I recently spoke on Florida’s statutory authorization of electronic wills and it got me thinking once again about how consequential — or not — this legislation really is. Spoiler alert: as a practical matter, I think it was much ado about an interesting idea that’s likely to see very little real world application.

Backstory:

In 2017, the Florida Senate voted unanimously to authorize electronic wills. Was that the end of the story? Nope. Former Gov. Rick Scott vetoed the bill, saying it failed to strike the proper balance between convenience and safety.

So were electronic wills dead in Florida? Nope. With only days left in the 2019 legislative session, the Florida Senate again voted unanimously to authorize electronic wills in HB 409. And this time the bill was signed into law and can be found in probate code sections 732.521 through 732.525. This new legislation went into effect on January 1, 2020.

Was this a big change in Florida law?

Florida’s traditional approach to wills is to require “strict compliance” with all of the execution formalities (which date back almost two centuries to the UK Wills Act of 1837). The slightest slip up, no matter how inconsequential, can get your will tossed out of court (see here, here, here).

Electronic wills are a big change as a matter of legal doctrine because it’s the first time Florida law’s retreated even slightly from strict compliance with will-execution rules developed in 19th century England. Is this a big change in terms of the real world? I don’t think so. (I have lots to say on this point at the end of this blog post.)

But what about vulnerable adults, such as the elderly?

Survey data tells us most people believe having a will is important, but less than half have one. Electronic wills are intended to address this problem by making wills affordable and easily accessible to the average consumer using on-line tools that are ubiquitous in 21st century Florida. But did we go too far? Will this become yet another on-line trap for vulnerable adults, such as the elderly?

Not according to Florida’s elder-law attorneys. As reported here, Travis Finchum, representing the Bar’s Elder Law Section, is a supporter.

“We do believe it does address our concerns about vulnerable adults and individual who are susceptible to coercion and undue influence. … The stakeholders have listened to the Elder Law Section, taken our recommendations, and incorporated them into this version of the bill. So we are here to support the bill.”

And as reported here, shortly after the bill was rolled out, the Academy of Elder Law Attorneys’ Shannon Miller assured critics that vulnerable Floridians would be protected.

“We see this as progress,” Miller said. “The important parts of the bill from the elder law perspective are that it does not apply to vulnerable adults. They’re excluded. So the idea that someone would be able to go into a nursing home and take advantage of these vulnerable adults, that is actually not someone who is allowed to engage in remote witnessing.”

The statute’s anti-fraud measures:

A summary of the key protective features built into Florida’s electronic-wills regime is found in the Legislative Staff Analysis. Here’s an excerpt:

Unless the testator is a vulnerable adult, the witnessing of a will execution can be done remotely if:

  1. The individuals are supervised by a notary public;
  2. The individuals are authenticated and signing as part of an online notarization session in accordance with s. 117.265, F.S.;
  3. The witness hears the signer make a statement acknowledging that the signer has signed the electronic record; and
  4. In the case of an electronic will, the testator provides, to the satisfaction of the online notary public, verbal answers to the following questions:
    • Are you 18 years of age or older?o
    • Are you of sound mind?
    • Are you signing this will voluntarily?
    • Are you under the influence of any drugs or alcohol that impairs your ability to make decisions?
    • Has anyone forced or influenced you to include anything in this will which you do not wish to include?
    • Did anyone assist you in accessing this video conference? If so, who?o Where are you? Name everyone you know in the room with you.

By the way, you get to the statute’s “vulnerable adult” exclusion in a roundabout way. First, F.S. 732.522 tells us you can’t electronically witness a will unless the process is “supervised by a notary public in accordance with s. 117.285.” F.S. 117.285 then tells us electronic witnessing isn’t valid if the person whose document is being witnessed is a vulnerable adult (as defined in F.S. 415.102).

Will there be a rush to electronic wills? NO

I don’t expect electronic wills are going to become the norm anytime soon. Why?

First, lack of certainty. Electronic wills are automatically invalid if the testator’s a “vulnerable adult.” Sounds good, except that the statutory definition of vulnerable adult is so broad and open to after-the-fact subjective interpretation, it’s likely any electronic will that’s signed by an elderly person that in any way deviates from the norm isn’t going to get enforced. Here’s how that term’s defined in F.S. 415.102:

“Vulnerable adult” means a person 18 years of age or older whose ability to perform the normal activities of daily living or to provide for his or her own care or protection is impaired due to a mental, emotional, sensory, long-term physical, or developmental disability or dysfunction, or brain damage, or the infirmities of aging.

Second, an electronic will’s not valid unless it’s in the custody of a “qualified custodian,” and few law firms (if any) will be able to muster the level of capital investment and specialized data-storage infrastructure needed to comply with that requirement. Here’s how the requirements to be a qualified custodian are described in the Legislative Staff Analysis:

A qualified custodian of an electronic will is a person who meets all of the following requirements:

  • Is domiciled in and a resident of Florida or is incorporated or organized in Florida;
  • Consistently employs a system for maintaining custody of electronic records and stores electronic records containing electronic wills under the system; and
  • Furnishes for any court hearing involving an electronic will that is currently or was previously stored by the qualified custodian any information requested by the court pertaining to the qualified custodian’s policies and procedures.

