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

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

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

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

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

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

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

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

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

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

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

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

Lesson learned?

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

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

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

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

Case Study:

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

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

. . .

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

. . .

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

Lesson learned?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But which facts matter?

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

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

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

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

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

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

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

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

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

Insurable Interest:

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

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

Case Study:

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

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

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

[1] Insurable Interest? NO

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

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

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

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

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

[2] Void Life Insurance Policy = No Refunds

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

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

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

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

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

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

Case Study:

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

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

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

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

Theory vs. Reality:

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

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

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

Did the dissent get this one right? YES

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

[LAW]:

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

[FACTS]:

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

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

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

 

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

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

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

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

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

...

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

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

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

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

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

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

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

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

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

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

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

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

Evidence, Evidence, Evidence . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"But wait, there's more!"

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

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

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

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

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

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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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Reid v. Judea, --- So.2d ----, 2008 WL 2356814 (Fla. 3d DCA Jun 11, 2008)

The linked-to opinion is interesting on several levels. 

1.  First, for reasons not explained, the probate court in this case denied a motion to disqualify trial counsel who was also submitting evidence in his capacity as drafter of the contested trust agreement. Here's the relevant excerpt:

[Beneficiaries of the trust] moved to disqualify [the trustee's] attorney, William Palmer, pointing to the fact that it was Palmer who had prepared the trust and its amendments for [the decedent/settlor]. On April 18, 2007, the trial court .  .  .  denied the motion to disqualify.

Appearing both as witness and trial attorney in the same proceeding is a big "no, no", for reasons I previously wrote about here.  I don't understand the trial court's ruling in this case.

2.  Second, a big issue in this case was whether new Florida Trust Code (FTC) section 736.04115  expanded pre-existing Florida law or merely codified pre-existing Florida law regarding a trustee's standing to bring a trust reformation action.

In ruling on this point the 3d DCA gave a huge amount of deference to the Legislative Staff Analysis of FTC.  This legislative history is basically a verbatim recitation of the scrivener's summary of the FTC prepared by none other than FSU Law Professor David F. Powell, whom I consider to be the single most authoritative source for understanding the new FTC [click here, here].  Hint: when in doubt, cite to Staff Analysis in all future trust litigation.

3.  Third, the 3d DCA asked for and received an amicus brief from the Florida RPPTL Section on the trustee standing issue in this case.  I would assume this bit of extra analytical "humph" should make this opinion especially persuasive authority for other Florida appellate courts addressing the same issue in the future.  Here's the "thank you" note from the 3d DCA for the amicus brief:

[FN3.] We asked the Real Property, Probate & Trust Law Section of The Florida Bar to file a brief as amicus addressing the question of a trustee's standing to pursue a claim for reformation [click here for copy]. We thank the section for taking the time to respond and to provide us with its input.

SUBSTANTIVE RULING

The substantive ruling in this case is significant: trustees have standing to prosecute trust reformation claims all on their own.  In the future, any time you have a trust reformation case where the person with the most to gain from the litigation is both trustee and beneficiary of the trust, you can bet that litigant will prosecute the claim in his or her capacity as trustee, not as a beneficiary.  Why?  Because as trustee you can use trust funds to finance your litigation expenses.  As beneficiary, you have to bear that expense out of your own pocket.  Yes, it's good to be the king.

Anyway, here's how the 3d DCA explained its ruling in this case:

Although [F.S. 736.04115] does not expressly mention trustees, its legislative history confirms that it is intended to encompass trustees whose authority to seek reformation has always been presumed to exist:

Reformation of a trust to cure mistakes is addressed in s.736.0415, F.S. Upon application of the trustee or an interested person, a court may reform the trust's terms to conform to the settlor's intentions [if] clear and convincing evidence proves that both the accomplishment of the settlor's intent and the terms of the trust were affected by a mistake. Reformation under the section is available for mistakes of law and of fact, whether or not the terms of the trust are ambiguous. Florida case law supports reformation to cure scrivener's errors. [See In re Estate of Robinson, 720 So.2d 540 (Fla. 4th DCA 1998) ] This section is broader, however, as it allows reformation for mistakes both in the expression and in the inducement.

Fla. S. Comm. On Banking & Ins., CS for SB 1170 (2006) Staff Analysis 20 (March 21, 2006) (emphasis added).

*     *     *     *     *

[I]t is clear to us that in cases involving a determination of the settlor's true intent, a trustee is an “interested person,” and an “interested person” has standing to seek reformation of a trust. For these reasons, we reject the general notion that a trustee lacks the standing to seek reformation of a trust either before or after enactment of section 736.0415. Accordingly, we reverse the order dismissing Reid's reformation action and remand for further proceedings on this claim.

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Parker v. Shullman, --- So.2d ----, 2008 WL 2038046 (Fla. 4th DCA May 14, 2008)

The linked-to opinion should be read by every trust beneficiary contemplating a lawsuit against his or her trustee. Not only is the beneficiary usually at a disadvantage in terms of litigation financing (the trustee can use trust assets to pay litigation costs, the beneficiary has to pay these costs out of pocket), courts will often give an enormous amount of deference to trustees, forgiving them small "technical" mistakes and erring on their side even when the trustee's actions are questionable or down right vindictive.

Back story:

This is the third!!! time the beneficiary in this case has sued her trustee, lost at trial, and lost again on appeal before the 4th DCA. Oh, and in the last two appeals the beneficiary tried to get the Florida Supreme Court to hear the case and was denied.

The first time around the 4th DCA agreed with the trial court's ruling that although certain actions taken by the trustee were "questionable and vindictive," they didn't rise to the level warranting removal as trustee. Parker v. Shullman, 843 So.2d 960, 961 (Fla. 4th DCA), rev. denied, 857 So.2d 197 (Fla.2003). The second time around the beneficiary sued her trustee based on objections to the compensation he was paying himself as CEO of the closely held business he was also administering as trustee of the trust. The trial court's dismissal with prejudice of that lawsuit was upheld on appeal because "the trustee's simultaneous participation in the company and management of the trusts was authorized by the text of the trusts." Parker v. Shullman, 906 So.2d 1236, 1237 (Fla. 4th DCA), rev. denied, 915 So.2d 1196 (Fla.2005).

Strike three: beneficiary 0 for 3 in litigation v. trustee:

The beneficiary fared no better this time around - her third trial - than she's done in the past. This time the issues at trial were the sorts of things that often bother beneficiaries. Again, this case is a good example of why patience may be wiser (and certainly cheaper) than suing.

1.   First complaint: trustee is taking too long to fund my trust:

This is the sort of complaint trusts and estates lawyers hear all the time. Even if the trustee is dragging his feet, if there's even a whiff of legitimacy to his delay, the court will likely side with the trustee. That's what the court did in this case, and here's why the 4th DCA affirmed that ruling:

    Section [736.05053] provides that the interests of all beneficiaries of a revocable trust are subject to the trustee's duty to pay the expenses of the administration and obligations of the grantor's estate. This court was presented with a similar situation in First Union National Bank v. Jones, 768 So.2d 1213, 1215 (Fla. 4th DCA 2000), in which a trustee argued the trial court had erred in ordering disbursement of the entire corpus of a trust prior to the trust having the opportunity to seek its attorney's fees. This court reversed and remanded:

    Although a trust instrument directs termination of the trust and the distribution of the principal to the beneficiaries upon the settlor's death, the trustee cannot make complete distribution until provision has been made for all the expenses, claims and taxes the trust may be obligated to pay, and certainly not before these amounts have been fully ascertained. Moreover, when the trust is the beneficiary of the grantor's probate estate and is charged with the duty to pay the expenses, claims, and taxes imposed on the probate estate, the trustee cannot make complete distribution of the trust until the probate proceeding has been substantially concluded, which was not the case here.

First Union, 768 So.2d at 1215; see also Sheaffer v. Trask, 813 So.2d 1051, 1052 (Fla. 4th DCA 2002)(citing First Union in reversing trial court's grant of petition to distribute trust assets before authorizing trustee to pay trust debts and expenses); Merrill Lynch Trust Co. v. Alzheimer's Lifeliners Ass'n, 832 So.2d 948 (Fla. 2d DCA 2002)(holding trial court abused its discretion in finding trustee in civil contempt for failing to distribute trust where it would not have been prudent to do so without an accounting).

2.   Second complaint: it's the trustee's fault the estate's stock portfolio lost money

Under Florida's Prudent Investor Rule, F.S. 518.11, whether a trustee has done his job right in managing the trust's stock portfolio is determined by looking at his investment "process," not his investment results. In other words, if the trustee takes all the steps a reasonable investor would take to properly manage his investment portfolio, it doesn't matter if the stocks crater in value, he's done his job. As the 4th DCA put it, "section 518.11 provides that the fiduciary's decisions are to be judged under the facts and circumstances at the time of the decision or action, and that the test is one of conduct rather than resulting performance." Based on the following evidence, the beneficiary lost on this point as well (note the emphasis on process, not performance):

    The testimony and evidence at trial supports the trial court's finding that Shullman's conduct with respect to the trust's complete portfolio of assets satisfied the Prudent Investor Rule and that appellant's objections were heavily based on hindsight rather than in the context of the existing facts and circumstances at the time. The trial court found that Shullman relied upon the advice of Comerica in managing the securities. Shullman testified at length about the steps he took following Barbara's death to interview and eventually retain an investment adviser and schedule meetings with them to advise them of the trust requirements, and that he followed their advice. The trial court's decision is therefore supported by competent substantial evidence in the record that Shullman hired Comerica to manage the securities and reasonably relied on them in his capacity as trustee.

3.   Third complaint: the trustee improperly paid his legal fees without getting the court's prior approval:

This loss must have really hurt. On this point, the beneficiary was clearly in the right - and yet she lost here too. Under F.S. 736.0802(10), a trustee who's being sued for breach of trust may be personally liable for damages, thus it's a conflict of interest to use trust funds to pay for the trustee's personal legal defense. The statute deals with this conflict of interest by requiring that trustees in this situation obtain court approval prior to using trust funds to pay for their legal defense. The 4th DCA upheld this interpretation of the statute just last year in J.P. Morgan Trust Co., N.A. v. Siegel, --- So.2d ----, 2007 WL 2710957 (Fla. 4th DCA Sep 19, 2007).

On this issue the 4th DCA agreed with the beneficiary and reversed the trial court's ruling absolving the trustee from the obligation of obtaining court approval prior to paying for his personal legal defense with trust assets. But having given with one hand, the 4th DCA took with the other by simply giving the trustee a free "do over":

[I]n accordance with Siegel, we hold that the action objecting to the compensation Shullman paid himself as CEO of Sportswear put Shullman in a position of conflict under the previous version of section 737.403(2), Florida Statutes, in effect at the time. We therefore reverse on this issue without prejudice to Shullman's ability to seek court approval for the fees incurred defending that action.

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Michael A. Hiltzik of the Los Angeles Times published an excellent article reporting on the probate and trust litigation swirling around Ray Charles' $75+ million estate: Ray Charles' children battle over his legacy. This estate is so discombobulated you could probably pick it apart from an estate planning perspective in a dozen different ways. Three points that jumped out at me:

1. Talking to your heirs about your estate plan can sometimes be a VERY bad idea.
2. Picking the wrong fiduciary to be in charge of your estate can turn low level, simmering resentments that would otherwise simply blow over into World War III.
3. If an estate plan involves the creation of a private charitable foundation, governance issues are doubly important.
   

1. Talking to your heirs about your estate plan can sometimes be a VERY bad idea.


When estate planners write about parents discussing their estate plans with their children, it's almost always assumed to be a good idea [click here for example]. Well, sometimes it's a lousy idea, as the Ray Charles estate is learning. If estate litigation is even a remote possibility, family discussions about mom and dad's estate plan can make a difficult situation worse.

Shortly before Christmas 2002, Ray Charles called a meeting of his 12 children at a hotel near Los Angeles International Airport. Ten of them, ranging in age from 16 to 50 -- with 10 mothers among them -- listened as their father told them he was mortally ill and outlined what they could expect from his fortune.


Most of Charles' assets would be left to his charitable foundation. But $500,000 had been placed in trusts for each of the children to be paid out over the next five years, according to people at the meeting and a trust document.

Yet Charles' description left so much to the imagination that some of the children came away with the impression that he meant to leave them $1 million each. Charles also hinted that there would be more for them "down the line," which some interpreted to mean they would inherit the right to license his name and likeness for profit.

The confusion and contention that resulted from that family gathering, the only time so many of the children met with their father as a group, helps explain what has happened since. Charles exercised iron control over his music and recordings, but his legacy is in disarray, knotted up in legal disputes between the estate's management and his family members, according to interviews, court documents and correspondence from the California attorney general's office.

2. Picking the wrong fiduciary to be in charge of your estate can turn low level, simmering resentments that would otherwise simply blow over into World War III.

As I've written before [click here], picking the right person or bank/trust company to be in charge of your probate estate or trust may be the single most important estate planning decision you make . . . especially if your estate is large or especially complex. Ray Charles picked his long-time business manager, Joe Adams, to be the one fiduciary in charge of every aspect of his estate. After reading the following excerpts from the LA Times piece ask yourself if Adams is the right man for the job:

That executive, Joe Adams, is the target of the family's complaints. Adams signed on as Charles' manager in 1961. Toward the end of the artist's life, Adams was perceived by Charles' children and others close to him as controlling access to the star.


After Charles' death, Adams ended up with virtually unchallenged power over the estate. He was head of Ray Charles Enterprises, director of the foundation and trustee of the children's trusts. In some cases, co-officers appointed by Charles departed their roles while Adams remained.
.     .     .     .     .

Adams has kept the children and other family members from participating in ceremonies honoring their father, they say, even his funeral.

Adams interrupted a private family service at the Angelus Funeral Home in Los Angeles, attempted to eject some of the participants and ordered the casket removed from the chapel, according to several people who were there.

"The biggest issue with me is disrespect for the family and kids," the Rev. Robert Robinson, one of Charles' sons, said in an interview. "If you respect a man and his work, then you respect his kids. His blood is flowing through our veins."
.     .     .     .     .

In 1997, Charles decided he needed a fresh approach to his career and attempted to replace Adams with Jean-Pierre Grosz, a 50-year-old French artists manager who had become a close friend. Charles, however, apologetically sent Grosz home to Paris after Adams refused to relinquish his office in Charles' Washington Boulevard studio, according to the French manager.

3. If an estate plan involves the creation of a private charitable foundation, governance issues are doubly important.

Governance issues are especially important when it comes to private foundations because after the founder is dead, generally speaking no one other than the state attorney has standing to step in and make sure the foundation is being properly run. And just because it's a charity don't assume the sins of humanity are somehow banished from its hallowed halls, as reported by NY Times reporter Stephanie Strom in Report Sketches Crime Costing Billions: Theft From Charities. The following excerpt from the linked-to LA Times piece makes clear the Ray Charles private foundation may be many things, but a beacon of good governance it's not:

In February 2006, Adams' stewardship of the foundation was questioned by Deputy Atty. Gen. Wendi A. Horwitz. After learning that Adams was serving simultaneously as chairman, president and treasurer of the foundation -- in violation of state law -- she gave Adams 30 days to comply. He appointed a new treasurer and a few months later added a majority of independent outsiders to the board.


The attorney general's office never took public action against the foundation. In December, Adams resigned as president of the foundation and of Ray Charles Enterprises. He was succeeded by Ivan Hoffman, a lawyer who had worked with the estate. However, a receptionist at Ray Charles Enterprises said last week that Hoffman was not currently its president. Hoffman and a company spokesman declined to comment.

Adams still exercises power at the organizations, the lawsuit filed by Den Bok alleges. It is unclear whether he still holds any formal titles. A spokesman for Atty. Gen. Jerry Brown, who succeeded Lockyer in 2006, had no comment.

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Fleck v. Fleck, --- So.2d ----, 2008 WL 818814 (Fla. 2d DCA Mar 28, 2008)

The linked-to opinion is the second time the trial court's been reversed on appeal in this case (ouch!!).

The first time around the trust beneficiary won on appeal when the 2d DCA reversed the trial court for improperly construing a trust instrument [click here for my blog post on that appeal].

This time around the trustee was the winning side on appeal when the 2d DCA reversed the trial court for making the trustee pay the trust beneficiary interest on improperly retained trust funds . . . in spite of the fact that the trustee had paid the beneficiary all of the over $200,000 of income generated on the retained trust assets. Here's how the 2d DCA explained where the court went wrong and why:

The [trustee]  . . . argues that the trial court erred in ordering that he return to Sondra's guardian ad litem “all of the funds and assets which were turned over to [the appellant] ... plus interest on those funds at the legal rate.” The appellant contends that he “has distributed to Sondra, as beneficiary, all of the income from the assets of the Trust since the assets were ordered returned by Sondra to the Trust, approximately $236,564.48.” The appellant further asserts that in awarding interest on “the entire corpus” to Sondra, the final judgment “fails to give [him] any credit for these payments.” According to the appellant, “[i]t is the current assets of the Trust that should be ordered released to Sondra.”


*     *     *     *     *

The trial court erred in treating the earlier erroneous judgment, which required that the distributed assets be returned to the trust, as though it were a money judgment which had been satisfied and then overturned. The funds that were returned to the trust were not turned over to the appellant to deal with as he pleased but were required to be administered by the appellant in accordance with his duties as a cotrustee. The ongoing administration of the trust necessarily involved circumstances that the trial court's order on review in effect ignores.

Here, the restoration of the status quo ante simply requires that “all remaining trust assets” be distributed by the appellant, in his capacity as trustee, as Sondra had directed pursuant to the provisions of the trust agreement. . . .

We therefore reverse the portion of the final judgment ordering the return of “all the funds and assets which were turned over” to the appellant pursuant to the overturned judgment, “plus interest on those funds at the legal rate.” On remand, the judgment shall be amended consistent with this opinion.

Lesson learned:

Remedies that may make sense in a standard commercial dispute simply don't apply in trust litigation.  The new Florida Trust Code should help future litigants - and courts - avoid making this mistake by listing the remedies for a breach of trust in one place (F.S. 736.1001) and how the resulting damages, if any, should be computed (F.S. 736.1002 and F.S. 736.1003).

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Perry v. Perry, --- So.2d ----, 2008 WL 588901 (Fla. 4th DCA Mar 05, 2008)

4th DCA Judge Gary M. Farmer penned a thoughtful concurring opinion in this case dissecting the following question:

When a decedent's will violates the terms of his divorce settlement agreement, as incorporated into a final judgment of divorce, what recourse do the rightful beneficiaries of the estate have?

Judge Farmer's analysis of this question provides an excellent road map for probate counsel to follow if ever presented with a similar set of facts.

1st Theory: Breach of Contract Claim:

When a will violates the terms of a valid contract, the primary remedy is an independent action for breach of contract - not a frontal assault on the will itself.  In other words, a will can be perfectly valid and also be in breach of a contract.  The remedy then is a suit for damages resulting from the contract breach, not an order declaring the will invalid and not subject to probate.  Here's how Judge Farmer summarized current Florida law on this point:

“Florida courts have held that ... the proper remedy for an alleged breach of a contractual provision in a will is an independent civil action for breach of contract. See Johnson v. Girtman, 542 So.2d 1033, 1035 (Fla. 3d DCA 1989); In re Estate of Algar, 383 So.2d 676, 677-78 (Fla. 5th DCA 1980); Sharps v. Sharps, 219 So.2d 735, 737 (Fla. 3d DCA 1969).”

Essentially these cases stand for the proposition that a will leaving property to someone to carry out a contractual duty is revocable even though the revocation breaches the contract, and so the remedy is an independent action for breach of contract.

2d Theory: Challenge the Will on the Grounds of Illegality:

What if the will-contract at issue is incorporated into a final judgment, as is common in divorce proceedings?  This is where Judge Farmer's analysis is most interesting.  According to Judge Farmer a will that violates a final judgment is analogous to a will containing a illegal clause, and thus the offending clause may be ignored.  This is a will-construction argument that is very different from the breach-of-contract theory I've always thought was primarily at issue in these cases.  Here's how Judge Farmer explained this point:

[A] bequest in violation of the rule against perpetuities is in opposition to the law of descent and distribution.FN3 Probate courts have a long tradition of refusing to carry out will provisions involving some attendant illegality in the distribution of decedent's property. Another example-much beloved of the jurisprudes FN4 is Riggs v. Palmer, 115 N.Y. 506, 22 N.E. 188 (1889), which held that the laws governing probate of wills and the distributions of estates, even though plainly requiring otherwise, will not be enforced to secure the benefit of a will to a legatee who has killed the testator in order to prevent a revocation of the will.

FN3. The common law rule against perpetuities has been replaced in Florida by statute. See § 689.225(7), Fla. Stat. (2007).

FN4. These legal philosophers cite Riggs as one of the chief examples of the incoherence of law-that is to say that opposing outcomes in legal disputes may both be justified by the legal corpus and that, contrary to the positivists, law is not a prediction of what a judge will do in a given case.

In this case, a substantial issue might be raised as to whether the probate court could properly enforce a will provision made in direct violation of a permanent injunction in a final judgment commanding the decedent to dispose of another person's property in a certain way. If a court of competent jurisdiction has already determined by permanent injunction that decedent may name only his children by an earlier marriage under the power of appointment, by what theory may the Probate Judge enforce a willful violation of that injunction? After all, a violation of a permanent injunction is as much a violation of the law as a bequest extending beyond the period of perpetuities.

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RBC Ministries v. Tompkins, --- So.2d ----, 2008 WL 398821 (Fla. 2d DCA Feb 15, 2008)

How a will contest is framed can make all the difference in the world.  If the will is being challenged on undue influence grounds, you can forget ending the case at a summary judgment hearing once the "presumption" of undue influence is established.  The probate court in this case ruled differently, and was reversed on appeal.  The following excerpts from the linked-to opinion sum up the 2d DCA's analysis of the controlling Florida law on this point.
 

The rebuttable “presumption of undue influence implements public policy against abuse of fiduciary or confidential relationships and is therefore a presumption shifting the burden of proof.” § 733.107(2), Fla. Stat. (2005). Such a presumption “affecting the burden of proof”-as distinct from a presumption affecting the burden of producing evidence-“imposes upon the party against whom it operates the burden of proof concerning the nonexistence of the presumed fact.” § 90.302(2), Fla. Stat. (2005). Accordingly, once a will contestant establishes the existence of the basis for the rebuttable presumption of undue influence, the burden of proof shifts to the proponent of the will to establish by a preponderance of the evidence the nonexistence of undue influence. Diaz v. Ashworth, 963 So.2d 731, 735 (Fla. 3d DCA 2007); Hack v. Janes, 878 So.2d 440, 443-44 (Fla. 5th DCA 2004).

*     *     *     *     *

“[O]nce the presumption arises, the undue influence issue cannot be determined in a summary judgment proceeding.” Allen v. In re Estate of Dutton, 394 So.2d 132, 135 (Fla. 5th DCA 1981). “[A] summary judgment cannot be entered in favor of one who has the burden of overcoming the presumption of undue influence for such proceeding does not afford the contesting party the right of cross-examination and an opportunity to present rebuttal testimony.” Knight v. Knight (In re Estate of Knight), 108 So.2d 629, 631 (Fla. 1st DCA 1959). Instead, “the proponent of the contested will must come forward with a reasonable explanation of his active role in the decedent's affairs,” and “the trial court is left to decide the case in accordance with the greater weight of the evidence.” Allen, 394 So.2d at 135.

Lesson learned?

In an undue-influence case, establishing the presumption of undue influence doesn't just shift the burden of proof, it forecloses the prospect of a quick win on summary judgment for the proponent of the will.  Understanding this point is key to understanding how high the stakes are - for both sides - once a court is asked to rule on whether the presumption's been triggered.

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Barrett v. Barrett, --- So.2d ----, 2008 WL 239032 (Fla. 4th DCA Jan 30, 2008)

Pro se (self-represented) litigants are not sensitive to the sanctions normally applied to counsel for bringing frivolous actions, and indigent litigants are not sensitive to fee-shifting or fines.  Little wonder then that an out of control pro se litigant can be especially difficult for both courts and opposing parties to contend with. I've written before about the "inherent power" Florida courts have to manage a vexatious pro se litigants [click here].

In the linked-to case the trustee of a family trust admitted that he had taken "several hundred thousand dollars" from the trust in the early 80's; when confronted by his brothers, he promised not to do it again and to pay the money back.  Fast forward to 2005, wayward trustee is again "experiencing financial difficulties" and again tries to dip into trust funds.  This time his brothers sued to have him formally removed as trustee.

Although he was represented by counsel for the appeal, it's unclear whether wayward trustee ("Marc"), was pro se for the underlying trial.  To me, it looks like he was pro se.  The issue on appeal was whether the trial court erred when it denied his last-minute attempt to amend his answer and claim a new affirmative defense.  The trial court said no, and the 4th DCA upheld that decision as follows:

In 2005, when Marc was again experiencing financial difficulties, he attempted to interfere with the management of the trust, and his brother's filed this lawsuit seeking to have him removed as co-trustee and a declaratory judgment ordering that any funds improperly taken from the trust by Marc would be deemed advancements, to be recouped as an offset against future disbursements to Marc from the trust.


The first issue Marc raises, and the only one we address, is the denial of his motion to amend his answer to raise the defense that any money he owed the trust had been discharged in bankruptcy. The complaint was filed in October, 2005, and seventeen days before the trial in July, 2006, Marc filed a motion for leave to amend with his proposed amendment attached. The proposed amendment alleged that Marc had gone through a bankruptcy in 1985 in Colorado and that the indebtedness to the trust was based on promissory notes he had executed in the early 1980's before the bankruptcy.

