject to a 100-year lease as of 1976, couldn't qualify for Florida's homestead creditor protection (Article X, §4(a) and (b)). In other words, the trial judge ruled that no matter what the facts are, a leasehold interest NEVER qualifies for Florida's homestead creditor protection.

Wrong answer. According to the 2d DCA, whether or not your residence qualifies for Florida's homestead creditor protection depends on whether you intend to make it your principal and primary residence, NOT what kind of ownership interest you may have. Fee simple, long-term lease, or co-op, it's all creditor-protected homestead property if you intend to make it your principal and primary residence.

Article X, section 4(a) does not distinguish between the different kinds of ownership interests that are entitled to the homestead exemption against forced sale. In re Alexander, 346 B .R. 546, 549–50 (Bankr.M.D.Fla.2006); Cutler v. Cutler, 994 So.2d 341, 344 (Fla. 3d DCA 2008); S. Walls, Inc. v. Stilwell Corp., 810 So.2d 566, 571 (Fla. 5th DCA 2002). And the Florida Supreme Court has long since adopted the general rule that a fee simple estate is not necessary to this exemption. See Bessemer Props., Inc. v. Gamble, 27 So.2d 832, 833 (Fla.1946); Coleman v.. Williams, 200 So. 207, 209 (Fla.1941). In fact, “any beneficial interest in land” may entitle its owner to the exemption. Bessemer Props., Inc., 27 So.2d at 833.

In considering the exemption from forced sale, a court must instead “focus on the debtor's intent to make the property his homestead and the debtor's actual use of the property as his principal and primary residence.” In re Dean, 177 B.R. 727, 729 (Bankr.S.D.Fla.1995). When a lessee's interest in a leasehold estate includes the right to use and occupy the premises for a long term and the lessee has made the residence his principal and exclusive residence, such an interest is entitled to Florida's homestead exemption from forced sale. Id. at 729–30; see also In re McAtee, 154 B.R. 346, 348 (Bankr.N.D.Fla.1993) (finding a long-term lease to be subject to the exemption from forced sale because it constituted an interest in real property and was more than a “simple possessory interest”); S. Walls, 810 So.2d at 572 (finding a co-op to be subject to the exemption from forced sale because “a co-op owner owns the unit, pays valuable consideration for it, and has the right to the exclusive use and possession of it for the duration of the lease”). This construction of the homestead exemption from forced sale is consistent with “important public policy considerations such as promoting the stability and welfare of the state by encouraging property ownership and the independence of its citizens by preserving a home where a family may live beyond the reaches of economic misfortune.” In re McAtee, 154 B.R. at 347–48.

The waters remain muddy:

Don't expect this case to be the last word when it comes to whether or not Florida's homestead creditor protection can apply to long-term leases or co-op property. As the 2d DCA noted, there are a couple of opinions out there that seem to make the same mistake the trial judge made in this case: applying Wartels' "if it's not fee simple, it's not homestead" rule, which only applies for devise and decent purposes, to creditor-protection cases. Until we have a few more published opinions getting this distinction right, expect continued confusion at your local court house.

The trial court's decision is erroneous because the homestead protection at issue in this case is not that of descent and devise. . . . Instead, this case involves the application of the homestead exemption from forced sale as set forth in article X, section 4(a)(1), to satisfy the appellee creditors' claims. Cf. Cutler, 994 So.2d at 344 (analyzing whether property held in trust that was devised to an heir constituted homestead property for purposes of determining whether it was protected from forced sale under article X, section 4(a)(1)). Thus, Wartels is inapposite, and the general rule that a fee simple estate is not necessary to the forced sale exemption applies. See Dean, 177 B.R. at 730; S. Walls, 810 So.2d at 572.

We recognize that at least two courts have refused to so distinguish Wartels. See In re Lisowski, 395 B.R. 771, 777 (Bankr.M.D.Fla.2008) (concluding that, under Wartels, the homestead exemption from forced sale applies only to improved land or real property that is owned by the debtor); Phillips v. Hirshon, 958 So.2d 425, 430 (Fla. 3d DCA 2007) (holding that a co-op did not qualify for homestead exemption for purposes of descent and devise because it was not an interest in realty under Wartels ). However, we do not find the reasoning of these cases persuasive because they do not adequately reconcile the supreme court's decision in Wartels with the court's jurisprudence extending the exemption from forced sale to other beneficial interests in land and not limiting the exemption to a fee simple interest.

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Relinger v. Fox, --- So.3d ----, 2011 WL 439428 (Fla. 2d DCA Feb 09, 2011)

There are a number of reasons why a case may be abated and proceedings suspended. The court may order abatement because of the death of one of the parties. See here, for example, where a pending action to partition a joint tenancy with right of survivorship was abated by one joint tenant’s death. A case may also be abated if the same claims are already being litigated elsewhere. The administration of trusts can sometimes spawn multiple lawsuits, so litigators should be aware of how abatement works in this context.

In this case, the siblings of the decedent petitioned to revoke their brother’s 1984 will, and filed a petition for administration of another 2007 pour-over will and trust. The personal representative of the decedent, as a defendant in the probate case, challenged the validity of the 2007 will, claiming that there was undue influence and that the will was not properly executed. In a separate civil action, the personal representative as a plaintiff also attacked the validity of the trust for the same reasons, claiming that the trust had testamentary provisions and that there was undue influence and a lack of formalities. Because the parties were the same, and essentially the same issues were being litigated, you might think there was good reason to abate the civil case. The trial court certainly thought so, and granted the siblings’ motion to abate because of the existence of the probate proceedings.

Abatement? Wrong Answer:

But the 2d DCA disagreed. Not only must the issues and the parties be the same in order to abate a case, but the plaintiff in one case cannot be the defendant in the other. Because the personal representative was the defendant in the probate case and the plaintiff in the civil action, abatement was not proper:

[T]the abatement of Relinger's action was a departure from the essential requirements of law. Abatement requires a strict identity of parties between the two suits, and it can be ordered only when the plaintiffs and the defendants in the actions are the same. Bruns v. Archer, 352 So. 2d 121, 122 (Fla. 2d DCA 1977).

[T]he general rule [is] that a plea of a prior action pending applies only where plaintiff in both suits is the same person, and both are commenced by himself, and not to cases in which there are cross-suits by a plaintiff in one suit who is defendant in the other; in other words, that, where the party defendant in the prior suit is plaintiff in the subsequent suit, the first suit cannot be pleaded in abatement of the second.

Horter v. Commercial Bank & Trust Co., 126 So. 909, 912 (Fla. 1930). Abatement may be ordered only where the identities of parties in the actions are exact "because the court is necessarily projecting the effect of a case which has not been tried and a judgment which has not yet been rendered." Burns v. Grubbs Constr., Inc., 174 So. 2d 476, 478 (Fla. 3d DCA 1965). Here, Relinger is the plaintiff in the later civil action challenging the validity of the trust, but he is the defending party in the Foxes' probate action seeking to establish the validity of the concomitant will. This critical difference rendered abatement inappropriate in this case.

Consolidation? Right Answer:

While a consolidation of the cases may have been proper, the court refused to ignore the error and treat the abatement as if it were a consolidation:

It may be that the circuit court was concerned because the two actions raise similar, if not identical, questions about the decedent's capacity, whether he was unduly influenced, and whether the necessary formalities were met. But other procedures are available to address any problems caused by the pendency of two similar actions, such as a consolidation of the actions or a limited stay of one of them. Moresca, 231 So. 2d at 286 n.5; see also Martin v. Martin, 687 So. 2d 903, 907 (Fla. 4th DCA 1997) ("We know of no reason why a will contest pending in the probate division of the circuit court and an action involving the validity of a trust pending in the civil division of the circuit court cannot be consolidated under appropriate circumstances, such as where . . . the factual issues are the same."). The Foxes argue that we should view the circuit court's action "in essence" as a consolidation; we cannot. The circuit court granted their motion to abate, and in doing so, it departed from the essential requirements of law causing irreparable harm. We must therefore quash the order of abatement.

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Glenn v. Roberts, --- So.3d ----, 2012 WL 2327756 (Fla. 3d DCA June 20, 2012)

In Florida, Wills have to be in writing; you can't simply tell someone what you want done with your property after you die and expect those oral instructions to hold up in court. F.S. §§ 731.201(40); 732.502. But what about a Will that basically says "do as I told you"? It's in writing, does that make it OK? Consider the following:

I give, bequeath and devise all of my estate of whatsoever kind and nature and wherever located to BETTY GUY SHERMAN to dispose of as she has been instructed to do by me.

Does this clause work? Nope. Back in 1994 in Estate of Corbin v. Sherman, 645 So.2d 39 (Fla. 1st DCA 1994), the 1st DCA concluded this clause "clearly attempts to devise the decedent's property to Sherman for Sherman to distribute according to oral instructions from the decedent. Florida does not recognize oral wills."

Case Study:

In the linked-to case above a Miami probate judge was asked to invalidate a Will containing the following clause on the grounds that it's a veiled oral will, which according to Corbin doesn't work.

I hereby give, devise and bequeath all of the rest, residue and remainder of my estate, both real and personal, of whatsoever kind and nature, and wheresoever the same may be situate unto my friend, TERRY GLENN, having full confidence he will honor all requests made to him by me prior to my death as to friends whom I desire he benefit.

The Will also contained the following last and final Article:

In the preparation of this, my Last Will and Testament, I have carefully and thoughtfully considered each member of my family and all of my friends, and have not unintentionally omitted any of them, as it is my desire, and I so direct, that only those beneficiaries named herein, share as beneficiary of my probate estate.

Based on a motion for judgment on the pleadings filed by the decedent's only grandchild and intestate heir (Roberts), the probate judge ruled the Will was invalid and thus the estate had to be distributed pursuant to Florida's intestate statute. Wrong answer. According to the 3d DCA the probate judge got this one wrong for two reasons.

First, focusing on the word request the 3d DCA concluded the first quoted clause was a valid bequest coupled with "precatory" language, which is just fine under Florida law. Precatory statements express a wish but don't create legal obligations or duties.

Here, unlike in Corbin, the language in French's Will is merely precatory, and not mandatory.FN1 In Corbin, the language at issue was clearly mandatory as it referenced oral instructions for the distribution of property (“to dispose of as she has been instructed”). Because it mandated the distribution of the decedent's estate pursuant to oral instructions, it constituted an unauthorized oral will. In contrast, the language here does not mandate Glenn to distribute the residuary estate according to instructions from French, but rather, simply expresses French's hope that Glenn will honor all of her “requests.” In other words, the unambiguous language of the Third Article devises the entire residuary estate to Glenn, who then has the discretion to honor French's requests.

Second, the 3d DCA focused on the Will's final Article, which clearly indicated the testatrix (French) was knowingly disinheriting her family members (including Roberts), and clearly giving her estate to Glenn, the beneficiary named in her Will. When you read this clause, it's hard to understand why the probate judge seems to have ignored it. According to the 3d DCA, the probate judge didn't explain his ruling "in either a written order or at the hearing." Anyway, this last clause seems to have been the clincher for the 3d DCA.

