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

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).

These new statutes aren't available as yet online, but you can see their complete text by scrolling through this bill (which creates 733.1051) and scrolling through this bill (which creates 736.04114). This White Paper also explains the reasoning behind the new legislation.

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

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of the new emergency laws would set a default rule for interpreting wills and trusts while the federal estate tax is repealed, if the document itself doesn't spell one out.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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lesson learned?

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

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

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

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

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

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

Legal Definition: Stepchildren ≠ Descendants

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

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

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

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

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

Lessons learned?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Did the Florida Supreme Court get this one right?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lessons learned?

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

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

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

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

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

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

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

David vs. Goliath

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

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

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

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

*     *     *     *     *

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

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

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

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

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

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

*     *     *     *     *

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

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

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

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

Personal Representative Disqualification Motions:

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

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

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

Lesson learned?

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

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

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

Probate Custom vs. Trust Litigation

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

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

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

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

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

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

New claim = New pleadings

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

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

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

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

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

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

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

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

*     *     *     *     *

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

 

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

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

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

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

Acting Married

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

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

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

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

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

No Marriage License = You're NOT Married

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

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

*     *     *     *     *

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

*     *     *     *     *

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

Hat tip to Eric Virgil

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

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

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

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

4th DCA says trust agreement controls; bad facts irrelevant

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

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

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

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

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

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

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

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

*     *     *     *     *

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

So what's it all mean?

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

Bonus material

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

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

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

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

*     *     *     *     *

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

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

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

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

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

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

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

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

So what went wrong?

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

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

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

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

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

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

Lesson learned?

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

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

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

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

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

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

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

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

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

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

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

R. Regulating Fla. Bar4-1.8(c)

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

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

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

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

*     *     *     *     *

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

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

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

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

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

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

 

 

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

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

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

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

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

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

[1] No implied charitable trust:

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

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

Id.

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

[2] No resulting trust:

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

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

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

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

[3] No constructive trust:

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

Lesson learned?

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

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

What can charities do to avoid disputes?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lesson learned?

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

Bonus:

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

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

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

Rule 5.401. Objections to . . . Final Accounting

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

*     *     *

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

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

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

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

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

But Wait, There's More!

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

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

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Grainger v. Wald, --- So.3d ----, 2010 WL 479862 (Fla. 1st DCA Feb 12, 2010)

The linked-to opinion is yet another example of yet another plaintiffs lawyer seeing his trial-court win go up in smoke because he blew a deadline in probate court. The last time I wrote about this problem was a med-mal case [click here]. This time around it was a personal injury case arising out of an automobile/ motorcycle accident.

Plaintiffs suing estates often fail to realize that they're really litigating their claims in two separate courts in front of two separate judges:

1. The trial court adjudicating their lawsuit (this is where the decedent's liability is established); and
2. The probate court administering the decedent's probate estate (this is where you go to collect on your judgment).

In the linked-to opinion above the plaintiff eventually prevailed in his lawsuit, but the judgment wasn't rendered until after the decedent's death. In order to collect on his judgment, plaintiff needed to file a creditor claim against the probate estate of the now deceased defendant. This is where things went south for the plaintiff (and a good probate lawyer working for the estate snatched victory from the jaws of defeat!!).

At some time during the course of the litigation plaintiff's personal injury attorney was served with a "creditors notice" in connection with the probate proceeding. The personal injury lawyer apparently ignored this notice, which ultimately resulted in his trial court win being forfeited (ouch!!).  Here are the key facts/dates as recounted by the 1st DCA:

Wald was involved in an automobile/motorcycle accident with the decedent and brought a personal injury lawsuit to recover damages. Wald eventually prevailed in his lawsuit, but the judgment was not rendered until after the decedent’s death. Some time after obtaining the judgment, Wald filed a claim against the probate estate. 

The personal representative argued she had served notice on Wald's attorney as required by Florida Probate Rule 5.041(b) (2009) on May 23, 2007, thus triggering the time constraints of section 733.702(1). Therefore, under the statute, Wald had until June 22, 2007, to file any claim he might have. Since Wald's claim was not filed until July 2, 2007, the personal representative argued it was untimely and forever barred.

So far so good for the estate. But then the probate judge did something the 1st DCA characterized as "bizarre": he declared the estate's creditor notice wasn't valid because plaintiff's personal injury attorney had been served instead instead of plaintiff's probate attorney. What?! Yeah, that's what the 1st DCA said too.

There are two reasons why the probate court erred in finding the time constraints of section 733.702(1) inapplicable.

[1] First, the Florida Probate Rules do not make any distinction based on the scope of an attorney's representation of a client. A personal representative would have no way of knowing such information. These descriptive labels, such as “probate” attorney or “personal injury” attorney do not appear in the Rule 5.041(b), which governs the service of pleadings and papers in probate actions. Instead, the Rule simply requires that if a creditor is represented by an attorney, service must be on the attorney and not on the creditor. The language of Rule 5.041(b) states that “when service is required or permitted to be made on an interested person represented by an attorney, service shall be made on the attorney unless service on the interested person is ordered by the court.” (emphasis added).

*     *     *

[2] Second, regardless of whether the attorney served was labeled the “probate” or the “personal injury” attorney, the record reflects that Wald had actual notice and that he received notice in time to file the claim. Wald received all process that was due. The record contains Wald's original statement of claim against the estate. Although the claim was not filed until July 2, 2007, Wald signed the claim on June 16, 2007-at least six days before the time for filing claims was to expire. “[D]ue process requires the personal representative to give notice by any means that is certain to ensure actual notice of the running of the non-claim period.” Estate of Ortolano, 766 So.2d 330, 332 (Fla. 4th DCA 2000) (emphasis added). Considering the date of Wald's signature, he had actual notice and sufficient time to file a claim within the 30-day statute of limitations. Therefore, any failure was not in the service of the notice, but in the untimely filing of the claim. Since there was no excuse for Wald's failure to file the claim in a timely manner, it should have been declared time barred under section 733.702(1).

 

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Doe v. Suntrust Bank, --- So.3d ----, 2010 WL 323031 (Fla. 2d DCA Jan 29, 2010)

Sometimes courts will ignore DNA test results as a matter of law [click here, here]. And then there are those cases where who wins or loses can turn on a DNA test. Not surprisingly, if the estate is being litigated and a DNA test could help one side win, the other side may not voluntarily hand over a DNA sample. In those cases you'll need a court order compelling the DNA test.

Until now Florida law's been very muddy on exactly what you need to do to get a court order compelling a DNA test in probate litigation. Into this gap stepped the 2d DCA, delivering an excellent road map for Florida probate lawyers confronted with this problem.

DNA Testing & Probate Litigation: 2d DCA's Five-Step Road Map:

1. Frame the issue as a discovery request to test human bodily fluids
2. Rely on Civil Procedure Rule 1.360 (Examination of Persons)
3. Satisfy rule 1.360's "in controversy" requirement
4. Satisfy rule 1.360's "good cause" requirement
5. Satisfy rule 1.360's "balancing-the-interests" requirement

In the linked-to opinion a guardian ad litem sought to compel the decedent's two legitimate children to provide a DNA sample (via a buccal swab) to establish the paternity of "Madeline Doe": a nine-year old out-of-wedlock child whose mother was claiming she was the decedent's child. The 2d DCA framed the issue this way:

We view [the] motion for DNA testing as a discovery request and the trial court's order as one compelling discovery.

Having framed the issue as a discovery request the court then tells us what discovery rule we need to rely on: Civil Procedure Rule 1.360 ("Examination of Persons"). By the way, in almost every appellate decision involving DNA testing in probate litigation the lawyers and the trial court always get this wrong, mistakenly focusing on the wrong discovery rule or failing to even state exactly which discovery rule they’re operating under (probably because they’re not sure). No one should repeat that mistake after reading this opinion.

Procedurally, this case is similar to Wicky v. Oxonian, 34 Fla. L. Weekly D1612 (Fla. 2d DCA Aug.14, 2009). In Wicky, the personal representative of an estate pursuing a wrongful death claim filed a discovery request seeking permission to test an existing sample of the defendant's blood. The personal representative's motion did not identify the rule of civil procedure that authorized the testing, although it mentioned rule 1.280, the general discovery rule. The defendant thought the request was made under rule 1.350, which addresses the production of documents and things. This court concluded that neither rule governed the request, and that “a request to test human bodily fluids in a civil action must satisfy the requirements of rule 1.360, ‘Examination of Persons.’ “ Id. at D1612.

The 2d DCA then did something you don't often see. It went on to explain in detail what kind of evidence a working probate lawyer would need to put in front of his or her probate judge to satisfy all of rule 1.360's requirements as applied to DNA testing in a contested probate proceeding. For those of us in the trenches this kind of guidance is pure gold, so I'm providing all of it. It's a relatively long excerpt but well worth reading.

["in controversy" requirement]

First, we note that the issue of whether Madelin is Doe's child, and thus a beneficiary of his trusts, is clearly at the heart of this litigation. However, thus far, it appears that the only pleadings suggesting she may be his child are the Trustee's verified complaint, which simply attests to the Trustee's knowledge that Madelin claims to be Doe's child and her verified motion to compel testing which states only that she “maintains she is a child born out of wedlock” to Doe. We believe something more is required, for example, an affidavit from Madelin's mother alleging paternity and setting forth facts establishing a reasonable possibility of the requisite sexual contact with Doe. See § 742.12(2) (requiring a sworn statement or declaration under penalty of perjury alleging paternity and setting forth facts establishing a reasonable possibility of the requisite sexual contact between the parties as a perquisite to obtaining an order for scientific testing). Such an affidavit would satisfy the requirement that the subject matter of the test be “really and genuinely” in controversy. See Schlagenhauf, 379 U.S. at 119.

["good cause" requirement]

Madelin will also have to demonstrate “good cause” for her request that Adrian and Evelyn be required to provide a buccal swab sample for testing. In the typical paternity action, a compelled DNA test is dispositive of the issue in controversy, and thus good cause for the test is established. See Wicky, 34 Fla. L. Weekly at D1613. This case is not, however, a typical paternity case because it is the legitimate children of the deceased putative father who are being asked to submit a sample of their DNA for testing. Under these circumstances, we believe two considerations are important in determining the existence of good cause. First, it would seem appropriate that Madelin provide some evidence that a comparison of her DNA with the DNA of Doe's legitimate children could produce a result that would tend to prove or disprove the existence of a genetic link between Doe and Madelin. Second, it would also seem appropriate to require that she make some showing of need. For example, in the arguments presented to this court, Madelin and the Trustee have indicated that Doe was cremated, thus eliminating the possibility of any comparison with a sample derived from his remains. As far as we can tell, this fact was not presented as evidence in the trial court. Likewise, while the Trustee's verified complaint suggests that no official documentation exists that would allow Madelin to establish that Doe is her father, it seems reasonable to require a more definitive statement to that effect, perhaps from Madelin's guardian ad litem.

["balancing-the-interests" requirement]

Finally, as we explained in Wicky, in all discovery matters the competing interests of the parties must be balanced. 34 Fla. L. Weekly at D1613. Doe did not name specific beneficiaries in his trusts; instead he instructed that the assets in the trusts be divided among his children. Other language in the trusts indicates he contemplated the possibility of having children other than Adrian and Evelyn. Given that this is an action to determine the beneficiaries of his trusts, consideration should be given to effectuating his intent as expressed in the trusts. As for Madelin, if she is in fact Doe's child, her rights with respect to the trusts are equal to those of Evelyn and Adrian. Further, her interests are akin to those of an out of wedlock child seeking to share in the intestate estate of a parent. Florida recognizes the right of an out-of-wedlock child to share in a parent's estate. See § 732.108(2). Florida also recognizes the right of a child born out of wedlock to establish paternity after the death of the father. See § 732.108(2)(b). For that right to be meaningful, the child must have a fair opportunity to prove that the deceased is her father. What is fair may vary from case to case, but any evaluation should take into account the heightened burden of proof imposed on out-of-wedlock children who seek to establish paternity after the death of the putative father. See Berkey v. Odom (In re Estate of Odom ), 397 So.2d 420 (Fla. 2d DCA 1981) (holding that in an action to establish paternity after the death of the father, proof of paternity shall be by clear and convincing evidence), disapproved on other grounds, Wilson v. Scruggs ( In re Estate of Smith ), 685 So.2d 1206 (Fla.1996).

On the other hand, Adrian and Evelyn have a privacy interest they seek to protect. In considering the weight to afford that interest, several factors are important. First, the intrusion is minimal-the test Madelin seeks is noninvasive, and the purpose of the test is limited to comparing her DNA to theirs. Second, rule 1.360(a)(3) provides that the court, upon request, may establish protective rules governing an examination. Thus far, Adrian and Evelyn have only asserted a generalized complaint that submitting a DNA sample invades their privacy, however, if they are able to articulate any specific privacy concern, they have the ability to ask the court to fashion protective rules to address that concern. Third, Adrian and Evelyn have affirmatively denied that Madelin is Doe's child, and they have actively opposed all efforts by her or Maria to prove that they are his children. Having taken that position, it is questionable whether they should be permitted to withhold the evidence that may put Madelin's claim and their defense to rest once and for all. They have the alternative of conceding that Madelin is a beneficiary should they wish to avoid the test.

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Morrison v. West, --- So.3d ----, 2010 WL 532792 (Fla. 4th DCA Feb 17, 2010)

The linked-to opinion above is the last gasp of bitter litigation swirling around the $100 million estate of Palm Beach socialite Pedro Morrison, who died in 2003 [click here, here].  This time around the issue was whether North Carolina sole practitioner William E. West could keep his million dollar legal fee. His former client, the decedent's widow - Carla Morrison, fired him the day after he settled her case in mediation.

At first things looked good for West. Here's how the Palm Beach Post reported on his trial-court win in Morrison widow miffed:

The Palm Beach County Circuit Court judge says Morrison "behaved despicably" toward her former lawyer, North Carolina attorney William E. West, and must pay his $1 million legal fee.

Ouch! What would prompt [Judge] Winikoff to call Morrison's testimony and demeanor "outrageous?"

How about Morrison firing her lawyer the morning a mediation settlement he hammered out was to be filed with the court. Or Morrison's refusal to pay West his $1 million legal fee, as she had agreed. Or Morrison's claim she needed the $1 mil for living expenses - then later admitting she spent the cash on a a bracelet worth between $140,000 and $250,000.

That was then, this is now. On appeal West lost it all. And all because he didn't want to spend a few bucks on associating with a Florida lawyer and getting admitted pro hac vice.

The supreme court explained its holding in [Chandris, S.A. v. Yanakakis, 668 So.2d 180 (Fla.1995)], as supporting policy concerns related to protection of the public. The prohibition on the unauthorized practice of law in Florida derives not only from the Rules of Professional Conduct, but also from statutory law. The court in Chandris noted that section 454.23, Florida Statutes (1983), provided that “[a]ny person not licensed or otherwise authorized by the Supreme Court of Florida who shall practice law ... shall be guilty of a misdemeanor of the first degree.” FN2 Relying on long established precedent requiring admission to the bar, the court said:

Florida has a unified bar, and all persons engaged in the practice of law here must be members of that bar. Petition of Florida State Bar Ass'n, 40 So.2d 902 (Fla.1949). More than thirty years ago, we enunciated why we prohibit those who are not members of The Florida Bar from engaging in professional activities in Florida which are within the boundaries of the practice of law. This Court noted in State ex rel. Florida Bar v. Sperry, 140 So.2d 587, 595 (Fla.1962), rev'd on other grounds, 373 U.S. 379, 83 S.Ct. 1322, 10 L.Ed.2d 428 (1963), that:

The reason for prohibiting the practice of law by those who have not been examined and found qualified to practice is frequently misunderstood. It is not done to aid or protect the members of the legal profession either in creating or maintaining a monopoly or closed shop. It is done to protect the public from being advised and represented in legal matters by unqualified persons over whom the judicial department can exercise little, if any, control in the matter of infractions of the code of conduct which, in the public interest, lawyers are bound to observe.

Chandris, 668 So.2d at 184. Despite the experience and qualifications of the unlicensed lawyer in Chandris, the court held that he could not recover under a contingent fee contract.

In a footnote, the court conceded that while a member of The Florida Bar may not claim attorney's fees under a void contingent fee agreement, a Florida Bar member may still be entitled to the reasonable value of his or her services in quantum meruit. Id. at 186 n. 4. While West seeks to expand this footnote to claim entitlement to his quantum meruit fee, his interpretation is clearly wrong. While a contract between a Florida Bar member and a client might be illegal, the Bar member's provision of legal services in Florida is not illegal. In contrast, the provision of legal services by a non-Florida Bar member is illegal. See § 454.23, Fla. Stat. To award fees for illegal activities is contrary to public policy. See Spence, Payne, Masington & Grossman, P.A. v. Philip M. Gerson, P.A., 483 So.2d 775 (Fla. 3d DCA 1986).

*     *     *     *     *

West argues that he anticipated securing a Florida attorney but simply did not do so before the matter settled in mediation. Although in September 2004 West drafted a motion for appearance pro hac vice and forwarded it, and a proposed order for admission, to McDonald & Crawford, that Fort Lauderdale firm was never actually retained by Morrison. After an e-mail from the firm to West discussing its fee, the Florida firm did not have further conversations with West until well after the mediation. In fact, West did not even seek pro hac vice admission to present the settlement agreement to the probate court for approval.FN4 This can hardly be deemed a technical error when he was admitted pro hac vice in another case involving Morrison and the trust right before he was terminated by Morrison. He knew that such admission was necessary. We can only assume that [West] chose to ignore [getting admitted pro hac vice] to avoid the payment of a fee to McDonald & Crawford.

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In re Estate of Harrison, Slip Copy, 2010 WL 503077 (Bankr.M.D.Fla. Jan 29, 2010)

An overarching theme of Florida’s probate code is the tension between basic due-process rights on the one hand and Florida’s strong public policy favoring the speedy administration of estates on the other. Florida’s 2-year non-claim statute [F.S. 733.710] epitomizes this tension because of its simplicity and utter disregard for equitable considerations. When it comes to unsecured creditors, after 2 years it's game over . . . period, no exceptions.

In the linked-to opinion the unsecured probate creditor -  UK insurance giant Lloyd's of London - cried foul when the debtor's son strategically waited two years and one day! to commence his father's probate proceeding . . . thereby automatically triggering application of Florida’s 2-year non-claim statute . . . thereby automatically barring all of his father's unsecured creditor claims, including Lloyd's. Lloyd's argued that the debtor's son - the designated personal representative under his father's will - had an affirmative duty to advise his father's creditors that they needed to open a probate proceeding in Florida and file a claim within two years of the debtor's date of death.

While a personal representative does have affirmative duties to estate creditors after he's appointed, those duties don't apply before he's appointed. This was the hole in Lloyd's argument, and why the estate won this one. Here's how the judge summarized the key legal issues:

As a matter of law, Randolph Harrison, as the beneficiary and named personal representative, had no affirmative or fiduciary duty before his appointment as personal representative. Florida Statute 733.601 is clear that a personal representative's duties commence upon appointment. Prior to his official appointment, Randolph Harrison had no affirmative duty as a fiduciary; he had no fiduciary relationship with the English Creditors; and he had no duty to notify them of the Florida legal structure or their opportunity to open a probate estate or file a claim. The only allegation against Randolph Harrison is that he kept his silence for two years and a day. The Court holds as a matter of law that that is not a breach of any duty. Additionally, his silence about Florida law is not fraud. There is no statutory or common law requirement to urge a creditor, who obviously knew about the death of its obligor and who apparently knew about assets in Florida, to open probate in Florida. .  .  .  It was incumbent upon the English Creditors to familiarize themselves with Florida law, open a probate and file a claim. For whatever reason, the English Creditors elected not to do so.

There was simply no fraud in Randolph Harrison waiting to open the Florida probate. There is absolutely no requirement under probate law that creditors of a decedent be paid before beneficiaries receive anything. In fact, the statutory scheme suggests the opposite. The whole substance of having a non-claims bar like Section 733.710 is to allow a beneficiary to receive assets free of creditor claims after the two-year period. For a beneficiary to take advantage of that legal structure is not fraud.

Lesson learned?

If you're going to try to run the 2-year non-claim statute clock on your creditors, don't even open the estate. Do nothing. Unless a creditor takes the extraordinary step of commencing a probate proceeding just to collect on his debt, the estate wins by default.

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Here's something you don't see every day: an acknowledgment by a credible source usually not associated with the "liberal media" (Rupert Murdoch's the WSJ) reporting that repeal of the estate tax is not a free ride, there are consequences: taxes will be shifted from a wealthier segment of the U.S. population to a less wealthy segment of the U.S. population. As reported by the WSJ in Why No Estate Tax Could Be a Killer:

Congress shocked everyone by letting the estate tax lapse on Jan. 1.

Now, here is the real stunner: For many, the lapse actually will raise taxes.

Under last year's law, estates up to $3.5 million, or $7 million for married couples, were exempt from federal tax. This year that law has been replaced by a fiendishly complex levy raising taxes on the assets of those with little as $1.3 million. It will affect the heirs of at least 50,000 U.S. taxpayers who die this year, whereas the old law affected only about 15,000 estates a year, according to the Tax Policy Center.

"The new system is far worse for many people who have assets between $1.3 million and $3.5 million," says veteran estate lawyer Ronald Aucutt, of McGuire Woods.

The linked-to article does a good job of walking readers through a simple hypothetical demonstrating how differently this year's and last year's regimes treat the same asset held by two fictional widows: Ms. Bentley has total assets of $20 million, while Ms. Subaru's total is $2 million. Guess who is paying more taxes this year?

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Burgess v. Prince, --- So.3d ----, 2010 WL 199422 (Fla. 2d DCA Jan. 22, 2010)

Access to trust funds is usually a zero-sum game: If I pay trust funds to one party, there's less money for everyone else. We usually think of this problem in terms of conflicting claims between trust beneficiaries: if I pay $$ to beneficiary "A," there's less $$ for beneficiary "B."

So is there a way to boost payments to beneficiary A without diminishing beneficiary B's share of the trust? Yes!

One option is to "grow the pie," so there's more to go around for everyone [click here]. Another option is to pay beneficiary A to do some of the trust-administration work being done by third parties. As long as beneficiary A can do the job, this transaction is an economic wash as far as beneficiary B is concerned. So why not "keep the money in the family" by paying a trust beneficiary - rather than an unrelated third party - to do the work? Professionals who take the time to understand this opportunity can become heroes to their trust-beneficiary clients. The linked-to opinion is an example of this second option in action.

Trust beneficiary as Business Manager:

In the linked-to opinion the trust owned Salt Creek Art Works, a large art studio and gallery. One of the trust's beneficiaries was serving as trustee of the trust and business manager for Salt Creek Art Works. The trust agreement provided that a beneficiary may not receive compensation for serving as trustee, but there was nothing stopping her from getting paid for the work she did as business manager. In fact, the trust agreement specifically authorized a trustee/beneficiary to hire herself to do any work the trust required.

When the trustee/beneficiary was removed as trustee she was also stripped of her business-manager fees. On appeal the 2d DCA reversed this ruling by simply applying the clear text of the trust agreement.

Section 6.2 of the Trust provides that a beneficiary may not receive compensation for serving as Trustee:

Any Trustee, whether an individual or corporate trustee, who may serve under the Trust shall be entitled to receive compensation for its services as Trustee in accordance with its schedule of rates in effect at the time the services are rendered, including minimum fees and additional compensation for special investment and interests in a closely-held business. Any Trustee who is also a beneficiary under the Trust shall serve without compensation.

(Emphasis added.) Our record demonstrates, however, that Ms. Burgess did not receive compensation for her service as Trustee. Rather, she received a modest monthly payment from the Trust for operating the ongoing business of Salt Creek Art Works. The payments she received were not contrary to the terms of the Trust. Indeed, the Trust allows compensation to a Trustee serving in other capacities. Section 6.4 empowers the Trustee:

[T]o employ accountants, actuaries, appraisers, attorneys, brokers, building contractors, custodians, investment managers, realtors, and other agents including any Trustee, if such employment be deemed necessary or desirable and to pay reasonable compensation for their services without diminution of any fiduciary's commissions....

(Emphasis added.)

Finally, section 6.5 allows the Trustee to compensate a beneficiary for business management duties:

To determine in his or her discretion the manner and extent of his or her active participation in the business, and to delegate all or any part of his or her power to supervise and operate to such person or persons as he or she may select, including any associate, partner, officer or employee of the business.

To hire and discharge officers and employees, fix their compensation and define their duties; and to employ, compensate and discharge agents, attorneys, consultants, accountants and such other representatives as the Trustee may deem appropriate; including the right to employ any beneficiary or individual fiduciary in any capacity.

(Emphasis added.)

Relying on the plain language of the Trust document, we must conclude that the trial court erred in ruling that Ms. Burgess could not be compensated for managing Salt Creek Art Works.

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As reported by Forbes in States Race To Clean Up Congress' Estate Tax Mess, several states - including Florida - aren't waiting around for Congress to get its act together on the estate tax front.

While Congress dilly dallies, the states are racing to come to the aid of families whose estate plans have been thrown into disarray by the Jan. 1 lapse of the federal estate tax. That lapse could, among other things, lead to the unintended disinheritance of spouses, which could in turn lead to expensive legal fights among family members and, ultimately, the impoverishment of some widows or widowers. It could also, ironically, force some families to pay extra state estate taxes.

Legislators in a handful of states, led by Virginia [click here], have already introduced legislation to try to head off such bad results. Virginia's House of Delegates passed its "emergency" bill unanimously Tuesday and the state's Senate is expected to take it up immediately [click here]. Similar bills are pending in Maryland, Nebraska, South Dakota, Tennessee and Washington. Other states, including Florida and New York, have somewhat different legislation pending.

By the way, Forbes has a very cool interactive map showing state-level estate tax laws for 2010 [click here].

Florida's Statutory Fix

At this year's Heckerling conference one of the giants of the Florida trusts and estates bar, Bruce Stone, reported on Florida's statutory fix (CS/HB 361) in an excellent presentation entitled The Clock Struck Midnight: Now What Do We Do?  You can track the status of CS/HB 361 here. Full text of the bill is here.  The following is the proposed trust-code provision as reported by Bruce:

The following is a draft as of noon Monday, January 18, 2010, of a statute to be proposed for adoption in Florida, addressing the uncertainties and potential liabilities of fiduciaries caused by repeal of the estate and generation-skipping transfer taxes. The proposed statute may be submitted to the Florida legislature for its regular session which convenes on March 2, 2010.

Section I - section 736.04114 shall be created as follows:

736.04114 Limited judicial construction of irrevocable trust with federal tax provisions.--

(1) Upon the application of a trustee or any qualified beneficiary of a trust, a court at any time may construe the terms of a trust that is not then revocable to define the respective shares or determine beneficiaries, in accordance with the intention of the settlor, if a transfer occurs during the applicable period and the trust contains a provision that:

(a) includes a formula devise referring to the "unified credit", "estate tax exemption," "applicable exemption amount," "applicable credit amount," "applicable exclusion amount," "generation-skipping transfer tax exemption," "GST exemption," "marital deduction," "maximum marital deduction," or "unlimited marital deduction;"

(b) measures a share of a trust based on the amount that can pass free of federal estate tax or the amount that can pass free of federal generation-skipping transfer tax;

(c) otherwise makes a devise referring to a charitable deduction, marital deduction, or a similar provision of federal estate tax or generation-skipping transfer tax law; or

(d) appears to be intended to reduce or minimize federal estate tax or generation skipping transfer tax.

(2) For the purpose of this section:

(a) "applicable period" means a period beginning January 1, 2010 and ending on the earlier of (i) December 31, 2010, or (ii) the date that an act becomes law that repeals or otherwise modifies or has the effect of repealing or modifying Section 901 of The Economic Growth and Tax Relief Reconciliation Act of2001.

(b) a "transfer occurs" when an interest takes effect in possession or enjoyment.

(3) In construing the trust, the court shall consider the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and the settlor's probable intent. In determining the settlor's probable intent, the court may consider evidence relevant to the settlor's intent even though the evidence contradicts an apparent plain meaning of the trust instrument.

(4) This section does not apply to a transfer that is specifically conditioned upon no federal estate or generation skipping transfer tax being imposed at the time of the transfer.

(5) Unless otherwise ordered by the court, during the applicable period and without court order, the trustee administering a trust containing one or more provisions described in subsection (1) may (a) delay or refrain from making any distribution, (b) incur and pay fees and costs reasonably necessary to determine its duties and obligations (including compliance with provisions of existing and reasonably anticipated future federal tax laws), and (c) establish and maintain reserves for the payment of these fees and costs and federal taxes. The trustee shall not be liable for its actions as provided in this subsection made or taken in good faith.

(6) The provisions of this section are in addition to, and not in derogation of rights under the Florida Trust Code or the common law to construe a trust.

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Foster v. Estate of Gomes, --- So.3d ----, 2010 WL 322170 (Fla. 5th DCA Jan. 29, 2010)

Prenuptial agreements limiting themselves solely to spousal inheritance rights are governed by F.S. § 732.702. All other prenuptial agreements are governed by the more burdensome requirements of Florida's Premarital Agreement Act, found at F.S. § 61.079.

Generally speaking, inheritance-rights prenup's are a whole lot simpler to draft, less costly for clients, and easier to enforce. Why? One big reason is that these agreements (if executed prior to the marriage) don't require prospective spouses to go through all of the financial disclosure normally needed to make prenup's governed by Florida's Premarital Agreement Act stick. This distinction is often lost on attorneys used to litigating prenup's in divorce proceedings, and was at the heart of the court's ruling in the linked-to opinion.

Prior to their marriage, Lora Foster and Edward Gomes entered into an antenuptial agreement in which Ms. Foster waived all right to Mr. Gomes's property, including her right to an elective share. Although not required by Florida law, Mr. Gomes disclosed the bulk of his assets when they entered the agreement, omitting one asset valued at approximately $10,000.

*     *     *

Florida law does not require prior disclosure of assets for an antenuptial agreement. § 732.702(2). Recognizing this, Appellant argues that a disclosure, once made, albeit voluntarily, if inaccurate or fraudulent, invalidates the antenuptial agreement, citing Stregack v. Moldofsky, 474 So.2d 206 (Fla.1985) (Ehrlich, J., dissenting). Unfortunately for Appellant, that dissenting opinion has not garnered a consensus either within the Florida Legislature or Florida courts. We prefer, instead, to rely upon the binding majority opinion which stated, “[n]ondisclosure, whether fraudulent or not, is precisely what the legislature intended to eliminate from consideration on the validity of antenuptial agreements.” Stregack, 474 So.2d at 207. In so holding, the law continues to accommodate the desires of older Florida residents to marry again without risking an unwanted disposition of a lifetime's assets due to a partial disclosure. See id.

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Rachid v. Perez, --- So.3d ----, 2010 WL 173776 (Fla. 3d DCA Jan 20, 2010)

We've all been there: you've been locked in mediation for hours and an unreasonable/ irrational litigant refuses to settle, even if - given the risks and benefits - it's plain to everyone that he ought to accept the settlement offer on the table. The linked-to case addresses this type of situation.

Since most working probate lawyers will find themselves on both sides of this conundrum at one point or another in their career, I thought the best way to think about this case was from both perspectives.

Scenario 1: What if I represent the side that refuses to settle, no matter how reasonable the offer?

No matter how frustrating this situation may be, you have to fight the temptation to subtly "lean" on your client until he accepts a deal you know - without question - is in his best interest. When the dust settles and your unhappy client re-reads the settlement agreement he never really wanted to sign in the first place, you may find yourself on the receiving end of a malpractice lawsuit. Based on the following excerpt from the linked-to opinion, it looks like that's where this case may be headed:

Here, Rachid does not claim that any party misled or induced her to enter into the settlement agreement. Rather, she contends that her attorney misled or induced her.

Blogger and mediator Victoria Pynchon expands here on the likely consequences of those cases where a litigant believes his lawyer "mislead or induced" him to accept a settlement offer.

Here's the bad news. If a litigant is unhappy with the outcome of mediation, he or she is far more likely to bring a complaint (or lawsuit) against his or her own attorney.

In a 2006 article in the Ohio Journal on Dispute Resolution TAKE IT OR LEAVE IT. LUMP IT OR GRIEVE IT: DESIGNING MEDIATOR COMPLAINT SYSTEMS THAT PROTECT MEDIATORS, UNHAPPY PARTIES, ATTORNEYS, COURTS, THE PROCESS, AND THE FIELD Paula M. Young, Assistant Professor at the Appalachian School of Law cites Mel Rubin on "settle and sue" cases which Rubin suggests are on the rise among clients unhappy with the outcome of a mediation. Rubin "also suggests that if a client is unhappy with the outcome of mediation, he or she is more likely to sue his or her attorney for malpractice. Id.

The gist of Victoria's advise - which I agree with - is to make sure your client feels he was treated fairly in mediation, that he wasn't "ganged up on" by the mediator (or you), and that he walks away feeling he was ultimately in control of the final outcome. To that advice I would add: if you think your client is being irrational, the right thing to do may be to tell him to find a new lawyer. As the 3d DCA pointed out not too long ago in a case involving an out-of-control probate litigant, “'just say no' applies to some clients and matters, just as to drugs" [click here].

Scenario 2: What if I represent the side that's trying to enforce a settlement agreement?

If you're counsel for the good guy, the last thing you want is protracted litigation to enforce a settlement agreement. To nip this sort of challenge in the bud, you'll want to point the other side to the linked-to opinion and let him or her know that in the absence of truly outrageous circumstances, Florida law forces litigants to live with the deals they've struck . . . no matter how badly they may be suffering from buyer's remorse.

First, Rachid's burden when seeking rescission of a settlement agreement on this legal theory is a particularly difficult one. See Tilden Groves, 816 So.2d at 660 (“[C]ases settled in mediation are especially unsuited for the liberal application of a rule allowing rescission of a settlement agreement based on unilateral mistake.”); see also Sponga v. Warro, 698 So.2d 621, 625 (Fla. 5th DCA 1997).

Second, Rachid's argument is without merit as the record does not support the legal remedy of rescission on the basis that the settlement agreement was the product of a unilateral mistake. Under Florida law, the party seeking rescission based on unilateral mistake must establish that:

(1) the mistake was induced by the party seeking to benefit from the mistake, (2) there is no negligence or want of due care on the part of the party seeking a return to the status quo, (3) denial of release from the agreement would be inequitable, and (4) the position of the opposing party has not so changed that granting the relief would be unjust.

Lechuga v. Flanigan's Enters., Inc., 533 So.2d 856, 857 (Fla. 3d DCA 1988). Here, Rachid does not claim that any party misled or induced her to enter into the settlement agreement. Rather, she contends that her attorney misled or induced her. Thus, her claim fails as a matter of law. Rachid also cannot demonstrate that there was “no negligence or want of due care” on her part because she had an obligation to read and know the legal parameters regarding the validity and application of the prenuptial agreement prior to mediation. Leff v. Ecker, 972 So.2d 965 (Fla. 3d DCA 2007) (holding that where the plaintiff entered into a mediated settlement agreement with a limited knowledge of the relevant facts, the plaintiff bore the risk of mistake). Additionally, Rachid was represented by counsel at mediation, and she failed to demonstrate that denial of rescission would be inequitable or that granting relief would be unjust. Thus, we conclude that even if Rachid had properly preserved her claim of unilateral mistake, on appellate review her claim would have failed on the merits.

We . . . address the argument that Rachid did raise-that there was no meeting of the minds. As to the trial court's rejection of this argument, we find no abuse of discretion. See Tanner v. Tanner, 975 So.2d 1190 (Fla. 1st DCA 2008) (holding that “ ‘[b]uyer's remorse’ is not a sufficient basis for overturning a marital settlement agreement freely and voluntarily entered into”); see also BMW of N. Am., Inc. v. Krathen, 471 So.2d 585 (Fla. 4th DCA 1985) (rejecting BMW's appeal to set aside a judgment based on BMW's failure to include a condition in its settlement offer). We therefore affirm the order under review. 

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The WSJ's Wealth Report Blog posted here on litigation swirling around the trust/estate of billionaire mall magnate Mel Simon. What I found especially interesting was the implication of possible undue influence by his surviving spouse, Bren Simon. Here's an excerpt:

Months before he died of cancer last September, billionaire mall magnate Mel Simon made some big changes to his will.

The changes boosted the share of his fortune left to his wife, Bren Simon. Originally she was to get a third. After the changes, she was to half.

The changes also cut out Melvin’s three children from his first marriage—Deborah, David Simon and Cynthia Simon-Skjodt—and left charitable giving to Bren’s discretion. The earlier will earmarked one-third of the estate for charity.

Mr. Simon’s estate is valued at somewhere from $1 billion to $2 billion, and it has increased since his death since the stock in the company he founded–Simon Property Group–has rebounded.

The changes to the will sparked an escalating Simon-family feud, as this Chicago Tribune article lays out.. Mr. Simon’s daughter Deborah is suing her stepmom, Bren Simon, alleging she persuaded Mel Simon to change his will to reduce the children’s inheritances. The suit claims her dad was suffering from dementia at the time and needed help signing the document.

Now, Bren Simon’s latest court filing [click here] says Mr. Simon “voluntarily and of his own free will signed a valid will and trust in February.” She acknowledges that Mr. Simon needed help with his signature, but said Parkinson’s symptoms in his right hand were to blame.

Spousal Undue Influence Claims in Florida:

I have no idea what the law is on spousal undue-influence claims in Indiana (where Mr. Simon's estate is being litigated), but in Florida they're very tough to prove. For starters, you can't rely on the "confidential relationship" between spouses to trigger the presumption of undue influence. There's a solid, common sense reason for this rule: in its absence every will benefiting a spouse could potentially be challenged on undue influence grounds. Here's how the 3d DCA explained Florida's approach in Tarsagian v. Watt, 402 So.2d 471 (Fla. 3d DCA 1981):

The holding of Goertner v. Gardiner, 125 Fla. 477, 170 So. 112, reh. den., 126 Fla. 412, 170 So. 844 (1936), that the confidential relationship which exists between a husband and wife is not one which may be considered in the law governing will contests, accord, In re Estate of Knight, 108 So.2d 629 (Fla. 1st DCA 1959), is, in our view, still extant. Since a confidential relationship is one necessary requirement which must be met before a presumption of undue influence arises, under Goertner the presumption cannot arise in the case of a husband and wife. Were the confidential relationship between spouses not exempted from that presumption of undue influence rule, the presumption would arise in nearly every case in which the spouse is a substantial beneficiary, since the required active procurement would almost always be present. One would naturally expect to find a spouse to be present at the execution of the will, present when the testator expresses a desire to make a will, knowledgeable about the contents of the will prior to its execution, involved in its safekeeping, and perhaps even involved in the recommendation of an attorney-preparer and consultation with an attorney-preparer. These, of course, are among the criteria for determining if one is engaged in active procurement. See In re Estate of Carpenter, supra.

On the other hand,  I don't think this means a spousal undue influence claim is impossible in Florida; you just can rely on the presumption. Instead, you'll need to prove your case directly. A case that suggests a finding of undue influence against a surviving spouse, although not based on a presumption, is In re Auerbacher's Estate, 41 So.2d 659 (Fla. 1949). 

But what if the marriage itself is procured by fraud, undue influence, or duress?

By the way, if someone is intent on preying upon another's wealth, the best way to go about doing it isn’t mucking around with estate planning documents, it’s marrying the guy. The mother of all inter-spousal estate grabs is the marriage itself. Once you’re hitched, you’re automatically entitled to all sorts of goodies as a surviving spouse, no matter what the estate planning documents may say.

This is where we hit a brick wall in Florida: the current state of the law seems to be that marriages procured by fraud, undue influence or duress can’t be challenged after a person’s death. Click here for an excellent white paper prepared by über probate litigator William (“Bill”) T. Hennessey and his team over at Gunster summarizing Florida law on this issue and a proposed legislative fix. Here’s an excerpt:

The mere status of surviving spouse affords a myriad of significant financial benefits under Florida law, including the right to homestead property (at least a life estate in the decedent's homestead residence), an' elective share (30% of the decedent's augmented elective estate), to take as a pretermitted spouse (up to 100% of the estate under the laws of intestacy), family allowance, exempt property, and priority in preference in selecting a personal representative. In addition, Florida courts have held that a presumption of undue influence in a will contest "cannot arise in the case of a husband and wife" because the requirement of active procurement would almost always be present. Jacobs v. Vaillancourt, 634 So. 2d 667, 672 (Fla. 2d DCA 1994); Tarsagian v. Wall, 402 So. 2d 471, 472 (Fla. 3d DCA 1981).

Most of these benefits are well deserved. It has often been said that Florida has a strong public policy in favor of protecting a decedent's surviving spouse. See, e.g., Via v. Putnam, 656 So. 2d 460, 462 (Fla. 1995). However, what happens when a marriage is procured by undue influence, fraud or exploitation? Is Florida's public policy furthered, in such an instance? This report will discuss the current state of Florida law on the ability to challenge the validity of a marriage after the death of one of the parties to the marriage. It will also examine how other states have addressed this issue.
. . . . .

In sum, Florida follows the common law and majority rule which only allows void marriages to be challenged after death. In most instances, Florida courts have held that marriages procured by fraud, duress, and undue influence are merely voidable, affording potential heirs no ability to challenge a marriage after death. Given the extensive rights available to a surviving spouse, a wrongdoer can profit significantly by simply inducing or influencing an elderly person to enter into a marriage. The Subcommittee recommends that the full committee consider and discuss legislation to address this issue.

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Estate of Madrigal v. Madrigal, --- So.3d ----, 2009 WL 4061747 (Fla. 3d DCA Nov 25, 2009)

I recently wrote here about the "Undue Influence Worksheet," a tool for probate litigators and their clients to organize their thinking and zero in on the key evidence determining the outcome of their undue influence case. Why is this so important? Because when it comes to pure fact questions, such as whether your client did or did not unduly influence the testator, expect you'll only get one shot at winning your case: at trial. As the linked-to case makes clear, it doesn't matter if a panel of appellate judges would have called your case a different way, as long as your trial judge's factual determinations are supported by competent substantial evidence, that's it, game over: the trial judge's order stands.

In the instant case, following an evidentiary hearing, the trial court entered an order making specific findings of facts and concluding that the sole beneficiary procured the testator's last will and testament by undue influence. As the trial court's findings of fact are supported by competent, substantial evidence, and the findings of fact support the trial court's conclusion of undue influence, we affirm the order under review. See Estate of Brock, 692 So.2d 907, 913 (Fla. 1st DCA 1996) (“[O]ur scope of review requires us to accept the factual findings of the trial court so long as there is support for them by competent substantial evidence. It is axiomatic that the trial court's resolution of conflicting evidence will not be disturbed by a reviewing court in the absence of a clear showing of error, or that the conclusions reached are erroneous.”).

What's going on here is pretty basic to how our court system is supposed to work: trial judges decide fact issues, appellate judges decide legal issues. If your case turns on a pure fact issue, don't expect a "do over" on appeal. This division of labor was at the heart of the Florida Supreme Court's thinking when it articulated the competent-substantial-evidence standard in Shaw v. Shaw, 334 So.2d 13, 16 (Fla. 1976):

It is clear that the function of the trial court is to evaluate and weigh the testimony and evidence based upon its observation of the bearing, demeanor and credibility of the witnesses appearing in the cause. It is not the function of the appellate court to substitute its judgment for that of the trial court through re-evaluation of the testimony and evidence from the record on appeal before it. The test ... is whether the judgment of the trial court is supported by competent evidence. Subject to the appellate court's right to reject "inherently incredible and improbable testimony or evidence," it is not the prerogative of an appellate court, upon a de novo consideration of the record, to substitute its judgment for that of the trial court.

OK, you ask, so what's competent substantial evidence?