*     *     *     *     *

Significantly, Marc did not attach any documents to support his statements about the bankruptcy. The court entered an order denying the motion to amend without prejudice.

The non-jury trial did not begin as scheduled in July, 2006, but did take place at the end of September, 2006. At the beginning of the trial, Marc asked the court to continue the trial for a week or two stating that the bankruptcy court had reopened his bankruptcy case. The court refused to delay the trial but agreed to “incorporate whatever the bankruptcy court says” into the final judgment. No orders or any other documents from the bankruptcy court were filed.

Amendments to pleadings under rule 1.190 should be liberally granted when justice requires, but the closer a case is to trial when amendment is requested, the less likely a denial of amendment will be an abuse of discretion. Zikofsky v. Robby Vapor Sys., Inc., 846 So.2d 684 (Fla. 4th DCA 2003).

If Marc, who alleged that he had just reviewed the court file of his bankruptcy, had attached documents supporting his proposed affirmative defense that these claims were discharged, we have no doubt that the trial court would have allowed him to amend. Notably, the court denied the motion without prejudice, and the trial was postponed for several months, yet Marc made no effort to support his claim by attaching documents. Under these circumstances the court did not abuse its discretion in denying the motion.

Lesson learned?

Motions to amend pleadings under Rule 1.190 of the Florida Rules of Civil Procedure are almost always granted.  I have never objected to such motion.  This case is a good example of when "NO" might be the right answer to a motion to amend.  If a litigant appears to NOT be acting in good faith, the trial court should be willing to call him or her on it; and opposing counsel shouldn't feel constrained from asking a trial court to reign in this type of behavior . . . which in my opinion is most often seen in cases involving pro se litigants.

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Wheeler v. Powers, --- So.2d ----, 2008 WL 160881 (Fla. 5th DCA Jan 18, 2008)

Standing:

In Florida whether or not you have standing to litigate a probate dispute depends on whether or not you're an "interested person," as defined by F.S. § 731.201(21):

(21) “Interested person” means any person who may reasonably be expected to be affected by the outcome of the particular proceeding involved. In any proceeding affecting the estate or the rights of a beneficiary in the estate, the personal representative of the estate shall be deemed to be an interested person. In any proceeding affecting the expenses of the administration and obligations of a decedent's estate, or any claims described in s. 733.702(1), the trustee of a trust described in s. 733.707(3) is an interested person in the administration of the grantor's estate.... The meaning, as it relates to particular persons, may vary from time to time and must be determined according to the particular purpose of, and matter involved in, any proceedings.

In this case the primary issue on appeal was whether the Florida Probate Code's interested-person definition includes a nominated personal representative under a prior will.  The probate court said no, the 5th DCA said YES . . . but added the following proviso:

However, we do not suggest that every personal representative from every prior will should be granted standing. As stated in [Hayes v. Guardianship of Thompson, 952 So.2d 498, 507 (Fla.2006)], the definition of “interested person” is fluid and “must be determined according to the particular purpose of, and matter involved in, any proceeding.” 952 So.2d at 507. In this case, Dorothy was of sound mind when she prepared her 2001 Will and placed Mr. Wheeler in fiduciary positions. Nearly four years later and six weeks before she was involuntarily hospitalized with late stage Alzheimer's disease, she removed Mr. Wheeler from the Will and added her previously disinherited stepson.


Mr. Wheeler allegedly lost standing under Dorothy's 2001 Will due to undue influence. He was the alternate personal representative and co-trustee for approximately four years until Dorothy changed her Will under suspicious circumstances. Under these circumstances, we find that Mr. Wheeler is an “interested person” within the meaning of section 731.201(21). Therefore, we reverse the trial court's denial of relief on this claim.

Because we conclude that Mr. Wheeler has standing as an alternate personal representative under a prior Will, we need not reach the issue of whether Mr. Wheeler has standing as a co-successor trustee under a prior trust.

The take-away from this part of the case is that the named PR under a prior will "may" have standing if a win at trial would result in the appointment of the PR under the prior will.  It's also important to note that unlike most other forms of litigation, standing for purposes of contested probate proceedings is not limited to parties having an economic stake in the outcome.  A testator's right to designate whom will be his PR is of such importance that this status alone can be the basis for standing to litigate.  I've written before about the deference given under Florida law to a testator's selection of his PR [click here].

Caveat:

In this case the named PR  had also taken the  prudent step of filing a caveat.  Unfortunately, the clerk of the court failed to comply with its obligation to notify him when a petition to file the later-signed will was filed.  When the named PR sought to have the probate proceeding revoked on this basis the probate court ruled against him, and was again reversed on appeal for the following reason:

Another issue raised on appeal is whether probate of the 2005 Will should be revoked because timely notice was not provided to a caveator. Florida Probate Rule 5.260(f) states that “[a]fter the filing of a caveat by an interested person other than a creditor, the court shall not admit a will of the decedent to probate or appoint a personal representative without service of formal notice on the caveator or the caveator's designated agent.” Additionally, the Florida Supreme Court has long recognized that the filing of a caveat precludes the admission of a will to probate until the caveator is provided statutory notice. See Street v. Crosthwait, 186 So.2d 516 (Fla.1939); Barry v. Walker, 137 So.2d 711 (Fla.1931); Grooms v. Royce, 638 So.2d 1019 (Fla. 5th DCA 1994); In re Estate of Hartman, 836 So.2d 1038 (Fla. 2d DCA 2002); Nardi v. Nardi, 390 So.2d 438 (Fla. 3d DCA 1980). Since we find that Mr. Wheeler was an “interested person” within the meaning of section 731.201(21), we hold that the trial court erred in not revoking the probate of the 2005 Will because timely notice was not provided to a caveator as required by Florida Probate Rule 5.260(f) and Florida case law. Thus, the orders appointing the personal representative and admitting the 2005 Will to probate must be set aside to provide notice to the caveator.

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Is a will invalid if one of the witnesses is an "interested" party? In Florida the answer is clearly NO:

732.504 Who may witness.--

(1) Any person competent to be a witness may act as a witness to a will.

(2) A will or codicil, or any part of either, is not invalid because the will or codicil is signed by an interested witness.

Florida's is not the traditional approach, which may be why most people instinctively shy away from witnessing wills that benefit them.  For example, Joel Schoenmeyer recently wrote here on his Death and Taxes Blog about a famous pre-WWII case out of California where an "unorthodox" will was invalidated because the attesting witnesses also benefited from the will:

MISS LILLIAN PELKEY’S PETTICOAT
In Los Angeles, before the Second World War, George W. Hazeltine, 86, lay ill in hospital. He wanted to make a new will and leave $10,000 to his nurses, Lillian Pelkey and Madeline Higgins. There being no paper to hand, Miss Pelkey pulled up her dress, placed a board under her petticoat, and the will was pencilled on her undergarment. The petticoat was eventually admitted to probate but the nurses were prevented from benefiting from the will because they were attesting witnesses of it.

By the way, as noted by Joel, Illinois continues to follow the traditional rule disqualifying attesting witnesses from benefiting under wills they witnessed.  

The commentary to Uniform Probate Code section 2-505 (which was adopted verbatim by Florida as F.S. 732.504) explains why the old rule against witness-beneficiaries  was abandoned by the UPC drafters:

The position adopted simplifies the law relating to interested witnesses. Interest no longer disqualifies a person as a witness, nor does it invalidate or forfeit a gift under the will. Of course, the purpose of this change is not to foster use of interested witnesses, and attorneys will continue to use disinterested witnesses in execution of wills. But the rare and innocent use of a member of the testator's family on a home?drawn will is not penalized.

This approach does not increase appreciably the opportunity for fraud or undue influence. A substantial devise by will to a person who is one of the witnesses to the execution of the will is itself a suspicious circumstance, and the device might be challenged on grounds of undue influence. The requirement of disinterested witnesses has not succeeded in preventing fraud and undue influence; and in most cases of undue influence, the influencer is careful not to sign as a witness, but to procure disinterested witnesses.

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Raborn v. Menotte, --- So.2d ----, 2008 WL 90037 (Fla. Jan 10, 2008)

The linked-to Florida Supreme Court opinion is the latest chapter in a bankruptcy proceeding that's been ongoing since 2001, has been the subject of numerous appeals in the federal-court system, and single-handedly resulted in a 2004 amendment to F.S. 689.07(1), which governs conveyances of real property to trusts.  I previously wrote about this case here.

For the family involved in this case, the question was whether the family horse farm, which was deeded to one of the children as trustee of a trust benefiting him and his two siblings, would be exposed to the trustee's personal creditor's in the context of his personal bankruptcy.  For lawyers, the question is: "How can I draft a deed-to-trust that ensures none of my clients ever get sucked into this kind of nightmare?"  For those looking for sample forms, an excellent starting point are documents provided by the ABA, which I discuss and link to in a blog post entitled The ABA Promotes Land Trusts.

In order to understand the issues shaping the form text contained in the ABA documents, the Florida Supreme Court provides the following concrete guidance in the linked-to opinion explaining when a deed conveying title to a trustee conveys fee-simple title (thus exposing the trust assets to the trustee's personal creditors) or mere legal title (which does NOT expose the trust assets to the trustee's personal creditors):

    Though inartfully drafted, section 689.07(1) is unambiguous. A “deed or conveyance of real estate” that simply adds the words “trustee” or “as trustee” to the grantee's name is “declared to have granted a fee simple estate,” unless a declaration of trust is of record when the deed is recorded, or the deed itself either names any beneficiaries or the nature and purpose of the trust, if any, or facially expresses a contrary intention. See One Harbor Fin. Ltd. v. Hynes Props., LLC, 884 So.2d 1039, 1043 (Fla. 5th DCA 2004). In other words, a deed that simply refers to the grantee as “trustee” conveys a fee simple estate in Florida with three exceptions. These three exceptions are: (1) the deed names the beneficiaries or states the nature and purpose of the trust; (2) the deed expresses a contrary intention; or (3) a declaration of trust is of record. See id.


    In this case, the deed itself clearly expresses that the grantors, Robert and Lenore Raborn, intended to deed the Raborn family farm to Douglas Raborn in trust. Thus, the deed falls under the “contrary intention” exception in section 689.07(1). This “contrary intention” is expressed in the deed in multiple ways. First, the deed is entitled “Conveyance Deed to Trustee Under Trust Agreement.” In re Raborn, 470 F.3d at 1321. It then identifies Robert and Lenore Raborn as “Settlors under the Raborn Farm Trust Agreement dated January 25, 1991” and conveys the farm to Douglas Raborn, not simply as “trustee” or “as trustee,” but “as Trustee under the Raborn Farm Trust Agreement dated January 25, 1991.” Id. The deed then amplifies the limited nature of the conveyance by stating that the trustee is “to have and to hold the said estate with the appurtenances upon the trust and for the uses and purposes herein and in said Trust Agreement set forth.” Id. Moreover, the deed repeatedly refers to the Trust Agreement and acknowledges the Trustee's broad power to deal with the property. Id. Finally, the grantors/settlors signed the deed and swore before a notary public that they “executed said instrument for the purposes therein expressed.” Id. In light of these facts, though no beneficiaries are named and the nature and purpose of the trust is not stated, this deed expresses the grantor's clear intent to deed the Raborn family farm to Douglas Raborn to be held in trust in accordance with the Raborn Farm Trust Agreement dated January 25, 1991.

    Accordingly, section 689.07(1) does not operate to declare that this deed conveyed a fee simple estate to the grantee.FN2 Instead, Douglas Raborn holds mere legal title as trustee.

FN2. As noted by the amicus curiae and undisputed by the appellant, this result is consistent with the standard practice in Florida. Florida lawyers and their clients have long understood and relied on the fact that specifically identifying the trust by its name or date in a deed is sufficient to indicate the grantor's intention to convey real property in trust and thus avoid any contrary dictate of section 689.07(1). See Administration of Trusts in Florida, 14.11 (Fla. Bar Cont'ng Legal Educ. 3rd ed.2001).

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• 5th DCA: Wheeler v. Powers, --- So.2d ----, 2008 WL 160881 (Fla. 5th DCA Jan 18, 2008) (Standing to Revoke Probate)
• 5th DCA: Fernandez-Fox v. Estate Of Lindsay, --- So.2d ----, 2008 WL 160920 (Fla. 5th DCA Jan 18, 2008) (Deadlines to File Independent Actions)
• 2d DCA: In re Estate of McKibbin, --- So.2d ----, 2008 WL 161322 (Fla. 2d DCA Jan 18, 2008) (Powers of Attorney)

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Knight v. C.I.R. , --- S.Ct. ----, 2008 WL 140749 (U.S. Jan 16, 2008)

In an opinion that will have significant implications for every estate or trust paying U.S. income taxes, the Supreme Court has just ruled on the level of deductibility Internal Revenue Code Section 67(e)(1) permits for trust investment advisory fees (IAFs). The trustee/taxpayer in this case argued that IAFs are fully deductible before arriving at a trust's taxable income.  As I previously reported [click here], this argument lost both at trial and before the Second Circuit.

Unfortunately for the trustee he also lost before the Supreme Court, which ruled in the linked-to opinion that most IAFs are are deductible only to the extent that they exceed 2 percent of a trust's adjusted gross income (AGI), often referred to as the “2 percent-of-AGI floor.”

But the news isn't all bad.  Some IAFs remain fully deductible if they can be construed as being uniquely applicable to trusts.  Chief Justice Roberts hinted at this reading of the statute during oral arguments, as reported here on law.com:

Several times during the argument hour, Chief Justice John Roberts brought up the idea of breaking up the costs for investment advice into those representing "general stock picking advice," and those for "specialized fiduciary advice," and only providing an exception for the latter. Justice Antonin Scalia, however, expressed skepticism about whether it would be possible to "slice up" adviser fees.

And here's how this approach was expressed in the Court's linked-to opinion (which was written by Chief Justice Roberts):

As the Solicitor General concedes, some trust-related investment advisory fees may be fully deductible “if an investment advisor were to impose a special, additional charge applicable only to its fiduciary accounts.” Brief for Respondent 25. There is nothing in the record, however, to suggest that Warfield charged the Trustee anything extra, or treated the Trust any differently than it would have treated an individual with similar objectives, because of the Trustee's fiduciary obligations. See App. 24-27. It is conceivable, moreover, that a trust may have an unusual investment objective, or may require a specialized balancing of the interests of various parties, such that a reasonable comparison with individual investors would be improper. In such a case, the incremental cost of expert advice beyond what would normally be required for the ordinary taxpayer would not be subject to the 2% floor. Here, however, the Trust has not asserted that its investment objective or its requisite balancing of competing interests was distinctive. Accordingly, we conclude that the investment advisory fees incurred by the Trust are subject to the 2% floor.

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• US S.Ct.: Knight v. C.I.R. , --- S.Ct. ----, 2008 WL 140749 (U.S. Jan 16, 2008) (Income tax deductions for trusts and estates)

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• FL SCT: Raborn v. Menotte, --- So.2d ----, 2008 WL 90037 (Fla. Jan 10, 2008)

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Gurfinkel v. Josi, --- So.2d ----, 2007 WL 4322156 (Fla. 3d DCA Dec 12, 2007)

Probate litigation involving powers of attorney seem to always revolve around whether the attorney in fact acted outside the scope of authority granted by the instrument [click here, here for past examples].  This case is yet another variation on the same theme.  Here the issue was whether the attorney in fact was authorized to amend the settlor's revocable trust effectively disinheriting two of the settlor's three children.  The trial court said "yes," the 3d DCA said "no way."

Simply figuring out what to focus on in any type of litigation - including contested probate proceedings - is half the battle.  In probate litigation involving powers of attorney, focus is everything.

1.  POA v. Revocable Trust: Focus on the Trust Agreement:

If the dispute revolves around the use of a POA to amend or revoke a trust agreement, don't let yourself get sucked into a battle over whether or not the POA is valid, the product of undue influence, lack of capacity, blah, blah, blah.  Stay focused on the trust agreement!  In this case, the trial court ruled that a POA could be used to amend a trust agreement . . . even though the express language of the trust agreement said that was a definite "no-no."  Here's how the 3d DCA explained its reversal of the trial court on this point:

In this case, the Trust expressly reserves the right to amend or withdraw assets from the Trust to the grantor. Article VI, Paragraph E, further prohibits any “conservator,” “guardian,” or “any other person” from exercising these rights during the lifetime of the grantor. (Emphasis added.) The language of the reservation and prohibition in this case are very similar to those considered by the First District Court of Appeal in Mann v. Cooke, 624 So.2d 785, 786-87 (Fla. 1st DCA 1993). Although the prohibition in Mann also included an “attorney-in-fact” among those prohibited from exercising the rights of the grantor during his lifetime,[FN1] we find that to be a distinction without a difference. As in Mann, we conclude the prohibition in this case “unambiguously provides that the holder of a durable power of attorney cannot withdraw trust funds.” Id. at 787.


[FN1.] The prohibition treated in Mann reads: “Neither a conservator, attorney in fact, nor a guardian of the Grantor, nor any person other than Grantor may exercise any of the rights reserved to Grantor by the provisions of this Article.” Mann, 624 So.2d at 787 (emphasis added).

2.  ANY contested POA: Focus on F.S. 709.08:

What is often overlooked in litigation involving POAs is that under F.S. 709.08 the authority granted by a POA is very narrow.  In other words, under F.S. 709.08 an attorney is usually NOT authorized to take action (such as amending a revocable trust) unless the POA expressly says you CAN do it [click here for prior example of same point].  So if the POA is being challenged, focusing on the F.S. 709.08 makes sense.  Here's on the 3d DCA made this point in the linked-to case:

Josi argues that Paragraph 16 of the Durable Power of Attorney condones his father's attempt to amend the Trust. We disagree. Just as the power to revoke or amend a trust must be exercised in strict conformity with the terms expressed in the instrument, see MacFarlane, 203 So.2d at 60, authorizations conferred through powers of attorney likewise must strictly conform. See § 709.08(7)(b)(5), Fla. Stat. (1999) (providing that an attorney-in-fact acting under a Durable Power of Attorney may not “[c]reate, amend, modify, or revoke any document or other disposition effective at the principal's death or transfer assets to an existing trust created by the principal unless expressly authorized by the power of attorney ....”) (emphasis added); James v. James, 843 So.2d 304, 308 (Fla. 5th DCA 2003) (“In general, an agent cannot make gifts of his principal's property to himself or others unless it is expressly authorized in the power .”) (emphasis added); Vaughn v. Batchelder, 633 So.2d 526, 528 (Fla. 2d DCA 1994); Kotsch v. Kotsch, 608 So.2d 879, 880 (Fla. 2d DCA 1992); De Bueno v. Alejandro Bueno Castro, A.B.P., Inc., 543 So.2d 393, 394 (Fla. 4th DCA 1989); Bloom v. Weiser, 348 So.2d 651, 653 (Fla. 3d DCA 1977) (“[T]he instrument will be held to grant only those powers which are specified.”).

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A NY Times article entitled A Lurid Aftermath to a Hedge Fund Manager’s Life reports on a brewing dispute over a Jupiter, FL estate reportedly "worth at least $25 million."  The following excerpts from the linked-to article give us a sense of what kind of case this will be (ugly!) and where the battle lines are being drawn:

JUPITER, Fla. — A life of private jets and black-tie balls ended with Seth Tobias, a wealthy investment manager and a familiar presence on CNBC, floating face down in the swimming pool of his mansion here.

*     *     *     *     *

Mr. Tobias, who was 44 years old, had apparently suffered a heart attack, his brother Spence said at the time. The police did not consider his death suspicious.

But now an unfolding drama over Mr. Tobias’s estate is providing a lurid account of fast money and faster living in the volatile world of hedge funds. Mr. Tobias’s four brothers and Mrs. Tobias are locked in a legal battle over the estate, which is worth at least $25 million. And, in a civil complaint, they have gone so far as to accuse her of murder.

The brothers, Samuel, Spence, Scott and Joshua, claim Mrs. Tobias drugged her husband and lured him into the pool. Bill Ash, a former assistant to Mr. Tobias, said he had told the police that Mrs. Tobias confessed to him that she had cajoled her husband into the water while he was on a cocaine binge with a promise of sex with a male go-go dancer known as Tiger.

*     *     *     *     *
At the center of the dispute is Mr. Tobias’s will, which designates his brothers as beneficiaries but does not name Mrs. Tobias. She contends that she is entitled to the estate because the will was signed before the couple married. In court filings, the Tobias brothers invoke Florida’s “slayer statute,” which prohibits inheritance by a person who murders someone from whom they stand to inherit. They claim she “intentionally killed” her husband “by asphyxiation and drowning.”

Florida's "pretermitted spouse" statute:

Mrs. Tobias' argument is based on Florida's version of the pretermitted spouse rule.  Here's how that argument is played out:
 

Mr. Tobias married Mrs. Tobias after making his will.  As such, pursuant to F.S. §732.301, regardless of what the will says, Mrs. Tobias is entitled receive a share of his $25+ million estate equal in value to that which she would have received if Mr. Tobias had died intestate, unless 1) provision has been made for, or waived by, Mrs. Tobias by a nuptial agreement; 2) Mrs. Tobias is otherwise provided for in the will (she apparently is not); or 3) the will discloses an intention not to make provision for Mrs. Tobias.


Pursuant to F.S. §732.102, the intestate share to which Mrs. Tobias would be entitled is as follows: a) If there are no living lineal descendants of Mr. Tobias, she gets the entire intestate estate; b) if there are surviving lineal descendants of Mr. Tobias, all of whom are also Mrs. Tobias' lineal descendants, she gets  the first $60,000 of the intestate estate, plus one-half of the balance of the intestate estate; and c) if there are surviving lineal descendants of Mr. Tobias, one or more of whom are not lineal descendants of Mrs. Tobias, she gets one-half of the intestate estate.

Florida's "slayer" statute:

Mr. Tobias' surviving brothers argue that Mrs. Tobias murdered her husband, and thus she shouldn't get a penny of the estate under Florida's version of the "slayer" rule, a doctrine I've written about before [see here, here, here]. 

Florida’s slayer statutes are found at F.S. § 732.802 (probate estates) and F.S. § 736.1104 (trust estates).

Although a murder conviction would make things easier for the Tobias brothers, it's not a pre-condition to their lawsuit. If Mrs. Tobias were convicted of the murder, that would conclusively divest her of all of her interest in Mr. Tobias' estate; but if Mrs. Tobias were acquitted of the murder (or never charged), the probate court could still weigh the evidence and determine "by the greater weight of the evidence" whether or not she should be divested. Here is the key language from F.S. § 732.802:
 

(1) A surviving person who unlawfully and intentionally kills or participates in procuring the death of the decedent is not entitled to any benefits under the will or under the Florida Probate Code, and the estate of the decedent passes as if the killer had predeceased the decedent.

*     *     *     *     *

(5) A final judgment of conviction of murder in any degree is conclusive for purposes of this section. In the absence of a conviction of murder in any degree, the court may determine by the greater weight of the evidence whether the killing was unlawful and intentional for purposes of this section.

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At it's core, the job of trustee is as much about keeping beneficiaries adequately informed as anything else.  Most trust litigation can be traced back to a trustee's inability to adequately explain him or herself to the trust beneficiaries.  The importance of the trustee's duty to "inform and report" is summarized nicely in The Trustee's Duty to Inform and Report Under the Uniform Trust Code," 40 Real Property, Probate and Trust J. 373 (Summer 2005), by author and Denver, Colorado, trusts-and-estates attorney Kevin Millard:

To be able to enforce the trustee’s duties, the beneficiary of a trust must know of the existence of the trust and be informed about the administration of the trust. If there were no duty to inform and report to the beneficiary, the beneficiary might never become aware of breaches of trust or might be unaware of breaches until it is too late to obtain relief. In addition, providing information to the beneficiary protects the trustee from claims being brought long after events that allegedly constituted a breach, because the statute of limitations or the doctrine of laches will prevent the beneficiary from pursuing stale claims. As a result, the duty to inform and report to the beneficiary is fundamental to the trust relationship.

Florida Trust Code: Duty to Inform and Account

Under F.S. 736.0813 a Florida trustee has the duty to keep the "qualified beneficiaries" of an irrevocable trust reasonably informed of the trust and its administration.  The extent of this duty - which is limited solely to qualified beneficiaries - includes, but is not limited to, the following 5 specifically defined reporting duties:

1. Within 60 days after acceptance of the trust, the trustee shall give notice to the qualified beneficiaries of the acceptance of the trust and the full name and address of the trustee.
2. Within 60 days after the date the trustee acquires knowledge of the creation of an irrevocable trust, or the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, whether by the death of the settlor or otherwise, the trustee shall give notice to the qualified beneficiaries of the trust's existence, the identity of the settlor or settlors, the right to request a copy of the trust instrument, and the right to receive trust accountings.
   
3. Upon reasonable request, the trustee shall provide a qualified beneficiary with a complete copy of the trust instrument.
4. A trustee of an irrevocable trust shall provide a trust accounting, as set forth in F.S. 736.08135, to each qualified beneficiary annually and on termination of the trust or on change of the trustee.
5. Upon reasonable request, the trustee shall provide a qualified beneficiary with relevant information about the assets and liabilities of the trust and the particulars relating to administration.

Qualified Beneficiaries:

The term “qualified beneficiary” is used pervasively throughout the Florida Trust Code, not just with respect to a trustee's duty to inform and report.  So if you're a Florida trustee, you need to know this term cold.