In construing the Will as a whole, we find further evidence that it was French's intent to devise her residuary estate to Glenn without limitation from the express language of the Will's final provision. The Fifth Article states as follows:

In the preparation of this, my Last Will and Testament, I have carefully and thoughtfully considered each member of my family and all of my friends, and have not unintentionally omitted any of them, as it is my desire, and I so direct, that only those beneficiaries named herein, share as beneficiary of my probate estate.

The Fifth Article establishes that: (1) French disinherited her family, among whom Roberts claims to be a member, and did not unintentionally omit them; and (2) the only beneficiaries of French's estate are those named in the Will, i.e., Glenn and his wife Pearl.

Accordingly, because we find that the trial court erred in finding that the Will at issue was an oral will, we reverse the trial court's order invalidating the Will and remand with directions to enter judgment finding that Glenn is the sole beneficiary under French's Will.

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Faulkner v. Faulkner, --- So.3d ----, 2011 WL 2937302 (Fla. 1st DCA Jul 22, 2011)

If the examining committee says the person being examined is OK, that may be good news for the potential ward, but bad news for the examining committee. Why? Because now there's no guardianship "estate" from which to pay their fees. So who pays? The statute doesn't cover that contingency (oops!), a "gap" in the law this blog has covered in two prior cases [click here, here]. The judiciary's consistent call has been for statutory reform to fill this "gap"; unfortunately we're still waiting.

Case Study:

In this case a woman's children filed a petition to determine her incapacity. The trial court ultimately dismissed the petition, but found that the children had filed it in good faith, and ordered their mother to pay the examining committee fees, among other costs. Mother appealed.

F.S. 744.331(7)(b) provides that the examining committee’s fees “shall be paid by the guardian from the property of the ward or, if the ward is indigent, by the state.” The 1st DCA noted, “this seems to presume that the petition for incapacity is granted and a guardian is appointed.” F.S. 744.331(7)(c) allows the court to charge the petitioner to assume the committee’s fees “if the court finds the petition to have been filed in bad faith.”

As we all know by now, and the 1st DCA pointed out again, there’s quite a gap between the two subsections: who pays the examining committee’s fees when the petition was found to have been filed in good faith (or there is no finding of bad faith), but ends up dismissed?

Rather than trying to stitch the two sections together, the 1st DCA focused on the fact that the trial court had appointed an emergency temporary guardian for the mother; this indicated that she “was a ward during the pendency of the incapacity proceeding.” This was sufficient, in the 1st DCA’s view, to justify holding her responsible for the examining committee’s fees (hint to guardianship litigators: when in doubt, get a temporary guardian appointed). All's well that ends well, but what we really need is a statutory fix. Here's how the 1st DCA summarized the current -- unsatisfactory -- state of the law, and how it ultimately justified the trial court's fee ruling:

In Ehrlich v. Severson, the Fourth District reversed an order requiring the alleged incapacitated person to pay the examining committee's fees because “the procedural statute for determining incapacity does not make the potential ward responsible for examining committee fees where the guardianship petition is dismissed or denied.” 985 So.2d 639, 640 (Fla. 4th DCA 2008) (citing section 744.331(7), Fla. Stat.). The court noted that there was a “gap” in section 744.331(7) where a good faith petition is denied or dismissed, and it urged the Legislature to amend the statute to specify who pays the examining committee's fees in these circumstances. Id. at 640 n. 1. Although the court did not specify the party responsible for paying the examining committee fees, the court, in a subsequent decision involving the same appellant, determined under the same statute that “any award of fees incurred by counsel appointed to represent the subject must come, if at all, from the petitioner.” Ehrlich v. Allen, 10 So.3d 1210, 1211 (Fla. 4th DCA 2009) (emphasis supplied).

In [Levine v. Levine, 4 So.3d 730, 731 (Fla. 5th DCA 2009)], the Fifth District reversed an order requiring the petitioner to pay the examining committee fees where the petition to determine incapacity was dismissed and there was no finding that the petition was filed in bad faith. See 4 So.3d at 731. The court noted that “the statute [section 744.331(7)] has a gap in determining responsibility for payment of the examining committee fees when a good faith petition is denied or dismissed.” Id. (citing Ehrlich). And like the court in Ehrlich, the court in Levine urged the Legislature to address the issue. Id.

We do not disagree with Ehrlich or Levine; indeed, we agree with our sister courts that there is a “gap” in section 744.331(7) that the Legislature should address. Section 744.331(7)(b) provides that the examining committee fees are to be paid from the property of the ward, but this seems to presume that the petition for incapacity is granted and a guardian is appointed. And section 744.331(7)(c) provides that the costs of the proceeding—which, presumably, include the examining committee fees—are to be paid by the petitioner only if the court finds that the petition was filed in bad faith. The “gap” in the statute is that it does not specify who pays the examining committee fees when the petition is dismissed or denied and there is no finding that the petition was filed in bad faith or, as here, there is an express finding that the petition was filed in good faith. Requiring the petitioner to pay the fees in these circumstances would be inconsistent with section 744.331(7)(c) and requiring the guardian to pay the fee from the ward's property under section 744.331(7)(b) would not be possible if a guardian is never appointed; however, someone has to pay the fees because section 744.331(7)(a) states that the committee are “ entitled to reasonable fees” and, moreover, it is unlikely that the professionals required for the examining committee would serve if there was a risk of non-payment or if the payment was dependent upon the outcome of the proceeding. Cf. Ehrlich, 985 So.2d at 640 (acknowledging that “payment of the examining committee's fees should not be contingent on the outcome of the competency determination”).

We need not resolve the issue in this case, however, because an emergency temporary guardian was appointed for Appellant. Thus, unlike Ehrlich, where a guardianship was apparently never established for appellant because she was characterized only as a “potential ward” ( see 985 So.2d at 640) or “alleged ward” (see 10 So.3d at 1211), here, Appellant was a ward during the pendency of the incapacity proceeding because an emergency temporary guardian was appointed for her. See § 744.102(22), Fla. Stat. (defining “ward” as “a person for whom a guardian has been appointed”). The examining committee fees were incurred, and ordered, while the emergency temporary guardian had legal control over Appellant's property and, therefore, the fees were properly assessed against her under section 744.331(7)(b). For these reasons, we affirm the trial court's order requiring Appellant to pay the examining committee fees.

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Hancock v. Share, --- So.3d ----, 2011 WL 2650887 (Fla. 5th DCA July 8, 2011)

A guardian appointed by the court to take care of a minor child may act on behalf of the ward’s person or property, within certain statutorily defined limits. An important limitation is found in F.S. § 744.361(6)(c), which requires that the guardian, “[a]t the termination of the guardianship, deliver the property of the ward to the person lawfully entitled to it.” In other words, the guardian must hand over the property when the ward turns 18.

However, it's not always so simple. As estate planners know, management of assets may involve long term effects, and actions that a guardian takes during the period of minority may affect the ward’s ability to access the assets after turning 18. For instance, does putting cash into an annuity, which can't be accessed immediately upon the ward turning 18, violate F.S. § 744.361(6)(c)? 

Case Study:

In this case, after a settlement of a personal injury lawsuit, the ward’s mother, acting as guardian for her daughter, petitioned the trial court to put the proceeds of the settlement into an annuity that was payable over the next 27 years. The trial court denied the petition because the ward would not be able to access her money immediately upon turning 18:

After hearing a summary of the terms of the proposed settlement agreement, the trial court asked counsel whether the minor would be able to “get her cash out of the annuity when she turns 18”. Counsel replied, “no”.

The trial court entered an order approving the settlement of the minor's personal injury lawsuit, but refusing to authorize the purchase of a structured settlement annuity. The order reads:

The Court denies the guardian's request for authority to purchase an annuity contract for the benefit of the minor child payable beyond the age of majority. The Guardian of the property has no authority to bind the assets of the ward beyond the age of majority pursuant to Florida Statute 744.441(19); Guardianship of Bernstein v. Miller, 777 So.2d 1125 (Fla. 4th DCA 2001).

Because the trial court's order turned on F.S. § 744.441(19), it's worth stopping to read what the statute actually says. (Hint: focus on the statute's limited application to trusts.)

After obtaining approval of the court pursuant to a petition for authorization to act, a plenary guardian of the property... may... create or amend revocable trusts or create irrevocable trusts of property of the ward’s estate which may extend beyond the disability or life of the ward in connection with estate, gift, income, or other tax planning or in connection with estate planning. The court shall retain oversight of the assets transferred to a trust, unless otherwise ordered by the court.

The 5th DCA held that the annuity should have been approved because F.S. § 744.441(21) allows guardians to “[e]nter into contracts that are appropriate for, and in the best interest of, the ward.” The trial court’s reliance on F.S. § 744.441(19) was in error, because that statue applies only to trusts, not annuities. Thus, there is no requirement that the annuity be created in connection with tax planning:

Here, there were no trust documents at issue and, thus, the limitation set forth in section 744.441(19) was not at issue. Instead, the parties in this case submitted a proposed annuity contract which, pursuant to section 744.441(21) of the Florida Statutes, a trial court is authorized to approve, provided that the contract is ‘appropriate for, and in the best interest of, the ward.’ All parties and the trial court agreed that the annuity contract proposed by the parties in this case was in the minor's best interest. In addition, section 744.361(c) does not prohibit the entering into an annuity contract as long as the annuity contract is delivered to the ward at the termination of the guardianship. See § 774.102, Fla. Stat. (2009) (defining property as meaning ‘both real and personal property or any interest in it and anything that may be the subject of ownership.’). Accordingly, the trial court erred in refusing to approve the structured portion of the proposed settlement agreement.

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Thorpe v. Myers, --- So.3d ----, 2011 WL 2731937 (Fla. 2d DCA Jul 15, 2011)

In this case a 93-year-old ward had nine children who seemingly couldn’t agree that the sky was blue. After lengthy litigation, the trial court appointed a plenary guardian for the ward, who suffered from dementia. In separate appeals, the emergency temporary guardian and attorneys for two of the children appealed the court’s denial of their respective fee requests.

Guardian's Fees:

The 2d DCA held that the trial court’s complete denial of fees to the guardian was based on a misreading of F.S. 744.108(1), which requires that attorneys, but not guardians, demonstrate the “beneficial nature of services rendered” to the ward. Unlike those of attorneys, guardians’ services are presumed to benefit the ward. However, a circuit court may reduce the requested compensation to the extent that the guardian’s services were “unnecessary or unproductive.”

There are some exceptions to the general rule entitling a guardian to payment for services rendered, but these exceptions are limited. We briefly mention three such exceptions. First, a guardian cannot expect to be compensated for services rendered outside the scope of his or her appointment. In re Guardianship of Jansen, 405 So.2d 1074, 1077 (Fla. 2d DCA 1981); Poling v. City Bank & Trust Co. of St. Petersburg, 189 So.2d 176, 182–83 (Fla. 2d DCA 1966). Second, a guardian guilty of theft or other breach of duty may forfeit the right to compensation. See Am. Surety Co. of N.Y. v. Hayden, 112 Fla. 17, 150 So. 114, 121 (1933). Third, on occasion, usually when a family member is appointed, a guardian may agree to serve without compensation. Here, there is no exception to the statutory requirement that guardians be compensated for their services.