A qualified custodian must maintain an audio-video recording of an electronic will online notarization. A qualified custodian is liable for the negligent loss or destruction of an electronic record and may not limit liability for doing so. The bill also prohibits a qualified custodian from suspending or terminating a testator’s access to electronic records. The bill requires a qualified custodian to keep a testator’s information confidential.

If electronic wills ever gain widespread acceptance in Florida it will likely be because of the scale and resources that only law companies or other large corporate actors can bring to bear. Entities like that will have the resources to be “qualified custodians,” not law firms.

And we can already see some movement in that direction. Shortly after our electronic-wills legislation was adopted the internet start-up primarily responsible for its passage, Bequest, INC (d/b/a Willing), was sold to corporate giant MetLife. Here’s an excerpt from the press release announcing that deal that hints at MetLife’s business strategy for electronic wills:

“Willing serves a digitally native audience unlikely to go see an attorney for estate planning services,” said Todd Katz, executive vice president, Group Benefits at MetLife. “Willing complements Hyatt Legal, our existing legal services offering, and positions us to lead the industry by offering customers more choices in how they address their estate planning needs.”

Finally, the “law industry” is famously adverse to change. And electronic wills are exactly the kind of “change” that makes most estate planners break out in hives. In What Is an “Electronic Will”?, published in the April 2018 edition of the Harvard Law Review, the authors identified “six potential barriers to increased uptake of electronic wills,” including “a general resistance to change.” Here’s an excerpt:

… Some scholars have identified potential reasons to doubt an increase in the creation of electronic wills. In 2007, [in an article entitled Digital Wills: Has the Time Come for Wills to Join the Digital Revolution?,] Professors Gerry Beyer and Claire Hargrove identified six potential barriers to increased uptake of electronic wills, including: (1) technical barriers such as the lack of software that would provide adequate authentication, (2) social barriers such as attorneys’ reluctance to help create electronic wills, (3) economic barriers such as the expense of implementing new technology, (4) motivational barriers such as a lack of recognition of the potential benefits of electronic wills, (5) obsolescence barriers stemming from changes in technology, and (6) a general resistance to change. Even as they identified these important roadblocks, however, they recognized that change was on the horizon, noting that “we must be ready to make the transition when the time is right.”

Ever wonder why we don’t spend much time thinking about the income tax consequences of an inheritance? Well, there’s a simple reason for that. According to IRC § 102(a), “the value of property acquired by gift, bequest, devise, or inheritance” is excluded from gross income, which means it’s not subject to income tax.

On the other hand, IRC § 102(b) tells us the income I receive on inherited property (as opposed to the underlying property itself) is subject to income tax. For example, income distributions from a trust are taxable income, but the value of the trust’s underlying principal isn’t.

These income tax rules are simple enough, and in most cases no one gives them much thought. Where things get muddy is in the litigation context, especially when cases settle (and they almost always settle). The reason for that “muddiness” is that while everyone sitting around the negotiating table is focused on the future and “who’s” getting “what” and “when,” the tax treatment of these payments turns on a backward-looking question no one’s interested in when cases settle: the nature of the underlying claims way back when the lawsuit was initially filed.

What’s the “origin of the claim” doctrine?

At today’s top marginal rate of 37%, income taxes can be significant. And it’s a tax that applies no matter how large or small the sums involved might be, as opposed to the estate tax, which is limited exclusively to large inheritances; impacting an infinitesimally small share of the population (think less than 0.1%).

In the estate litigation context, whether a settlement payment is subject to income tax — or not — depends on one critical question: what’s the settlement payment being paid “in lieu of”? In other words, if the settlement payment’s in lieu of a claim for inheritance, no tax. But if it’s in lieu of a claim for some kind of taxable income, it’s taxable.

The legal test determining these outcomes is referred to as the “origin of the claim” doctrine. Here’s how this doctrine’s defined in an excellent user-friendly article entitled Tax Issues When Settling a Trust or Estate Dispute: A Guide for the Litigator, by California attorneys Brian G. Fredkin and Ryan J. Szczepanik:

The “origin of the claim” test was applied by the U.S. Supreme Court in Hort v. Commissioner (1941) 313 U.S. 28, and later articulated in U.S. v. Gilmore (1963) 372 U.S. 39. As stated by the court in Alexander v. IRS (1stCir. 1995) 72 F.3d 938, 942, under the “origin of the claim” doctrine, it is a “well-settled rule that the classification of amounts received in settlement of litigation is to be determined by the nature and basis of the action settled,” and that “amounts received in compromise of a claim must be considered as having the same nature as the rights compromised.”

Why should trusts and estates litigators care?

Framing your lawsuit at its inception as a claim for non-taxable inheritance rights means your settlement is going to be non-taxable. Overlooking this point at the front end of your case makes it impossible to reverse course at the back end when it’s settled and everyone finally wakes up to the looming tax issues.

