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

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

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

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

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

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

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

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

When is a gift of stock complete for tax purposes?

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

"Cy-près" Doctrine:

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

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

Case Study:

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

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

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

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

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

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

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments (3)
• Trackbacks
• Share Link

Coral Gables attorney Patrick J. Lannon just published in interesting article in this month's Florida Bar Journal entitled Challenging Inter Vivos Transfers Procured by Undue Influence: Factors to Consider.  The article is well researched and good stuff to keep on file.  I thought the following "nuggets" were especially interesting:

The Florida Supreme Court determined in Rich v. Hallman, 143 So. 292 (Fla. 1932), that “the degree of proof necessary to invalidate a will is much greater than that required to set aside a gift inter vivos.”

*     *     *     *     *

[A] long line of cases in Florida and elsewhere consider a gift made in the course of a meretricious relationship (such as a gift to a mistress) to be essentially per se undue influence.[FN 13]

[FN 13]: See Taylor v. Johnson, 581 So. 2d 1333 (Fla. 1st D.C.A. 1991), and cases cited therein. But see Hill v. Hill, 222 So. 2d 454 (Fla. 2d D.C.A. 1969), finding mere fact of meretricious relationship insufficient to prove undue influence where the donor left his wife and set up residence with his mistress and treated her as his wife). In light of Hill, Taylor limited the application of this line of cases to situations where the mistress gains at the expense of the spouse. See also deFuria, Testamentary Gifts Resulting From Meretricious Relationships: Undue Influence or Natural Beneficence?, 64 Notre Dame L. Rev. 200 (1989) (arguing that different treatment of meretricious relationships in undue influence cases can not be justified in light of modern legal and social developments).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Sarasota attorney Barry F. Spivey, who also chairs the Florida Bar's Trust Law Committee, circulated the following email and link to the Treasury Department's recently published white paper on the U.S. gift tax.  If tax planning is a part of your estate planning practice, this paper is probably a must read.  Here's Barry's email and a link to the referenced white paper:

"For you tax geeks or just plain intellectually curious on the Committee, the Office of Tax Analysis of the Treasury Dept. has published a paper titled "The Federal Gift Tax: History, Law, and Economics." The paper traces the evolution of the gift tax, its structure, and interactions with the income and estate taxes. It concludes with a discussion of the behavioral effects of the gift tax."

• Email This
• Print
• Comments
• Trackbacks
• Share Link

UPDATE:

This is to follow up to my blog post below regarding the case filed against The Salvation Army claiming that under Florida's POD statute [F.S. 655.82] a charity is not a "person" and therefore not a permissible POD beneficiary.  The court has granted The Salvation Army's Motion to Dismiss [click here], holding that F.S. 655.82 does not define the word person and that the context requires that the definition in F.S. 1.01(3) must be used. Therefore, a person for purposes of Florida's POD statute includes corporate charities such as The Salvation Army.

Special thanks to Miami attorney Kevin E. Packman of Holland & Knight for bringing the dismissal order to my attention.

ORIGINAL POST:

Pay on death or "POD" accountants are familiar territory to Florida probate counsel. As my partner Michele "Mickey" Maracini commented in Salvation Army Accused of Draining Dead Man's Funds by Jordana Mishory of the Daily Business Review, POD accounts are often used as probate-avoidance devices:

Attorney Michele Maracini at Stokes McMillan Antúnez of Miami, who is not involved with the case, said people frequently use this type of account. She said by leaving an account in trust for a specific person, the recipient is able to bypass the probate process.

POD Account Litigation: Florida Charities Beware!

POD accounts, like any other form of jointly-titled bank account, are not immune from disputes . . . many of which end up getting litigated in court.  I recently wrote about one such case [click here]. The two Florida statutes principally at play in these cases are 655.82 and 655.825.

Due to a quirk in the statute charities may be legally disqualified from being designated as beneficiaries of POD accounts.  That's the focus of the litigation reported on in Salvation Army Accused of Draining Dead Man's Funds:

A lawsuit in U.S. District Court alleges the Salvation Army improperly took more than $120,000 from a dead man's bank accounts -- even though the man had left $106,000 of that amount in the charity's name.


Filed by the estate of Richard Jose Belanger of West Palm Beach, Fla., the Oct. 5 lawsuit claims the Salvation Army improperly took the money left for it in Belanger's payable-on-death bank account. The suit, filed on behalf of Richard Jason Belanger, a son who is serving as personal representative, claims only a person may be left money in these types of accounts. The suit alleges the account his father left for the charity is invalid.

Family attorney John Cooney said the Florida Legislature did not intend for the 1995 statute that allows for the establishment of pay-on-death accounts to apply to entities or organizations. He drew his analysis from a portion of the statute that requires proof that the beneficiary is alive on the date of the account holder's death.

"When you have a statute that changes the way the law used to be, you need to interpret it narrowly and strictly," said Cooney, a partner at Arnstein & Lehr in Fort Lauderdale. "It doesn't matter what the decedent intended. If the decedent wanted to leave money for charity, that's why we have wills."