In order for an attorney to be awarded fees from the ward's estate under section 744.108(1), the attorney's services must benefit the ward or the ward's estate. See Butler, 898 So.2d at 1141. The clause in section 744.108(1) requiring the demonstration of the beneficial nature of the services rendered applies to attorneys, not guardians. Thus, under the statutory language, a guardian is not required to demonstrate that his or her services conferred a benefit on the ward or the ward's estate as a prerequisite for obtaining a compensation award. The statute appears to presuppose that a guardian's services benefit the ward or the ward's estate. Cf. Essenson v. Lutheran Servs. Fla., Inc. (In re Guardianship of King), 862 So.2d 869, 870 (Fla. 2d DCA 2003) (“Florida cases in which fees have been denied to court-appointed representatives appear to be only those in which he or she was found to have exceeded the scope of appointment.” (citing Jansen, 405 So.2d at 1077)).

It follows that the circuit court reached an incorrect legal conclusion in ruling that Ms. Thorpe was required to demonstrate that her services as emergency temporary guardian were beneficial to the Ward or the Ward's estate as a condition of receiving court-awarded compensation. The statutory scheme presumes that the services of guardians provide a benefit. To the extent that the services of a guardian are unnecessary or unproductive, the circuit court may reduce the requested compensation based on the factors listed in section 744.108(2) but may not deny compensation altogether.

Not only was the legal basis for denying the guardian any compensation flawed, but so too was the factual basis, the 2d DCA found. It disagreed with the circuit court’s finding that the guardian’s services “were of minimal, if any[,] benefit to the Ward, and were intended to benefit [two of the Ward’s children] in the Petition for Emergency Temporary Guardianship.” Instead, there was “nothing in the record suggesting that [the guardian] was working for [the two children] in disregard of her obligation to act in the best interests of the Ward. . . . The guardian works in the interest of the ward under the supervision and control of the court, not at the behest of the person or persons who sought the appointment.”

As evidence to support that claim, the 2d DCA pointed out that the “circuit court actually extended [the guardian’s] tenure as emergency temporary guardian for another four months.” It would make little sense, the 2d DCA implied, for a guardian providing “minimal, if any, benefit” to be asked to continue her responsibilities.

Attorneys' Fees:

The 2d DCA also addressed the circuit’s order denial of attorney’s fees and costs requested by the attorneys of the two children of the Ward who submitted the original petition for guardianship. As alluded to above, attorneys are entitled to “reasonable compensation” only to the extent that their services demonstrably benefit the ward. Here's how the 2d DCA summarized the law on this point:

Under section 744.108(1), “an attorney is entitled to receive a reasonable attorney's fee for professional services rendered and reimbursement of costs incurred for the benefit of the ward; payment of reasonable compensation is mandatory.” Price v. Austin, 43 So.3d 789, 790 (Fla. 1st DCA 2010). Under the statute, “the probate court is not ‘at liberty to award anything more or less than fair and reasonable compensation for the services rendered or monies expended in each individual case.’” Lutheran Servs., 978 So.2d at 890 (quoting Lewis v. Gramil Corp., 94 So.2d 174, 176 (Fla.1957)). However, the attorney's entitlement to payment of reasonable fees and costs is subject to the limitation that his or her services must benefit the ward. King v. Fergeson, Skipper, Shaw, Keyser, Baron, & Tirabassi, P.A., 862 So.2d 873, 874 (Fla. 2d DCA 2003) (Villanti, J., concurring specially); Butler, 898 So.2d at 1141.

The circuit court found that the two children’s attorneys did not provide any services for the ward. By an abuse of discretion standard, the 2d DCA acknowledged that some of the attorneys’ services amounted to “unproductive litigation over who would be appointed as guardian or other goals that did not benefit the Ward or her estate.”

But some work did make the ward better off. Were it not for the guardianship proceedings initiated by the attorneys, there would have been no determination of incapacity, and no appointment of a plenary guardian, each of which seemed to have been in the ward’s best interest. Accordingly, the 2d DCA remanded to the circuit court with instructions to “make an appropriate award of fees and costs.”

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Rocca v. Boyansky, --- So.3d ----, 2012 WL 280752 (Fla. 3d DCA February 01, 2012)

When an interested person files a caveat to a will, F.S. § 731.110(3) requires that Formal Notice be given to the caveator, and that such person be given the opportunity to participate in proceedings before a will is admitted or a personal representative is appointed. The consequences of not giving timely notice to a caveator were previously addressed on this blog here, and related legislation discussed here.

But what happens when Formal Notice is given to a caveator, and the caveator fails to timely file responses and affirmative defenses? Florida Probate Rule 5.040(a)(1) requires interested persons to serve written defenses “within 20 days after service of the notice.” Is the caveator barred from participating in the proceedings if the answer and affirmative defenses are untimely?

"Formal Notice" is neither a statute of limitations nor a mandatory non-claim provision:

In this case Rocca filed a caveat and was given the required Formal Notice, stating that a response was due by September 21, 2009, twenty days after the notice was served. Rocca did not file a response within the required time, but the probate court granted a motion for extension until December 15, 2009. However, Rocca did not file a response until December 22, the night before a hearing on the amended petition for administration. At the hearing, the probate court did not address the arguments raised in Rocca’s response, and ultimately admitted the will. It seems that the probate court thought that Rocca was barred from contesting the will because his answer and affirmative defenses were untimely.

The 3rd DCA disagreed, and reversed the trial court's dismissal. According to the 3d DCA, despite the untimely response, the probate court should have heard Rocca’s arguments before admitting the will. Thus, F. S. § 731.110(3) was not satisfied because Rocca was not given the opportunity to participate in the proceedings. Here's how the 3d DCA explained its ruling:

The appellees would excuse this error on the basis that Rocca was barred from defending against the allegations of the Amended Petition by the untimely filing of his answer and affirmative defenses to the Amended Petition. We find no merit to this argument. Rocca was obligated to serve written defenses to the petition served on him within twenty days after formal notice of the petition. Fla. Prob. R. 5.040(a)(1). His Answer, Affirmative Defenses, and Counter Petition in this case was due (after court sanctioned extensions) on December 15, 2009. He filed this response seven days late and thirty minutes before the December 22, 2009, hearing. If the trial court was annoyed with Rocca and his counsel, it had every right to be so. However, the law is clear that Rule 5.040(a)(1) is neither a statute of limitations nor a mandatory non-claim provision. See Long v. Willis, 36 Fla. L. Weekly D1811 (Fla. 2d DCA Aug. 17, 2011) [click here]; Nardi v. Nardi, 390 So. 2d 438, 440 n. 2 (Fla. 3d DCA 1980). Rather, this Court and other Florida courts which have considered the question all treat the [Formal Notice] rule as a procedural one. See Long, 36 Fla. L. Weekly at D1814; see also Tanner v. Estate of Tanner, 476 So. 2d 793, 794 (Fla. 1st DCA 1985). Since Rocca’s Answer, Affirmative Defenses, and Counter Petition was filed before the hearing on the petition, Rocca was not barred from participation in the hearing on the Amended Petition or asserting such defenses as he had to that petition. Tanner, 476 So. 2d at 794 (reversing order striking beneficiaries’ untimely filed answers to petition for administration, which were filed before the hearing on the petition and before entry of order admitting will to probate and granting letters of administration).

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Astrue v. Capato ex rel. B.N.C., --- S.Ct. ---- 2012 WL 1810219 (U.S. May 21, 2012)

Karen Capato gave birth to twins 18 months after her husband died from cancer in 2002 using sperm he froze after his cancer diagnosis. The Social Security Administration (SSA) defers to state law when deciding whether to award claims for benefits to heirs conceived posthumously in the absence of a will. In this case Florida law controlled, and the decedent’s will made no mention of his posthumously conceived twins, but did name his spouse, the son they had prior to his death, and two children from a previous marriage. The US Supreme Court sided with the District Court’s determination of non-eligibility based on the following interpretation of Florida law:

Karen Capato claimed survivors insurance benefits onbehalf of the twins. The SSA denied her application, and the U. S. District Court for the District of New Jersey affirmed the agency’s decision. See App. to Pet. for Cert.33a (decision of the Administrative Law Judge); id., at 15a (District Court opinion). In accord with the SSA’s construction of the statute, the District Court  determined that the twins would qualify for benefits only if, as §416(h)(2)(A) specifies, they could inherit from the deceased wage earner under state  intestacy law. Robert Capato died domiciled in Florida, the court found. Under [Florida] law, the court noted, a child born posthumously may inherit through intestate succession only if conceived during the decedent’s lifetime. Id., at 27a–28a.FN1.

FN1. The District Court observed that Fla. Stat. Ann. §732.106 (West 2010) defines “‘afterborn heirs’” as “‘heirs of the decedent conceived before his or her death, but born thereafter.’” App. to Pet. for Cert. 27a (emphasis added by District Court). The court also referred to §742.17(4), which provides that a posthumously conceived child “‘shall not be eligible for a claim against the decedent’s estate unless the child has been provided for by the decedent’s will.’” Id., at 28a.

For an excellent write up this case you'll want to read the analysis posted by Prof. Jeff Pennell on the LISI network entitled Jeff Pennell on the Supreme Court Decision in Caputo: An Update on the New Biology.

Can in vitro fertilization be used to create new beneficiaries of multi-generational dynasty trusts?

For most Florida trusts and estates lawyers the US Supreme Court's decision in Astrue won't be surprising. We've long known that posthumously conceived children don't qualify as intestate heirs under F.S. 732.106, and there's likely a good number of planners who have previously worked with F.S. 742.17(4).

The more interesting question for practicing trusts and estates lawyers, which remains unresolved under Florida law, is how children of assisted reproduction are treated for class-gift purposes. Are such children included as class members in the case, for example, of an income or a remainder interest to a trust beneficiary’s “children” or “descendants,” and if so, under what circumstances are they included? Here's how Prof. Pennell frames the issue in his write up of the Astrue decision:

If D leaves DNA in the freezer and that DNA is used postmortem with the requisite permission to produce a child, it seems relatively clear that D intended that child to be a beneficiary of D's estate. But what about relatives of the DNA provider? Assume, for example, that the provider's ancestor created a trust for the provider's benefit for life, remainder to the provider's descendants. Does the settlor intend to give anyone (the provider's surviving spouse or anyone else) a blank check to create more remainder beneficiaries? That question was answered in the affirmative by In re Martin B. (Sur. Ct. 2007), 841 N.Y.S.2d 207.

The question whether a provider intends for a posthumously conceived child to be treated as their own is easier than the question whether an ancestor intends for someone else to be able to use the DNA to create more beneficiaries of the ancestor's trust. Indeed, if clients were asked the question, “would you want your daughter-in-law to be able to make herself pregnant with your son's frozen sperm, to create more beneficiaries of your trust,” would their answers predictably be the same as if they were asked “do you want your son-in-law to be able to withdraw your daughter's frozen egg (or their frozen embryo) and find a surrogate mother to make more beneficiaries of your trust”? There is likely no way to predict a typical client's reaction to either question, nor to predict whether any client's response would distinguish between a daughter-in-law using the son's sperm and bearing the child herself as opposed to a son-in-law finding a surrogate mother to carry the daughter's child.

. . . 

As all this shakes out, it may be wise for estate planners to draft for these issues, to articulate their clients' intent in each regard. Particularly because state law is in flux, because one-size-fits-all legislation may not reflect a client's intent, and because conflict of laws issues may inform a court's reliance on the law of a different state.