For an excellent discussion of how this particular tax issue can play out in the estate context, and how the “origin of the claim” doctrine’s used to work through those cases where the tax results are murky, you’ll want to go back to the Fredkin and Szczepanik article. Here’s an excerpt:

The “origin of the claim” doctrine requires that tax consequences be based upon the facts presented. The IRS has explained that the initial pleading is the most persuasive evidence of the tax treatment of an amount subsequently recovered by way of settlement. Therefore, in preparing the initial pleading, the attorney should rely on the strongest theory under state law that supports the client’s claim and achieves favorable tax results.

A trust or estate’s distribution of property is excluded from gross income under section 102(a) of the Code as property acquired by gift, bequest, devise, or inheritance. The same exclusion applies to settlement amounts paid to contesting beneficiaries in compromise of a claim as an heir. Thus, if possible, the claim should be pled for a portion of the estate as an heir, for instance, through a contest to a trust or will.

Example No. 1: Non-Taxable Claim = Non-Taxable Settlement

Again, framing your lawsuit at its inception as a claim for a non-taxable payment means your settlement is going to be non-taxable. Here are two such examples from the Fredkin and Szczepanik article:

In Marcus v. Commissioner, the tax court gave significant weight to the IRS’s admission in its pleadings that an agreement to pay the taxpayer from the net proceeds from the sale of property was a substitute for a bequest of property. The taxpayer received the proceeds in settlement of claims against her stepfather’s estate. The court held this amount to be excluded from gross income as an inheritance. …

A settlement agreement that resolves a party’s claim as an heir should state that the settlement proceeds are “in lieu and instead of” any inheritance. The tax court in Vincent v. Commissioner, held that settlement proceeds in a dispute between the stepmother and her stepson as to the ownership of real property were excluded from gross income under section 102(a) of the Code as property acquired by gift, bequest, devise, or inheritance. The tax court noted that the settlement agreement stated the payment was “in lieu and instead of any inherited interest,” thereby suggesting that language in the settlement agreement will be respected by the courts.

Example No. 2: Taxable Claim = Taxable Settlement

On the other hand, if your claims are framed as seeking payments that are subject to tax, your settlement’s also going to be taxable. Here’s an example of that kind of claim from the Fredkin and Szczepanik article:

If, in contrast, the claim as pled is for compensation for services rendered to a decedent, the tax character likely will be income to the recipient and thus taxable. In Green v. Commissioner, for example, a woman filed suit against her boyfriend’s estate for the value of “wifely” services she rendered to him during his lifetime. The court held that the settlement amount she received was compensation and thus taxable. If the claim as pled is for income from property, the tax character also likely will be income and thus taxable.

Example No. 3: Mixed Claims

And then there are those cases where it’s somewhere in between; it’s a mix of taxable and non-taxable claims. When these cases settle, whether you win or lose the tax argument isn’t going to turn on any one court filing or deposition transcript, it’ll be a “totality of the circumstances” kind of inquiry that’s much more likely to break your way if you’ve been conscious of the tax issues at every step of the case vs. accidentally backing into the right set of facts when it’s all said and done. Here’s an example of a “mixed” claim, again from the Fredkin and Szczepanik article:

Some lawsuits implicate both income and amounts in compromise of a claim as an heir. For example, in Getty v. Commissioner, the court held that a $10 million lump-sum settlement to the eldest son of J. Paul Getty was excluded from gross income under section 102(a) of the Code as property acquired by gift, bequest, devise, or inheritance. The eldest son, J. Ronald Getty, was an income beneficiary under the trust instrument. J. Paul Getty assured his eldest son that he would make him a co-equal income beneficiary with his brothers under the trust, but he never did so. After J. Paul Getty’s death, J. Ronald Getty asserted a claim against the remainder beneficiary, the J. Paul Getty Museum, seeking a constructive trust over an amount equal to the amount J. Ronald Getty would have received from the trust had his father carried out his promise. In holding that the $10 million settlement payment was excludable from gross income, the court reasoned that had J. Paul Getty performed his promise to remedy the inequality, he probably would have done so by a bequest of property. The court explained that when contesting a deficiency determined by the Commissioner of Internal Revenue, the taxpayer must show the merits of his claim by a preponderance of the evidence. The taxpayer need not prove the proceeds are “clearly classifiable” as either property or income from property.

Illustration by Mikel Jaso

If you’re working with the trustee of an irrevocable trust that needs fixing for some reason, your first thought should be to simply re-write the thing by using F.S. 736.04117, Florida’s trust “decanting” statute. Decanting allows you to re-write an irrevocable trust agreement by figuratively pouring the assets from the old trust into a new trust (like decanting a bottle of wine, get it?). And to make a good thing better, our decanting statute was legislatively overhauled in 2018 to make it even easier to modify irrevocable trusts in Florida.