Here's how the phrase was broken down and defined by the 5th DCA in the context of a probate case in Lonergan v. Estate of Budahazi, 669 So.2d 1062, 1064 (Fla. 5th DCA 1996):

The term "competent substantial evidence" does not relate to the quality, character, convincing power, probative value or weight of the evidence but refers to the existence of some evidence (quantity) as to each essential element and as to the legality and admissibility of that evidence. Competency of evidence refers to its admissibility under legal rules of evidence. "Substantial" requires that there be some (more than a mere iota or scintilla), real, material, pertinent, and relevant evidence (as distinguished from ethereal, metaphysical, speculative or merely theoretical evidence or hypothetical possibilities) having definite probative value (that is, "tending to prove") as to each essential element of the offense charged.

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Morgenthau v. Estate of Andzel, --- So.3d ----, 2009 WL 5151741 (Fla. 1st DCA Dec 31, 2009)

I recently wrote here about Florida's ultra-short deadlines for filing creditor claims against probate estates and how they can be unforgiving traps for the unwary. These deadlines are scary because they can fly by without a creditor ever being the wiser.

But, some of you may ask, what about an estate's duty under F.S. 733.2121 to give "reasonably ascertainable" creditors actual notice of the filing deadline? If I'm a reasonably ascertainable creditor and the estate didn't give me notice, do I get a free pass? NO says the 1st DCA in the linked-to case above.

In this case the holder of an unpaid promissory note filed a creditor claim against the debtor's probate estate over a year after the estate first published its notice to creditors in a local newspaper. Clearly the creditor had blown past the generally applicable 3-month claims-filing deadline under F.S. 733.702. The creditor argued he shouldn't be bound to this deadline because he was a reasonably ascertainable creditor and the estate hadn't complied with its duty under F.S. 733.2121 to give him actual notice of the filing deadline.

Sorry, says the 1st DCA. Unless a creditor asks for an extension to file his claim (and "insufficient notice of the claims period" is one of the grounds for getting an extension), he's out of luck. Here's why:

Here, appellant filed a statement of claim past the three month filing window. As such, according to section 733.702(1), the claim was untimely as appellant did not receive actual notice of the claim and was, thus, a creditor who fell in the three month filing window following publication. See also Miller v. Estate of Baer, 837 So.2d 448, 449 (Fla. 4th DCA 2002) (holding creditors who do not receive actual notice have until the close of the three month publication window to file a claim regardless of whether creditor asserts it was entitled to actual notice).

Further, appellant did not file a motion for extension of time to file the claim or otherwise seek an extension. All Florida cases since [May v. Illinois Nat. Ins. Co., 771 So.2d 1143 (Fla.2000)] dealing with the forgiveness of a timeliness issue as to a creditor's claim where the creditor asserts he or she was a reasonably ascertainable creditor subject to actual notice reach the issue through review of the creditor's request for an extension, not through creditor's filing of a statement of claim. Faerber v. D.G., 928 So.2d 517, 518 (Fla. 2d DCA 2006) (reversing a trial court's grant of creditor/appellee's motion for extension of time to file a claim where no evidence was considered prior to the grant); Simpson v. Estate of Simpson, 922 So.2d 1027 (Fla. 5th DCA 2006) (reviewing trial court's denial of appellant's motion for extension of time based on the allegation he was a readily ascertainable creditor who should have received actual notice of decedent's death); Longmire v. Estate of Ruffin, 909 So.2d 443 (Fla. 4th DCA 2005) (same); Strulowitz, 839 So.2d 876 (same); Miller, 837 So.2d at 448-50 (same).

While the Statement of Claim listed facts upon which a probate court could grant an extension, the Statement of Claim did not request an extension. Further, at no point in either the initial brief or the reply brief does appellant argue his Statement of Claim should be converted or modified to be read as a motion requesting an extension of time. The proper procedural course for untimely claims is the filing of an extension request prior to the filing of a statement of claim. § 733.702(1)-(3), Fla. Stat. (2007). Under the plain language of the statute, once appellant's claim fell outside the three month claim period, regardless of his arguments for delay, his claim could only be considered after the probate court's grant of an extension. Because appellant chose to file only a Statement of Claim and never requested an extension of time to file that claim, the probate court was bound by the relevant statutes to deny the claim. § 733.702(1)-(3), Fla. Stat. (2007).

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The law governing undue influence claims in Florida is a frequent topic of discussion on this blog [click here, here, here, here]. But for those of us in the trenches, we know clever legal arguments rarely carry the day; these cases are won and lost on the strength of your evidence.

So here's the problem: there aren't many tools out there designed to help probate litigators and their clients organize their thinking and zero in on the key facts they'll need to build a winning case. One such tool I recently discovered is the Undue Influence Worksheet developed by forensic psychiatrist Bennett Blum, M.D. In this short article Dr. Blum explains the thinking underlying his worksheet:

The “Worksheet” is based upon the IDEAL protocol, which combines knowledge from the fields of psychiatry, psychology, and sociology regarding the mechanisms of human manipulation, with extensive review of statutes, case law, and legal theory. IDEAL describes those psychological and social factors that commonly co-exist in undue influence situations. These factors are: Isolation; Dependency; Emotional manipulation and/or Exploitation of a vulnerability; Acquiescence; and Loss. 

Case Study:

When I'm teaching I find nothing beats a good case study for explaining new ideas. So I was happy to see Dr. Blum included the following case study in his article applying his Worksheet:

The following is a true case, although extreme in its clarity. The issue of undue influence is obvious, but the case is presented to help show how a fact pattern is considered within the IDEAL protocol:

Mr. Jones is an affluent, 88 year-old retired professor. His beloved wife of 60 years died two years ago, and since then he has been very lonely. Mr. Jones has a good and loving relationship with his three adult children, and though they live in other States he speaks with each every week. Mr. Jones moved to a retirement community four years earlier, and because of his wife’s illness and subsequent death, he has no significant social contacts in his current community. His long-time friends live several hundred miles away. Mr. Jones has multiple medical problems – diabetes, heart disease, high blood pressure, and difficulty walking due to arthritis – but has no apparent cognitive impairment.

Mr. Jones meets Ms. Smith, a 62 year-old divorced woman. She moves into his home six months later. She provides physical care in the form of preparing meals, cleaning the house, taking him to physician appointments, and ensuring he takes his medications properly. During the next six months, Ms. Smith begins asking for “tokens of appreciation” and purchases a new car, wardrobe, and jewelry with Mr. Jones’ money. She also demands that he give her his late wife’s jewelry, which he had intended to give to his grandchildren. At the same time, Mr. Jones stops telephoning his children, and they in turn find it more and more difficult to speak with him. Ms. Smith is now the only person to answer the telephone, and when the children call they often are told their father is unavailable or does not feel well enough to talk. Eventually, they are not allowed to speak to him at all. Two months later, after repeated angry exchanges with Ms. Smith, the eldest child receives a telephone message from Mr. Jones. In the message, Mr. Jones says, “She says I cannot call any of you anymore. If I do she will leave me and she says that at my age no one else will care for me, and that I will be alone. The same thing will happen if I stop giving her money. I know what she is doing, but I was so lonely after your mother died. I couldn’t bear to be that lonely again. I just hope that I can hold back enough money so she will stay until I die.” These were Mr. Jones’ last words to his children. He subsequently changed his estate plan – bequeathing everything to Ms. Smith.

Applying IDEAL to these facts:

Isolation – Mr. Jones’ children and friends live far away, he has no significant social contacts in his current living environment, his mobility is limited due to illness, Ms. Smith intercepts his telephone calls, and he is not allowed to talk to his children.

Dependency – Mr. Jones is emotionally dependent upon Ms. Smith, and she provides for his physical needs (food, cleaning, appointments, medicine). 

Emotional manipulation/Exploiting a weakness – Ms. Smith threatens to abandon Mr. Jones using his fear of loneliness.

Acquiescence – Mr. Jones agrees to Ms. Smith’s demands because he is frightened of being lonely, dependent upon her, and isolated from other social contacts and family. As a result, he gives her money and property, and makes her the sole beneficiary of his estate.

Loss – Mr. Jones suffers financial losses because of Ms. Smith’s threats and coercion. In this case, although criminal charges might have been pursued in some jurisdictions (ex. for elder abuse), the issue of “loss” was used only to support civil litigation.

Caveats and Suggestions:

Although it may seem obvious – do not rely only upon the litigants for information. The “Undue Influence Worksheet” and IDEAL are more effective if there are corroborating statements and observations by 3rd-parties, circumstantial evidence, and/or self-incriminating statements by the litigants. A case may be argued without such corroboration, but the use of IDEAL would be quite limited.

If more sophisticated analysis is needed, an expert should be contacted for advice regarding the development of both general and specific manipulation tactics, their relative impact, and assessment of pertinent cognitive issues (note: impaired cognition is common, but is not essential). These topics require extensive individual attention, and will not be presented in this introductory article.

Also, be cautious when retaining an expert on the issues of manipulation or undue influence. These are specialized fields and very few people are actual experts. Unfortunately, many well-intentioned mental health professionals claim this expertise without knowing how much training and knowledge is necessary.

Some attorneys report successful use of IDEAL without employing associated experts. In these cases, the attorney uses the information obtained through IDEAL and the “Worksheet” to craft a powerful and compelling argument – for either settlement or trial.

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Mack v. Perri, --- So.3d ----, (Fla. 1st DCA Dec 22, 2009)

Plaintiffs suing estates often fail to realize that they're really litigating their claims in two separate courts in front of two separate judges:

1. The trial court adjudicating their lawsuit (this is where the estate's liability is established); and
2. The probate court administering the decedent's probate estate (this is where you go to collect if you win in the trial court).

What's scary about this dual-court approach is that it creates a huge trap for the unwary: you can spend years and a fortune in fees litigating claims against an estate in a trial court and never be the wiser to the fact that you've blown past one of the ultra-short limitations periods applicable in a probate court (733.702(1), 733.710(1)); which means no matter how spectacular your win might be at trial, you'll never be able to collect on your judgment in the probate court.

That's the trap the plaintiffs in the linked-to opinion apparently fell into. Here are the key dates/facts as summarized by the 1st DCA:

The decedent, George Watts, a physician, died on November 18, 2004. The first notice to creditors was published on May 14, 2005. On October 31, 2005, the Macks first filed their claims against the Estate based on alleged medical malpractice in connection with surgery Dr. Watts performed on Susan Mack's ankle. The Macks filed a malpractice action against the Estate on January 30, 2006. In February 2009, the Estate filed a petition in the probate court to limit the Macks' claim in the malpractice action to the proceeds of malpractice insurance, see section 733.702(4)(b), Florida Statutes (2005), and the Macks filed petitions seeking to strike the Estate's objections to their claims.

Wrapped up into that one short paragraph are three important takeaways for anyone involved in litigation against a Florida probate estate:

Lesson #1: Never, ever forget F.S. § 733.710(1): Florida's two-year non-claim statute:

In the linked-to case the estate waited until February 2009, almost five years after the decedent died, to spring its trap on the unsuspecting plaintiffs. By then the two-year non-claim period for the estate had clearly run making it impossible for the plaintiffs to get the extension needed to preserve their claim against the probate estate. Here's how the 1st DCA explained this point:

We agree with the trial court that the Macks' claims against the estate are barred by sections 733.702(1)(3), and 733.710(1), Florida Statutes (2005). The Macks' claims were filed more than three months from the date the notice to creditors was first published. See § 733.702(1). Further, the Macks did not file a request for an extension of time under section 733.702(3) until after the running of the two-year non-claim period in section 733.710(1). As the Supreme Court held in May v. Illinois National Insurance Company, 771 So.2d 1143, 1157 (Fla.2000), “section 733 .710 is a jurisdictional statute of nonclaim that automatically bars untimely claims and is not subject to waiver or extension in the probate proceeding.” The May court explained that this statute “represents a decision by the legislature that 2 years from the date of death is the outside time limit to which a decedent's estate in Florida should be exposed by claims on the decedent's assets.” Id. (quoting Comerica Bank & Trust, F.S.B. v. SDI Operating Partners, L.P., 673 So.2d 163, 167 (Fla. 4th DCA 1996)). Here, the Macks' claims were untimely filed under section 733.702(1). Although section 733.702(3) provides for an extension, the claim and motion for an extension must be filed before the operation of the two-year non-claim provision. May, 771 So.2d at 1157.

Lesson #2: Never say never: Florida's two-year non-claim statute doesn't bar ALL claims:

Even if you blow past the two-year mark for perfecting your claim against a probate estate, all may not be lost. In the linked-to case the estate recognized that even though the plaintiffs were barred by F.S. § 733.710(1) from asserting claims against the decedent's probate estate, the decedent's malpractice insurance was still fair game under F.S. § 733.702(4), which provides as follows:

(4) Nothing in this section affects or prevents:

(a) A proceeding to enforce any mortgage, security interest, or other lien on property of the decedent.

(b) To the limits of casualty insurance protection only, any proceeding to establish liability that is protected by the casualty insurance.

(c) The filing of a cross-claim or counterclaim against the estate in an action instituted by the estate; however, no recovery on a cross-claim or counterclaim shall exceed the estate's recovery in that action.

Lesson #3: The clock starts ticking as soon as the first notice to creditors is published:

Under F.S. § 733.702 creditors have three months after the notice of creditors is fist published to file their claims. But F.S. § 733.2121 says publication "shall be once a week for 2 consecutive weeks." So when does the "publication" clock start ticking? After the first or second week? The plaintiffs tried to salvage their claim by arguing for week two. Nice try, but no cigar says the 1st DCA:

We also reject the Macks' assertion that their claim was timely filed when measured from the date of publication of a second notice to creditors by the estate. The time period under section 733.702(1) runs from “the time of the first publication of the notice to creditors.” As the Supreme Court held in Estate of Williamson v. Murphy, 95 So.2d 244, 247 (Fla.1957), a second publication will be deemed “unnecessary surplusage” which has no “affect [on] the validity or effectiveness of the first notice published.”

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At a top current rate of 45%, the federal estate tax automatically makes the IRS the single largest creditor of most large estates. If the estate tax is looming in the background it's imperative that every decision made by the parties and their lawyers with respect to how they characterize and prosecute their trust/probate claims be considered against this backdrop. I recently presented a national NBI seminar on this very same topic [click here].

At long last probate litigators and their clients have clearer guidance from the IRS on exactly how to make sure they maximize the tax-deduction benefits of estate litigation. The IRS has issued final regulations under IRC § 2053 governing estate tax deductions for administration expenses and claims against estates. Click here for a link to the new reg’s, which became effective on October 20, 2009.

In its background summary for the new reg's [click here] the IRS explained its thinking for why they were needed:

The amount an estate may deduct for claims against the estate has been a highly litigious issue. See the Background in the notice of proposed rulemaking published in the Federal Register on April 23, 2007 (REG-143316-03, 2007-1 C.B. 1292 [72 FR 20080]). Unlike section 2031, section 2053(a) does not contain a specific directive to value a deductible claim at its value at the time of the decedent’s death. Section 2053 specifically contemplates expenses such as funeral and administration expenses, which are only determinable after the decedent’s death.

The lack of consistency in the case law has resulted in different estate tax treatment of estates that are similarly situated, depending only upon the jurisdiction in which the executor resides. The Treasury Department and the IRS believe that similarly-situated estates should be treated consistently by having section 2053(a)(3) construed and applied in the same way in all jurisdictions.

Accordingly, in an effort to further the goal of effective and fair administration of the tax laws, the Treasury Department and the IRS published proposed regulations in the Federal Register on April 23, 2007. In formulating the proposed rule, the Treasury Department and the IRS carefully considered: the statutory framework and legislative history of section 2053 and its predecessors; the existing regulatory provisions under section 2053, particularly those that are generally applicable to all amounts deductible under section 2053; the numerous judicial decisions involving an issue under section 2053(a)(3) and the analysis and conclusion in each; and, the practical consequences of various possible alternatives for determining the amount deductible under section 2053(a)(3).

To help us make sense of it all estate-tax gurus Steve R. Akers and Jonathan G. Blattmachr/Mitchell M. Gans published excellent materials pointing out opportunities and pitfalls built into the new reg's for practitioners and clients alike [click here, here].

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Buroz-Henriquez v. De Buroz, --- So.3d ----, 2009 WL 3271354 (Fla. 3d DCA Oct 14, 2009)

It's not unusual in probate litigation for parties to underestimate the importance of complying with discovery deadlines. However, this frustrating fact of life is also an opportunity: I recently won a case simply by obtaining an ex parte order compelling a recalcitrant will-challenger to respond to my pending discovery requests. For reasons that remain unclear to me, this bit of pressure was enough to get this guy out of the case: he voluntarily withdrew his claim with prejudice in lieu of complying with my discovery order. The basis for my order was a local rule applicable in Miami (Admin. Order 06-09), but the underlying authority should be applicable anywhere in Florida.

In the linked-to case the winning side used a discovery-sanctions order to not only default the sitting personal representative out the estate, they also walked away with an order compelling the estate to pay $25,875 in attorneys fees. All that just because the losing side couldn't get its act together when it came to responding to discovery deadlines.

Lesson learned? Use an opponent's recalcitrance to your advantage. Push him to respond to discovery deadlines by relying on the kind of authority cited in Admin. Order 06-09; and once you've got your first order -- follow the example of the winning side in the linked-to case: move for a default judgment and other sanctions if it's ignored.

In the linked-to opinion the 3d DCA explains what kind of findings need to be included in a probate judge's order defaulting an opponent out of a case as a discovery sanction. The order in this case didn't contain the necessary findings, so it got bounced back to the trial judge for a "do over."

It is well established that before a court may dismiss a cause or default a party as a sanction, it must first consider each of the following six factors set forth in Kozel v. Ostendorf, 629 So.2d 817, 818 (Fla.1993):

[1] whether the attorney's disobedience was willful, deliberate, or contumacious, rather than an act of neglect or inexperience; [2] whether the attorney has been previously sanctioned; [3] whether the client was personally involved in the act of disobedience; [4] whether the delay prejudiced the opposing party through undue expense, loss of evidence, or in some other fashion; [5] whether the attorney offered reasonable justification for noncompliance; and [6] whether the delay created significant problems of judicial administration.

Accord Ham v. Dunmire, 891 So.2d 492 (Fla.2004). Moreover, before a trial court enters the extreme sanction of dismissal or default, it must set forth explicit findings of fact in the order imposing the sanction. Alvarado v. Snow White & The Seven Dwarfs, Inc., 8 So.3d 388 (Fla. 3d DCA 2009) (reversing and remanding dismissal for findings on all six Kozel factors); Coconut Grove Playhouse, Inc. v. Knight-Ridder, Inc., 935 So.2d 597 (Fla. 3d DCA 2006) (quashing order tantamount to default and remanding for trial court to make express findings). “Express findings are required to ensure that the trial judge has consciously determined that the failure was more than a mistake, neglect, or inadvertence, and to assist the reviewing court to the extent the record is susceptible to more than one interpretation.” Ham, 891 So.2d at 496 (citing Commonwealth Fed. Savings & Loan Ass'n v. Tubero, 569 So.2d 1271, 1273 (Fla.1990)).

Because the order on appeal contains no findings of fact concerning any of the Kozel factors, we are compelled to reverse the order and remand for consideration of the Kozel factors. In doing so, we do not address the merits of the underlying claims for contempt and sanctions made by the appellee below. If, on remand, the trial court determines that, after considering the Kozel factors, sanctions of dismissal and/or default are appropriate, then the trial court shall include in its order findings of fact with respect to each factor. See Alvarado, 8 So.3d at 389.

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Wells v. Wells, --- So.3d ----, 2009 WL 2949277 (Fla. 4th DCA Sep 16, 2009)

Florida's declaratory-judgment act (F.S. Chapter 86) is based on the Uniform Declaratory Judgment Act, which was finalized almost a hundred years ago in 1922 [click here].  The early 20th Century vintage of this statute explains why it uses archaic phrases rooted in medieval English jurisprudence, like cestui que trust, when the "Plain English" version of the phrase: "trust beneficiary", would do just as well (for more on the post-1970s "Plain English Movement" click here).  For all you trusts-and-estates Geeks out there, click here for more on the etymology of "cestui que trust".

The Uniform Declaratory Judgment Act's use of obscure legalese (adopted without change by Florida) may also explain why the trial court judge in the linked-to case dismissed a claim for declaratory judgment filed by a trust beneficiary (i.e., a cestui que trust), when F.S. § 86.041 specifically authorizes a cestui que trust to file these sorts of claims. Anyway, we now have an appellate opinion confirming what should be an obvious point of statutory construction. Here's how the 4th DCA summed up its ruling:

Section 86.041, Florida Statutes (2007) provides, in part:

Any person interested as or through an executor, administrator, trustee, guardian, or other fiduciary, creditor, devisee, legatee, heir, next of kin, or cestui que trust, in the administration of a trust, a guardianship, or of the estate of a decedent, an infant, a mental incompetent, or insolvent may have a declaration of rights or equitable or legal relations in respect thereto:

(1) To ascertain any class of creditors, devisees, legatees, heirs, next of kin, or others; or

(2) To direct the executor, administrator, or trustee to refrain from doing any particular act in his or her fiduciary capacity; or

(3) To determine any question arising in the administration of the guardianship, estate, or trust, including questions of construction of wills and other writings.

Id. In King v. Pinellas Central Bank & Trust Co., 339 So.2d 712 (Fla. 2d DCA 1976), the court interpreted section 86.041 as follows:

This statute is specific that any person ... may bring a suit for declaratory judgment to have his rights declared under the trust and to direct the trustee to refrain from doing any particular act in his fiduciary capacity. The trustee is presumed to protect the rights of all of the beneficiaries of a trust and, therefore, we hold that all antagonistic and adverse interests were before the court through the trustee.

Id. at 713. Furthermore, “[t]he declaratory judgment act is to be liberally administered and construed.” Dent v. Belin, 483 So.2d 61, 62 (Fla. 1st DCA 1986). Thus, we hold that pursuant to section 86.041, Fla. Stat., Cheryl, as a beneficiary and potentially wrongfully removed co-Trustee, has standing as an interested person to bring a cause of action for declaratory judgment in the present case.

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Vaughn v. Boerckel, --- So.3d ----, 2009 WL 3364856 (Fla. 4th DCA Oct 21, 2009)

This is the second time the running trust-and-estate litigation between the decedent's widow (his second wife) and his children and grandchildren from his first marriage has gone to the 4th DCA. The first time around the widow came out on top [click here]. This time around she wasn't so lucky.

In the linked-to opinion above the probate judge was confronted with the following basic question: can the decedent's widow be sued individually and held personally liable for damages she may have caused as trustee of the decedent's trust and/or as the life tenant of several items of real property left to her by the decedent? The probate judge said NO; on appeal the 4th DCA said YES.

Life Tenant's Personal Liability:

I've written before about the potential lopped-sided unfairness resulting from how Florida law treats life estates in homes; and to make matters worse, under Florida law a life tenant can't force a sale of the property through a partition action.  Ft. Lauderdale attorney Jeffrey A. Baskies published in excellent article in the June 2007 edition of the Florida Bar Journal that summed up the current state of affairs as follows:

[S]urviving spouses — who are ostensibly “protected” by the Florida Constitution and statutes (given the “right” to live “rent-free in a homestead”) — are required to bear 100 percent of the burden of the state’s two largest fiscal crises: the escalation in property taxes and homeowners’ insurance. In addition, costs of ordinary upkeep, interest payments on mortgages and, in many cases, virtually all of the special assessments are also the burden of the surviving spouse. Further exacerbating the situation, many widows live in communities which have charged (and are still charging) assessments to repair common areas damaged by the hurricanes the state faced these past few years — with the promise of active hurricane seasons for the foreseeable future.

Click here for my prior blog post with a link to the Baskies article.

So what happens if a life tenant decides to simply not pay up, can the remaindermen sue her for damages? YES says the 4th DCA:

Among other duties, life tenants are legally bound to pay property taxes during the continuance of their estate. Chapman v. Chapman, 526 So.2d 131, 135 (Fla. 3d DCA 1988). A life tenant who commits an unreasonable act which results in damage to the corpus of the property or the remaindermen may be liable for damages. Id.

Trustee's Personal Liability:

Florida's common law subjecting trustee's to personal liability was codified in Florida's new trust code at F.S. 736.1002(1), which states that the trustee's liability is the greater of any profit the trustee made from the breach and the amount required to restore the trust to what it would have been but for the breach, including lost income, capital gain, or appreciation that would have resulted from a property administration. In the linked-to opinion above the 4th DCA summarized Florida's pre-code basis for holding trustee's personally liable as follows:

[The widow's potential personal liability as a life tenant] is independent of the law making a trustee personally liable for defalcations in handling the trust. See Flagship Bank of Orlando v. Reinman, Harrell, Silberhorn, Moule Graham, P.A., 503 So.2d 913, 916 (Fla. 5th DCA 1987) (citing Restatement (Second) of Trusts § 205 as to liability of a trustee for breaches of trust causing losses to trust); see also Beaubien v. Cambridge Consol., Ltd., 652 So.2d 936, 938 (Fla. 5th DCA 1995) (holding that it was error to dismiss complaint against individual defendants who had acted as agents of corporate trustee, who could be held “personally liable”).

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Copeland v. Buswell, --- So.3d ----, 2009 WL 2243701 (Fla. 2d DCA Jul 29, 2009)

Under Florida law the personal representative is the central figure in all things having to do with the probate estate. No matter how inconvenient that fact may be, you can't ignore the PR in the hopes of cutting a better deal for yourself. That's the basic take-away from this case.

In this case the estate's largest creditor (Tampa General Hospital claimed $492,224 in unpaid medical bills) tried to cut a better deal for itself by bypassing the PR and dealing directly with a third party that owed the estate money (a tortfeasor). Under the side deal the hospital got a bigger chunk of its claim paid ($300,000) and the tortfeasor cut its liability exposure to the estate by almost $200,000. Sounds clever. Everybody wins right? Wrong!

Why is the estate the big loser in this deal?

• First, by cutting out the PR the estate basically got nothing. Which means the PR had no funds with which to pay her own lawyers, or pay herself a PR's fee, or basically pay any other creditor whose claim had priority over the hospital's under Florida's probate code.
• Second, by cutting out the PR the estate was deprived of the full value of its claim. At the wrongful-death trial the judge ruled that the decedent had in fact incurred 100% of the $492,224 in unpaid medical bills being claimed by the hospital. In other words, the estate's damages claim would have been for the full amount, NOT the lower figure agreed to in the side deal.

The 2d DCA said no way to the deal, and unwound the whole thing by focusing on how it basically did an end run around the priority-of-payments scheme built into Florida's probate code:

Under section 733.707, Tampa General's claim for medical expenses would be designated as a class 4 claim to be paid after class 1, 2, or 3 claims. See § 733.707(1)(a)-(d). In this case, by virtue of [the side deal], Tampa General's class 4 claim for medical expenses improperly took precedence over class 1 claims for costs of administration and class 2 claims for funeral expenses, in contravention of the priorities established in section 733.707.

The majority's opinion does a good job of explaining the law, but they don't really comment how this deal was too cute by half. For that you need to read Judge Concurs' concurrence. Here's an excerpt:

[A]s the majority points out, once an estate is opened the decedent's creditors must settle any claims with the personal representative of the estate pursuant to Florida's probate rules and statutes. No creditor of an estate is entitled to enter into a sweetheart deal with any entity owing money to the estate that would circumvent the statutory priority of creditors set forth in section 733.707(1)(a). This prohibition on “side deals” is especially important in cases when apportionment issues among creditors could arise, such as when there are insufficient estate assets to pay all claims. Principles of equity, order, and decorum should rule the apportionment process, not insider knowledge and arbitrary favoritism.

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Buettner v. Fass, --- So.3d ----, 2009 WL 3446478 (Fla. 4th DCA Oct 28, 2009)

Why??!!, your clients will ask, do you have to start a new partition action in front of a new judge to adjudicate an existing dispute involving a decedent's homestead property if everything else the decedent owned is already subject to the probate judge's authority?

And your answer will be: "Hey, if it made sense, it wouldn't be homestead." Well, maybe that's what your inside voice would say. Your outside voice would hopefully say something like: "Because that's the law, so don't waste your time and money litigating a dispute involving homestead property in a probate court." At which point you can now point to the linked-to opinion as an example of what NOT to do:

Appellant .  .  .  appeals an order evicting him from the entire premises of the apartment building and directing the personal representative to recover possession of the entire premises. Although no transcript is provided, and the appellant failed to appear at the hearing on the eviction, the order is fundamentally erroneous on its face in that it purports to evict appellant from the homestead premises and place them in the possession of the personal representative. As the court had already determined that the property was homestead, and thus not part of the decedent's estate, the personal representative had no possessory interest in it. See Herrilka v. Yates, 13 So.3d 122 (Fla. 4th DCA 2009); Harrell v. Snyder, 913 So.2d 749 (Fla. 5th DCA 2000).

We reverse the order of eviction with instructions to modify the order to exclude that portion of the property which the court has already designated as homestead. While the personal representative claims that appellant is thwarting the personal representative's ability to maintain the remainder of the property, remedies must be sought other than to dispossess appellant from his own property where the personal representative has no ownership interest in the homestead. See, e.g., Wescott v. Wescott, 487 So.2d 1099 (Fla. 5th DCA 1986) (holding that husband could seek partition of property despite wife's claim of homestead). 

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LoCascio v. Sharpe, --- So.3d ----, 2009 WL 3448111 (Fla.App. 3 Dist. Oct 28, 2009)

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

Eight years after his mother's murder Edward J. LoCascio (Son) argued that under F.S. 732.802 (Florida's "slayer statute") his father had forfeited all property rights in the couple's marital assets effective as of the date of the murder. The end-goal of this strategy was to claw back the hundreds of thousands of dollars in legal fees father spent on his defense prior to his murder conviction [click here].

I recently wrote about a Georgia case where that state's slayer statue was also cited as the basis for clawing back attorney fees paid by a surviving widow who ultimately plead guilty to murdering her husband. The slayer-statute argument didn't work in Georgia [click here], and according to the 3d DCA, it won't work in Florida either.

[1] Does a Murdering Spouse Forfeit His 50% Share in Couple's Home? NO

When a person murders his or her spouse, under Florida law the couple's jointly-titled residence is deemed converted into tenants-in-common property. Result: murderer doesn't inherit the couple's house; instead the house is deemed owned 50/50 by the murderer and the deceased spouse's estate. In the linked-to case Son argued that under Florida's slayer statue his father's 50% share of the couple's residence was forfeited to his mother's estate as of the date of her death. Both the trial-court judge and the 3d DCA rejected this argument:

The Son commenced two appeals to this Court. In case no. 3D08-1711, the Son argues that the marital residence (the decedent's and murderer's homestead) passed in full to him as the mother's sole heir. The Son bases this argument on the phrase in subsection 732.802(1) [of Florida's slayer statute] that “the estate of the decedent passes as if the killer had predeceased the decedent.” Had [his father] predeceased [his mother], the Son argues, then [his mother's estate] would have been vested with sole title to the residence at the time of her death, and that exclusive title would then have passed to the Son under Florida's law of intestate succession.

We have previously rejected this argument. In Capoccia v. Capoccia, 505 So.2d 624 (Fla. 3d DCA 1987), this Court reconciled subsections (1) and (2) of the statute, explaining that “the express language of subsection (2) does not call for the complete termination of the killer's interest in the property but merely the termination of the right of survivorship.” Id. at 624-25. Subsection (2) states that the killing “effects a severance of the interest of the decedent,” codifying a prior equitable doctrine that the property in such a case is “treated as if it had been formerly held as a tenancy in common.” Id. at 624.

[2] Does a Murdering Spouse Forfeit 100% of All Marital Assets? NO

Son also argued that his father had forfeited 100% of his property rights in the couple's marital assets effective as of the date of his mother's death. Again Son lost at the trial-court level and before the 3d DCA. In the quoted-text below the focus on clawing back legal fees becomes clear.

In the second appeal, Case No. 3D09-118, the Son maintains that the then-personal representative, plaintiff in the civil lawsuit, was erroneously denied relief against Edward S. LoCascio's property. Specifically, the personal representative sought a constructive trust over all marital property, including Edward S. LoCascio's rights or interests in that property. Instead, the final judgment of constructive trust was limited to all assets of the decedent, including any such assets “titled or assigned in the name of the defendant Edward S. LoCascio.” The Son maintains that the significance of this alleged error-otherwise appearing moot because of the estate's judgment liens in amounts tens of millions of dollars greater than the murderer's known assets-is that the constructive trust over his father's assets would relate back to the date of his mother's death.FN6

[FN6.] During the years between the date of the murder and the entry of the judgment liens against Edward S. LoCascio for over $75,000,000, he apparently incurred substantial indebtedness to one or more law firms for his defense in the murder trial and representation in the probate and wrongful death cases.

The slayer statute is not, as presently written, a forfeiture statute awarding all of a killer's property to the estate of the victim. Nor does the pre-statutory equitable principle that “no one shall be permitted to profit by his own wrongdoing” include any such forfeiture of the killer's separate property. Capoccia, 505 So.2d at 624. Accordingly, we find no error in the limitation imposed by the trial judge in the final judgment of constructive trust against Edward S. LoCascio.

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In re Barrett, Slip Copy, 2009 WL 2448153 (Bankr. S.D.Fla. Aug 06, 2009)

The ultimate ace in the hole for any debtor is bankruptcy. But the bankruptcy card isn’t full proof. Last year a Florida bankruptcy judge ruled that a probate judge’s money judgment against a former personal representative was NOT dischargeable under Bankruptcy Code Section 523(a)(4) because the state court judgment was the product of the PR’s “fraud or defalcation while acting in a fiduciary capacity.” [click here] In the linked-to case above another bankruptcy judge came to the same conclusion with respect to a probate judge's money judgment against a former trustee.

Collateral Estoppel:

In both cases the winning side at the probate-court level was able to win its Bankruptcy Code Section 523(a)(4) argument without going through a new trial by relying on [1] its state court judgment and [2] the doctrine of collateral estoppel. How? The bankruptcy judge concluded the state court judgment was based on the trustee’s “fraud or defalcation while acting in a fiduciary capacity,” so there was no need to re-litigate that issue in the bankruptcy proceeding. 

Lesson learned? Anticipate the Bankruptcy Filing

If you’re representing the party suing a trustee, you’ll want to make sure your money judgment has the kind of findings you’ll need to win a Section 523(a)(4) challenge on collateral estoppel grounds.  Just as importantly, if you’re representing a trustee who’s on the losing side of a probate judge’s money judgment, if there are legitimate grounds to do so, you want to make sure that money judgment can’t inadvertently be used against your client in a bankruptcy proceeding.  Either way, these cases demonstrate why keeping an eye on the bankruptcy issues is a good idea even in probate litigation.

For those looking for more detail, here's how the estoppel issue was framed in the linked-to case above:

[C]ollateral estoppel clearly applies in discharge proceedings. Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). When determining whether collateral estoppel applies to a state court judgment, as with res judicata, state law applies. St. Laurent v. Ambrose (In re St. Laurent), 991 F.2d 672, 673-76 (11th Cir.1993). However, “[w]hile collateral estoppel may bar a bankruptcy court from relitigating factual issues previously decided in state court, the ultimate issue of dischargeability is a legal question to be addressed by the bankruptcy court in the exercise of its jurisdiction.” Hartnett v. Mustelier (In re Hartnett), 330 B.R. 823, 829 (Bankr.S.D.Fla.2005).

“In Florida, the doctrine of collateral estoppel bars relitigation of the same issues between the same parties in connection with a different cause of action.” Topps v. State, 865 So.2d 1253, 1255 (Fla.2004).

Collateral estoppel is a judicial doctrine which in general terms prevents identical parties from relitigating the same issues that have already been decided. The essential elements of the doctrine are that the parties and issues be identical, and that the particular matter be fully litigated and determined in a contest which results in a final decision of a court of competent jurisdiction.

Dep't of Health & Rehabilitative Serv. v. B.J.M., 656 So.2d 906, 910 (Fla.1995) (citations omitted). See also Dadeland Depot, Inc., v. St. Paul Fire & Marine Ins. Co., 945 So.2d 1216 (Fla.2006).

In the context of an action brought pursuant 11 U.S.C. § 523(a), “[a] bankruptcy court could properly give collateral estoppel effect to those elements of the claim that are identical to the elements required for discharge and which were actually litigated in the prior action.” Grogan v. Garner, 498 U.S. at 284, 111 S.Ct. 654.

The Trust Plaintiffs seek a determination that the Probate Judgment is non-dischargeable pursuant to 11 U.S.C. § 523(a)(4), and because the Probate Judgment gives rise to a claim for recoupment. Section 523(a)(4) provides that a debtor cannot discharge a debt, “for fraud or defalcation while acting in a fiduciary capacity.” Thus, in order to determine whether the parties are collaterally estopped from relitigating the issues posed herein, I must determine whether each of the elements of collateral estoppel have been met with respect to whether the Debtor: (a) committed fraud or defalcation while acting in a fiduciary capacity, which acts gave rise to a debt; or (b) whether the State Court Judgments gave rise to a right of recoupment and are therefore non-dischargeable.

Finally, to really get your arms around how the collateral estoppel doctrine works in this context, you need a contrasting example: a case involving a state-court judgment against a fiduciary that did NOT collaterally estop the fiduciary from discharging his judgment debt in bankruptcy; for that read a recent short article entitled High Court Takes Pass on Circuit Split Over Defalcation Case by Rudolph J. Di Massa, Jr. and Adrian C. Maholchic of Duane Morris discussing the U.S. 2nd Circuit's decision in Denton v. Hyman, (In re Hyman) [click here].

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Turchin v. Turchin, --- So.3d ----, 2009 WL 2871564 (Fla. 4th DCA Sep 09, 2009)

If I buy an investment property with my own pre-marital funds but jointly title the property with my wife, what was my intent?  Did I intend to gift a 1/2 interest in the property to her, or did I put her name on the deed for convenience purposes only?  Especially when the person who put up all the money is dead, it's next to impossible to establish with certainty what exactly were his intentions when the deed was signed.

We could spend years litigating each of these cases, or we could assume that most people who jointly title property intend to make a gift, and let those who believe otherwise bear the burden of proving no gift was intended.  In Florida we've opted for the latter approach: a gift is presumed whenever property is jointly titled. The side that benefits from this presumption in litigation has a huge advantage, which explains why these cases often turn on the evidentiary-presumption issue [click here, here, here, here].

Can a valid pre-nup' trump the default presumptions governing joint property under Florida law?

One of the primary reasons people sign marital agreements is to reverse or otherwise alter the default presumptions applicable to property acquired before or after marriage. So it would have been a big deal if when put to the test - as in the linked-to opinion - a marital agreement's property distribution scheme failed to work as intended; not because of some drafting error, but because it simply didn't comport with Florida law.

Fortunately the agreement worked. As framed by the 4th DCA the question at issue in the linked-to opinion was simple:

Can a decedent's surviving spouse rely on Florida's "gift presumptions" to ignore the terms of her valid pre-nup' and claim as her own the sales proceeds of jointly-titled property purchased by her deceased husband with his separate premarital assets? 

According to the probate judge the answer was clearly NO. The 4th DCA agreed, here's why:

Sharyn Turchin now appeals, arguing, among other things, that the trial court erred in failing to apply a gift presumption when the properties were jointly titled in the names of husband and wife. Although Sharyn Turchin is correct that a gift is presumed under Florida law when property is purchased by one spouse but placed in both names, this presumption does not apply when the antenuptial agreement specifically designates how the jointly held property is to be distributed. See Bowen v. Bowen, 345 S.C. 243, 547 S.E.2d 877, 881 (2001); cf. Hannon v. Hannon, 740 So.2d 1181, 1187 (Fla. 4th DCA 1999) (“As a general matter, the provisions in chapter 61 on alimony do not exist to displace nuptial agreements; rather the statutes exist to set the principles when there is no agreement.”). “A primary purpose of an [antenuptial] agreement is to modify or shrink the general discretion of [a] judge in doing equity between the parties. The agreement itself is intended to define the mutual equities, and the trial judge is not free to ignore its provisions or to render them ineffective.” Hannon, 740 So.2d at 1187. Because the antenuptial agreement in this case unambiguously provided for the manner of distribution of jointly held property based upon who funded the acquisition, the presumption does not apply. Accordingly, the trial court properly declined to apply the gift presumption. We therefore affirm.

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I've recently been lecturing on tax issues in play in probate and trust litigation [click here]. After giving this lecture a couple of times I noticed a pattern: the single tax question most probate lawyers were concerned with was how to limit a personal representative's personal tax-exposure risk, which is inherent to all probate administrations.

Here's the problem:

A personal representative ("PR") is personally liable for paying the decedent's remaining tax bills, be they income taxes, gift taxes or estate taxes. See 31 U.S.C. §3713(b) and IRS Manual 5.17.13.8 (10-16-2007). That's right, when you say "yes" to being someone's PR, you also say "yes" to personally guaranteeing the IRS that all of their taxes are paid up. But how can a PR make sure the decedent wasn't cheating on his or her taxes? And how can a PR make sure he's uncovered all those skeletons in the closet before distributing any assets of the estate to the heirs?

Solution:

There are three risk-management tools every probate lawyer needs to know about and incorporate into his or her practice:

• IRS Form 56,
• IRS Form 4810, and
• IRS Form 5495.

Even if you're working with a CPA who's supposed to be taking the lead on all the tax issues, you need to know these protective measures exist and ensure your PR gets the full benefit of them. Here's why.

IRS Form 56 [click here]

A Form 56 needs to be filed twice: when your PR first gets appoint to let the IRS know who your PR is and where to send all tax notices; and again when your PR finishes his job and is discharged. What you're doing here is making sure that any correspondence from the IRS having to do with the decedent's taxes gets to your PR right away; the last thing you want is your PR to get sued for failing to pay the decedent's back taxes because the deficiency notices went to the wrong address. Also, the instructions to Form 56 state that the filing of a Form 56 when your PR is discharged will “relieve [the PR] of any further duty or liability as a fiduciary.”

IRS Form 4810 [click here]

Not only do you want to make sure the IRS knows your PR exists and that this is the person they need to contact for all matters related to the decedent, you'll also want to "shake the bushes" to make sure there are no unpaid back taxes involving the decedent. You do this by filing a Form 4810 (Request for Prompt Assessment for Income and Gift Taxes). A cautious PR will wait for the IRS to respond to this assessment request prior to making any distributions to the estate's beneficiaries. You don't want all the cash to go out the door only to be surprised by some huge tax assessment that puts your PR in the uncomfortable position of having to ask heirs to give money back to pay back taxes.

IRS Form 5495 [click here]

At the same time your PR files a Form 4810, he'll also want to simultaneously (but separately) file a Form 5495 (Request for Discharge from Personal Liability for Decedent’s Income and Gift Taxes). This is another way to make sure your PR gets the heads up on any of the decedent's unpaid back taxes. If Form 5495 is properly filed, the IRS has nine months in which to notify the PR of any deficiency for the decedent’s applicable income or gift tax returns. If the PR pays the additional tax, or if no notice is received from the IRS within nine months from the date of filing Form 5495, the PR is then discharged from personal liability.

For an excellent in-depth explanation of all three of these forms and how they work together to minimize a PR's personal tax-exposure risk (as well as other helpful hints), you'll want to read Minimizing a Personal Representative’s Personal Liability to Pay Taxes, Part I & Part II, by Florida trusts and estates attorneys William C. Carroll and John “Randy” Randolph.

But what payments can you make while you're figuring out the tax issues?

If the PR distributes any portion of the estate to the beneficiaries before all of the federal taxes are paid, he or she could be held personally liable to the extent of the distribution.  Personal liability under 31 USC § 3713(b) is the "muscle" behind the federal priority under 31 USC § 3713(a).