So what's it all mean?

First, the question of whether posthumously conceived children are included as beneficiaries of multi-generational trusts should be answered by focusing on the original trust settlor's intent, not biological science. In other words, the right question is "what did the settlor intend?" not, "are posthumously conceived children biologically related to their parents?" The intent v. science conflict is crystalized beautifully in testamentary DNA cases [see here, here]. In Florida, the intent v. science conflict has yet to play itself out in an appellate decision involving a class gift to posthumously conceived children.

Second, one-size-fits-all legislation is never perfect, but it's sorely needed for intestate estates involving posthumously conceived children. As of 2008, we now have new UPC § 2-705 to potentially fill this gap (this new UPC provision hasn't been adopted in Florida). Here's how new UPC § 2-705 is described in The Uniform Probate Code Addresses the Class-Gift and Intestacy Rights of Children of Assisted Reproduction:

Although estate-planning specialists do not often deal directly with intestate estates, the treatment of children of assisted reproduction under the intestacy laws is a matter of social importance and, under the UPC, governs how such children are treated for purposes of a class gift. UPC § 2-705 provides that a class gift that uses a term of relationship to identify the class members includes a child of assisted reproduction and their respective descendants if appropriate to the class, in accordance with the rules for intestate succession regarding parent-child relationships.

It bears emphasizing that UPC § 2-705 establishes a rule of construction regarding class gifts, not a mandatory rule. A rule of construction is a default rule that applies in the absence of a contrary intention. Consequently, drafting attorneys have every opportunity to alter a rule of construction in order to give effect to a client's preferences.

Finally, until, as Prof. Pennell puts it, "all this shakes out," there's only one way to deliver a semblance of certainty to estate planning clients (as well as giving voice to their personal values): good drafting. When it comes to good drafting, no man is an island. I don't care how good you are, it never hurts to read what other thoughtful trusts and estates lawyers are drafting. In Florida, one of the best drafters in practice is Bruce Stone of Goldman Felcoski & Stone in Coral Gables, Florida. At the 2012 Heckerling conference earlier this year Bruce published a short piece entitled Drafting for Flexibility in Dynasty Trusts, in which he provides sample trust language addressing class gifts to posthumously conceived children. Bruce's clause probably won't be the last word in drafting for this contingency, but it's a solid start.

Stay tuned for more . . .

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Levin v. Levin, --- So.3d ----, 2011 WL 1772245 (Fla. 4th DCA May 11, 2011)

In a case concerning the “insane delusion” question, a mother thought that her daughter, Gail, had only visited her once in 11 years. The mother wrote her daughter an e-mail to this effect, and repeated the accusation to the attorney who drafted her will and trust. But the record contained evidence that indicated that Gail had visited her mother several times in the seven years prior to the execution of her mother’s will and trust.

Here's how the 4th DCA summarized the standard for setting aside a will on "insane delusion" grounds:

Gail claims that the will and trust were based upon an “insane delusion.” The law states that “[w]here there is an insane delusion in regard to one who is the object of the testator's bounty, which causes him to make a will he would not have made but for that delusion, the will cannot be sustained.” Miami Rescue Mission, Inc. v. Roberts, 943 So.2d 274, 276 (Fla. 3d DCA 2006) (quoting Newman v. Smith, 77 Fla. 633, 82 So. 236, 236 (1919)). “An insane delusion is a ‘spontaneous conception and acceptance as a fact, of that which has no real existence adhered to against all evidence and reason.’” McCabe v. Hanley, 886 So.2d 1053, 1055 (Fla. 4th DCA 2004) (citation omitted). 

The trial court upheld the challenged will on testamentary capacity grounds, but failed to address the "insane delusion" claim in its post-trial order. This omission ended up getting the case bounced back to the trial judge for a new trial on this issue alone.

In the present case, the mother persisted in the belief that Gail had visited her only once in about ten years. The mother told William and the attorney who prepared the will and trust that she had not seen Gail anywhere from ten to eleven years ago.FN1 The mother sent Gail an email complaining that Gail had been to see her only once in eleven years. Gail replied and disputed in detail the mother's contention.

FN1. In the taped execution of the will and trust documents, the mother again repeated to the attorney that she had not “seen my daughter but one time in seven years.”

In the record, there was evidence that the mother and Gail had seen each other multiple times within the seven-year period preceding the execution of the testamentary documents.FN2 The trial court did not address the evidence of visitations between the mother and Gail or that the evidence appeared to contradict the many assertions by the mother that Gail had not visited her in seven to eleven years. Thus, the trial court never decided whether this contradiction in evidence rose to the level of “insane delusion” and whether this incorrect statement repeated by the mother was linked to reducing the bequest to Gail from the 1987 will to the amount given to her in the disputed will and trust. We therefore reverse on this issue for the trial court to make findings on this issue either after reviewing the record or, in its discretion, after an evidentiary hearing.FN3

FN2. The record denotes that Gail and her mother saw each other in February 2001, August 2002, January 2003, September 2003, January 2004, January 2005, and March 2007.

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Shapiro v. Tulin, --- So.3d ----, 2011 WL 1878014 (Fla. 4th DCA May 18, 2011)

In a dispute arising out of the appellant’s mirror-image agreements with the decedent to make devises for each other in the event of either of their deaths, the personal representative of the decedent’s estate objected to the appellant’s claim. That resulted in the appellant’s suing for replevin, breach of contract, and breach of fiduciary duty.

The personal representative moved to dismiss on three grounds, only one of which—failure to comply with the requirements of F.S. 732.701—was addressed by the trial court. F.S. 732.701 is Florida's "will contract" statute, and its key provisions are the following:

No agreement to make a will, to give a devise, not to revoke a will, not to revoke a devise, not to make a will, or not to make a devise shall be binding or enforceable unless the agreement is in writing and signed by the agreeing party in the presence of two attesting witnesses. . . .  The execution of a joint will or mutual wills neither creates a presumption of a contract to make a will nor creates a presumption of a contract not to revoke the will or wills.

The trial court granted the personal representative’s motion to dismiss, agreeing that the contract between the appellant and the decedent was signed by only one witness instead of the required two.

The 4th DCA reversed for two reasons. The first was that the trial court ran afoul of the “four corners” rule: the appellant’s complaint stated that “all conditions precedent [to his agreement with the decedent] were met, excused, or waived,” and this should have been accepted as true for purposes of considering the motion to dismiss. Since this was the only basis for having granted the motion, the decision was reversed:

The complaint alleged that all conditions precedent – which would include the signatures of two attesting witnesses – were met, excused, or waived and, as this court has stated, such allegations must be accepted as true. As such, the trial court’s finding that section F.S. 732.701 was not complied with was based on facts not within the scope of the appellant’s complaint. Thus, because a court may not look anywhere but to the document on a motion to dismiss, and the trial court here clearly exceeded the boundaries of the four corner of appellant’s complaint in dismissing the claim on the basis that two attesting witnesses did not sign the agreement in accordance with section F.S. 732.701, the trial court erred in its dismissal of appellant’s claim.

The 4th DCA also held that under Fla. R. Civ. P. 1.190(a) the appellant was entitled to at least one opportunity to amend his complaint before it was dismissed. Why? Because a motion to dismiss isn't an answer, and under rule 1.190(a) you have a right to amend your complaint once as a matter of law before the other side files an answer.

Additionally, appellant was not afforded the opportunity to amend his complaint once as a matter of law, pursuant to rule 1.190(a), Florida Rules of Civil Procedure.

. . . [A]ppellant pled generally that all conditions precedent were met and that he was not afforded the opportunity to amend his complaint to specifically plead the same in regards to the signatures of two attesting witnesses. Further, appellant contended that he asked for leave to amend his complaint once to cure the defects discussed in Tulin's motion to dismiss, as a matter of course, and was denied this opportunity by the trial court. As noted above, a motion to dismiss is not a responsive pleading and will not affect a party's ability to amend, pursuant to the Florida Rules of Civil Procedure. Appellant should have been afforded the right to amend his complaint to allege the compliance with all conditions precedent more specifically before the trial court dismissed his claim with prejudice.

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Taplin v. Taplin, --- So.3d ----, 2012 WL 1605253 (Fla. 3d DCA May 09, 2012)

Under F.S. 95.031, the statute of limitations period for most lawsuits starts running as of the date "when the last element constituting the cause of action occurs." Not so for breach of trust actions. Under F.S. 736.1008, the clock usually starts ticking as of the date the beneficiary knew or should have known of the breach of trust. This distinction is huge, and can be the difference between life or death for your case, as it was in the linked-to case above.

Case Study:

Under F.S. 736.1008, the statute of limitations period for a breach of trust action is usually 4 years (although it can range from as little as 6 months [which I wrote about here] to as long as 40 years). F.S. 736.1008 doesn't explicitly say you have 4 years to sue (that would be too easy), instead it gets you to a 4-year limitations period by cross referencing to "the applicable limitations period provided in chapter 95." Because a breach of trust is a form of intentional tort, the applicable limitations period is found in F.S. 95.11(3)(o), which is 4 years.

But when does the 4-year clock start ticking? In the linked-to case above the trustees argued the clock starts ticking when the breach occurs. In other words, if the breach occurred more than 4 years prior to when the lawsuit was filed, game over, case dismissed. This argument worked with the trial judge. The 3d DCA didn't buy it.

As we understand the trustees' argument, the trustees contend section 95.11(3)(o) limits the reach back of the second amended complaint in this case to four years from the date it was filed. This contention also is flawed.

Why did the trustees' argument fail on appeal? Because in breach of trust cases you only get to F.S. 95.11(3)(o) after you've complied with F.S. 736.1008, which says the clock starts ticking on this kind of case only after the beneficiaries get fair notice of the breach of trust. At the time the trust was created, the then applicable trust limitations statute was F.S. 737.307. As the 3d DCA noted, "for purposes of the issues in this [case], there is no practical difference in the application of [F.S. 737.307 and F.S. 736.1008]." Under F.S. 737.307, you only get to F.S. 95.11(3)(o) after the beneficiary is given fair notice in the form of a trust accounting and opportunity to examine the trust's records. If that didn't happen, F.S. 95.11(3)(o) doesn't apply.

As previously noted, the second sentence of section 737.307 provides for a limited application of Chapter 95 to actions against a trustee, namely those actions where (1) “[the] trustee ... has issued a final account or statement [to] the beneficiary,” and (2) “has informed the beneficiary of the location and availability of records for his examination.” See § 737.307, Fla. Stat. (1975). Section 95.02 necessarily had to yield to this incursion by the Legislature into the law of equity. Absent fulfillment by a trustee of the two conditions set forth in the second sentence of section 737.307 of the Florida Statutes, the common law remains in full force and effect with respect to actions brought by a beneficiary against a trustee of a trust.

What happens if F.S. 95.11(3)(o) doesn't apply?

It might surprise some to learn that under Florida common law breach of trust cases are not subject to any statute of limitations defenses (the best you could do is assert an equitable laches defense). So if F.S. 95.11(3)(o) isn't triggered in your case, defaulting to common law means the trustee can't hide behind a statute of limitations defense. That's what the 3d DCA was alluding to in the last sentence quoted above . . 