Not surprisingly, decanting is all the rage in estate planning circles; as it should be: it’s a legislatively-sanctioned way to privately re-write an irrevocable trust without going through the costs and delays inherent to a judicial modification proceeding. (Yes, this all gets done out of court.) For a solid general introduction to decanting you’ll want to read Decanting is Not Just for Sommeliers, co-authored by Texas law prof. Gerry W. Beyer. Here’s an excerpt:

Times change, needs change, and laws change thus giving a trustee motivation to decant. Examples of reasons to decant include to:

  • Correct a drafting mistake;
  • Clarify ambiguities in the trust agreement;
  • Correct trust provisions, due to mistake of law or fact, to conform to the grantor’s intent;
  • Update trust provisions to include changes in the law, including new trustee powers;
  • Change situs of trust administration for administrative provisions or tax savings;
  • Combine trusts for efficiency;
  • Allow for appointment or removal of trustee without court approval;
  • Allow for appointment of a special trustee for a limited time or purpose;
  • Change trustee powers, such as investment options;
  • Transfer assets to a special needs trust;
  • Adapt to changed circumstances of beneficiary, such as substance abuse and creditor or marital issues, including modifying distribution provisions to delay distribution of trust assets;
  • Add a spendthrift provision;
  • Divide a “pot trust” into separate share trusts;
  • Partition of trust for marital deduction or generation-skipping (GST) transfer tax planning.

But before you pull the trigger on one of these transactions you’ll also want to do a deep dive into all the potential tax traps that seem to bedevil estate planners at every turn. And to do that you’ll want to read An Analysis of the Tax Effects of Decanting, co-authored by super star tax lawyer Jonathan Blattmachr, as well as the more recent Tax Considerations in Trust Terminations, Modifications, and Decanting Under Connecticut’s New Uniform Trust Code, by Ronald Aucutt, another super star tax lawyer.

Illustration: James Steinberg for Barron’s

Irrevocable trusts stay “irrevocable” only as long as everyone with a stake in these trusts wants them to stay that way. They’re products of private law, which means there’s no “trust police” walking the beat making sure they don’t get tinkered with. And sooner or later, they all get tinkered with.

Bottom line, if everyone’s in agreement, no irrevocable trust is impervious to modification or termination. Same goes for removing trustees of irrevocable trusts or rewriting them by decanting.

Sounds easy enough, but as anyone who’s lived in the real world for more than five seconds will tell you, getting unanimous consent on anything is never certain (especially when money’s involved). For example, if the guy who created and funded the trust (the settlor) and his beneficiaries all agree this irrevocable trust idea isn’t for them, you might assume trustee consent is a given. And you’d be wrong; as demonstrated in the Demircan case discussed below. The question then becomes, is trustee consent required?

Demircan v. Mikhaylov, — So.3d —- 2020 WL 2550067 (Fla. 3d DCA May 20, 2020)

This case involved Igor Mikhaylov, a wealthy serial entrepreneur who co-founded publicly traded payment services provider Qiwi in Russia.

Mikhaylov created an irrevocable trust benefiting his children, funded it with $25 million, and used his trust as a vehicle for investing in what the 3d DCA described as “a complex business venture involving the development of a shopping mall.” The trust designated Mikhaylov’s business partner as the only person with authority to remove trustees or appoint successor trustees, and appointed his business partner’s girlfriend as trustee. Mikhaylov eventually soured on the deal, which triggered all sorts of litigation (including a malpractice suit against his own attorneys).

Relying on the common-law rule that allows for the amendment or termination of irrevocable trusts if the settlor and his beneficiaries unanimously consent, Mikhaylov and his children filed suit to remove the trustee and strip Mikhaylov’s erstwhile business partner of any power to appoint successor trustees. The common law rule at the heart of this case was previously articulated by the 3d DCA in Preston v. City National Bank of Miami, 294 So. 2d 11 (Fla. 3d DCA 1974), as follows:

The terms of a trust may be modified if the settlor and all the beneficiaries consent. Having the power to terminate, they obviously have the power to create a new trust or to modify or change the old. In Florida, this principle has long been recognized.

For reasons probably having to do with the underlying shopping center litigation, the trustee objected to the proposed trust modification, arguing that the common law rule had been abrogated by F.S. 736.04113, a statute that allows a court to modify an irrevocable trust only if certain conditions are met. This statutory preemption argument failed both at the trial court level and on appeal. According to the 3d DCA:

The settlor and beneficiaries … correctly note that a common law trust modification … is neither abrogated, nor controlled by section 736.04113’s requisite findings. Judicial modifications at common law are different from—and have so far survived—judicial modifications under chapter 736.

But why did the trustee’s statutory argument fail? That’s the question that makes this case interesting. Fortunately, the 3d DCA does a great job of explaining its reasoning.

First, even though in today’s world we’ve codified most of our trust law in the Florida Trust Code, there’s still plenty of room for judge made common law. And since the common law rule at issue in this case hasn’t been abrogated by statute, it still applies. So saith the 3d DCA:

The Florida Trust Code (the “code”) was first enacted in 2007. Ch. 2007-217, § 1, Laws of Fla. It applies to express trusts such as the one on appeal, section 736.0102, Florida Statutes (2016), and “all trusts created … [and] all judicial proceedings concerning trusts commenced on or after July 1, 2007.” 55A Fla. Jur. 2d Trusts § 1 (2d ed. 2013). …

However, the code recognizes that “[t]he common law of trusts and principles of equity supplement this code, except to the extent modified by this code or another law of this state.” § 736.0106, Fla. Stat. (2016). More specifically, the very section purporting to authorize judicial modifications only upon requisite findings also notes that “[t]he provisions of this section are in addition to, and not in derogation of, rights under the common law to modify, amend, terminate, or revoke trusts.” § 736.04113(4), Fla. Stat. (2016) (emphasis added). Nothing in chapter 736 modifies or abrogates the common law modification rule adopted in Preston. This is because, while “[s]ections 736.0410–736.04115 and 736.0412, Florida Statutes, provide means of modifying a trust under the Florida Trust Code … the sections on modifying trusts do not provide the exclusive means to do so.” Minassian v. Rachins, 152 So. 3d 719, 724 (Fla. 4th DCA 2014).