As used in the Florida Trust Code, the term “beneficiary” refers to the universe of persons who have a beneficial interest in a trust, as well as to any person who has a power of appointment over trust property in a capacity other than as trustee. F.S. 736.0103(4)  It is immaterial for this purpose whether the beneficial interest is present or future, vested or contingent, or whether the person having the interest is ascertainable or even living. By contrast, the term “qualified beneficiary” encompasses only a limited subset of all trust beneficiaries. In effect, the class is limited to living persons who are current beneficiaries, intermediate beneficiaries, and first-line remainder beneficiaries, whether vested or contingent.  Here's how its defined in F.S. 736.0103(14):

(14) "Qualified beneficiary" means a living beneficiary who, on the date the beneficiary's qualification is determined:

(a) Is a distributee or permissible distributee of trust income or principal;

(b) Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in paragraph (a) terminated on that date without causing the trust to terminate; or

(c) Would be a distributee or permissible distributee of trust income or principal if the trust terminated in accordance with its terms on that date.

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Berlin v. Pecora, --- So.2d ----, 2007 WL 2710764 (Fla. 4th DCA Sep 19, 2007)

In 2003 Michael Pecora shot and killed his partner Jerome Berlin, then committed suicide.  They were the co-owners of Signature Gardens, a well-known banquet hall company in South Florida [click here for back story].

In the linked-to case the issue was whether Pecora's share of the company was owned as tenants by the entireties (TBE) with his wife.  If it was, then his share of he company would not be subject to claims by creditors, including any wrongful death action Berlin's estate might be pursuing.

I think this case is another example of "lateral thinking" [click here] in the probate litigation context.  Rather than defending against a wrongful death claim, Pecora's estate simply argued the estate had no significant assets: the estate's most valuable asset (a one-half stake in the business) went directly to Pecora's surviving spouse as TBE property.  "Presto," no assets.

Road map for proving TBE ownership:

• Step 1: Corporate documents are NOT conclusive evidence; trial testimony and other evidence may trump corporate documents when deciding TBE 

On appeal, Berlin argues that the trial court erred because it overlooked the corporate documents. Berlin cites to several documents as evidence that both corporations established stock ownership in Michael alone. These documents include the minutes of Deux Michel, Inc. showing that Michael owned 200 shares; a February 1984 resolution and stock certificate showing an additional hundred shares issued to Michael, individually; July 1993 minutes of Grand Partners, Inc. reflecting Michael owning 200 shares in the company; and K-1 tax schedules for Deux Michel, Inc. and Grand Partners, Inc. showing Michael as the shareholder.

“[C]orporate records provide a prima facie evidentiary basis for determining ownership of corporate stock.” Sackett v. Shahid, 722 So.2d 273, 275 (Fla. 1st DCA 1998). However,

[I]t is within the trial judge's province, when acting as trier of both fact and law, to determine the weight of the evidence, evaluate conflicting evidence, and determine the credibility of the witnesses, and such determinations may not be disturbed on appeal unless shown to be unsupported by competent and substantial evidence, or to constitute an abuse of discretion.

Jockey Club, Inc. v. Stern, 408 So.2d 854, 855 (Fla. 3d DCA 1982).

The above mentioned documents provide evidence that Michael was the only recognized name mentioned with stock ownership in the companies. Nevertheless, these documents are contradicted with testimony at trial that the stock was held jointly; evidence and testimony that Michael and Arlene made purchases through a joint account; and other documents admitted at trial indicating joint ownership, thereby providing competent and substantial evidence for the trial court's ruling.

• Step 2:  Business purchased with joint bank account funds may create TBE property

Bank accounts are afforded the same presumption of tenancy by the entireties as is real property. Beal Bank, 780 So.2d at 58. Property purchased with joint funds may create a tenancy by the entirety in that property so long as the unities are met. For example, in Winterton v. Kaufmann, 504 So.2d 439 (Fla. 3d DCA 1987), the court found that after the husband died, the wife owned bonds that were purchased with joint funds and kept in a joint safe deposit box. See also Estate of Fields v. Fields, 581 So.2d 1387, 1388 (Fla. 3d DCA 1991) (“The bearer bonds, purchased with joint funds and maintained in the couple's joint safe deposit box, passed to the wife upon the husband's death. The bearer bonds were held by the spouses as tenants by the entirety; ownership vested in the wife as the survivor.”). Once tenancy by the entirety property is established, its subsequent transfer to another asset does not terminate the unities of title or possession. See Passalino v. Protective Group Sec., Inc., 886 So.2d 295, 297 (Fla. 4th DCA 2004) (“Transferring the proceeds of the sale of entireties property to a trustee for the benefit of the husband and wife does not terminate the unities of title or possession....”); Lerner v. Lerner, 113 So.2d 212 (Fla. 2d DCA 1959).

• Step 3: Meet your burden of proof at trial

Under a tenancy by the entirety, “[u]pon the death of one spouse, the surviving spouse continues to be seized of the whole. Thus ... after death of one spouse the surviving spouse continues to hold the entire estate....” Cacciatore v. Fisherman's Wharf Realty Ltd. P'ship, 821 So.2d 1251, 1254 (Fla. 4th DCA 2002). Property held as a tenancy by the entireties possesses six characteristics:

(1) unity of possession (joint ownership and control); (2) unity of interest (the interests in the account must be identical); (3) unity of title (the interests must have originated in the same instrument); (4) unity of time (the interests must have commenced simultaneously); (5) survivorship; (6) unity of marriage (the parties must be married at the time the property became titled in their joint names).

Beal Bank, SSB v. Almand & Assocs., 780 So.2d 45, 52 (Fla.2001) (footnote omitted).

*     *     *     *     *

Here, the six characteristics needed to prove the tenancy by the entirety are largely based upon the assumption that joint funds were used in the inception of the companies, even though the proof of the use of joint funds is illustrated only by checks dated after the inception of the companies and witness testimony.

“[U]nless a tenancy by the entireties is clearly expressed in the instrument, the parties must prove they intended to create a tenancy by the entireties.” Hurlbert v. Shackleton, 560 So.2d 1276, 1279 (Fla. 1st DCA 1990); Morse v. Kohl, Metzger, Spotts, P.A., 725 So.2d 436, 438 (Fla. 4th DCA 1999). The trial court heard testimony from witnesses as well as the admission of several documents in which it found that the intention was to create a tenancy by the entirety. This is a factual question which the court ultimately determined by competent substantial evidence in favor of Arlene. See Sitomer v. Orlan, 660 So.2d 1111, 1115 (Fla. 4th DCA 1995) (“Whether the parties created a tenancy by the entireties in a bank account-whether they were each taking the whole of the account-is a question of fact.”).

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Effective July 1, 2007, Florida adopted legislation expressly authorizing mandatory arbitration clauses in wills and trusts.  The new statute provides as follows:

731.401 Arbitration of disputes.--

(1) A provision in a will or trust requiring the arbitration of disputes, other than disputes of the validity of all or a part of a will or trust, between or among the beneficiaries and a fiduciary under the will or trust, or any combination of such persons or entities, is enforceable.

(2) Unless otherwise specified in the will or trust, a will or trust provision requiring arbitration shall be presumed to require binding arbitration under s. 44.104.

Two of the Florida attorneys instrumental in passage of the new legislation, Bruce M. Stone and Robert W. Goldman, also co-authored a 2005 ACTEC article discussing mandatory arbitration clauses in wills and trusts entitled Resolving Disputes with Ease and Grace.  The ACTEC article does a good job of summarizing the pros and cons of arbitration, concluding that arbitration is likely "ideal" in the following circumstances:

1. Fee disputes, including fiduciary and legalfees
2. Prudent investing disputes
3. Document construction
4. Principal and income disputes, includingadjustment powers
5. Trust terminations or severances
6. Accounting disputes
7. Declaratory relief in general

This list of "ideal" abritration senarios implicitly recognizes that arbitration is NOT the best solution for resolving ALL disputes, a view I share and have written about [click here].

Sample arbitation clauses:

Sample clauses are often the best way to understand in concrete terms how a general concept may be applied in the real world.  Note that all of the sample clauses do two things:

• require arbitration; and
• define the procedural rules that would govern the arbitation proceeding (for example, who appoints the arbitrator, how many arbitrators are required, what are the discovery rules, etc). 

Under the new Florida arbitration statute, if the settlor does not identify  the procdural rules he or she would like to apply the default rules are provided by F.S. 44.104.

The AAA's website [click here] provides specific procedural rules for arbitrating such wills-and-trusts claims and the following sample arbitration clause:

AAA Standard Arbitration Clause:

In order to save the cost of court proceedings and promote the prompt and final resolution of any dispute regarding the interpretation of my will (or my trust) or the administration of my estate or any trust under my will (or my trust), I direct that any such dispute shall be settled by arbitration administered by the American Arbitration Association under its Arbitration Rules for Wills and Trusts then in effect. Nevertheless the following matters shall not be arbitrable questions regarding my competency, attempts to remove a fiduciary, or questions concerning the amount of bond of a fiduciary. In addition, arbitration may be waived by all sui juris parties in interest.

The arbitrator(s) shall be a practicing lawyer licensed to practice law in the state whose laws govern my will (or my trust) and whose practice has been devoted primarily to wills and trusts for at least ten years. The arbitrator(s) shall apply the substantive law (and the law of remedies, if applicable) of the state whose laws govern my will (or my trust). The arbitrator's decision shall not be appealable to any court, but shall be final and binding on any and all persons who have or may have an interest in my estate or any trust under my will (or my trust), including unborn or incapacitated persons, such as minors or incompetents. Judgment on the arbitrator's award may be entered in any court having jurisdiction thereof.

The authors of Resolving Disputes with Ease and Grace also provided four sample arbitration clauses, including the following two:

Generic provision—Short version:

It is my hope and expectation that there will be no dispute in relation to this Trust [my estate]. Nevertheless, if there is any dispute or controversy among any of the Trustee [personal representative] and the beneficiaries involving any aspect of this Trust [my estate] or its administration, the parties to the dispute may agree on the manner of resolution. If there is no such agreement, the disputing parties shall submit the matter to mediation, and, if unresolved by mediation, to binding arbitration. If a party to the dispute fails to participate in good faith in the mediation or arbitration, the arbitrator or the court having jurisdiction over this trust [my estate] is authorized to award costs and attorney’s fees from that party’s beneficial share or from other amounts payable to that party (including amounts payable to that party as compensation for services as a fiduciary).

Generic provision—Long version with forfeiture clause:

[Comment: As with other language in these sample clauses, the forfeiture provision in paragraph (c) below has not been tested in the courts. Assuming that a mandatory arbitration provision in a will or trust is otherwise enforceable in a given jurisdiction, it is believed that a forfeiture provision is likely to be enforceable also, including in jurisdictions that do not recognize the validity of no-contest provisions.]

(a) It is my hope and expectation that there will be no dispute in relation to this Trust [my estate]. Nevertheless, if there is any dispute or controversy among any of the Trustee [personal representative] and the beneficiaries involving any aspect of this Trust [my estate] or its administration, the parties to the dispute may agree on the manner of resolution. If there is no such agreement, the disputing parties shall submit the matter to mediation, and, if unresolved by mediation, to binding arbitration. If the parties are unable to agree on the selection of a mediator or arbitrator, the court having jurisdiction over this Trust [my estate] shall select the mediator or arbitrator. [The mediator or arbitrator shall have the following qualifications: ACTEC fellow; attorney with at least 10 years’ experience in trusts and estates; etc.]

(b) In the case of arbitration, the arbitrator shall establish the procedure for arbitrating the matter or matters and recognizing the goals of privacy, efficiency, less formality than in a judicial tribunal, and less expense than might be incurred in a judicial forum, while reaching a fair result. The decision of the arbitrator shall be final and binding on the Trustee [Executor], all beneficiaries, and their heirs, successors, and assigns. If the arbitrator determines that a guardian ad litem is needed to represent the interests of unborn, unascertained, or incapacitated interested persons, a guardian ad litem shall be appointed by the court having jurisdiction over this Trust [my estate].

(c) If a disputing beneficiary fails to participate in good faith in the agreed-on procedure for resolution, or in the mediation or arbitration if there is no such agreement, the disputing beneficiary’s interest in this Trust [my estate] shall be forfeited and the beneficiary, if an individual, shall be treated as having predeceased the Settlor [me] [with no surviving issue]. If for any reason it is determined by the court having jurisdiction over this Trust [my estate] that the foregoing provision for forfeiture is not effective, the arbitrator or the court having jurisdiction over this trust [my estate] is authorized to award costs and attorney’s fees from the beneficiary’s share or from other amounts payable to the beneficiary.

(d) The provisions of subparagraph (c) above shall not apply to the beneficial interests of:

(1) the Settlor’s [my] spouse, to the extent that his [her] interest would otherwise qualify for an estate or gift tax marital deduction;

(2) any beneficiary, to the extent that the beneficial interest would otherwise qualify for an income, gift, or estate tax deduction for charitable purposes unless and until all such charitable beneficial interests have expired.

If, however, the Settlor’s [my] spouse or any such beneficiary who is a disputing beneficiary to whom the above forfeiture provisions do not apply nevertheless fails to participate in good faith in the agreed-on procedure for resolution or in the mediation or arbitration, the arbitrator or the court having jurisdiction over this trust [my estate] is authorized to award costs and attorney’s fees from his, her, or its beneficial share.

(e) The acceptance of the Trust by any trustee or co-trustee constitutes the trustee’s or co-trustee’s agreement to comply with the above provisions. If a trustee or co-trustee is a party to a dispute and fails to participate in good faith in the agreed-on procedure for resolution or in the mediation or arbitration, it shall be deemed that the trustee or co-trustee has breached its fiduciary duties and has resigned, and the court having jurisdiction over this Trust is authorized to surcharge the trustee or co-trustee for costs, attorney’s fees, and any other sums deemed appropriate. [The personal representative’s consent to act constitutes his, her, or its agreement to comply with the above provisions. If a personal representative is a party to a dispute and fails to participate in good faith in the agreed-on procedure for resolution or in the mediation or arbitration, it shall be deemed that the personal representative has breached his, her, or its fiduciary duties and has resigned, and the court having jurisdiction over my estate is authorized to surcharge the personal representative for costs, attorney’s fees, and any other sums deemed appropriate.]

(f) If the validity of these provisions requiring arbitration is contested, the court having jurisdiction over this Trust [my estate] shall resolve that issue prior to resolution of the balance of the dispute. If the arbitration provisions are determined to be valid, the balance of the disputed issues shall be resolved as provided in this Article __.

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Vaughan v. Boerckel, --- So.2d ----, 2007 WL 2428516 (Fla. 4th DCA Aug 29, 2007)

If an estate plan involves real property, all of the formalities for conveying real property must be observed.  When it comes to conveying real property, Florida law treats wills and trusts very differently.  Forgetting this distinction can cause an entire estate plan to collapse in on itself (and maybe get the estate planning attorney in big trouble).

The law:

The key statute to keep in mind in this regard is F.S. 689.06, which provides that real property must be conveyed by deed or will.  Therefore, as a general rule, a declaration of trust alone will not be sufficient to convey real property to a trustee unless the declaration of trust contains language that both:

• purports to convey the real estate from the present owner to the trustee; and
• complies with the formalities required for a deed. 

An exception to this general rule applies to owners of real property who become trustees of their own property for the benefit of third parties. In this situation, a valid trust is created as long as there is a written declaration of trust in compliance with F.S. 689.05.

The facts:

In the linked-to case the decedent executed a pour-over will and revocable trust.  The decedent owned 5 separate items of real property in New York, all of which were titled in the name of a single holding company called Eloise Management Corporation, Inc., a New York Corporation ("Eloise").  At the time of his death the decedent owned 100% of the stock of Eloise.  The decedent never deeded the real property to his revocable trust.

The decedent's revocable trust expressly identified the 5 items of real property and expressly provided for the conveyance of each separate item of real property from the trust to 5 separate family members (excluding second wife). The revocable trust complied with the formalities required for a deed, but contained NO language purporting to convey the real estate from its present owner to the trustee. Here's the key revocable trust language:

Upon my death, the Trustee shall distribute the then Trust Estate as follows:

a) I or the ELOISE MANAGEMENT CORPORATION, INC., a New York corporation wholly owned by me, are the owners of certain real property situated in the State of New York, as follows:

(i) 1430 Omega Street, Elmont, New York;

(ii) 1422 Omega Street, Elmont, New York;

(iii) 217 Franklin Avenue, Franklin Square, New York;

(iv) 205 Franklin Avenue, Franklin Square, New York;

(v) 20 Ronald Avenue, Hicksville, New York.

b) Upon my death, I direct that my Trustees distribute to my wife, MARY INTERLANDI, to have sole use and possessions during her lifetime, the real property situated at 1422 Omega Street, Elmont, New York, together with the furniture and furnishings therein contained. Upon her death or upon my death if she shall predecease me, said real property and contents shall be distributed to my grandson, BRETT BOERCKEL, outright and free of trust.

c) Upon my death, I direct that my Trustees distribute the real property situated at 1430 Omega Street, Elmont, New York, together with the furniture and furnishings therein contained, to my daughter, IRENE VAUGHAN, outright and free of trust. If IRENE VAUGHAN shall predecease me, then said real property shall be distributed to my grandson, CRAIG FIELDING.

d) Upon my death, the Trustees shall distribute the real property at 20 Ronald Avenue, Hicksville, New York, together with the furniture and the furnishings therein to my son, ROBERT BOERCKEL, outright and free of trust.

e) Upon my death, the Trustees shall distribute the real property at 217 Franklin Avenue, Franklin Square, New York, together with the furniture and the furnishings therein to my grandson, BRETT BOERCKEL, outright and free of trust.

f) Upon my death, the Trustees shall distribute the real property at 205 Franklin Avenue, Franklin Square, New York, together with the furniture and furnishings therein to my grandson, BRETT BOERCKEL, outright and free of trust.

The litigation:

When the decedent died his second wife claimed all of the real property for herself - and won at the trial court level on summary judgment.  Here's how the court summarized the widow's winning argument:

Mrs. Boerckel filed a motion for summary judgment, arguing that because Decedent failed to execute the deeds transferring the Properties from Eloise either to himself,FN1 individually, or to the Trust,FN2 the Properties were owned by Eloise at the time of Decedent's death and thus did not become a part of the corpus of the Trust. Because the Properties did not pass to the Trust, Paragraphs 7.3(a)-(f) of the Trust were ineffective, and the Eloise stock passed to Mrs. Boerckel as part of the residue of the Trust under Paragraph 7.4(a).

FN1. Thereby allowing the Properties to pass to the Trust pursuant to the pour-over provision of the Will.

FN2. Thus making the Properties part of the corpus of the Trust.

The decedents' children and grandchildren argued that because the holding company holding title to the real property became an asset of the trust, and the trust owned 100% of the stock of the holding company, the trustee was obligated to convey the real property out to the intended beneficiaries.  The court rejected this argument relying principally on the following 1986 3d DCA opinion:

We conclude that this case is more analogous to Flinn v. Van Devere, 502 So.2d 454 (Fla. 3d DCA 1986), wherein the Third District concluded that realty owned by the decedent was not validly transferred to a trust she established during her lifetime and thus remained an estate asset and the property passed under the residuary clause of her will rather than the trust. Id. at 454. The court held that the decedent's execution of a form instrument creating a standard inter vivos “living trust” of property owned by her and listed in an accompanying schedule was ineffective with respect to the real estate described because the settlor did not, as is required, also execute a deed which conveyed the realty to the trustees. Id. at 455. The court explained that the trust documents themselves plainly cannot be regarded as such a deed “for the obvious reason that, although they comply with the necessary formalities of two witnesses and an adequate legal description, they contain no expression which purports to convey, grant or transfer the real estate.” Id. The court also reasoned that the “only reference in the simultaneously executed will to the trust is the direction that the personal representative make demand upon the trustees for the trust's share of any estate taxes.” Id. The court found this language to be clearly insufficient to manifest an intention to incorporate the provisions of the trust for the disposition of the assets after the settlor's death into the will, so as to render them, in effect, testamentary in nature. Id. at 455-56. The court noted that such a result was required even though it would run contrary to the decedent's “actual desires and intentions.” Id. at 456. Even though the Will in this case did incorporate the Trust instrument by reference, the property in Flinn was not corporately-owned as in this case, and the corporate existence cannot be disregarded.

In sum, we conclude that the trial court did not err in finding that Mrs. Boerckel was entitled to summary judgment as a matter of law as to Counts I and II of the Petition. The Properties never became a part of the corpus of the Trust because the Decedent failed to execute the deeds that would have resulted in a funding of the Trust, thereby causing Paragraphs 7.3(a)-(f) to lapse. The Final Summary Judgment in favor of Mrs. Boerckel is affirmed.

Lesson learned:

Serious estate planning doesn’t stop when the documents are executed. Step two always focuses on ensuring the client’s assets are properly titled and if there’s a revocable trust involved, that the trust gets funded. If real property is involved, funding the trust entails executing deeds. In this case the client skipped step two and his estate plan was turned on its head. Maybe this is what he wanted all along? Who knows, but at the very least this case is an excellent case study to share with planning clients the next time they ask “do we really need to spend the money funding our revocable trusts?”

By the way, don't shed too many tears for the decedent, as noted in the linked-to case, his estate planning attorney gave him clear warning of what was going to happen if he didn't execute the necessary deeds and he chose to ignore those warnings:

Petitioners deposed Fred Weinstein, Esq., the Decedent's estate-planning attorney who prepared both Decedent's Will and the Trust. Weinstein testified that at the time the Trust was written, the Properties were not in the Trust, and prior to the Trust being signed, it was indicated that Weinstein would prepare deeds conveying the New York Properties from Decedent to the Trust. Weinstein testified that at the time the Trust was signed, Decedent's intent was to have the Properties go to the named distributees. However, after the Trust was signed, Weinstein prepared such deeds and advised Decedent that the failure to sign the deeds “would defeat the purpose of the rest of the Trust,” but Decedent refused to sign the deeds.

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“I rob banks because that's where the money is.”  Celebrity bank robber Willie Sutton gets credit for that gem.  The same logic applies to why trusts are often enmeshed in litigation: because that's where the money is.  The opposite is also true: no trust money usually = no lawsuit.

Can you sue a testamentary trust to collect on a decedent's personal debts? NO

One way to pull off the no-trust-money disappearing act is to obtain a court ruling dismissing a lawsuit against the trust because the trust is an improper party.  In other words, the trustee argues that regardless of the merits of the plaintiff's claims, the plaintiff is simply suing the wrong party. 

A recent case out of the Middle District in Florida is a great example of this defense strategy.  In Ziino v. Baker, --- F.Supp.2d ----, 2007 WL 2433902 (M.D.Fla. Aug 22, 2007), a trust was created by a settlor who subsequently died.  The plaintiff in this case had pending claims against the settlor. The plaintiff sued the deceased settlor's testamentary trust directly rather than suing his probate estate.  Why? I'm guessing because that's where the money was.  Rather than getting caught up in the merits of the case, the trustee successfully diverted the lawsuit away from the trust to the probate estate.  "Poof," claim goes away.  Here's how the Ziino court explained its ruling:

The Trustees move to dismiss the Complaint as against themselves on the ground that Florida law prohibits a creditor from bringing a direct action against a trust or its trustees after the death of the settlor, if that action is dependent upon the individual liability of the settlor.  .  .  .  The Florida Trust Code provides that:

After the death of a settlor, no creditor of the settlor may bring, maintain, or continue any direct action against a trust described in s. 733.707(3), the trustee of the trust, or any beneficiary of the trust that is dependent on the individual liability of the settlor. Such claims and causes of action against the settlor shall be presented and enforced against the settlor's estate as provided in part VII of chapter 733, and the personal representative of the settlor's estate may obtain payment from the trustee of a trust described in s. 733.707(3) as provided in ss. 733 .607(2), 733.707(3), and 736.05053.

Fla. Stat. § 736.1014(1). Accordingly, the Trustees are not proper parties to Count I because the settlor, William Wellman, is deceased and in Count I the Plaintiff purported to allege actions that are dependent upon the individual liability of the settlor. See Tobin v. Damian, 723 So.2d 396 (Fla. 4th DCA 1999).

Can you sue a spendthrift trust because the trust beneficiary isn't paying child support or alimony? YES

However, the issue in Ziino that should be of most interest to estate planners is the issue the plaintiff won on: piercing the protective wall of a spendthrift trust.  These types of trusts are at the heart of many estate plans.  One of the primary arguments for these trusts is their well-deserved reputation as asset protection vehicles.  Ziino is important because it addresses the rare exceptions to the general asset-protection benefits of spendthrift trusts: claims for alimony and child support. 

Here's how the Ziino court articulated this point:

Although Count III is obliquely drafted, in that Count the Plaintiff seeks a writ of garnishment under Florida law. In other words, the Plaintiff is seeking to garnish any disbursement from the Trust to Laura Wellman in order to satisfy her child support obligations evidenced by the promissory notes. Moreover, the Plaintiff has alleged in Count III that traditional remedies are not available to recover the child support owed, in that Laura Wellman does not have sufficient assets to satisfy the promissory notes. When “traditional remedies are not effective,” Florida law permits a court to garnish disbursements from a spendthrift trust to effect the collection of alimony and child support. See Bacardi v. White, 463 So.2d 218, 222 (Fla.1985).

Why do you think the plaintiff in Ziino sued the trust to collect on claims against the beneficiary for unpaid child support?  Answer: "because that's where the money is!"

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Becker v. Davis, 491 F.3d 1292 (11th Cir.(Fla.) Jul 11, 2007)

In trusts-and-estates litigation there are certain remedies that take on a life of their own; often plead as stand-alone causes of action.  They're not, they're remedies.  Examples include "constructive trusts" (see here) and "accountings."

The remedy v. cause-of-action distinction is not just semantics.  Understanding the distinction can have real life consequences: and the linked-to-case is a great example.