Absent fulfillment by a trustee of the two conditions set forth in the second sentence of section 737.307 of the Florida Statutes, the common law remains in full force and effect with respect to actions brought by a beneficiary against a trustee of a trust.

. . . and here's how the 3d DCA summarized the common-law on this point earlier in its opinion.

It has long been recognized at common law that a statute of limitations is inapplicable to shield trustees from their responsibilities to their beneficiaries. Nayee v. Nayee, 705 So.2d 961, 963 (Fla. 5th DCA 1998). As the Florida Supreme Court stated before the turn of the last century:

[I]n cases of continuing trusts that are strictly such, and recognized and enforced in courts of equity only, so long as the relation of trustee and cestui que trust continues to exist, no length of time will bar the cestui que trust of his rights in the subject of the trust as against the trustee [subject to certain exceptions not relevant here].

Anderson v. Northrop, 30 Fla. 612, 12 So. 318, 324 (Fla.1892); see also Sewell v. Sewell Props., 30 So.2d 361, 362–63 (Fla.1947) (“Where the trustee by fraud or deception, or even by keeping quiet when he should speak and account to his cestui, causes the cestui to be ignorant of the rights of the cestui and of the duties of the trustee, laches will not be imputed to the cestui until discovery of the true condition.”). In fact, when the Legislature created chapter 95 in 1872, a statute-denominated “limitations on actions,” the Legislature expressly precluded the applicability of the statute to cases against a trustee of an express trust. See § 95.02, Fla. Stat. (1872) (“This chapter shall not apply to any action ... with respect to any moneys or property held or collected by any officer or trustee or his sureties .”).

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Miller v. Miller, --- So.3d ----, 2012 WL 1365064 (Fla. 5th DCA April 20, 2012)

Trustees are fallible human beings like the rest of us: they can be paranoid, arrogant, uncooperative, mean, petty, abusive, jealous, condescending, hypocritical . . . the list goes on and on. While all this may make your blood boil, none of it amounts to a surcharge suit if you can't also prove you were somehow economically damaged.

The economic damages element of trusts and estates litigation is what anchors these often morally ambiguous cases in the realm of objective reality. Reasonable people can disagree about what's "right" or "wrong" trustee behavior, but we all do math the same way. If the math doesn't add up to a damages claim . . . you don't have a case. Period, end of story. Which may make perfect sense to lawyers and judges (it does to me), but it's pure "crazy talk" to most non-lawyers, who will beg you to please take their case because a trustee is being a total jerk! If you don't have the stone-cold discipline to say "NO" when the math doesn't add up, you're not doing anyone any favors. As I recently wrote here, you can be half way through a jury trial and still get bounced out of court on this issue alone. In the case linked-to above, the judge didn't stop the trial midway, but the end result was the same: no damages = no surcharge.

Appellant . . . as beneficiary of a family trust, filed a surcharge action[FN1] against the co-trustees of the trust. He sought damages alleging that the co-trustees improperly entered into a lease agreement that did not provide fair market value to the trust. . . .  Appellant appeals from a final judgment refusing to remove co-trustees . . . The trial court's finding that the trustees acted in the best interest of the trust in entering the lease are supported by competent, substantial evidence. Additionally, the trial court correctly concluded that Appellant failed to prove damages that would support imposing a surcharge against the trustees. See Crusselle v. Mong, 59 So.3d 1178, 1181 (Fla. 5th DCA 2011) (“The elements of a cause of action for breach of fiduciary duty are (1) the existence of a duty, (2) breach of that duty, and (3) damages flowing from the breach.”).

[FN1.] A surcharge action seeks to impose personal liability on a fiduciary for breach of trust through either intentional or negligent conduct. See Black's Law Dictionary 1441 (6th ed. 1990); see also Harding v. Rosoff, 951 So.2d 912, 914 (Fla. 4th DCA 2007) (defining “surcharge” as “charge against a fiduciary to compensate a beneficiary for the breach of fiduciary duty”); Merkle v. Guardianship of Jacoby, 862 So.2d 906, 907 (Fla. 2d DCA 2003) (defining “surcharge” as “the amount that a court may charge a fiduciary that has breached its duty”).

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McKeegan v. Ernst, --- So.3d ---- 2012 WL 1192186 (Fla. 4th DCA April 11, 2012)

In contested probate proceedings, the law in Florida is clear: traditional standards controlling the issuance of temporary injunctions or "freeze" orders in other civil actions do NOT constrain a probate judge in the exercise of his inherent jurisdiction over a decedent's estate. See In re: Estate of Barsanti, 773 So.2d 1206 (Fla. 3d DCA 2000). As I previously wrote here, this same permissive standard has been extended to contested guardianship proceedings.

What's interesting about the linked-to opinion above is what the 4th DCA did NOT do. It did NOT extend to trust cases the permissive temporary-injunction standard applied to contested probate proceedings.

Why the permissive probate standard wasn't applied in this trust case isn't addressed by the 4th DCA, but my guess is it has something to do with the fact that under F.S. 731.105 probate cases are by statute in rem proceedings, and that under F.S. 736.0201 trust cases are presumed to be just like any other civil suit, which are usually in personam proceedings. This jurisdictional distinction is a big deal, and plays out in significant ways in how these cases should be litigated, including, apparently, when and if a temporary-injunction should be granted. Here's how the 4th DCA explained its ruling:

“A party seeking a temporary injunction must prove: (1) that it will suffer irreparable harm unless the status quo is maintained; (2) that it has no adequate remedy at law; (3) that it has a substantial likelihood of success on the merits; (4) that a temporary injunction will serve the public interest.” Jouvence Ctr. for Advanced Health, LLC v. Jouvence Rejuvenation Ctrs., LLC, 14 So.3d 1097, 1099 (Fla. 4th DCA 2009) (citation omitted). “The party must also establish that it has a clear legal right to the relief sought. Finally, a trial court must make ‘clear, definite, and unequivocally sufficient factual findings' supporting each of the required elements before entering an injunction.” Id. (citation omitted). “[A] trial court reversibly errs when an order fails to make specific findings for each of the elements.” Wade v. Brown, 928 So.2d 1260, 1262 (Fla. 4th DCA 2006) (citation omitted). Florida Rule of Civil Procedure 1.610(c) provides that “[e]very injunction shall specify the reasons for entry....” The order granting the temporary injunction herein does not make sufficient factual findings which support each of the elements. On remand, the trial court must make specific findings showing that appellees are entitled to relief.

Additionally, appellant argues and we agree that her due process right to notice and an opportunity to be heard were violated because appellees did not meet their heavy burden to establish that notice was not required.

The ex parte temporary injunction failed to meet the requirements of Florida Rule of Civil Procedure 1.610(a). Appellees' attorney did not certify in writing any efforts made to give notice or any reasons why notice should not be required. Fla. R. Civ. P. 1.610(a)(1)(B). Fla. High Sch. Activities Ass'n., Inc. v. Benitez, 748 So.2d 358 (Fla. 5th DCA 1999) (attorney did not certify in writing any efforts made to give notice and notice by facsimile only one hour before injunction was granted was insufficient). Rule 1.610(a)(2) also requires the court to “give the reasons why the order was granted without notice if notice was not given,” which the trial court did not do. See Bookall v. Sunbelt Rentals, Inc., 995 So.2d 1116 (Fla. 4th DCA 2008) (order failing to explicitly state reasons why the order was granted without notice requires reversal even though movant met its burden of establishing the elements for entry of an injunction). For these additional reasons we reverse the order granting the ex parte temporary injunction.

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Who serves as personal representative (PR) of an estate can have huge real-world consequences. For example, under F.S. 768.20 only the PR has standing to bring a wrongful death suit on behalf of the estate and the survivors [click here]. Also, in contested probate proceedings, the PR is presumed to have direct and confidential access to all of the decedent's privileged papers/ medical records, as well as access to estate funds to pay legal fees. These facts probably explain why PR rulings are often appealed, shining a light on a recurring problem.

For reasons unclear to me, probate judges seem especially challenged by the law governing when/how a judge can remove a serving PR, or when/how a judge can refuse to appoint a PR with statutory preference under F.S. 733.301. These cases get appealed all the time, almost always resulting in reversals [e.g., see here, here, here, here, here].

If there's one word that sums up where these cases go wrong it's: EVIDENCE. Or more precisely, the lack thereof. Probate judges are given a great deal of latitude when asked to decide estate administration issues. But those decisions must be based on evidence, adduced at properly noticed evidentiary hearings; not on the fly based on counsel arguments at a 15-minute hearing. That's the lesson to be drawn . . . again . . . from the latest batch of appellate decisions reversing three probate judges on opposite sides of the state (1 in Tampa, 2 in Miami) who failed to adhere to this simple rule.

Zulon v. Peckins, --- So.3d ----, 2012 WL 933013 (Fla. 3d DCA February 08, 2012):

In this case a Miami PR was removed without notice or evidentiary basis. In another case dealing with another Miami PR just last year, the 3d DCA held in Estate of LoCascio this kind of ruling is reversible error. One year later, nothing's changed: it's still reversible error:

The appellant, Elizabeth Zulon, appeals from an order of the probate court removing her as co-personal representative of her father's estate. Because removal was ordered without notice or an evidentiary hearing, “the ruling did not meet even the most rudimentary requirements of due process.” LoCascio v. Estate of LoCascio, 78 So.3d 573, 574 (Fla. 3d DCA 2011). We reverse and remand with instructions to reinstate the co-personal representatives; FN1 discharge Mr. Peckins as successor personal representative; and conduct a duly noticed evidentiary hearing regarding the removal of Elizabeth Zulon and Ana Zulon as co-personal representatives.

Lezcano v. Estate of Hidalgo, --- So.3d ----, 2012 WL 1414826 (Fla. 3d DCA April 25, 2012):

In yet another Miami case, yet another probate judge got reversed for removing yet another Miami PR without notice or an evidentiary hearing. Go Miami!!

Mercedes Lezcano appeals an order of the probate court, removing her as personal representative of the estate and co-trustee of the trust of her deceased brother pursuant to a generalized order instructing her to show cause why she should not be held in contempt for a purported failure, in her capacity as personal representative, to comply with “[certain] orders [of the court]” and “failing to place all income and assets into [a] restricted depository” and related alleged misdeeds. “Because [the] removal[s were] ordered without notice or an evidentiary hearing, ‘the ruling did not meet even the most rudimentary requirements of due process.’ “Zulon v. Peckins, No. 3D11–1511, 2012 WL 933013, at *1 (Fla. 3d DCA Mar. 21, 2012) (quoting LoCascio v. Estate of LoCasio, 78 So.3d 573, 574 (Fla. 3d DCA 2011)). We reverse and remand with instructions to reinstate Lezcano as personal representative of the estate and co-trustee of the trust, and discharge Mr. Mendez as curator of the estate.

Bowdoin v. Rinnier, --- So.3d ----, 2012 WL 639005 (Fla. 2d DCA February 29, 2012):

In this case the decedent died intestate. Under F.S. 733.301 the decedent's husband has statutory priority for appointment as PR. However, a court isn't bound by F.S. 733.301 if there's evidence proving the statutorily preferred person “lacks the necessary qualities and characteristics” to serve as PR. But again, the key word is evidence. Unproven allegations won't cut it, even if the person making those allegations is the decedent's mother.