But what if there’s a clause in the trust agreement that specifically waives the settlor’s right to revoke or amend his trust? This kind of clause was probably included for tax reasons and also to beef up the trust’s creditor-protection shield. Does this clause trump the common-law rule? Not unless the waiver is conditioned on trustee consent:

The current trustee also argues that the trust’s provisions include a waiver by the settlor of his right to revoke or amend the trust and, therefore, either the Preston rule cannot operate, or it requires the assent of the current trustee. However, such waiver provisions can have the effect alleged only where the settlor waives the right expressly conditioning it on the trustee’s assent. See Scott and Ascher on Trusts § 34.2 (5th ed. 2008) (“[I]f the terms of the trust provide that [it] is not to be terminated without the trustee’s consent, the trust cannot be terminated, although the settlor and all of the beneficiaries wish to do so, if the trustee refuses to consent.”). Here, the provision does not include such a condition. Thus, the Preston rule may still operate, because where a settlor and all beneficiaries consent, the trustee has no reason in law or equity to successfully oppose modification. Id.

And last but not least, the trustee lost because the common-law rule simply makes sense. As noted by the 3d DCA:

Treatises have recognized that the logic of this exception is simple:

The argument in favor of permitting the beneficiaries and settlor to terminate the trust, even though the purposes for which it was created have not yet been accomplished, is that there is no reason to keep the trust in existence if all those beneficially interested in it desire its termination … [I]f the settlor has had a change of heart and no longer wants [the trust’s original] instructions to be carried out, and all the beneficiaries agree, there is no good reason for a court to insist on doing so … [They] may compel termination of the trust, whether or not doing so would defeat a material trust purpose …

[T]he settlor and all of the beneficiaries may together modify the terms of the trust. This proposition follows logically … from the proposition that the settlor and all of the beneficiaries may together compel termination … There is plainly no reason to require them to terminate the trust, accept a transfer of the property from the trustee, and then reconvey it on a new trust. Instead, [they] can, in a single transaction, direct the trustee to hold the property on different terms.

Scott and Ascher on Trusts § 34.2 (5th ed. 2008).

So what’s the takeaway?

First, there are lots of good reasons for why most trust law’s been codified. But that doesn’t mean we can’t rely on judge made common law to fill in the gaps. And that’s exactly what happened in this case. Lesson learned: common law still matters in trust litigation.

Second, because there are so many options for modifying and terminating irrevocable trusts in Florida, anytime you’re dealing with this kind of situation as a lawyer you’ll want to double-check yourself by reviewing a good checklist that’s doesn’t just list the statutory mechanisms, but also includes the remaining common law mechanisms. And lucky for us the famed father-daughter team of Chuck and Jenna Rubin have produced just that: an excellent interactive chart posted here that tells you everything you need to know about modifying and terminating irrevocable trusts under Florida law.

Illustration by Raul Arias. Motion Graphic by Hyeon Jin Kim

One of the most confoundingly difficult challenges we all face as trusts and estates attorneys is what to do if a client’s cognitively declining or otherwise impaired in a way that is clearly affecting his or her decision making. The two most common scenarios for how this dilemma plays out in real life are: (i) elderly estate planning clients slowly sliding into dementia, and (ii) cognitively impaired adults in contested guardianship proceedings.

The core question in all of these cases is the same: am I my client’s advocate or guardian? In other words, do I act in what I believe to be in my client’s “best interests” (i.e., as his guardian), or do I act in furtherance of his “expressed interests” (i.e., as his advocate)? Unfortunately, the ethics rule we have in Florida for dealing with disabled clients, Florida Bar Rule 4-1.14 (which is based on ABA Model Rule 1.14), isn’t much help. Under this rule, we’re told to do both?! Here’s the text of the Florida rule:

(a) Maintenance of Normal Relationship. When a client’s ability to make adequately considered decisions in connection with the representation is impaired, whether because of minority, mental disability, or for some other reason, the lawyer shall, as far as reasonably possible, maintain a normal client-lawyer relationship with the client.

(b) Appointment of Guardian. A lawyer may seek the appointment of a guardian or take other protective action with respect to a client only when the lawyer reasonably believes that the client cannot adequately act in the client’s own interest.

This rule has long been the subject of criticism by academics and practitioners alike. Here’s how Formal Opinion 95-002, a California ethics opinion, summarized the “problems” rule 1.14 “poses for the attorney representing older clients”:

Various critiques “of the Model Rules [have pointed] out the seemingly insurmountable problems that arise from the Rules’ ambivalence and ambiguity regarding the basis of the attorney-client relationship when the attorney suspects her client is operating under a disability.” [Clients with Destructive and Socially Harmful Choices – What’s an Attorney to Do?: Within and Beyond the Competency Construct.]