In the linked-to case one of the parties sued for a trust accounting in connection with a business dispute subject to an arbitration clause.  The trial court ruled the trust accounting "count" was not subject to the arbitration clause because it was an independent cause of action.  Wrong answer.  A trust accounting is a remedy.  Not a cause of action, so it can't be litigated as a stand alone claim.  Here's how the 11th Circuit articulated this point in its reversal of the trial court's ruling:

[A]n accounting is a remedy attached to a separate independent cause of action. See Johnson v. Pullman, Inc., 845 F.2d 911, 913 (11th Cir.1988) (“Although plaintiff's complaint contained a count in which an accounting was sought, that relief would not be available here absent some independent cause of action.”).

Accordingly, if the four substantive claims brought by the Trust against the defendants arise out of the agreements and are therefore subject to arbitration, as the parties agree, the Trust's claim for an accounting, which is merely a remedy for any liability, would also arise out of the agreements. Furthermore, to the extent that Becker's individual claims rely on the terms of the agreements and are therefore subject to arbitration, Becker's individual claim for an accounting of the Trust's assets also rely on the terms of the agreements and are subject to arbitration. Accordingly, we find that the district court erred in not sending Count Nineteen to arbitration.

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In re Estate of Musil, --- So.2d ----, 2007 WL 2317189 (Fla. 2d DCA Aug 15, 2007)

The stuff of most probate disputes isn't the dramatic will contest.  Rather, it's the secondary, less sexy bread-and-butter issues that usually rule the day.  For that reason cases like the linked-to opinion are useful. Practitioners and judges alike get practical guidance they can use over and over again.

What if I can't find the original will, what if I only have a copy?

I get this question with some frequency.  I'm sure most probate practitioners would say the same. In the linked-to opinion the court does a good job of explaining what needs to be done to have a photocopy of a will accepted into probate:

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. See Carlton v. Sims ( In re Estate of Carlton), 276 So.2d 832, 833 (Fla.1973); Walton v. Estate of Walton, 601 So.2d 1266, 1266 (Fla. 3d DCA 1992). The proponent of the lost or destroyed will bears the burden of overcoming the presumption that the will was intentionally destroyed. Daul, 754 So.2d at 848. “The first step in overcoming this presumption is” to establish the terms of the will and to offer it for probate. In re Estate of Parker, 382 So.2d 652, 653 (Fla.1980). Section 733.207, Florida Statutes (2005), outlines the procedure for establishing a lost or destroyed will:

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

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

But he raised me like his own son, don't I have any rights?

According to U.S. census data married couples made up 71% of all households in 1970 but decreased to 53% in 2000.  Nontraditional families, made up of adults raising children who are not biologically related to them, are obviously an increasingly common phenomenon.  Many of these "parent/child" relationships are never formalized in an adoption proceeding.

Against this backdrop we can expect to see more cases where people who are not related to a decedent by blood or adoption feel entitled to a stake in the estate.  "Virtual adoption" is the only available remedy in these cases.  Get to know this concept, you'll be seeing more of it (see here).  Here's how the court in the linked-to opinion summarized the elements of this claim in Florida:

Following the reasoning in [Sheffield v. Barry, 14 So.2d 417 (Fla.1943)] and in other cases, the Fifth District listed the five elements of virtual adoption in its review of a judgment that determined heirs. Poole v. Burnett (In re Heirs of Hodge), 470 So.2d 740, 741 (Fla. 5th DCA 1985). The elements of a virtual adoption include:

1. an agreement between the natural and adoptive parents;

2. performance by the natural parents 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.

Id. The Fifth District also recognized the Sheffield court's acknowledgment that in Florida, the purpose of virtual adoption is to provide the child with “an enforceable contractual right.” Id.

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I've previously written about how the U.S. Supreme Court's ruling in Marshall v. Marshall will lead to more trusts-and-estates cases being litigated in Federal Court (see here).  In Marshall v. Marshall: The Supreme Court's Get-Out-of-Probate-Free Card, University of Washington School of Law law student Julian Hurst (2008 J.D. Candidate) examines Marshall's "practical consequences from the perspective of probate law and for those who find themselves challenging the validity of a will or trust."

One of these days you'll either be pushing for federal jurisdiction or opposing it in some form of trusts-and-estates litigation.  When that day comes, remember the linked-to law review article.  Here's the abstract:

Abstract:

The probate exception to federal jurisdiction is a legal doctrine self-imposed by federal courts barring jurisdiction over probating wills or administering estates, or related actions that would interfere with property in the custody of state courts. Courts have struggled with cases that fall at the margins of the exception, creating one of the most mysterious and esoteric branches of the law of federal jurisdiction.

In Marshall v. Marshall, the Supreme Court addressed the federal probate exception for the first time in over 60 years. Eight members of the Court held that the doctrine was legitimate, but more narrow than many lower courts thought. Unfortunately, the decision leaves as many questions as answers. The history, scope and purpose of the federal probate exception, as well as its place in the Supreme Court's federal jurisdiction jurisprudence, has already been treated by other authors. I will examine Marshall's practical consequences from the perspective of probate law and for those who find themselves challenging the validity of a will or trust.

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The saying "truth is stranger than fiction" didn't originate in a trusts-and-estates case (see here) . . . but it should have. 

For example, say you went to a movie and the plot line revolved around a brilliant but eccentric MIT professor who allegedly staged his own "hit" by two masked men with Russian accents then blamed his son in order to gain the upper hand in litigation involving a family trust.  You'd say "no way, that could never happen."  And you'd be wrong.  As reported in Former MIT professor headed to trial in allegedly staged shooting that's exactly the real life drama currently playing itself out in a Boston courtroom:

CAMBRIDGE, Massachusetts (AP) -- What the former MIT professor and wealthy businessman told police sounded like a scene from a bad spy novel: He was shot by two masked men with Russian accents, and saved only because two of the bullets bounced off his belt buckle.


Five months later came the indictment -- against him.

Prosecutors say John J. Donovan Sr. staged his own shooting to gain an advantage in a legal battle with his own children for control of trusts that he claims are worth at least $180 million. He's accused of trying to get back at his oldest son by falsely accusing him of hiring his would-be killers.

*     *     *     *     *
Donovan is charged with filing a false police report, a misdemeanor that carries a maximum one-year sentence. His trial is scheduled to begin Friday in Middlesex Superior Court.

"John Donovan repeatedly provided false information to police about a crime that did not occur in order to 'frame' his son for a crime his son did not commit and had no part in," prosecutors claim in court documents.

*     *     *     *     *

During the 911 call Donovan made from his cell phone after the shooting, he told a state police dispatcher that his son James, now 40, "laundered $180 million" and had threatened to kill him.

Prosecutors say Donovan made up the story to exact revenge, but his lawyer Barry Klickstein calls Donovan "the innocent victim of a violent crime."

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As technology races ahead in the development of new forms of assisted reproductive technology, the courts are struggling to keep up.  From a probate litigation standpoint, the question is what legal rights - if any - does a child both born and conceived after the father's death have?  In an article entitled Posthumous Reproduction, Prof. Charles P. Kindregan, Jr., of Suffolk University Law School in Boston, described the legal landscape this way:

Until very recently, legal issues surrounding posthumous children focused on inheritance rights of a child who was conceived while the biological parents were alive with the child being born after the death of the father. The law largely deals with this problem by providing for the legal heirship of children born within the normal gestational period following the death of the father. But the development of such technologies as intrauterine insemination, in vitro fertilization, surrogacy, cryopreservation of gametes and embryos and (someday) human reproductive cloning have created the potential for an entirely different set of legal issues. These issues are not based on the birth of a child after the death of the father when the child is conceived prior to the father’s death. Instead, the new reality is based on conceiving a child or implanting a preexisting embryo after the death of a genetic parent or parents. This article explores some of the evolving issues created by the use of cryopreserved gametes and embryos after the death of one or both gamete providers.

In Florida, the inheritance rights of a child who was conceived while the biological parents were alive but born after the death of the father, are governed by Florida Statute section 732.106:

732.106 Afterborn heirs.--Heirs of the decedent conceived before his or her death, but born thereafter, inherit intestate property as if they had been born in the decedent's lifetime.

Florida has no statute governing the inheritance rights of a child conceived after the father's death.  In the absence of guiding legislation, courts are forced to fall back upon general rules of construction within the probate and trust context.  That's what a court in New York recently did, as reported on in Sons Conceived In Vitro Ruled Covered by Trusts, when it ruled that two children conceived and born after the father's death were nonetheless intended beneficiaries of the father's trust.  My guess is that a Florida court faced with similar facts would likely come to the same conclusion.  Here's an excerpt from the linked-two story:

Three years after James B. died of Hodgkin's lymphoma, his wife Nancy gave birth to the couple's first son, who was named James in honor of his late father.

Two years later -- nearly six years after her husband's death -- Nancy gave birth to their second son, Warren.

Now, as the boys approach their first and third birthdays, their in vitro conception has raised an issue of first impression that New York's Legislature did not consider, for obvious reasons, when it first drafted the Estates, Powers and Trusts Law in the early 1960s.

Specifically, in Matter of Martin B., Manhattan Surrogate Renee Roth had to decide whether the "issue" and "descendants" provided for in seven 1969 trusts includes children conceived with the cryopreserved semen of the grantor's late son -- James B., as he is known in court papers -- whose death preceded his own sons' conception.

Surrogate Roth ruled that the grantor's intent is controlling and that, although his trusts were understandably silent on the subject, they appeared to favor inclusion of young James and Warren among his "issue" and "descendants."

"[The] instruments provide that, upon the death of the Grantor's wife, the trust fund would benefit his sons and their families equally," Surrogate Roth wrote. "In view of such overall dispositive scheme, a sympathetic reading of these instruments warrants the conclusion that the Grantor intended all members of his bloodline to receive their share."

*     *     *     *     *

[Surrogate Roth] noted that the New York Legislature has addressed the same issue vis-à-vis wills: A recent amendment to the Estates, Powers and Trusts Law excludes "post-conceived" children from sharing in a parent's estate, absent a contrary provision.

That amendment, however, is "applicable only to wills and to 'after-borns' who are the children of the testators themselves," Surrogate Roth wrote. "Moreover, the concerns to winding up a decedent's estate differ from those related to identifying whether a class disposition to a grantor's issue includes a child conceived after the father's death but before the disposition became effective."

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Last year I wrote here about a case out of the 3d DCA that had me puzzled.  The 2006 case was a will contest involving allegations of "insane delusion".  I couldn't reconcile the 3d DCA's apparent retreat from the extremely tough "lucid interval" standard generally applicable to testamentary capacity cases.

What the 3d DCA failed to explicitly state was that lack of testamentary capacity can be established in two ways: (1) general incapacity (governed by the insane-delusion standard) or (2) by establishing some specific and narrower form of insane delusion that is the direct cause of the invalid will.  This second testamentary-capacity line of attack is worth remembering.


As if on cue, professor Bradley E.S. Fogel of St. Louis University School of Law just published an article in the Spring 2007 edition of the ABA's Real Property, Probate and Trust Journal providing an excellent summary of the law governing insane-delusion will contests.  The article is entitled THE COMPLETELY INSANE LAW OF PARTIAL INSANITY: THE IMPACT OF MONOMANIA ON TESTAMENTARY CAPACITY.  Here's the editor's synopsis of his article:

In this Article, the author discusses the doctrine of monomania, which permits a court to invalidate a will based on the testator’s insane delusion if that insane delusion caused the testator to dispose of his property in a way that he otherwise would not have. The author argues that the monomania doctrine is fatally flawed and that the doctrine should be abandoned in favor of using the general test for capacity to make all testamentary capacity decisions.

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Commercial Capital Resources, LLC v. Giovannetti, 955 So.2d 1151 (Fla. 3d DCA Mar 28, 2007)

So you've been negotiating a settlement of contentious litigation for over 10 hours, it's now late into the night and you've finally got what looks like a deal put together, and then you get handed a "draft" settlement agreement by the mediator (who happens to be a senior judge with a zillion years of experience under his belt).  You don't want to be the guy who mucks up the deal at the last minute, and you don't want to be disrespectful to the judge, but the settlement agreement doesn't seem to get the trustee release language right.  The release language seems to focus on the trustee as an individual, vs. a fiduciary representing a trust estate and its beneficiaries.  Here's what the release language says:

[Trustee], CCR ... and all other named parties and defendants joined in the pending litigation will execute general releases in favor of [Giovannetti].... [Giovannetti] ... will execute general releases in favor of [Trustee], CCR ... and all other named parties and defendants joined in the pending litigation.... [Trustee] agrees that in his capacity as “trustee” of any trust ... without prejudice to his fiduciary obligations or duty to provide proper and necessary notice and disclosures to investors, that he will refrain from taking any action [sic] initiate or to solicit the investors to initiate a law suit against [Giovannetti], and that if any such action is brought against [Giovannetti], [Trustee] will resign as trustee from any trust involved in or bringing the action.

As the linked-to case shows, the professionals who signed off on this deal ended up back in court and eventually before an appellate court . . . all after executing a settlement agreement they probably all assumed was meant to end the litigation once and for all (what their clients were thinking is anyone's guess).

Lesson learned:

In retrospect, one could say that the settlement agreement litigated in the linked-to case was fundamentally flawed because it focused on the trustee as an individual vs. as a fiduciary virtually representing trust beneficiaries.  But that would be a cheap shot.  In reality, what probably happened here is that the lawyers were under pressure to draft a technically demanding settlement agreement late at night, after hours of intensive negotiation.  I've done this myself and lived to regret it.  The true lesson from this case (which I'm still working on) is that you want to draft the key portions of your settlement agreement in advance . . . when you're NOT subject to the pressure and stress of the moment.

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Mike Dillon, General Counsel for Sun Microsystems, Inc., publishes a great blog called The Legal Thing.  In a blog post entitled On Litigation...(Azul), Mr. Dillon shared his "four principals" for evaluating when litigation is appropriate.  I thought his comments were dead on, and applicable to any form of litigation - including probate litigation.  I've reproduced his four principals below with my practice-specific comments:

No. 1 - You only litigate when you have an important interest to protect. Litigation is costly. Incredibly costly. But it is not the expense that is the real issue, it's the diversion of resources. Time employees spend reviewing e-mails and documents, educating lawyers and preparing for depositions is time away from the business. That's the real cost of litigation.


Probate comment: Ask your lawyer to assume the worst case scenario and then estimate how long you should expect the process to last (1 to 2 years is the norm) and how much it will all cost (it will always be higher than you expected).  Then ask yourself, "is it really worth it?"  If the answer is yes, then proceed to point no. 2, otherwise stop immediately and move on with your life.

No. 2 - A non-judicial resolution is almost always preferable. When you file a complaint, you are turning over resolution of an issue to a third party - be it a judge, arbitrator or jury. To a great degree you lose control of the outcome.

Probate comment: In the probate-litigation context, every penny spent on legal fees siphons off a piece of the family inheritance to a third party: the lawyers.  The quickest way to stop the bleeding is to settle the case.  Mediation should be a no-brainer in this type of litigation.

No. 3 - You litigate when you have a high degree of confidence that you will prevail. Bluffing is for weekend games of Texas Hold'em . When you file suit, you need to have fully evaluated all aspects of the case to ensure that the outcome will be favorable.

Probate comment:  Pick your battles carefully.  This is where lateral thinking pays off.  In the probate-litigation context there are often multiple approaches to achieve a desired result.  Some approaches usually favor the defendant, some usually favor the plaintiff.  Depending on what side you're on, play to your strengths.  How you address this point no. 3 will inform points 1 and 2 above.

No. 4 - You litigate to win. This means that your employees, board and management team fully understand and support the commitment (both financial and time) required to prevail. It also means having seasoned litigation counsel who understand your business and objectives.

Probate comment: Litigation is not a negotiation strategy.  Once you've decided a lawsuit is your last best option, you need to be willing to see the process through to the end.

 

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As reported here by the North Carolina Estate Planning Blog, on June 25 the U.S. Supreme Court agreed to review a Second Circuit Court of Appeals case addressing whether the investment expenses of trusts are fully deductible or subject to a 2% floor [see here]. The Circuit Courts are in disagreement on this issue. The Second Circuit Court of Appeals case is Michael J. Knight, Trustee of the William L. Rudkin Testamentary Trust v. Comm'r of Internal Revenue, and is available here.

In Rudkin the Second Circuit held that IRC Sec. 67(e) grants an estate or trust an exception from the 2% reduction in itemized deductions only for "costs of a type" that "individuals are incapable of incurring." On the surface, the Second Circuit appeared to create a narrow window for an estate or trust to claim a full deduction for its administrative costs. In reality, however, it potentially eliminates a full deduction for any administrative cost of an estate or trust.

Not surprisingly, the Second Circuit's ruling has been the subject of some controversy.  The following is a representative example from Did the second circuit err in Rudkin Testamentary Trust?

Dozens of law reviews and journals have discussed the interpretation of Sec. 67(e) since the controversy first arose in O'Neill. (3) So far, none has urged the interpretation adopted by the Second Circuit. Indeed, the panel's interpretation even conflicts with IRS Form 1041, U.S. Income Tax Return for Estates and Trusts, and most state fiduciary income tax forms, which allow a full deduction for legal and accounting fees. Under the court's definition, legal and accounting fees should not be fully deductible (at least in the Second Circuit), because individuals are capable of incurring them. Thus, the court's interpretation is bound to foster confusion and noncompliance.

While the $4,448 deficiency in Rudkin is undoubtedly small, the Second Circuit's position has serious implications. Its endorsement and application will create a substantial tax debt for trustees who must incur costs to comply with their legally mandated duties, such as those imposed under the Uniform Prudent Investor Act. It will also generate substantial litigation over a basic deduction that Congress intended for trustees carrying out such duties, all based on a questionable interpretation.

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Key v. Trattmann, --- So.2d ----, 2007 WL 1517827 (Fla. 1st DCA May 25, 2007)

A common theme running through much trusts and estates litigation is the betrayal of confidences.  Be it among family members or erstwhile friends, notions of fairness -- not commercial imperatives -- often drive the litigation.  The linked-to case speaks to this point by providing an effective tool for successfully contesting title to real property on equitable grounds under a "resulting trust" theory.

Resulting Trusts

In the linked-to case "Mr. Key" purchased and maintained real property in Tallahassee with his own funds. In order to help "Mr. Trattmann" obtain U.S. citizenship, Mr. Key allowed the property to be titled in Mr. Trattmann's name, subject to Mr. Trattmann's promise to convey the property to him on demand.  Mr. Trattmann later denied the existence of this promise, and Mr. Key sued to obtain title.  The trial court granted summary judgment in Mr. Trattmann's favor based partly on two affirmative defenses: the claim was barred by (1) the statue of frauds and (2) the applicable statue of limitations.  In the linked-to opinion the 1st DCA reversed the trial court, and in the process provided an excellent litigation road map for counsel/parties finding themselves on either side of a resulting trust claim.

• Florida law

As a starting point, the 1st DCA summarized the circumstances under which Florida courts may recognize the existence of a resulting trust:

A resulting trust arises where an express trust fails, in whole or in part; where the purposes of an express trust are fully accomplished, without exhausting the trust estate; or, of particular pertinence here, “‘where a person furnishes money to purchase property in the name of another, with both parties intending at the time that the legal title be held by the named grantee for the benefit of the unnamed purchaser of the property.’“ Steigman v. Danese, 502 So.2d 463, 467 (Fla. 1st DCA 1987) (quoting Steinhardt v. Steinhardt, 445 So.2d 352, 357-58 (Fla. 3d DCA 1984)), disapproved of on other grounds by Spohr v. Berryman, 589 So.2d 225, 228-29 (Fla.1991), and order vacated by In re Estate of Danese, 601 So.2d 570, 571 (Fla. 1st DCA 1992). See also F.J. Holmes Equip., Inc. v. Babcock Bldg. Supply, Inc., 553 So.2d 748, 749 (Fla. 5th DCA 1989) (“A resulting trust may arise in favor of one who furnishes money used to purchase property the legal title to which is taken in the name of another.”). A resulting trust can, indeed, be “founded on the presumed intention of the parties that the one furnishing the money should have the beneficial interest, while the other held the title for convenience or for a collateral purpose.” Frank v. Eeles, 13 So.2d 216, 218 (Fla.1943) (internal quotation marks and citation omitted). See also Restatement (Third) of Trusts § 7 cmt. c (2003).

• Statute of Frauds: NOT applicable

The trial court found that even if a resulting trust had arisen, the plaintiff's claims were barred by Florida's statute of frauds because the promise to convey the real property alleged by the plaintiff was not in writing.  The 1st DCA rejected the trial court's ruling as follows:

The statute of frauds does not apply to resulting trusts . . . [b]ecause a resulting trust arises not ex contractu but by operation of law, the statute of frauds does not pertain. See, e.g., Williams v. Grogan, 100 So.2d 407, 410 (Fla.1958) (“A trust which is created by operation of law is not within the statute of frauds and may be proved by parol evidence.”); Stonley v. Moore, 851 So.2d 905, 906 (Fla. 3d DCA 2003) (reversing summary judgment entered on a claim seeking to establish a resulting or constructive trust where the trial court relied on the statute of frauds, because “‘resulting trusts involving real estate can be based on parol evidence’”) (quoting Zanakis v. Zanakis, 629 So.2d 181, 183 (Fla. 4th DCA 1993)).

• Statute of Limitations: the clock starts ticking when the dispute is made known, NOT when the contested property is first purchased

In trust disputes, determining when the clock starts ticking for statute of limitations grounds can be tricky.  In fact, the Florida Bankers Association is currently proposing revisions to the current statute of limitations applicable to trust disputes (see here).


Although unclear from the opinion, the trial court apparently assumed that the cause of action arose at or about the time the property was first purchased.  The 1st DCA rejected that conclusion, making clear that under Florida law trust disputes do not accrue until the trustee actually repudiates the trust.

Applying a statute of limitations to a resulting trust,[FN5] the Fifth District held that the “beneficiary of a resulting trust is not bound to act until the trustee repudiates the trust or begins to hold the property adversely with knowledge on the part of the beneficiary.” Bradbury v. Fuller, 385 So.2d 7, 8 (Fla. 5th DCA 1980). See also Grable v. Nunez, 64 So.2d 154, 160 (Fla.1953) (“The statutes of limitations do not operate against a resulting trust until the trustee has disclaimed the trust and begins to hold adversely to the beneficial interest.”). Thus, assuming [as the trial court did that F.S. 95.11(3)(k) and (6)] applies, it would not have begun running until Mr. Trattmann refused to convey the property to Mr. Key.


FN5. The rights of beneficiaries of resulting trusts to enforce their rights against the trustee or third persons are subject to the same rules regarding the doctrine of laches and statutes of limitations as apply in the case of express trusts. See § 98, and also compare §§ 96 and 97. The so-called doctrine of merger, which applies to express trusts (see § 69), also applies to resulting trusts.

Restatement (Third) of Trusts § 7 cmt. h (2003). See also supra note 1.

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Diaz v. Ashworth, --- So.2d ----, 2007 WL 1484550 (Fla. 3d DCA May 23, 2007)

A prospective client comes to see you about challenging a will on undue influence and/or lack of testamentary capacity grounds.  The client wants to know "how much will it cost, how long will it take, what are my chances of winning?"  You ask yourself what may be the most important question of all "should I take this case?" 

Unless you understand the evidentiary issues you'll need to address in connection with each claim, you can't possibly expect to answer any of the questions posed above with any degree of certainty.  And misjudging those questions usually equals an unhappy client who doesn't want to pay his lawyer (yikes!)

Which is why the linked-to opinion is so important.  In this case the highly regarded Miami-Dade senior trial judge, Herbert Stettin, did such a good job of laying out the evidentiary issues underlying a will contest based upon undue influence and lack of testamentary capacity grounds, that the 3d DCA simply copied his order and adopted its reasoning as their own.

Evidence and Undue Influence Claims:

I found the discussion addressing evidentiary issues arising in an undue influence case especially helpful.  When reading the excerpt provided below, keep in mind the following three points.

• Key statute: §733.107(2)
• Burden of proof: preponderance of the evidence
• Building your case: note the importance given to medical testimony

For further background, an excellent starting place is Florida's New Statutory Presumption of Undue Influence, 77 Fla. B.J. 20, 21 (2003).

Judge Stettin:

Petitioner's second claim is that Mr. and Mrs. Ashworth unduly influenced Mr. Mesa to make the July 10, 2003 will. Father Diaz argues that the evidence shows the Ashworths never had a prior close relationship with Mr. Mesa, that their deep involvement in the making of the will, together with their attempts to insulate Mr. Mesa from contact with others after the will was made, all done at a time when Mr. Mesa was in the final stages of the AIDS illness, prove that the Ashworths obtained the will in question by unduly influencing Mr. Mesa's decision.

[Carpenter analysis]

The starting point to determine whether a will has been procured by the exercise of undue influence is the analysis required by In re: Estate of Carpenter, 253 So.2d 697 (Fla.1971). Under Carpenter, once it is established by the proponent that the will was properly executed, the contestant then must show, prima facie, the existence of a confidential relationship between the testator and the active procurement of the will by the proponent. Carpenter discusses those factual circumstances which may give rise to such a determination which, once made, results in a presumption that the will is the product of undue influence. Using the Carpenter test, I find that a presumption of undue influence was established by the evidence. Mr. Ashworth is the sole beneficiary under the July 10, 2003 will; he was present at its execution; Mrs. Ashworth was present on July 9, 2003, when Mrs. Mesa stated that he wished to make a will; Mr. Ashworth recommended that his attorney, Mr. Pilafian, draw the will; while disputed as to whether he learned of it on July 9 or July 10, 2003, Mr. Ashworth was aware of the contents of the will before it was signed; and Mrs. Ashworth was one of the subscribing witnesses. Add to this fact that Mr. Ashworth brought Mr. Mesa to Mr. Pilafian's office to sign the will and that he and his wife were active in caring for him after the will was signed, and it is clear the Ashworths occupied a confidential relationship with Mr. Mesa.