One way to manage a PR's personal tax-liability risk is to not pay a cent to anyone until every conceivable tax issue is identified and taken care of. But we all know this isn't possible. In order to properly manage an estate there are certain payments that can't wait.  Primary examples include court costs, reasonable compensation for the PR and the PR's attorney, and expenses incurred to collect and preserve assets of the estate. Fortunately PR's don't have to guess which payments they can and can't make without exposing themselves to personal liability. If a PR follows F. S. §733.707, which lists the distribution priorities for in-solvent estates under Florida's Probate Code, he'll be alright. Why? Because the payment priorities under Florida law are, for the most part, consistent with the payment priorities under 31 USC § 3713(a), as construed by the IRS (see IRS Manual 5.17.13.6 (10-16-2007)).

The only discrepancy between Florida's and the IRS's list of priority payments has to do with the payment of a family allowance. Under F. S. §733.707, a family-allowance payment is considered a "Class 5" priority, below the U.S. Government "Class 3" priority, but the IRS considers a reasonable family allowance payment to have priority over its claims for payment of taxes (see IRS Manual 5.17.13.6 (10-16-2007)). In other words, the IRS approach is more lenient than Florida's Probate Code.

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Chin v. Estate of Chin, --- So.3d ----, 2009 WL 2382326 (Fla. 3d DCA Aug 05, 2009)

Will construction litigation is supposed to be all about figuring out what the dry words on a piece of paper called a "will" are supposed to mean. We can't ask the testator what the words mean, he's dead. So "we" (i.e., lawyers sitting as judges or representing clients) do what we've been trained to do: we rely on a body of law that sets up a series of analytical tools and evidentiary presumptions aimed at hopefully delivering the most just result possible for all concerned. Florida's rich body of law governing all aspects of how testamentary documents are supposed to be construed is a frequent topic of discussion on this blog [click here, here, here, here, here].

But by focusing too much on the "law" can we end up missing the forest for the trees?

Will Construction Litigation as Morality Play:

The lesson to draw from the linked-to case is that we shouldn't lose sight of the fact that no matter what the law may say, at the end of the day we're all human, which means we're all swayed by an inherent sense of justice and fair play. The result that seems most "just" and "fair" always has a better chance of persuading the one-person jury that decides every Florida probate case: your probate judge; this is true no matter what the law may say is the correct doctrinal result. Here's how this point was made in an ABA Journal piece entitled When the Judge Is the Jury:

"The first lawyer to make the facts come alive in a bench trial has a tremendous advantage. .  .  . 

“You are talking directly to a fellow human being about the ‘gut stuff’ of life. What’s right and what’s wrong. Fair and unfair. Just and unjust. This is all about the power of a story to grab the heart of a fellow human—not something that is going to be measured for its adequacy by a professor who is checking to see if you found all the possible legal theories in the case. You already did that weeks ago with your pleadings.

“Remember, the power of persuasion lies in creating a sense of injustice. Judges—like juries—want to right wrongs. If you represent the plaintiff, show—don’t tell—your jury how the defendant hurt the plaintiff. And if you represent the defendant, your point is, it’s wrong for him to pay for what he didn’t do.

“Facts—not arguments, legal conclusions or academic pedantry—are what have the power to persuade."

With this (long!) introduction in mind, read how the 3d DCA summarized the key facts of the linked-to case and the rationale underlying its ruling.

On April 12, 1989, Adolph Chin drafted a Will in Jamaica. When he died in 1997, he co-owned property in Miami-Dade County as tenants in common with his sister, Mary Chin. Adolph and Mary both lived on this property. David Chin, Adolph's son, was named personal representative of Adolph's estate. . . .

Paragraph seven of the Will states:

I direct that property held by me in co-ownership with my brother the said Earl Anthony Chin and with my sister, Mary Victoria Chin, shall not be sold as long as my said brother or sister desires to occupy same.

David Chin argues that paragraph seven only applies to property which was co-owned by Adolph, Earl, and Mary concurrently. Mary argues that Adolph devised a life estate to each sibling with whom he co-owned property. If a court finds the language of a will ambiguous, “[t]he Testator's intent is the guiding and dominating factor in the construction of a Will.” See In re Roger's Estate, 180 So.2d 167, 170 (1965). When interpreting ambiguous provisions of a will, courts may look upon the situation of the parties, such as ties and affection between the testator and his or her legatees. Id.

On de novo review, we agree with the trial court's finding that paragraph seven grants a life estate to Mary Chin. Adolph shared a separate residence with each sibling. The trial court found this to be strong evidence that he did not have the intent to dispossess his siblings of their homes after his death. Additionally, to construe paragraph seven to apply only if there were co-ownership of property by all three individuals asks the Court to adopt the notion that Adolph Chin inserted a restriction into his Will with full knowledge that it had no meaning. This Court simply cannot adopt this explanation.

Thus, we agree with the lower court that Mary Chin has a life estate in the property and we affirm the lower court's Amended Order of Summary Administration.

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A bitter chapter in the litigation swirling around Brooke Astor and her estate - worth more than $180 million when she died two years ago - came to a close this week when Anthony Marshall was found guilty on criminal charges that he defrauded his mother and stole tens of millions of dollars from her as she suffered from Alzheimer’s disease in the twilight of her life.

As reported by the NY Times in Brooke Astor's Son Guilty in Scheme to Defraud Her:

The jury’s verdict means that Mrs. Astor’s son, Anthony D. Marshall, 85, faces a sentence of at least a year and as many as 25 years. A co-defendant, Francis X. Morrissey Jr., a lawyer who did estate planning for Mrs. Astor, was also convicted of a series of fraud and conspiracy charges, as well as one count of forging Mrs. Astor’s signature on an amendment to her will.

And it won't be long now before round two of this litigation heats up: a direct challenge to Brooke Astor's last will, again as reported by the NY Times:

Because many of the convictions were related to changes to Mrs. Astor’s will that prosecutors said the defendants procured through fraud, Mr. Marshall would seem to be compromised when the battle over Mrs. Astor’s estate — worth more than $180 million when she died two years ago — shifts to Surrogate’s Court in Westchester County.

Of the changes to the will, prosecutors vigorously objected to one executed in January 2004 that gave Mr. Marshall outright control of $60 million of his mother’s estate upon her death.

Paul Saunders, a lawyer for Mrs. de la Renta, said the main defense argument — that Mrs. Astor understood and consented to what her son was doing — had been undermined by the criminal verdict. “The jury clearly found that she did not,” he said. “That’s important because her mental capacity is the central issue in the will contest.”

Lesson learned?

This is only the latest development in a case that's been grabbing headlines for years [click here, here, here, here]. Will contests rarely have lasting significance beyond the families directly caught up in them, and this case is no exception. But I think those of us who make our living in the trusts and estates world may come to remember the Astor case as a very high profile example of a trend I predict we'll see more of in years to come: inheritance disputes morphing into criminal prosecutions. 

Whether trusts and estates lawyers think this is good or bad public policy is almost beside the point; it's a fact of life we'll have to deal with. Which means probate litigators will need to start teaming up with criminal defense attorneys much more frequently, advise their clients to "plead the 5th" at the first hint of trouble [click here], and consider what steps they as lawyers need to take to avoid becoming prosecution targets themselves [click here].

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I previously wrote here about the so-called “Jewish Clause” at the heart of an Illinois probate battle that’s received a good amount of national attention. The first time around an intermediate appellate court ruled the clause was not enforceable. In Estate of Max Feinberg, the Illinois Supreme Court has now reversed that court in a unanimous ruling upholding the clause.

In a 24-page opinion, Justice Rita Garman wrote that "Max and Erla were free to distribute their bounty as they saw fit and to favor grandchildren of whose life choices they approved" even though their decision might be "offensive" to other family members or to outsiders.

As reported by the LA Times in Jewish disinheritance upheld by Illinois high court:

Steven Resnicoff, co-director of the DePaul College of Law's Center for Jewish Law & Judaic Studies, hailed the court decision as consistent with Illinois public policy.

"It's not just a Jewish clause. It's a Catholic clause. It's a Muslim clause," Resnicoff said. "It's not uncommon that people want to encourage children to follow in their footsteps. [The] decision emphasizes the principle that, with some exceptions, a person is free to allocate his or her assets as the person sees fit."
 

For those looking to dig a little deeper, Ft. Lauderdale estate planning attorney David Shulman provides an excellent in-depth analysis of the case on his blog, the South Florida Estate Planning Blog, here and here.

Special thanks to Miami estate planning attorney Lucelly Dueñas for bringing this story to my attention.

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McMullen v. Bennis, --- So.3d ----, 2009 WL 2837426 (Fla. 3d DCA Sep 2, 2009)

In the linked-to case a will was being contested by a party claiming a stake to the estate as a "virtually adopted" heir. (For an excellent explanation of what the virtual adoption doctrine is and how it works, see Virtual Adoption: Not Just for Netizens [click here]).

If the will contestant in this case successfully set aside the will but lost on her virtual-adoption claim, she would still end up with nothing. Apparently hoping to avoid the expense and delay of a potentially meaningless will contest, the contestant asked the court to rule on her virtual adoption claim up front, prior to adjudicating the will contest. Makes sense to me; and apparently it made sense to the probate judge as well, because she granted that request and ruled in her favor on the virtual adoption claim. Bad idea, says the 3d DCA; here's why:

The parties admit there is a will of record purportedly executed by the decedent, and that they are poised to engage in a contest over its validity if necessary. But, because they are of the opinion that obtaining a final determination on Bennis' petition for determination of beneficiaries is less labor intensive for them and, by their reckoning, would be dispositive of the final distribution of estate assets, they asked the trial court to adjudicate the virtual adoption question before considering the validity of the will. The trial court acceded to the request.

Upon our review, we decline to accept the “reckoning” of the parties as to the ultimate distribution of the assets of this estate. Much can occur in a probate proceeding between any particular point in time and a final distribution order  .  .  .

* * * * *

In this case, the validity of the decedent's will is unresolved. Whether Bennis is a virtually adopted daughter becomes material to the probate proceeding only if the decedent's will is invalid. Consideration of the validity of the decedent's will necessarily must be the court's first order of business. If the court determines the will is invalid, Bennis then may proceed as she deems appropriate.

Order vacated without prejudice and case remanded for further proceedings.

Did the 3d DCA get this one right?

The basis for the 3d DCA's ruling in this case appears to be its conclusion that the virtual-adoption question "becomes material to the probate proceeding only if the decedent's will is invalid." As explained in Virtual Adoption: Not Just for Netizens [click here], being someone's "heir" has all sorts of implications in a probate proceeding:

"[V]irtual adoption is intended to put the virtually adopted person in the same position as that of a person naturally born of or formally adopted by the decedent as that relationship is affected by the intestacy statutes. Such a status would necessarily include not just inheritance rights, but [all] the rights, duties, and obligations inherent in administering the estate of an intestate parent, particularly the right to preference in appointment as personal representative under the Florida Probate Code."

In short, a the probate judge's virtual adoption ruling in this case was NOT material "only if the decedent's will is invalid." Until the will challenge is resolved, the court's ruling is potentially material to ALL aspects of probating this estate. This point was either missed by the 3d DCA or simply not reflected in its opinion.

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Brian R. Dolan and Joel M. Commerford have just published an interesting article entitled Virtual Adoption: Not Just for Netizens. Virtual adoption's one of those probate doctrines that most people don't know about, but it can be very useful in the right circumstances. So what is "virtual adoption"?

No Florida court has specifically defined the term “virtual adoption.” A good working definition, however, is “a court given name to a status arising from and created by contract where one takes and agrees to legally adopt the child of another but fails to do so.” While the term has not been specifically defined, the elements of virtual adoption are well established in Florida. The Fifth District Court of Appeal concisely listed the following elements necessary to establish an effective virtual adoption:

[1] An agreement [to adopt] between the natural and adoptive parents;

[2] Performance by the natural parent[s] of the child in giving up custody;

[3] Performance by the child by living in the home of the adoptive parents;

[4] Partial performance by the foster parents in taking the child into the home and treating the child as their child; and

[5] Intestacy of the foster parents.

All five elements must be present, and these elements must be proven by clear and convincing evidence.

Think Laterally: Virtual Adoption = Heir = PR?

The obvious, straight-line application of the virtual adoption doctrine is to establish a claim to an intestate share of an estate. If the authors had stopped there, they would have had a solid article, but not particularly noteworthy. So I was happy to see they went in a different direction; focusing on a less direct - but perhaps equally important - application of the doctrine.

Being someone's "heir" has all sorts of implications in a probate proceeding; probably the most important from a litigation standpoint being how it plays into who gets appointed personal representative ("PR"). In probate litigation the significance of who's appointed PR can't be overstated. The PR can use estate funds to pay his lawyers, the other side has to pay his own way. This one factor alone can often mean the difference between victory and defeat. So yeah, this is a big deal.

And here's how the authors link the virtual adoption doctrine to the question of who gets appointed PR:

It is a natural extension of the established principles that virtual adoption should also embrace the collateral issues of the appointment of personal representatives and other issues under the intestacy statutes. Florida courts have never addressed the question of whether virtual adoption confers upon the virtually adopted person eligibility to be appointed as personal representative of the estate. Close reading of the various authorities, however, suggests that virtual adoption should be extended to confer such eligibility upon the virtually adopted person.

The Third District Court of Appeal has stated that, “what can be enforced by such an action [virtual adoption] is the establishment of filiation where the child can be shown to have been virtually adopted.” As such, the virtually adopted child should be treated under the intestacy statutes as any other child of the decedent.

While scarce, courts have recognized applications of virtual adoption status to issues outside the immediate scope of the intestacy statutes. For instance, in Williams v. Dorrell, 714 So. 2d 574 (Fla 3d DCA 1998), the Third District Court of Appeal reasoned that a virtually adopted person was entitled to the rights of an heir under the homestead provisions of the Florida Constitution and Florida Statutes, ruling that descent of homestead property inures to the benefit of a virtually adopted child in the same manner as to natural or legally adopted children of an intestate decedent. Though not at issue in that case, presumably the protection from claims of the decedent’s creditors adhering to homestead property would likewise inure to the benefit of a virtually adopted child. Moreover, Georgia has recognized the virtually adopted child’s right to file a caveat in a probate action to protect the virtually adopted child’s rights. The Georgia Supreme Court stated:

[a] person claiming an interest in the estate of a testatrix, by reason of a virtual adoption, has such an interest in the estate as will authorize him to file a caveat to the will of the testatrix, when by the probate of such will he will be deprived of such interest. A contrary holding would deny to a party at interest in the estate, other than as heir, an opportunity to attack the probate, and thereby as against such party make the probate conclusive, thus defeating his interest in the estate of the testatrix.

The Florida Probate Code provides that preference in appointment of personal representative in intestate estates be given to “[t]he heir nearest in degree.” It is indisputable that a person deemed to have been virtually adopted is an heir in the second degree (behind the surviving spouse) for inheritance purposes. As an heir, it is a natural adjunct, then, that a virtually adopted person would hold the same position as any other heir with regard to appointment as personal representative. The court’s reasoning in Dorrell supports this conclusion. Furthermore, the Florida Probate Code provides that the first priority (after the surviving spouse) is “the person selected by a majority in interest of the heirs.”

*     *     *     *     *

Combining all these disparate parts into one cogent whole, then, it could reasonably be stated that virtual adoption is intended to put the virtually adopted person in the same position as that of a person naturally born of or formally adopted by the decedent as that relationship is affected by the intestacy statutes. Such a status would necessarily include not just inheritance rights, but the rights, duties, and obligations inherent in administering the estate of an intestate parent, particularly the right to preference in appointment as personal representative under the Florida Probate Code.

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Littell v. Law Firm Of Trinkle, Moody, Swanson, Byrd and Colton, 2009 WL 2749666 (11th Cir.(Fla.) Sep 01, 2009)

The linked-to opinion is the culmination of litigation involving a "Joint Trust" created by a husband and wife in 1992 that has played itself out in two different courts for over 8 years.

Stage One: Probate Court Trust-Construction Action: Littell Loses

Stage one of the litigation was a trust-construction action before a probate judge in which the court ruled that the Joint Trust was NOT "amendable" after the first spouse died. This issue isn't as simple as it sounds, as demonstrated in another joint-trust revocation case I wrote about earlier this year [click here].

In the trust-construction action the drafting estate planning attorney (Byrd) testified that he had been instructed to draft the Joint Trust in a way that would allow it to be amended after the first spouse's death. In other words, based on the probate court's ruling, he apparently admitted to a drafting mistake. The second estate planning attorney involved in the matter (Stuart) testified that she thought the Joint Trust was amendable, and advised her client accordingly. In other words, again based on the probate court's ruling, she apparently admitted to having mistakenly interpreted the trust agreement. Both admissions are significant in light of the results of the second action.

Stage Two: Malpractice Action v. Estate Planning Attorneys: Littell Loses Again:

The linked-to opinion involves this second stage of the litigation. In this action Plaintiff Littell argued that if the Joint Trust agreement was NOT amendable, then he should be able to sue the estate planning attorneys for malpractice. The trial court judge ruled against him, dismissing his claims against both of the estate planning attorneys.

[1] Lack of Standing = No Claim v. Byrd:

The ruling that will probably be of most interest to Florida estate planners is this one. Here the court ruled that an heir that is NOT mentioned in the operative will or trust agreement (a "disinherited" heir), does NOT have standing as a third-party beneficiary to sue the estate planning attorney for malpractice.

Whether any heir ever has standing as a third-party beneficiary to sue an estate planning attorney for malpractice was unclear under Florida law, until the 4th DCA's 2007 ruling in the Gunster case [click here]. But what if the heir is NOT a named beneficiary of the operative will or trust agreement, does he still have standing to sue? Earlier this year I wrote about a California appellate opinion that ruled there was NO standing in those cases [click here]. The 11th Circuit ruled the same way in this case, concluding that under Florida law a plaintiff that is NOT a named beneficiary of the operative will or trust agreement, does NOT have standing as a third-party beneficiary to sue the estate planning attorney for malpractice.

Applying [Florida] law to the case at hand, we conclude that Littell does not have third-party beneficiary standing to bring a malpractice action against Byrd and Trinkle Moody. Florida's narrowly defined exception to the privity requirement limits an attorney's professional liability to foreseeable plaintiffs, namely, to clients and to those persons that the client apparently intended to be third party beneficiaries of the attorney's services. See Rosenstone, 560 So.2d at 1230 (limiting privity exception to “one who [the attorney] knows is the intended beneficiary of his services”) (emphasis added); Angel, Cohen & Rogovin, 512 So.2d at 193 (noting that attorney's professional liability is limited to clients and to those who can demonstrate that the apparent intent of the client in engaging the services of the lawyer was to benefit that third-party); see also Machata v. Seidman & Seidman, 644 So.2d 114 (Fla.Dist.Ct.App.1994), rev. denied, 654 So.2d 919 (Fla .1995) (liability of an accountant for negligence is expanded beyond persons in privity to include those persons the accountant knows intend to rely on the accountant's opinion for a specific purpose).  .  .  .  In this case, Littell points to no evidence indicating that he was an apparent intended beneficiary of the services Byrd provided to the Hermans or that the Hermans engaged Byrd intending to benefit Littell. At best, Littell was only an incidental third-party beneficiary of Byrd's services and the “Florida courts have refused to expand [the privity] exception to include incidental third-party beneficiaries.” Angel, Cohen & Rogovin, 512 So.2d at 194. [Because Littell was not named in the documents drafted by Byrd], Littell was not an apparent third-party beneficiary of Byrd's services. For this reason, the district court properly found that Littell has no standing to bring a malpractice action against Byrd and Trinkle Moody.

[2] Do Over Ruling = No Claim v. Stuart: "Heads I win, tails you lose"

This is the leg of the case that must have driven the plaintiff (and his attorney) crazy. With respect to the malpractice claim against the second estate planning attorney (Stuart), the court ruled there was no claim because this court interpreted the Joint Trust exactly opposite to the way the same instrument had been interpreted by the probate court. In the probate court the plaintiff had lost because the judge concluded the Joint Trust was NOT amendable after the first spouse's death. This time around the plaintiff lost - AGAIN - because the court concluded the Joint Trust WAS amendable after the first spouse's death, so the estate planning attorney (Stuart) did nothing wrong; ergo: malpractice action dismissed.

Littell also asserts that the district court erred in finding that the Trust was amendable by the sole surviving settlor and that therefore Stuart and Gray Robinson were not negligent in executing amendments to the Trust.FN2

FN2. Although the probate court reached the opposite conclusion, the district court properly found that because Stuart and Gray Robinson were not parties in the probate case, the probate court's decision has no preclusive effect in this case. See Albrecht v. State, 444 So.2d 8 (Fla.1984) (noting that issue preclusion applies only when the identical parties wish to relitigate issues that were actually litigated as necessary and material issues in a prior action).

Lesson learned? THINK "JOINDER OF PARTIES"

It's unfair to second guess anyone after 8 years of litigation. Viewed in retrospect, no one is perfect; and perfection isn't the standard we're supposed to be judged by. However, looking forward, what lessons can trusts and estates litigators draw from this case? I was especially struck by the "heads I lose, tails you win" nature of this case. It's OK for a judge to rule against you; smart, reasonable minds can disagree on how to interpret a trust agreement. It happens every day. But it's not OK if two different judges rule in exactly opposite ways on the same trust agreement: and you lose no matter what.

One way to avoid the risk of inconsistent results among different judges adjudicating the same trust agreement is to make sure all related claims are tried in one lawsuit before the same judge. That way, no matter how the judge rules, everyone has to live with that ruling for all purposes. How do you do that? Florida's joinder-of-parties rule. Under Fl. Civ. Pro. Rule 1.210(a), any person can be made a defendant who has or claims an interest adverse to the plaintiff and any person can, at any time, be made a party if that person's presence is necessary or proper to a complete determination of the cause. If the same judge had adjudicated both the trust-construction action and the malpractice action, each side would have won one and lost one, but no one would have been stuck with the "heads I lose, tails you win" outcome the plaintiff walked away with in this case.

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Doe v. Doe, --- So.3d ----, 2009 WL 2841190 (Fla. 2d DCA Sep 04, 2009)

As DNA testing becomes evermore widespread, Florida probate judges and practitioners alike can expect they'll have to grapple with its implications with greater frequency. For example, does DNA testing trump a prior paternity adjudication for purposes of intestate succession? In a 2007 opinion (Glover v. Miller) the 4th DCA said "NO" [click here]. (For an excellent discussion of DNA testing within the context of divorce proceedings see The Presumptions of Privette: Have They Perished with the Coming of Daniel and Disestablishment of Paternity.)

This time around - in a case of first impression - the question was whether DNA testing trumps traditional trust construction doctrine as applied to the phrase "descendants by blood". In the linked-to opinion the 2d DCA said "NO".

Believe it or not, for trust construction purposes someone can be your "blood relative," even if DNA testing proves conclusively that you're not biologically related to that person. Does this make sense? Yes, if your primary goal is to figure out the settlor's testamentary intent at the time he signed his trust agreement. When construing a trust agreement it's what was going on in the settlor's head at the time he signed the document that matters most, not the empirically-verifiable facts in existence years later at the time the trust is being administered.

Two points addressed in the linked-to opinion warrant special attention.

1.  Do you think we can get a court order compelling a DNA test?

If you're a probate lawyer and you haven't had someone ask you this question yet, just wait, sooner or later someone will. And when they do, consider the strong hint given by the 2d DCA on how it would have ruled if someone had given it a chance to block the DNA test compelled in this case:

FN3. Catherine did not seek review by certiorari of the circuit court order directing her to submit to further DNA testing [under Florida Rule of Civil Procedure 1.360(a)]. Moreover, Catherine has not challenged the propriety of that order on this appeal. In any event, the testing order is moot. The testing has already occurred, and the results have been disclosed to the parties and to the court. For these reasons, we express no opinion on the propriety of the circuit court's order for compulsory DNA testing. Cf. Contino v. Estate of Contino, 714 So.2d 1210, 1214 (Fla. 3d DCA 1998) (holding that the personal representative of an intestate estate was not entitled to an order for the DNA testing of a child born into wedlock to establish whether the decedent was the child's biological father).

2.  The "lessons of legal history" vs. DNA testing: Who wins?

In the linked-to opinion the trustees argued that if DNA testing proves that a person isn't biologically related to the settlor, then she's automatically disqualified from being considered one of the settlor's "descendants by blood." The 2d DCA does a great job of deconstructing that argument and coming to its apparently counter-intuitive conclusion in a way that should make sense to most trusts and estates lawyers.

The Trustees' argument overlooks the meaning of the term “descendants by blood” and similar expressions as they have been used historically in wills and trusts in connection with the limitation of class gifts to persons related to the testator, the settlor, or some other designated person. Before the advent of modern genetic testing in the last twenty to thirty years, a challenge such as the one the Trustees have brought against Catherine-challenging the paternity of a child born in wedlock-would have been all but unthinkable. The legitimacy of a child born in wedlock is one of the strongest rebuttable presumptions known to the law. See Eldridge v. Eldridge, 16 So.2d 163, 163-64 (Fla.1944). In addition to facing a very high level of proof, the challenger would have found it difficult-if not impossible-to assemble the evidence necessary to prove such a claim. See Chris W. Altenbernd, Quasi-Marital Children: The Common Law's Failure in Privette and Daniel Calls for Statutory Reform, 26 Fla. St. U.L.Rev. 219, 236 (1999). Only with the relatively recent development of genetic testing has the proof necessary to overcome the presumption of legitimacy become generally available. Id. at 237; Mary R. Anderlik, Disestablishment Suits: What Hath Science Wrought?, 4 J. Center for Fams., Child. & Cts. 3, 3-4 (2003).

Of course, the use of terms such as “descendants by blood” and similar expressions to limit class gifts began long before genetic testing became available. Such expressions are terms of art that have been traditionally used-sometimes successfully and sometimes unsuccessfully-to limit class gifts to persons related to the testator, settlor, or other designated person by a blood relationship and thus to exclude adopted persons. See, e.g., Papin v. Papin, 445 S.W.2d 350, 352-53 (Mo.1969) (holding that a class gift in a trust to “heirs at law by blood related to the grantor” excluded adopted persons); Fifth Third Bank v. Crosley, 669 N.E.2d 904, 909 (Ohio Ct.Com.Pl.1996) (holding that a trust provision limiting a class gift to the “lawful issue of the blood of the Trustor” excluded adoptees); Trust Agreement of Cyrus D. Jones Dated June 24, 1926, 607 A.2d 265, 270 (Pa.Super.Ct.1992) (holding that a trust agreement limiting a class gift to the “lawful issue of the blood” did not exclude adopted descendants). In the modern era, the trend has been away from a focus on blood relationships and toward treating the adoptee as a full member of his or her adoptive family. See Jan Ellen Rein, Relatives by Blood, Adoption, and Association: Who Should Get What and Why, 37 Vand. L.Rev. 711, 713-17 (1984). However, modern legal forms continue to recognize the traditional use of the “blood” restriction by defining “descendants” to include persons whose relationship to the designated ancestor is by blood or by adoption. See, e.g., 20A Am.Jur. Legal Forms 2d § 266:53, p. 370 (2009) (“Whenever used in this Will, the word “descendants” or the word “issue” shall mean legitimate descendants of whatever degree, including descendants both by blood and by adoption.”). Thus, by expanding the definition of “descendants” to include adoptees, adopted persons may be included within the terms of class gifts to descendants.

The Trustees' expansive reading of Article XVIII's restriction of the trusts' class gifts to “descendants by blood” as requiring genetic testing to determine membership in the class ignores the lessons of legal history. Because the blood restriction came to be used in wills and trusts to exclude adoptees from class gifts long before genetic testing became available, the meaning of these old expressions cannot reasonably be extended beyond the exclusion of adopted persons to disqualify descendants such as Catherine who were not adopted and who would otherwise qualify as a beneficiary of the class gifts but who happen to lack the requisite genetic profile from the settlors.FN5 Thus a proper interpretation of the limitation of the trusts' class gifts to “only children and descendants by blood” does not support the Trustees' argument.FN6

To put it in a nutshell, the trusts' Article XVIII appears in legal instruments, not in a technical paper on genetics. The phrase “descendants by blood” is a legal term of art, not a scientific one. As a legitimate child of one of the settlors' sons, Catherine qualifies as one of the settlors' “descendants by blood.”

*     *     *     *     *

Because Catherine is the legitimate child of her legal father, Chester III, she is, by operation of law, the “blood issue” of Chester III. It follows that she is a “descendant by blood” of the settlors and is within the class of persons entitled to take under the trusts. To paraphrase what another court said in a case involving similar facts, Catherine cannot be Chester III's daughter for only some purposes. See In re Trust Created by Agreement Dated Dec. 20, 1961, 765 A.2d 746, 759 (N.J.2001). Thus the circuit court erred as a matter of law in determining that Catherine was not a “descendant by blood” of Chester Jr. and Eleanor.

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Tax issues loom large in trusts & estates litigation, especially when the estate tax is in play. So on Monday, September 14, 2009, I'll be teaching a 90-Minute National Teleconference entitled Tax Issues in Trust and Probate Litigation.

In this seminar I'll examine how an awareness of the tax issues lurking in the background of almost every contested proceeding can be leveraged to maximum advantage for all concerned.  Click here to sign up.  I hope you can join me.

Bonus Materials:

The written materials for this seminar include a copy of the Mediation Settlement Agreement discussed in Private Letter Ruling 200844010, in which the IRS ruled that if you split a single marital trust into five separate sub-trusts and then terminate just one of those sub-trusts, IRC § 2519 would be triggered only with respect to the terminated sub-trust. The significance of this state of the art sample settlement agreement is that it provides an excellent real-life example of how to elegantly navigate all the issues you need to both anticipate and deal with in any settlement agreement involving a termination of a marital trust that's been QTIP'd. This sample document alone is worth the price of admission.

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Boulis v. Blackburn, --- So.3d ----, 2009 WL 2382358 (Fla. 4th DCA Aug 05, 2009)

The decedent at the heart of this probate battle, Konstantinos "Gus" Boulis, was a Greek immigrant and self-made millionaire who had started as a dishwasher in Canada and ended up in Florida, where he built an empire of restaurants, hotels and cruise ships used for offshore casino gambling. His 2001 gangland-style murder was allegedly linked to the $147.5 million sale of his company, SunCruz Casinos, to a partnership including disgraced Republican über lobbyist Jack Abramoff.

Apparently Boulis wasn't very fond of his wife: he completely cut her out of his estate. Lucky for her Boulis died a Florida resident, so she was able to claim a 30% share of his estate under F.S. § 732.201. That's the good news. The bad news is that she may have to fork over close to half of her share in estate taxes.

The Elephant in the Room: Estate Tax Allocation:

In large estates the elephant in the room is always: "who's going to pay the estate tax?" Considering that the top marginal estate tax rate is 45%, whose share of the estate gets used to pay this tax bill is a huge big deal. For example, if Boulis's widow was awarded a $10 million elective share, how the estate-tax allocation question is answered could mean the difference between her walking away with $10 million or $6.5 million!

Usually zero estate taxes are allocated to a widow's elective share because of the unlimited estate-tax marital deduction. However, Boulis's widow wasn't a U.S. citizen, so the normal rules don't apply. But even for non-citizens, it's pretty easy to avoid paying any estate tax by creating a qualified domestic trust or "QDOT" to hold the widow's share of the estate. For reasons not explained by the 4th DCA, this hasn't happened in this case.

Having failed to dodge the estate-tax bullet by relying on the federal tax code provisions governing QDOTs, Boulis's widow fell back on two state-level statutory-construction arguments involving F.S. 733.817, Florida's estate-tax allocation statute.

[1]  Is an elective share ever liable for estate taxes?

Because elective-share assets going to a surviving spouse almost never trigger any estate tax, F.S. 733.817 doesn't have a specific clause addressing those rare instances where a tax is triggered. Boulis's widow argued this omission means taxes are NEVER allocated to elective share assets. Wrong answer says the 4th DCA, here's why:

Appellant argues that certain probate code sections relieve her elective share of any liability for estate taxes. Section 733.817, Florida Statutes (2000), governs the apportionment of estate taxes. Subsections (5)(a), (5)(b), and (5)(c) apply to the apportionment of taxes on property passing under the decedent's will, property passing under the terms of any trust created in the decedent's will and homestead property, respectively.

*     *     *

“The purpose of section 733.817 is to ensure that all estate and inheritance taxes are shared on a ratable basis by the beneficiaries receiving the property subject to those taxes.” Tarbox v. Palmer, 564 So.2d 1106, 1108 (Fla. 4th DCA 1990). As appellant is not entitled to the marital deduction on her elective share, then that elective share is subject to tax. The net tax on an elective share is not apportioned under paragraphs (5)(a), (5)(b), or (5)(c), and it is not otherwise excluded. Therefore, the net tax attributable to the elective share is apportionable under section 733.817(5)(f).

[2]  But what if the decedent waived the normal tax allocations rules?

Boulis's widow then argued that even if her share of the estate was taxable, her husband's will trumped application of the Florida tax allocation statute because it directed that the payment of taxes attributable to property NOT passing under his will (such as her elective share) must be paid from property passing under his will (read: tax everyone else but the widow). This allocation argument has a long and storied past here in Florida. Unfortunately for Boulis's widow, by now it's pretty well settled that the language in the will has to be extremely specific for this argument to work. In this case it wasn't, so she lost this argument as well.

In his will, the decedent “direct[s][his] Personal Representative to pay out of the property which would otherwise become a part of the Residuary Estate, all estate, inheritance, transfer and succession taxes, including interest and penalties thereon, which may be lawfully assessed by reason of my death.” Appellant argues that pursuant to section 733.817(5)(h)1., Florida Statutes (2000), this provision of the will directs appellees to pay the taxes on the elective share out of the residuary estate. The trial court held that section 733.817(5)(h)4., Florida Statutes, is the applicable provision and, under that section, the decedent has not effectively directed the payment of taxes attributable to property not passing under the governing instrument from property passing under the governing instrument.

Section 733.817(5)(h), Florida Statutes, provides in pertinent part:

(h)1. To be effective as a direction for payment of tax in a manner different from that provided in this section, the governing instrument must direct that the tax be paid from assets that pass pursuant to that governing instrument, except as provided in this section.

*     *     *

4. For a direction in a governing instrument to be effective to direct payment of taxes attributable to property not passing under the governing instrument from property passing under the governing instrument, the governing instrument must expressly refer to this section, or expressly indicate that the property passing under the governing instrument is to bear the burden of taxation for property not passing under the governing instrument. A direction in the governing instrument to the effect that all taxes are to be paid from property passing under the governing instrument whether attributable to property passing under the governing instrument or otherwise shall be effective to direct the payment from property passing under the governing instrument of taxes attributable to property not passing under the governing instrument.

In In re Estate of McClaran, 811 So.2d 799 (Fla. 2d DCA 2002), the Second District addressed the issue of whether the direction in the decedent's will was effective under section 733.817(5)(h) to override the statutory method of apportionment of estate taxes. McClaran's will provided in pertinent part:

My personal representative shall pay from the residue of my estate ... estate and inheritance taxes assessed by reason of my death, except that the amount, if any, by which the estate and inheritance taxes shall be increased as a result of the inclusion of property in which I may have a qualifying income interest for life or over which I may have a power of appointment shall be paid by the person holding or receiving that property.

Id. at 800 (emphasis in original).

*     *     *

Just as in McClaran, the direction in the decedent's will does not include an express indication that the property passing under the will is to bear the burden of taxation for property not passing under the will.

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Aguilar v. Aguilar, --- So.3d ----, 2009 WL 2169133 (Fla. 2d DCA Jul 22, 2009)

If you're going to contest a will one of the first questions you have to ask yourself is "am I too late?"

If the will you want to contest has already been admitted to probate and your client's been served with a "notice of administration," F.S. 733.212 says you've only got 3 months to object. But the mechanics of objecting to a will involve two basic steps: [1] filing your objections with the court and [2] serving "formal" notice of your objections on the opposing party.

In the linked-to opinion the will contestant (the decedent's wife) filed her objections within the 3-month limitations period, but didn't get around to serving formal notice of her objection on the other side until about 4 months later. So was she too late? According to the probate judge the answer was yes, so Wife's objections were dismissed with prejudice. Wrong answer says the 2d DCA. Here's why:

The Wife contends that the statute, section 733.212(3), Florida Statutes (2006), requires only the “filing” of objections within three months and that her failure to serve her motion by formal notice within the three-month deadline is not fatal to her claim. She further contends that even if service by formal notice were required within the three-month period, the Daughters waived the requirement by engaging in protracted litigation before raising their objection to the service. The Daughters respond that section 733.212 is implemented by Florida Probate Rules 5.025, 5.040, and 5.041(d), which require that an objection be served with formal notice by the three-month deadline.

Section 733.212(3) provides:

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

(Emphasis added.)

The Wife's motion was an adversary proceeding as defined in rule 5.025(a), and therefore she was required to serve formal notice pursuant to rule 5.025(d)(1). Rule 5.040 sets out the requirements for serving formal notice. It provides in subsection (a)(3)(A) that formal notice shall be served “by sending a copy by any commercial delivery service requiring a signed receipt or by any form of mail requiring a signed receipt.” Rule 5.041(d) governs filing and provides that “[a]ll original papers shall be filed either before service or immediately thereafter.”

None of these rules contain a time requirement for serving formal notice. Further, the trial court's conclusion that section 733.212(3) requires service of formal notice within three months is erroneous because the statute requires only the “filing” of objections within three months after the notice of administration is served. It does not require both filing and service of formal notice within the three-month period. It is undisputed that the Wife's motion was timely filed. We therefore reverse the order dismissing the Wife's motion and direct that it be reinstated.

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Rust v. Brown, --- So.3d ----, 2009 WL 2031288 (Fla. 4th DCA Jul 15, 2009)

It's not unusual for courts to enter orders simply "granting" a summary judgment motion. Which may be gratifying to the winning side, but technically speaking, the order is meaningless. Why? Because it hasn't actually entered judgment for or against a party. Which means it's a non-final, non-appealable order. Here's how the 4th DCA explained the rule in Shroff v. Winn Dixie Stores, Inc., 570 So.2d 1135 (Fla. 4th DCA 1990):

With great reluctance, this appeal is dismissed on the authority of White Palms of Palm Beach v. Fox, 525 So.2d 518 (Fla. 4th DCA 1988), and Russell v. Russell, 507 So.2d 661 (Fla. 4th DCA 1987). Once again we caution trial judges and attorneys alike that this court lacks jurisdiction over an order granting a motion for summary judgment, when that order does not contain the requisite words of finality indicating that the complaint is dismissed.

Unfortunately, the parties (and the judge) in the linked-to probate case overlooked this bit of sage advice. Here again the 4th DCA was presented with an order that simply "granted" a summary judgment motion, and again the 4th DCA sent everyone packing with instructions to try to get it right the second time around:

The decedent died in a motor vehicle accident, which gave rise to a wrongful death claim. The personal representative of the estate is one of the decedent's three adult sons, and a residuary beneficiary of the estate. The surviving spouse is a non-citizen.

The trust beneficiaries executed a Distribution Agreement. The agreement's purpose was to convert a revocable trust into a qualified domestic trust (QDT) to preserve the marital deductions that are inapplicable to non-citizens and to save the estate money. See 26 U.S.C. § 2056A. The agreement specifically allocated the QDT administration expenses to be paid by the three sons. It did not address the proceeds of the wrongful death claim, despite everyone being aware of it prior to entering into the agreement.

Subsequently, the wrongful death claim settled for two million dollars, leaving $1.298 million for the estate. A dispute then arose over the responsibility for the administration expenses related to the QDT.

The surviving spouse filed a motion to compel the personal representative to sign the settlement checks. In response, the personal representative prepared an apportionment plan for the settlement proceeds. The second amended apportionment plan allocated $962,366 to the estate for reimbursement of the QDT's administration expenses and $335,634 to the surviving spouse.

The surviving spouse filed an objection to the plan and moved for summary judgment, attaching the Distribution Agreement, a letter written by her attorney, an estate inventory which included the value of the wrongful death claim, and an economist's report.

The personal representative filed a response, indicating that, “[p]rior to the settlement of the wrongful death action, the Parties entered into an oral agreement. As part of the Oral Agreement, [the surviving spouse] agreed to pay the expenses of the Estate out of the proceeds of the wrongful death action.” He attached his affidavit, attesting to the oral agreement. The court entered an order granting the surviving spouse's motion for summary judgment, giving rise to this appeal.

Rule 9.110(a)(2) of the Florida Rules of Appellate Procedure provides for “review of orders entered in probate and guardianship matters that finally determine a right or obligation of an interested person as defined in the Florida Probate Code.” “Significantly, the committee note explains that the 1996 amendment to the rule ‘does not abrogate prior case law holding that a party's right of appeal arises when there is a termination of judicial labor on the issue involved as to that party.’ “ Klingensmith v. Ferd & Gladys Alpert Jewish Family, 997 So.2d 436, 437 (Fla. 4th DCA 2008) (quoting Walters v. Edwards, 700 So.2d 434, 435 n. 1 (Fla. 4th DCA 1997)).

An order merely granting a motion for summary judgment is not a final order because it does not enter judgment for or against a party. White Palms of Palm Beach, Inc. v. Fox, 525 So.2d 518, 519 (Fla. 4th DCA 1988), abrogated on other grounds by Dobrick v. Discovery Cruises, Inc., 581 So.2d 645 (Fla. 4th DCA 1991).

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Lanning v. Pilcher, --- So.3d ----, 2009 WL 1941210 (Fla. 1st DCA Jul 08, 2009)

The “Save Our Homes” (SOH) amendment to Florida's constitution sets a 3% maximum limit on annual valuation increases of homestead property for ad valorem tax purposes. Over time, the SOH cap has created huge disparities in property taxes paid by Florida residents vs. non-Florida residents. Consider these 2002 stat's, as reported in Protecting and Preserving the Save Our Homes Cap:

Statewide in the year 2002 the Save Our Homes (SOH) cap protected about $80 billion in assessed value from taxation. That is up 68.50 percent over the year 2001, when it was about $47.9 billion.

But is it constitutional?

The discriminatory effect of Florida's property tax scheme on non-residents is obvious, which makes it an easy target for constitutional attack. That's basically what happened in the linked-to opinion. Unfortunately for the tax-challengers in this case all of their arguments have been tried before . . . and failed. And as explained by the 1st DCA, they didn't work this time either:

The main appeal consists of a series of federal constitutional challenges to Article VII, Section 4(d), but all of the supporting arguments have been rejected before in comparable cases. For example, the Supreme Court held in Nordlinger v. Hahn, 505 U.S. 1 (1992), that a California constitutional amendment limiting real property tax increases to 2% per year, in the absence of a change of ownership, did not violate the Equal Protection Clause. And this court held in [Reinish v. Clark, 765 So.2d 197 (Fla. 1st DCA 2000)] that the Florida homestead exemption did not violate the Equal Protection Clause, the Privileges and Immunities Clause, or the Commerce Clause. Although Reinish dealt with the application of the $25,000 homestead exemption, while this case involves a challenge to the 3% tax cap on increases in the assessment of homestead property, the analysis is the same. In both cases, the tax benefit is based on the way the property is used, not on the status of the landowner as a resident or nonresident.

The homestead exemption and the 3% tax cap apply only to property that is used as a primary residence and therefore qualifies as a homestead. A Florida resident who owns vacation property or business property in the state will not be entitled to claim any tax benefit under Article VII, Section 4(c) and will be in the same position with respect to that property as a nonresident. The plaintiffs argue that the existence of a benefit for homestead property, when combined with the tax treatment of non-homestead property, gives Florida residents a tax advantage, but this is essentially an argument that the homestead exemption is itself unconstitutional, a point rejected in Reinish.