The crux of the problem presented by Model Rule 1.14 is that under subsection (a) the attorney-client relationship remains intact with the client as “the boss” instructing the attorney to carry out her stated wishes, however, once the client’s mental impairment is so severe she can’t discern what is in her best interest, the attorney has no authority to act on behalf of the client by seeking a conservatorship as allowed in subsection (b).

Further, allowing the attorney to institute conservatorship proceedings “on behalf of the client” places the attorney in the position of violating both her duty of loyalty and her duty of confidentiality to the client. The attorney must necessarily divulge his observations of the client’s behavior and/or client secrets in the process of instituting conservatorship proceedings. If an attorney is allowed to institute conservatorship proceedings, any elderly client may be hesitant to solicit the services of an attorney out of fear that the attorney’s observations or interpretations of the client’s statements or decisions would eventually lead to conservatorship and institutionalization. The elderly client would have lost the assurance of confidentiality, which is an essential part of the attorney-client relationship.

So what are we, advocates or guardians?

The advocate v. guardian tension is built into rule 4-1.14’s DNA. But what if this internal conflict were eliminated by statute? Can we ethically advocate for a disabled adult’s “expressed wishes” even if we in good faith believe a guardianship really is in her “best interest”? That’s the question addressed in the 4th DCA’s Erlandsson opinion discussed below.

Erlandsson v. Erlandsson, 296 So.3d 431 (Fla. 4th DCA May 6, 2020):

This case involved an adult woman who was reported to be “schizophrenic and extremely paranoid.” Her parents “filed a petition for limited guardianship seeking to remove their daughter’s rights specified in sections 744.3215(2) and (3), Florida Statutes (2019), except for her right to vote and right to marry. The petition alleged that [she] was not attending to her basic medical and psychiatric needs and was unable to manage her own finances.”

Daughter strenuously contested her parents’ attempt to impose a guardianship over her. The court appointed counsel for her defense, as required by F.S. 744.331(2)(b). In guardianship proceedings the internal conflicts inherent to Florida Bar Rule 4-1.14 are eliminated by F.S. 744.102(1), which contains the following directive:

The attorney shall represent the expressed wishes of the alleged incapacitated person to the extent it is consistent with the rules regulating The Florida Bar.

So we have a statute that says when you’re court appointed counsel for an adult in a contested guardianship proceeding, you’re required to act in accordance with your client’s “expressed interests” (i.e., be her advocate). On the other hand, Florida Bar Rule 4-1.14 tells us attorneys can ethically seek the appointment of a guardian for your client if you believe it’s in her “best interests”.

Can we ethically advocate for a disabled adult’s “expressed interests” even if we in good faith believe a guardianship really is in her “best interest”? YES

At the final hearing, ignoring her client’s objections, but presumably acting in what she believed to be her client’s best interests, court-appointed counsel advocated against her client’s expressed wishes and in favor of a plenary guardianship. Here’s how the 4th DCA summarized what happened at the hearing:

At the hearing, appointed counsel briefly cross-examined one witness, but did not object to the admission of evidence and did not cross-examine the other witnesses. Appellant attempted to cross-examine a witness herself, but was prohibited from doing so. Appointed counsel declined to offer any evidence on Appellant’s behalf, and Appellant complained, “I think my attorney should have some evidence and things in my favor.” Finally, appointed counsel argued in favor of a plenary guardianship, against Appellant’s clear and express wish that no guardianship be established.

Not surprisingly, the trial court ordered a plenary guardianship.

Did well-meaning court appointed counsel make the right call? Nope. Daughter was deprived of the type of legal representation (read advocacy) guaranteed by F.S. 744.102(1). Which means she gets a do over. So saith the 4th DCA:

Section 744.102(1) requires that an appointed attorney “shall represent the expressed wishes of the alleged incapacitated person to the extent it is consistent with the rules regulating The Florida Bar.” The statute manifests an intent to ensure that an alleged incapacitated person’s voice and wishes are heard and considered. While counsel no doubt believed that Appellant’s physical and mental conditions required a guardianship, she still was obligated to represent her client’s expressed wishes rather than preventing her from expressing her views.

“[E]ven if an attorney thinks the guardianship would be in the client’s best interest, the attorney whose client opposes guardianship is obligated … to defend against the guardianship petition.” Vicki Gottlich, The Role of the Attorney for the Defendant in Adult Guardianship Cases: An Advocate’s Perspective, 7 Md. J. Contemp. Legal Issues 191, 201–02 (1996) (emphasis added). In forcing Appellant to go forward with a lawyer advocating for what counsel perceived to be her client’s “best interests,” rather than the client’s “expressed interests,” the trial court disregarded Appellant’s claims of a conflict of interest, and violated section 744.102(1), Florida Statutes. We therefore reverse the order below establishing a permanent guardianship and remand with directions to appoint conflict-free counsel to represent Appellant at a new hearing on the petition for guardianship.

But what about Florida Bar Rule 4-1.14, which tells us attorneys can ethically seek the appointment of a guardian if you believe it’s in your client’s best interests? Wasn’t court-appointed counsel doing exactly what the ethics rule says she was supposed to do? Yup. But this rules doesn’t apply in contested guardianship proceedings. So saith the 4th DCA:

We do not read [Florida Bar Rule 4-1.14] to entitle appointed counsel in a guardianship proceeding to counter her client’s express wishes not to have a guardian appointed. Such a reading would conflict with section 744.331(2)(b).