A circuit court has discretion to appoint someone other than the preferred person as personal representative of an intestate estate. In re Estate of Snyder, 333 So.2d 519, 520 (Fla. 2d DCA 1976); Garcia v. Morrow, 954 So.2d 656, 658 (Fla. 3d DCA 2007). However, where a statutorily preferred individual is not appointed, the record must show that the preferred person is not fit to serve as personal representative. DeVaughn v. DeVaughn, 840 So.2d 1128, 1133 (Fla. 5th DCA 2003). If the record supports the conclusion that the preferred person “lacks the necessary qualities and characteristics” to act as personal representative, the court has discretion to refuse to make the appointment. Padgett v. Estate of Gilbert, 676 So.2d 440, 443 (Fla. 1st DCA 1996).

Ms. Rinnier produced no witnesses or evidence at the hearing to show that Mr. Bowdoin was disqualified from serving. Although we understand the dilemma faced by the circuit court given the serious nature of the allegations contained in Ms. Rinnier's petition, she was nevertheless required to support those allegations with evidence. In the absence of such an evidentiary basis, the circuit court was not free to appoint someone other than Mr. Bowdoin. We therefore reverse the circuit court's appointment of Ms. Rinnier and remand for an evidentiary hearing to determine whether Mr. Bowdoin, as the person having statutory preference, lacks the necessary qualities to administer his wife's estate. See id.

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Bellamy v. Langfitt, --- So.3d ----, 2012 WL 385606 (Fla. 3d DCA February 08, 2012) 

There is a central tension in the law of trusts between the rights of settlors to specify exactly how they want their trusts administered, and the rights of beneficiaries to have their trusts administered in a fair and equitable manner.

The 3d DCA's opinion in this case crystallizes that tension. After presumably having full access to all of the relevant evidence, the probate judge in this case made a factual determination, concluding it was in the beneficiaries' best interest to modify the trust by eliminating a clause requiring a corporate trustee at all times. Based on a "no-modification" clause in the trust agreement, the 3d DCA reversed, even if, as the 3d DCA admitted, the trial judge's ruling was in the best interests of the trust's beneficiaries.

Does settlor's "intent" always prevail? NO

Effectuating settlor intent is the primary guiding principle of trust law. What's often overlooked is that this principle has always been subject to limitations based on competing public policy concerns. For example, a trust clause disinheriting a beneficiary for marrying someone of a certain faith won't be enforced on public policy grounds, no matter how clearly this outcome violates the settlor's intent (a topic I previously wrote about here). Another more common example is the spendthrift clause found in most well drafted trust agreements. No matter what the settlor's intent may be, for public policy reasons, under F.S. 736.0503 some creditors are permitted to bypass the trust's spendthrift clause, particularly those who supply the beneficiary with "necessaries" (usually food and shelter, but sometimes clothing and transportation, if these are not extravagant). Most jurisdictions, like Florida in F.S. 736.0503, also permit courts to ignore a settlor's spendthrift clause to satisfy a beneficiary's child support and alimony payment obligations.

Beneficiary's "best interests" vs. Settlor's conflicting "intent":

Traditionally, strong public policy principles were the only limits placed on settlor intent. That's changing. Today, a trust beneficiary's "best interests" are also weighed heavily against, and sometime permitted to trump, a settlor's contrary intent. Prof. Gallanis recently published an excellent article examining this trend in trust law entitled, The New Direction of American Trust Law. Here's an excerpt:

In navigating between the extremes of settlor control and beneficiary control, the law of trusts has at times taken a position more favorable to the settlor, and at other times a position more favorable to the beneficiaries. . . . [A]fter decades of favoring the settlor, [American trust law] is moving in a new direction, with a reassertion of the interests and rights of the beneficiaries. I [believe] this new direction is appropriate and welcome.

. . . 

[T]he new direction of American trust law is to rebalance the wishes of the settlor with the ownership rights of the beneficiaries. The administration of the trust must, in the end, be for the benefit of the beneficiaries, and their equitable ownership over the trust assets must be respected.

For trust-administration clauses, such as the mandatory corporate trustee clause at issue in the 3d DCA opinion linked-to above, the new trend in trust law is based on the doctrine of "administrative deviation," which permits the modification/deletion of problematic trust clauses if they conflict with the best interests of the beneficiaries. This doctrine was codified in section 412(b) of the Uniform Trust Code. Florida adopted its own version of the rule in F.S. 736.04115.

Why can beneficiary "best interest" trump settlor "intent" in these cases? The answer is found in the comment to UTC section 412(b):

Although the settlor is granted considerable latitude in defining the purposes of the trust, the principle that a trust have a purpose which is for the benefit of its beneficiaries precludes unreasonable restrictions on the use of trust property. An owner’s freedom to be capricious about the use of the owner’s own property ends when the property is impressed with a trust for the benefit of others. 

Case Study: 

The estate/trust at the center of the linked-to case above has been litigated for years. In order to resolve one facet of that litigation, the parties entered into a settlement agreement permitting the trust's corporate trustee to resign without liability and allowing the trust to proceed into the future without a corporate trustee. The no-corporate-trustee element of the deal required modification of the trust agreement, which contained a mandatory corporate-trustee clause.

After presumably considering the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and extrinsic evidence relevant to the proposed modification, the trial judge approved the settlement agreement -- even if it was contrary to the settlor's intended mandatory corporate-trustee clause -- because the settlement agreement was fair, reasonable and in the best interests of the trust's beneficiaries. The 3d DCA reversed based on a no-modification clause included in the trust agreement . . . even if the modification was in the best interest of the beneficiaries:

In Paragraph 18 of the Trust, as restated in 2002, Mr. Bellamy specifically addressed, and prohibited, the judicial modification of the Trust, specifically providing: “[T]o the extent permitted by law, I prohibit a court from modifying the terms of this Trust Agreement under Florida Statutes s. 737.4031(2) or any statute of similar import.” . . . 

In the instant case, the trial court found that the settlement agreement was in the best interest of the beneficiaries and that Paragraph 2 was being modified to allow Merrill Lynch to act as a custodian, as opposed to a trustee, because the “purpose of having a corporate trustee is no longer served because the Trust is substantially administered.” As Paragraph 18 of the Trust prohibits the judicial modification of the Trust, even if it is in the best interest of the beneficiaries, we conclude that the trial court erred by modifying Paragraph 2.

Lesson learned?

Given the general trend in trust law codified in F.S. 736.04115, which weighs heavily the "best interests" of trust beneficiaries vs. strict adherence to settlor intent, settlors and their lawyers can't assume the clear text of a trust agreement will always be followed.

Usually, for the reasons explained by Prof. Gallanis in The New Direction of American Trust Law, the flexibility injected into irrevocable trusts by F.S. 736.04115 is a good thing. But sometimes a client has very good reasons for making sure his trust is administered exactly the way he's planned. In those cases a careful estate planner will want to include the type of no-modification clause at the heart of the linked-to case above, which is explicitly sanctioned in F.S. 736.04115(3) as follows:

(3) This section shall not apply to:
. . .
(b) Any trust created after December 31, 2000, if:
. . .
2. The terms of the trust expressly prohibit judicial modification.

Full Disclosure:

I represented one of the parties in this case years ago. Neither I nor anyone at my firm has been involved in this case for years. However, to be clear, this blog post only reflects my personal views in my individual capacity. It does not necessarily represent the views of my law firm or my past clients, and is not sponsored or endorsed by them. The case-specific information contained in this blog post is based solely on the 3d DCA's opinion, and is provided only for educational purposes and is not intended to provide specific legal advice. No representation is made about the accuracy of the information posted on this blog site. Blog topics may or may not be updated and entries may be out-of-date at the time you view them.

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Jervis v. Tucker, --- So.3d ----, 2012 WL 385518 (Fla. 4th DCA February 08, 2012)

If you want to really understand what's going on in this case you need to start at the basics and build up from there. The conceptual building blocks of this case are the following:

[1]  First, “an adjudication of incompetency shifts the burden of going forward with the evidence on testamentary capacity to the proponent of the [trust].” In re Estate of Ziy, 223 So.2d 42, 43 (Fla.1969); see also Grimes v. Estate of Stewart, 506 So.2d 465, 467 (Fla. 5th DCA 1987)(“Although a declared incompetent may have sufficient lucid moments during which to execute a valid [trust], nevertheless, adjudication of incompetency of a testator creates a prima facia case against the proponent of such a [trust].”).

[2]  Second, summary judgment is warranted when the clear text of the trust agreement supports your side of the argument. Why? Because as a matter of law the trial court is prohibited from considering extrinsic facts to explain/construe the clear text of a contested trust agreement. No extrinsic facts = no need for trial. See In re Estate of Barry, 689 So.2d 1186, 1187–88 (Fla. 4th DCA 1997) (“Where the terms of an agreement ... are unambiguous, its meaning and the intent of the maker are discerned solely from the face of the document, as the language used and its plan [sic] meaning controls.”)

Case Study:

OK, now let's apply these general principles to the facts of the case. The trust settlor, Bernice J. Meikle, executed a trust agreement in 1991. She later amended this trust agreement (we're not told exactly when). According to the 4th DCA, this first amendment addressed Ms. Meikle's ability to further amend her trust if she was ever adjudicated incapacitated.

[Key Trust Agreement Text:]

[T]he first amendment to Meikle's trust contains language which provides for the suspension of rights “[i]f, at any time during the continuance of [the] trust, Grantor is adjudicated incapacitated by a court of appropriate jurisdiction.”

The Grantor's powers and those of Grantor/Trustee may be restored either by virtue of [1] an order of an appropriate court having jurisdiction over Grantor, or [2] upon the issuance and receipt by the Trustee of a written opinion from . . . two . . . licensed physicians who have examined the Grantor.

Incapacity Adjudication:

On October 30, 2000, Ms. Meikle was adjudicated incapacitated. A little over a year later, on December 27, 2001, Ms. Meikle executed a second amendment to her trust agreement without [1] obtaining an approving court order, or [2] written opinions from two licensed physicians (oops!).

After Ms. Meikle's death in 2007 the second amendment to her trust agreement was challenged (surprise!). Based on her adjudication of incapacity in 2000, Ms. Meikle was presumed incapacitated when she executed her second amendment in 2001. This evidentiary presumption can, however, be overcome at trial.

Carefully Reading Trust Text = Summary Judgment = No Trial = Happy Clients:

What can't be overcome at trial is the clear text of the trust agreement. Here's where counsel for the contestants nailed it. By focusing on the clear text of the trust agreement, he was able to skip a trial and win on summary judgment. Why? Because by its own terms the trust agreement required one of two preconditions to be satisfied for the second amendment to be valid. These requirements weren't satisfied, thus the second amendment fails . . . regardless of whether or not Ms. Meikle did in fact have testamentary capacity. Thus no need for a trial.

[4th DCA:]

The plain meaning of the document shows that Meikle's capacity must have been restored by the court in order to amend her trust once she was adjudicated incapacitated . . . Without a court order restoring her rights, she must have obtained two opinions by licensed physicians. . . . Dr. Button, a licensed physician who had met with Meikle many times, opined that she possessed capacity to amend the trust; however, Dr. Strang, a nursing home administrator with expert experience and medical schooling—but without a physician's license—submitted the other opinion. This is contrary to what was unambiguously required.