[Shifting burden of proof under Carpenter]

Carpenter provides that once evidence of such a presumption of undue influence has been made, it does not shift the burden of proof to the proponent of the will to prove the will was not the product of undue influence. Rather, it merely shifts to the proponent “the burden of coming forward with a reasonable explanation for [the beneficiary's] active role in the decedent's affairs, and specifically, in the preparation of the will ...”. 253 So.2d at 704. Carpenter holds that it then becomes the responsibility of the trial court to determine whether the proponent has, prima facie, satisfied this burden of reasonable explanation. Finally, once all these presumptions and burdens are met, the decision rests on the traditional evidentiary test of who has proven their case by a preponderance of the evidence.

[Impact of F.S. 733.107(2) on Carpenter analysis]

Subsequent to Carpenter, however, the legislature enacted an amendment to § 733.107, Fla. Stat ., to prohibit the shifting of the burden of proof in presumption of undue influences cases. See, e.g., Hack v. Janes, 878 So.2d 440, 443 (Fla. 5th DCA 2004). As it now stands, in those cases where the proponent of a will satisfies, prima facie, a presumption of undue influence in the making of the will, the proponent of the will has the burden of proving the will was not the product of undue influence. That burden must be met by a preponderance of the evidence as determined by the trier of fact.

[Application of law to facts]

Using these standards, I find that the Petitioner has proven by a preponderance of the evidence that the will was not the product of undue influence by Mr. and Mrs. Ashworth. Mr. Mesa was capable of making his own decision about who would receive his property when he signed the Ashworth will. The will he signed on July 10, 2003, and the two previous wills he made in the two years prior to 2003, each named non-relatives as beneficiaries. Each will was very basic. On July 10, 2003, Mr. Mesa knew what a will was and he was clear about his wishes as to who should inherit his property. On the same day as the Ashworth will, Mr. Mesa also made another significant decision to reject further medical treatment and to enter hospice care at his home rather than spend his last days in an institution. Dr. Steinhart's records and testimony are clear that Mr. Mesa was competent to make these decisions. I find the preponderance of the evidence in this case is that Mr. Mesa was competent and not unduly influenced in making the will dated July 10, 2003.

Evidence and Lack of Testamentary Capacity Claims:

I wrote about the last 3d DCA testamentary capacity case here.  Without mentioning that opinion (perhaps purposely?), Judge Stettin also did a great job of summarizing the state of the law in Florida with respect to what it takes to successfully prosecute a will challenge based on lack of testamentary capacity (again notice the importance given to medical testimony).  Here again the 3d DCA simply adopted his reasoning as its own.

Judge Stettin:

[Applicable legal standard]

In Raimi v. Furlong, 702 So.2d 1273, 1286 (Fla. 3d DCA 1998), our Third District concisely set out the applicable standards for a determination of testamentary incompetence, stating:

It has long been emphasized that the right to dispose of one's property by will is highly valuable and it is the policy of the law to hold a last will and testament good wherever possible. See In re Weihe's Estate, 268 So.2d 446, 451 (Fla. 4th DCA 1972), quashed on existing facts, 275 So.2d 244 (Fla.1973); In re Dunson's Estate, 141 So.2d at 604. To execute a valid will, the testator need only have testamentary capacity (i.e. be of “sound mind”) which has been described as having the ability to mentally understand in a general way (1) the nature and extent of the property to be disposed of, (2) the testator's relation to those who would naturally claim a substantial benefit from his will, and (3) a general understanding of the practical effect of the will as executed. See In re Wilmott's Estate, 66 So.2d 465, 467 (Fla.1953); In re Weihe's Estate, 268 So.2d at 448; In re Dunson's Estate, 141 So.2d at 604. A testator may still have testamentary capacity to execute a valid will even though he may frequently be intoxicated, use narcotics, have an enfeebled mind, failing memory, [or] vacillating judgment.” In re Weihe's Estate, 268 So.2d at 448. Moreover, an insane individual or one who exhibits “queer conduct” may execute a valid will as long as it is done during a lucid interval. See Id.; see also Coppock v. Carlson, 547 So.2d 946, 947 (Fla. 3d DCA 1989) (whether testator had the required testamentary capacity is determined solely by his mental state at the time he executed the instrument), rev. denied, 558 So.2d 17 (Fla.1990).

[Application of law to facts]

Applying these standards, I find that Mr. Mesa was competent to make the July 10, 2003, Ashworth will. He understood the nature and extent of his property, he knew those who would naturally claim a substantial benefit from his will, and it is clear that he was aware of the practical effect of the will he signed. He knew that he was going to die. He made an informed decision to accept hospice care instead of further treatment just prior to making the Ashworth will. Dr. Steinhart believed Mr. Mesa was competent to make such an obviously important decision.

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Morrison v. West, --- So.2d ----, 2007 WL 1135659 (Fla. 4th DCA Apr 18, 2007)

The linked-to case is a good example of why estate funds MUST remain subject to court control until all reasonably foreseeable debts are paid -- including attorney's fees.  Once estate funds are distributed no one should be misled by false expectations about the power of lawyers or even the courts to get those funds back.  The old saying we learned as children that "possession is nine-tenths of the law" is all too true when it comes to estate funds.

In the linked-to case client, Ms. Carla Morrison, hired North Carolina attorney William West to represent her in litigation against her husband's multi-million dollar estate.  He did so and worked out a settlement agreement that included a $1 million pay out to Morrison.  Morrison then fired West and hired attorney Gary Woodfield to represent her.  At a hearing to approve the settlement agreement Mr. Woodfield represented to the court that his client had agreed to retain the $1 million payment in his firm's trust account until a fee dispute with West was worked out.

COURT: [Morrison] agrees that it goes to your trust account until the fee arrangements are resolved?

WOODFIELD: She does. I have discussed that with her. She is in agreement with that, Mr. West is in agreement with that, and Mr. Pressly is in agreement with that.

And hopefully we will be able to amicably resolve the matter and that will be the end of it.

The trial court approved the settlement and executed the final judgment on January 20, 2005. Neither the final judgment nor the settlement agreement referred to the disbursement of the $1 million to West.

For reasons unexplained in the linked-to opinion, the funds left Mr. Woodfield's trust account the very next month - and have yet to be returned despite a standing court order directing client to give the money back.

In February 2005, West learned that Woodfield released the $1 million in the Edwards & Angell trust account to Morrison. On June 30, 2005, West filed a motion to modify the final judgment and requested that Morrison be ordered to redeposit the $1 million into the court registry pending further proceedings. On February 21, 2006, the trial court held a hearing on West's motion to modify the final judgment. West, Woodfield, and Morrison testified at the hearing.  The trial court ruled:

And having observed the witness testimony today I find that Carla Morrison did in fact authorize Mr. Woodfield to withhold that $1 million and place it in a trust account, bank account, interest bearing until the fee issue has been resolved. I find that that portion of her testimony regarding it be for a short time only is not credible. And I find the testimony of Mr. West regarding these fee disputes to be credible.

So I am directing that this money be placed back in the Edwards and Angell trust account, interest bearing, not to be released under any circumstances without a further Court order until the fee issues are resolved.

The trial court directed that the money be returned to the Edwards & Angell account within 30 days. Morrison never complied.

Lesson learned?

Always keep your eye on the money.  When in doubt, make sure you have the appropriate orders in place to ensure estate funds don't get distributed until you're sure all interested parties - including the attorneys - have been provided for.  Sure, you can always sue for the return of wrongfully distributed estate funds (733.812), but why put yourself in that position to begin with?

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Schilling v. Herrera, --- So.2d ----, 2007 WL 981627 (Fla. 3d DCA Apr 04, 2007)

Anna Nicole Smith's U.S. Supreme Court case revolved around whether federal courts have jurisdiction to adjudicate state-law tortious interference claims.  Since she won (see here) the expectation has been that more tortious interference claims would be litigated in federal court (see here).  With this background in mind, this 3d DCA opinion is especially timely because it explains when probate proceedings will effectively bar such claims in Florida.

In DeWitt v. Duce, 408 So.2d 216 (Fla.1981), the Florida Supreme Court articulated the governing rule in Florida as follows: a claim for intentional interference with an expectancy of inheritance is barred by F.S. 733.103(2) if the plaintiff had an adequate remedy in probate with a fair opportunity to pursue it.  By implication, when the plaintiff did NOT have a fair opportunity to pursue his or her claim in probate, the claim is NOT precluded by the rule in DeWitt.

In the linked-to opinion the 3d DCA held that the plaintiff's tortious interference claim was not precluded by DeWitt because the plaintiff was essentially prevented from pursuing his claims in probate.  In other words, the claim was not barred because there were two frauds committed in the case.  The first against the decedent, the second against the plaintiff.  Here's how the 3d DCA articulated its reasoning:

We find that DeWitt is factually distinguishable, and therefore inapplicable. A review of the amended complaint reflects that Mr. Schilling has alleged two separate frauds. The first alleged fraud stems from Ms. Herrera's undue influence over the deceased in procuring the will, whereas the second alleged fraud stems from Ms. Herrera's actions in preventing Mr. Schilling from contesting the will in probate court. We acknowledge that pursuant to DeWitt, if only the first type of fraud was involved, Mr. Schilling's collateral attack of the will would be barred. However, language contained in DeWitt clearly indicates that a subsequent action for intentional interference with an expectancy of inheritance may be permitted where “the circumstances surrounding the tortious conduct effectively preclude adequate relief in the probate court.” Id. at 219.

 Good lawyering pays off

When the client walks through the door, tells you the probate proceeding is complete, but asks what can you do for him, not many attorneys would have a good answer.  In this case, Fort Lauderdale probate litigator Brandan J. Pratt figured out a winning strategy and successfully pursued it through to appeal.  Very solid lawyering indeed.

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Harding v. Rosoff, --- So.2d ----, 2007 WL 461381(Fla. 4th DCA Feb 14, 2007)

This is the second appellate opinion arising out of this piece of probate litigation.  I wrote about the first appeal here.  In this sad case a 95 year old woman inadvertently failed to comply with the technical  requirements necessary to effectively exercise a power of appointment she had under a trust created by her brother over 30 years ago.

The default beneficiary under brother's trust sued the probate estate over the attempted exercise of the power of appointment and won.  Rather than being content with this win, default trust beneficiary then sued the personal representative of sister's estate for attorneys' fees.  The trial court said NO WAY, and the 4th DCA agreed as follows:

• Court: You can't sue someone else's personal representative for breach of fiduciary duty:

The personal representatives argue that there can be no surcharge, which is a charge against a fiduciary to compensate a beneficiary for the breach of fiduciary duty, Merkel v. Guardianship of Jacoby, 862 So.2d 906 (Fla. 2d DCA 2003), because there was no fiduciary duty to Harding. They point out that they are fiduciaries only of the Teresa Rosoff estate and that Harding is not a beneficiary of that estate. Harding is a beneficiary of the Molinari Trust, but the personal representatives are not fiduciaries of the trust. We are not persuaded by Harding that there is a fiduciary duty to her, but we need not decide that issue because the pursuance of the litigation by the personal representatives was consistent with the testator's intent. Although they lost and we affirmed, we noted that “Teresa's apparent intent has been thwarted.” Rosoff, 901 So.2d at 1010. The trial court was correct in finding no impropriety by the personal representatives.

• Court: You don't get fees for thwarting the testatrix's intent:

Harding also contends that she should have been awarded attorney's fees and costs for prevailing in the litigation under section 733.106, Florida Statutes (2005), because the litigation benefited the estate. In re Estate of Udell, 501 So.2d 1286 (Fla. 4th DCA 1986). Harding has cited no cases, however, which would support her theory that there was a benefit to the estate under these specific facts. She relies on In re Estate of McCune, 223 So.2d 787 (Fla. 4th DCA 1969), in which we stated that services which carry out the intent of the testator as expressed in the will are compensable from the estate. As we previously noted, however, this litigation thwarted the testator's intent. Harding also cites Robinson v. Robinson, 805 So.2d 94 (Fla. 4th DCA 2002), in which this court affirmed an award of attorney's fees to a beneficiary who successfully reformed a trust. In Robinson, however, the fees were awarded from the trust, not the estate. Under these facts, in which the litigation determined only who would be the beneficiary of the Molinari Trust, the trial court did not err in finding that there was no benefit to the estate.

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Hernandez v. Gil, -- So.2d. ---, 2007 WL 466029 (Fla. 3d DCA Feb 14, 2007) [Attorney Interview]

Drafting a settlement agreement is always part science, part art.  The drafting needs to be technically solid.  The economic aspects of the deal need to be clearly worked out, although this issue is usually pretty simple, no matter how many zeros are after the dollar sign (party A pays part B $___ to settle).  The less tangible aspect of the deal - but probably the most important contribution made by counsel - is anticipating everything that can go wrong and working defenses against these contingencies into the deal. 

The Art of the "General Release"

The linked-to opinion is an example of superb lawyering anticipating and building defenses against an unscrupulous litigant into a global settlement agreement.  In this case son challenged probate of his father's will by suing his mother and a friend of the family, who were dad's PRs and trustees of dad's trust.  Son settles case against dad's estate in exchange for certain estate assets and the exchange of general releases.  Son then breaches deal by suing again when mom passes away. 

Fortunately the lawyers negotiating the original settlement deal had anticipated this turn of events in the form of general releases that shielded the good guys from this type of attack.  Here's how the 3d DCA described the three categories of general release at issue in this case:
 

• First general release: shield mom's estate from future attack by disgruntled son:

Pursuant to the clear and unambiguous language of the first general release executed by Hernandez, Hernandez agreed to release his mother, Doña Alicia, from any and all causes of action and to renounce any right in Doña Alicia's estate, except to the extent, if any, that Doña Alicia named him a beneficiary under her will. Further, if not named as a beneficiary under his mother's will, Hernandez agreed not to contest the validity of the will and waived his right to enter an appearance in any probate proceeding pertaining to his mother's estate and, to the extent that he would make such challenge or enter any such appearance, he would be deemed to have predeceased his mother.

• Second general release: shield the trustee from future attack by disgruntled son:

In a second analogously termed release, Hernandez agreed to renounce any right, title, or interest, vested or contingent, he had, has, or may have in the future in the Trust and in any other trust in which either of his parents was a settlor or beneficiary.

• Third general release: shield family friend from individual future attack by disgruntled son:

In a third release, Hernandez agreed to release Gil, individually, and in her capacity as executrix and personal representative of Don Manolo's estate, and in her capacity as the trustee of the Trust, from any and all claims whatsoever, in law or in equity, which he ever had, has, or may have in the future.

Lesson learned?

Good drafting worked . . . to an extent.  Although no one could physically prohibit disgruntled son from breaching the terms of the settlement deal, the general releases he signed provided effective tools for shielding against his future attacks.  Here's how the 3d DCA described how disgruntled son breached original deal and how the general releases described above worked to thwart him:
 

The record indicates that Doña Alicia died in July 2003 and did not name Hernandez as a beneficiary under her last will and testament. Not surprisingly, Hernandez entered an appearance in the probate proceedings of his mother's estate and filed a petition challenging the administration of her will, in clear contravention of the express terms of the GSA. Hernandez also filed a lawsuit against Gil, individually, for tortious interference with his rights to his mother's inheritance. Pursuant to the clear and unambiguous language of the GSA and the corresponding releases, Hernandez bargained away his right to challenge his mother's will and in the event that he did so, he would be deemed to have predeceased his mother. Having challenged his mother's will, Hernandez is deemed to have predeceased her and therefore, has no right to any inheritance from his mother.

Appellate Briefs:

• Initial Brief of Appellant Nelson Julio Hernandez

• Answer Brief of Appellee Maria De Los Angeles Gil, as Personal Representative

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Keller v. Estate of Keller, 2007 WL 162770 (Fla. 4th DCA Jan 24, 2007)

The underlying facts of this tragic divorce/murder/land-trust case are recounted in lured detail in Court TV's write up of the case: THE KELLERS AND THEIR MILLIONS: A Bloody Meeting.  Before the divorce was finalized, Mrs. Keller was murdered.  Mr. Keller is now in jail charged with her murder.  Mr. Keller's reported $72+ million fortune is mostly in real estate.  His real estate investments were held in various land trusts.  (I've written recently about land trusts here and here.)


During his marriage to mail-order bride Mrs. Keller, Mr. Keller lead her to believe he was transferring a 50% beneficial interest in certain land trusts to her, when in fact he later testified that he had purposely failed to comply with the "technicalities" needed to transfer interests in a land trust.  When he tried to raise his own deliberate failure to comply with the requisite formalities for transferring title, the trial court ruled against him and the 4th DCA upheld that ruling based on the following rationale:

Another issue involves a number of other trusts which are factually similar. In 1999, at a time when Mrs. Keller was a minority beneficiary of the trusts, Mr. Keller, at her request, made written changes on each trust document to reflect that she had a fifty percent beneficial ownership interest. He testified in the dissolution proceeding that he had deliberately not followed through on certain formalities required by the trust instruments regarding the altering of the beneficial ownership interests. Again, his testimony, which was in conflict with his written changes on the trust instruments, was found not credible. There was ample evidence to support the trial court's conclusion that Mr. Keller was estopped from raising the technical deficiencies, which included the fact that Mrs. Keller was equally jointly liable on the indebtedness on most, if not all of these properties. Cotton v. Williams, 1 Fla. 37, 54 (Fla.1846) (“No man can avoid his own deed by which an estate has passed, on account of his own fraud in executing it.”).

Lesson learned:

As a trust-and-estates attorney I would rationalize the court's actions not only on notions of equity -- which is the heart and soul of divorce litigation -- but also on the distinction between equitable and legal title I wrote about here.  Mr. Keller's actions may have purposely avoided the requirements for transferring legal title, but his actions were certainly sufficient to transfer equitable title.

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Miami Rescue Mission, Inc. v. Roberts, 943 So.2d 274, 31 Fla. L. Weekly D2979 (Fla. 3d DCA Nov 29, 2006)

In 1998 the 3d DCA held in Raimi v. Furlong, 702 So.2d 1273 (Fla. 3d DCA 1998), that just because you're "insane" doesn't mean you necessarily lack testamentary capacity if you happen to sign your will during a "lucid interval."  Based on this very tough standard for proving incapacity, the 3rd DCA overturned the trial court’s finding of incompetency as a matter of law because at trial the testifying neurologist was unable to determine if the testator was lucid or not at the precise moment she executed the contested will. Here's the key text from Raimi:

It has long been emphasized that the right to dispose of one’s property by will is highly valuable and its is the policy of the law [in Florida] to hold a last will and testament good wherever possible. To execute a valid will, the testator need only have testamentary capacity (i.e., be of “sound mind”) which has been described as having the ability to mentally understand in a general way (1) the nature and extent of the property to be disposed of, (2) the testator’s relation to those who would naturally claim a substantial benefit from his will, and (3) a general understanding of the practical effect of the will as executed. A testator may still have testamentary capacity to execute a valid will even though he may frequently be intoxicated, use narcotics, have an enfeebled mind, failing memory, [or] vacillating judgment. Moreover, an insane individual or one who exhibits “queer conduct” may execute a valid will as long as it is done during a lucid interval. Indeed, it is only critical that the testator possess testamentary capacity at the time of the execution of the will.

Fast forward to 2006.  In an apparent retreat from its own "lucid interval" standard, in the linked-to opinion the 3d DCA now seems to be saying lack of testamentary capacity can be established by "clear and convincing" evidence regarding the testator's general health and mental wellbeing in the days leading up to the will signing.  Although the 3d DCA does cite to Raimi for a procedural point, it never discusses why the "lucid interval" standard it applied in that case apparently does not apply in this case.  Instead, the 3d DCA reaches back to Florida Supreme Court precedents from 1919 and 1933 to support its current ruling.

“Where there is an insane delusion in regard to one who is the object of the testator's bounty, which causes him to make a will he would not have made but for that delusion, the will cannot be sustained.” Newman v. Smith, 77 Fla. 633, 667 and 688, 82 So. 236, 236 (1919). Further, “an insane delusion has been defined as a spontaneous conception and acceptance as a fact of that which has no real existence except in imagination. The conception must be persistently adhered to against all evidence and reason.” Hooper v. Stokes, 107 Fla. 607, 145 So. 855, 856 (1933).

Lesson learned?

The 3d DCA notes that the trial judge, Celeste Hardee Muir, entered a 22-page order "carefully" explaining the evidence she relied on in reaching her conclusion to revoke the testator's latest will on incapacity grounds.  That's probably the key line in this opinion.  It's tough (maybe impossible?) to reconcile the 3d DCA's ruling in Raimi with its current ruling in the linked-to case. I would guess the differing outcomes may be the result of an extremely compelling set of facts in the latest case.  So is this case an example of "bad facts making bad law" or a concious retreat from the lucid-interval standard?  Who knows, the 3d DCA certainly didn't discuss the point.  Not exactly concrete guidance for future litigants and their attorneys .  .  .

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Johnson v. Clark, 2006 WL 3780511 (M.D.Fla. Dec 20, 2006)

No surprises.  That, in a nutshell, is probably the single most important ingredient in any successful attorney-client relationship . . . especially so in the litigation context.  Which is why this case is an excellent resource for Florida probate counsel.

Hammering out a settlement agreement is usually considered probate-litigation Nirvana.  But just because the trustee or personal representative signs off on the deal doesn't mean you're home free.  If one of the beneficiaries is determined to undermine the deal then all the "what ifs" need to be anticipated and factored into the deal (remember - no surprises!). 

So what can you do to ensure the deal sticks?  First of all, you'll want to get  a court order approving the deal after a hearing where all beneficiaries were given an opportunity to object.  Counsel in this case did this.  So far so good.  But what can you do if a beneficiary starts up a whole new piece of litigation covering the same ground covered by the settlement agreement?  As we all know, you can't stop someone from suing you, all you can do is mitigate the risk and cost of such actions.

Virtual Representation

Although the virtual-representation concept summarized below provides an effective tool for disposing of litigation by disgruntled beneficiaries in the settlement-agreement context, the cost of having to litigate this issue should have been anticipated as part of  the settlement deal and shifted over to the estate in the form of an indemnification clause (remember - no surprises!).

The doctrine of virtual representation provides that “[a] person who is not a party to an action but who is represented by a party is bound by and entitled to the benefits of a judgment as though he were a party.” Restatement (Second) of Judgments § 41(1). Further, it is well-settled that in cases involving claims by a trustee and individual beneficiaries, a trustee, in his representative capacity, acts on behalf of the trust representing the interests of the trust and its beneficiaries; a beneficiary is therefore bound by a judgment properly obtained by a trustee acting in his representative capacity. See § 737.402(t), Florida Statutes (2006); Restatement (Second) of Judgments § 41(1)(a) (“A person is represented by a party who is the trustee of an estate or interest of which the person is a beneficiary····”). In Florida, the doctrine of virtual representation has been codified [in F.S. 731.303].

Intervenor Status

But what if you happen to be the attorney representing the disgruntled beneficiary?  What kind of options can you open up for this client?  The virtual-representation concept bars your client from undoing a settlement deal entered into by his or her trustee, but what if your client had independent standing in the case?  Well, then it's a whole new ballgame.  As discussed in the following excerpts from the linked-to opinion, if your client is granted "intervenor status" in the case, presto: independent standing!

Although [Weiss v. Courshon, 618 So.2d 255 (Fla. 3d DCA 1993)] has a similar fact pattern to that presented here, the one glaring and significant difference between the beneficiaries in Weiss and Clark in the present case-the fact that Clark never formally became an intervenor in the probate proceedings-dictates the different result here. While it is true that Clark objected to the Mediation Agreement and even appealed the court's order approving the settlement, Clark was not an intervenor to the trustee's claims and neither the Mediation Agreement nor the Order approving it expressly reserved his individual claims. . . . . .

FN6. Although the [Weiss v. Courshon, 618 So.2d 255 (Fla. 3d DCA 1993)] court did not specifically cite to it, Florida law provides that “[a]nyone claiming an interest in pending litigation may at any time be permitted to assert a right by intervention.” Fla. R.Civ.P.1.230. “[T]he general rule [is] that it is too late to apply for intervention after final decree has been entered, though there are cases where in the interest of justice leave to intervene has been granted after final decree.” Wags Transp. Sys., Inc. v. City of Miami Beach, 88 So.2d 751, 752 (Fla.1956) (internal citations omitted) (holding that potential loss of intervenors' homes satisfied the interest of justice exception). Further, the Virtual Representation Statute represents a policy decision by the Florida legislature, which weighs heavily against the possibility that facts of this case would warrant a late grant of intervenor status, even if Clark had actually requested such status. See id.

The "Standard" General Release

Say it's 11 PM on a Friday night and you've been negotiating a settlement deal for the last 18 hours, you've worked through the all the economics of the deal and someone says "how about we just agree to the 'standard' general release?"  Freeze, because that last statement is nonsense.  Do yourself and everyone else involved a favor and insist on the parties agreeing to the explicit text of the release.  If anyone blows a gasket at this latest middle-of-the-night example of your intransigence, you may want to share this last bit of guidance from the linked-to opinion:

The Florida Supreme Court has recognized that “there are no ‘standard’ general releases; all are unique. The fact that a proposed release is described as being ‘general’ is virtually meaningless. [I]t would be essential to know what is being released, who is being released, and any conditions or terms of the release.” Swartzel v. Publix Super Markets, Inc., 882 So.2d 449, 453 (Fla. 4th DCA 2004). In other words, the covenant to execute “mutual general releases” as set forth in the Mediation Agreement essentially had no meaning until the actual general releases were executed . . .