So what’s the take away?

First, it’s not an all or nothing proposition. Zealous advocacy doesn’t mean you can’t counsel your client to accept some form of compromise that preserves his or her autonomy while also providing the care and protection of a limited guardianship. It also doesn’t mean you ignore clear signs of reduced or questionable competence. Which is all to say none of this is easy.

There are plenty of resources with practical advise for practitioners serving as court-appointed counsel in one of these cases. A good example is a 2002 Stetson Law Review article entitled Role of the Attorney for the Alleged Incapacitated Person. Here’s an excerpt:

Defending an alleged incapacitated person does not mean that all of an attorney’s usual resources are not in play. The attorney may use any of the tools in his or her arsenal to achieve a favorable settlement for the client or to limit the guardianship to the least-restrictive alternative.

When the attorney has no doctor’s reports, favorable testimony, or any other evidence to support the client’s position, one of the best things to do is bring the client to the hearing so that the client may speak to the judge. Some clients want this opportunity to make his or her case, believing that if the judge heard the client, the judge would rule in his or her favor.

Second, if your client is dead set against any level of guardianship, no matter how limited, the right thing to do is advocate for that position and trust in the process. Here again from Role of the Attorney for the Alleged Incapacitated Person:

Although  the  attorney  for  the  alleged  incapacitated  person may  be  inclined  to  judge  the  client’s competency, the court must determine competency based on clear and convincing testimony. The attorney’s way becomes clearer if he or she treats this client and case as any other. The attorney, even with little or no guidance from the client, can ensure that:

    • there is no less restrictive alternative to guardianship;
    • proper due-process procedure is followed;
    • the  petitioner  proves  the  allegations  in  the  petition  by  clear and  convincing  evidence,  if  that  is  the  standard  in  the jurisdiction;
    • the proposed guardian is a suitable person to serve; and
    • if a guardian is appointed, the order leaves the client with as much autonomy as possible.

When the attorney assumes this role, the client receives the due-process protection promised him or her by the Constitution. He or  she  has  a  zealous  advocate  who  can  speak  knowledgeably for  the  client,  put  the  client  on  the  stand  if  the  client  is  willing, cross-examine expert witnesses, ensure that the evidence proves incompetency  by  clear and  convincing  evidence,  ensure that the guardian  is  fit  to  handle  the  tasks  of  being  a  guardian,  and encourage  the  court  to  impose  the  least-restrictive guardianship possible,  so  that  the  autonomy  of  the  person  alleged  to  be incapacitated is left with all the powers he or she has previously managed.

 

Self-Portrait with the Artist’s Wife by Albert Janesch, 1933

If you’re a trusts and estates lawyer, you’re in the business of making sure people get a say in what happens with their stuff after they’ve died — even if there are a lot of living people who aren’t at all happy with what the dead guy wanted. Giving preference to the wishes of the dead is what estate planning is all about. It’s legal, but is it “moral”?

It’s not like you’re going to harm a dead person if you ignore his beautifully written will — he’s dead. So if honoring a person’s will wasn’t legally required, would it still be the “right” thing to do? I think most of us would say “yes.” But why?

That’s the question at the heart of the Future Perfect podcast episode entitled The Wishes of the Dead, which should be required “listening” for all estate planners. In it ethics professor Barry Lam uses the story of the controversial Hershey chocolate fortune and charitable trust as a jumping off point to extract big ideas, unquestioned assumptions, and unexamined conflicts lurking in the body of law we trusts and estates lawyers call home.

Lam ends the podcast in conversation with philosopher Samuel Scheffler, author of Death and the Afterlife. Sheffler’s key insight in that book is that a lot of what we do in life has meaning because we believe it’ll have an impact on the people around us after we’ve died. In other words, to ignore the wishes of the dead can, as Lam puts it, “make their lives and projects pointless,” which in a way “might be worse than harming or wronging them.”

So is that the moral justification for honoring the wishes of the dead? To do otherwise is a form of erasure. Maybe. Anyway, this kind of philosophizing is a pleasure we rarely get to indulge in as working attorneys. Do yourself a favor: indulge, listen to the podcast in its entirety. Here’s an excerpt from the show’s transcript:

Barry: I’ve been thinking about the wishes of the dead for months now and I couldn’t convince myself that we have an obligation to dead people … But maybe I was thinking about it all wrong. I was thinking of myself as the person who was living in the present and I saw a world that was honoring the wishes of people in the past. But what if I looked at the future after I died? Would I want someone just to discard what I cared about and what I wanted and act as though my life and projects were over and the world had to move on? … If my father worked long and hard on a book all of his life and I just throw it away, I have done something bad to him. I don’t know if you should say wronged him or harmed him, but I do think there is clearly something you can do to past people that might be worse than harming or wronging them. I think you can make their lives and projects pointless, and this comes from an interesting fact about human life. The meaningfulness of many of our actions might very well depend on whether future people are around to be affected by them.