The lawsuit is the first legal challenge to the statute in Florida, according to the complaint. An Ohio appellate court found that a similar statute in that state allowed for only people to receive money from these types of accounts.

If Belanger's estate is successful in its case against the Salvation Army, the case could affect money left for charities across the state.

Lateral Thinking?

By the way, I think this case is yet another example of creative, lateral thinking in the probate litigation context.  Rather then challenge the Salvation Army gift on undue influence or lack-of-capacity grounds, which as litigation goes is always expensive and always full of uncertainty, plaintiff's counsel took a left turn, read the POD statute and "viola," he developed a low-cost, high probability-of-success litigation strategy where, as plaintiff's counsel states, "It doesn't matter what the decedent intended."  The case now becomes an exercise in statutory construction, which is a relatively inexpensive and quick case to litigate. Win or lose, plaintiff's counsel gets an "A" for lateral thinking.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Private foundations are a growing phenomenon.  A piece by Petra Pasternak in The Recorder entitled Small Firms Find Profit in Nonprofits reported on the trend as follows:

[T]he nonprofit sector is exploding. In California, the number of private foundations more than doubled in the past decade, while the number of public charities swelled by nearly 60 percent, according to the National Center for Charitable Statistics.

And their wealth is growing. California private foundations owned about $34.9 billion in total assets in October 1997. That has since ballooned to $78.2 billion in September of this year.

Private foundations are not a big part of my practice, but they do come up with some frequency.  A basic question that sometimes gets lost in the tax arcana surrounding private foundations is "how long will this thing last?"  In the absence of an express termination date, the presumption is that the private foundation will go on in perpetuity after the client's death.  The longer the private foundation remains in existence after the client's death, the more likely it is that it will veer -- perhaps dramatically -- away from the client's original philanthropic intent.

For example, a recent NY Times article by Stephanie Strom provides dramatic anecdotal evidence of what can go wrong when private foundations become "orphaned" because the original donor has died and there are no remaining family members to oversee distributions.  Entitled Donors Gone, Trusts Veer From Their Wishes, the investigation uncovered several examples of abuse.  Here's an excerpt:

When Mamie Dues died in 1974, she left the fortune her husband, Cesle, had made in movie theaters in El Paso to a foundation controlled by a local bank there. The couple had no heirs and no other family.

*     *     *     *     *

Three decades later, however, the foundation’s legal address is in Delaware, and a global bank, JPMorgan, manages it from an office in Dallas. While its assets have grown to almost $6 million, from $5.1 million in 2000, its giving has fallen sharply, and the local group that once decided who would receive its money no longer has a say in its operations.

Such is the fate of many “orphan” trusts and foundations around the country that have been left in the hands of lawyers or local banks that have then been swallowed up by multinational financial institutions.

With no family members to encourage gifts to the original donor’s favorite causes, the banks and lawyers have wide latitude to change the way the trusts operate and to decide which charities will receive grants.

Banks can reduce gifts and increase the foundation’s assets, thus increasing their fees. At the same time, banks and lawyers stand to gain personal influence and prestige by selecting new charities.

*     *     *     *     *

An examination of several orphan trusts found these cases:

¶When large global banks take over, the number of grants often drops sharply, reducing the bank’s administrative costs. But bank fees, which are based on the amount in the trust, increase..

¶Small local grant recipients that have historically received money are either dropped in favor of larger charities or receive money far more sporadically.

¶New grant recipients sometimes include the alma maters of trustees or organizations with which they and their families have personal relationships.

¶Regulators have limited ability to identify such trusts and foundations and monitor them.

Lesson learned?

The simplest way to address the "orphan" trust problem is to define a termination date for the private foundation keyed off of the original donor's date of death.  If the private foundation terminates within 10, 20 or even 50 years after the original donor's date of death, it is much more likely that a family member or someone else with a personal link to the donor who shares his or her vision/values will still be around -- and in charge -- when the private foundation's last charitable dollar is given away.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I've written in the past regarding the unique public-relations issues faced by charities involved in trust/probate litigation (see here) and the different expectations the public and media have with respect to such litigants (see here).  The same dynamics are currently playing themselves out in a case involving a $260 million gift to eight charities.

As reported by the New York Times in Salvation Army Unit Seeks to Gain More of a Huge Gift, the charities find themselves balancing a legitimate desire to maximize the funds going to their respective charities -- all of which do good works and could use the money -- against appearing less than saintly in public.  Here are a few excerpts from the linked-to story:

The Salvation Army has gone to court in Seattle to challenge a trust dividing more than $260 million among eight charities, including Greenpeace.


The Salvation Army argues that the specific Greenpeace organization to which the donor, H. Guy Di Stefano, assigned the money was dissolved in 2005 and that its affiliate is not eligible to receive the gift. It wants the court to divide the money among the seven other charities.

“I’m mystified why anyone, let alone the Salvation Army, would oppose Greenpeace receiving this generous donation,” said John Passacantando, the group’s executive director. “It’s obvious that the donor’s intent was for Greenpeace to benefit from this.”

The dispute involves a trust created by Mr. Di Stefano, whose late wife, Doris, inherited United Parcel Service stock from her father, a former U.P.S. executive, and never sold it.