For these reasons we hold that Article VII, Section 4(c) of the Florida Constitution is valid under the United States Constitution and that it does not violate a nonresident's rights under the Equal Protection Clause, the Privileges and Immunities Clause, or the Commerce Clause. Likewise, we hold that section 193.155, Florida Statutes, the law implementing Article VII, Section 4(c), is constitutionally valid.

 

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Zoldan v. Zohlman, --- So.3d ----, 2009 WL 1310995 (Fla. 3d DCA May 13, 2009)

In this case "husband" sued his second wife's estate on undue influence grounds trying to get out of a post-nuptial agreement he signed obligating him to leave a share of his $40 million estate to second wife's daughter. Husband died after filing his lawsuit, and his sons were substituted in as plaintiffs.

So by now the litigation is between two estates: husband's estate vs. wife's estate. But those are only legal titles, this fight is really between two sets of heirs: husband's sons from a prior marriage (representing his estate) vs. wife's daughter from a prior marriage (representing her estate). As the WSJ recently reported in The Right Steps, blended families are often a volatile mix (see also here), which may explain why the two estates battling it out in this case have by now gone through two full blown trials followed by two trips to the 3d DCA.

Wife's estate won the first round [click here]. Perhaps emboldened by this win, wife's estate then tried to make the best of its win by arguing that its share of husband's estate (25% of a $40 million family limited partnership) shouldn't be subject to the standard valuation discounts applicable to FLPs, but should instead be measured on a "fair value" basis (i.e., no discounts for lack of marketability or minority status) under F.S. 620.2114(1).  Nice try, but no cigar. This time around husband's side won:

Originally, the Estate disputed Ms. Zoldan's right to obtain anything other than what each of the three sons had inherited, i.e. an interest in the limited partnership. Eventually, however, the Estate took the position that if monetary damages were ordered, it was a “fair market valuation” that should be utilized in determining that award. The parties attached a dollar amount to each valuation method, concluding that the “fair market valuation” of the interest was $2,247,573, while the “fair valuation” of the interest was $6,450,937. Thus, by mutual agreement, the only question before the trial court was which valuation method should be applied.

.   .  .  .  .

While the partnership agreement does not permit a limited partner to withdraw and demand distribution from the partnership, Mr. Zohlman's sons, one of whom is the general partner with “sole and exclusive control of the Limited Partnership,” nevertheless agreed to distribute to Ms. Zoldan the “fair market value” of a one quarter interest of Mr. Zohlman's 99% limited partner interest in the partnership, i.e., the amount a full limited partner would receive if that partner took the interest and attempted to sell it on the open market. FN4 See Rothschild v. Kisling, 417 So.2d 798, 801 (Fla. 5th DCA 1982) (recognizing that fair market value is generally “what a willing buyer would pay a willing seller” for an interest). Such a distribution would be consistent with paragraph 12 .03 of the partnership agreement which provides that although “[n]o Partner shall be entitled to demand a distribution be made in partnership Property ... the General Partner may make or direct property distributions to be made, using the property's fair market value as of the time of the distribution[ ] as a basis for making the distribution[ ].”

It would also be consistent with that portion of the partnership agreement governing permitted sales of limited partnership interests, which obligates limited partners to establish the market value of their interests by obtaining a bona fide offer from a willing buyer in the marketplace:
. . . . .

Here, the stipulated fair market value of Ms. Zoldan's interest was put at $2,247,573. Based on the foregoing analysis, we find no error in the methodology used to make this determination.

We also reject the notion that there was no competent, substantial evidence to support the trial court's determination that Ms. Zoldan's interests should be valued using the fair market value method. The Estate presented the expert testimony of David Pratt, a seasoned trust and estate lawyer, who testified that fair market value is the valuation standard used when distributing trust assets and the assets of an estate. More specifically, Pratt testified that fair market value is the exclusive valuation method used for the purpose of determining distributions from a limited family partnership that is part of a trust or an estate.

Thus, we find no error in the valuation method used by the trial court. The promise made and broken was that Mr. Zohlman name Ms. Zoldan an heir equal to his three sons. Ms. Zoldan was offered and rejected an interest in the limited partnership which would have put her in the exact same position as the Zohlman brothers. Having rejected that offer, the Estate maintained that the measure of Ms. Zoldan's damages would be the “fair market value” of the interest she rejected. With no dispute as to the dollar amount attached to the use of a “fair market valuation,” with that method being identified in the partnership agreement itself, and with that valuation method being supported by expert testimony, we conclude that it was properly employed. Accordingly, we find the trial court's order was correct in its entirety, and affirm the order awarding Ms. Zoldan $2,247,573, plus pre-judgment interest.

Lesson learned?

Valuation issues involving FLPs are a BIG DEAL! to estate planners and probate lawyers alike. Florida trusts and estates lawyers will want to take note of this important valuation case. The 3d DCA's opinion is fine as far as it goes, but doesn't go into much detail explaining the losing side's "fair value" argument, for that you'll want to read Appellees' Answer Brief.

By the way, many of the issues raised in this opinion were the subject of an excellent Florida Bar Journal article by Rebecca C. Cavendish and Christopher W. Kammerer, as applied in the context of closely-held corporations: Determining the Fair Value of Minority Ownership Interests in Closely Held Corporations: Are Discounts for Lack of Control and Lack of Marketability Applicable?

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Glantz and Glantz, P.A. v. Chinchilla, --- So.3d ----, 2009 WL 1531644 (Fla. 4th DCA June 3, 2009)

An appellate court won't reverse a probate judge's ruling cutting attorneys fees unless there's been an "abuse of discretion." In other words, if reasonable minds could disagree on how the court should have ruled, then the appellate court must affirm the trial court's ruling . . . even if the appellate judges would have come to a different conclusion. Here's how the Florida Supreme Court put it in Canakaris v. Canakaris, 382 So. 2d 1197 (Fla. 1980): "the appellate court must fully recognize the superior vantage point of the trial judge . . . . If reasonable men could differ as to the propriety of the action taken by the trial court, then the action is not unreasonable and there can be no finding of an abuse of discretion.”

So it's a rare case indeed when an appellate court comes across a set of facts that compels it to step in and reverse a fee ruling that is so patently unfair it simply can't be left alone. This is one of those cases. Here are the facts:

The personal representative of an estate was a member of prepaid legal services program. The program referred her to the law firm of Glantz & Glantz, P.A., where the personal representative retained Mark Mastrarrigo to handle estate matters.

Subsequently, the personal representative wrote a letter to the court expressing her concern about the law firm's billing, prompting the trial court to conduct an evidentiary hearing. Testimony revealed that the attorney documented 123 billable hours defending a will contest, filing and pursuing a motion to disqualify another attorney based on a conflict of interest, and working with a curator in connection with the sale of the estate's property.

Pursuant to the prepaid legal services program, the attorney charged $115 per hour, a 51% discounted rate from the normal billing rate of $225 per hour. The total charges amounted to $12,400 plus costs. The law firm submitted an affidavit from an expert attesting to the reasonableness of the fees and costs, specifically that $13,500 was a reasonable fee for the services rendered. Testimony evidenced that this amount was based on the discounted hourly rate and not on the normal billing rate.

The court entered an order awarding the law firm fees in the amount of $6,885, 51% of the $13,500 reasonable fee attested to by the expert. The court denied the law firm's motion for rehearing, from which the law firm now appeals.

The 4th DCA went on to explain the legal basis for its reversal as follows:

Here, the prepaid legal services contract rate of $115 per hour is presumed to be reasonable. See, e.g., Sotolongo v. Brake, 616 So.2d 413, 413-14 (Fla.1992). The 123 hours expended is also reasonable given that the attorney testified to the services rendered by the law firm in representing the personal representative in a will contest, a motion to disqualify another lawyer, and work done with the curator. The trial court accepted the expert's affidavit that $13,500 was a reasonable, already discounted fee. The trial court did not find the hours or the discounted rate to be unreasonable. Nevertheless, the trial court inexplicably reduced the reasonable fee by another 51%. In doing so, it abused its discretion.

The exception that proves the rule.

The fact that the probate attorney won this fee dispute shouldn't embolden anyone; it's an exceptional case that only proves your fees have to be ridiculously low to begin with to have a prayer of winning on appeal. Not a good strategy for staying in business for very long. The better lesson to be drawn from this case is that fee disputes are no-win situations. And the best way to win that battle is to take the time up front to make sure your client doesn't object to your fees once you've done all the work. Billing is part science, part art. For an excellent article discussing how to get this right in the trusts and estates context, read Understanding the Legal and Emotional Aspects to Billing and Collecting for Legal Services [click here for slide show] by frequent lecturer and Chicago estate planning attorney Louis Harrison.

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Geary v. Butzel Long, P.C., --- So.3d ----, 2009 WL 1606034 (Fla. 4th DCA Jun 10, 2009)

In the commercial litigation context F.S. § 57.105 is a powerful tool for curbing abusive litigation tactics: if you engage in bad faith or frivolous litigation, not only will you eventually lose, you’ll also end up paying the other side’s legal fees. This is a commonly-used device that everyone knows about and has been the subject of multiple Florida Bar Journal articles [click here, here, here, here]. F.S. § 57.105 also occasionally pops up in the probate-litigation context [click here].

What’s often overlooked is that Florida’s probate code provides a similar remedy that’s just as powerful, but doesn’t require you to jump through any of the procedural hoops built into F.S. § 57.105. 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 frivolous or bad faith litigation will be paid. You might want to go this route in lieu of a personal judgmenet for fees against a bad actor under F.S. § 57.105 because you don't have to worry about collecting on your judgement: the probate-code route allows you to simply go after assets already available and subject to the court's authority as part of the probate estate.

Here's how the 4th DCA explained the law on when a probate judge can shift the winning side's attorney's fees against one of the estate's beneficiaries for frivolousness:

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.

The trial court found that the fees incurred in pursuing the fees on fees litigation constituted essentially frivolous litigation and were unreasonably incurred. Therefore, it acted within its discretion to apportion the fees for that litigation to Geary. However, the court did not make a finding that the personal representative engaged in frivolous litigation in its initial defense to Butzel Long's motion for fees and seeking disgorgement of fees paid. To the contrary, it noted that that defense may have been justified. It found only that the fees on fees litigation, which pushed the fees and costs awarded to Butzel Long from $19,000 to $49,000 (and subsequently even more), was unreasonable and unnecessary. Therefore, while the court could properly assess the fees on fees litigation against Geary, it should not have imposed the initial $19,000 for the fees litigation on Geary's share of the estate without a finding of wrongful conduct, bad faith, or frivolousness.

Lesson learned? Think 57.105 motion.

First, if you look over the Florida Bar Journal articles explaining F.S. § 57.105 you’ll see that the standard for determining what constitutes “frivolous” litigation in that context is identical to the frivolity standard applied under F.S. § 733.106(4) and F.S. § F.S. 733.6175(2).

Second, a probate judge can’t shift fees for frivolous litigation unless its order contains specific findings of fact establishing “wrongful conduct, bad faith, or frivolousness.” Again, this “specific findings” requirement is identical to that required under F.S. § 57.105.

Bottom line, given that there are very few appellate-court decisions discussing when and how to apply F.S. § 733.106(4) and F.S. § F.S. 733.6175(2) to curb wrongful conduct, bad faith, or frivolousness in the probate-litigation context, looking to cases discussing F.S. § 57.105 makes sense; also, “framing” the issue for your probate judge as being analogous to a “57.105 motion” is probably the best short-hand way of making clear to your judge exactly what kind of remedy you’re looking for and why. Your judge may not be all that familiar with the ins and outs of fee-shifting under F.S. § 733.106(4) and F.S. § F.S. 733.6175(2), but he or she will almost certainly know exactly what you’re talking about the moment you say, “judge, this is like a 57.105 motion.”

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Herrilka v. Yates, --- So.3d ----, 2009 WL 1531772 (Fla. 4th DCA June 03, 2009)

Homestead property is something probate lawyers deal with in almost every estate-administration  proceeding, but it's NOT a probate asset. This disconnect is a source of never-ending client consternation and attorney heartburn. The linked-to case is a prime example.

In this hotly-contested estate the court appointed a curator and this curator set about doing what curators do. Apparently there wasn't enough cash in the estate to pay for this work, so the curator asked the judge (who had appointed her) to please put a lien on what may have been the decedent's single most valuable asset - his homestead property - to pay her fees. The court obliged her . . .  and was reversed on appeal.

The probate court's order was reversed for two reasons: [1] the decedent's alleged spouse occupied the house at all times - so the curator never actually took possession of the property (strike one); and [2] the curator's work related to general estate-administration matters - not preserving the homestead property (strike two). The statute governing this dispute is F.S. 733.608, and the 4th DCA does an excellent job of explaining it:

The trial court's decision to impose the lien pursuant to section 733.608 was improper because, in accordance with the plain meaning of the statute, Yates failed to meet its requirements. This is because: (1) Yates has not, and cannot, take possession of the property, as it is occupied by an “interested person;” and (2) the fees incurred by Yates for which the lien was imposed were not incurred for the purpose of preserving, maintaining, insuring, or protecting the homestead property.

With respect to section 733.608, subsection (3) allows for imposition of a lien on “property referenced in subsection (2).” § 733.608(3). The property referenced in subsection (2) is “protected homestead” that “is not occupied by a person who appears to have an interest in the property” which the personal representative has “take[n] possession of ... for the limited purpose of preserving, insuring, and protecting it for the person having an interest in the property.” Id. § 733.608(2). For purposes of probate litigation, the Florida Legislature has defined an “interested person” as “any person who may reasonably be expected to be affected by the outcome of the particular proceeding involved.” Id. § 731.201(23). In order to impose a lien, section 733.608(3) also requires that the “expenditures and obligations incurred,” which include “fees and costs,” for which the lien is imposed were incurred for the purpose of “preserv[ing], maintain[ing], insur[ing], or protect[ing]” the homestead property.

In this case, the trial court erred in imposing the lien because the homestead property was never taken into possession, either legally or factually, by Yates, as Constance still occupies it. This failure to take possession negates a claim for the imposition of the lien because, to do so, section 733.608 first requires that the personal representative take possession of the property “for the limited purpose of preserving, insuring, and protecting it.” § 733.608(2). Furthermore, Yates cannot legally take possession of the property because it is “occupied by a person who appears to have an interest in the property,” id., i.e., Constance. Constance is an “interested person” because, by potentially being Joseph's surviving spouse and joint owner of the property, as well as being the property's current occupant, she is a “person who may reasonably be expected to be affected by the outcome of the particular proceeding involved.” Id. § 731.201(23).

Even if Yates met the threshold possession requirement of section 733.608, the lien was still not properly imposed. This is because the expenses the lien represents were incurred for legal services having to do with the administration of the Estate. The services, as required by section 733.608(3), were not incurred for the specific purpose of preserving, maintaining, insuring, or protecting the homestead property.

Accordingly, the imposition of the lien was improper because it failed to meet the requirements of section 733.608. We, therefore, reverse its imposition.

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MacIntyre, ex rel. Wedrall Trust v. Wedell, --- So.3d ----, 2009 WL 1393375 (Fla. 4th DCA May 20, 2009)

In Florida National Bank of Palm Beach County v. Genova, 460 So.2d 895 (Fla.1984), the Florida Supreme Court held that - as a matter of law - you can't challenge a settlor's removal of funds from her revocable trust on undue influence grounds.  In the Genova case the settlor's withdrawal of funds was challenged while the settlor was still alive. In this case the settlor was dead, so the question became whether the Genova rule applies even after the settlor has died. The 4th DCA said YES based on the following reasoning:

[T]he Genova decision itself plainly suggests the availability of an undue influence challenge to the settlor's revocation of his or her revocable trust should not turn upon whether the action is brought when the settlor is alive or deceased. Genova reached the supreme court as a consequence of the conflict between this court's decision in [Genova v. Florida National Bank of Palm Beach County, 433 So.2d 1211 (Fla. 4th DCA 1983)] and the Second District's decision in Hoffman v. Kohns, 385 So.2d 1064 (Fla. 2d DCA 1980). In Genova, the settlor of the trust was alive, the settlor herself was attempting to revoke the trust, and the co-trustee bank refused to act on her attempted revocation. In Hoffman, the action challenging the decedent's revocation of the trust was brought by a would-have-been beneficiary of the trust after the settlor died. The Second District relied upon “undue influence” to disaffirm the decedent's revocation of the trust. The supreme court expressly disapproved this result in Hoffman after writing that “the principle of undue influence has no place in determining whether a competent settlor can revoke a revocable trust.” 460 So.2d at 896.

In sum, we hold that, as a consequence of Genova, even after the settlor's death, the settlor's revocation of her revocable trust during her lifetime is not subject to challenge on the ground that the revocation was the product of undue influence. Thus, having considered all issues raised, we affirm the dismissal, with prejudice, of the “undue influence” claim.

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U.S. v. Guyton, Slip Copy, 2009 WL 1308431 (M.D.Fla. May 08, 2009)

The IRS is the "über" creditor of any probate estate. Why? Two reasons. First, the personal representative (PR) is personally liable for any of the decedent's unpaid taxes to the extent the PR pays any debts due by the decedent before paying the decedent's tax liability. 31 U.S.C. § 3713(b); IRS Manual § 5.5.1. There's nothing like personal liability to focus the mind. Second, the normal rules simply don't apply to the IRS. As the court ruled in the linked-to order, the IRS is NOT subject to the limitations periods applicable to all other creditors:

Turning to Defendant's final threshold argument, case law makes clear that the Government's claim is not subject to state statutes of limitation, including Florida Statute § 733.705(8), absent its own consent. See e.g., United States v. Summerlin, 310 U.S. 414 (1940); see also United States v. Kellum, 523 F.2d 1284, 1286 (5th Cir.1975).

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Probate litigator Stephen P. Heuston of Frese, Hansen, Anderson, Anderson, Heuston & Whitehead, P.A., in Melbourne, Florida, was on the winning side of Belanger v. Salvation Army, 2009 WL 223884 (11th Cir.(Fla.) Feb 02, 2009), a high-profile case that received a good amount of press (and I wrote about here and here).  I invited Mr. Heuston to share some of the lessons he drew from this case with the rest of us and he was kind enough to accept.

[Q]  Looking back, what strategic decisions did you make in this case that were particularly outcome determinative at the trial-court level? On appeal?

[A]  The plaintiffs chose to bring the action in Federal District Court so all argument was done by written pleadings. The order from the trial court was on The Salvation Army's Motion to Dismiss, which was our first pleading filed. The point being there was very little strategic decision making due to how early we were in the process. On appeal The Salvation Army presented basically the same arguments as set forth in their Motion to Dismiss. Because the case presented an issue of first impression (the interpretation of Florida's pay-on-death statute 655.82 as to whether a charity is a permissible beneficiary) the 11th Cir. Court of Appeals heard oral arguments. Arguments made by both parties were consistent with their written briefs.

[Q]  Do you think this case will have lasting repercussions in terms of how POD accounts are used in Florida or how charities do business in Florida?

[A]  Very much so. I had many charities and the Florida Bankers Association and the International Florida Bankers Association who were following this case closely. Charities were obviously concerned because this was an inexpensive means for donors to make gifts at death. There are no legal fees or other transaction costs to set up a POD account naming a charity as a beneficiary on a bank account. There are no records kept on how much money is transferred to charities by means of POD accounts but I have been told by several charities that if donors were not able to use POD accounts to name a charity that it would have a significant negative impact on charitable fundraising. Additionally, the banks were concerned because if Florida law was interpreted to have not allowed charities to be a permissible POD beneficiary the banks were concerned about liability for having paid out to charitable POD beneficiaries since the Florida POD statute became effective in 1995. Additionally, the Florida statute was derived from the Uniform Nonprobate Transfers on Death Act, which has been adopted in some version by 48 states. A negative interpretation of the Florida statute could have had an impact on similar statutes in other states, possibly impeding this popular form of charitable giving in other states.

[Q]  From your perspective as probate litigator, do you think there's anything that could have been done in terms of estate planning to avoid this litigation or at least mitigate its financial impact? 

[A]  Difficult to say. A similar bequest by will or trust would have been more costly to set up and could have still been challenged on other grounds by the decedent's children. One possibility would have been for the decedent, Mr. Belanger, to explain to his two children that is was his intent to leave the POD bequest to the charity and explain why he was doing so. Many challenges to bequests to charities result from the shock to the children who were unaware of their parents charitable intent. Many children in those situations feel hurt and become suspicious of the charity and its involvement in procuring the bequest. If the parent can explain to the children the purpose and reasoning for the charitable gift then this can often times eliminate or at least reduce the hurt that might otherwise result from finding out only after the parent has died.

[Q]  Any final words of wisdom for probate lawyers of the world based on what you learned in this case?

[A]  When representing charitable organizations the probate litigation attorney should advise the charity to not be intimidated by the legal process. If the facts and law favor the interest of the charity then the charity should do a cost-benefit analysis to determine if defending their interest and upholding the intent of the donor is justified. If it is justified then the charity should persevere during the legal proceeding and continue for as long as it makes economic sense. It is often times left to the charity to defend the charitable intent of the decedent. There are many in the probate process or trust administration who may attempt to frustrate the intent of the decedent, e.g. disgruntled children or other family members, and it is often advisable for the charity to defend against legal actions that impede the decedent's charitable intent.

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Blake v. Waks, --- So.3d ----, 2009 WL 1212242 (Fla. 3d DCA May 06, 2009) (NO. 3D09-980)

One of the defining characteristics of probate litigation is that cases are always decided by judges: no juries here. So if you're afraid you won't get a fair hearing because a judge says or does something demonstrating bias against you, you're entitled to request that he or she disqualify himself or herself. F.S. § 38.10; Fla. R. Jud. Adm. 2.330. In the linked-to opinion the 3d DCA applied this standard in granting a request to disqualify a probate judge for apparently being biased against the petitioner. Here's the court's one-paragraph explanation of its ruling:

According to duly executed affidavits, in denying agreed motions to disburse the net proceeds of an intestate estate to the petitioner Blake, a genealogical researcher who had found and who held unchallenged powers of attorney from the previously unknown heirs of the decedent, see Morse v. Clark, 890 So.2d 496 (Fla. 5th DCA 2004) (recognizing party status of genealogical service holding assignments from heirs), the presiding probate division circuit judge volunteered the statement, among others, that she did not trust him to make the required distribution to his principals. This comment, based on nothing in the record or otherwise, well justified the petitioner's expressed belief that she was not impartial, and therefore required the granting of his application for her disqualification. See Grandview Palace Condo. Ass'n v. City of N. Bay Vill., 974 So.2d 1170 (Fla. 3d DCA 2008); Miami Dade Coll. v. Turnberry Invs., 979 So.2d 1211 (Fla. 3d DCA 2008).

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Bayview Loan Servicing, LLC v. Giblin, --- So.3d ----, 2009 WL 1139236 (Fla. 4th DCA Apr 29, 2009)

Here are the key facts of this case:

Decedent and Nivia Giblin were married in 1959. They had a daughter together. In 1981 they separated but never divorced. In 2000, decedent purchased a piece of residential property in Broward County. Title to the property was placed in the decedent's name. The wife and daughter lived in the home, but decedent never did. Decedent died in 2001.

Is this the decedent's homestead property? YES

As crazy as it may sound, yes, you can own homestead property you've never lived in if your "family" lives in the house. You get to this conclusion by applying the literal text of Florida's constitutional homestead provision. Article X, section 4 of the Florida Constitution provides, in relevant part:

(a) There shall be exempt from forced sale under process of any court .  .  .  the following property owned by a natural person:

(1) a homestead  .  .  .  [if it is] the residence of the owner or the owner's family;

*  *  *

(b) These exemptions shall inure to the surviving spouse or heirs of the owner.

(c) The 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....

(emphasis added).

Based on this language the 4th DCA affirmed a trial-court order ruling that the subject property was in fact the decedent's homestead . . . even if he never lived in the place. Here's how the court summarized its reasoning:

The language of article X, section 4 is clear and unambiguous. Here, decedent was a natural person who owned property occupied by his wife and child at the time of his death; thus, the property is homestead. Because decedent died leaving a spouse, the descent of his property is controlled by section 732.401(1), Florida Statutes (2001). As such, the wife is entitled to a life estate in the homestead with a vested remainder to the descendants. § 732.401(1), Fla. Stat.

By the way, this isn't the first time a court has come to this conclusion. See In re Colwell, 196 F.3d 1225 (11th Cir. 1999) (Under Florida law, homestead exemption can be established to each of two people who, while married, are legitimately living apart in separate residences, if they otherwise meet requirements of exemption.); Law v. Law, 738 So.2d 522 (Fla. 4th DCA 1999) (Husband, who permanently resided in separate home from wife, was entitled to homestead exemption on that residence from former wife’s lien, even though husband and current wife owned another home for which they claimed homestead exemption, where there was no indication that husband and wife were separated for illegitimate reasons.)

Lesson learned?  .  .  .  Florida's homestead law is NOT intuitive.

You can't assume you know the answer to that "simple" homestead question a colleague or client calls about "just to pick your brain." If the stakes are high enough, researching the issue - before it's litigated - is always the way to go. Once you're in court and briefing the issue you may be surprised by what you find . . . as I'm sure the losing side in this case was.

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Hansen v. Bothe, --- So.3d ----, 2009 WL 1066296 (Fla. 2d DCA Apr 22, 2009)

In the linked-to opinion the decedent's sole "intestate" heir, his mother, was pitted against her son's ex-wife and the 9 remainder beneficiaries of his revocable trust. Two key questions were litigated/ appealed in this case:

First, did the trust's remainder beneficiaries even have standing to participate in the case? Probate judge said "no," 2d DCA said "yes." [Click here to see why].

Second, did the decedent's divorce cause his trust to collapse in on itself and thus cease to exist under Florida's merger doctrine? No trust =  mom gets everything as son's sole intestate heir. Probate judge said "yes," and was again reversed by the 2d DCA.

Florida's Merger Doctrine:

Mom's argument for intestacy was made in two steps. Step one: argue the decedent's divorce divested his ex-wife of any interest in the trust by operation of F.S. 736.1105. Mom was right on this point. So far so good. Step two: argue the decedent's divorce divested the 9 remainder beneficiaries of any interest in the trust because son became the sole owner of the trust's assets upon his divorce, causing the trust to collapse in on itself and terminate under Florida's trust-merger doctrine. No trust =  mom gets everything as son's sole intestate heir.

Here's where things took a wrong turn. As explained by the 2d DCA, just because a person retains complete control over the assets of his own revocable trust, serves as his own trustee, and retains the power to divest any beneficiary at any time, doesn't mean his revocable trust isn't a valid trust (if it did, no revocable trust would ever be valid under Florida law!). Here's how the 2d DCA explained Florida's merger doctrine and why it didn't apply in this case:

The circuit court relied on the merger doctrine to conclude that the trust ceased to exist. The merger doctrine terminates the trust if the legal and equitable interests in the trust are held by one person. Mary F. Radford, George Gleason Bogert & George Taylor Bogert, The Law of Trusts & Trustees, § 1003 (3d ed.2006). Courts hesitate to employ the doctrine where injustice or frustration of the settlors' intent would result. Id. Upon the establishment of a trust, the legal title is held by the trustee, but equitable title rests with the beneficiary. In re Wells, 259 B.R. 776, 779 (Bankr.M.D.Fla.2001).

The rationale behind the merger doctrine holds that “[w]hen the trustee is the only beneficiary, the trust is no longer needed to carry out the intention of the settlor.” The merger doctrine is applicable where either the entire beneficial interest passes to the trustee or where the legal title passes to a sole beneficiary. Upon merger of the legal and equitable titles, the holder of both interests possesses fee simple ownership of the property.

Id. (citations and footnote omitted).

Merger is inapplicable here. To the extent that Andreas Bothe became the sole grantor/trustee upon divorce, he held sole legal title; his intended remainder beneficiaries, however, retained an equitable interest. See Wells, 259 B.R. at 779; see also Denver Found. v. Wells Fargo Bank, N.A., 163 P.3d 1116, 1125 (Colo .2007) (emphasizing that for the doctrine of merger to apply, the legal and beneficial interests must be completely coextensive; if other equitable interests remain, the trust will not terminate).

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Juega ex rel. Estate of Davidson v. Davidson, --- So.2d ----, 2009 WL 321564 (Fla. 3d DCA Feb 11, 2009)

The basic rule in Florida is that a representative party need not have standing if (1) that party has authority to act on behalf of the real party in interest and if (2) the real party in interest has standing. Florida rule of civil procedure 1.210(a) lists six types of representative parties who can bring an action in their own name without suing in the name of the real party in interest. One of those categories is the personal representative of a decedent's estate.

The first time the 3d DCA ruled in this case it focused on the personal-representative category [click here], but overlooked Florida's common-law rule with respect to standing: even if the plaintiff does not fall within one of the six exempt categories listed in rule 1.210(a), the plaintiff may still have standing to sue if he can establish he has some legal right to proceed on behalf of the real party in interest. It's this common-law rule that's at the heart of the linked-to opinion, in which the 3d DCA reversed itself on the issue of standing based on the following law:

Florida's real party in interest rule “is permissive only....” Kumar Corp. v. Nopal Lines, Ltd., 462 So.2d 1178, 1184 (Fla. 3d DCA 1985). The rule states:

Every action may be prosecuted in the name of the real party in interest, but a personal representative, administrator, guardian, trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, or a party expressly authorized by statute may sue in that person's own name without joining the party for whose benefit the action is brought.

Fla. R. Civ. P. 1.210(a) (emphasis added).

“[A] nominal party, such as an agent, may bring suit in its own name for the benefit of the real party in interest.” Kumar, 462 So.2d at 1185 (emphasis added). “[A] principal may subsequently ratify its agent's act, even if originally unauthorized, and such ratification relates back and supplies the original authority.” Id.

“Thus, where a plaintiff is either the real party in interest or is maintaining the action on behalf of the real party in interest, its action cannot be terminated on the ground that it lacks standing.” Id. at 1183; see Mortgage Elec. Registration Sys., Inc. v. Revoredo, 955 So.2d 33, 34 (Fla. 3d DCA 2007) (collection and litigation agent has standing to bring mortgage foreclosure action); Eastern Inv., LLC v. Cyberfile, Inc., 947 So.2d 630, 632 (Fla. 3d DCA 2007) (action may be maintained by assignee; “Florida Rule of Civil Procedure 1.210(a) permits an action to be prosecuted in the name of someone other than, but acting for the real party in interest.”)

The affidavit filed by the son in this case is indistinguishable from the affidavit filed by the principal in Kumar. Id. at 1181. The facts stated in the Kumar affidavit, as here, establish that the agent, Juega, has standing.

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Here are the 2007 stat's for the probate courts in Dade, Broward and Palm Beach county. You can find all of this data here and download numbers for your local probate court here. My chart only reports on the "cases filed" figures; click here, here and here for all the details. But numbers alone don't tell the whole story. To understand the breadth of issues probate judges contend with in an average year, below is the official definition given for each of the listed categories. Finally, as a rough measure of how busy these judges are on average, I took the total filing figure and divided it by the number of probate judges serving in each respective county.

So what’s it all mean?

In Dade - on average - each judge took on close to 2,600 NEW cases in 2007, and in Broward and Palm Beach counties the average new case load figure hovered around 2,000 per judge. Keep in mind that these figures don’t take into account each judge’s EXISTING case load. These case-load figures may be appropriate for uncontested probate proceedings, which likely represent 99% of the cases administered by our probate courts. However, when it comes to that 1% of probate cases that are litigated, these same case-load figures suggest to me that the “cold judge” factor I wrote about here needs to be weighed heavily every time you ask a court system designed to handle un-contested proceedings to adjudicate a complex trial or basically rule on any contested and technically demanding issue or pre-trial motion of significance that can’t be disposed of in the few minutes allotted to the average probate matter. 

2007 Probate Court Filing Statistics

Type of Case	Dade	Broward	Palm Beach
Probate	4,103	4,917	4,823
Guardianship	936	504	495
Trust	67	84	234
Baker Act	3,653	1,943	1,110
Substance Abuse	709	589	1,021
Other Social	884	392	246
Total	10,352	8,429	7,929
# Judges	4	4	4
Total/Judge	2,588	2,107	1,982

Glossary: 

Probate: All matters relating to the validity of wills and their execution; distribution, management, sale, transfer and accounting of estate property; and ancillary administration pursuant to chapters 731, 732, 733, 734, and 735, Florida Statutes.

Guardianship (Adult or Minor): All matters relating to determination of status; contracts and conveyances of incompetents; maintenance custody of wards and their property interests; control and restoration of rights; appointment and removal of guardians pursuant to chapter 744, Florida Statues; appointment of guardian advocates for individuals with developmental disabilities pursuant to section 393.12, Florida Statutes; and actions to remove the disabilities of non-age minors pursuant to sections 743.08 and 743.09, Florida Statutes.

Trusts: All matters relating to the right of property, real or personal, held by one party for the benefit of another pursuant to chapter [736], Florida Statutes.

Florida Mental Health Act or Baker Act: All matters relating to the care and treatment of individuals with mental, emotional, and behavioral disorders pursuant to sections 394.463 and 394.467, Florida Statutes.

Substance Abuse Act: All matters related to the involuntary assessment/treatment of substance abuse pursuant to sections 397.6811 and 397.693, Florida Statutes.

Other Social Cases: All other matters involving involuntary commitment not included under the Baker and Substance Abuse Act categories. The following types of cases would
be included, but not limited to:

• Tuberculosis control cases pursuant to sections 392.55, 392.56, and 392.57, Florida Statutes;
• Developmental disability cases under section 393.11, Florida Statutes;
• Review of surrogate or proxy’s health care decisions pursuant to section 765.105, Florida Statutes, and rule 5.900, Florida Probate Rules;
• Incapacity determination cases pursuant to sections 744.3201, 744.3215, and 744.331, Florida Statutes;
• Adult Protective Services Act cases pursuant to section 415.104, Florida Statutes.

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Brigham v. Brigham, --- So.2d ----, 2009 WL 454492 (Fla. 3d DCA Feb 25, 2009)

This case has already had a huge impact on Florida's trust-law landscape. When the 3d DCA first weighed in on this case in 2006, it upheld a trial court ruling cutting the trustees off from trust assets to pay for their legal-defense [click here]. That opinion lead directly to a change in Florida's trust code that impacts every new trust-related lawsuit in this state [click here].

This time around the 3d DCA again made new law, addressing the following issue of first impression:

Is the trustee of a "land trust" subject to the conflict-of-interest rules generally applicable to trustees under Florida law?

The uncertainty at the heart of this question is a consequence of the unique nature of land trusts, sometimes referred to as "Illinois land trusts" because of where they were first invented [click here for more on land trusts]. The defining characteristic of a land trust is that the trustee doesn't have any of the independent fiduciary authority of a regular trustee, all a land-trust trustee is supposed to do is follow orders and hold title to real property. Here's a quote from the linked-to opinion encapsulating this point:

The trustee accordingly is a mere vessel of title. It exercises no control over the property and only acts according to the beneficiaries' directions. People v. Chicago Title & Trust Co., 75 Ill.2d 479, 27 Ill.Dec. 476, 389 N.E.2d 540 (1979). Accordingly, the single warranty or representation that a trustee makes upon execution of documents is that it has the power and authority to appropriately execute the instruments.

If all you are is a "mere vessel of title" with no independent fiduciary authority, does it make sense to subject you to the duties and conflict-of-interest rules generally applicable to trustees? According to the 3d DCA the answer is "YES," here's why:

Appellees argue that pursuant to section 731.201(33), land trusts are excluded from the definition of a “trust” under all of chapter 737. We disagree. Chapter 737 has been applied by courts to regulate and to rule on land trusts, and chapter 737 is directly referred to in the Florida Land Trust Act, section 689.071(5). The definition of a “trust” under section 731.201(33), states it does not include a land trust created under section 689.05. However, the trust created by the EFP Brigham Land Trust No. 1 dated September 28, 1991 (the “EFP Trust”), was not a land trust created under section 689.05. Although the EFP Trust was executed by Marion and was a written trust, it did not comply with the requirements of section 689.071.

*  *  *  *  *

The EFP Trust Deed failed to contain language that conferred on Dana, the trustee, the power and authority “either to protect, conserve and to sell, or to lease, or to encumber, or otherwise to manage and dispose of the real property described in the recorded instrument.” Because Dana, as the lawyer that created and transferred the Deed to North Carolina attorneys for recordation, failed to include the formalities in the Deed required to create a Florida Land Trust under section 689.071, it is a trust regulated by chapter 737.

Moreover, even if it had qualified as a land trust, we agree with appellants that the reasoning set forth in the case of In re Saber, 233 B.R. 547 (Bkrtcy.S.D.Fla.1999), is instructive on why the requirements of section 737.403, should apply to Dana, as the trustee: “Although the real and personal property interests of Florida land trust are divided between the trustee and beneficiary, a Florida Land Trust is essentially the same as an ordinary trust in terms of the duties, rights and responsibilities of the trustee and beneficiary.” Id. at 554. For these reasons, Dana, as Trustee, of either a land trust or a trust, was required to comply with section 737.403(2), when Dana gifted the Brigham Tree Farm Property to himself.

Additional Take-Away Points:

The linked-to opinion is long and it covers a lot of ground. Clearly, this case was hotly contested by determined lawyers on both sides who knew their way around a court room. But aside from the key land-trust ruling, I think there are two additional take-away points probate lawyers in general can learn from.

• A de novo appellate standard of review can be your best friend in trust litigation:

First, the linked-to opinion is another example of why "de novo" review can be your best friend in trust litigation. That was the standard of review in this case:

The trial court's failure to apply and/or the misinterpretation of several trust statutes are matters of law subject to de novo review. In addition, the standard of review is also de novo when reviewing the trial court's interpretation and application of Florida law. See Gordon v. Regier, 839 So.2d 715, 718 (Fla. 2d DCA 2003); Gilliam v. Smart, 809 So.2d 905, 907 (Fla. 1st DCA 2002). Likewise, the interpretation of several unambiguous trust provisions is also subject to de novo review. See Miller v. Kase, 789 So.2d 1095 (Fla. 4th DCA 2001).

Based on this standard the 3d DCA basically stepped in and second guessed almost every substantive decision made by the trial-court judge, reversing every order he entered after what must have been a very long trial. If you're representing the side trying to sue the trustee, winning your case based on trustee negligence is a daunting task [click here], and you have little recourse on appeal. Fact-based rulings by the trial-court judge are almost untouchable on appeal. But, as I've written before [click here], if the case against the trustee is framed as a fight over how a statute or trust instrument is supposed to be applied, then you basically get a do over on appeal because of the de novo review standard. That's what the plaintiffs did in this case and it paid off for them in a stunning appellate victory.

• De-facto trustee concept:

Probate litigation is usually the last act in a play that's been going on for years. The starting point in this litigation often revolves around allegations of wrong doing by someone the decedent trusted and counted on before he or she died. This trusted person could be a family member or some sort of care giver (e.g., an at-home nurse). These allegations are often the basis for an undue-influence claim. In the linked-to opinion the plaintiffs went a step further, using these sorts of allegations as a basis for a breach-of-fiduciary-duty claim against someone who wasn't the named trustee of any the decedent's multiple trust. So how'd they do it? By implication:

Turning now to Patricia, the record clearly shows that she acted as a fiduciary for Marion and as Dana's de-facto trustee conducting all of the tasks either at the direction of Dana or on her own accord. Patricia owed a fiduciary duty to Marion. “If a relation of trust and confidence exists between the parties (that is to say, where confidence is reposed by one party and a trust accepted by the other, or where confidence has been acquired and abused), that is sufficient as a predicate for relief.” Doe v. Evans, 814 So.2d 370, 374 (Fla.2002); Susan Fixel, Inc. v. Rosenthal & Rosenthal, Inc., 842 So.2d 204 (Fla. 3d DCA 2003). “Fiduciary relationships may be implied in law and such relationships are ‘premised upon the specific factual situation surrounding the transaction and the relationship of the parties.’ ” Id. at 207. Courts have found a fiduciary relation implied in law when “confidence is reposed by one party and a trust accepted by the other.” Capital Bank v. MVB, Inc., 644 So.2d 515, 518 (Fla. 3d DCA 1994). To establish a fiduciary relationship, a party must allege some degree of dependency on one side and some degree of undertaking on the other side to advise, counsel and protect the weaker party. Watkins v. NCNB Nat'l Bank of Fla., N.A., 622 So.2d 1063, 1065 (Fla. 3d DCA 1993).

Moreover, Patricia owed a duty to Marion as Marion's employee. An employee owes a duty to her employer to exercise diligence and good faith in matters relating to the employment. Haynes v. The Singer Co., 1981 WL 2344 (N.D.Fla. June 19, 1981); Kilgore Ace Hardware, Inc. v. Newsome, 352 So.2d 918, 919 (Fla. 2d DCA 1977). It is undisputed that Patricia was Marion's employee. Additionally, the record reflects that Patricia received $218,607, ostensibly as salary, plus $56,000 as gifts during the final years of Marion's life.

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Levine v. Levine, --- So.2d ----, 2009 WL 482260 (Fla. 5th DCA Feb 27, 2009)

Whether or not an adult is in fact legally "incapacitated" is often the crux of the case in contested guardianship proceedings. The fact finders that are supposed to answer that question are the members of the examining committee appointed by the probate judge pursuant to F.S. § 744.331.

If your client disagrees with the committee's findings, you won't get your day in court by simply demanding an evidentiary hearing. Under the peculiar procedural rules governing guardianship proceedings, you first have to file a motion to strike the committee's report then have your evidentiary hearing. Make sense? I don't think so, but according to the 5th DCA, that's the law. Here's why:

Evidentiary Hearing? Wrong Answer:

Dr. Levine contends that the language of [F.S. § 744.331(4)] notwithstanding, he should have the right to an evidentiary hearing to challenge the opinions of the examining committee members, either individually or collectively. We disagree, as the language of the statute is clear and unambiguous. Once a majority of the examining committee concluded that Mr. Levine was not incapacitated, the trial court was correct in dismissing the petition to determine incapacity and the petition for the appointment of a guardian. See Mathes v. Huelsman, 743 So.2d 626, 627 (Fla. 2d DCA 1999) (holding once examining committee concluded that alleged incapacitated person had full capacity, trial court was required to dismiss petition to determine incapacity); see also In re Keene, 343 So.2d 916 (Fla. 4th DCA 1977).

Motion to Strike? Right Answer:

FN1. Ms. Stimmel contends that if the examining committee concludes that the alleged incapacitated person is not incapacitated, there is no remedy available to the other interested parties involved in the proceeding even if the report is materially deficient. We disagree. We do not believe that the court must rely on a report from the examining committee which is materially deficient. However, rather than conducting an evidentiary hearing to test the examining committee's report, an action that would violate [F.S. § 744.331(4)], a more appropriate remedy would be for the court, or any interested party, to move to strike the report. If such a motion is granted, the court could then order a re-examination by the existing committee (or committee member) or appoint a new committee (or committee member) and order a re-examination.

Bonus Point: Who Pays the Committee's Fees?

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 I first wrote about here. In this case the probate judge ordered the petitioner to pay: "wrong answer" says the 5th DCA:

The trial court also ordered Dr. Levine to pay the examining committee's fees. Ms. Stimmel concedes error. While section 744.331(7)(a) allows the trial court to award members of the examining committee reasonable fees, subparagraph (c) of that section provides that the cost and attorney's fees of a dismissed petition are to be assessed against the petitioner only if the court finds the petition to have been filed in bad faith. The court made no such finding here. We recognize that the statute has a gap in determining responsibility for payment of the examining committee fees when a good faith petition is denied or dismissed. See Ehrlich v. Severson, 985 So.2d 639, 640 n. 1 (Fla. 4th DCA 2008). As did the Ehrlich court, we urge the Legislature to specify who pays the examining committee fees in this circumstance.