. . . The first amendment to the trust, a valid amendment made before the determination that Meikle was incapacitated, expressly stated that certain things had to occur in order to restore capacity in the event the court declared Meikle incapacitated. Because the proper proof to restore capacity to amend was not presented by Meikle, she did not have the power to amend her trust at the time she did. Accordingly, no genuine issue of material fact exists, as it is clear that Meikle's power to control her property was never restored.

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Aronson v. Aronson, --- So.3d ----, 2012 WL 280565 (Fla. 3d DCA February 01, 2012)

Estate planners beware. 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 being a prime example: this is now the third appellate decision published by the 3d DCA chronicling 10+ years of litigation between a widow and her deceased husband's sons from a prior marriage. For the prior installments of this long-running dispute, click here and here.

Case Study: Blended Family + Invalid Homestead Devise = Years of Litigation

In July of 1996 Mr. Aronson deeded a condo located on Key Biscayne, FL to his revocable trust. Under the terms of his revocable trust, Doreen (Mr. Aronson's wife) had the condo for life, and at her death it would go to Mr. Aronson's sons from a prior marriage. A few months later, in December of 1996, Mr. Aronson deeded this same condo directly to Doreen. In 2000 the couple sold a home in Massachusetts, which had been titled in Doreen's name alone, and moved into the Key Biscayne condo, which became their homestead residence. Mr. Aronson died in 2001.

1. Who got the condo when Mr. Aronson died?

Because of the two conflicting deeds, this was the first issue litigated. As I reported here, at trial the court ruled in favor of Doreen. On appeal, the 3d DCA reversed, ruling that an individual can't deed a property in his individual capacity if he's previously deeded it over to his revocable trust, even if he had the authority at any time to revoke his own trust.

2. So if the deed-to-trust was valid, where did this leave Doreen?

Not surprisingly, based on the 3d DCA's first opinion, all of the parties assumed they were stuck litigating their competing claims to the Key Biscayne condo within the parameters of Mr. Aronson's revocable trust. In fact, this is the governing assumption underlying the 3d DCA's original opinion for this case, click here.

End of the story? No way! Based on a motion for reconsideration filed by Mr. Aronson's sons, the 3d DCA reversed course, adopting an entirely new theory in the linked-to opinion above, ruling instead that the condo should have never been treated like a trust asset because this was an invalid devise of homestead property. Invalid homestead devise = life estate to Doreen, vested remainder interest for Mr. Aronson's sons, skip the trust entirely. Bottom line, while the deed-to-trust trumped the later deed to Doreen, because it resulted in an invalid homestead devise, this deed should have also been ignored. Confused? The 3d DCA apparently was. Here's how the 3d DCA explained its thinking this time around:

We reverse the judgments under review. First, it is undisputable the Key Biscayne condominium was the decedent's homestead at the time of his death. Second, 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, except the homestead may be devised to the owner's spouse if there be no minor child.” Art. X, § 4(c), Fla. Const. Third, the Florida legislature has made clear its command that this provision shall apply equally to property held by a revocable trust as to testamentary bequests. § 732.4015(2)(a), Fla. Stat. (2001) . . . Finally, section 732.401(1) of the Florida Statutes (2001), provides:

(1) If not devised as authorized by law and the constitution, the homestead shall descend in the same manner as other intestate property; but if the decedent is survived by a spouse and one or more descendants, the surviving spouse shall take a life estate in the homestead, with a vested remainder to the descendants in being at the time of the decedent's death per stirpes.

(emphasis added). Because the Key Biscayne condominium was Hillard's homestead and because his wife, Doreen, survived him, the condominium was not subject to disposition through the trust. . . . At the moment of Hillard's death, his homestead property passed outside of probate, see §§ 733.607, .608, Fla. Stat. (2001) . . . , in a twinkle of an eye, as it were, to his wife for life, and thereafter to his surviving sons, James and Jonathan per stirpes. § 732.401(1), Fla. Stat. From that moment forward, the trustees had no power or authority with respect to the former marital home. The widow became responsible for the expenses of the property, and, of course, remains so for as long as she remains a life tenant. . . .

Lesson learned?

There are a few big takeaways from this case. First, estate planning for blended families is always tricky. This family could have avoided over a decade of acrimony and litigation expenses if Mr. Aronson had consulted with a qualified estate planner up front.

Second, Florida's maddeningly complex homestead laws can befuddle the best of us (ask the 3d DCA). This area of law is counter intuitive and often results in bizarre outcomes even the most deranged law school professor couldn't dream up (this case being a prime example!). If you're cleaning up one of these messes, start at first principles and take nothing for granted (click here for "Kelley's Homestead Paradigm," the ultimate probate lawyer's homestead-law cheat sheet.) 

Third, it took these litigants over 10 years (and multiple trials/appeals) to figure out what, "in a twinkle of an eye" (using the 3d DCA's phrase), happened automatically as a matter of law when Mr. Aronson died back in 2001. Starting in 2010, there are added consequences to this kind of delay. In 2010 F.S. 732.401 was amended to allow a surviving spouse 6 months to opt out of a life estate and instead take a 50% tenancy-in-common interest in the homestead property. As I explained here, taking a 50% tenancy-in-common interest in lieu of a life estate can offer significant benefits to surviving spouses. Surviving spouses, and their lawyers, no longer have the luxury of waiting years to untangle the mess caused by an invalid homestead devise. Due to the new 6-month deadline contained in F.S. 732.401, you now have only 6 months to do what the parties in this case needed 10+ years to figure out. 6 months vs. 10 years. Yeah, no pressure . . . 

Bonus:

Now that you know what I have to say about this case, you'll want to read this excellent analysis of the case by two of the smartest Florida homestead lawyers practicing today, Jeff Baskies and Charlie Nash, as published in Steve Leimberg's Asset Protection Planning Email Newsletter - Archive Message #198. Here's the executive summary of their piece:

For the third time in less than 5 years, the Florida 3rd District Court of Appeal (covering Miami-Dade County) issued a retraction of a potentially ground-breaking and rule-changing homestead decision.

First, in 2007, the 3rd DCA’s decision in Chames v. Demayo (holding that a waiver of the homestead creditor protection in an attorney’s fee contract was valid) shook the homestead world, until it was overturned, first en banc by the 3rd DCA and then by the Florida Supreme Court. Interestingly, the en banc opinion of the 3rd DCA overturned the original opinion and “got it right” according to the Florida Supreme Court.

Next, in 2011, a three-judge panel of the 3rd DCA issued a ruling in Habeeb v. Linder holding that a husband’s joinder in a warranty deed of homestead property to his wife’s revocable trust constituted a waiver of his post death homestead rights due to his transfer of “all hereditaments” in the “form” warranty deed. That ruling was subsequently withdrawn after significant criticism.

Now, in the latest decision in a very long-running Florida probate litigation, Aronson v. Aronson, (this current line of cases being called “Aronson II” as a prior ruling – “Aronson I” – held that a deed signed by the husband individually was a nullity as it was executed after the husband had already transferred title to his revocable trust) the 3rd DCA on February 1, 2012, withdrew its October 2010 ruling.

Had the original ruling in Aronson II stood, then the post-death consequences of any transfer of a homestead to a revocable trust would again be up for controversy. Fortunately, the 3rd DCA in its substituted decision in Aronson II seems to have reached the correct result regarding the constitutional devise restrictions.

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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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This is my running list of significant trust, probate and guardianship related appellate opinions for 2013. 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. Bishop v. Estate of Rossi, --- So.3d ---- 2013 WL 132449 (Fla. 5th DCA January 11, 2013) (Required findings in attorney fee orders)
2. Sugar v. Guardianship of Stern, --- So.3d ----, 2013 WL 440122 (Fla. 3d DCA February 06, 2013) (reformation of settlement agreements)
3. Albelo v. Southern Oak Ins. Co., --- So.3d ----, 2013 WL 440199 (Fla. 3d DCA February 06, 2013) (DPOA’s and standing to sue)
4. Saunders v. Butler, --- So.3d ----, 2013 WL 514057 (Fla. 2d DCA February 13, 2013) (Temporary injunctions and trusts)
5. Browning v. Poirier, --- So.3d ----, 2013 WL 842853 (Fla. 5th DCA March 08, 2013) (Lottery winnings; oral contracts)
6. Goodman v. Goodman, --- So.3d ----, 2013 WL 1222944 (Fla. 3d DCA March 27, 2013) (adult adoption; trust beneficiary)
7. Patrowicz v. Wolff, --- So.3d ----, 2013 WL 1352488 (Fla. 2d DCA April 05, 2013) (right to pre-production in camera inspection of privileged documents)
8. Long v. Willis, --- So.3d ----, 2013 WL 1776705 (Fla. 2d DCA April 26, 2013) (Court’s refusal to appoint Personal Representative)
9. Krumholz v. In re: Guardianship of H.K., --- So.3d ----, 2013 WL 1980504, (Fla. 3d DCA May 15, 2013) (Required findings of fact; guardianship incapacity order)

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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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As I previously wrote here, irrevocable dynasty trusts are all the rage in estate planning circles, and for good reason. They're good tax planning and offer excellent asset protection benefits. Although a rouge plaintiff's lawyer is the boogeyman most people think about when they hear asset protection, the real threat to family wealth is divorce. The odds of your children or grandchildren getting targeted by some frivolous lawsuit are maybe 1 in a 1,000, the odds of them getting divorced: 50/50.

So how secure are assets held by irrevocable dynasty trusts in the event of a Florida divorce?

Most estate planners would answer that question by focusing on whether the trust can be pierced to pay post-divorce judgments for alimony or child support. In other words, ex-spouses would be viewed as creditors. From this perspective the answer is relatively clear: under F.S. § 736.0503(3) a claim against an irrevocable trust by a beneficiary’s child, spouse, or former spouse is permitted only as a last resort upon a showing that traditional methods of enforcing the claim are insufficient. The “last resort” requirement can be traced directly to Bacardi v. White, 463 So. 2d 218 (Fla. 1985), the 1985 Florida Supreme Court decision that has defined this area of the law in Florida ever since.

But what about equitable distribution?

Could a fully discretionary, spendthrift-protected irrevocable trust funded with non-marital assets by a beneficiary's parent (or grandparent or great-grandparent) that is otherwise valid in all respects be counted as part of the beneficiary's marital estate for equitable distribution purpose? Florida's Trust Code doesn't address this question, and as far as I can tell it's never been dealt with directly by a Florida appellate court.

For lawyers (especially estate planners!), uncertainty is a bad thing. Which is why I found a recent New Hampshire case reported on in the Wills, Trusts & Estates Prof Blog so interesting. In this blog post Prof. Beyer discusses the outcome of the New Hampshire Supreme Court case In re Goodlander, 20 A.3d 199 (N.H. 2011). In that case the court considered whether a beneficiary's interest in a discretionary irrevocable trust created and funded for her benefit by her father should be considered a marital asset subject to division. Both the trial court and the supreme court said NO. Why? Because the beneficiary didn't have a property right in any future trust distributions, all she had was a “mere expectancy.” The New Hampshire Supreme Court based its holding largely on a provision of that state's trust code, RSA 564-B:8-814(b), that statutorily excludes a beneficiary's interest in a discretionary irrevocable trust from the definition of "property":

. . . if a distribution to or for the benefit of a beneficiary is subject to the exercise of the trustee's discretion, whether or not the terms of a trust include a standard to guide the trustee in making distribution decisions, then the beneficiary's interest is neither a property interest nor an enforceable right, but a mere expectancy.