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Joseph v. Chanin, 940 So.2d 483, 31 Fla. L. Weekly D2470 (Fla. 4th DCA Oct 04, 2006)

The linked-to opinion is an excellent case study on exactly how to address a question that comes up ALL THE TIME in probate disputes: what to do when someone takes money from a joint bank account that he or she shouldn't have and wont give it back when caught red handed.  This appellate opinion serves up the kind of bread-and-butter guidance that makes it easier for judges and attorneys to do their jobs.  No flowery prose or needless digressions.  Just concrete application of the law to a particular set of facts.

Problem:

Assume "A" and "B" live together for years, co-mingling their finances and paying shared expenses out of a single jointly titled checking account.  Assume further that A was siphoning off funds from this account to a separate savings account for "C," his daughter.  Finally, assume A dies, B finds out about the side account funded for C, and C refuses to give the money back.

Solution: B sues C for "Conversion"

That's what the plaintiff did in the linked-to case, winning both at trial and on appeal before the 4th DCA.  Here's the road map drawn by the 4th DCA for future litigants faced with a similar set of facts:

• Step 1 (B vs. A):  Establish  initial liability of joint account holder.

One joint tenant may bring a conversion action against another joint tenant who wrongfully appropriates more than his share of the money from a joint tenancy account. See Hamilton v. Trapp, 392 So.2d 1001 (Fla. 4th DCA 1981); Allen, 429 So.2d at 371; Nationsbank, 814 So.2d at 1230. Placement of the money into the AmTrust account made it “capable of identification,” Belford Trucking, 243 So.2d at 648, so that Chanin could have sued Meyer Joseph or his estate for conversion from the pooled checking account.

• Step 2 (B vs. C): Establish liability of third-party who received wrongfully withdrawn funds and refuses to give them back.

As the beneficiary of the funds in the AmTrust account, Barbara Joseph could be held liable for conversion if she exercised dominion over the funds, knowing of Chanin's claim. See Goodwin v. Alexatos, 584 So.2d 1007, 1011 (Fla. 5th DCA 1991) (citing Wilson Cypress Co. v. Logan, 120 Fla. 124, 162 So. 489 (1935), for the proposition that “[t]he recipient of converted property is liable to the rightful owner in an action for conversion”). Thus, Barbara Joseph became liable for conversion once she refused Chanin's request to return the money in the AmTrust account. See Uhl v. Holbruner, 146 Fla. 133, 136, 200 So. 359 (1941) (donee liable for conversion where donor of converted bonds had “no title” to convey and donee refused demand to return them); Restatement (Second) Torts §§ 223, 229, 237 (1965).FN3 By such act, Barbara Joseph exercised dominion over the funds inconsistent with Chanin's right to possess them.

• Step 3 (B vs. Judge): Last but not least, make sure your trial judge understand the underlying theory of your case.

A finding that a conversion occurred is consistent with the view that “the essence of an action for conversion is not the acquisition of property by the wrongdoer, but rather the refusal to surrender the possession of the subject personalty after demand for possession by one entitled thereto.” Murrell v. Trio Towing Serv., Inc., 294 So.2d 331, 332 (Fla. 3d DCA 1974) (citing 89 C.J.S. Trover and Conversion § 3 (1955); 18 Am.Jur.2d Conversion § 43 (1965)). The demand by the rightful owner gives “the person in possession actual notice of the rights of the person who is legally entitled to possession.” Ernie Passeos, Inc. v. O'Halloran, 855 So.2d 106, 109 (Fla. 2d DCA 2003).

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In re Raborn, --- F.3d ----, 2006 WL 3409104 (11th Cir.(Fla.) Nov 28, 2006)

WARNING:

The status of every single land-trust deed executed in Florida prior to 2004 remains unsettled and subject to attack in a bankruptcy proceeding.  Ultimate resolution of this issue depends on how the Florida Supreme Court answers the questions certified to it by the U.S. 11th Circuit Court of Appeals.

In the linked-to opinion the 11th Circuit is asked to weigh in once again on a bankruptcy case that has been roiling Florida's land-trust legal landscape since 2001.  The stakes are high . . . literally every land trust deed recorded prior to 2004 in the State of Florida is potentially subject to attack in a bankruptcy proceeding.

This case revolves around a common estate planning scenario: in 1991 mom and dad deeded real property to a trust created for their three children.  One of their children, their son Douglas K. Raborn, was the trustee of the trust.  The subject deed apparently contained the type of language that most Florida attorneys would say was sufficient to effectuate the desired title conveyance.  Here's how the 11th Circuit described key terms of the deed:

The . . . “Conveyance Deed to Trustee Under Trust Agreement” (“Deed”), was recorded in the Palm Beach County real estate records on 5 February 1991. .  .  .  .  The Deed names Mr. and Mrs. Raborn as “Settlors under the Raborn Farm Trust Agreement dated January 25, 1991” and conveys the farm to “Douglas K. Raborn, as Trustee under the Raborn Farm Trust Agreement dated January 25, 1991.” According to the Deed, the Trustee is “to have and to hold the said real estate with the appurtenances upon the trust and for the uses and purposes herein and in said Trust Agreement set forth.” The Deed repeatedly refers to the Trust Agreement and acknowledges the Trustee's broad powers to deal with the property. The Settlors signed the Deed and swore before a notary public “that they executed said instrument for the purposes therein expressed.”

Now here's the scary part: when son, the trustee, declared bankruptcy 10 years later in 2001, the bankruptcy trustee argued that the real property deeded to him as trustee of the land trust was deeded to him  in fee simple thus making it a part of the bankruptcy estate and subject to the claims of son's personal creditors.  On appeal to the district court the bankruptcy trustee won this argument in 2004!!??

Fast forward to 2006.  The case is before the 11th Circuit once again.  Concluding that it needed clarity on Florida's land-trust law before it could rule on the federal bankruptcy-law issues, the 11th Circuit certified the following two questions to the Florida Supreme Court:

Whether, under Florida Statutes section 689.07(1) as it existed before its 2004 amendment, this Deed-which is a recorded real estate conveyance deed to a named trustee of a private express trust identified in the deed by name and date, and contains other language referring to the unrecorded trust agreement, the settlors, and the beneficiaries-conveys only legal title to the property in trust to the grantee as trustee.

This question is solely an issue of Florida state law that should be decided by the Florida Supreme Court.

If the state court answers this first question in the negative and determines that the Deed-viewed in the light of the unamended statute-did not convey the property in trust, we also certify the following question:

Whether, as a matter of Florida law, the 2004 statutory amendment to Florida Statutes section 689.07(1) applies retroactively to the Deed in this particular case and causes the Deed-in the light of the amendmentFN5-to convey only legal title to the grantee in trust.FN6

In certifying these questions, our intent is not to restrict the issues considered by the state court, including whether the Deed and Trust Agreement were effective to create a valid “Illinois Land Trust” covered under Florida Statutes section 689.071 rather than section 689.07(1).FN7

FN5. Although the 2004 bill expressly states that the amendment only clarifies existing law and applies retroactively, the district court pointed to conflicting statements in the Senate Staff Analysis and Economic Impact Report. At one point, the report stipulates that the amendment was meant to “supersede[ ] the contrary federal district court ruling in the bankruptcy matter of In re Raborn.” At another point, the report states, “This bill would not affect the recent contrary ruling of a federal district court in bankruptcy. However the bill would apply to future judicial actions.”

FN6. We would need to answer for ourselves the question of whether federal law would allow retroactive application of the statute to this case, even if state law would allow it.

FN7. We are aware that the Florida Legislature extensively amended Florida Statutes section 689.071, effective 1 October 2006. This amendment to Florida's land trust provision purports “to clarify existing law and applies to all land trusts whether created before, on, or after October 1, 2006.” Once again, we do not know whether, under Florida law, this amendment applies retroactively to this case. Even if state law would allow retroactive application of the amended land trust statute to this case, however, we would need to address the issue of whether such retroactive application is permissible as a matter of federal law.

Stay tuned for more!
Continue Reading...

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Baldwin v. Estate Of Winters, 2006 WL 3299834 (Fla. 4th DCA Nov 15, 2006)

So what is it, cash or tangible property?  The linked-to case demonstrates this seemingly basic/esoteric question can have a real-life impact on who gets what from an estate.  The contested writing was described as follows by the 4th DCA:

On May 22, 1999, two copies of a typewritten letter were prepared on the testator's personal stationery. They directed the same personal representative “to give to Allan Baldwin a new car of his choice from [her] estate.” Each copy was signed by the testator, witnessed, and notarized.

If this document devised tangible property, then F.S. 732.515 governs, if it devises a monetary amount, then the general rules governing codicils under F.S. 732.502 governs.  The probate court ruled it was a devise of a monetary amount, NOT tangible property, thereby rejecting Mr. Baldwin's argument for application of the less demanding rules applicable to devises of tangible property under F.S. 732.515.

Here's how the 4th DCA summarized its ruling:

[W]e agree with the probate court's initial ruling that the separate writing was not a proper devise of tangible property, pursuant to section 732.515. Because the devise was of a monetary amount, it could not be effectuated through a separate writing under the 1997 version of section 732.515.

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Fleck-Rubin v. Fleck, 933 So.2d 38, 31 Fla. L. Weekly D1369 (Fla. 2d DCA May 12, 2006)

The trial court in this case ruled that an estate tax marital deduction trust (obviously designed to qualify as a "general power of appointment marital deduction trust") failed to give the surviving spouse an unlimited withdrawal power over these trust assets . . . . in spite of the fact that in the absence of such withdrawal power the entire tax-savings design of the trust would fall apart?!

Estate-tax planning is a HUGE (and usually the primary) consideration driving how most trusts are drafted.  Failing to understand the estate tax issues underlying the entire design of a trust document is like trying to order off a Chinese menu with no English translations . . . you know it's a menu, but have only the vaguest idea of what's actually being said on a given page.  The same applies to the construction of most trust documents: if you don't understand the tax planning concepts driving the trust's design and drafting, then how can you possibly be expected to correctly construe the trust's text?  Short answer: you can't.

Although the 2d DCA achieves the right result, in a classic example of missing the forest for the trees it grounds its reversal of the trial court's mistaken order on the meaning of the word "shall" without ever once discussing the single most important indication of the settlor's intent:  estate tax planning.  For the record, here's how the 2d DCA explained its ruling:

In this appeal, we are asked to determine whether the terms of the trust agreement permitted Sondra to remove all the funds and assets of Trust A without her cotrustee's consent. The trial court considered two provisions in determining that Sondra did not have the authority to unilaterally remove the funds and assets of Trust A-paragraph 3(a)-(e) and paragraph 9(f). Paragraph 3(b) provides that “[t]he Trustees shall make distributions to my wife from the principal of Trust A, even to the complete exhaustion thereof····” (Emphasis added.) Paragraph 9(f) provides:

9. The following additional provisions and limitations, when applicable, shall govern the administration and disposition of the trust property:

····

(f) Notwithstanding any provision to the contrary elsewhere contained in this instrument, neither my wife nor any lineal descendant of mine shall, while serving as a Trustee hereunder, participate in the exercise by the Trustees of any discretionary power or authority conferred upon the Trustees by any provision of this instrument with respect to the distribution, or the withholding from distribution, of the principal of any trust estate held hereunder for the benefit of such one or with respect to the distribution, the withholding from distribution, or other application of the net income therefrom; and all such powers and authorities shall be exercised solely by the other Trustee.

(Emphasis added.)

The trial court determined that paragraph 9(f) required Sondra to obtain the authorization of the cotrustee, Aaron, for the transfer of the funds and assets from Trust A to herself since she was then the beneficiary and a cotrustee of that Trust. Paragraph 9(f), however, applied only to a trustee's exercise of any discretionary authority. The unambiguous language of paragraph 3(b) allowed Sondra to demand distributions from Trust A “even to the complete exhaustion thereof.” Such distributions were not subject to the approval or discretion of Aaron, as cotrustee, since paragraph 3(b) provided that the trustees “shall make distributions” requested by Sondra. Because the trustees had no discretion under paragraph 3(b), paragraph 9(f) was inapplicable.

Lesson learned:

Trust litigation is demanding: not only do you have to know how to litigate a case, you also have to understand the complex estate-tax issues underlying almost all trust design and drafting.

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Pierre v. Estate of Pierre, 928 So.2d 1252, 31 Fla. L. Weekly D1434 (Fla. 3d DCA May 24, 2006)

Suppose mom writes a will that cuts out estranged son, suppose further estranged son reappears on the scene shortly before mom’s death after 10 years of no contact with mom and somehow the will that cut him out goes “missing.” Well, estranged son might be smiling because if mom died without a will (i.e., intestate), then as one of her lineal descendants he gets a piece of the estate. Under Florida law, if the originally signed copy of a will is missing, it is presumed that the testator’s intent was to destroy the will and thus a photocopy of the will is not valid. However, this presumption can be overcome, which is what happened in this case.

Here’s how the 3d DCA explained the law in Florida governing lost wills:

When a person who executes a will dies and the will cannot be located, a rebuttable presumption arises that he or she destroyed the will with an intent to revoke it. See In re Estate of Hatten, 880 So.2d 1271, 1274 (Fla. 3d DCA 2004)(stating that when a decedent who has made a will dies, and the will cannot be found among the decedent's personal papers or in other logical locations, a rebuttable presumption arises that the decedent herself destroyed the will with the intent to revoke it). The presumption may, however, be rebutted with competent substantial evidence that the interested party had access to the testatrix's home, an opportunity to destroy the will, and a pecuniary interest in doing so. See Walton v. Estate of Walton, 601 So.2d 1266, 1267 (Fla. 3d DCA 1992)(explaining that the presumption that a decedent destroyed her will with the intention of revoking it may be overcome by competent and substantial evidence, and that “the existence of persons with an adverse interest in destroying a will who have an opportunity to do so, may serve to rebut the presumption that the will has been revoked”).

As we conclude that there is competent substantial record evidence to support the trial court's finding that the presumption of revocation was overcome, we affirm.

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Lawsuits against trustees are on the rise.  That is the conclusion to be drawn from the following statistic, as reported in the on-line article entitled How Not to Get Sued:

[L]awsuits and arbitration cases concerning breach of fiduciary duties are increasing at a compound annual rate of 22 percent, according to an analysis of NASD figures by the Center for Fiduciary Studies, of Sewickley, Pa.

The linked-to article goes on to address key strategies for avoiding trustee lawsuits, which are encapsulated in the following 4 bullet points:

• Know the client's risk tolerance
• Serve the client's needs
• Keep careful records
• Be particularly careful to document anything unusual

The Society of Fiduciary Advisors has also published its BEST PRACTICES FOR INDIVIDUAL INVESTORS, which provides excellent risk-management guidance for trustee/investment advisors.

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In trust litigation the identity of the trustee (i.e., individual vs. corporate, inexperienced vs. professional) has a large impact on how the case is handled.  Prof. Melanie B. Leslie (Professor of Law, Cardozo Law School) has recently published an interesting article addressing the different standards of care that are (or should be) applied to professional trustees in light of the fact that many jurisdictions, including Florida, have adopted the Uniform Trust Code, which some view as overly protective of corporate trustees.  The article is entitled Common Law, Common Sense: Fiduciary Standards and Trustee Identity, 27 Cardozo L. Rev. 2713 (2006).   The following is the article's SSRN abstract:

Abstract:
The past twenty years have seen significant changes in the law governing trustees' fiduciary duties. Though fiduciary duty law is a common law creation, recent changes are not a result of common-law evolution, but legislative action. The push to codify trust law, including fiduciary duties, has come from a few sources, including academics, who have argued that trust law should be more uniform, and banking institutions, who have pushed for legislation to ease the burdens of trust management.

In some significant respects, legislative changes to fiduciary duties have not improved upon the common law. In fact, a few important statutes have replaced theoretically sound common law standards with rules that undermine the historical objectives of trust law. In some instances, scholars have justified changes by claiming that they are necessary to protect the non-professional, poorly counseled trustee. But, by and large, it is the large, institutional trustees who have benefited - significantly - from the statutory changes in the rules.

This article argues that recent statutes would be much improved if they differentiated between professional and non-professional trustees. There are critical distinctions between professional and non-professionals: differences in settlor's expectations and objectives, negotiation settings, monitoring costs and the trustee's response to liability rules. These distinctions justify having different fiduciary standards for different types of trustees.

Courts, with their case specific approach to rules, intuitively understand that the identity of the trustee should make a difference in assessing liability for breach of fiduciary duty. Either expressly or implicitly, courts gradually have developed two sets of rules. Thus, changing fiduciary standards to protect the non-professional was never really necessary.

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In Florida, trustees and personal representatives have an affirmative statutory duty to keep trust and estate beneficiaries informed (see new Ch. 736 for trustees; 733.602 and 733.604 for PRs).  Additionally, being pro-active, let alone responsive, with respect to keeping everyone informed is probably the cheapest way to avoid getting sued by the beneficiaries, a point underscored in this newspaper article.  The following is an excerpt from the linked-to article:

Friday, August 18, 2006
By FRED CONTRADA
fcontrada@repub.com

AMHERST - When William J. Bernotas shot his estranged wife Jean Hosmer to death in front of the Northampton police station in 1999 and then turned the gun on himself, he left their two children orphans.

One of Hosmer's sisters came forward to take care of Sandra and Kevin Bernotas, but their estate was entrusted to Amherst lawyer Nancy J. Sardeson.

Now the family has questions about how the estate has been managed and Sardeson has been suspended from practicing law for failing to provide the answers.

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Owens v. Estate of Davis, ex rel. Holzauser, __ So.2d __, 2006 WL 1716786 (Fla. 2d DCA June 23, 2006) 


In this case the decedent’s surviving wife claimed her statutory “elective share” (30%) of the estate. So the question then became: after wife gets her 30%, who gets the remaining 70% of the estate? The decedent’s will did not address this scenario, so what the probate court should have done is simply order that the remaining 70% of the estate pass according to Florida’s intestate succession law (F.S. § 732.103). That is not what happened. Instead one of the heirs apparently convinced the probate court that to figure out the most "equal or equitable" way of distributing the rest of the estate he should consider extrinsic evidence regarding what the decedent would have wanted to happen. The probate court went along with that approach and was reversed by the Second DCA. Here’s how the Second DCA summed up its rationale for reversal:

"The terms of Mr. Davis's will are clear and unambiguous; however, the will does not specify how the probate court should distribute Mr. Davis's residuary estate if his wife claims her elective share. When Mr. Davis's wife claimed her elective share, rather than let the residuary estate pass according to the law of intestate succession, the probate court considered extrinsic evidence to determine how to distribute those assets. The trial court's consideration of extrinsic evidence to “rewrite” the will was error:

The court may not alter or reconstruct a will according to its notion of what the testator would or should have done···· It is not the purpose of the court to make a will or to attempt to improve on one that the testator has made. Nor may the court produce a distribution that it may think equal or more equitable. In re Estate of Barker, 448 So.2d 28, 31-32 (Fla. 1st DCA 1984) (quoting 18 Fla. Jur.2d Decedent's Property § 358, at 216)."

(Emphasis added.)

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Vinson v. Johnson, __ So.2d __, 2006 WL 1650609 (Fla. 1st DCA June 16, 2006)

Suppose a client with 9! children asks you what’s the best way to provide for the orderly disposition of his 34-acre farm. He wants to ensure that the farm either stays in the family intact, or is sold as a single property, not piecemeal. A simple way to effectuate this type of plan is to put the property in a trust, partnership or LLC and include purchase-and-sale provisions that achieve the desired outcome. The wrong answer is to say: “heck, that’s simple, just say in your will that all of the kids have to agree to a sale.”

That’s what the Vinson clan learned in this case. The portion of Vinson Sr.’s will at issue in the case was described as follows by the First DCA:

Hardy Vinson, Sr., executed a will leaving his 34-acre farm and home in Alachua County to his nine living children as tenants in common. The will provided in pertinent part:

The “Vinson Estate” shall not be subject to partition or forced sale by any heir, but shall only be sold upon agreement of all heirs. Taxes and ownership expenses shall be shared equally among the children. Any heir that pays more than his or her share shall be entitled to contribution from the nonpaying heirs upon sale of the property.

When 5 of Vinson Sr.’s 9 children sued for partition of the farm, the trial court ruled in their favor. On appeal the First DCA held that the clause in the will prohibiting partition or sale was an “unlawful restraint on alienation of real property” and upheld the trial court’s ruling. The First DCA explained its rationale as follows:

When real property is conveyed in fee simple, the grantee or devisee acquires a right to sell or dispose of the property as an incident to the right of ownership. The right of alienation is said to be an inherent and inseparable quality of the estate. See1. 61 Am.Jur.2d Perpetuities, Etc. § 102 (2002); 3 Thompson Real Property § 29.03(b), at 707 (2001). An absolute restraint on alienation is inconsistent with the right of ownership and is therefore invalid. See generally Iglehart v. Phillips, 383 So.2d 610 (Fla.1980) (surveying the case law pertaining to restraints on alienation).

The rule against restraints on alienation applies to restrictions on partition of real property, as well as restrictions on sale. The right to seek partition of property owned jointly in a tenancy in common is an incident to the right of individual ownership. See Richard R. Powell, The Law of Real Property, § 77 ¶ 846 (1991). While there appears to be no precedent in Florida for the precise issue presented in this case, other states have held that prohibitions against partition or forced sale of property devised in a will are unlawful restraints on alienation.

(Emphasis added.)

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Della Ratta v. Della Ratta, 2006 WL 1235760, 31 Fla. L. Weekly D1325 (Fla. 4th DCA May 10, 2006)

Dating back to 1884, Florida's "family member" evidentiary presumption was at the heart of this recent piece of litigation revolving around a son's lawsuit against his mother and step-father for ownership of a condo' he lived in and fixed up based on an understanding that the property would be his. Intra-family disputes over vaguely defined economic arrangements are of course nothing new to the probate-litigation arena. What makes this case interesting is how a public-policy decision was made by the Florida Supreme Court in 1884 to "presume" the non-existence of economic obligations between family members living in the same home. Here's how the Fourth DCA articulated the rule:

The supreme court articulated the "family member presumption" in Mills v. Joiner, 20 Fla. 479, 1884 WL 2067 (1884). There, a daughter sued her father for payment for housekeeping services she performed for him and her mother in their home for almost ten years. During this time, she lived in the home with her parents. The daughter alleged that her father agreed to pay for her services. Seven years later, the father reneged on the deal. At trial, the court charged the jury that the daughter could not recover unless she proved "'a special contract or express promise that she was to be paid for her services.'" Id. at 492; Mills, 20 Fla. 479, 1884 WL 2067, at *4 (emphasis in original). The jury found for the father.

It is a presumption of law that the father is not bound to pay a child, though of full age, for services while living with him at home and as one of the family; but this presumption may be overcome by proof of a special contract,[FN1] express promise, or an implied promise; and such implied promise or understanding may be inferred from the facts and circumstances shown in evidence. Id. at 492-93; Mills, 1884 WL 2067, at *4 (boldface supplied); see also Brown, 47 So.2d at 759, 763 (supreme court followed Mills in affirming the ruling that a daughter had not proved an express or implied contract that overcame the family member presumption, even though the daughter had rendered services to her mother for many years).

The "family member presumption" described in Mills applies to personal services that a child performs for a parent while living "at home with [the parent] and as one of the family." Id. at 492; Mills, 1884 WL 2067 at *4.

[FN1.] In WPB, Ltd. v. Supran, 720 So.2d 1091, 1092 (Fla. 4th DCA 1998), we explained that a "special contract"

is one with peculiar provisions or stipulations not found in the ordinary contract relating to the same subject matter. These provisions are such as, if omitted from the ordinary contract, the law will never supply.

(citing 17 C.J.S. Contracts § 10 (1963))."A special contract is always an express contract, 'one whose provisions are expressed and not dependent on implication.' " Id. (citing Fitzpatrick v. Vermont State Treasurer, 144 Vt. 204, 475 A.2d 1074, 1077 (1984)).

The Sponsor's Note to F.S. § 90.302 does a good job of putting this case in context by explaining the significance of evidentiary presumptions in general:

All presumptions that are not conclusive are rebuttable presumptions. For several decades, courts and legal scholars have wrangled over the purpose and function of these presumptions. The view espoused by Professor Thayer (Thayer, Preliminary Treatise on Evidence 313-352 (1898) ) and Wigmore (9 Wigmore, Evidence §§ 2485-2493 (3rd ed. 1940) ), accepted by most courts (see Morgan, Presumptions, 10 Rutgers L.Rev. 512, 516 (1956) ), and adopted by the American Law Institute's Model Code of Evidence, is that a presumption is a preliminary assumption of fact that disappears from the case upon the introduction of evidence sufficient to sustain a finding of the nonexistence of the presumed fact.

Professors Morgan and McCormick argue that a presumption should shift the burden of proof to the adverse party. Morgan, Some Problems of Proof 81 (1956); McCormick, Evidence § 317 (1945). They believe that presumptions are created for reasons of policy and argue that, if the policy underlying a presumption is of sufficient weight to require a finding of the presumed fact when there is no contrary evidence, it should be of sufficient weight to require a finding when the mind of the trier of fact is in equilibrium or if he does not believe the contrary evidence.

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Pastor v. Pastor, __ So.2d __ (Fla. 4th DCA April 19, 2006)

One of the overarching themes of Florida's probate code is the tension between constitutionally protected due-process rights and Florida's strong public policy favoring the speedy administration of estates. In order to move things along as quickly as possible, Florida law provides extremely short windows of opportunities for litigants to file objections. For example, under F.S. § 733.212 potential litigants served with a notice of administration have only 3 months to object "to the validity of the will, the qualifications of the personal representative, venue, or jurisdiction of the court" or those objections "are forever barred."