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The Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act (UAGPPJA) addresses a problem that needs fixing in Florida: interstate jurisdiction controversies involving adult guardianship proceedings. As I've written before, due to our highly mobile popluation (especially with respect to retiring seniors) inter-state forum shopping in contested guardianship proceedings is a growing problem [click here]. So it's not surprising these cases are already bubbling up through our appellate court system [click here].

The UAGPPJA addresses the forum shopping problem by creating a reliable process for determining with certainty which state will have jurisdiction to appoint a guardian or conservator if there is a conflict among one or more states. The UAGPPJA's legislative status in Florida is unclear, although it is getting some attention in Tallahassee. Legislation adopting the uniform act in Florida was introduced in January 2009 -  then withdrawn the next month (HB 305). Stay tuned for more.

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Provost v. Justin, --- So.2d ----, 2009 WL 484633 (Fla. 2d DCA Feb 27, 2009)

When Florida adopted its version of the Uniform Trust Code in 2007 [click here], it modernized and sometimes dramatically changed our prior body of trust law. One of the fundamental changes was a reversal of the presumption regarding revocability of trusts: the presumption used to be a trust is NOT revocable; F.S. 736.0602(1) now provides that trusts are revocable by default. My guess is that this change in the law may have been one of the causes for the linked-to case, although less-than-clear drafting was probably the primary culprit. Here's how the leading expert on our new trust code, Prof. Powell, explained the importance of clear drafting in this Fl. Bar Journal article explaining the new code:

Methods of Amending or Revoking Trusts
Along with stating that it is revocable, a well-drafted revocable trust instrument will specify the method that is to be used to accomplish a revocation or amendment. If the trust instrument does this, the provision in the instrument is exclusive in the sense that the trust can be revoked or amended only by substantially complying with the method stated in the instrument. If the instrument does not specify a method, any clear and convincing manifestation of the settlor’s intent to revoke is sufficient, including a provision in the settlor’s later will or codicil expressly revoking the trust or specifically devising property that would otherwise pass according to the trust terms.[FN 57]

[FN 57] See generally §736.0602(3)(b). The “substantial compliance” test in this section may be more lenient than existing Florida law, which appears to require strict compliance. See Euart v. Yoakley, 456 So. 2d 1327 (Fla. 4th D.C.A. 1984).

In the linked-to opinion the joint revocable trust agreement contained language limiting the right of amendment to the settlors "during their lives." After one of them died, the survivor attempted to amend their joint trust agreement in a way that would basically disinherit their three children and leave most of the estate to the widow's caregiver. This was a lawsuit waiting to happen.

Here's how the 2d DCA explained its rationale for rejecting the purported trust-agreement amendment and reversing the trial court's judgment:

“The polestar of trust interpretation is the settlors' intent.” L'Argent v. Barnett Bank, N.A., 730 So.2d 395, 397 (Fla. 2d DCA 1999). “In determining the settlors' intent, the court should not ‘resort to isolated words and phrases'; instead, the court should construe ‘the instrument as a whole,’ taking into account the general dispositional scheme.” Roberts v. Sarros, 920 So.2d 193, 195 (Fla. 2d DCA 2006) (citations omitted). The parties agree that these principles apply to the case at hand and rely on both L'Argent and Roberts in disputing the interpretation this court should give to the Trust.

As in L'Argent, the Trust contains language that limits the right of amendment to the grantors “during their lives.” See 730 So.2d at 397. Based on our review of the entire Trust document, we conclude that both grantors needed to execute any amendment to the Trust. Because Aurele Provost did not execute the amendment prepared by Geraldine Provost, the amendment is ineffective. Accordingly, we reverse the summary judgment in favor of Appellees Elizabeth Justin and Sharon Harsch and remand for the trial court to enter summary judgment in favor of Appellants Levis Provost, Marquis Provost, and Constance Monty.

By the way, we should expect to see more and more joint revocable trusts as part of our practice. Especially if spousal portability of estate-tax exemptions is folded into any new version of the estate tax (and I think it will, click here). For a solid primer on joint revocable trusts see Joint Trusts in Separate Property States by frequent lecturer and Chicago estate planning attorney Louis Harrison.

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When eccentric millionaire Wilson (Chuck) Lucom died in 2006 at 88, he left as much as $50 million in his will for poor children's charities in Panama. It's reportedly the largest private gift ever made in that country. Unfortunately, Panama’s poor may never see a dime of Lucom’s estate, which has been locked in litigation in both Panama and Florida since his death. Here’s how this November 2007 piece in Time summed up the case:

Lucom's widow Hilda, 83, the frail matriarch of Panama's prominent Arias family (a clan that has produced two of Panama's Presidents), with the support of her children is battling to get the will declared invalid. They say the will's U.S. executor, Florida tax attorney Richard Lehman, concocted the charity donation so he could split the money with other Lucom cronies. Hilda's Panamanian lawyer, Hector Infante, known for political connections and tough tactics, has pressed criminal charges against Lehman--even accusing him of having euthanized Lucom. (That charge was dismissed.) Lehman has sued Hilda and Infante for defamation, but he no longer travels to Panama, fearing he would be arrested. Still, he says, "I wouldn't be able to look at myself in the mirror if I gave up this case." It is now in Panama's Supreme Court, and a ruling could take months, if not years.

Lehman hasn’t been shy about going on the offensive: he’s got his own website [click here], and does television interviews and gives press conferences touting his efforts on behalf of Panama's poor [click here]. Which makes the latest twist in this case all the more shocking.

On March 5, 2009 a Florida probate judge entered this order pulling no punches in its scathing indictment of Lehman’s actions since being appointed Florida ancillary personal representative (APR) of this estate on July 19, 2006. Referred to as an “intermeddling volunteer,” Lehman is being ordered to pay the estate damages in excess of $1.5 million as well as the attorneys fees incurred by Lucom’s widow and other beneficiaries in their fight against him here in Florida. Here’s an excerpt from the linked-to order:

On July 19,2006, Lehman was not qualified to act as APR of the Florida ancillary estate under the requirements of Fla.Stat. 734.102. On July 19, 2006, he was not the foreign personal representative of the Panama domiciliary estate of Decedent. Lehman testified he had no knowledge of Hilda P. Lucom's Panama appeal being filed, or its effect upon his authority in the domiciliary estate, at the time he petitioned for appointment as APR in Florida. That testimony is not credible. However, Lehman 's good faith, or lack thereof, is irrelevant: as of the date he requested and received Letters of Administration to act as APR, he was not entitled to have those Letters issued. His appointment as APR in Florida is void ab initio. Thus, all actions taken by Lehman in the Florida ancillary estate were those of an intermeddling volunteer. His actions were not protected by Florida law, or excused by the Exculpatory Clause in Decedent's will. Lehman is liable to the Estate for all monies received by him improperly and for all damages to the Estate caused by Mr. Lehman under Fla. Stat. 733.309.

And it ain't over yet. According to this Palm Beach Post article Lehman disputed Phillips' findings vowing to appeal (surprise, surprise), saying "I never put a dollar in my pocket and I spent $1 million of my own money defending the estate."

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Griem v. Becker, --- So.2d ----, 2009 WL 454517 (Fla. 3d DCA Feb 25, 2009)

My assumption regarding "bearer" shares in offshore companies is that they're sold to people who are up to no good (probably trying to cheat on their taxes), and I'm not the only one who feels that way [click here]. From an asset protection standpoint, the main advantage of bearer shares is the supposed ability to quickly and anonymously transfer ownership of your shares. That may be well and good while you're alive, but if you drop dead, figuring out who owns your shares won't be easy, as the litigants in this case found out.

At the probate court level the judge bought the argument that when it comes to bearer shares in a BVI company, possession = ownership, period, end of story. Which is a fair assumption, and what I would have guessed before reading the linked-to opinion. Not so, says the 3d DCA, in an opinion that's a road map for anyone who ever has to deal with this issue in the future. The two big take-away points from this case are:

1. Florida law does NOT control the ownership issue:

The appellee relies on section 673.2011(1), Florida Statutes (2005), which states, “[I]f an instrument is payable to bearer, it may be negotiated by transfer of possession alone.” . . . This reliance, however, is misplaced. Under the UCC, “instruments” are unconditional promises or orders to pay a fixed amount of money and are addressed in Article 3 (chapter 673 of the Florida Statutes), as distinguished from “securities,” addressed in Article 8 (chapter 678 of the Florida Statutes). The shares in Conti-Tech are securities. Under section [678.1101], the local law of the issuer's jurisdiction, BVI, governs claims regarding transfer of the Conti-Tech shares.

2. Determining ownership of bearer shares is a fact-intensive exercise:

On appeal the 3d DCA reversed the probate court's summary judgment order expressly rejecting the argument that possession is "ten tenths of the law" when it comes to figuring out who owns bearer shares. Ownership of bearer shares turns out to be way more fact intensive than most of us would have guessed.

Simply stated, the mere possession of these BVI share certificates does not immunize the appellee from investigation or claim by the personal representative. The appellee's affidavit raises more questions than it answers: since Conti-Tech had a U.S. securities account, did it file U.S. income tax returns in 2003, 2004, and 2005, potentially providing evidence linking the company to its shareholder? If Conti-Tech's shareholder received any part of its income, would that not have been disclosed on his or her U.S. income tax return? FN6 Did Conti-Tech's memorandum authorize bearer shares? Wouldn't Merrill Lynch, Miami, have required a copy of the memorandum as part of the account-opening documentation for Conti-Tech's securities account? Wouldn't Conti-Tech's registered agent and the depositary custodians have records revealing the beneficial holders and transfers? How could Becker have obtained her appointment as director effective over seven months after Mr. Griem's death unless she delivered documentary evidence of her ownership of the shares to the registered agent of Conti-Tech before that? Does the registered agent have other certificates evidencing transfers of ownership or custodians in effect before Mr. Griem's death?

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Price v. Abate, --- So.2d ----, 2009 WL 559908 (Fla. 5th DCA Mar 06, 2009)

In the linked-to case the 5th DCA broke new ground. The parties were litigating what the word "presence" means for purposes of witnessing a will under F.S. 732.502(1)(c):

Witnesses' signatures.--The attesting witnesses must sign the will in the presence of the testator and in the presence of each other.

Apparently no one's asked a Florida appellate court to rule on this issue before.

Based on the following testimony, the probate court concluded that even though the witnesses were in the same room as the testator when he signed the purported will, they weren't in his "presence," thus warranting summary judgment rejecting the will:

In seeking summary judgment, Flanigan's heirs asserted that Price could not sustain her burden of proving that Flanigan's purported lost will had been properly attested to. To support their claim, the heirs cited to the deposition testimony of the only living witnesses to the execution of Flanigan's purported lost will, bank employees Dalila Ramos and Donna Fazio.

Ramos testified that Flanigan asked her to notarize a hand-written piece of paper which stated “that he was leaving basically everything that he owned to Fran Price.” Ramos testified that she did not remember if Flanigan signed the paper in her presence or not. Ramos further testified that after she notarized the document she called over a teller named Donna Fazio to act as a witness. Critical to this appeal, she further testified:

Q. Now, when you signed it, was Donna Fazio present?

A. No.

* * *

Q. And Donna Fazio did not see you sign the document; is that correct?
A. That is correct.

Donna Fazio's deposition testimony was consistent with the testimony submitted by Ramos. In that regard, Fazio testified that Ramos summoned her by using a phone intercom, and that Ramos asked her to witness a document:

Q. You say by the time you got there, everything was already signed?

A. Yes, sir.

Q. Now, did you see anybody sign?

A. No.

Q. Were you present when anybody signed?

A. No.

The trial court concluded that entry of summary judgment in favor of the heirs and against Price was warranted because the uncontradicted record evidence demonstrated that Ramos and Fazio did not sign in the presence of each other because Fazio was not in the presence of Ramos when Ramos signed the document.

On appeal the 5th DCA upheld the probate court's ruling based on the following rationale:

Price challenges this ruling, conceding that there are no cases in Florida which expressly define the term “in the presence of each other” for purposes of the statute but claiming that, given the physical proximity of the two witnesses, the determination of this issue involves genuine issues of material fact which should be determined by the trier of fact after hearing the actual testimony of the witnesses. We disagree.

The decision issued by our Supreme Court in State v. Werner, 609 So.2d 585 (Fla.1992), supports the trial court's ruling. In that case, the Court was asked to define the word “presence” for purposes of the lewd and lascivious act statute, section 800.04(3) of the Florida Statutes, which provides that any person who knowingly commits any lewd or lascivious act “in the presence of” any child under the age of 16 years without committing the crime of sexual battery is guilty of a felony of the second degree. The State argued that the plain and ordinary meaning of “presence” is “the part of space within one's immediate vicinity.” Upon review, the Court rejected the State's argument and concluded that, while the child need not be able to articulate or even comprehend what the offender is doing, the child must see or sense that a lewd or lascivious act is taking place for a violation to occur.

Application of this reasoning to the instant case supports the trial court's conclusion that the mere fact that Ramos and Fazio were in the vicinity of one another at the time Ramos signed Flanigan's will was insufficient to satisfy the statutory requirement that Ramos sign the will in Fazio's presence. Accordingly, we affirm the trial court's ruling.

I think the 5th DCA got this one right, and I'm sure most Florida probate lawyers would agree with me. Being "present" as a witness when someone's signing his will means more than being in the same room at the same time, the witness has to see the person sign his will, and understand in a general sense what the heck is going on. I think it's also important to note that in a roundabout way the 1st DCA came to a similar conclusion in 2005 with respect to the minimum requirements for witnessing a will [click here], although that opinion wasn't nearly as thoughtful and well-articulated as this one.

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Edelstein v. Beagell, --- So.2d ----, 2009 WL 500913 (Fla. 1st DCA Feb 27, 2009)

Not all probate orders are created equal. Some are appealable, and some aren't. The controlling rule is broadly stated in Florida Rule of Appellate Procedure 9.110(a)(2) as follows:

(a) Applicability. This rule applies to those proceedings that . . . (2) seek review of orders entered in probate and guardianship matters that finally determine a right or obligation of an interested person as defined in the Florida Probate Code;

The rule seems simple, but figuring out which orders "finally determine a right or obligation of an interested person" is easier said than done. In the linked-to case the appellant guessed wrong and had her appeal dismissed by the 1st DCA. Here's how the court explained its ruling:

Having considered the appellant's response to this Court's order of December 11, 2008, we dismiss this appeal for lack of jurisdiction. The order on appeal, entitled “Final Order on Petition for Determination of Beneficiaries,” denied the petition below without making any final determination as to the beneficiaries of the estate. Therefore, the order on appeal did not “finally determine a right or obligation of an interested person,” so as to be appealable under Florida Rule of Appellate Procedure 9.110(a)(2). See Dempsey v. Dempsey, 899 So.2d 1272 (Fla. 2d DCA 2005); Sanchez v. Masterhan, 837 So.2d 1161 (Fla. 1st DCA 2003).

Do we need a better rule?

A subcommittee of the Probate and Trust Litigation Committee has been looking at ways to add a bit more certainty to the question of when a probate order is or is not appealable. They've been working on this since 2007 and still no changes, so don't hold your breath. But in the meantime committee members Sean Kelley, Tom Karr and Peter Sachs have produced an extremely thorough 38-page white paper [click here] that's worth holding on to. Their analysis of the existing rule and how it's been applied by each of the DCAs is a must read the next time you're trying to figure out whether to file that notice of appeal . . . or not.

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Greenberg Traurig, P.A. v. Bresnahan, --- So.2d ----, 2009 WL 383622 (Fla. 4th DCA Feb 18, 2009)

In the linked-to case the trustee asserted the "advice of counsel defense" to a lawsuit alleging a breach of fiduciary duty. Here's how the defense was asserted:

Within that trust litigation, D'Andrea asserted the “advice of counsel defense,” pointing to his consultation with Greenberg Traurig and, specifically, attorney Francis B. Brogan, Jr. D'Andrea moved for summary judgment, and provided a detailed affidavit from attorney Brogan. Within that affidavit, attorney Brogan addresses the legal advice given regarding the property at issue in the trust litigation.

This defense may ultimately work, but it comes with a risk: once you open the door to your lawyer's advice by using it as an affirmative defense, you've waived the attorney-client privilege within the scope of that advice. And that may be OK, but be ready to litigate the "scope" of your waiver. Which is what happened in this case:

What followed was a subpoena for deposition duces tecum and notice of taking deposition on the non-party Records Custodian for Greenberg Traurig, P.A. The subpoena sought broad categories of discovery relating to the Trust.

Greenberg Traurig moved to quash the subpoena and for protective orders, arguing that D'Andrea's limited waiver of the attorney-client privilege applied only to the transaction surrounding the specific property at issue in the underlying litigation. Paradise Divers, Inc. v. Upmal, 943 So.2d 812, 814 (Fla. 3d DCA 2006). Nevertheless, the firm produced documents, though it redacted portions which it deemed beyond that limited waiver. Following the trial court's in camera inspection of the redacted documents, it ordered Greenberg Traurig's Record Custodian to produce all records, in unredacted form.

And here's why the 4th DCA quashed the probate court's order:

We quash the portion of the order that requires the unredacted production of documents GT 01, GT 05, GT 11-12, and GT 13-30. The subject matter associated with documents GT 01 and GT 11-12 is beyond the scope of the express limited waiver. Paradise Divers, 943 So.2d at 814. The remaining redactions concern internal housekeeping information and billing entries and fee amounts, which in this case should remain confidential. See generally Paskoski v. Johnson, 626 So.2d 338, 339 (Fla. 4th DCA 1993); see also Jacob v. Barton, 877 So.2d 935 (Fla. 2d DCA 2004).

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Garcia v. Celestron, --- So.2d ----, 2009 WL 249211 (Fla. 3d DCA Feb 04, 2009)

In the linked-to opinion the 3d DCA provides a solid summary of the procedural steps and law governing adjudications of ambiguous wills in Florida. This is a bread-and-butter issue for most probate litigators, so it’s helpful to have an appellate opinion you can whip out for your judge or opposing counsel if anyone needs a quick refresher course on how these cases should be handled.

Step One: The court needs to rule on whether the disputed provisions of the will are ambiguous:

We affirm the trial court's ruling that the disputed provisions of the will are ambiguous . . . The will left the decedent's house to his widow, and should she predecease him, the property was to be divided among six named family beneficiaries. The will then provides as follows:

I further leave a life estate in said property to my daughter, Mercy Maqueira [Mercy Garcia], so that she may live in and enjoy this property.... Upon her death, the property shall be sold and the proceeds divided equally among those living at the time of my death so named herein.... If Mercy so desires, she may sell this property at anytime and divide the proceeds as above stated.

Step Two: If the will’s ambiguous, you’re entitled to present parole evidence at trial to determine it’s meaning:

The question presented to the trial court was whether the language “so that she may live in and enjoy this property” made the life estate determinable, requiring Mercy to either live in the property or sell it, or whether the term is one of clarification, allowing her to choose whether to live in it or not. The trial court concluded that these terms taken together are ambiguous and took evidence to determine the testator's intent. Based upon the evidence, the trial court concluded that the decedent intended that Mercy be provided with a place for her and her children to live, and that if Mercy did not live in the property, it should be sold and the proceeds equally distributed among the six listed beneficiaries. Evidence adduced at trial revealed that Mercy did not live in the house, but rented it out, and that she had no intent to live there. The trial court ordered the property to be sold because Mercy did not live in it and evidenced no intention to live in it in the future. Mercy Garcia appealed.

We agree with the trial court that the provisions of the will are ambiguous. As such, the trial court correctly received parol evidence in order to resolve the apparently contradictory provisions. See Perkins v. O'Donald, 82 So. 401 (Fla.1919) (holding that parol evidence may be received if the will is in some way ambiguous, in order to ascertain the testator's intent); Harbie v. Falk, 907 So.2d 566 (Fla. 3d DCA 2005); Campbell v. Campbell, 489 So.2d 774, 776-777 (Fla. 3d DCA 1986); Hulsh v. Hulsh, 431 So.2d 658 (Fla. 3d DCA 1983); In re Estate of Rice, 406 So.2d 469 (Fla. 3d DCA 1981). The trial court based its findings on competent, substantial evidence, and we thus affirm the final judgment.

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In re Kurzon, 399 B.R. 274 (Bankr.M.D.Fla. Apr 17, 2008)

When it comes to enforcing money judgments: bankruptcy is the last refuge of a scoundrel. But if the particular scoundrel you're trying to track down is a former personal representative who's been surcharged by your probate judge, you can tell him to wipe that smirk off his face because "no", not even bankruptcy will save him now.

In the linked-to order the bankruptcy court ruled that a $60,000 money judgment previously entered against a Chapter 7 debtor in his capacity as personal representative of his late aunt's probate estate was NOT subject to discharge. Here's why:

The Plaintiff, to prevail on its 11 U.S.C. Section 523(a)(4) fraud or defalcation nondischargeability count, must establish by a preponderance of the evidence: (i) the Debtor was acting in a fiduciary capacity; and (ii) while acting in a fiduciary capacity, he committed fraud or defalcation. In re Goodwin, 355 B.R. 337, 343 (Bankr.M.D.Fla.2006). The fiduciary relationship must exist at the time the act creating the debt was committed. Guerra v. Fernandez-Rocha (In re Fernandez-Rocha), 451 F.3d 813, 817 (11th Cir.2006).

.     .     .     .     .

The Debtor was obligated to make distribution expeditiously to the Plaintiff, who was a beneficiary of the Will, pursuant to Florida Statute Section 733.602(1). The Probate Court found the Debtor failed to make distribution of $60,000.00 to the Plaintiff. He was removed as the Personal Representative as a result of such failing. His failure to make distribution to the Plaintiff of funds that were entrusted to him as the Personal Representative constitutes a defalcation of fiduciary duty. Fla. Stat. §§ 733.602(1), 733.608(1)(c), 733.609(1); Quaif, 4 F.3d at 955.

The Judgment is a final judgment on the merits rendered by a court of competent jurisdiction. The Judgment litigation and this adversary proceeding involve the same operative facts and the same parties. The Judgment issued by the Probate Court is binding in this proceeding pursuant to the doctrines of res judicata and collateral estoppel. The Judgment is entitled to preclusive effect and the Debtor is barred from challenging it. The Plaintiff has established the Judgment Debt is nondischargeable pursuant to 11 U.S.C. Section 523(a)(4).

The Plaintiff's documentary evidence, independently of the Judgment, establishes the Judgment Debt is nondischargeable pursuant to 11 U.S.C. Section 523(a)(4). The Debtor did not act in the best interests of the estate. He was required to keep the estate funds separate from his personal and business funds. Fla. Stat. § 733.602(1); Lahurd, 632 So.2d at 1104. He diverted all of the cash assets of the estate to his personal and business accounts, without the knowledge or the consent of the estate beneficiaries, and dissipated the funds for his own personal benefit. Such actions constitute defalcations of his fiduciary duty.

The Debtor concealed such diversion and dissipation through materially false and fraudulent accountings filed with the Probate Court. He failed to settle the estate and distribute the assets to the estate's beneficiaries and claimants. The Judgment Debt results from his improper conduct. The Judgment Debt is nondischargeable pursuant to 11 U.S.C. Section 523(a)(4). In re Valdes, 98 B.R. at 80.

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Especially in large or fairly complex estates or trusts, the ultimate value of your client's inheritance often depends in large part on how income and expense items are accounted for and allocated among the beneficiaries. Spotting these fiduciary accounting issues in advance (either as an estate planner or probate lawyer) is easier said than done.

One way to tackle that problem is to have a list of hot-button fiduciary accounting scenarios to be on the look out for. Which is exactly what William C. Carroll and John W. Randolph, Jr., deliver in an excellent article they published in this month's Florida Bar Journal. In Things That May Surprise You About Florida’s Principal and Income Act and Related Accounting Law, Part I, the authors explain how Florida's Principal and Income Act would apply (in often unexpected ways) in each of the following scenarios:

1. Specifically Devised Real Estate
2. Rental Real Estate
3. Distributions Received by a Private Trustee from Investment Entity and a Targeted Entity
4. Allocation of Receipts at Decedent’s Death
5. Death of an Income Beneficiary
6. Pecuniary Amounts

Here's an excerpt from the article's introduction:

In 2002, the Florida Legislature adopted the Florida Uniform Principal and Income Act, effective on January 1, 2003 (the act). The act, which is found in F.S. Ch. 738, is a modified version of the Uniform Principal and Income Act (1997) [click here]. The statutory sections of the act allocate trust and estate receipts and disbursements between income and principal. Additionally, the act contains provisions that allow a trustee to make adjustments between income and principal (§738.104) and to convert a trust to a unitrust (§738.1041). Sections 738.104 and 738.1041 are beyond the scope of this article.

It is significant to note that the statutory sections of the act are “default” sections, meaning that the provisions of Ch. 738 only apply if the terms of the trust or will do not contain a different provision or do not give the fiduciary a discretionary power of administration. It is critically important that attorneys practicing in the trusts and estates area have a working knowledge of the act. Through extensive examples, this two-part article will explore the inner workings of some of the more significant provisions of the act. These examples assume that the will or trust is silent as to allocating the receipt or disbursement at issue to either income or principal, and does not give the fiduciary a discretionary power of administration.

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Fintak v. Wachovia Bank, N.A., Slip Copy, 2009 WL 413599 (M.D.Fla. Feb 18, 2009)

Say you have a trust that owns two CDs that together are worth a little over $200,000 and Wachovia pays them out to one of your three co-trustees . . . and he runs off with the loot. Now assume the bank wasn't supposed to pay those CDs unless at least two of the co-trustees signed off on the transaction. Oops!!

Most of us - whether we represent the bank or the trust - would intuitively know there's a lawsuit lurking around in there somewhere, but actually formulating that lawsuit (or predicting what the claims will be if you're playing defense) is how lawyers add value. Once you know what the claims will be, both sides can evaluate the risks of winning/losing and negotiate a settlement  before a lot of money, time and effort is poured into pre-trial motion practice.

And that's where the linked-to order comes into play: we now have a battle-tested road map for evaluating this type of case. The plaintiffs in this case sued Wachovia on the following three grounds:

• conversion (Count I),
• breach of contract (Count II), and
• negligence (Count III)

Wachovia sought to dismiss the conversion and negligence counts . . .  and lost. Here's why the court said the claims stood.

Conversion:

In Count I, the plaintiffs allege that Wachovia is liable for [Wachovia's] conversion of the trust's funds in violation of Section 673.4021, Florida Statutes. (Doc. 2, ¶ 13) The defendant argues that the conversion claim fails because no conversion action arises from a mere obligation to pay money and because the plaintiffs “fail to describe with particularity any identified, specific money.” (Doc. 7 at 3) The statute provides:

The law applicable to conversion of personal property applies to instruments. An instrument is also converted if it is taken by transfer, other than a negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment with respect to the instrument for a person not entitled to enforce the instrument or receive payment.

§ 673.4021, Fla. Stat . Under the Florida Commercial Code, a certificate of deposit is an “instrument.” See § 673.1041, Fla. Stat .

The plaintiffs allege that Wachovia converted the certificates of deposit by allowing Edmund Fintak to redeem the certificates without obtaining the signatures of two trustees. Construed most favorably to the plaintiffs, the allegations in the complaint establish that [Wachovia] permitted Edmund Fintak to redeem the certificates of deposit and that Edmund Fintak lacked the authority to receive payment without the signature of at least one more trustee. Accordingly, the motion to dismiss Count I is DENIED.

Negligence:

In Count III, the plaintiffs allege that [Wachovia] negligently failed to comply with the terms of the certification of trust. (Doc. 2, ¶¶ 22-29) Moving for dismissal of Count III, Wachovia argues that the economic loss rule bars the plaintiffs' negligence claim. However, the economic loss rule primarily applies “to limit actions in the product liability context.” See Moransais v. Heathman, 744 So.2d 973, 983 (Fla.1999); Ron's Quality Towing, Inc. v. Se. Bank of Fla., 765 So.2d 134, 136-37 (tort claims against bank not barred by the economic loss rule). Wachovia fails to show that the economic loss rule bars the plaintiffs' negligence claim. See Fed. Ins. Co. v. NCNB Nat'l Bank of N.C., 958 F.2d 1544, 1546 (11th Cir.1992) (applying Florida law and recognizing a negligence action against a bank for bank's failing to obtain two hand signatures before paying on corporate checks). Accordingly, Wachovia's motion to dismiss Count III is DENIED.

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Morris v. Knight, --- So.2d ----, 2009 WL 321586 (Fla. 4th DCA Feb 11, 2009)

Trial Judge's Power in Guardianship Proceedings:

Florida probate judges get a huge amount of deference when deciding whom to appoint as guardian. So if your client is on the losing end of an order appointing someone else guardian, an appeal is probably a waste of money. Here's how this point was made in the linked-to opinion:

 The standard of review here is abuse of discretion. In re Guardianship of Sitter, 779 So.2d 346 (Fla. 2d DCA 2000). The appointment of guardian is a discretionary act of the trial court, which must be supported by logic and justification and founded on substantial competent evidence. Id. at 348. The trial court's decision should be reviewed for reasonableness. Id. And the appellate court should not find an abuse of discretion unless “no reasonable person would take the view adopted by the trial court.” Wilson v. Robinson, 917 So.2d 312 (Fla. 5th DCA 2005).

Bottom line, figure your client has only one real shot in this type of case. Don't count on an appellate court second guessing your judge.

Family Preference in Guardianship Proceedings:

Once your client realizes that yes, what your probate judge thinks really matters, and no, an appeal is probably not a good idea, then hopefully everyone will focus on what's most important: the ward's best interests. It doesn't matter if your client is related to the ward [click here] or if the ward executed a pre-need guardian declaration naming your client his or her guardian [click here], if the judge decides it's in the ward's best interests to appoint someone else as guardian, that's probably the end of the story. Here's how the 4th DCA made this point:

Under [F.S. § 744.312], “a person who is related by blood or marriage to the ward” does receive preference in appointment; however, the inquiry does not end there. The court also has the discretion to give preference to a non-relative who possesses particular experience or ability to serve as guardian. See, e.g., Treloar v. Smith, 791 So.2d 1195 (Fla. 5th DCA 2001) (finding that while next of kin are given first consideration, statute does not mandatorily require that such an appointment be made; rather, statute specifically provides that court may appoint any person who is qualified, whether related to the ward or not). Moreover, it is the best interest of the ward that trumps other considerations in the appointment of a guardian. See, e.g., In re Guardianship of Stephens, 965 So.2d at 852 (“The best interests of the Ward-which include choosing a qualified guardian for the Ward-come first. Family member preference in and of itself is secondary, regardless of how well qualified the family members are.”).

In this case, Morris and Glinton argue that they are better fit than Knight to serve Barker's interests because they plan to move her to a better nursing home. Even setting aside the trial court's finding that both Morris and Glinton are unfit to become Barker's guardian, they have not demonstrated how simply moving Barker from one facility to another would best serve her interests. Morris and Glinton have maintained minimal involvement in Barker's care, whether family or not, and they are not now in the position to serve Barker's best interests, whether family or not. It is thus our view that the trial court was reasonable in concluding that Barker's care and interests would be best left up to Knight. See In re Guardianship of Stephens, 965 So.2d 847, 849 (Fla. 2d DCA 2007) (finding that as long as the record contained competent evidence to support the trial court's decision to appoint a non-relative as guardian, there is no abuse of discretion).

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Texas probate litigator J. Michael Young wrote here on his Texas Probate Litigation Blog about a recently published AARP research piece entitled Power of Attorney Abuse: What States Can Do About It. Here's an excerpt:

The primary goal of this report is to inform state legislators, policymakers, practitioners, and advocates about the [Uniform Power of Attorney Act (UPOAA), click here]. provisions that protect against POA abuse and promote autonomy, and to support enactment efforts within the states. The secondary goal is to offer legal professionals information about their own state's law and the laws of other states. The latter information may foster inclusion of additional protections in the POA those professionals draft for clients, as well as inform advocacy efforts by the-state bar association or other organizations.

Toward those goals, this report highlights the problem of PO A abuse, explains why the UPOAA was developed, and identifies and discusses the UPOAA provisions related to protecting against POA abuse and promoting autonomy. It provides a series of charts that compare the state POA laws in effect on December 31, 2007, to each relevant provision of the UPOAA, as well as a master chart for all provisions. Finally, the report's appendixes include tips for advocates who desire to promote adoption of the UPOAA provisions in their state, a document titled "Why States Should Adopt the Uniform Power of Attorney Act (2006)," and a chart of citations to state POA laws.

Last year the UPOAA reporter, Prof. Linda Whitton of Valparaiso University - Law School, published an excellent article discussing the perceived shortcomings of current power-of-attorney statutes and how the UPOAA addresses those issues. Entitled The New Uniform Power of Attorney Act: Balancing Protection of the Principal, the Agent, and Third Persons, it's another solid resource for anyone working on a particularly thorny power-of-attorney matter.

Why read this stuff? Issue spotting, issue spotting, issue spotting . . .

It doesn't matter if you're an estate planner or probate litigator, spotting the issues most relevant to your client's interests is how we really add value as lawyers. The linked-to materials highlight the planning and litigation issues to think about in connection with powers of attorney, be it up front in the planning stage or at the back end when fraud or abuse is detected.

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Estate of Shefner v. Shefner-Holden, --- So.2d ----, 2009 WL 322153 (Fla. 3d DCA Feb 11, 2009)

When is probate litigation a compensable "service" to the estate?

There were two issues at play in the linked-to opinion. One was whether the PR's were entitled to payment of their attorneys fees after successfully defending against a claim that F.S. 732.802 (Florida's Slayer Statute) precluded them from inheriting under their father's will because they assisted in his suicide. (By the way, I previously wrote here about a similar assisted-suicide/Slayer Statute case out of Wisconsin . . . the plaintiffs lost that one too.)

As is always the case in this type of fee dispute, the question was whether this litigation "rendered services" to the estate [click here]. According to the 3d DCA the answer was . . . yes. Here's why:

In probate matters, section 733.106, Florida Statutes (2003), controls the question of attorney's fees. Subsection (3) states: “Any attorney who has rendered services to an estate may be awarded reasonable compensation from the estate.” An attorney may render services to an estate by: (1) bringing about an enhancement in value or an increase in estate assets, or (2) actions which establish and effectuate the decedent's testamentary intent. See, e.g., Estate of Brock v. Brock, 695 So.2d 714 (Fla. 1st DCA 1996); Segal v. Levine, 489 So.2d 868 (Fla. 3d DCA 1986); In re Estate of Lewis, 442 So.2d 290 (Fla. 4th DCA 1983).

.  .  .  .  .

[A]s a result of Deborah and Frank's defense of the Slayer Statute claim, the terms of the decedent's will were upheld. Thus, under section 733.106(3), Deborah and Frank are entitled to reimbursement of the attorney's fees and expenses for defending the claim. We, therefore, reverse the order denying attorney's fees. 

But can you dip into the homestead sales proceeds to pay the lawyers?

The second issue decided by the 3d DCA was whether the following clause in the decedent's will was the equivalent of a direction that the homestead property be sold and distributed to his heirs (thus stripping the sales proceeds of their creditor-protected status) or a devise of homestead property that was subsequently sold (thus preserving the creditor-protected status of the sales proceeds):

“I give my son, FRANK SHEFNER, JR. my house at 3420 SW 2nd Street, Miami, Florida. If and when the house is sold by my son, he will divide the proceeds equally among my children. My son is not to be forced to sell the house against his will.”

According to the 3d DCA, this was a devise of homestead property, so when Frank subsequently sold the house and split the proceeds with his siblings, the funds retained their creditor-protected status and were thus NOT subject to court ordered payment of probate-related attorneys fees.

It is well settled that homestead property devised to an heir is protected from forced sale to pay creditors' claims of the decedent and administrative expenses of the estate under Article X, Section 4 of Florida's Constitution. See, e.g., Pub. Health Trust of Dade County v. Lopez, 531 So.2d 946 (Fla.1988); Engelke v. Engelke, 921 So.2d 693 (Fla. 4th DCA 2006); Thompson v. Laney, 766 So.2d 1087 (Fla. 3d DCA 2000). Heirs are those persons entitled to receive property under the laws of intestacy. §§ 731.201(18), 732.103(1), Fla. Stat. (2003); Snyder v. Davis, 699 So.2d 999, 1003 (Fla.1997). Thus, when devised to a qualified heir, decedent's homestead property is not distributed as part of the decedent's estate, and passes directly to the designated heir. See McKean v. Warburton, 919 So.2d 341, 347 (Fla.2005); Estate of Hamel v. Parker, 821 So.2d 1276, 1280 (Fla. 2d DCA 2002).

The heir's sale of the property, after the decedent's death, does not change the legal consequences of the bequest from the decedent to the heir. After the decedent's death, the heir has legal ownership of the property, and he or she may sell it without regard to decedent's creditors or administrative expenses. See Thompson, 766 So.2d at 1088 (concluding that heir, to whom decedent's residence was devised, “was entitled to sell the homestead property ... and keep the proceeds of the sale); Estate of Tudhope v. Rudkin, 595 So.2d 312 (Fla. 2d DCA 1992) (holding that proceeds derived from sale of decedent's homestead property directly devised to decedent's minor children could not be reached by decedent's creditors).

When a testator directs that his or her homestead be sold and the proceeds distributed to devisees, the property loses its constitutional protection. In such cases, the decedent is devising money, not homestead property, and the proceeds may be subject to the claims of decedent's creditors and administrative expenses. Knadle v. Estate of Knadle, 686 So.2d 631, 632 (Fla. 1st DCA 1996) (finding that because decedent specifically directed that her homestead be sold and distributed as part of her residue estate, proceeds became subject to the claim of decedent's creditor); Elmowitz v. Estate of Zimmerman, 647 So.2d 1064, 1065 (Fla. 3d DCA 1994) (stating that homestead property devised to trust in favor of decedent's sister and two sons “lost its homestead status and became merely another asset of the trust”).

Here, Frank is a qualified heir, and the decedent's will directed that Frank not be forced to sell the house. Therefore, the homestead property passed directly to Frank, and never became a part of decedent's probate estate. Because the property was not a part of decedent's probate estate, the trial court properly concluded that the proceeds from the subsequent sale of the property could not be used to pay creditors' claims or administrative expenses of the estate.

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Crescenze v. Bothe, --- So.2d ----, 2009 WL 284858 (Fla. 2d DCA Feb 04, 2009)

Trust beneficiaries can avoid being sidelined in litigation involving their trusts by moving to "intervene" in the case under Civ.P. Rule 1.230. Here's what the rule says:

Anyone claiming an interest in pending litigation may at any time be permitted to assert a right by intervention, but the intervention shall be in subordination to, and in recognition of, the propriety of the main proceeding, unless otherwise ordered by the court in its discretion.

As I've previously written, if a trust beneficiary doesn't intervene in the case he or she will probably be stuck with the outcome [click here].

In the linked-to case the trust beneficiary did exactly what she was supposed to do, she filed a motion seeking to intervene in litigation involving her trust. The probate court denied her motion based on what most of us would say was an "unorthodox" reading of Florida's probate code (proving once again that no matter how right you may be on the law, you can never predict with absolute certainty what will happen once you step through those courtroom doors). Here's how the 2d DCA explained its rationale for reversing the probate court's order:

On appeal, Crescenze argues that the circuit court erred in denying her motion to intervene. We agree. Crescenze is a beneficiary of the trust, and “Florida has long followed the rule that the beneficiaries of a trust are indispensable parties to a suit having the termination of the beneficiaries' interest as its ultimate goal.” Fulmer v. N. Cent. Bank, 386 So.2d 856, 858 (Fla. 2d DCA 1980) (citing Byers v. Beddow, 142 So. 894, 896 (Fla.1932), which held that a court called upon “to dissolve or terminate a trust ... must decline to act when there are, or may be, persons interested in the trust who are not before the court”). “Indispensable parties are necessary parties so essential to a suit that no final decision can be rendered without their joinder.” Sudhoff v. Fed. Nat'l Mortgage Ass'n, 942 So.2d 425, 427 (Fla. 5th DCA 2006).

Because Crescenze is a beneficiary of the trust and therefore an indispensable party to the action seeking to terminate or revoke the trust, we reverse the circuit court's order denying Crescenze's motion to intervene and remand for further proceedings consistent with this opinion.

The circuit court concluded that Crescenze's request to intervene was barred because it was not filed prior to the expiration of the two-year statute of limitations set forth in section 733.710(1), Florida Statutes (2005). However, it is clear from the language of the statute and its place in chapter 733 of the Probate Code that section 733.710(1) applies exclusively to claims against an estate in a probate proceeding and has no application in a civil action to terminate a trust. See also Henry P. Trawick, Jr., Trawick's Redfearn Wills and Administration in Florida § 2:11 (2008-09 ed.) (recognizing that “[s]everal statutes of limitation apply only to probate matters” and discussing section 733.710).

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Hays v. Lawrence, --- So.2d ----, 2009 WL 211048 (Fla. 5th DCA Jan 30, 2009)

The probate bar has been mulling over the question of 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 past 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.

Then a few months ago comes the Donkersloot opinion, a case out of the 2d DCA implying that Civ. Pro. Rule 1.525 applies to trust litigation (this was a first).  In the context of writing about that case I also linked to the excellent work being done by a subcommittee of the RPPTL section looking at possible statutory fixes [click here].

Then the Winter 2009 edition of ActionLine contained an article by Jon Scuderi, Esq., Goldman, Felcoski & Stone P.A., Naples, FL and Rebecca Y. Zung-Clough, Esq., Wealth Strategist, Northern Trust, NA, Naples FL, entitled Does Florida Rule of Civil Procedure 1.525 Apply to Probate and Trust Proceedings? Their conclusion: YES!

And now, in the linked-to case above, the 5th DCA has weighed in on whether Civ. Pro. Rule 1.525 applies to adversary probate proceedings. Their conclusion: YES!  Here's an excerpt:

Appellants filed a petition for administration, claiming, in part, that a handwritten document dated August 13, 1978, was the last will of James Douglas Lawrence. Appellants' petition requested that the court admit the handwritten document to probate and appoint them as personal representatives of Lawrence's estate. On the same day, Appellants filed a declaration that the proceeding was adversary. After a trial was held on the petition in accordance with Florida Probate Rule 5.025, the court issued a final order denying Appellants' petition for administration and refusing to admit the handwritten document to probate. Appellants appealed the decision to this Court, which ultimately dismissed the appeal on March 1, 2007.

On March 29, 2007, Appellants' attorneys filed a petition for order authorizing the payment of attorney's fees and expenses pursuant to section 733.106(2), Florida Statutes (2007). Appellees moved to strike the petition, arguing, in part, that the petition for fees and costs was untimely because it was filed seven months after the final order was entered instead of within thirty days as required by rule 1.525. The trial court granted the motion to strike.

The central issue framed by the parties is whether the rules of civil procedure applied to the proceeding below. The resolution of this issue turns on whether the underlying dispute in probate court was an adversary proceeding. In a probate action, if the case is determined to be an adversary proceeding, it “shall be conducted similar to suits of a civil nature and the Florida Rules of Civil Procedure shall govern, including entry of defaults.” Fla. Prob. R. 5.025(d)(2). Notwithstanding Appellants' prior declaration that the dispute was adversary, they urge that it was not. We disagree. See Fla. Prob. R. 5.025(b) (proceedings are adversary if declared as such).