Mr. Di Stefano died in July and left his estate to eight charities: Direct Relief International, the Salvation Army, the Santa Barbara Hospice Foundation, the Santa Barbara Visiting Nurse Association, the American Humane Society, the Disabled American Veterans Charitable Service Trust, Greenpeace International Inc. and the World Wildlife Fund. Each stands to receive roughly $33 million.

Greenpeace International is defunct, however, and a charity called the Greenpeace Fund, with which it shared offices, phones and some employees, is claiming its share.

In October, Bank of America, the trustee, filed a petition in court in Washington State, where Mr. Di Stefano lived at the time of his death, asking what it should do. Shirley Norton, a bank spokeswoman, said it was only seeking to clarify its duties, not to deprive Greenpeace of money.

“Because of the disparity in the names and the fact that Greenpeace International no longer exists, we need guidance from the court,” Ms. Norton said.

The bank’s petition prompted the Salvation Army to contest disbursement of the money to the Greenpeace Fund.

.     .     .     .     .

The other beneficiaries of the trust have avoided the dispute.

“In my 10 years as a legal counsel here, we have never gotten involved in a dispute over donor intent, and we certainly have had the opportunity,” said Christopher J. Clay, general counsel and planned giving director at the disabled veterans group.

“For a national charity to get out there in this kind of a case would take a compelling reason,” Mr. Clay said, “and I don’t think there’s a compelling reason here.”

The tone of the article clearly telegraphs the writer's disapproval of the Salvation Army's actions and the lengths the other charities are going to distance themselves from the Salvation Army.  Not surprisingly the blogosphere has been less than "charitable" to the Salvation Army on this case (see here).  The Salvation Army thought it was resolving a legal dispute when in fact it was stepping into a big PR mess.  I don't fault them for seeking to maximize their share of the $260 million charitable gift, but I do fault them for being clumsy about it.

• Email This
• Print
• Comments (2)
• Share Link

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

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

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

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

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

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

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

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

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

• Email This
• Print
• Comments
• Share Link

Rasmussen v. Rasmussen, 2005 WL 2138710 (Fla. 2d DCA September 7, 2005) (Trial Court Reversed)

Although this is a divorce case, the issue of when and "if" a gift actually transfers property rights comes up quite often in the probate-litigation context. So this case should be of interest to trusts and estates planners as well as litigators.

Former major league ball player Dennis L. Rasmussen signed the following note, dated June 10, 1999, which bore the signature and stamp of a notary public (but without a jurat or acknowledgment):

I, Dennis Rasmussen, in sound mind and body, wish to have my wife, Jan S. Rasmussen, receive all property, including personall [sic], in the event of death or separation. I hereby give up any right of any joint or individually held monetary [sic] and property due to any of the above circumstances. This agreement will remain in effect until an [sic] mutually agreed upon revision replaces the above. (Emphasis added.)

Not unreasonably, Mrs. Rasmussen tried to hold him to this "gift" after filing for divorce. Mr. Rasmussen apparently had a change of heart and argued he didn't really mean to give her anything. Hillsborough County Judge Manuel A. Lopez didn't buy this argument, and ruled against him. Unfortunately for the soon-to-be "ex" Mrs. Rasmussen, on appeal the Second District Court of Appeal reversed the trial judge, basing its ruling on the following excellent summary of the current state of the law in Florida with respect to when a gift effectively passes title to property:

We have previously outlined the principles used for determining whether there has been a valid gift: It is well settled that to effectively pass title by gift there must be a surrender of dominion over the res, coupled with the intent then and there to pass title. In other words, there must be an immediate vesting of some interest in the donee, complete and irrevocable. If the donor withholds divestiture it is not a legal gift. A delivery which does not confer the present right to reduce the res into possession of the donee is insufficient. . . .

Under these principles, the note of June 6, 1999, did not make a valid gift of the husband's property to the wife. According to the terms of the note, the wife's rights would come into existence only "in the event of death or separation." The note thus provided for a conditional, future transfer of the property; it did not give the wife a present right to the property. Since the note was ineffective as a gift of the husband's property to the wife, the trial court erred in treating the assets in question as marital assets subject to equitable distribution.

• Email This
• Print
• Comments
• Share Link

As reported in this New York Law Journal article, Manhattan law firm Graubard Miller has been hit with a suit claiming some of its partners tried to extract almost $50 million in "gifts" and unearned fees from a longtime client, the 80-year-old widow of one of New York City's largest real estate developers, Sylvan Lawrence, who died in 1981. Mr. Lawrence's estate has been embroiled in litigation ever since. Mark Zauderer of DLA Piper Rudnick Gray Cary, who represents Graubard Miller, said Ms. Lawrence's suit against the firm is aimed at avoiding paying a "well-earned fee." Ms. Lawrence, who is represented by Leslie D. Corwin of Greenberg Traurig, is seeking rescission of her retainer agreement and the return of all fees previously paid to the firm and all gifts paid to the partners. The complaint also requests punitive damages and attorney fees.

• Email This
• Print
• Comments
• Share Link