In this case the objecting party tried to get around the 3-month limitations period contained in F.S. § 733.212 by arguing that an objection to domicile was like objecting to the court's subject matter jurisdiction, and thus not subject to waiver. Not surprisingly, this argument was shot down both at the trial court level and by the Fourth DCA, which explained its ruling as follows:

For the purpose of overcoming the bar of section 733.212(3), Appellant contends that an issue of domicile is an attack on subject matter jurisdiction and is not waived by failing to timely file. The trial court correctly recognized that subject matter jurisdiction is not determined by the decedent's domicile; rather, it is based on the power of the court over the class of cases to which the controversy belongs. See Ruth v. Department of Legal Affairs, 684 So.2d 181, 185 (Fla.1996); Chase Bank of Texas Nat'l Ass'n. v. Department of Ins., 860 So.2d 472, 475 (Fla. 1st DCA 2003).

. . . . .

We are not unmindful of Appellant's argument that finding such an objection to subject matter jurisdiction can be waived under the statute will effectively allow Florida courts to probate a non-domiciliary's estate through domiciliary administration. Nevertheless, we conclude that Appellant may not challenge the court's jurisdiction where he received the notice of administration, the trial court determined domicile through the verified petition, and the three-month period to object to jurisdiction passed before filing his claims. There is a "strong public policy" in this state "in favor of settling and closing estates in a speedy manner." May v. Illinois Nat'l Ins. Co., 771 So.2d 1143, 1151 (Fla.2000). If the court were to hold that domicile is a component of subject matter jurisdiction, any estate could be re-opened based on such a belated objection. This would render section 733.212(3) meaningless and would contravene Florida's public policy as expressed in May. See also In re Estate of Williamson, 95 So.2d 244 (Fla.1957).

(Emphasis added.)

Lesson Learned:

In the probate-litigation context, there is a huge advantage to understanding how quickly claims may be cut off. If you represent the party expecting to defend against a possible challenge, the probate code provides ample opportunities for building almost air-tight defenses to litigation. If you represent a party that is thinking about filing an objection, quick decisive action is of paramount importance.

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Roberts v. Sarros, __ So.2d __ (Fla. 2d DCA Feb 15, 2006)

Probate appellate decisions come in all flavors. Some sparkle with creative lawyering by one of the advocates (see here), some can make you dizzy following the appellate court's complex but ultimately convincing line of reasoning (see here), and some just get the job done. This is one of those cases that just get's the job done. No fireworks, just good lawyering and solid guidance for us practitioners.

In this case the Second DCA walks us through an exercise probate lawyers encounter every day: how to read or "construe" a trust agreement.

Step 1: Zero in on the problematic language. I say problematic because no matter how ambiguous a provision may be, it doesn't really matter if it has no impact on any of the interested parties. In this case the problematic language revolved around whether a surviving widow had the authority to revise a trust agreement after her husband had passed away. Surviving widow signed a trust amendment disinheriting one set of her grandchildren. Grandchildren understandably didn't think this was a good idea, and the case ended up in court. Here's the "problematic" language, as described by the Second DCA:

Article XV of the Trust provides, "AMENDMENT AND REVOCATION: This Trust is subject to revocation, change or amendment, in writing, by the Grantors from time to time." Article XII contains rules of construction for the Trust instrument, including the following provision that is pertinent to this appeal: "Unless the context required [sic] otherwise, masculine personal pronouns include the feminine, and the singular and plural may be construed interchangeably."

Step 2: Identify the applicable law. Here's what the Second DCA had to say about the law in Florida applicable to trust-construction disputes:

This court has recognized that "[t]he polestar of trust interpretation is the settlors' intent." L'Argent v. Barnett Bank, N.A., 730 So.2d 395, 397 (Fla. 2d DCA 1999). If the trust language is unambiguous, the settlors' intent as expressed in the trust controls and the court cannot resort to extrinsic evidence. Id.; Ludwig v. AmSouth Bank of Fla., 686 So.2d 1373, 1376 (Fla. 2d DCA 1997). 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. Pounds v. Pounds, 703 So.2d 487, 488 (Fla. 5th DCA 1997); see also L'Argent, 730 So.2d at 397.

Step 3: Apply law to the facts. At the trial court level the judge ruled that surviving widow lacked the authority to amend the trust agreement. The trial court agreed with the disinherited-grandchildren when they argued that use of the plural form "Grantors" in the trust-amendment section meant widow lacked authority to unilaterally amend the document. The Second DCA reversed, based on the following line of reasoning:

[I]n considering the trust instrument as a whole, it is clear that if the singular/plural clause were not applied, it would produce absurd results. Every reference in Article I is to the plural form "Grantors." Article I deals with the disposition of principal and income of the Trust to the Grantors during their lifetime. If the references to the "Grantors" were construed to mean only the plural form, then after the death of the first Grantor the surviving Grantor could no longer receive income from the Trust. Such a result is contrary to the stated purpose of the Trust, which is to provide for the McNeills "for so long as they may live." Article I also provides that "the Trustees shall make payments from the principal of the Trust Fund to or for the benefit of the Grantors in such sums and at such times as the Grantors may request from time to time." Again, if construed to mean only the plural "Grantors," then the surviving Grantor would have no access to the principal of the Trust even though the trust was established to provide proper care for the McNeills and to allow them to maintain "a style of living to which they have been accustomed."

Like Article I, Article XV must be construed in accordance with the singular/plural clause. This is consistent, as in Article I, with the overall plan that the Grantors retain control over their assets as long as either of them lived. Nothing in the context of Article XV requires that "Grantors" be construed to mean only the plural form. When construed to include the singular "Grantor," Louise M. McNeill, as the surviving Grantor, could amend the Trust pursuant to the power to revoke or amend contained in Article XV. Thus, we reverse the trial court's order granting summary judgment as to count I and determining that the Amendment by Louise M. McNeill was invalid and remand for further proceedings on the Appellees' complaint.

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Popp ex rel. Estate of Davis v. Rex, 2005 WL 3299727, 30 Fla. L. Weekly D2760 (Fla. 4th DCA Dec 07, 2005)

I've written before (see here) on how challenging it can be for attorneys drafting estate-planning documents to cover every issue that possibly could come up decades in the future when the document is put to the test in a probate-related dispute. Even minor mistakes/omissions can morph into years of probate litigation. Well, that's exactly what happened in this case.

The case involves the reformation of the Virginia F. Davis 1986 Irrevocable Trust (the "1986 trust"), which provided that when Mrs. Davis died it would be divided in half with one share for each of her two sons and each son's share would be distributed in three installments-one immediately, one five years later, and the last one five years after that. Mrs. Davis died on November 2, 2000, predeceased by her husband (i.e., about 14 years after the 1986 trust was signed). The litigation in question arose in the context of probate-administration proceedings involving one of Mrs. Davis' children, Scott F. Davis, who died without issue on November 19, 2002 (i.e., about 16 years after the 1986 trust was signed) - having received only one of the three installment payments he was originally entitled to under the 1986 trust.

Under Mr. Davis' will, the residuary beneficiaries of his estate were the Pittsburgh State University Foundation, Inc. and the WPBT Communications Foundation, Inc.

According to the Fourth DCA, the 1986 trust contained the following drafting error:

The 1986 trust, as a result of a drafting error, omitted instructions as to what would happen if one of the sons died without children before he had received his installment payments. The trust provisions expressly covered what would happen if a son died with children (providing that the unpaid installments would go to those children) but stopped without going to the next step, directing where the unpaid installments should go if a son had no issue. (Emphasis added.)

Based on the following evidence, Palm Beach County Judge Gary L. Vonhof entered a final judgment reforming the 1986 trust so that the share of a deceased son without issue would go to the other son:

• Testimony of drafting attorney in favor of the requested trust reformation;
• Testimony of a financial advisor who worked with Mrs. Davis in connection with creating the 1986 trust, also in favor of the requested trust reformation; and

• The text of a comparable, but separate, revocable trust established by Mrs. Davis that provided that in the event one of her two sons died without issue, his share was to go to her other son.

The Fourth DCA upheld the trial court's ruling, based on the following:

When this court previously decided [Davis v. Rex, 876 So.2d 609 (Fla. 4th DCA 2004)], we sent the case back to the trial court to determine if the trust should be reformed. We held, citing In re Estate of Robinson, 720 So.2d 540, 543 (Fla. 4th DCA 1998), "that a trust with testamentary aspects may be reformed after the death of the settlor for a unilateral drafting mistake so long as reformation is not contrary to the interest of the settlor." Davis, 876 So.2d at 611. This mistake must be shown by clear and convincing evidence. Robinson, 720 So.2d at 542.

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Any time an attorney writes himself or one of his relatives into a client's will, red flags should shoot up all over the place. If this same attorney is also cutting the testator's family out of the will, the ethical and legal issues become so thick the attorney is almost guaranteeing future litigation over the will. That's exactly what happened in a St. Petersburg, Florida, case, as reported in this newspaper story. Here are a few excerpts from that story:

The millionaire walked into the St. Petersburg law office.

Harry Lieffers Jr., 76, looked over a five-page document and, with a few strokes of a pen, cut his two daughters and stepson out of his will.

On that October day in 2003, Lieffers decided that his roughly $1.5-million estate would be divided equally among two people: His 43-year-old real estate agent and the agent's 22-year-old girlfriend.

"I wish to reward them for the kindness they have shown me," the will said.

The attorney who drafted the will was the girlfriend's uncle.

The document, filed after Lieffers' death last month, is the latest point of contention in a two-year battle over Lieffers' health and estate.

Lieffers' children say he was vulnerable because of dementia and Alzheimer's disease. They say his real estate agent, Gerard Growney, and the attorney, Alan Watson, took advantage of Lieffers.

The family has filed a complaint against Watson with the Florida Bar and plan to contest the will.

* * * *

Lieffers' children know a lengthy court battle may wipe out all of the funds, but they believe Lieffers would have wanted them to push forward.

"If we ever needed Dad, he was there for us," said daughter Reibel. "We will continue to be there for him, to preserve his last wishes now that he is gone." (Emphasis added.)

Did Drafting Attorney Violate Florida Bar Ethics Rule?

Based on the linked-to story, the answer appears to be NO. Rule Reg. Fla. Bar 4-1.8(c) prohibits an attorney from preparing an instrument giving the attorney or a person "related" to the attorney any substantial gift from a client, including a testamentary gift, unless the client is related to the proposed donee. An attorney's niece or nephew is not considered "related" for purposes of this rule. The Florida Bar will have to grapple with this case, but the overriding question for all concerned should be "why get caught up in this mess to begin with?"

Contested Guardianship Proceeding as Precursor to Probate Litigation

One final note, if you read the linked-to story you'll note this family drama started out as a contested guardianship proceeding, emphasizing once again the remarks I've made (see here and here) regarding how these types of proceedings usually end up being precursors to probate litigation. Perhaps if someone had sought discovery of Mr. Lieffers' will as part of the contested guardianship proceedings the parties would have found out about his will's controversial dispositive provisions before his death and worked out these issues while he was still around to comment.

Source: Thanks to Heraldblog@gmail.com for brining this item to my attention!

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Sheets v. Palmer, 2005 WL 3403620 (Fla. 1st DCA Dec 14, 2005)

In this case the parties settled a will contest by executing a settlement agreement that provided, in part, that the party challenging the will would

"receive a $38,500.00 credit from the Estate as a specific bequest made to him under the terms of the . . . [w]ill."

Apparently when the settlement agreement was signed the parties did not address if this "bequest" would bear any of the taxes and administrative expenses of the estate. Well, they should have. The residuary assets of the estate were insufficient to cover these expenses. As such, the personal representative said the $38,500.00 specific bequest would have to bear a proportionate share of these expenses. The will-challenger said NO, arguing the parties never intended that result. Duval County Judge James L. Harrison agreed.

The First DCA said not so fast, holding as follows:

• In the absence of specific language in the will voiding the statutory apportionment scheme, a probate court does NOT have the discretionary authority to relieve a specific bequest of its obligation to bear a proportionate share of estate taxes and administrative expenses, thus warranting reversal of this portion of the probate court's order. F.S. §§ 733.817(5)(a)1. and 733.805(1)(d).
• A probate court DOES have the discretionary authority to direct from what part of the estate attorneys' fees and costs shall be paid, thus these items could be allocated away from the settlement bequest. F.S. § 733.106(4).
• A probate court DOES have the discretionary authority to direct from what part of the estate interest and penalties on estate taxes shall be paid, thus these items could be allocated away from the settlement bequest. F.S. § 733.817(5)(g).

Lesson Learned:

It can be incredibly frustrating to find yourself in litigation after apparently settling a case in mediation. However, as this case makes clear, carefully drafting the settlement agreement is just as important as negotiating the underlying deal. If the parties had explicitly addressed in the settlement agreement whether or not the $38,500.00 specific bequest would have to bear a proportionate share of the estate's taxes and expenses, the acrimony, expense and delay associated with this post mediation litigation might have been avoided.

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Zoldan v. Zohlman, 2005 WL 3180190 (Fla. 3d DCA Nov 30, 2005)

The decedent was 90 years old when his 78 year old wife threatened to divorce him unless he signed an irrevocable contract requiring him to treat his step-daughter as an heir equal to his three sons under his will. Afraid he might be abandoned/divorced if he didn't comply, the decedent signed the contract. That was enough for Dade County Judge Herbert Stettin to invalidate the whole deal on undue influence grounds. The Third DCA said not so fast, reversing on the grounds that wanting to keep your wife happy does not undue influence make. Well, OK, that's not what they said exactly, but it's what they meant. The Third DCA's more judicious way of making the point was as follows:

The Florida Probate Code provides that a will is void, either wholly or in part, if its execution is procured by fraud, duress, mistake, or undue influence. § 732.5165, Fla. Stat. (2003). The undue influence required for invalidation of a testamentary document is conduct amounting to duress, force, or coercion to such a degree that the free agency and willpower of the testator is destroyed. Mere affection and attachment or a desire to gratify the wishes of one who is esteemed or trusted may not alone be sufficient to amount to undue influence. E.g., In re Peters' Estate, 155 Fla. 453, 20 So.2d 487, 492 (Fla.1945); Derovanesian v. Derovanesian, 857 So.2d 240 (Fla. 3d DCA 2003), rev. denied,868 So.2d 522 (Fla.2004); Raimi v. Furlong, 702 So.2d 1273, 1287 (Fla. 3d DCA 1997); Coppock v. Carlson, 547 So.2d 946 (Fla. 3d DCA 1989); and cases cited therein. (Emphasis added)

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DeMello v. Buckman, 2005 WL 2990487 (Fla. 4th DCA Nov 09, 2005)

When advising parties involved in trust litigation there are two fronts I like to focus on: (i) the legal substance of the case and (ii) what I refer to as "capturing the moral high ground." Being right on the law is crucial, although not always sufficient. When in doubt, the litigant occupying the moral high ground is much more likely to get the nod from the trial judge (and the other side is just as likely to get hammered).

This case deals with the suit by one sister against another sister as trustee of their deceased parents' inter vivos trust. I'll leave it up to you to decide who captured (or lost) the moral high ground here before Broward County Judge Mark A. Speiser. Fortunately for the losing side, however, the Fourth DCA reversed most of the trial judge's final judgment on appeal (lesson learned: sometimes it pays to appeal). The most interesting issues addressed by the Fourth DCA were the following:

• Courts have a limited role in supervising the exercise of a trustee's discretion, thus warranting reversal of the trial judge's award of damages for selling a residence owned by the trust for less than the contesting trust beneficiary thought the house should have been sold for.

The court has a limited role in supervising the exercise of the trustee's discretion. As stated in Scott on Trusts: [T]he court will not control [a trustee's] exercise of [discretion] as long as he does not exceed the limits of the discretion conferred upon him. The court will not substitute its own judgment for his. Even where the trustee has discretion, however, the court will not permit him to abuse the discretion. This ordinarily means that so long as he acts not only in good faith and from proper motives, but also within the bounds of a reasonable judgment, the court will not interfere; but the court will interfere when he acts outside the bounds of a reasonable judgment. In other words, although there is a field, often a wide field, within which the trustee may determine whether to act or not and when and how to act, beyond that field the court will control him. How wide that field is depends upon the terms of the trust, the nature of the power, and all the circumstances. (Footnote omitted). 3 Austin Wakeman Scott & William Franklin Fratcher, The Law of Trusts § 187 (4th ed. 1988).

A recent Florida Bar Journal article I wrote about here provided a comprehensive survey of current Florida law on this subject.

• Under Florida Civil Procedure Rule 1.120(g), "special damages" must be specially plead in the complaint. It is not uncommon to seek compensation for lost income arising from trustee mismanagement. Here's what the Fourth DCA had to say about special damages in this case:

The court awarded three items of damage to Buckman: (1) mortgage payments not received in the amount of $33,832.89; (2) foregone investment income on mortgage down payment not received in the amount of $3,928.50; and (3) foregone investment income on other mortgage payments not received in the amount of $821.88. Even if we were to decide that these were compensable items of damage, which we do not decide, none of these items of damage were specially pleaded in the complaint, and all of them constitute items of special damage. Therefore, Buckman is not entitled to recover these items of damage.

• In the absence of contrary evidence, it was improper to award as damages the trust's payment of legal fees incurred by the trustee in the administration of the trust prior to litigation, especially if the amount is within that deemed presumptively reasonable by F.S. § 737.2041.
• In the absence of contrary evidence, it was improper to award as damages the trust's payment of the CPA who prepared the tax return for the trust. The Fourth DCA specifically noted that trustees are obligated under F.S. § 737.402(u) to file tax returns and pay taxes on the trust, as well as authorized under F.S. § 737.402(2)(y) to hire accountants.

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Conflicts between current beneficiaries of a trust that want to maximize current income distributions and remainder beneficiaries of a trust that want to maximize their remainder interest are at the core of almost all disputes involving a trust's administration. In the past the best trustees could do to manage this inevitable conflict was to invest trust assets in income producing securities (e.g., bonds) while also trying to ensure an acceptable level of capital appreciation for the remainder beneficiaries. This type of investing inevitably leads to lower overall growth of the trust's portfolio. Savvy use of Florida's Principal and Income Act can deliver a win-win solution to this age old conundrum. Here's how:

• First, increase the anticipated remainder interest of the trust by investing the trust's portfolio in accordance with the Modern Portfolio Theory. This investment approach is in stark contrast to traditional trust investment approaches that artificially skewed portfolios in favor of high income producing assets (e.g., bonds).
• Second, increase current distributions to the income beneficiaries by relying on the authority granted under F.S. § 738.104 to make adjustments between principal and income or the authority granted under F.S. § 738.1041 to convert the trust into a "unitrust."

This solution works because investing in accordance with the Modern Portfolio Theory increases the size of the trust "pie," thereby creating win-win options for all concerned. Using a case-study approach the authors of The Appropriate Withdrawal Rate: Comparing a Total Return Trust to a Principal and Income Trust, 31 ACTEC J. 118 (2005), do a great job of explaining in plain English how a trustee can both increase current distributions and deliver a higher expected return to the remaindermen using the solution outlined above.

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Disputes revolving around whether the trustee of a "discretionary" trust acted appropriately or not often get bogged down because one side or the other fails to grasp the following basic concept: in Florida, discretionary authority does not translate into "I-can-do-whatever-I-want" authority. This Florida Bar Journal article by attorney Peter B. Tiernan does an excellent job of summarizing the current state of the law in Florida on this point.

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In 2006 the exemption amount for federal estate taxes is $2.0 million, in 2009 it goes up to $3.5 million. If the Republicans have their way, estate taxes will either disappear all together or essentially become inconsequential. The Democratic response is to freeze the estate tax exemption at the 2009 level.

Even in the absence of estate tax repeal, estates that are inconsequential for estate-tax planning purpose are already more than large enough for most families to litigate over. Moreover, demographic trends may soon lead to dramatic jumps in estate litigation. A March 2006 newspaper article entitled Law firms see rise in inheritance feuds, had the following to say about the expected increase in estate disputes as the World War II generation passes away leaving trillions to their children, the baby-boomer generation:

Legal disputes over inherited property are making headlines [locally and] . . . nationwide in the case of Anna Nicole Smith, a former Playmate of the Year. But the millions at stake in these high-profile lawsuits pale in comparison to the trillions of dollars of wealth that will be bequested, inherited and fought over in the next 50 years. As in-court arguments over inherited wealth become more common, law firms are strengthening their trust-and-estate litigation services to meet the demand.

*    *    *    *    *
The perfect storm

The reasons for the flurry of trust-and estate-related legal battles are many.
According to an article in the Dispute Resolution Journal, an estimated $41 trillion of wealth will be transferred in the United States from the “Greatest Generation” to their kids, the baby boomers, between 1998 and 2052 [click here]. The massive transfer in wealth alone is enough to spur more family feuds . . .

*    *    *    *    *

Some lawyers say baby boomers seem much more willing to air their family problems in court than their parents were. Well-publicized trials also contribute to the rise in demand for estate litigation.

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Mediated settlement agreements are the norm in Florida when in comes to probate litigation. An excellent resource for thoughtful articles on why probate mediation has "taken off" over the last decade can be found here on the Mediate.com website. But just when you thought mediation was the answer to all of your problems, this interesting post on the Wills, Trusts & Estates Prof Blog (which is reproduced below) discusses yet another option for the creative probate attorney: civil disengagement.

In a recent newsletter, Gerald Le Van, a strong proponent of family wealth mediation, introduces the concept of "civil disengagement" as an alternative to financially and emotionally costly litigation when family members cannot reach an amiable solution.

Mr. Le Van explains that civil disengagement:

• acknowledges current irreconcilable differences,
• but avoids family litigation;
• manages each divided camp separately,
• but leaves the door open to family reunification in later generations.

See Gerald Le Van, Divided Families: Civil Disengagement Instead of War (Aug. 2005).

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Perry v. Agnew, 2005 WL 1397427 (Fla. 2d DCA June 15, 2005) (Trial Court Reversed)

Sometimes the best defense is a good offense. In this case, an individual trustee working out of his office in Boston, Massachusetts was sued by three beneficiaries, one of whom was a resident of Florida. The trustee moved to dismiss the complaint for improper venue under F.S. § 737.203. Charlotte County Judge Isaac Anderson, Jr. denied the trustee's motion to dismiss on two grounds, the most interesting of which was based on a finding that the trust's Florida choice-of-law provision exempted it from the application of F.S. § 737.203.

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The California based Estate Business and Tax Law Blog reported here that this litigation-related excerpt from the new book by Nancy Keates, The Wall Street Journal Guide to the Business of Life was in today's Wall Street Journal:

Don't surprise or confuse your heirs:

A contested will can make legal fees skyrocket. Making clear decisions, telling your heirs exactly what to expect, and being explicit in your will, will help reduce the risk of a legal fight. One common problem is a poorly drafted will that can lead to ambiguities about the deceased's wishes and, ultimately, increase the risk of legal fights. Another thing to watch out for are conflicting directives between the will and, say, a life insurance policy or a retirement account.

I couldn't have said it better myself.

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McMullin v. Beaver, 2005 WL 1278870 (Fla. 4th DCA June 1, 2005) (Trial Court Reversed)

When a trust terminates as of a certain date, it is reasonable to assume that winding up the affairs of that trust may take some time after the termination date. But what if the "winding up" process includes filing a lawsuit after the trust termination date? Indian River Circuit Court Judge Robert A. Hawley ruled that was too much, and granted final summary judgement against the plaintiff trustee, finding that the trustee lacked standing to bring the action because the trust was already terminated. Although unclear from this opinion, apparently the defendants in this case argued that the trustee was attempting to unduly extend the winding up period for the trust by commencing litigation after the trust's termination date.

The Fourth DCA disagreed, and reversed the trial court finding that the trustee did in fact have standing to file his lawsuit after the trust termination date.

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The March 2005 edition of the Yale Law Journal contains this interesting (perhaps even provocative) article by the noted Yale Law School Professor John H. Langbien. The logic underlying his thesis is somewhat circular in nature, although it is sure to warm the hearts of corporate fiduciaries (or more specifically, the "business development" folks at large banks). In a world dominated by an ever smaller group of financial-services conglomerates that maximize shareholder returns by cross selling an ever growing array of financial products and services to a single set of clients (the fancy word for this is "synergy"), it is no surprise that corporate fiduciaries seek to cross sell to their trust clients as well. The only problem is that they are hampered by these old fuddy duddy fiduciary self-dealing prohibitions that were developed within the context of a supposedly more genteel 18th century English business culture. The gist of Prof. Langbien's article is that if today's corporate environment conflicts with two-century's worth of Anglo-American fiduciary common law, then there must be something wrong with the law (see what I mean by the circular nature of this argument). Prof. Langbien proposes a technical fix that could be easily incorporated into state statutory regimes governing trustees and other fiduciaries (e.g., personal representatives of estates).

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Whitener v. First Union National Bank of Florida, 2005 WL 1047268 (Fla. 5th DCA May 6, 2005) (Trial Court Order Quashed)

This case involves a single trust divided into two parts. The same trustee for both trusts was First Union National Bank of Florida ("First Union"). One beneficiary sued First Union in Duval County, which falls under the jurisdiction of the First DCA. In the course of the Duval-county litigation, the First DCA ruled that certain documents fell within the crime-fraud exception of the attorney-client privilege, and were thus discoverable. The second beneficiary sued First Union in Seminole County, which falls under the jurisdiction of the Fifth DCA. In the course of the Seminole-county litigation, the Fifth DCA ruled in the case cited at the top of this post that the same documents addressed by the First DCA were privileged, and thus due to their previous disclosure, counsel for the Seminole-county litigant was disqualified. Not to be so easily deterred, the Seminole-county litigant simply hired the lawyers involved in the Duval-county litigation and moved forward with her case . . . with the benefit of the "privileged" documents her previous attorneys were disqualified for obtaining.