Contrary to Appellant's argument, In re Estate of Beeman, 391 So.2d 276 (Fla. 4th DCA 1980), is distinguished. There, our sister court addressed the issue of whether the rules of civil procedure applied in a probate proceeding to determine fees of counsel for the estate. In ruling that the civil rules did not apply, the Beeman court emphasized that the proceeding below had not been “designated” an adversary proceeding. We think this finding distinguishes Beeman from this case. Here, the proceeding was declared as an adversary proceeding to determine the validity of the purported will and tried as such. Under these circumstances, the rules of civil procedure, and specifically, rule 1.525 were applicable. Therefore, the motion was not timely.
 

Lesson learned:

If anyone was hoping this trap-for-the-unwary would just go away, forget about it. Now that we have a couple of appellate decisions plus an ActionLine article plus the RPPTL section all talking about how Civ. Pro. Rule 1.525 applies to "adversary" probate proceedings and trust litigation, you need to assume everyone's heard of this issue by now and will be more than happy to spring this trap on you if you blow the 30-day deadline to file your motion for fees. You've been warned.

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Belanger v. Salvation Army, 2009 WL 223884 (11th Cir.(Fla.) Feb 02, 2009) [Attorney Interview]

The Salvation Army has been enmeshed in litigation since 2007 over approximately $105,000 it received from a pay-on-death account [click here]. At issue was whether a corporation, such as the Salvation Army, could be the beneficiary of a pay-on-death bank account under Florida law. According to the trial court and now the 11th Circuit, the answer is "yes." The following excerpt from the 11th Circuit opinion does a good job of framing the issue and explaining the court's statutory-construction ruling:

Richard Jason Belanger, as son and personal representative of the Estate of Richard Jose Belanger, deceased, brought this diversity action against The Salvation Army to recover funds which The Salvation Army had obtained from a pay-on-death bank account established in the name of “Richard J. Belanger, In Trust For The Salvation Army.” The Estate argues that The Salvation Army, a corporation, cannot be considered a “surviving beneficiary” under the pay-on-death account provisions of section 655.82, Florida Statutes. The district court granted a motion to dismiss in favor of The Salvation Army, finding that a corporation can be a beneficiary of a pay-on-death bank account under Florida law. The Estate appeals.

This case presents an issue of first impression: whether a corporation qualifies as a “person” permitted to be a lawful beneficiary of a pay-on-death account under section 655.82 of the Florida Statutes. We, therefore, must form a reasoned opinion as to how this statute should be interpreted. We determine that the plain language of section 655.82 permits a corporation to be a beneficiary of a pay-on-death account because the definition of the term “person” in section 1.01(3) of the Florida Statutes includes corporations. Accordingly, for the reasons set forth in greater detail below, we affirm.

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Taylor v. Taylor, --- So.2d ----, 2009 WL 186155 (Fla. 1st DCA Jan 28, 2009) [Attorney Interview]

I wrote here in 2006 about an "ambiguous" premarital agreement that the 3d DCA held was a valid waiver of a widow's marital rights under F.S. § 732.702. Here's the clause at the center of the 3d DCA case:

"It is [husband's] intent that, in the event of his death, all of his separate property be given to his children, STEVEN M. LADD and BETHANY S. LADD, or as otherwise provided for in his Last Will and Testament."

In that case the court relied on evidence outside of the four corners of the agreement as the basis for enforcement. In other words, the 3d DCA held this clause was NOT precise enough on its own to effectuate a waiver of spousal rights under F.S. § 732.702, so the probate court was right to accept parol evidence when enforcing it.

Fast forward to the present and the linked-to opinion out of the 1st DCA. Here's the waiver clause at the center of the new case:

"All property which belongs to each of the above parties shall be, and shall forever remain, their personal estate, including all interest, rents, and profits which may accrue from said property, and said property shall remain forever free of claim by the other."

According to the 1st DCA this clause was just fine, thank you very much. No ambiguity here. In fact the 1st DCA goes out of its way to let the probate court know that it should NOT have taken parol evidence to "decipher" its meaning. Here's how the 1st DCA explains its ruling upholding this clause on the grounds that under F.S. § 732.702 a contract's broadly-stated intention to waive spousal rights in whatever form they may take is sufficient:

Application of section 732.702(1) leads us to conclude that the trial court erred in determining that the prenuptial agreement was ambiguous as to Appellee's rights in the decedent's estate. Section 732.702(1) does not require that the parties specify an intent to relinquish rights given to surviving spouses in order to effectively relinquish those rights. Instead, the statute provides that a general relinquishment of “all rights” or equivalent language is sufficient to accomplish this purpose. Here, Appellee agreed, under paragraph one, that after marriage, the decedent's property would “forever remain [his] personal estate” and that such property would be “forever free of any claim by [Appellee].” Because this language is equivalent to a statement that Appellee waived “all rights” in the decedent's property or estate, section 732.702(1) compels a conclusion that the prenuptial agreement was a valid waiver of those rights.

Lesson learned?

I think it's impossible to reconcile the different approaches taken first by the 3d DCA in 2006 and then by the 1st DCA above when applying F.S. § 732.702 to what all of us can agree are less than artfully drafted prenuptial agreements. So what's a probate litigator to do? Cover all your bases. How? Argue in the alternative: build a record that wins your client's case based both on parol evidence (à la the 3d DCA's approach in 2006) and on the text of the agreement itself (à la the 1st DCA's approach in the linked-to case above). Either way, you're ready, willing and able to win your case.

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The Winter 2009 edition of ActionLine contains a short article entitled The Cutler En Banc Opinion: Is the Third DCA Eroding the Protection Afforded to Heirs Who Are to Receive Devises of Florida Homestead? by Melbourne probate attorney Charlie Nash. Charlie's article does a good job of dissecting the 3d DCA's opinion in the Cutler case, which addressed the interplay between the creditor protections applicable to otherwise freely-devisable homestead property in Florida. I previously wrote about the Cutler opinion here.

Lesson learned?

Just because you're dealing with "freely devisable" homestead property doesn't mean you're home free. As made clear by the Cutler decision and Charlie's article, as well as other recent appellate decisions I've written about involving freely-devisable homestead property [click here, here, here], the unintended consequences can blow up even the most carefully crafted estate plan.

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A "QTIP trust" allows a person's estate to receive a 100% estate-tax marital deduction for assets left in trust for a surviving spouse for life, with the remainder of the trust assets going to the settlor's children (or other heirs) once the surviving spouse passes away [click here].  A common source of trust litigation is the hostility often existing between children of a first marriage and the step-parent who becomes the life-time beneficiary of the QTIP trust.

One very effective long-term solution for this type of litigation is to permanently separate the warring factions by simply terminating the QTIP trust and dividing the assets between the life-time beneficiary (surviving step-mother) and the remainder beneficiaries (children of dad's first marriage).  Sounds simple, but the tax and trust-law issues triggered by this split can be extremely complex.  There are two recently-published resources that provide a solid starting point for trusts-and-estates lawyers looking to get their arms around QTIP splits.

First, I recently wrote about creative lawyering by Florida attorneys working through a QTIP trust split/termination and related IRS Private Letter Ruling 200844010, in which the IRS outlined the operative tax issues and blessed the tax results the parties were attempting to achieve in their settlement agreement [click here].

Second, in a follow-up to his blog entry discussing the QTIP-termination PLR [click here], Florida tax attorney/blogger Charles Rubin, of Gutter Chaves Josepher Rubin Forman Fleisher P.A., recently published an article entitled Tax Results of Settling Disputes Involving QTIP Trusts.  Mr. Rubin's article does an excellent job of expanding on the tax issues reflected in IRS Private Letter Ruling 200844010 and pointing out all the other potential traps for lawyers involved in similar cases.

Presto!  You're now a QTIP trust termination expert.

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This is my running list of significant Florida trusts-and-estates appellate opinions for 2010. The criteria for inclusion is somewhat subjective, so I'm certainly not guaranteeing that I've identified every case that could conceivably be related to contested probate or trust matters in Florida. However, if you think I've missed an important appellate decision that deserves wider notice please let me know. As new appellate decisions are published they'll be added to the list.

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

1. Rachid v. Perez, --- So.3d ----, 2010 WL 173776 (Fla. 3d DCA Jan 20, 2010) (Getting out of Mediation Agreements)
2. Burgess v. Prince, --- So.3d ----, 2010 WL 199422 (Fla. 2d DCA Jan. 22, 2010) (Trust construction)
3. Foster v. Estate of Gomes, --- So.3d ----, 2010 WL 322170 (Fla. 5th DCA Jan. 29, 2010) (Marital agreements waiving inheritance rights)
4. Doe v. Suntrust Bank, --- So.3d ----, 2010 WL 323031 (Fla. 2d DCA Jan 29, 2010) (DNA testing in trust and probate litigation)
   
5. Thomas v. Thomas, --- So.3d ----, 2010 WL 391833 (Fla. 5th DCA Feb 05, 2010) (Limitations period for accounting objections)
6. Grainger v. Wald, --- So.3d ----, 2010 WL 479862 (Fla. 1st DCA Feb 12, 2010) (Properly serving notice to creditors)
7. In re Estate of Harrison, Slip Copy, 2010 WL 503077 (Bankr.M.D.Fla. Jan 29, 2010) (Strategic use of Florida’s 2-year Non-claim Statute)
8. Morrison v. West, --- So.3d ----, 2010 WL 532792 (Fla. 4th DCA Feb 17, 2010) (Payment to out-of-state probate lawyer)
9. Pajares v. Donahue, --- So.3d ----, 2010 WL 934101 (Fla. 4th DCA Mar 17, 2010) (Will Construction; Homestead Devise)
10. Foundation For Developmentally Disabled, Inc. v. Step By Step Early Childhood Educ. And Therapy Center, Inc., --- So.3d ----, 2010 WL 1135901 (Fla. 2d DCA Mar 26, 2010) (Charitable Gifts Litigation)
11. United States v. Guyton, Jr., 2010 WL 1172428 (11th Cir. March 26, 2010) (Personal representative’s liability for decedent’s unpaid income taxes)
12. Hall v. Maal, --- So.3d ----, 2010 WL 1212794 (Fla. 1st DCA March 30, 2010) (No common-law marriage in Florida)
13. Hill v. Davis, --- So.3d ----, 2010 WL 1347314 (Fla. 1st DCA March 31, 2010) (Limitations period; objecting to Personal Representative’s appointment)
    
14. Baillargeon v. Sewell, --- So.3d ----, 2010 WL 1727842 (Fla. 2d DCA Apr 30, 2010) (No class-action claims in probate proceedings)
15. Miller v. Kresser, --- So.3d ----, 2010 WL 1779899 (Fla. 4th DCA May 05, 2010) (Spendthrift trust creditor protection)
16. Bessard v. Bessard, --- So.3d ----, 2010 WL 1875627 (Fla. 3d DCA May 12, 2010) (Statutory attorney’s fees in Power of Attorney litigation)
17. Yawt v. Carlisle, --- So.3d ----, 2010 WL 1879697 (Fla. 4th DCA May 12, 2010) (Raising new claims in Trust Litigation)
18. Fernandez v. Guardianship of Fernandez, --- So.3d ----, 2010 WL 2178831(Fla. 3d DCA Jun 02, 2010) (How to conduct guardianship trials)
19. Timmons v. Ingraham, --- So.3d ----, 2010 WL 2217637 (Fla. 5th DCA Jun 04, 2010) (Step children are NOT lineal descendants under FL law)
20. Townsend v. Morton, --- So.3d ----, 2010 WL 2218327 (Fla. 5th DCA Jun 04, 2010) (Rescinding fraudulently obtained deeds)
21. Olmstead v. F.T.C., --- So.3d ----, 2010 WL 2518106 (Fla. Jun 24, 2010) (Asset protection and single-member LLCs)
    
22. Brennan v. Estate of Brennan, --- So.3d ----, 2010 WL 2866987 (Fla. 5th DCA Jul 23, 2010) (Litigating lost wills)
23. Magill v. Dresner, --- So.3d ----, 2010 WL 3025111 (Fla. 3d DCA Aug 04, 2010) (Judicial deference to pre-need designation of guardian)
24. Price v. Austin, --- So.3d ----, 2010 WL 3120212 (Fla. 1st DCA Aug 10, 2010) (Deadlines for attorney’s fee motions in guardianship litigation)
25. Zayas-Hood v. Jusino, --- So.3d ----, 2010 WL 3120217 (Fla. 1st DCA Aug 10, 2010) (Extending deadlines to pay creditor claims)

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Five Points Health Care, Ltd. v. Mallory, --- So.2d ----, 2008 WL 5411834 (Fla. 1st DCA Dec 31, 2008)

Under Florida law an attorney-in-fact's authority is limited solely to actions "specifically enumerated in the durable power of attorney." F.S. 709.08(7)(a). Sounds simple enough. But the question courts have to grapple with is how specific does the enumerated grant of authority in the durable power of attorney (DPOA) have to be?

With respect to arbitration agreements, the 2d DCA has recently come out at both ends of the spectrum. In January of 2008 the 2d DCA ruled in In re Estate of McKibbin that a specific reference to the arbitration agreement in the DPOA was needed. Having apparently experienced a change of heart, a few months later in September of 2008 the 2d DCA basically reversed itself, ruling in Jaylene, Inc. v. Moots that a general grant of authority in the DPOA was all you need.

My guess is that most Florida appellate courts will err on the side of enforcing arbitration agreements whenever they can. So I expect they'll enforce arbitration agreements executed under broadly-stated grants of authority in DPOA's more often than not. And that's exactly what happened in the linked-to opinion.

In the linked-to opinion the 1st DCA described the key provisions of the contested DPOA as follows:

The nursing home admission agreement which contained the arbitration clause was signed by Carlene Mallory under the durable power of attorney (POA) granted her by her mother. The “Durable Power of Attorney” signed by Alfreda Mallory a year before she was admitted to the nursing home stated, in part:

All acts done by my attorney-in-fact pursuant to this power shall bind me, my heirs, devisees and personal representatives; provided, however, that all such acts performed hereunder shall be for my benefit only and not for the benefit of my attorney-in-fact.

The POA listed seventeen paragraphs specifying the powers of the attorney-in-fact, one of which stated that the attorney-in-fact was authorized to: “Prosecute, defend and settle all actions or other legal proceeding touching my estate or any part of it or touching any matter in which I may be concerned in any way.” The seventeenth paragraph authorized the attorney-in-fact to: “Do anything regarding my estate, property and affairs that I could do for myself.” 

Based on the foregoing, and relying in part on the 2d DCA's McKibbin decision, the trial court ruled that because the DPOA didn't contain a specific reference to arbitration agreements, the contested arbitration clause was unenforceable.  The 1st DCA reversed, basing its analysis on the less stringent standard applied in the 2d DCA's Jaylene opinion:

[W]e find persuasive Jaylene, Inc. v. Moots, 2008 WL 4181140 (Fla. 2d DCA Sept. 12, 2008), in which the Second District Court of Appeal declined to follow its prior opinion in McKibbin, noting that “the opinion in McKibbin does not set forth the language of the power of attorney under review in that case” and “is not controlling here where the POA unambiguously makes a broad, general grant of authority to the attorney-in-fact.” Id. at p. 3. In Jaylene, the court reversed an order denying a motion to compel arbitration in circumstances similar to the case at issue.

.  .  .  .  .

We note that the trial court did not have the benefit of the opinion in Jaylene when it entered its order. Nevertheless, we find the reasoning in that opinion persuasive, and we find that the POA at issue is sufficiently similar to the POA at issue in that case to warrant application of that reasoning to the case at issue.

The order denying the motion to compel arbitration is REVERSED and the case is REMANDED for further proceedings.

Lesson learned?

I have no doubt that the specific context of this case and others addressing the enforceability of arbitration agreements signed by attorneys-in-fact operating under DPOA's is significant. Which means you need to be careful when looking to these opinions in the types of cases probate lawyers usually run into as part of their practice: DPOA's being used to change estate planning documents [click here] or change life-insurance beneficiary designation forms [click here, here] or otherwise defraud elderly clients [click here]. In those cases I expect you'll find appellate courts will demand a much higher level of specificity in terms of the authority granted under the DPOA.

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Sandra O'Neill v. Scher, --- So.2d ----, 2008 WL 5352183 (Fla. 3d DCA Dec 24, 2008)

In the linked-to opinion the parties executed a settlement agreement supposedly putting an end to their litigation involving contested probate claims. The settlement agreement contained the following release language:

3. Sandra O'Neill hereby releases any present and/or future interest which she may have in and to the following:

a. The Estate of Benjamin Scher opened in Miami-Dade County, Florida, under case number 06-0057 CP (04);

b. The Benjamin Scher Revocable Inter Vivos Trust dated 8/30/01, as amended and restated on 8/11/04, and/or any successor trust created through said trust, including but not limited to Marital Trust, Credit Shelter Trust, and Trust for the Benefit of Cassandra O'Neill;

c. Benjamin Scher Irrevocable Trust dated 9/1/99;

d. Any interest claim or expectancy of an inheritance from or against the Estate of Sophie Scher, including but not limited to any testamentary documents executed by Sophie Scher.

e. The Sophie Scher Revocable Inter Vivos Trust dated 8/30/01, as amended and re-stated on 8/9/05.

f. Any interest claim or expectancy of an inheritance from or against the Estate of Richard Scher, including but not limited to any testamentary documents executed by Richard Scher.

4. It is understood that this agreement is a memorial of the terms of the within settlement. However, the parties hereby agree to execute formal releases in accordance with the terms set forth herein.

Almost immediately after executing their settlement agreement the parties were back in court. One of the issues in dispute was whether the text quoted above should be limited to its own terms or read broadly to encompass a universal general release.  The probate judge sided with the general-release argument and ended up getting reversed on appeal for the following reasons:

We reverse .  .  .  that portion of the trial court's order instructing O'Neill to execute the “general release” forwarded to her by Scher's counsel. As counsel for Scher conceded at oral argument, the release that the trial court ordered O'Neill to execute is overly broad and does not accurately reflect the release of interests and/or claims to which O'Neill agreed in the settlement agreement. Indeed, O'Neill only agreed in paragraph 3 of the Memorandum of Settlement to release six specific present and/or future interests. The general release, on the other hand, contains broad provisions releasing O'Neill's present and/or future claims for matters, persons, and entities not listed or considered in the settlement agreement.FN2 On remand, the parties shall draft a release concerning only those six specific claims contained in paragraph 3 of the Memorandum of Settlement, and shall release no other present and/or future claims.

FN2. We also note that the general release, which the trial court ordered O'Neill to execute, disposed of the interests of O'Neill's “heirs, executors, and administrators.” Paragraph 3 of the Memorandum of Settlement, however, contains no such language and, on remand, the release presented to O'Neill for execution shall contain no such language.

Lesson learned:

First, if your client bargained for a general release, then write it into the deal or attach it to your contract as a stand-alone exhibit. As I've written before, you don't want to rely on a court to fill this gap for you [click here].  Second, if you're dealing with an especially litigious antagonist, you'll be sorry if you leave any room for future attacks. Click here for an example of a settlement agreement that worked precisely because all future avenues of attack were anticipated and explicitly cut off by the express terms of the parties' settlement agreement.

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Hunt v. Hooper, --- So.2d ----, 2008 WL 5191505 (Fla. 2d DCA Dec 12, 2008)

As I've written before, Florida is the largest recipient of state-to-state migration in the U.S. [click here]. This fact has all sorts of implications for trusts-and-estates matters. For example, figuring out where to litigate a trust dispute can be a lot harder than you'd suspect. Do you sue where the trust was executed? where the settlor died? where the settlor resided when he signed the trust agreement? where the trustee is located? where the beneficiaries are located? where the trust assets are located? Based on the particular facts of a case, reasonable minds could disagree on which, if any, of these traditional bases for jurisdiction/ venue should control.

Rather than having to figure this out on a case-by-case basis Florida's trust code provides a tie-breaker: F.S. 736.0205. Under this statute the trustee's residence usually controls: if you're suing the trustee, you have to sue him in his home state.  Sounds simple enough, but figuring out how this statute works in real life has generated a good amount of work for Florida's appellate courts [click here, here].

In the linked-to case the issue was whether F.S. 736.0205 applies where the trustee resides in a foreign country (Canada). The trial court said yes, but the 2d DCA said no:

Under the plain language of section 737.203[FN1], “the court shall not entertain proceedings under s. 737.201 for a trust registered, or having its principal place of administration, in another state.” (Emphasis added.) There is no indication in the statute that it intends its reach to be broader than its plain language suggests, and we have found no cases applying section 737.203 to trusts whose principal place of administration is a foreign country. Furthermore, we have serious concerns regarding the ability of the courts in many foreign countries to apply Florida law in construing a dispute like the one in this case.

[FN1.] The text of section 737.203, which was repealed and renumbered effective July 1, 2007, see ch.2006-217, §§ 2, 48, 49, Laws of Fla., now appears in section 736.0205, Florida Statutes (2007).

Regardless of the statutory-construction point addressed above, based on the facts of this case it clearly should be litigated in Canada. I think the 2d DCA realized this point and went out of its way to signal alternate arguments for getting this case moved to a Canadian court:

Facts:

.  .  .  [T]he Trustee was domiciled in Canada, the Father and the Trustee were married in Canada and maintained their primary residence there, the Trustee did not conduct any business in Florida, all trust administration occurred in Canada, the trust property was located in Canada, and none of the beneficiaries were located in Florida.

Law:

Because we conclude that section 737.203 is inapplicable to this case, we reverse the trial court's order dismissing the Children's action against the Trustee. We note that the Trustee raised a jurisdictional argument in her motion to dismiss that the court did not rule upon. The Trustee should not be prohibited from pursuing this argument on remand. We also note that the Trustee is not precluded from raising any objections to venue upon traditional forum non conveniens grounds on remand.

Lesson learned:

If you're working on a motion to dismiss where the facts clearly point towards litigation outside of Florida, the arguments you want to make sure you nail are:

• The trust is a foreign trust administered in another state. F.S. 736.0205
• The Florida court lacks in personam jurisdiction over the trustee.
• The Florida court lacks in rem jurisdiction over the trust's property.
• A Florida venue is improper based on traditional forum non conveniens grounds.

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When I first wrote about this case in 2006 [click here], I saw it as a prime example of public relations as litigation tool. (Check out the litigants' dueling websites: here, here). Well, fast forward two years, the Princeton suit settled on the eve of trial. Here's an excerpt from a New York Times piece entitled Princeton Settles Money Battle Over Gift reporting on the terms of the deal:

In 1961, when the A.&P. grocery heirs Charles and Marie Robertson gave Princeton a $35 million gift endowment, they directed that the money should be used to educate graduate students for careers in government.

But in a lawsuit filed in 2002, the Robertsons’ descendants claimed that Princeton was misusing the gift, which peaked at more than $900 million in June, spending it on training students for a broader range of careers. The endowment provides most of the financing for graduate programs at the Woodrow Wilson School of Public and International Affairs.

The case was to go to trial in January.

Under the settlement, Princeton will pay $40 million in legal fees, and, starting in 2012, another $50 million, plus interest, to a new foundation that will support education for government service. Princeton will be able to use the remainder of the money for the Wilson school, as it chooses.

Based on these settlement figures, my sense is that Princeton settled not because it was afraid of losing at trial ($90 million is a lot of money, but it's a relatively small % of the total endowment fund), but because it wanted to finally kill this case and turn off the bad-publicity machine.

As trusts-and-estates lawyers, why should we care about all this? Because advising clients with respect to charitable giving is often a big part of our practice. And sometimes those charitable gifts go sideways on our clients. If the parties end up in litigation, understanding the unique dynamics at play in these situations can make all the difference in the world.

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Babcock v. Estate of Babcock, --- So.2d ----, 2008 WL 4863088 (Fla. 4th DCA Nov 12, 2008)

Any probate lawyer worth his or her salt will tell you that reading a person's will is often just the tip of the iceberg. You don't really know how to administer an estate unless you take the decedent's will and run it through Florida's probate code to see what comes out the other end. The results can be surprising.

The linked-to opinion is a good example of how radically altered a will's legal effect can be once it's administered under our probate code. All of the following probate-code rules played a part in this case:

• If you get divorced and forget to revise your will, don't worry, your ex is automatically cut out of your will under F.S.732.507(2).
• If you get married and forget to revise your will to provide for your new spouse, don't worry, he or she is automatically written into your will as a "pretermitted spouse" under F.S. 732.301.
• If you die and leave your spouse nothing but your household effects and a bunch of bills, don't worry, he or she gets to keep this stuff as "exempt property" under F.S. 732.402. However, if you specifically bequest all of this stuff to someone else, then your surviving spouse is out of luck.

Here's an excerpt from the linked-to opinion that manages to weave all of these concepts into three short paragraphs:

Bradford Babcock died leaving a will which provided in Article IV the following bequest:

I devise to my wife, TARA L. BABCOCK, all of my clothing, jewelry, household goods, personal effects, automobiles and all other tangible personal property not otherwise specifically devised herein or pursuant to the written statement or list described in Article Third of this my Last Will and Testament. If my said wife shall not survive me, I devise all of the aforesaid property to my son, BRAXTON D. BABCOCK, if he shall be living at the time of my death.

At the time of his death, he was divorced from Tara and married to Tawn Babcock, from whom he was separated. Because of the divorce, those provisions affecting Tara became void. § 732.507(2), Fla. Stat. Thus, the will would be construed as a bequest to Braxton of the property contained in Article IV. Tawn was not mentioned in the will and constituted a pretermitted spouse. § 732.301, Fla. Stat.

Tawn filed a motion to determine exempt property pursuant to section 732.402(6), Florida Statutes, which provides that the surviving spouse has the right to a share of the “exempt property,” of the estate, which includes certain “[h]ousehold furniture,” “furnishings,” “appliances,” and “automobiles.” § 732.402(1), (2), Fla. Stat. However, “[p]roperty specifically or demonstratively devised by the decedent's will to any devisee shall not be included in exempt property.” § 732.402(5), Fla. Stat.

So what's a specific bequest?

As a first step all anyone had to do in this case was read the probate code, but once they ran up against the specific-bequest exception to the exempt-property statute, they got sucked into Florida's common law. Here's how the 4th DCA summarized the law on this point and how it should be applied to the specific facts of this case.

“A specific legacy is a gift by will of property which is particularly designated and which is to be satisfied only by the receipt of the particular property described.” In re Estate of Udell, 482 So.2d 458, 460 (Fla. 4th DCA 1986). See also Park Lake Presbyterian Church v. Henry's Estate, 106 So.2d 215, 217 (Fla. 2d DCA 1958) (“[A] specific legacy is a gift of a particular thing or of a specified part of the testator's estate so described as to be capable of distinguishment from all others of the same kind.”). On the other hand, “[a] general legacy or devise is one which does not direct the delivery of any particular property; is not limited to any particular asset; and may be satisfied out of the general assets belonging to the estate of testator and not otherwise disposed of in the will.” In re Estate of Udell, 482 So.2d at 460. See also Park Lake, 106 So.2d at 217.

Applying the above definitions to this case, the clothing, jewelry, and automobiles mentioned in the will are clearly specific bequests because they are particularly designated and can be satisfied only by receipt of the particular property. Stated differently, they are specific things or a specific part of the testator's estate. They are not general bequests because they cannot be satisfied out of the general assets of the testator's estate. The bequest in the instant case is similar to that in In re Estate of Gilbert, 585 So.2d 970, 972 (Fla. 2d DCA 1991), where the Second District found that a bequest of “all of her jewelry, clothing, and feminine personalty ... was a specific bequest of identifiable property.”

 

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Klingensmith v. Ferd and Gladys Alpert Jewish Family of Palm Beach County, Inc., --- So.2d ----, 2008 WL 4922917 (Fla. 4th DCA Nov 19, 2008)

In probate proceedings your standing to participate in any aspect of the administration of the estate depends on whether or not you're an "interested person" of the estate, as that term is defined by F.S. 731.201(23). So I see motion practice in probate aimed at cutting a party out of a contested proceeding based on the party not being an interested person of the estate as analogous to a motion to dismiss for lack of standing in general civil litigation.

The denial of a motion to dismiss for lack of standing is NOT an appealable order. It's not a final order, and it's not listed as an appealable non-final order in Rule 9.130(a). See Supal v. Pelot, 469 So.2d 949 (Fla. 5th DCA 1985) (recognizing that an order denying a motion to dismiss based on a lack of standing is not an appealable nonfinal order). So I wasn't surprised when the 4th DCA held that a denial of a motion to strike a petition for administration based on the petitioner NOT being an interested person of the estate is NOT a final order and is therefore NOT an appealable order. Here's how the 4th DCA explained its ruling:

In its initial brief, Klingensmith relies on Florida Rule of Appellate Procedure 9.110(a)(2) and its committee note as authorization for this appeal. “Florida Rule of Appellate Procedure 9.110(a)(2) authorizes appellate review ‘of orders entered in probate ... matters that finally determine a right or obligation of an interested person as defined in the Florida Probate Code.’ “ Dempsey v. Dempsey, 899 So.2d 1272, 1273 (Fla. 2d DCA 2005) (omission in original). The committee note states: “An order of the circuit court that determines a right, an obligation, or the standing of an interested person as defined in the Florida Probate Code may be appealed before the administration of the probate or guardianship is complete and the fiduciary is discharged.” Rule 9.110(a)(2), Fla. R.App. P. cmt. Klingensmith suggests that the court's finding that AJFCS had standing to “file” the petition is in essence a finding that AJFCS is an interested person under the probate code. We disagree.

Significantly, the committee note explains that the 1996 amendment to the rule “does not abrogate prior case law holding that a party's right of appeal arises when there is a termination of judicial labor on the issue involved as to that party.” Walters v. Edwards, 700 So.2d 434, 435 n. 1 (Fla. 4th DCA 1997). In fact, the amendment “has been viewed as strengthening the requirement of finality.” Delgado v. Estate of Garriga, 870 So.2d 912, 918 (Fla. 3d DCA 2004).

Here, the trial court did not finally determine whether AJFCS was an interested person and therefore able to petition for administration. Rather, the trial court found only that AJFCS had standing to “file” a petition for administration. The order on appeal does not therefore put an end to all judicial labor on the issue of whether AJFCS is an interested person under the Probate Code. It is not final and we are without jurisdiction.

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Barash v. Kates, --- F.Supp.2d ----, 2008 WL 4922787 (S.D.Fla. Jun 25, 2008)

Serial litigation by vexatious litigants in trusts-and-estates proceedings and how courts go about dealing with them has been a frequent topic on this blog [click here, here, here]. The take-away from these cases is: [1] if your client is on the receiving end of lawsuit, after lawsuit, after lawsuit by an abusive litigant, counsel patience: courts will bend over backwards to accommodate litigants whose conduct is far outside the bounds of acceptable behavior for very long periods of time prior to taking action to stop future abuses; and [2] you don't have to put up with this garbage forever, there is a tipping point, and once you've reached it, courts do have the authority to tailor appropriate protective measures.

The linked-to case is helpful because it delivers on three fronts:

• it provides yet another concrete example of how bad things have to get before a court will step in and take action against an abusive litigant continuously filing new lawsuits against your client [i.e., these facts help you manage your client's expectations];
• it summarizes the law you'll need to cite if you're ever confronted with a vexatious litigant whose making your life and the life of your client miserable; and
• it gives you an example of the type of protective order you'll want entered to stop the madness.

The Facts:

You'll have to read the opinion for all the details, but note that the plaintiff whose conduct is the subject of the linked-to order had been litigating against the defendants over inheritance issues for over seven years (since 2001) in both state and federal courts in Florida, Colorado and New York. Again, the point to take away here is that you'll probably have to put up with years of abuse before a court will enter a protective order against future vexatious litigation (that doesn't mean you can't ask for sanctions as soon as the other side goes crazy on you).

The Law:

Here's how Judge Hopkins summarized the law in the 11th circuit regarding a court's inherent authority to curb future abuses by vexatious litigants:

The 11th Circuit has long recognized the court's ability to protect itself from abusive litigants. See Procup v. Strickland, 792 F.2d 1069, 1071-1074 (11th Cir.1986) (en banc) (affirming in part order of district court enjoining pro se litigant from filing any cases unless represented by counsel). See also United States v. Hintz, 229 Fed. App'x 860, 861 (11th Cir.2007) (citing Procup, 792 F.2d at 1073-1074). The Court has also stated that district courts have the authority to impose “serious restrictions” on a litigant's ability to bring matters to court without an attorney. See Procup, 792 F.2d at 1070. “Federal courts have both the inherent power and the constitutional obligation to protect their jurisdiction from conduct which impairs their ability to carry out Article III functions.” Martin-Trigona v. Shaw, 986 F.2d 1384, 1386-1387 (11th Cir.1993) (quoting Procup, 792 F.2d 1069)). As a result, “considerable discretion is necessarily reposed in the district court” to draft orders enjoining abusive litigation tactics. See Martin-Trigona, 986 F.2d at 1387 ( citing Procup, 792 F.2d at 1074). See also May v. Hatter, No. 00-4115-Civ-Moore, 2001 WL 579782, *4 (S.D.Fla. May 15, 2001) (quoting Martin-Trigona, 986 F.2d at 1387) (citing Procup, 792 F.2d at 1074). Such orders may be appropriate to protect both the courts and its staff, as well as the rights of all litigants in the federal system. See Procup, 792 F.2d at 1071-1072 (noting that the claims of all other litigants suffer when a single litigant files “upwards of a lawsuit a day,” and that every lawsuit filed, no matter how frivolous or repetitious, requires the investment of court time, whether the pleadings are reviewed by a law clerk, staff attorney, magistrate, or judge).

Courts can be creative in fashioning appropriate injunctions against abusive litigation tactics. See Procup, 792 F.2d at 1072-1073. See also Hintz, 229 Fed. App'x at 861 (citing Procup, 792 F.2d at 1073-1074). For example, courts have entered orders which (1) enjoin “prisoner litigants from relitigating specific claims or claims arising from the same set of factual circumstances;” (2) require “litigants to accompany all future pleadings with affidavits certifying that the claims being raised are novel, subject to contempt for false swearing;” and, (3) direct “the litigant to seek leave of court before filing pleadings in any new or pending lawsuit.” Procup, 792 F.2d at 1072-1073) (citations omitted; other examples of court orders omitted). See also Hintz, 229 Fed. App'x at 861 (noting that the court has approved order limiting further pleadings without order of the court, after the complaint has been filed); Martin-Trigona, 986 F.2d at 1387 (noting that the Eleventh Circuit “has upheld pre-filing screening restrictions on litigious plaintiffs.”) (citing Copeland v. Green, 949 F.2d 390 (11th Cir.1991); Cofield v. Alabama Public Serv. Comm., 936 F.2d 512, 517-18 (11th Cir.1991)).

Moreover, courts may enjoin not only the abusive litigant, but also those working in concert with them, or at the behest of the litigant. See Martin-Trigona, 986 F.2d at 1287-1389 (affirming order of district court which applied equally to Martin-Trigona and “persons or entities acting at his behest, at his direction or instigation, or in concert with him.”) The only limitation on the court's discretion to enjoin abusive litigation is that courts are not permitted to completely bar all access to the courts. See Procup, 792 F.2d at 1074. Should an injunction be entered, abusive litigants may be sanctioned for violating the injunction. See Martin-Trigona, 986 F.2d at 1389 (affirming order dismissing lawsuit filed by the mother of Martin-Trigona, because the mother acted in concert with her son to violate previous court order); May, 2001 WL 579782 at *5 (dismissing lawsuit with prejudice after abusive litigant violated injunction three times) (citing World Thrust Films, Inc. v. Int'l Family Enter., Inc., 41 F.3d 1454, 1456 (11th Cir.1995)).

The Remedy:

Here's the remedy granted by Judge Hopkins. Note that this type of remedy is typical: it doesn't close the courtroom doors to the abusive litigant, but it does make the litigant jump through a series of hoops prior to granting him future access to the court system. If you read the case you'll also note that this remedy is being granted in addition to personal sanctions being entered against the abusive litigant.

1.) Philip Barash is ORDERED to cease filing any further pleadings unless Ordered by this Court, or unless prior approval is obtained by this Court.

2.) In order to obtain court approval to file any pleading, Philip Barash is ORDERED to abide by the following procedure. Failure to follow such procedure may result in the dismissal, striking, or denial of the Motion or offending pleading, or other sanctions.

First, Barash shall file with the Court a “Motion for Court Approval to File Pleading,” wherein he shall (a) state that he seeks the Court's approval to file a particular pleading; (b) explain the legal purpose or basis of the pleading; and, (3) describe the nature of the pleading with specificity.

Second, Barash shall attach as a clearly labeled exhibit to the “Motion for Court Approval to File Pleading” the pleading he seeks to file.

Third, the filing of any “Motion for Court Approval to File Pleading” shall also comply with all aspects of the Federal Rules of Civil Procedure, as well as the Local Rules for the Southern District of Florida (including service on Defendant, the submission of motions only to the Clerk of Court, and no direct correspondence to Chambers).

3.) This Order shall apply to Barash and anyone working in concert with him, at his direction, or at his behest, including, but not limited to his wife Sandra, or any other family members, friends, associates, or acquaintances.

4.) IT IS FURTHER ORDERED THAT Defendant Kates need not respond to any of Barash's filings which may be filed subsequent to this Order, unless Ordered by this Court.

5.) Any violations of this Order may result in sanctions.

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Whether certain probate-related orders are or are not subject to appeal is a topic that comes up with some frequency on this blog [click here]. In an effort to add greater certainty to this area of the law, the Probate and Trust Litigation Committee has been working on an appellate rule project. Click here for the latest draft of the proposed appellate rule which is making its way through the appellate rules committee. The current proposal gives probate orders their own separate rule similar to family law orders. If you have any comments to this latest draft, please forward them directly to the sub-committee members working on this important project: Bill Hennessey, Tom Karr, and Sean Kelley.

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Veteran Florida probate litigator Amy Beller was kind enough to direct me to Private Letter Ruling 200844010, in which the IRS ruled that if you split a single marital trust into five separate sub-trusts and then terminate just one of those sub-trusts, IRC § 2519 would be triggered only with respect to the terminated sub-trust. The significance of this PLR is that it provides an excellent summary of the transfer-tax consequences you need to both anticipate and deal with any time you terminate a marital trust that's been QTIP'd, while also explaining how to manage those tax issues by elegantly leveraging the flexibility built into Florida's new Trust Code.

Here's a key excerpt from the linked-to PLR:

In the present case, Spouse has a qualifying income interest for life in Marital Trust, and Child 1, Child 2, Child 3, Child 4, and Child 5 are the presumptive remainder beneficiaries. Pursuant to Settlement Agreement, Marital Trust will be divided into five trusts: specifically, four Surviving Settlement Trusts and Child 1’s Settlement Trust. Under State Statute 1, each of the five trusts will be treated as a separate trust for all purposes from the date on which the severance is effective. After the division, Spouse will have a qualifying income interest for life, and Child 2, Child 3, Child 4, and Child 5 will be the remaindermen of the Surviving Settlement Trusts. Child 1’s Settlement Trust will be terminated. Accordingly, based on the facts submitted and representations made, we conclude that the division of Marital Trust into five trusts and the subsequent termination of Child 1’s Settlement Trust pursuant to Settlement Agreement will not be deemed to be a transfer under § 2519 of any property interest, or interest in, the Surviving Settlement Trusts, and therefore, such division and termination will not give rise to any gift tax liability with respect to any property of, or interest in, any of the Surviving Settlement Trusts.  

Amy represented the surviving spouse/income beneficiary of the marital trust, so she deserves a good amount of the credit for this PLR.  By the way, South Florida tax lawyer Charles Rubin also wrote about this PLR here on his blog Rubin on Tax.

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Wintter & Associates, P.A. v. Kanowsky, --- So.2d ----, 2008 WL 4643358 (Fla. 4th DCA Oct 22, 2008)

If all you're asking a probate court to do is exercise its in rem jurisdiction over the assets of a trust by awarding you your attorney's fees from trust assets, then you don't have to plead this claim up front and can ask for these fees at any time by filing a motion under F.S. 736.1004.

On the other hand, if you're asking a probate court to reach into someone's pocket and make that person pay your fees with his own personal funds, that requires the court to exercise personal jurisdiction over the target of your claim, which triggers an entirely different pleading regime governed by the requirements of Stockman v. Downs, 573 So.2d 835 (Fla.1991). The different pleading requirements only make sense if you realize they rest on entirely different jurisdictional foundations: in rem v. in personam jurisdiction.

In the linked-to opinion the probate court ordered the trustee and its attorneys to personally pay for a trust beneficiary's legal fees arising out of a contested trust accounting proceeding. Based on the following surprisingly frank observation by the 4th DCA in footnote 2 of its opinion, I'm guessing the probate court's order wasn't exactly the picture of clarity:

FN2. We admit that we do not know on what legal basis fees were awarded to the beneficiary and against the law firm and trustee, nor does anything in the record elucidate this for us.

That's too bad, because I'm guessing the probate court entered its order on the assumption it was operating on the basis of its in rem jurisdiction over the trust's assets, and thus the hightened pleading requirements applicable to personal judgments simply didn't apply. Anyway, that's the clear implication of the probate court's order, and here's how the 4th DCA explained its rationale for reversal:

The law firm claims that the trial court erred in awarding attorney's fees where they were not pled as required by Stockman v. Downs, 573 So.2d 835 (Fla.1991), which held that a claim for attorneys fees, whether based on statute or contract, must be pled. Failure to do so constitutes a waiver of the claim. Id. at 837-38. The Stockman court based its decision on the need for appropriate notice and to prevent unfair surprise. Id. at 837. Further, the existence or non-existence of a motion for attorneys fees may play an important role in decisions whether to pursue a claim, dismiss it, or settle. Id. An exception to this rule applies [w]here a party has notice that an opponent claims entitlement to attorneys fees, and by its conduct recognizes or acquiesces to that claim or otherwise fails to object to the failure to plead entitlement,.... Id. at 838.

The exception to the Stockman rule does not apply, as neither the law firm nor the trustee waived its objection to the beneficiary's failure to plead entitlement to attorney's fees. The conduct of the law firm and trustee did not demonstrate acquiescence to the claim for fees. To the contrary, in the trustees own written closing argument the law firm objected to the request for attorneys fees on the grounds that it was not pled. At all times they objected to the assessment of attorneys fees.

Were these fees requested from the estate, Stockman might not apply. See In re Estate of Paris, 699 So.2d 301 (Fla. 2d DCA 1997). However, as noted, the beneficiary requested fees from the lawyer and trustee.

The beneficiary did not request attorney's fees in her objection to the final accounting. Admittedly her objection was not a pleading in the traditional sense, as it was not a complaint or answer. However, it was the first document she filed with the court in this action, and she did not request attorney's fees until her written closing argument. She requested fees not from the estate, but directly from the trustee and his attorney. Certainly, we think that the Stockman rationales of due process notice and prevention of surprise require her to reveal her intention to make such a claim.

In a companion case, Mercer v. Kanowsky, --- So.3d ----, 2009 WL 2168810 (Fla. 4th DCA Jul 22, 2009), the 4th DCA came to the same conclusions with respect to the fee order assessed against the trustee personally, and reversed that order as well.

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Brindle v. Brindle, --- So.2d ----, 2008 WL 4722746 (Fla. 3d DCA Oct 29, 2008)

Sometimes it pays to step back and review the basics, like the difference between in rem jurisdiction and in personam jurisdiction in probate proceedings, or the finality of settlement agreements no matter what courtroom you happen to be in. Both issues come up with some frequency in contested probate proceedings, which is why I was happy to see them both addressed squarely in the linked-to opinion.