Based on this statute, the New Hampshire Supreme Court ruled as follows in In re Goodlander, 20 A.3d 199 (N.H. 2011):

Because the trustee of the EMT Trust has the sole discretion to distribute funds to the beneficiaries, including Tamposi, any interest Tamposi has in future distributions fits squarely within the definition provided by the UTC for a “mere expectancy.” RSA 564-B:8-814(b). That is, any distribution to or for the benefit of Tamposi “is subject to the exercise of the trustee’s discretion, whether or not the terms of a trust include a standard to guide the trustee in making distribution decisions.” Id. Accordingly, Tamposi’s interest in future distributions of the EMT Trust “is neither a property interest nor an enforceable right, but a mere expectancy.” Id.

POSTSCRIPT: The "aha!! insight" 

"All-property" States (such as NH) vs. "Marital Property" States (such as FL) & Why it Matters in this Case:

This blog post generated a good amount of interest. One careful reader, Leonard J. Adler, a Florida-licensed attorney and Managing Director at Bessemer Trust in Palm Beach, suggested that the key to understanding the NH court's ruling is to NOT focus on the "mere expectancy" clause in that state's trust code, but to instead focus on the fact that NH law makes no distinction between marital and nonmarital assets in divorce proceedings.

“Property,” for purposes of equitable distribution under NH law (RSA 458:16-a), includes all property -- regardless of how titled or when or how acquired (including gifts and inheritances). That is why the determination that the interest in the NH trust was a "mere expectancy" and thus not “property” was crucial in In re Goodlander, 20 A.3d 199 (N.H. 2011). The fact that assets are acquired by gift, devise or descent, is but 1 of 15 factors for a NH divorce court to consider under RSA 458:16-a when determining if a divorcing couple's assets should be divided unequally, but all such assets are still subject to division. A Florida court would not have to make this determination because uner F.S. 61.075(6)(b)2 assets acquired by gift, devise, or descent (and assets acquired in exchange for such assets) are statutorily excluded from the definition of marital property, and thus not subject to division.

Mr. Adler was also kind enough to point me to a 2004 NH Bar Journal article entitled Division of the Pre-Marital Trust or Inheritance, which does a good job of explaining how assets inherited in trust are treated very differently in divorce proceedings litigated in "all-property" states like NH vs. "marital property" states like FL:

An outstanding yet difficult issue to be confronted under New Hampshire divorce law is how to apportion a multi-million dollar inheritance, trust or business that pre-exists a long-term marriage. . . .

In fashioning property settlements in divorce, states are divided into three main categories: [1] "community property" states, [2] "marital property" states [like FL] and [3] "all-property states." New Hampshire is an "all-property" state that gives the court the authority to divide all property of the parties (however or whenever acquired) in an equitable manner. A court is required to view the parties’ property as a whole and then make an equitable distribution. Whether property is individually or jointly owned, it is still considered a marital asset.

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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)
6. Hodge v. Cichon, --- So.3d ----, 2012 WL 315846 (Fla. 5th DCA February 03, 2012) (Estate planning malpractice; standing)
7. Jervis v. Tucker, --- So.3d ----, 2012 WL 385518 (Fla. 4th DCA February 08, 2012) (Trust contest; settlor adjudicated incapacitated)
8. Bellamy v. Langfitt, --- So.3d ----, 2012 WL 385606 (Fla. 3d DCA February 08, 2012) (Trust modification; corporate trustees and accountings)
9. Zulon v. Peckins, --- So.3d ----, 2012 WL 385614 (Fla. 3d DCA February 08, 2012) (Removal of Personal Representative; due process)
10. Wexler v. Rich, --- So.3d ----, 2012 WL 555482 (Fla. 4th DCA February 22, 2012) (Whether a married couple established tenancy by the entirety bank accounts)
11. Bowdoin v. Rinnier, --- So.3d ----, 2012 WL 639005 (Fla. 2d DCA February 29, 2012) (Failure to follow statutory priority for PR appointments)
12. Kates v. Lifter, --- So.3d ----, 2012 WL 832802 (Fla. 3d DCA March 14, 2012) (Probate judge’s jurisdictional authority)
13. Bennett v. Berges, --- So.3d ----, 2012 WL 832730 (Fla. 4th DCA March 14, 2012) (In camera review of privileged documents non-appealable order)
14. Pasquale v. Loving, --- So.3d ---- 2012 WL 933030 (Fla. 4th DCA March 21, 2012) (Can’t contest trust if don’t contest pour over will)
15. Bridgeview Bank Group v. Callaghan, --- So.3d ----, 2012 WL 1020044 (Fla. 4th DCA March 28, 2012) (Real property; estate by the entireties presumption)
16. The Florida Bar v. Doherty, --- So.3d ----, 2012 WL 1033478 (Fla. March 29, 2012) (Estate planning attorney/financial planner disbarred)
17. Weymouth v. Weymouth, --- So.3d ---- 2012 WL 1192049 (Fla. 4th DCA April 11, 2012) (Defining “separate property” in a prenuptial agreement)
18. McKeegan v. Ernst, --- So.3d ---- 2012 WL 1192186 (Fla. 4th DCA April 11, 2012) (Temporary injunctions or “freeze” orders in trust litigation)
19. Miller v. Miller, --- So.3d ----, 2012 WL 1365064 (Fla. 5th DCA April 20, 2012) (No damages = no trustee surcharge action)
20. Losh v. McKinley, --- So.3d ----, 2012 WL 1414315 (Fla. 3d DCA April 25, 2012) (Old age does not equal legal incapacity)
21. Jacobson v. Sklaire, --- So.3d ----, 2012 WL 1414447 (Fla. 3d DCA April 25, 2012) (Trustee’s personal liability in trust litigation)
22. Lezcano v. Estate of Hidalgo, --- So.3d ----, 2012 WL 1414826 (Fla. 3d DCA April 25, 2012) (Removing PR without evidence of wrongdoing . . . is wrong)
23. Smith v. DeParry, --- So.3d ----, 2012 WL 1521541 (Fla. 2d DCA May 2, 2012) (Litigating lost will cases)
24. Taplin v. Taplin, --- So.3d ----, 2012 WL 1605253 (Fla. 3d DCA May 09, 2012) (limitations periods in trust litigation)
25. Topol v. Polokoff, --- So.3d ----, 2012 WL 1605310 (Fla. 4th DCA May 09, 2012) (Interlocutory divorce order and the resulting changed IRA designation didn’t survive father’s death)
26. Rothman v. Rothman, --- So.3d ----, 2012 WL 1698322 (Fla. 4th DCA May 16, 2012) (Forced dismissal under guardianship statute is constitutional)
27. Astrue v. Capato ex rel. B.N.C., --- S.Ct. ---- 2012 WL 1810219 (U.S. May 21, 2012) (Posthumously conceived children and SSA survivor benefits)
28. Beekhuis v. Morris, --- So.3d ----, 2012 WL 2121258 (Fla. 4th DCA June 13, 2012) (Probate court lacked jurisdiction over trustee)
29. Glenn v. Roberts, --- So.3d ----, 2012 WL 2327756 (Fla. 3d DCA June 20, 2012) (Oral wills?)
30. Simon v. Simon, --- So.3d ----, 2012 WL 2327827 (Fla. 4th DCA June 20, 2012) (Splitting artwork in premarital agreements)
31. Langer v. Fels, --- So.3d ---- 2012 WL 2327921 (Fla. 4th DCA June 20, 2012) (Appellate court fee ruling bars future probate court fee rulings)
32. United States v. MacIntyre, ___ F.Supp.2d ___, 2012 WL 2403491 (S.D. Tex. June 25, 2012) (Trustee/Executor personal liability for unpaid gift taxes)
33. Geraci ex rel. Geraci v. Sunstar EMS, --- So.3d ---- 2012 WL 2401793 (Fla. 2d DCA June 27, 2012) (100 year lease = protected homestead)
34. Jasser v. Saadeh, 97 So.3d 241 (Fla. 4th DCA July 18, 2012) (legal authority to create a trust)
35. Morey v. Everbank, --- So.3d ----, 2012 WL 3000608 (Fla. 1st DCA July 24, 2012) (life insurance proceeds payable to trust were not exempt from probate creditor claims)
36. Kountze v. Kountze, --- So.3d ----, 2012 WL 3111681 (Fla. 2d DCA August 01, 2012) (Are trustees entitled to due process prior to being removed?)
37. Connell v. Connell, --- So.3d ----, 2012 WL 3101842 (Fla. 2d DCA August 01, 2012) (joint bank accounts & property)
38. Mitchell v. Mitchell, 94 So.3d 706 (Fla. 4th DCA August 15, 2012) (fee award must state basis for award)
39. Bonney v. Bonney, 94 So.3d 702 (Fla. 4th DCA August 15, 2012) (improper shifting of non-probate fee award)
40. In re Guardianship of Ansley, 94 So.3d 711 (Fla. 2d DCA August 17, 2012) (cutting fees without explaining why)
41. Moriber v. Dreiling, --- So.3d ----, 2012 WL 3586750 (Fla. 3d DCA August 22, 2012) (inadvertent disclosure & disqualification)
42. Griffith v. Slade, 95 So.3d 982 (Fla. 2d DCA August 22, 2012) (Service of process; POA litigation)
43. In re Kesish, 98 So.3d 183 (Fla. 2d DCA September 7, 2012) (reducing fees without evidence)
44. Miami Children's Hosp. Found., Inc. v. Estate of Hillman, --- So.3d ----, 2012 WL 4795648 (Fla. 4th DCA October 10, 2012) (When is a trust agreement ambiguous?)
45. Shen v. Parkes, 100 So.3d 1189 (Fla. 4th DCA October 31, 2012) (Examining committee reports are hearsay; must have live testimony)
46. Estate of Bates v. Comm'r, TC Memo. 2012-314 (Nov. 7, 2012) (Estate cannot deduct payments to settle possible beneficiary's claims to estate)
47. In re Guardianship of Trost, 100 So.3d 1205 (Fla. 2d DCA November 09, 2012) (Next of kin as standing)
48. Welch v. Dececco, --- So.3d ----, 2012 WL 5969623 (Fla. 5th DCA November 30, 2012) (Stock gift)
49. Brennan v. Honsberger, --- So.3d ----, 2012 WL 5969617 (Fla. 5th DCA November 30, 2012) (lost wills)
50. Shuck v. Smalls, --- So.3d ----, 2012 WL 6027820 (Fla. 4th DCA December 05, 2012) (Attorneys fee sanctions awards)
51. Jasser v. Saadeh, --- So.3d ----, 2012 WL 6601383 (Fla. 4th DCA December 19, 2012) (re judicata in trust actions)
52. Juega v. Davidson, --- So.3d ----, 2012 WL 6601969 (Fla. 3d DCA December 19, 2012) (Personal jurisdiction over foreign PR)
53. Platt v. Osteen, --- So.3d ----, 2012 WL 6629650 (Fla. 5th DCA December 21, 2012) (right to trial in will contest)

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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?

Accordin