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Jordan v. Fehr, 2005 WL 831382 (Fla. 1 DCA April 12, 2005) (TRIAL COURT REVERSED)

Under F.S. § 733.201(1), a Will that that is "self-proved" in accordance with the statutory form provided in F.S. § 732.503, is admissible to probate without the testimony of the attesting witnesses. If the Will is not self-proved, under F.S. § 733.107 the proponent of the Will has the burden of esablising "prima facie" its formal execution and attestation. OK, now that I've spun your head with all these rules, what do they mean in real life you may ask?

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Lumbert v. Estate of Carter, 867 So.2d 1175 (Fla. 5th DCA Feb. 27, 2004) (TRIAL COURT REVERSED)

Molly Joy Carter ("Mom") executed a will on February 23, 1994 that left all of her $1.5 million estate in trust for her only child, Lisa Lumbert ("Daughter"), until Daughter reached certain ages, at which time the trust assets were to be distributed to her outright and free of trust.

Mom died and her will was admitted to probate on August 30, 2000. Fourteen months later Daughter died on October 15, 2001 at age 41. At the time of Daughter's death, most of Mom's $1.5 million estate was still being administered, so only about $100,000 had been transferred to Mom's testamentary trust for Daughter. Mom's brothers and sister argued that Article IV E. of Mom's trust for Daughter should control what happens with the rest of Mom's estate, which would result in most of Mom's estate going to them. Daughter's surviving husband argued that Articles IV D. of Mom's trust should control, which would, not surprisingly, result in most (i.e., two-thirds) of Mom's estate going to him.

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Dahly v. Dahly, 866 So.2d 745 (Fla. 5th DCA Feb. 13, 2004) (TRIAL COURT REVERSED)

The decedent had attempted to revoke portions of his will by "lining through the name of the designated personal representative, placing the word 'delete' over certain paragraphs in the will, and placing his signature with the words, 'Please draw up a new will making all changes noted here' on a note in the adjoining margin." Based on the decedent's apparent intent to revoke his will, Orange County Circuit Court Judge Lawrence R. Kirkwood ruled that the decedent's will and codicil were invalid and non-enforceable. The 5th DCA reversed on the grounds that the decedent's attempted revocation did not comply with the will-execution formalities contained in Section 732.502, or comply with the "revocation by writing" requirements contained in Section 732.505, or comply with the "revocation by act" requirements contained in Section 732.506.

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If the client intends on disinheriting or making a significantly less substantial gift to one of his children or any other “natural object of the client’s bounty,” consideration should be given to addressing this fact in the will or trust, although attempting to explain the underlying reasons for the disparate treatment should be avoided. For example:

I recognize and understand that I have intentionally failed to provide for DAUGHTER and that SON#1 is treated more favorably than SON#2. I have carefully considered the disposition of my estate and declare that said unequal treatment reflects my intentions.

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If there is reason to believe the will or trust may be challenged on undue influence grounds the estate planning attorney should consider including language in the will or trust that addresses the issue head on. The following is an example of such clause:

I recognize that my children SON and DAUGHTER may not understand my reasons for giving a larger share of my estate to GIRLFRIEND. They may believe that GIRLFRIEND influenced me to give her a larger share of my estate, and they may consider challenging the validity of this instrument. I state unequivocally that GIRLFRIEND has not asked me to make a larger gift to her, nor is she even aware that I am doing so. I have given very careful consideration to my testamentary affairs, and I affirm that the dispositions made in this instrument reflect my decisions, which I have carefully and unequivocally reached after careful deliberation and after seeking the advice and counsel of my attorney PERRY MASON, who has prepared this instrument at my direction. My attorney and I are initialing here, ________ (testator), _________ (attorney), to reflect my attention to and understanding of this paragraph.

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If the client has already been diagnosed as suffering from diminished capacity, but the estate planning attorney is confident the client has the requisite mental capacity to execute a testamentary instrument under Florida law, then in addition to other efforts focused on documenting the client’s current mental capacity, it may be helpful to explicitly address the issue in the document. For example:

Because I have been diagnosed as having senile dementia, probable Alzheimer’s, I recognize that some persons who will be disappointed with the provisions of my testamentary plan may question my capacity and may consider challenging the validity of this instrument. However, my illness has not progressed to the point that my judgment and thinking about my assets, my loved ones and my estate plan have been materially impaired. I have given very careful consideration to my testamentary affairs, and I affirm that the dispositions made in this instrument reflect my decisions, which I have carefully and unequivocally reach after deliberation and after seeking the advice and counsel of my attorney PERRY MASON, who has prepared this instrument at my direction. My attorney and I are initialing here, ________ (testator), _________ (attorney), to reflect my attention to and understanding of this paragraph.

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For estate planners planning for litigation-avoidance in the trust context, protecting the trustee will be a clear priority. The goal is to ensure the trustee will be invested with the level of fiduciary independence and financial resources to appropriately manage any threatened and/or filed lawsuits or other coercive tactics by disgruntled heirs. Balanced against the need to protect the trustee, however, must also be concerns for appropriate “checks and balances” on the trustee’s authority – especially if the trust is intended to remain in existence for the lifetime of a surviving spouse or the grantor’s children, and more important still if the trust is intended to remain in existence for multiple generations. The “checks and balances” issue was addressed in the post entitled “Who Picks the Trustee and When Can You Fire Him.”

With respect to protecting the trustee, two clauses can be employed to “tilt” the litigation playing field in favor of the trustee: an “exculpation” clause and a “litigation-defense-fees” clause. An exculpation clause actually expands the trustee’s discretionary authority by narrowing the grounds upon which he or she may be sued. This is accomplished by lowering the standard of care generally applicable to fiduciaries under Florida law. Example:

Exculpation. A fiduciary’s exercise or non-exercise of the powers and discretions granted in this instrument shall be conclusive on all persons, and no fiduciary shall be liable for any act or omission taken or not taken that causes a loss to any trust established under this instrument or to any beneficiary thereof, unless such act or omission is the result of the fiduciary’s bad faith or reckless indifference to the purposes of this instrument or the interests of the beneficiaries.

Under Florida’s new trust code exculpation clauses for anything other than “bad faith” or “reckless indifference to the purposes of the trust or the interests of the beneficiaries” are explicitly sanctioned. See F.S. §736.1011.

The second provision to consider is one that explicitly states that a fiduciary’s litigation costs will be “advanced” in the event of litigation. Essentially, the beneficiary would thus be paying the fiduciary’s defense costs up until a court rules against the fiduciary. Under Florida law a trustee involved in any litigation including breach-of-trust allegations must obtain prior court approval to pay legal defense fees. F.S. §737.403(2)(e). The following clause would essentially override the default rule in Florida. Example:

Legal Defense Indemnification. In the absence of bad faith or reckless indifference to the purposes of this instrument or the interests of the beneficiaries, the fiduciary shall be indemnified from the trust for any and all liability, cost, and expense incurred by the fiduciary by reason of any act or omission taken or not taken on behalf of any trust hereunder. In furtherance thereof, in the case of litigation expenses, including attorney’s fees, the fiduciary shall be indemnified for such expenses as they are incurred, which expenses the fiduciary may pay out of the trust or trusts as to which the act or omission is alleged to have been taken or not taken. The fiduciary’s right to indemnification hereunder shall not await the resolution of the litigation or a determination that the fiduciary is entitled to indemnification under this paragraph; provided, however, that if a court of competent jurisdiction subsequently determines that the fiduciary engaged in intentional misconduct or gross negligence, the fiduciary shall repay to the trust all costs and expenses previously indemnified hereunder.

A recent Miami-Dade case provides an example of how a trustee may find himself bearing the expenses of litigation in the absence of proper planning. In Brigham v. Brigham, 2006 WL 1479813, 31 Fla. L. Weekly D1517 (Fla. 3d DCA 2006), the Third DCA articulated the rule in Florida as follows:

Appellees brought suit against Appellants in their trust roles and as individuals for trust mismanagement. Because Appellants defended against individual liability, their personal interests conflicted with their position as trustees. See Shriner v. Dyer, 462 So.2d 1122, 1124 (Fla. 4th DCA 1984). When a trustee’s individual interests conflict with his or her duties to a trust, court approval is necessary before a trustee can use trust funds to pay his or her own attorneys’ fees. § 737.403, Fla. Stat. (2003).

This rule has been carried over into Florida’s new trust code. See F.S. §736.802(10).

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If the likelihood of an estate dispute is high, consideration should be given to including an alternative dispute resolution clause (ADR) in the will and/or trust document.  One possible form of ADR is mandatory arbitration, which is expressly authorized by Florida statute [click here].  An alternative to a mandatory arbitration clause approach is to include a clause in the document that encourages ADR generally and creates negative consequences for unduly litigious behavior. For example:

If there is a dispute or controversy of any nature involving the disposition or administration of this Trust, I direct the parties in dispute to submit the matter to mediation or some other method of alternative dispute resolution selected by them. If a party refuses to submit the matter to alternative dispute resolution, or if a party refuses to participate in good faith, I authorize the court having jurisdiction over the Trust to award costs and attorney’s fees from that party’s beneficial share or from other amounts payable to that party (including amounts payable to that party as compensation for service as fiduciary) as in chancery actions.

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The consequences of un-clear drafting or ill-considered provisions included in testamentary documents can be years of litigation. The cost of avoiding this type of litigation is always pennies on the dollar: an extra hour working on the document or the cost of an “extra set of eyes” is usually less than a rounding error when compared to the cost of litigation. The following cases are examples of this type of cost. Note that these cases all generated appellate opinions. In other words, not only were they litigated at the trial court level, but they generated appellate court proceedings as well. The number of un-appealed litigation arising out of sloppy drafting is in all likelihood several orders of magnitude higher.

Popp v. Rex, 916 So.2d 954 (Fla. 4th DCA 2005)

The case involved the reformation of the Virginia F. Davis 1986 Irrevocable Trust (the “1986 trust”), which provided that when Mrs. Davis died it would be divided in half with one share for each of her two sons and each son’s share would be distributed in three installments-one immediately, one five years later, and the last one five years after that. Mrs. Davis died on November 2, 2000, predeceased by her husband (i.e., about 14 years after the 1986 trust was signed). The litigation in question arose in the context of probate-administration proceedings involving one of Mrs. Davis’ children, Scott F. Davis, who died without issue on November 19, 2002 (i.e., about 16 years after the 1986 trust was signed) - having received only one of the three installment payments he was originally entitled to under the 1986 trust. Under Scott Davis’ will, the residuary beneficiaries of his estate were the Pittsburgh State University Foundation, Inc. and the WPBT Communications Foundation, Inc. According to the Fourth DCA, the 1986 trust contained the following drafting error:

The 1986 trust, as a result of a drafting error, omitted instructions as to what would happen if one of the sons died without children before he had received his installment payments. The trust provisions expressly covered what would happen if a son died with children (providing that the unpaid installments would go to those children) but stopped without going to the next step, directing where the unpaid installments should go if a son had no issue.

Roberts v. Sarros, 920 So.2d 193 (Fla. 2d DCA 2006)

In this case the Second DCA was asked to rule on an internal inconsistency within a trust agreement. The problematic language revolved around whether a surviving widow had the authority to revise a trust agreement after her husband had passed away. Surviving widow signed a trust amendment disinheriting one set of her grandchildren. Grandchildren understandably didn’t think this was a good idea, and the case ended up in court. Here’s the “problematic” language, as described by the Second DCA:

Article XV of the Trust provides, “AMENDMENT AND REVOCATION: This Trust is subject to revocation, change or amendment, in writing, by the Grantors from time to time.” Article XII contains rules of construction for the Trust instrument, including the following provision that is pertinent to this appeal: “Unless the context required [sic] otherwise, masculine personal pronouns include the feminine, and the singular and plural may be construed interchangeably.”

At the trial court level the judge ruled that surviving widow lacked the authority to amend the trust agreement. The trial court agreed with the disinherited-grandchildren when they argued that use of the plural form “Grantors” in the trust-amendment section meant widow lacked authority to unilaterally amend the document. The Second DCA reversed, based on the following line of reasoning:

[I]n considering the trust instrument as a whole, it is clear that if the singular/plural clause were not applied, it would produce absurd results. Every reference in Article I is to the plural form “Grantors.” Article I deals with the disposition of principal and income of the Trust to the Grantors during their lifetime. If the references to the “Grantors” were construed to mean only the plural form, then after the death of the first Grantor the surviving Grantor could no longer receive income from the Trust. Such a result is contrary to the stated purpose of the Trust, which is to provide for the McNeills “for so long as they may live.” Article I also provides that “the Trustees shall make payments from the principal of the Trust Fund to or for the benefit of the Grantors in such sums and at such times as the Grantors may request from time to time.” Again, if construed to mean only the plural “Grantors,” then the surviving Grantor would have no access to the principal of the Trust even though the trust was established to provide proper care for the McNeills and to allow them to maintain “a style of living to which they have been accustomed.”

Like Article I, Article XV must be construed in accordance with the singular/plural clause. This is consistent, as in Article I, with the overall plan that the Grantors retain control over their assets as long as either of them lived. Nothing in the context of Article XV requires that “Grantors” be construed to mean only the plural form. When construed to include the singular “Grantor,” Louise M. McNeill, as the surviving Grantor, could amend the Trust pursuant to the power to revoke or amend contained in Article XV. Thus, we reverse the trial court’s order granting summary judgment as to count I and determining that the Amendment by Louise M. McNeill was invalid and remand for further proceedings on the Appellees’ complaint.

Vinson v. Johnson, 2006 WL 1650609, 31 Fla. L. Weekly D1659 (Fla. 1st DCA 2006)

Suppose a client with 9! children asks you what’s the best way to provide for the orderly disposition of his 34-acre farm. He wants to ensure that the farm either stays in the family intact, or is sold as a single property, not piecemeal. A simple way to effectuate this type of plan is to put the property in a trust, partnership or LLC and include purchase-and-sale provisions that achieve the desired outcome. The wrong answer is to say: “heck, that’s simple, just say in your will that all of the kids have to agree to a sale.” That’s what the Vinson clan learned in this case. The portion of Vinson Sr.’s will at issue in the case was described as follows by the First DCA:

Hardy Vinson, Sr., executed a will leaving his 34-acre farm and home in Alachua County to his nine living children as tenants in common. The will provided in pertinent part:

The “Vinson Estate” shall not be subject to partition or forced sale by any heir, but shall only be sold upon agreement of all heirs. Taxes and ownership expenses shall be shared equally among the children. Any heir that pays more than his or her share shall be entitled to contribution from the nonpaying heirs upon sale of the property.

When 5 of Vinson Sr.’s 9 children sued for partition of the farm (surprise!?), the trial court ruled in their favor. On appeal the First DCA held that the clause in the will prohibiting partition or sale was an “unlawful restraint on alienation of real property” and upheld the trial court’s ruling. The First DCA explained its rationale as follows:

When real property is conveyed in fee simple, the grantee or devisee acquires a right to sell or dispose of the property as an incident to the right of ownership. The right of alienation is said to be an inherent and inseparable quality of the estate. See 61 Am.Jur.2d Perpetuities, Etc. § 102 (2002); 3 Thompson Real Property § 29.03(b), at 707 (2001). An absolute restraint on alienation is inconsistent with the right of ownership and is therefore invalid. See generally Iglehart v. Phillips, 383 So.2d 610 (Fla.1980) (surveying the case law pertaining to restraints on alienation).

The rule against restraints on alienation applies to restrictions on partition of real property, as well as restrictions on sale. The right to seek partition of property owned jointly in a tenancy in common is an incident to the right of individual ownership. See Richard R. Powell, The Law of Real Property, § 77 846 (1991). While there appears to be no precedent in Florida for the precise issue presented in this case, other states have held that prohibitions against partition or forced sale of property devised in a will are unlawful restraints on alienation.

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• Is this it?

“Death is not the end. There remains the litigation over the estate.”

Ambrose Bierce

• Happy families

“All happy families resemble one another, but each unhappy family is unhappy in its own way.”

Leo Tolstoy

• Trusts

"Put not your trust in money, but put your money in trust."


Oliver Wendell Holmes

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There is often an inherent conflict of interest between the current and remainder beneficiaries of a trust. There are two ways to address that issue: provide for contemporaneous trust distributions to family members or explicitly override the trustee’s duty of impartiality between current and remainder beneficiaries under F.S. 736.0803. For example, if the trust is created for the life-time support of a client’s child or surviving spouse but the client also wants to allow trust assets to be distributed to each child’s own family, the following clause should be considered:

Distributions to Family. The Trustee shall pay or apply such sums of income or principal from each beneficiary’s separate trust as in the Trustee’s discretion are necessary or advisable for that beneficiary’s health, education, support, and maintenance, or as any Corporate Trustee in its discretion determines to be in that beneficiary’s best interests. After being reasonably assured that the beneficiary has sufficient means for his or her continued support, the Trustee in its discretion also may pay any sums of income or principal that it deems necessary or advisable for the health, education, support, and maintenance of the beneficiary’s descendants, or as any Independent Trustee in its discretion determines to be in their best interests, either individually or collectively.

With respect to the second approach, the following is an example of language explicitly overriding the trustee’s duty of impartiality between current and remainder beneficiaries:

Duty of Impartiality. In exercising its discretion to make distributions to or for the beneficiary of this trust, the trustee shall consider the needs of the remainder beneficiaries to be subordinate to the interests of the current beneficiaries. No good faith decision to invade principal for the benefit of a current beneficiary shall be subject to challenge by any remainder beneficiary.

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If the client’s wealth is the product of a family-run business or a single concentrated stock investment, he (and the family) may be reluctant to divest themselves of this asset upon the client’s death. This is an understandable sentiment; unfortunately it runs head on into the general fiduciary duty to “diversify.” The duty to diversify may be waived by the client if he explicitly expresses this intention in the testamentary instrument. The following two sample clauses address this issue:

Original Assets. Except as otherwise provided to the contrary, to retain the original assets it receives for as long as it deems best, and to dispose of those assets when it deems advisable, including any interests in XYZ FAMILY BUSINESS or other affiliated or successor entities, as more specifically set out in Article ___, even though such assets, because of their character or lack of diversification, would otherwise be considered improper investments for the Trustee.

Retention of Stock. I authorize the Trustee to retain the assets that it receives, including shares of stock or other interests in XYZ FAMILY BUSINESS, or its successors in interest, or any other company or entity carrying on or directly or indirectly controlling the whole or any part of its present business (collectively referred to as “the company”), for as long as the Trustee deems best, and to dispose of those assets when it deems advisable. I intentionally excuse the Trustee from the duty to diversify investments by the sale or other disposition of interests in the company that ordinarily would apply under the prudent investor rule, and I direct that the Trustee not be held liable for any loss or risk (even so-called “uncompensated risk”) incurred as a result of this failure to diversify. Nothing in this paragraph will be interpreted in any manner to limit the Trustee’s authority to sell some or all of the interests in the company.

Planners should note that concentrated-stock positions can lead to huge litigation exposure for fiduciaries – especially deep-pocket corporate trustees. In In re Chase Manhattan Bank, 809 N.Y.S.2d 360 (N.Y.A.D. 4 Dept. Feb 03, 2006), a recent high profile case out of New York, the existence of the type of waiver-of-duty-to-diversify clause provided above enabled Chase Manhattan Bank to completely reverse on appeal a $24+ million judgment entered against it at trial. The New York appellate court focused on the following provisions:

The trust was funded with a concentration of Kodak stock. Decedent’s will provided that “[i]t is my desire and hope that said stock will be held by my said Executors and by my said Trustee to be distributed to the ultimate beneficiaries under this Will, and neither my Executors nor my said Trustee shall dispose of such stock for the purpose of diversification of investment and neither they [n]or it shall be held liable for any diminution in the value of such stock.” Decedent’s will further provided that “[t]he foregoing .  .  .  shall not prevent my said Executors or my said Trustee from disposing of all or part of the stock of [Kodak] in case there shall be some compelling reason other than diversification of investment for doing so.”

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In those cases where a client wants to provide for a spouse that is not the parent of the client’s children (at the very least to avoid an elective-share claim), Florida law specifically provides a very useful tool in the form of an “elective share trust.” Similar to the QTIP trust now familiar to most estate planners, an elective share trust allows a client to provide for a surviving spouse for life – but retain control over the ultimate disposition of these assets when the surviving spouse passes away. This type of trust is also effective as a “stand by” mechanism to capture any additional estate assets in trust that may be necessary to satisfy an elective share claim. For example:

Despite any other provision of this Trust Agreement, if my wife or her designated representative elects the Elective Share in my estate, any trust created under this Trust and not qualifying for the federal marital deduction in which my wife is a beneficiary will be divided into two parts, with the least amount of that trust as is needed to satisfy the balance of the Elective Share unpaid by other sources under Section 732.2075 of the Florida Statutes being held as a separate trust (the “Elective Share Trust”) and administered so as to qualify under Section 732.2025 of the Florida Statutes (including the right for my wife to require the Trustee to make the trust property productive or to convert it within a reasonable time). Unless the original trust already provides for a qualifying invasion power or a qualifying power of appointment for my wife, the Personal Representative in its discretion may elect to create an invasion power for the Elective Share Trust for purposes of valuation under Section 732.2095 of the Florida Statutes. If an invasion power is created, the Personal Representative shall designate that such a power is to apply by filing a notice with my wife and in the probate court within 6 months after the election by my wife of the Elective Share.

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In light of skyrocketing real estate values in Florida, for most Floridians their single most valuable asset is their home. If a homeowner is survived by a spouse or minor children, his or her residence is protected homestead property under Florida’s Constitution (Art. X, § 4(c)) and Probate Code (F.S. §731.201(29)), and thus not subject to devise pursuant to F.S. § 732.4015. However, if the homeowner’s residence is NOT protected homestead property, one might be forgiven for assuming that the residence was “freely” devisable.

Not so fast said the Florida Supreme Court in McKean v. Warburton, 2005 WL 3601898 (Fla. September 8, 2005). If a homeowner that expects NOT to be survived by a spouse or minor children wants to make sure that his or her single most valuable asset at death can be used to satisfy pre-residuary bequests, the Florida Supreme Court’s holding in this case requires that the homeowner specifically provide in his or her Will that the homestead property be sold and added to the general probate estate. Specifically, the Florida Supreme Court provided the following drafting advice for all Florida estate planners:

We therefore . . . hold that where a decedent is not survived by a spouse or minor children, the decedent’s homestead property passes to the residuary devisees, not the general devisees, unless there is a specific testamentary disposition ordering the property to be sold and the proceeds made a part of the general estate.

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If estate tax is an issue, the estate plan for a married couple will likely include at least two wills and two revocable trusts and may also include an irrevocable insurance trust. If the client’s spouse is not the mother of his children, or the remainder beneficiaries of an existing QTIP do not approve of widowed client’s second wife, an inherent source of conflict arises every time a QTIP marital-deduction trust is incorporated into the estate plan. Children of first marriage get remainder assets of QTIP, but only after such assets have been used to pay estate tax of second-wife’s estate (or estate taxes of widower’s estate). If the estate is of any size, who bears the estate tax may be the single biggest economic factor driving potential litigation. As such, it is imperative that tax payment provisions included in the testamentary documents be properly coordinated to address tax allocation issues related to QTIP trusts. This means the tax payment language in the will, the revocable trust, and the QTIP (and perhaps the insurance trust as well) all have to coordinate with one another. The following example clauses address these issues in the will and revocable trust:

Will -- Tax-Payment Language

Expenses and Taxes. The term “expenses” includes all estate transmission or management expenses of my probate estate and all costs of my last illness and funeral; the term “estate taxes” means all state and federal estate, inheritance, or transfer taxes payable by reason of my death (including the generation-skipping transfer tax on any direct skip created by the express terms of this Will rather than by disclaimer), plus any related interest and penalties attributable to these taxes, but excluding any other generation-skipping taxes. I direct that all expenses of my estate and all estate taxes charged with respect to my gross estate for estate tax purposes (including estate taxes on assets that do not pass under this Will) be paid by the trustee of my Revocable Trust, as permitted under Section 733.817 and despite Section 738.201(2)(c) of the Florida Statutes. For these purposes, I incorporate by reference the tax apportionment provisions of my Revocable Trust. To the extent these amounts are not paid by my Revocable Trust, they are to be paid from my Residuary Estate, without apportionment, except to the extent provided in my Revocable Trust as to nonprobate and nontaxable assets.

Revocable Trust – Tax-Payment Language

If any portion of the Marital Trust is included in my wife’s gross estate for federal estate tax purposes, unless my wife specifically directs to the contrary in her Last Will, the Trustee shall pay from that portion the amount certified by my wife’s Personal Representative that state and federal estate taxes (including penalties and interest) for her estate are increased over the amount of those taxes computed as if that portion were not included in her gross estate (as provided in Section 2207A of the Internal Revenue Code). The Trustee may pay those taxes directly or to the Personal Representative of my wife’s estate, and the Trustee is to be held harmless from any liability for making payments in reliance on that certification.

I waive all rights of recovery under Sections 2206, 2207, 2207A, and 2207B of the Internal Revenue Code.

The Trustee may rely on a written statement signed by my Personal Representative as to the amount of those expenses and taxes. The Trustee may make payment directly or to my Personal Representative, as my Personal Representative requests. The Trustee will be held harmless from any liability in making payments as so directed.

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