In Rem v. In Personam Jurisdiction:

When the personal representative of this estate realized he didn't have enough cash to pay his administrative expenses, he figured why not make his brother (a 50% beneficiary of the estate) pick up half the tab. Sounds reasonable, which is probably why the probate court went along with the idea. Wrong answer said the 3d DCA, and here's why:

We reverse the order on appeal for further proceedings. The administration of an estate in probate is an in rem proceeding. § 731.105, Fla. Stat. (2006); Hoffman v. Murphy ( In re Estate of Williamson), 95 So.2d 244 (Fla.1956). Beneficiaries are not ordinarily “parties” to the proceeding. Payette v. Clark, 559 So.2d 630 (Fla. 2d DCA 1990); see also Sean Kelly & Shane Kelly, Litigation Under the Florida Probate Code § 1.29 (6th ed. 2006) (“Generally, in a probate administration, the personal representative is the only person over whom the court has in personam jurisdiction.”). Thus, absent consent or statutory authority, a probate court may not apportion the expenses of an estate among the beneficiaries of an estate personally. See Dayton v. Conger, 448 So.2d 609, 611-12 (Fla. 3d DCA 1984); Dourado v. Chousa, 604 So.2d 864, 865 (Fla. 5th DCA 1992); cf. § 733.106(3)-(4), Fla. Stat. (2006) (allowing, in proper circumstances, attorneys fees and costs to be awarded from interests in an estate). There is no agreement or statute applicable to this case by which a personal award of estate expenses against Richard and Charles can be sustained.FN1 The record in this case indicates the probate judge ordered Richard and Charles to split the expenses of the estate as a matter of convenience.

FN1. Although the circuit judge in the civil division had the authority to apportion the costs of that proceeding personally individually among the litigants, § 733.106(1), Fla. Stat. (2006); Dayton, 448 So.2d at 612, the parties, with the approval of the personal representative, resolved those costs in their settlement agreement.

Finality of Settlement Agreements:

No one's perfect, but it you cut a deal that goes south on you, most of us know you can't ask for a re-play. You suck it up and move on. Well that's not what happened in this case. In this case the probate court decided a settlement agreement signed by the litigants two years ago didn't make sense anymore, so the judge tweeked it a bit. Again, may have sounded like a reasonable "solomaic" solution to a dispute between two brothers disputing their mother's estate, but it was bad law, so says the 3d DCA:

Finally, neither division of the circuit court possessed the authority to set aside the terms of the settlement agreement for any purpose. The agreement had been approved and compliance ordered by the civil division of the circuit court almost two years before, with jurisdiction retained only “[as] necessary to enforce the Settlement Agreement.” All the facts pertaining to the existence and amount of the expenses needed to be paid by the estate were known or knowable to the personal representative when he embarked upon the distribution of estate assets-more than half to himself-pursuant to the settlement agreement. His argument that “it is no longer equitable that the [order] should have prospective application” within the meaning of Florida Rule of Civil Procedure 1.540(b)(5) is not supported. See Hensel v. Hensel, 276 So.2d 227, 228 (Fla. 2d DCA 1973) (“[T]he equities spoken of in ground No. 5 of [Rule 1.540(b) ] are those which come to fruition [a]fter a final judgment ....”); accord Baker v. Baker, 920 So.2d 689 (Fla. 2d DCA 2006); Gregory v. Connor, 591 So.2d 974, 977 (Fla. 5th DCA 1991).

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Brundage v. Bank of America, Trustee, --- So.2d ----, 2008 WL 4722970 (Fla. 4th DCA Oct 29, 2008)

Incapacitated Settlor of Revocable Trust:

Florida's Trust Code is clear, while a trust is revocable, the duties of the trustee are owed exclusively to the settlor [F.S. 736.0603]. Equally important, a trustee will not be held responsible for actions consented to by the settlor of a revocable trust [736.1012]. But what happens if the revocable trust's settlor becomes mentally incapacitated? That's the most interesting issue addressed in the linked-to opinion.

In this case the successor co-trustees of a revocable trust were sued by the trust's remainder beneficiaries following the settlor's death.  Prior to her death, a doctor had examined the settlor and concluded that she was not competent to manage her affairs.  The trial court dismissed the complaint against the successor trustees on the grounds that they didn't owe the remainder beneficiaries any duties during the settlor's life (which is when the alleged wrongful conduct took place). Wrong answer said the 4th DCA, for the following reason:

As settlor of her own revocable trust of which she was the sole beneficiary until her death, Dorothy reserved to herself the sole power to change beneficiaries or revoke her trust at any time. “[T]he beneficiaries of [the] trust other than [the settler] ... do not come into possession of any of the trust property until the event of [the settlor's] death, and even this interest is contingent upon her not exercising her power to revoke. Since she is the sole beneficiary of the trust during her lifetime, she has the absolute right to call the trust to an end and distribute the trust property in any way she wishes.” Fla. Nat'l Bank of Palm Beach County v. Genova, 460 So.2d 895, 897 (Fla.1984) (emphasis omitted). The interest of the Brundages did not vest until Dorothy's death. See In re Johnson's Estate, 397 So.2d 970 (Fla. 4th DCA 1981). It follows that during the settlor/beneficiary's lifetime, a trustee owes a fiduciary duty to the settlor/beneficiary and not the remainder beneficiaries, who not only have no vested interest but whose contingent interest may be divested by the settlor prior to her death.

We have found no case which enforces on a trustee a duty owed to a contingent beneficiary of a revocable trust. However, once the interest of the contingent beneficiary vests upon the death of the settlor, the beneficiary may sue for breach of a duty that the trustee owed to the settlor/beneficiary which was breached during the lifetime of the settlor and subsequently affects the interest of the vested beneficiary. Smith v. Bank of Clearwater, 479 So.2d 755 (Fla. 2d DCA 1985), illustrates this principle. In Smith the court held that a contingent remainderman of a trust, whose interest vested with the death of the lifetime beneficiary, had standing to sue for mismanagement of trust assets during the lifetime of the income beneficiary, because such mismanagement diminished the value of the trust assets to which the remainderman was entitled. The trustee owed the lifetime beneficiary the duty to properly manage the assets of the trust, and a breach of that duty could be enforced by the remainderman. Cf. Siegel v. Novak, 920 So.2d 89 (Fla. 4th DCA 2006) (applying New York law and reaching a similar result). 

How could the successor trustees have avoided this trap?

My idea: focus on obtaining informed consent for the trustee's actions in spite of the settlor's apparent mental incapacity. One way to do that in this context is through the appointment of a guardian of the property for the settlor. Once you have a court-appointed guardian, you've put in place the foundation for informed consent. Building on that foundation, any trust accounting you send the guardian will then bind the settlor/ward, and if the trustees want to be extra safe, they can demand that the guardian sign consents on behalf of the settlor/ward for any out-of-the-ordinary estate planning actions involving the revocable trust [F.S. 736.0303(1), F.S. 736.0813(3)]. If the defendant trustees in this case had coupled these protective measures with a trust-accounting "limitations notice" triggering the shortened 6-month statute of limitations period [F.S. 736.1008(2)], my guess is that we wouldn't be reading about them in the linked-to opinion.

How does a stock split affect a specific bequest of stock?

Stock splits, mergers, consolidations, etc. have been causing trusts-and-estates lawyers and their clients headaches for generations, certainly more than enough time to develop a body of law dealing with that issue. Here's how the 4th DCA summarized Florida common law on this point, which has been codified in F.S. 736.1107:

Florida follows the general rule that where a will bequeaths stock to a beneficiary and the stock splits, because the split is a mere change in form and not in substance, a beneficiary is entitled to the shares generated by stock splits that occur between the date of execution and demise. See In re Vail's Estate, 67 So.2d 665, 667 (Fla.1953). Where the stock devise made in the will is no longer in the estate at the time of the testators death, the gift is considered adeemed. In re Estate of Walters, 700 So.2d 434, 436 (Fla. 4th DCA 1997). For securities, however, this issue is controlled by [F.S. 736.1107]. That statute codifies the rule of ademption and provides that gifts of securities are limited to the securities owned by the trust at the time of death:

Change in securities; accessions; non-ademption

A gift of specific securities, rather than their equivalent value, shall entitle the beneficiary only to:

(1) As much of the gift securities of the same issuer held by the trust estate at the time of the occurrence of the event entitling the beneficiary to distribution.

§ 736.1107, Fla. Stat. As the trust did not hold any more than 54,000 shares of AHP stock on the date of Dorothy's death, the event entitling the beneficiaries to the distribution, the Brundages cannot claim a greater share. They argue that the court should have considered Dorothy's intent with respect to the distribution of the stock before ruling on the legal effect of the transfer. The statute, however, does not require or allow for an inquiry into the intent of the testator. It creates a clear rule of ademption where the trust does not hold the securities at the date of death.

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Donkersloot v. Donkersloot, --- So.2d ----, 2008 WL 4647415 (Fla. 2d DCA Oct 22, 2008)

Civil Procedure Rule 1.525 governs the mechanics of attorney's fee motions in general commercial litigation.  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.

There's been confusion for some time as to how exactly this general rule should apply (if at all) within the unique context of a contested probate or trust proceeding. In an effort to address this problem a subcommittee of the Florida Bar's Probate & Trust Litigation Committee composed of  Angela Adams, Laura Sundberg and Eric Virgil has been looking into what sort of legislative fixes could be adopted to provide clarity on the issue. Regardless of what comes of their efforts, the subcommittee's latest written report is an excellent analysis of the rule as it applies (or should apply) in trust proceedings, and a great resource for any trusts-and-estates litigator confronted with a Rule 1.525 issue in real life [click here for a copy].

In light of this background the linked-to opinion is especially timely in that the 2d DCA seems to sanction application of Rule 1.525 in a contested trust proceeding.  According to the subcommittee's report I previously mentioned, this would be the first time a Florida appellate court addresses the application of Rule 1.525 within the context of a trust proceeding. So you may want to remember this case for future reference.

Anyway, in this case the 2d DCA reversed a $195,000 attorneys fee judgment entered against two co-trustees because the fee motion had only sought fees against one of the co-trustees.  Because Rule 1.525 requires the filing of a fee motion as a predicate to a judgment for fees, this was reversible error.  Here's how the 2d DCA explained its ruling:

Prior to the motion hearing, counsel for Mr. Donkersloot and Johannes Donkersloot stipulated that neither Mr. Donkersloot nor his counsel needed to be present. Mr. Donkersloot's counsel attended the hearing briefly, alerted the trial court to the stipulation, and, with leave of court, left the hearing. As the hearing progressed, Johannes Donkersloot, in response to trial court questioning, opined that the trial court “in equity” could award fees and costs against Mr. Donkersloot. Several months later, the trial court entered the amended final judgment awarding almost $195,000 in attorney's fees, costs, and interest against Ms. Hall and Mr. Donkersloot, jointly and severally. On rehearing, the trial court rejected Mr. Donkersloot's argument that the fees could not be imposed absent a proper motion. The trial court concluded that the award was warranted against Mr. Donkersloot as part of the “action in equity.”

Once a party pleads entitlement to attorney's fees, proof of the fees may be presented after final judgment upon motion made within a reasonable time. Stockman v. Downs, 573 So.2d 835, 838 (Fla.1991). However, a trial court may not award relief that has not been requested nor tried by consent. Conidaris v. Cresswood Servs., Inc., 779 So.2d 518, 519 (Fla. 2d DCA 2000) (holding that trial court was without authority to order owners to pay where equitable remedy was neither sought nor tried by consent).

Florida Rule of Civil Procedure 1.525 dictates that a party seeking an award of attorney's fees or costs must serve a motion requesting them within thirty days after entry of the judgment. Undisputedly, Johannes Donkersloot filed a timely motion. His motion did not seek fees from Mr. Donkersloot, nor was the motion served on him. Equally clear is the fact that, by stipulation, neither Mr. Donkersloot nor his counsel needed to be present at the hearing on attorney's fees and costs; there was no trial by consent. Nor was the fee award an action that the trial court could make “in equity.” Equity does not breathe into a rule 1.525 motion unrequested relief. See generally Gulf Landings Ass'n, Inc. v. Hershberger, 845 So.2d 344, 346 (Fla. 2d DCA 2003) (holding that rule 1.525 is a bright-line rule and eschewing equitable exceptions). Accordingly, we reverse the award of attorney's fees and costs as to Mr. Donkersloot.

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Brown v. Miller, --- So.2d ----, 2008 WL 4600940 (Fla. 5th DCA Oct 17, 2008)

In trust construction litigation the litigants are asking the judge to read the trust agreement and tell them what it means. In this type of litigation you often have the choice of allowing the court to rule on the trust agreement without taking any evidence or pressing for a trial on the merits. For example, if one side files a summary judgment motion, the other side can either: (1) object on the grounds that there are genuine issues of material fact in dispute (i.e., argue a full-blown trial is needed) or (2) file its own counter summary judgment motion and let the trial court dispose of the case without the need of taking evidence.

Why might you opt for the first approach? Because you basically get a second bite at the apple if you lose before the trial court and appeal your case.  Why do you get a second bite at the apple? Because the standard of review on appeal in a case where the issue is limited to a trial court's interpretation of a trust agreement without relying on extrinsic evidence is de novo, a Latin expression meaning "from the beginning," "afresh," "anew," "beginning again." In other words, the appellate court can read the document itself and come to its own conclusions, without any of the deference usually extended to findings of fact by trial courts.

As reflected in the following excerpt from the linked-to opinion, on appeal both sides agreed that the standard of review for this case was de novo.

Here, we agree with both parties that the interpretation of the Elinor Miller Trust documents is a question of law which is entitled to de novo review. See Fleck-Rubin v. Fleck, 933 So.2d 38, 39 (Fla. 2d DCA 2006); Gallagher v. Dupont, 918 So.2d 342, 346 (Fla. 5th DCA 2005).

Based on this appellate standard of review the losing side in this case was able to get the 5th DCA to take a fresh look at the contested trust agreement and deliver the win it didn't get at trial. Here's the contested trust-agreement clause and how the 5th DCA explained its ruling:

Contested trust agreement clause:

With respect to Trust “A-1” and Trust “A-2”, the Trustee shall pay quarterly or oftener, the entire net income derived from the trust estates to my husband, THOMAS W. MILLER, JR., so long as he shall live. In addition thereto, the Trustee shall pay to my husband, THOMAS W. MILLER, JR., such amounts from the principal of Trust “A-2” first and then from “A-1” after the exhaustion of “A-2”, as it deems necessary or advisable to provide liberally for his maintenance, health, and support in his accustomed manner of living, taking into account all of his other income and means of support known to the Trustee. The Trustee shall also pay to my husband such additional amounts of principal from Trust “A-2” as he may from time to time request....

Ruling:

Tom argues that Elinor only authorized transfers from Trust A-2 to “my husband.” Based on this argument, Tom contends that the transfer to the Bill Miller Trust was invalid because Elinor was “not married” to the Bill Miller Trust. Appellants respond that the Bill Miller Trust was an irrevocable trust and, accordingly, a conveyance to the Bill Miller Trust was equivalent to a transfer to Bill Miller. We agree with Appellants. It is undisputed that Bill maintained 100% control over the Bill Miller Trust assets. Furthermore, he had the right to end the trust at any time and thereby regain absolute ownership over the trust property. Florida Nat'l Bank of Palm Beach Co. v. Genova, 460 So.2d 895, 897 (Fla.1984). Thus, Bill had complete and unfettered access to the seven million dollars conveyed into his trust. In construing the provisions of a trust document, the cardinal rule is to give effect to the grantor's intent, if possible. Knauer v. Barnett, 360 So.2d 399, 405 (Fla.1978). We believe that in authorizing transfers of Trust A-2 assets to her husband, Elinor clearly intended to permit transfers to an entity, such as an irrevocable trust, over which her husband retained complete control and the right to absolute ownership.

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Urbanek v. Hopkins, --- So.2d ----, 2008 WL 4489266 (Fla. 4th DCA Oct 08, 2008)

What this case is really about is good lawyering. Miami probate litigator David H. Goldberg was hired to represent an 88-year old man suffering from Parkinson's disease who had the misfortune of getting sucked into trust litigation he didn't start and wasn't a party to. The trustee/defendant in this case decided he needed to depose this poor guy, and come hell or high water, the Broward County probate judge adjudicating this matter was going to make sure he got his way.

I don't know David Goldberg, but I think his work in this matter is a case study in effective advocacy and hope someone let's him know I said so.

GOOD LAWYERING

• Action:

The trustee/defendant in this case sought to take an oral deposition of August Urbanek, the 88-year old grantor of the irrevocable trust at the center of this case and the father of the trust-beneficiary who's the plaintiff in this case.

• Reaction:

David Goldberg filed an objection to the deposition on the grounds of age, health and privacy. In support of his objection, Goldberg filed a detailed affidavit from a physician specializing in neurology, having specific knowledge about the grantor-father's condition concluding that the proposed deposition “would have detrimental effects on his Parkinson's disease” and his health would be “severely impacted.”

It's unclear from the linked-to opinion, but Goldberg apparently then also filed a motion to limit his client's deposition to written questions.

• Action:

In response to Goldberg's motion, the trial court ordered the grantor-father and his physician to appear in court for a hearing on the grantor-father's medical condition. In spite of the affidavit establishing danger to the grantor-father's health from being forced to appear for a deposition, the judge nevertheless insisted that he come to court to testify. The judge rejected the alternative of first permitting only a written deposition. The judge also failed to ascertain how any testimony of the grantor-father might be relevant or lead to relevant evidence.

• Reaction:

Goldberg immediately filed a motion seeking to have the hearing on his client's medical condition conducted by telephone.  On the day of the hearing, Goldberg showed up in court without his client explaining, again, that if his client were required to be there in person his health would be “severely impacted.”

• Action:

Apparently getting a little pissed off by now, the court ordered the grantor-father to submit to a compulsory medical examination by a physician chosen by the trustee within the next 30 days. At this point I think it's important to say again that the grantor-father was not a party to this lawsuit. What happened to him could have conceivably happened to any bystander the parties to the lawsuit took it upon themselves to decide was a necessary witness: a lawyer says he wants to depose you, you say no for medical reasons and "presto," a judge is ordering you to surrender all of your personal privacy rights and submit yourself to a physical examination by a doctor not of your own choosing. Am I the only one who finds this entire situation more than a little scary?

• Reaction:

Goldberg filed a petition for writ of certiorari asking the 4th DCA to quash the trial court's compulsory-medical-examination order.

THE LAW

Based on this record (again, the product of good lawyering), the 4th DCA made short work of the probate court's order, quashing the directive requiring an examination of the grantor-father and requiring any deposition of the grantor-father to be limited initially to written deposition questions.  For future reference, here's the legal reasoning underlying the 4th DCA's ruling:

• Probate court lacked authority to sanction witness:

The grantor-father was never served with a subpoena to appear, and the court made no finding of contempt for the personal failing of the grantor-father to attend the hearing. See Pevsner v. Frederick, 656 So.2d 262 (Fla. 4th DCA 1995) (sanctions may not be imposed against nonparty for discovery violation in absence of finding of contempt). The affidavit of the personal physician raises substantial doubts as to whether the grantor-father was even physically capable of appearing personally for a deposition or in court. In the absence of contempt, under our Pevsner decision the trial court had no authority at this point to impose any sanctions on the grantor-father. Id.

•  Grantor-father was entitled to a protective order based on his affidavit:

As to the compulsory medical examination (CME) of the grantor-father, the trial judge overlooked the burden placed by Florida Rule of Civil Procedure 1.360 on the proponent of a CME. Under the rule, the party seeking a CME must show that the person to be examined is a party in the litigation who has himself placed his physical condition at issue. The party seeking the CME must establish good cause for such an exam. Here the trial judge should have first required written deposition questions of the grantor-father. Before the trustee could thereafter show good cause for a CME, he would thereupon have to show why the results of the written deposition failed to furnish the relevant information sought from the grantor-father.

Without a showing of good cause, the burden never shifted to the grantor-father to sustain his objection to the CME, and the grantor-father was entitled to a protective order on the basis of his physician's affidavit. See Olges, 856 So.2d at 11 (“But the question of protective rules or protective orders never arises and the burden never shifts unless the proponent of the examination shows good cause for an examination in the first place.”). “Good cause” for such an examination is not made on the basis of conclusory allegations or assertions of counsel. See Fruh v. Dept. of Health & Rehab. Serv., 430 So.2d 581 (Fla. 5th DCA 1983) (two requirements of “in controversy” and “good cause” not met by mere conclusory allegations in pleadings, nor by mere relevance to case, but require affirmative showing by movant that each condition as to which examination is sought is really and genuinely in controversy).

THE OTHER SIDE OF THE STORY

This is the first time I’ve ever done this, and I don’t plan on doing it again. However, because I laid it on so thick in favor of David Goldberg, I think it’s only fair to “even out” the coverage (if only to make sure David’s head doesn’t get too big). Below is a redacted version of a comment I received in response to this blog post.

But first an explanatory note. The linked-to opinion is only four pages long, and of those four pages the “facts of the case” represent only a few paragraphs. When the 4th DCA was drafting its opinion I assume they only focused on the facts most relevant to their legal conclusions. They have limited resources, and there’s no sense in making the opinion any longer than it needs to be. However, a byproduct of the court’s editing process is that most, if not all, of the “facts” supporting the losing side of this appeal probably didn’t make it into the published opinion. These facts may not have been directly relevant to the outcome of the appeal, but perhaps they would have cast a completely different light on this case, perhaps a light less favorable to the winning side. The point is I don’t know, and it’s simply impossible for me to read each side’s appellate briefs before writing about the published appellate opinion.

Note to self and blog readers: Remember there’s always multiple sides to every story, and the side that makes it into the published appellate decision may not always be the one closest to the "truth".

"What this case is really about is permitting an 88 year old man to be fleeced by his son who is involved in litigation over the irrevocable trust established by his father a number of years ago. By taking advantage of a vulnerable adult, the son is taking funds from his father outside of the trust and is now using that money to sue on the trust as well. The issue is whether the Court had the authority to order a independent medical examination of the 88 year old to give a deposition raised by the son and then the gentlemen's counsel. I think your statements on the support of the decision are wrong and defeat the protection of vulnerable adults."

Again, if anyone has any other comments they’d like to share regarding this case, please post them on the comment page to this blog post.

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Duncombe v. Adderly, --- So.2d ----, 2008 WL 4489234 (Fla. 4th DCA Oct 08, 2008)

If a beneficiary of an estate wants to get his attorney's fees paid with assets of the estate, the statute he'll have to hang his hat on is F.S. 733.106(3), which provides as follows:

(3) Any attorney who has rendered services to an estate may be awarded reasonable compensation from the estate.

The big question under this statute is always: what's it mean to "render services" to an estate? In the linked-to case the probate court ruled that the winning side in litigation involving who gets appointed personal representative didn't qualify for fees under F.S. 733.106(3). Wrong answer. Here's how the 4th DCA summarized the law on this point in its reversal of the probate court's order denying attorneys fees:

Duncombe . . . sought attorney's fees incurred during these proceedings under section 733.106(3), which provides “any attorney who has rendered services to an estate may be awarded reasonable compensation from the estate.” The trial court believed that there had to be an enhancement in value or an advancement of the testator's intent as set forth in the will, citing Samuels v. Estate of Ahern, 436 So.2d 1096, 1097 (Fla. 4th DCA 1983), . . .

We do not read Samuels that narrowly. Preventing the appointment of a personal representative named in the will is a basis for the award of attorney's fees, Baumer v. Howard, 542 So.2d 400 (Fla. 1st DCA 1989), as is obtaining the removal of a representative, In re Estate of Eisenberg, 433 So.2d 542 (Fla. 4th DCA 1983).

Appellees argue that we should affirm because no abuse of discretion has been demonstrated, but that is not the standard of review. Under the undisputed facts in this case, neither Adderly, a transferee of some of the property, nor her lawyer, could have served as personal representative if an interested party objected. The error in this case involved the interpretation of the words “benefit to the estate” in section 733.106(3). We review statutory interpretation de novo. San Martin v. DaimlerChrysler Corp., 983 So.2d 620 (Fla. 3d DCA 2008). Reversed.

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Eichler v. Leshner, Slip Copy, 2008 WL 4459029 (M.D.Fla. Sep 29, 2008)

In the linked-to case the beneficiary of a trust tried to sue the trust's investment manager for having "failed to properly invest trust assets."  The defendant's filed a motion to compel arbitration based on an arbitration clause contained in the account agreement signed by the trustee. The trust beneficiary/plaintiff in the current litigation was not a signatory to this agreement.

Compelling arbitration by non-signing trust beneficiaries:

I've written before about the "virtual representation" doctrine and how it can serve to bind beneficiaries to a court-approved settlement agreement [click here].  The virtual-representation doctrine has been codified - and expanded - under Florida's new Trust Code.  Which is why I would have assumed that the binding effect of the arbitration agreement at issue in this case would have been upheld by reference to section 736.303(3) of Florida's Trust Code, which provides as follows:

To the extent there is no conflict of interest between the representative and the person represented or among those being represented with respect to a particular question or dispute .  .  . (3) A trustee may represent and bind the beneficiaries of the trust.

But that's no what happened, instead the court relied on an equitable estoppel argument to bind the trust beneficiary/plaintiff to the arbitration agreement signed by his trustee and the defendant. Here's how the court summarized the general rules for deciding when parties who didn't sign an arbitration agreement can nevertheless be bound by its terms:

Although arbitration is a contractual right that is generally predicated on an express decision to waive the right to trial in a judicial forum, the lack of a written arbitration agreement is not necessarily an impediment to arbitration. Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc., 10 F.3d 753 756-57 (11th Cir.1993). Certain limited exceptions, such as equitable estoppel, allow nonsignatories to a contract to compel arbitration. MS Dealer Service Corp. v. Franklin, 177 F.3d 942, 947 (11th Cir.1999). A second exception exists when, under agency or related principles, the relationship between the signatory and nonsignatory defendants is sufficiently close that only by permitting the nonsignatory to invoke arbitration may evisceration of the underlying arbitration agreement between the signatories be avoided. Id. (citing Boyd v. Homes of Legend, Inc., 981 F.Supp. 1423, 1432 (M.D.Ala.1997). A third exception applies when the parties to a contract together agree, upon formation of their agreement, to confer certain benefits thereunder upon a third party, affording that third party certain rights of action under the contract. Id.

Why didn't the litigants and/or the court even mention section 736.303(3) of Florida's Trust Code? Perhaps the defendants were not confident the court would agree to extend the virtual-representation doctrine to the transactional context. The virtual-representation doctrine is a solution developed by courts for application specifically within the litigation context. Extending this doctrine to arbitration agreements (or any other contractual transaction) is a significant step. In his recently published article entitled, SERVE THE CHEERLEADER – SERVE THE WORLD: REPRESENTATION IN ESTATE AND TRUST PROCEEDINGS AND UNDER THE UNIFORM TRUST CODE AND OTHER MODERN TRUST CODES, Professor Martin D. Begleiter specifically addressed this point as follows:

We have noted that the purposes of the representation doctrines are necessity that cases proceed where unborns are necessary parties and convenience in avoiding the expense of a guardian ad litem. The concerns are to obtain jurisdiction over unborns and persons under disability or dispense with such persons as parties and bind such persons to the result of the judicial proceeding. To go beyond this to bind such persons in a transactional context is a large and significant step. It is one thing to bind someone to a court decision on an issue of law or fact. It is quite another to say that, where voluntary action of a person is required to effectuate an outcome, that such action of another person shall be treated as consent by the person under a disability or the unborn. While the importance to the living parties and the resolution of disputes may justify the representation doctrine in court cases, it is difficult if not impossible to apply such a rationale where affirmative action by a person, such as consent or execution of a release, is required for the desired result. Nevertheless, in a scattering of cases, courts have used virtual representation to attribute such consent to parties who never consented.

Lesson learned?

Until we have a body of common law interpreting and applying the Florida Trust Code, a belts-and-suspenders approach is probably a good idea when litigating any of the Trust Code's more controversial provisions. I think the arbitration issue in this case could have been decided by simply citing to section 736.303(3) of Florida's Trust Code. But then again, maybe this particular judge wouldn't want to be the first to rely on this particular new statute to extend the virtual-representation doctrine beyond anything otherwise permitted under pre-code common law. Since no one can predict with 100% certainty how any judge will rule, citing to well-settled, general principals of law for binding non-signatories to arbitration agreements was probably a good idea. In other words, if there's more than one winning argument, it usually doesn't hurt to include all of them in your brief and let your judge pick the one he or she likes best.

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Balboni v. LaRocque, --- So.2d ----, 2008 WL 4414240 (Fla. 4th DCA Oct 01, 2008

The absence of supporting evidence is a recurring theme when it comes to appellate reversals in probate litigation [click here].  In this case the issue was whether the proponents of a lost will had overcome the presumption that the will was intentionally destroyed.  As I've written about before, the law in Florida is that a will that was in the possession of the testator before his death and that cannot be located after his death is presumed to have been destroyed by the testator with the intention of revoking it [click here].

In the linked-to opinion the 4th DCA summarized the evidence past courts have held is sufficient to overcome the presumption that a lost will was intentionally revoked as follows:

Evidence that can serve to rebut the presumption of intentional revocation of a lost will consists of evidence that the will was either accidentally lost or destroyed, or willfully and fraudulently destroyed by an adverse party. Id. In several cases, Florida courts have found the presumption of intentional revocation to be rebutted by a showing of: 1) evidence that a person with an adverse interest, and the opportunity, may have destroyed the will, see In re Estate of Washington, 56 So.2d at 547; Lonergan v. Estate of Budahazi, 669 So.2d 1062 (Fla. 5th DCA 1996); Upson v. Estate of Carville, 369 So.2d 113 (Fla. 1st DCA 1979); 2) evidence that the will was accidentally destroyed, see In re Estate of Carlton, 276 So.2d at 833 (presumption was rebutted where decedent repeatedly spoke of his will and his intention to leave his estate to the petitioner, although the decedent's safe was found waterlogged and the papers inside turned to “mush”); 3) evidence that the original will had been seen among the decedent's papers after her death, see Silvers v. Estate of Silvers, 274 So.2d 20 (Fla. 3d DCA 1973); and 4) evidence that the decedent was insane and thus did not have testamentary capacity to effectively revoke the will, see In re Estate of Niernsee, 2 So.2d 737 (Fla.1941).

No Evidence + Speculation & Conjecture = Reversal

The big problem for the lost-will proponents in the linked-to case was that they had all sorts of plausible sounding theories for why the lost will should be admitted to probate . . . but NO EVIDENCE to back them up. Here's how the 4th DCA explained that not having evidence in support of your arguments can be a problem (yes, even in probate proceedings):

In the instant case, the evidence relied upon-the mirror-image wills of Bill and Charlotte, the decedent's longstanding testamentary scheme, the discord between the decedent and granddaughter Kim, and the presence of nurses and visitors in the home-is simply not sufficient to overcome the presumption that the decedent intentionally revoked his will at some point in time prior to his death. Since it was undisputed that Charlotte predeceased her husband, the evidence that her will was found is not material. Likewise, evidence of a decedent's fondness of someone or, in this case, a lack thereof, is not material to the question of revocation. See id. at 43. Further, the fact that people with no interest in the will had the opportunity to accidentally destroy it and “might possibly have done so obviously is no evidence whatever that they did.” Id. We therefore conclude that here, as in Baird, the petitioners have failed to rebut the presumption of revocation with competent substantial evidence and instead have “presented no more than the fabled twins of speculation and conjecture to establish that [the decedent] might not have revoked his will.” Id. at 43-44.

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McCormick v. McCormick, --- So.2d ----, 2008 WL 4377136 (Fla. 1st DCA Sep 29, 2008)

Florida probate judges are given a great deal of latitude when making calls on how an estate should be administered.  But there's one estate-administration issue over which their authority is severely limited: whether or not to appoint the personal representative nominated in a decedent's will.  For some reason this bit of Florida law is often overlooked [click here, here].

But what if a different PR is appointed before the decedent's will is found? Does the originally appointed PR get to stay on even if he's not the person nominated in the decedent's later-discovered will?  You can see why a well-intentioned probate judge might be tempted to leave well enough alone.  If the originally-appointed PR is doing a tolerably good job, why upset the apple-cart by booting him out midway through the estate administration and appointing his allegedly discombobulated half-brother for no other reason than he's the guy nominated as PR in the decedent's will?

In the linked-to opinion the probate court decided to leave well enough alone and was reversed for doing so; underscoring, once again, the amount of deference Florida law gives to a person's choice of personal representative.  Unless the nominated PR is disqualified as a matter of law: he's in, end of story.  Here's how the 1st DCA stated the point:

As provided by section 733.301(1)(a), Florida Statutes (1999), when granting letters of administration, the probate court shall, in testate estates, allow preference to the personal representative nominated by the will. “Nothing in section 733.301(1)(a) purports to vest discretion in the trial courts to disregard the preference there specified, as long as the personal representative nominated by the decedent is statutorily qualified to serve.” Warner v. Estate of McCloskey, 943 So.2d 1007, 1008 (Fla. 1st DCA 2006).

We acknowledge that during the hearing below, counsel for appellee advanced arguments that appellant should not be appointed to act as personal representative due to allegations of certain conduct by appellant after the death of McCormick, Sr. The probate court did not, however, base its order upon any ground other than the timeliness of appellant's counter-petition for administration. This ground, as we have previously observed, is not valid. Pursuant to section 733.301(6), Florida Statutes (1999):

After letters have been granted in either a testate or an intestate estate, if any will is subsequently admitted to probate the letters shall be revoked and new letters granted as provided in subsection (1).

Accordingly, we find that the controlling statutes anticipate a situation such as occurred in the present case. Although letters of administration issued during administration of an apparently intestate estate, such letters must be revoked “when a later discovered will is admitted to probate.” Fouraker v. Carter, 507 So.2d 749, 750 (Fla. 5th DCA 1987). “Upon admission of the will, the personal representative nominated by the will is entitled to preference of appointment.” Id.

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Jaylene, Inc. v. Moots, --- So.2d ----, 2008 WL 4181140 (Fla. 2d DCA Sep 12, 2008)

It's not uncommon for intermediate-level appellate courts to disagree with each each other, that's why we have supreme courts.  But here's something you don't see every day: the 2d DCA disagreeing with itself by ruling two different ways on the same issue within a single 12-month period. 

In January 2008 the 2d DCA reversed a trial judge's order in In re Estate of McKibbin [click here] holding that a decedent's estate was NOT bound by an arbitration agreement signed prior to her death by her attorney-in-fact because the power of attorney did not specifically grant the attorney-in-fact authority to enter into an arbitration agreement.  Fast forward to the current linked-to opinion: the 2d DCA reversed a trial judge's order by basically ignoring its own prior opinion (trial courts in the 2d Circuit must love this).  This time around the 2d DCA held that a decedent's estate IS bound by an arbitration agreement signed prior to her death by her attorney-in-fact, in the absence of specif arbitration authority, based on general language contained in the decedent's power of attorney.  Here's how the 2d DCA explained its current ruling:

.  .  .  In the POA, the principal gave the attorney-in-fact “full power and authority to act on my behalf.” This full power and authority extended to include the authority “to manage and conduct all of my affairs and to exercise all of my legal rights and powers.” The POA provided further that it was to “be construed broadly as a General Power of Attorney.” The POA unequivocally expresses the principal's intent to make a comprehensive grant of authority to the attorney-in-fact. We conclude that the grant of authority in the POA was broad enough to authorize the attorney-in-fact to consent to arbitrate claims arising out of the Agreement. See Bryant, 937 So.2d at 269.

Ms. Moots correctly points out that the power of attorney under review in the Bryant case specifically authorized the attorney-in-fact to agree to arbitration. Id. at 268. Here, the power to consent to arbitrate the principal's claims was not one of the powers specifically listed in the extensive list of powers explicitly granted. Nevertheless, the POA also provided that “[t]he listing of specific powers is not intended to limit or restrict the general powers granted in this Power of Attorney in any manner.” (Emphasis added.) In light of this provision, Ms. Moots' argument that the absence of an express grant of authority to arbitrate in the POA compels a restrictive interpretation precluding the authority to consent to arbitration is unpersuasive.

 When the 2d DCA was reminded of it's own prior opinion, the court brushed it aside as follows:

In support of affirmance, Ms. Moots relies on this court's decision in McKibbin v. Alterra Health Care Corp. (In re Estate of McKibbin), 977 So.2d 612 (Fla. 2d DCA 2008). In McKibbin, the resident at an assisted living facility did not sign the residency agreement that included an arbitration agreement. Id. at 613. Instead, the resident's son signed on his mother's behalf under a durable power of attorney from the resident. Id. The McKibbin court noted the limitations of the power of attorney under review in that case as follows:

Nothing in that power of attorney, however, gave Ms. McKibbin's son the legal authority to enter into an arbitration agreement on behalf of his mother. See Kotsch v. Kotsch, 608 So.2d 879, 880 (Fla. 2d DCA 1992) (holding that powers of attorney are strictly construed to grant only the powers specified). Furthermore, there was no other basis upon which to bind Ms. McKibbin to the arbitration agreement. Hence, the Estate was not bound to arbitrate....

Id. For this reason, the McKibbin court held that the circuit court erred in granting Alterra's motion to compel arbitration. Id.

However, McKibbin does not compel a different result here. The McKibbin case is controlling only to the extent that it is possible to determine from the court's opinion that the power of attorney at issue in that case was similar to the POA held by Ms. Moots. See Shaw v. Jain, 914 So.2d 458, 461 (Fla. 1st DCA 2005). But the opinion in McKibbin does not set forth the language of the power of attorney under review in that case. Id. Thus McKibbin is not controlling here where the POA unambiguously makes a broad, general grant of authority to the attorney-in-fact.

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Cutler v. Cutler, --- So.2d ----, 2008 WL 4057751(Fla. 3d DCA Sep 03, 2008)

When I first wrote about this case the 3d DCA upheld a probate court order refusing to apportion any probate expenses to a devise of freely-devisable homestead property under the “inuring clause” of Article X, section 4(b) of the Florida Constitution, effectively frustrating the testator's clearly expressed testamentary intent [click here].

In a decision that just goes to shows it's never over 'till it's over, in response to a motion for rehearing en banc the 3d DCA completely reversed itself and ruled that the freely-devisable homestead property in this case could in fact be sold to pay probate administrative expenses.  For those of us who follow Florida's byzantine homestead laws, this is pretty shocking stuff.  Here's how the 3d DCA explained its ruling this time around:

While we agree with the trial court's conclusion that the property devised to Cynthia was Edith's homestead, we cannot agree that the constitutional exemption from creditors' claims inured to Cynthia's benefit.

It is a cardinal rule of testamentary construction that “the primary objective in construing a will is the intent of the testator .” McKean v. Warburton, 919 So.2d 341, 344 (Fla.2005) (“a person can dispose of his or her property by will as he or she pleases so long as that person's intent is not contrary to any principle of law or public policy” (citing Mosgrove v. Mach, 133 Fla. 459, 182 So. 786, 791 (1938))); Marshall v. Hewett, 156 Fla. 645, 24 So.2d 1, 2 (Fla.1945) (“In will construction the primary objective of the courts is to ascertain and give effect to the intentions of the testator. In the ascertainment of such intention the will in its entirety will be considered, and when once the intention has been discovered the wording of the will will be given such liberal construction and interpretation as will effectuate the intention of the testator so far as may be consistent with established rules of law.”) (citation omitted); Phillips v. Estate of Holzmann, 740 So.2d 1, 2 (Fla. 3d DCA 1998) (“The polestar in construing any will is to ascertain the intent of the testator.”).

In this case, the trust agreement expressly stated that the corpus of the trust, that is, the interests in Edith's residence and the adjacent vacant lot, were to pass to, and be administered as part of, her estate upon her death. Edith's will provides that the interest in her residence held by the trust should be passed to her daughter and that the interest in the adjacent vacant lot should pass to her son. She also directed that her debts be satisfied equally from both properties should the funds in her estate be insufficient to satisfy those debts.

*     *     *     *     *

.  .  .  It has long been recognized that the owner of homestead property may devise that property in a manner that terminates the protections accorded by article X, section 4. In Estate of Price v. West Florida Hospital., Inc., 513 So.2d 767, 767 (Fla. 1st DCA 1987), the court confirmed that where a testator directs the sale of homestead property and distribution of the proceeds, the proceeds lose their homestead character and become part of the estate subject to administrative costs and creditors' claims. As the court explained, this is because the same result would have obtained had the testator sold the property and either gifted or used the proceeds while alive. Id. (“[I]f Mrs. Price had sold her house during her lifetime and distributed the proceeds to her two children, those proceeds would unquestionably lose their homestead character and would be subject to the claims of her creditors.”); see Knadle v. Estate of Knadle, 686 So.2d 631, 632 (Fla. 1st DCA 1997) (holding that because a will specifically directed that homestead property be sold and the proceeds placed in the residue for distribution along with other assets, it lost its homestead character); see also Thompson v. Laney, 766 So.2d 1087, 1088 (Fla. 3d DCA 2000) (confirming that where a will directs that homestead property be sold and the proceeds distributed, the proceeds lose their homestead protection).

Although Edith did not direct that her home be sold, she did direct, in a specific manner, that it be used to satisfy her debts. This was the equivalent of ordering it sold and the proceeds distributed to pay debts, actions which Price and its progeny confirm results in loss of homestead protections.FN1 While the benefits of homestead protections vest in a qualified beneficiary at the moment of a testator's death,FN2 the property in this case passed into the beneficiary's hands impressed with the obligation to pay the testatrix's debts, an obligation that deprived the property of homestead protection under article X, section 4.

This is, of course, wholly consistent with article X, section 4 which expressly confers the power on the owner of homestead property to sell, mortgage, or give it away. See Art. X, § 4(a)(2)(c), Fla. Const. (“The owner of homestead real estate, joined by the spouse if married, may alienate the homestead by mortgage, sale or gift and, if married, may by deed transfer title to an estate by the entirety with the spouse.”). If a homestead owner (with no spouse and children) can sell, mortgage or give homestead property away while alive and use the proceeds from any such transaction as he or she sees fit, that same owner may give the property away upon death and order it to be used to satisfy debts even if such a devise means the property will no longer enjoy homestead protection.

In this case, rather than selling or mortgaging her homestead interests while alive and using the funds recognized to pay debts, Edith devised her homestead property to her daughter and expressly directed that this devise be used to satisfy a portion of her debts. This devise is wholly consistent with Tescher, Snyder, and Warburton and with article X, section 4 of the Florida Constitution and should be given effect.

Lesson learned?

In his dissent Judge Shepherd made the following observation:

By requiring the devise to Cynthia to abate to pay estate expenses, we incorrectly become the first court to hold that a general direction to pay estate expenses trumps constitutional homestead protections.

Whether you agree with the majority's decision or Judge Shepherd's dissent, why take the risk? If there's any risk your client's homestead property will be needed to pay probate administrative expenses, I think it still makes sense to include specific language in the will or trust authorizing sale of the homestead property for this purpose.  Here's how Judge Shepherd described the specific-sale language needed to make sure your client's estate doesn't become the next homestead test case:

Nor do the “sale cases” cited by the majority offer any comfort to the majority. See supra p. 8. In both Estate of Price v. West Florida Hospital, Inc., 513 So.2d 767 (Fla. 1st DCA 1987), and Knadle v. Estate of Knadle, 686 So.2d 631 (Fla. 1st DCA 1997), the testators expressly directed their homestead properties be sold upon their respective deaths and the proceeds distributed either equally to their surviving adult children in Estate of Price or under the residuary clause of the will in Knadle. These and a whole host of other Florida cases hold that, in a contest between the application of Article X, section 4(b) and a will directive-as was the circumstance in the two cases cited by the majority-protected homestead becomes an estate asset if and only if “the will specifically orders that the [homestead] property be sold.” Estate of Hamel, 821 So.2d at 1279; see also McKean v. Warburton, 919 So.2d 341, 147 (Fla.2006) (quoting Knadle); Engleke v. Estate of Engleke, 921 So.2d 693, 696 (Fla. 4th DCA 2006) (stating that unless a trust specifically directs homestead to be sold, rights of heirs attach at death and homestead property is protected from creditors). Thompson, cited by the majority, confirms the degree of specificity required in a sale provision in a will to overcome a “protected homestead” challenge:

Florida law specifically provides that homestead property is not subject to the administration of the court unless the will specifically requires that the property be sold. See §§ 733.607-608 Fla. Stat. (1995); Knadle v. Estate of Knadle, 686 So.2d 631 (Fla. 1st DCA 1996) (where a testatrix directs in her will that her homestead be sold and the proceeds divided between her adult children, the proceeds lose their homestead character and become subject to the claims of creditors); Estate of Price v. West Florida Hosp., Inc., 513 So.2d 767 (Fla. 1st DCA 1987) (proceeds of sale of testatrix' homestead, pursuant to will directing sale and distribution of proceeds to adult children, lost their homestead character and were subject to creditors' claims). The will in the present case makes no such provision.

Thompson, 766 So.2d at 1088.

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In Florida the law is clear: you can't contest a will until after the testator dies. F.S. 732.518. But that doesn't necessarily mean you can't preempt a will contest before the testator dies.

For example, suppose you're working with an older client with diminishing capacity whose will is sure to be contested.  What if you initiated a voluntary guardianship proceeding and obtained a final judgment specifically approving the ward's will and specifically finding that the ward's will is NOT the product of undue influence, fraud, etc?  Unlike in a will contest, you'd have the actual testator in front of the judge testifying as to the validity of his will.  This judgment should collaterally estopp re-litigation of these same issues in a will contest after the testator/ward dies if all interested persons in this estate were given notice of the guardianship proceeding and an opportunity to be heard.  Presto! Will contest has been preempted.

That's basically what happened in a recent California case that received some national attention in a short piece by Pamela A. MacLean of the The National Law Journal entitled In Appellate First, Attacks on Wills Barred After Estate Owner Dies. Here's an excerpt:

For the first time, a California appellate court has said that when a conservator seeks court approval of an estate plan, while the subject is living, any challenge to the will must be raised at that hearing -- not when the person dies. [Murphy v. Murphy, No. A115177.]

The appellate decision is the first in the country to say attacks on wills would be barred after the estate owner dies, if there has been a court-approved substituted judgment, according to David Baer, attorney at Hanson Bridgett Marcus Vlahos & Rudy in San Francisco. Baer represented the daughter of William J. Murphy in an estate battle with her brother.

The opinion essentially bulletproofs the will of a person found incompetent and placed under the protection of a conservator, if the court OKs a revised estate plan, according to Baer. He added that the court made clear that notice to potential objectors is required to protect due process.

"You essentially can't contest an estate plan that has been approved in by a substituted judgment order," Baer said. "A substituted judgment is an opportunity to get a court order for the conservator to sign various instruments," he said.

The 1st District Court of Appeal in San Francisco held in the June 26 decision that an attack on such a court order, after the conservatee dies, is barred by collateral estoppel rules. Murphy v. Murphy, No. A115177.

Lesson learned?

One of the most challenging attorney-client scenarios is the older client with diminishing capacity. There are lots of solid articles/resources out there addressing this scenario from an estate-planning perspective [click here for Older Clients With Diminishing Capacity And Their Advance Directives (by A. Frank Johns)], but I haven't seen any that points to guardianship proceedings as a tool for heading off future will contests. The linked-to California case could provide a template for that strategy.

Blog Post Update:

As an update to this post, in this post the Pennsylvania Fiduciary Litigation Blog pointed me to an article published in "Trusts and Estate Fiduciary Litigation Update," August 20, 2008, by Samantha E. Weissbluth, senior counsel, and John P. Mounce, summer associate, Foley & Lardner LLP, Chicago, entitled Barred by Lunatics Law.  The article discusses the implications of the California case linked-to above and concludes with the following observations:

The lesson here is that court approval of an individual’s estate plan when that individual is under a conservatorship will protect the plan against any posthumous contest to it (assuming, of course, that interested parties receive notice of the conservator’s petition to approve the plan).

Those of you with clients in dicey family situations in which you worry about a posthumous contest might want to weigh the risks, costs and public nature of a conservatorship proceeding (or some kind of declaratory judgment action if permitted in your state) to try and bulletproof your client’s plan.

And, attorneys representing clients disgruntled by a now incapacitated relative’s estate plan should certainly come armed and ready for battle upon receiving notice of an action for court approval of that plan.

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For no reason other than I find this bit of historical/T&E crossover trivia interesting, here's a copy of the arbitration clause contained in George Washington's will:

But having endeavoured to be plain, and explicit in all Devises--even at the expence of prolixity, perhaps of tautology, I hope, and trust, that no disputes will arise concerning them; but if, contrary to expectation, the case should be otherwise from the want of legal expression, or the usual technical terms, or because too much or too little has been said on any of the Devises to be consonant with law, My Will and direction expressly is, that all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chosen by the disputants--each having the choice of one--and the third by those two. Which three men thus chosen, shall, unfettered by Law, or legal constructions, declare their sense of the Testators intention; and such decision is, to all intents and purposes to be as binding on the Parties as if it had been given in the Supreme Court of the United States.

Not that I'm taking any credit for uncovering this gem all on my own, this clause has been popping up on various blogs for some time [click here, here, here].

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LaCalle v. Barquin, --- So.2d ----, 2008 WL 3358300 (Fla. 3d DCA Aug 13, 2008)

Sometimes even when you're right, you still lose (yet another example of the risks inherent to litigation).  In the linked-to case the 3d DCA reversed a probate court order dismissing a properly filed petition to establish and probate a lost will.  The 3d DCA based its reversal on the following:

1.  Ongoing probate of an earlier will does not preclude a later-filed petition to probate a lost will

3d DCA: [T]he trial court might have been swayed [into granting the motion to dismiss] by Movant's argument that a petition to administer another earlier-dated will already had been granted. [This fact] does not preclude or estop the advancement of [a petition to establish and probate a lost will]. A petition for administration of a will and a petition to establish a lost or destroyed will in probate are different proceedings. See Lowy v. Roberts, 453 So.2d 886 (Fla. 3d DCA 1984).

2.  Yes, even in probate, the rules for motions to dismiss still apply

3d DCA: The trial court might have been misled by affidavits-attached to the motion to dismiss-of the two parties alleged to have witnessed the execution of the destroyed will, stating they “do not recall” having witnessed the will's execution  .  .  .   [I]t is apodictic that matters dehors the four corners of a complaint or petition may not be considered on a motion to dismiss. See Fla. Prob. R. 5.025(d)(2) (“[T]he proceedings [to probate a lost or destroyed will], as nearly as practicable, shall be conducted similar to suits of a civil nature and the Florida Rules of Civil Procedure shall govern, ...”); see also Pizzi v. Cent. Bank & Trust Co., 250 So.2d 895, 897 (Fla.1971) (holding-on a motion to dismiss-that “[t]he court must confine itself strictly to the allegations within the four corners of the complaint” (quoting Kest v. Nathanson, 216 So.2d 233, 235 (Fla. 4th DCA 1968))); N.E. at West Palm Beach, Inc. v. Horowitz, 471 So.2d 570, 570-71 (Fla. 3d DCA 1985) (“The purpose of a motion to dismiss is to ascertain whether a plaintiff has alleged a good cause of action and the court must confine itself strictly to the four corners of the complaint.”).

Lesson learned?

Florida's probate courts are underfunded and overworked. So it should come as a surprise to no one that smart, well meaning judges will make mistakes from time to time.  So how do we and our clients "deal" with this fact?  If at all possible, negotiate a settlement.  If that doesn't work, take full advantage of the other ADR tools available to Florida litigants [click here].  If that doesn't work and you find yourself in court in spite of your best efforts, plan accordingly.

First, factor in the risk of an appeal (or multiple appeals) into your litigation budget. If your client has set aside $10,000 or $100,000 or $1,000,000 to spend on your case, make sure a good % of that budget is set aside to pay for appeals.  Second, manage expectations. No matter how badly your client wants to be assured his case is a slam dunk (and how many times he asks you), don't fall for that trap. Keep reminding him of the facts of life: in litigation, even when you're right, you can still spend a lot of money and lose.

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Demello ex rel. Jerome Adams Trust, Irene V. Adams Trust v. Buckman, --- So.2d ----, 2008 WL 2906652 (Fla. 4th DCA Jul 30, 2008)

In the linked-to case the beneficiary of a trust successfully sued her trustee for breach of trust. As a result of this win the trial court awarded her attorneys' fees and costs. Although unstated, I am assuming the statutory basis for the trial court's fees/costs award was the then-applicable version of F.S. 736.1004(1)(a), which provides as follows:

(1)(a) In all actions for breach of fiduciary duty or challenging the exercise of, or failure to exercise, a trustee's powers . . . the court shall award taxable costs as in chancery actions, including attorney fees and guardian ad litem fees.

This, in essence, is a “prevailing party” provision. See In re Estate of Simon, 549 So.2d 210 (Fla. 3 DCA 1989) ("In chancery or equity actions, the well-settled rule is that 'costs follow the judgment unless there are circumstances that render application of this rule unjust.'"). I am also assuming the trial-court's ruling as to costs was guided by the recently revised Uniform Guidelines for Taxation of Costs [click here].

NO Evidence = NO Fees

In the linked-to case that old nemesis of the trusts-and-estates bar - an appellate worthy evidentiary record (or lack thereof) - reared its ugly head on appeal, undercutting the trust beneficiary's trial-court win. While a trustee may not have to put on expert-witness testimony in support of an attorney's fee/cost award [F.S. 736.0206(5)], a trust beneficiary certainly does . . . at least according to the 4th DCA.  Here's how the 4th DCA made this point:

This court has previously recognized that “an award of attorney's fees must be supported by expert evidence, including the testimony of the attorney who performed the services.” Rodriguez v. Campbell, 720 So.2d 266, 267 (Fla. 4th DCA 1998).

Generally, when an attorney's fee or cost order is appealed and the record on appeal is devoid of competent substantial evidence to support the order, the appellate court will reverse the award without remand. However, when the record contains some competent substantial evidence supporting the fee or cost order, yet fails to include some essential evidentiary support such as testimony from the attorney performing the services, or testimony from additional expert witnesses, the appellate court will reverse and remand the order for additional findings or an additional hearing, if necessary.

Id. at 268 (citations omitted).

In this case, Jay Schwartz, who was Buckman's trial counsel, testified regarding his fee. Buckman also presented the expert testimony of Henry Zippay, Esq. Zippay testified that he was hired to evaluate the materials presented to him by Schwartz for the purpose of evaluating a reasonable hourly rate and fee in the case. Zippay testified:

I don't have an actual reasonable attorney's fee. I can only suggest as to reasonable hours, and what I've read through here, you had somewhere around 340 some hours, and you're the only one that I really can testify as to having knowledge of. I find that your 346 or 344, or whatever figure it was, is a reasonable fee or reasonable amount of hours subject to certain qualifications.

Demello correctly argues that the expert witness only testified to the reasonableness of attorney Schwartz's hours and rates. The expert witness offered no testimony regarding any of the other attorneys and paralegals who worked on the case. There is no expert testimony to support the award of attorney's fees for work other than that performed by Schwartz. Accordingly, the attorney's fee order is vacated and this case is remanded for entry of an order awarding only those attorney's fees that were supported by the expert testimony.

Lesson learned?

If you're litigating attorney's fees and costs, a trial court ruling based on a solid evidentiary record is almost invincible on appeal. The linked-to case + the underlying statutory authority cited above should provide a solid road map for building that record. On the other hand, if your record has holes in it, you (and your client) may be in for a rude awakening on appeal.

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Payment of trustee attorneys' fees when defending breach-of-duty claims has been a hot topic over the last few years due to appellate decisions out of the 3rd and 4th DCA's that were decidedly non-trustee friendly [click here, here].  The Florida Bankers Association swung into action, proposing new legislation that would make it more difficult to cut off a trustee's access to trust funds when defending against a breach-of-duty claim. The end product is new F.S. 736.0802(10), which became effective July 1, 2008.

Access to trust funds to pay for litigation - vs. the substance of the claim - often determines the outcome of the case. If you're suing a trustee or defending a trustee, you need to be aware of this new legislation. Trustees also need to be aware of the new affirmative notice obligation created by this change in the law.

736.0802 Duty of loyalty.--

(10) Payment of costs or attorney's fees incurred in any proceeding from the assets of the trust may be made by the trustee without the approval of any person and without court authorization, unless the court orders otherwise as provided in paragraph (b).

(a) If a claim or defense based upon a breach of trust is made against a trustee in a proceeding, the trustee shall provide written notice to each qualified beneficiary of the trust whose share of the trust may be affected by the payment of attorney's fees and costs of the intention to pay costs or attorney's fees incurred in the proceeding from the trust prior to making payment. The written notice shall be delivered by sending a copy by any commercial delivery service requiring a signed receipt, by any form of mail requiring a signed receipt, or as provided in the Florida Rules of Civil Procedure for service of process. The written notice shall inform each qualified beneficiary of the trust whose share of the trust may be affected by the payment of attorney's fees and costs of the right to apply to the court for an order prohibiting the trustee from paying attorney's fees or costs from trust assets. If a trustee is served with a motion for an order prohibiting the trustee from paying attorney's fees or costs in the proceeding and the trustee pays attorney's fees or costs before an order is entered on the motion, the trustee and the trustee's attorneys who have been paid attorney's fees or costs from trust assets to defend against the claim or defense are subject to the remedies in paragraphs (b) and (c).

(b) If a claim or defense based upon breach of trust is made against a trustee in a proceeding, a party must obtain a court order to prohibit the trustee from paying costs or attorney's fees from trust assets. To obtain an order prohibiting payment of costs or attorney's fees from trust assets, a 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. The trustee may proffer evidence to rebut the evidence submitted by a party. The court in its discretion may defer ruling on the motion, pending discovery to be taken by the parties. If the court finds that there is a reasonable basis to conclude that there has been a breach of trust, unless the court finds good cause, the court shall enter an order prohibiting the payment of further attorney's fees and costs from the assets of the trust and shall order attorney's fees or costs previously paid from assets of the trust to be refunded. An order entered under this paragraph shall not limit a trustee's right to seek an order permitting the payment of some or all of the attorney's fees or costs incurred in the proceeding from trust assets, including any fees required to be refunded, after the claim or defense is finally determined by the court. If a claim or defense based upon a breach of trust is withdrawn, dismissed, or resolved without a determination by the court that the trustee committed a breach of trust after the entry of an order prohibiting payment of attorney's fees and costs pursuant to this paragraph, the trustee may pay costs or attorney's fees incurred in the proceeding from the assets of the trust without further court authorization.

(c) If the court orders a refund under paragraph (b), the court may enter such sanctions as are appropriate if a refund is not made as directed by the court, including, but not limited to, striking defenses or pleadings filed by the trustee. Nothing in this subsection limits other remedies and sanctions the court may employ for the failure to refund timely.

(d) Nothing in this subsection limits the power of the court to review fees and costs or the right of any interested persons to challenge fees and costs after payment, after an accounting, or after conclusion of the litigation.

(e) Notice under paragraph (a) is not required if the action or defense is later withdrawn or dismissed by the party that is alleging a breach of trust or resolved without a determination by the court that the trustee has committed a breach of trust.

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Wagner, Vaughn, McLaughlin & Brennan, P.A. v. Kennedy Law Group, --- So.2d ----, 2008 WL 2668801 (Fla. 2d DCA Jul 09, 2008)

Ever wonder why your friendly neighborhood plaintiff's lawyer gets a bit tense when he hires you to get his client appointed personal representative . . . PRONTO! Easy, because under F.S. 768.20 only the PR has standing to bring a wrongful death suit on behalf of the estate and the survivors. If your guy's client doesn't get appointed PR, he's out of the game.

But just because the PR is the only party with standing to prosecute the liability phase of the wrongful-death suit, doesn't mean the survivors may not need independent counsel when it comes time to litigating the damages phase of the case and apportioning damages among them. Under F.S. 768.22 the jury apportions damages among the survivors if there's a trial. If there's no trial, then the survivors can hire their own lawyer to negotiate their own individual share of the damages payout to the extent there's a conflict of interest between them and the PR.

With that background in mind the following excerpt from the linked-to case should make sense. In this case two firms were litigating entitlement to the contingency fee resulting from $1.23 million in settlement proceeds. The 2d DCA awarded 100% of the fee solely to the PR's counsel because there was NO conflict of interest between the PR and the survivors when it came time to divvying up the damages pie. Here's how the 2d DCA explained its ruling:

As we stated previously, when survivors have a conflict of interest with the personal representative, the attorney for the personal representative is precluded from collecting fees out of the survivors' portions of the recovery. Wiggins, 850 So.2d at 450. In this case, the probate court denied the Wagner firm's objection to KLG's request for fees based on its determination that Larry and Robert did not have a competing claim or conflict of interest with Gary. The Wagner firm argues that the probate court's finding on this issue is erroneous because “[t]he record contains compelling and uncontroverted evidence of a deep-seated divide between Gary, on the one hand, and Larry and Robert on the other, which came to the fore as a result of their parents' tragic deaths.” The Wagner firm argues that KLG was placed on notice of the conflict when the Wagner firm objected to the one-third apportionment of the bodily injury settlement and attempted to remove Gary as the personal representative.

It is true that the Wagner firm's objection to the apportionment of the bodily injury settlement would have established a conflict of interest between Larry and KLG had it been pursued. However, Larry abandoned his objection to the apportionment after his petition to remove Gary was dismissed. While there was certainly a potential conflict of interest between Larry and Robert and KLG, an actual conflict never arose because Larry and Robert never objected to the amount or apportionment of the UM settlement. Larry and Robert may have believed that the settlement was a bit low and that they were entitled to a greater portion of the settlement proceeds, but they waived any objection to the settlement by accepting their equal shares.

*   *   *   *   *

As the Fourth District has stated, “counsel retained individually by survivors, and not by the personal representative, cannot expect to be compensated for work on those aspects of the case on which counsel for the personal representative has no conflict of interest.” In re Estate of Catapane, 759 So.2d at 11 n. 1. Because the Wagner firm did not perform any work on any aspect of the case in which KLG had a conflict of interest, the probate court did not abuse its discretion in declining to award the Wagner firm a share of the attorney's fees in this case.

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Hirchert v. Hirchert Family Trust, --- So.2d ----, 2008 WL 2695897 (Fla. 5th DCA Jul 11, 2008)

California constructive-trust judgment:

This case started in California where, after a two-day bench trial, the trial court found that a California trustee had breached his fiduciary duties by wrongfully withdrawing trust funds, which were then used to buy a house for himself and his wife in California. After the trustee died, his widow sold their California home, moved to Florida, and bought a Florida home with the sales proceeds of the California residence. The California court entered a judgment imposing a constructive trust on the widow's Florida home.

The first issue on appeal was whether the California court had jurisdictional authority to enter a judgment imposing a constructive trust on Florida real property. The trial court said yes, based on the following reasoning, which was adopted verbatim by the 5th DCA:

The trial court analyzed the jurisdictional issue as follows:

The Superior Court of the State of California for the County of San Diego, which entered the judgment in question in this matter, entered said judgment after a trial on the merits. Counsel for Defendant, JOHNEE ANN ALLE HIRCHERT actively participated in the trial. The California court, while not having in rem jurisdiction over the property that was situated in Florida did have in personam jurisdiction over the Defendant, JOHNEE ANN ALLE HIRCHERT.
....

A court of one state does not have the power to directly affect title to land physically located in another state. However, “[a] court of equity, having authority to act upon the person, may indirectly act upon real estate in another state, through the instrumentality of this authority over the person.” Fall v. Eastin (1909) 215 U.S. 1 at 8, 30 S.Ct. 3, 54 L.Ed. 65 (Emphasis supplied) [sic]. “The court's decree does not operate directly upon the property or affect its title, but is made effectual through coercion of the defendant.” Groza-Vance v. Vance, 834 NE.2d 15 (Ohio App.2005) citing Fall at 10, 11 supra. See also MDO Development corporation v. Kelly, 735 F.Supp 591 (S.D.N.Y.1990)....

Counsel for the Defendant has raised the “local action rule.” Under such rule, “... court may not exercise in rem jurisdiction over property located outside its geographical territory.” Bauman v. Rayburn, 878 So.2d 1273 (Fla. 5th DCA 2004) (Emphasis in the original] [sic]. However, as long as in personam jurisdiction exists, relief may be granted even if it might incidentally affect real property. Bauman at 1274. In that the California court in this matter had in personam jurisdiction, the local action rule would not apply for the relief sought and subsequently obtained in this matter. See also Gardiner v. Gardiner, 705 So.2d 1018 (Fla. 5th DCA 1998).

While “... jurisdictional authority exists over the property only in the circuit where the land is situated,” this rule does not apply where a party, “... [seeks] equitable relief alleging, inter alia, resulting and constructive trust claims....” Ruth v. Department of Legal Affairs, 684 So.2d 181, 186 (Fla.1996). “The court's in personam jurisdiction alone provides the court with authority to determine the equitable rights of the parties.” Id. See also General Electric Capital Corporation v. Advance Petroleum, Inc., d/b/a World Fuel Services of Florida and World Fuel Services, 660 So.2d 1139 (Fla. 3d DCA 1995) [In personam jurisdiction comports with the mandates of the Federal and Florida Due Process Clause.]

(Emphasis in original). We agree with the trial judge's analysis.

Was Florida's homestead creditor protection pierced? Probably NOT

As I've written before, under Florida law the circumstances permitting the imposition of an equitable lien on homestead property are extremely narrow [click here, here]. Apparently hoping to avoid getting sucked into the twilight zone that is Florida homestead jurisprudence, the trial court attempted to punt on this issue as follows:

The trial court went on to note:

Defendant has also raised the issue of her homestead status of the Florida property. Here, the property is not being conveyed or the title changed or transferred. No change in legal ownership has been ordered. A constructive trust has been established by the California court and the legal document so establishing the constructive trust is being filed in the Florida courts. Homestead is not a matter before the Court at this point.[FN 1]

[FN 1]. It may be that at a later point when, and if, there is an attempt to convey the property an issue may arise as to the validity of the Homestead status based, in part, on the source of the funds used to purchase the property. LaBelle v. LeBelle, [sic] 624 So.2d 741 (Fla. 5th DCA 1993) [.] That issue is one for another day and another court.

Nice try, but no cigar. The 5th DCA remanded the case back to the trial court to decide the homestead issue:

We believe that the homestead issue raised in Ann's declaratory judgment count was properly before the court. The domesticated California judgment is creating homestead issues which the trial judge needs to resolve. We therefore remand for a judicial determination of homestead status and the legal effect, if any, of the California judgment on Ann's property.

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Jonathan Klick of the Florida State University College of Law and Robert H. Sitkoff of Harvard Law School just published an outstanding article entitled Agency Costs, Charitable Trusts, and Corporate Control: Evidence from Hershey's Kiss-Off.  What this article does well is "crunch the numbers" to answer the sort of open-ended question trusts-and-estates litigators face all the time:

Is a particular investment strategy in the "best interests" of the trust's beneficiaries?

Crunching the Numbers:

Being non-math types, lawyers and judges often shy away from the type of quantitative, objectively-verifiable, empirical analyses employed in this article. Whether you agree or disagree with the findings, the value of this approach to any contested trust proceeding should be self evident.  Rather than relying on the judge's gut to figure out if a "prudent investor" would invest trust assets in a certain way under the terms of a specific trust agreement within the context of a specific class of trust beneficiaries, hire a finance whiz to crunch the numbers and demonstrate, in an objectively-verifiable and quantitative manner, which option results in the best overall economic benefit for the trust's beneficiaries. Once the legal wrangling over how to define the operative terms is done, everyone should step back and let the finance gurus quantitatively fill in the blanks.

Trustees Lose PR Battle:

The controversy surrounding the Hershey School Trust's decision to diversify its trust holdings by attempting to sell its controlling stake in the Hershey Company (thus potentially putting a lot of people in Hershey, Pennsylvania out of work) and subsequently backing out of the deal (thus depriving the trust's beneficiaries of a control-premium windfall profit estimated to be as high as $1 billion) is often cited as a terrible example of "politics" trumping sound sound fiduciary decision making.  For more on the political back-story of this case read The Hershey Power Play in Trusts & Estates Magazine by Pennsylvania attorney Christopher H. Gadsden, and Daniel Gross's piece in Slate entitled Hershey Barred, whose subtitle says it all: How Pennsylvania officials screwed poor kids out of $1 billion by stopping the sale of the candy-maker.

However, blaming the politicians is way too easy. They were (not surprisingly) simply responding to legitimate concerns raised by their constituents. The board of directors of the Hershey School Trust deserves equal blame.  The general public holds non-profit entities to a higher civic standard than for-profit companies, which means trustees of high-profile charitable trusts need to address any potential contested proceeding with two sets of professionals: lawyers and litigation-public-relations experts [click here, here].  It's obvious the board of directors of the Hershey School Trust was blindsided by the "politics" of this deal, and bungled it terribly  .  .  .  to the detriment of the poor children they have a fiduciary duty to serve.

If someone from the trust's board of directors had reached out to the key political players from the start, involved local civic groups in the decision-making process, and preempted any local bad press with a smart PR campaign using quantitatively-verifiable facts developed using the analytical tools employed in the linked-to law review article, the end result might have been very different.  For example, if the Hershey School Trust's upside from the deal was going to be around $1 billion, its board of directors could have easily set aside $100 million (or some other mind boggling large figure) for worker retraining, community redevelopment, generous termination packages for all fired employees (not just the top brass), etc. The trustees would have come out looking like heroes, and still vastly improved the economic well-being of trust's beneficiaries. That would have been a good deal for everyone.

Blogging credit:

Credit goes to the Wills, Trusts & Estates Prof Blog for bringing the linked-to law review article to my attention in this blog post.

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Klem v. Espejo-Norton, --- So.2d ----, 2008 WL 2511276 (Fla. 3d DCA Jun 25, 2008)

What do you do if an heir shows up after the probate proceeding has been closed? You can try to reopen the estate under F.S. 733.903.  But what if that doesn't work, then what? The 3d DCA answers that question in this case by first suggesting that the plaintiff pursue a "constructive trust" theory, then explaining the quasi in rem jurisdictional basis for this type of claim.

Constructive Trust

The linked-to opinion is actually the second time this case has come before the 3d DCA.  In the first appeal the 3d DCA affirmed a probate court's order refusing to reopen a probate proceeding so that a newly-discovered heir could claim her share of the estate. But in a specially concurring opinion the court suggested that the "lost heir" sue for her share of the estate's assets under a constructive trust theory.  Here's an excerpt from the first appellate opinion in this case, Espejo-Norton v. Estate of Merry, 869 So.2d 1255 (Fla. 3d DCA 2004), where the court explained the constructive trust theory:

This is a fascinating case in which one of the two goddaughters who were the named residual devisees of the testatrix's $400,000.00-plus estate turned up several years after the estate had been closed, after she had quite erroneously been declared dead by the circuit court, and after all the proceeds had been distributed to the other devisee. Because, insofar as the record shows, diligent, although futile, efforts had been expended to find her, I must agree with affirmance of the order before us denying her motion to reopen the estate.

It should be pointed out, however, a separate action may now be successfully maintained against the other devisee to impose a constructive trust upon the half of the estate that that devisee received, but which in law and equity belongs to the appellant. As the Restatement says:

§ 126. Rights of Intended Payee or Grantee. Business Transaction.

(1) Where a person has paid money or transferred property to another in the erroneous belief, induced by a mistake of fact, that he owed a duty to the other so to do, whereas such duty was owed to a third person, the transferee, unless a bona fide purchaser, is under a duty of restitution to the third party.

* * *

Illustrations:

2. A, administrator of B's estate, pays money out of the assets of the estate to C, B's brother, whom both A and C believe to be B's sole relative. Later D, B's son and next of kin, believed to be dead, appears. D is entitled to restitution from C. (e.s.)

Quasi in Rem Jurisdiction

Based on the 3d DCA's friendly advice in the first appeal, the plaintiff, a California resident, sued the defendant, a Maryland resident, in a Miami-Dade County court house seeking to impose a constructive trust on a brokerage account in Broward County, which is where some of the subject probate funds had been deposited.  Obviously the Miami court didn't have in personam jurisdiction over the California defendant, and the court didn't have general in rem jurisdiction over the estate assets because the estate had already been closed.  What the Florida court did have was quasi in rem jurisdiction over the brokerage account. Confused yet?

Reading the 3d DCA's linked-to opinion wont exactly clarify things for you. It's basically a series of long string cites and close to zero discussion by the 3d DCA of the point it was trying to make. If you're ever confronted with a quasi in rem issue in the future take the time to read a March 2008 Florida Bar Journal article cited by the 3d DCA in its opinion entitled Florida's Third Species of Jurisdiction. Written by Tampa trial judge Scott Stephens, this article does an excellent job of actually explaining why the 3d DCA ruled the right way in this case.

The logic underlying the 3d DCA's ruling on the quasi in rem issue in this case can be broken down as follows:

1. A Florida circuit court has authority over any person or item of property located anywhere in the state of Florida. In other words, a circuit court in Key West has jurisdictional authority to enter a judgment determining ownership of a bank account located in Key West, or "next door" in Miami, or across the state in Pensacola.
   
2. The phrase "territorial jurisdiction" is used as a stand in for the word venue in quasi-in-rem cases. Which means just like with venue, you can waive an objection to territorial-jurisdiction if not properly asserted at the beginning of your case. But just because your case may end up getting litigated in the wrong venue/territory somewhere within the State of Florida, doesn't mean your Miami-Dade County judge lacks "jurisdictional" authority to enter a judgment affecting a bank account in Broward County.
   
3. What's confusing about all this is the use of the same word "jurisdiction" to mean different things within a single case. This is the key point made by Judge Stephens in his exceptional Florida Bar Journal article.

Here's how the 3d DCA "explained" the territorial-jurisdiction point in the linked-to opinion:

As Escudero indicates, the fact that the res in question is not within the Eleventh Circuit makes no difference. This is because the issue, properly considered, is not one of subject matter jurisdiction, which may not be waived. . . . Rather, it involves a question of “territorial jurisdiction,” as it is sometimes called in this context, which may be waived by a failure properly to assert it below, as it was in this case.

Bonus material:

Judge Stephens provides the following factoids in footnote 1 to his article:

A sample of 7,490 district court of appeal cases using the term “jurisdiction” was taken through Lexis-Nexis on August 10, 2007. Cases using the term “subject matter jurisdiction” were counted separately, as were cases using one of several variants of personal or in personam jurisdiction.  .  .  .  The various subspecies of subject matter and personal jurisdiction collectively add up to less than one percent of the appearances of “jurisdiction” in the district court of appeal cases: pendent jurisdiction, three cases; ancillary, one; in rem, 43; quasi-in-rem, six.

If only 6 appellate decisions out of 7,490 mention the phrase "quasi in rem jurisdiction" (less than one-tenth of 1%), is it any wonder these sorts of questions make most lawyers break out in hives?

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Hoegh v. Estate of Johnson, --- So.2d ----, 2008 WL 2605068 (Fla.App. 5 Dist. Jul 03, 2008)

In this case there's no question whom the courts considered to be the villain of the story.

According to the trial court Hoegh, the appellant and pro se litigant, attempted to "perpetrate a fraud on the court" by knowingly seeking to have a forged will admitted to probate. According to the 5th DCA, Hoegh didn't do herself any favors on appeal, acting in "bad faith" because her appeal failed to raise any justiciable issue of law. And just to make sure everyone got the point, the 5th DCA charged the estate's reasonable appellate attorney's fees against Hoegh through application of the "inequitable conduct" doctrine.

So far so good for the estate.  But then the 5th DCA reversed the trial court's award of $37,125 in appellate fees, loping off $15,125 of the trial court's original fee award (a 41% reduction)!! So what happened? Sometimes a slam dunk can work against you. On appeal the court asked why the estate was claiming 135 hours worth of attorney time (over three weeks of full-time labor) on an appeal that was baseless? Apparently the estate couldn't come up with a convincing answer.

Notwithstanding Hoegh's misconduct, the estate is only entitled to recover reasonable appellate attorney's fees. Here, pursuant to Florida Rule of Appellate Procedure 9.400(c), Hoegh has filed a motion to review the trial court's award of $37,125 for appellate attorney's fees. (It appears that the trial court's award of $37,125 was based on multiplying 135 hours by an hourly rate of $275 .) She contends that this award was excessive. We agree.

The amount of appellate attorney's fees awarded by a trial court is reviewed by an abuse of discretion standard. Pellar v. Granger Asphalt Paving, Inc., 687 So.2d 282, 284 (Fla. 1st DCA 1997). However, an appellate court has a greater ability to review the reasonableness of an appellate attorney's fee award than an award for trial court work because the legal work was done in the appellate court. Id. at 285; see also G.H. Johnson Const. Co. v. A.P.G. Elec., Inc., 656 So.2d 566 (Fla. 2d DCA 1995); Dalia v. Alvarez, 605 So.2d 1282 (Fla. 3d DCA 1992). As previously noted, Hoegh did not raise any justiciable issue of law in her appeal. No oral argument was held. The primary issue presented to us was whether there was substantial competent evidence to support the trial court's decision. We find no error in the trial court's determination that $275 per hour was a reasonable rate for the estate's attorneys. However, after a thorough review of the record, we find that it was an abuse of discretion to find that more than 80 hours of attorney time was reasonably necessary for this appeal. Accordingly, we reverse the trial court's award of appellate attorney's fees and remand for entry of an order awarding the estate appellate attorney's fees of $22,000.

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Staup v. Wachovia Bank, N.A., Slip Copy, 2008 WL 2598005 (S.D.Fla. Jun 27, 2008)

The substantive issue in this case is pretty simple: if you lose in state court, you don't get another bite at the apple by simply re-filing your same case in federal court. More technically speaking the plaintiff's lawsuit was dismissed under the Rooker-Feldman doctrine, which I recently wrote about here in connection with a contested guardianship proceeding.

Poster child for mandatory arbitration clauses:

When you read the background facts of this case, the substantive ruling becomes almost meaningless. This opinion is just that last stop for a litigation train involving this trust that has been rolling along for over 10 years! A mandatory arbitration clause in the trust agreement, as expressly authorized by F.S. 731.401 [click here for form clauses], wouldn't have eliminated all of the litigation involving this trust, but I'm sure it would have dramatically reduced its scope and cost. Here's how the court described the "back-story" on this case:

By way of background, Plaintiff filed more than thirty state court actions dating as far back as 1996 with the same operative facts in Circuit Court in and for Sarasota County Florida. That court found it necessary to order a permanent injunction restricting Plaintiff from filing civil actions relating to cases involving the Mary Staup Estate in the state of Florida. Additionally, Plaintiff has filed at least eight federal court lawsuits on similar operative facts in the Middle District of Florida. Each of these lawsuits was dismissed for lack of subject matter jurisdiction under the Rooker-Feldman doctrine.

Note to estate planners: include mandatory arbitration clauses in your trust agreements.

The Rooker-Feldman doctrine:

Here's how the court explained its application of the Rooker-Feldman doctrine to this case:

Next, Defendant argues the Rooker-Feldman doctrine bars the Court from having jurisdiction over Counts I and II, as a state court previously rendered judgments for the claims raised in these two counts. Plaintiff responds by concluding that the underlying state court judgment is void, resulting in the Rooker-Feldman doctrine being inapplicable. Plaintiff goes on to acknowledge that although the claims in Counts I and II have previously been litigated, he has never plead the postal service fraud count. (Plaintiff's Response [DE 20], p. 7.)

The Rooker-Feldman doctrine provides that no federal courts, other than the United States Supreme Court, have the authority to review final judgments of state courts. Goodman v. Sipos, 259 F .3d 1327, 1332 (11th Cir.2001). This doctrine encompasses claims that are “inextricably intertwined” with a state court judgment. Id. The Rooker-Feldman doctrine applies to “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the federal district court proceedings commenced and inviting district court review and rejection of those judgments.” Exxon Mobile Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 281 (2005).

Essentially, Plaintiff is asking the Court to invalidate the state court actions by ruling that the state court judgment is void. Additionally, the postal fraud claim has been dismissed, making this action identical to the previous state court claim. Accordingly, this Court lacks subject matter jurisdiction, as Plaintiff seeks a de facto appeal of a previously litigated state court matter. Defendant's Motion to Dismiss as to Count I and II of the Complaint will be granted.

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Julia v. Russo, --- So.2d ----, 2008 WL 2596324 (Fla. 4th DCA Jul 02, 2008)

The 4th DCA reversed itself on an important point involving joint bank accounts, withdrawing this opinion and replacing it with the linked-to opinion above. The issue on rehearing was a simple evidentiary burden-shifting question:

If a decedent funded a bank account 100% with his own funds, then put his girlfriend's name on the account, does the girlfriend have to prove the decedent intended to make a gift to her of a 50% interest in the account, or does the decedent's estate have to prove that the decedent did NOT intended to make this gift?

The first time around, relying on two divorce cases to resolve this probate dispute (??!!), the 4th DCA said girlfriend bore the burden of proof.  Girlfriend filed a motion for rehearing, took another crack at the issue . . . and won!  On rehearing the 4th DCA completely reversed its prior ruling. This time around the 4th DCA sided with the girlfriend, shifting the burden of proof over on to the estate.

The next time your involved in litigation involving a joint bank account owned by tenants in common, take another look at this case. Unless the facts are a slam dunk for one side or the other, who bears the burden of proof will probably by the single most important factor in determining who wins or loses the case. That's usually the sort of thing you want to know up front, not once you're six months into the case and going down in a ball of flames.

Here's how the 4th DCA articulated the rule:

On appeal, appellant argues that the trial court erred in finding that there was no presumption of a gift of personal property because Florida law provides that when a joint bank account is created with the funds of one person, there is a presumption of a gift to the other person which may be rebutted only by clear and convincing evidence to the contrary. We agree.

Initially, the trial court's reliance on Crouch and Grieco is misplaced. Both Grieco and Crouch were decisions which addressed the issue of whether certain assets were marital or nonmarital under section 61.075(5), Florida Statutes (2005). The principles involved in that determination are inapplicable here.

The issue here is how to determine what share a tenant in common is entitled to. “In absence of evidence to the contrary, co-tenants are presumed to owe [sic] equal undivided interests. Levy v. Docktor, 185 B.R. 378, 381 (S.D.Fla.1995). “[U]pon the death of a cotenant, the deceased cotenant's interest in the property subject to the tenancy in common passes to his or her heirs, and not to the surviving cotenant.” 12 Fla. Jur.2d Cotenancy and Partition § 4 (1998). See, e.g., Reinhardt v. Diedricks, 439 So.2d 936, 937 (Fla. 3d DCA 1983). Taking title to property in joint names creates a presumption of a gift which may be rebutted. Sullivan v. Am. Tel. & Tel. Co., 230 So.2d 18, 20 (Fla. 4th DCA 1969). See also O'Donnell v. Marks, 823 So.2d 197 (Fla. 4th DCA 2002) (taking title as tenants in common is an indication of an intention to make a beneficial gift of an undivided interest to the other party); Mercurio v. Urban, 552 So.2d 236 (Fla. 4th DCA 1989) (stocks owned as tenants in common entitles co-owner to presumption of gift).

The trial court did not apply the presumption of a gift in appellant's favor but instead erroneously required her to prove the decedent intended to make a gift. We therefore find it necessary to reverse and remand for the trial court to determine if there was clear and convincing evidence presented which rebutted the presumption of a gift.

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If you're representing a plaintiff in an undue-influence or testamentary-capacity case, one of your first challenges is mapping out the questions you'll be asking when you depose the lawyer who drafted the will or trust being challenged.  If you're representing the estate defending against this challenge, you'll want to know how best to build a deposition record that dissuades the challenger from proceeding with his or her case, or encourages an early settlement on favorable terms.  Why is the deposition so important? Because the vast majority of contested probate proceedings settle before trial, so your depositions may be the only "trial" you'll ever have, and will certainly tilt the negotiating leverage to one side or the other in any settlement negotiations.

And lest we forget our estate-planning brethren, if you're an estate planner and for some reason you believe the estate planning documents you're working on are likely to end up being challenged, then you'll want to be especially sure that [a] your client is competent and not the victim of undue influence and [b] that you build a record documenting your conclusions.

In all of these circumstances a good checklist of questions is worth its weight in gold.  And a good starting point for building this kind of checklist is a recent article in the American Journal of Psychiatry entitled Assessment of Testamentary Capacity and Vulnerability to Undue Influence, by Kenneth I. Shulman, M.D., F.R.C.P.C., Carole A. Cohen, M.D., F.R.C.P.C., Felice C. Kirsh, LL.B., Ian M. Hull, B.A., LL.B., and Pamela R. Champine, J.D., LL.M.  Here's an excerpt:

Documentation for Assessment of Testamentary Capacity and Undue Influence

In the absence of a validated assessment instrument, we propose that in addition to the traditional Banks v. Goodfellow criteria, the following issues should be addressed and documented in a forensic assessment, whether it is contemporaneous or retrospective:

1. Rationale for any dramatic changes or significant deviations from the pattern identified in prior wills or previous consistently expressed wishes regarding disposition of assets.
2. The appreciation of the consequences and impact of a particular distribution, especially if it deviates from or excludes "natural" beneficiaries, such as close family members or spouses.
3. Clarification of concerns about potential beneficiaries who are excluded from the will or bequeathed lower amounts than might have been expected—that is, ruling out the presence of a specific delusion or overvalued idea that influences the distribution.
4. Evidence of the presence of a specific neurologic or mental disorder that may affect cognition, judgment, or impulse control.
5. Evidence of behavioral disturbances or psychiatric symptoms at the time of the execution of a will, for example, behavioral and psychological symptoms of dementia such as agitation, impulsiveness, disinhibition, aggression, hallucination, and delusions.
6. The emotional/psychological milieu in which the testator lives, with specific reference to conflicts or tensions within the family, documenting the complexity and conflictual level of situation-specific factors.
7. The testator’s understanding and appreciation of any conflicts or tensions in his or her environment.
8. Evidence of a pathological or dependent relationship with a formal or informal caregiver, such as a younger woman who offers comfort and reassurance or plants seeds of suspiciousness toward family or friends.
9. Evidence of inconsistency in expressed wishes or an inability to communicate a clear, consistent wish with respect to the distribution of assets; for example, frequent will changes are sometimes made in a desperate attempt to garner care, support, or comfort at a time when the testator feels increasingly vulnerable or threatened.
10. Any of the indications of undue influence.

Specific questions posed to the testator may help in elucidating and probing the relationship between task-specific and situation-specific factors:

1. Can you tell me the reason(s) that you decided to make changes in your will?
2. Why did you decide to divide the estate in this particular fashion?
3. Do you understand how individual A might feel, having been excluded from the will or having been given a significantly less amount than previously expected or promised?
4. Do you understand the economic implications for individual B of this particular distribution in your will?
5. Can you tell me about the important relationships in your family and others close to you?
6. Can you describe the nature of any family or personal disputes or tensions that may have influenced your distribution of assets?

When a retrospective assessment is being conducted, assiduous review of medical records, examinations for discovery, and selective interviews of informants are needed to cast light on these issues.

Another excellent resource for those brave souls willing to delve into the murky waters of a testamentary-capacity lawsuit is a piece in the Journal of the American Academy of Psychiatry and the Law entitled Common Pitfalls in the Evaluation of Testamentary Capacity by Harvard Medical School Professor of Psychiatry Thomas G. Gutheil, MD.

Blogging credit:

Credit goes to Pennsylvania trusts and estates lawyer and expert witness Patti S. Spencer for bringing the linked-to articles to my attention in this post on her Pennsylvania Fiduciary Litigation Blog.

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