Sam: This is an interesting fact, if it is a fact that, we would lose confidence in the value of things we’re now doing in our lives if we thought that there weren’t going to be any people in the future.

Barry: That’s the philosopher Samuel Scheffler who wrote a book called Death and the Afterlife. Sheffler’s key insight in that book is that a lot of what we do in life, like working to cure cancer or writing novels, get their meaning or value from the fact that human beings as a whole have a future on this earth after our deaths.

Sam: If they don’t exist then what we’re doing now doesn’t seem worthwhile and so in a way we depend on them.

Barry: Sheffler’s book focuses a lot on how the existence of humanity in the future brings value to many of our activities. All of us know that we’re going to die. That doesn’t stop us from finding meaning in the things we do. It doesn’t stop us from finding meaning and things that only benefit the world after our death. But if you knew that shortly after you died, humans would go extinct, then a lot of your activities would seem pointless. But I think there’s more to it. We don’t just need people to exist in the future, we need future humanity to be affected by our projects. Our projects have to live on in future people for our projects to be meaningful.

If you’re a vet, at some time in your life you’ve probably interacted with one of the many great not-for-profits dedicated to helping fellow vets and their families. One of my favorites is Mission United in Miami. They’re local, and they’re focused on the kind of nuts and bolts practical assistance that really makes a difference for vets transitioning back to civilian life.

So here’s the ask. If you’re looking for a way to show your appreciation this Veterans Day, start by going to United Way Miami’s donation page, selecting #ProudlyServing Veteran’s Day, and donating between $25-$50.

Our Country’s heroes shouldn’t have to struggle to find a job, put food on the table, or find a safe place to live. Mission United proudly serves those who have served. Now it’s your turn.

This is the second and final installment of the 2020 legislative update. Part 1 focused on non-tax changes to our probate and trust codes. This post focuses on CS/HB 1089, a single-purpose bill introducing new F.S. 736.08145, a tax-planning measure involving irrevocable “grantor trusts”.

What’s a “grantor trust” and why should I care?

According to the IRS: All “revocable trusts” are by definition grantor trusts. An “irrevocable trust” can be treated as a grantor trust if any of the grantor trust definitions contained in Internal Code §§ 671, 673, 674, 675, 676, or 677 are met. If a trust is a grantor trust, then the grantor is treated as the owner of the assets, the trust is disregarded as a separate tax entity, and all income is taxed to the grantor.

Most of the sophisticated tax planning involving grantor trusts is limited to irrevocable trusts sometimes referred to as “intentionally defective grantor trusts” or “IDGTs”. This kind of tax planning looms large in modern estate planning for the wealthy, as explained in Where Are All The Grantor Trust Reimbursement Statutes?

While originally intended essentially to punish settlors who tried to evade income taxes by transferring assets to trusts, grantor trust planning has become an essential tool in estate planning.

With grantor trust status, a trust can accelerate growth without the tax drag. Also, the trust can utilize the grantor’s Social Security number as its taxpayer ID number and avoid tax preparation hassles and fees. It can engage in desirable transactions with the grantor, like renting residential real estate, buying assets in an installment sale at low interest rates, and swapping out low basis assets for higher basis assets.

Paying someone else’s income taxes is great estate planning … until it’s not:

A central feature of estate planning with grantor trusts is that the settlor (referred to as the “grantor” by the IRS) pays the trust’s annual income taxes, even if the settlor’s not a beneficiary of the trust. As in, the settlor creates an irrevocable grantor trust for her children, but continues to pay the trust’s income taxes. If done right, this essentially generates a nontaxable gift to the beneficiaries, thereby reducing the settlor’s gross estate without incurring estate or gift taxes.

While paying someone else’s income taxes may be a great way to transfer wealth tax free, sometimes it can be a problem to pay taxes on earnings you’ve never received. Ideally, you’d want the trust to pay its own taxes every once in a while without blowing all of the trust’s tax savings benefits. Estate planners have grappled with this dilemma for years. Fortunately for them (and their clients), states, like Florida, who aggressively compete for a share of the billions in fees that come with catering to large multigenerational trusts, routinely pass taxpayer-friendly changes to their trust codes specifically designed to solve tax-planning dilemmas just like this one.

Enter new F.S. 736.08145, a 2020 change to Florida’s Trust Code specifically designed to make it easier for settlors to get reimbursed for income taxes they pay on behalf of grantor trusts. Here’s how the statute’s Legislative Analysis explains how this new addition to Florida’s Trust Code is supposed to work.

[F.S. 736.08145] modernizes Florida’s trust code by allowing, but not requiring, an independent trustee of a grantor trust to reimburse the grantor for all or part of the income tax paid by the grantor and attributable to trust income or to pay such taxes directly on the grantor’s behalf, provided the trust instrument does not explicitly prohibit such tax reimbursements or payments. The bill applies to all trusts, regardless of when they were created, unless:

  • The trustee provides written notice to the grantor and any person who can remove and replace the trustee that he or she intends to irrevocably elect out of the tax reimbursement and payment provisions at least 60 days before the election takes effect.
  • Applying the tax reimbursement and payment provisions would prevent a contribution to a trust from qualifying for, or would reduce, a federal tax benefit which was originally claimed, or could have been claimed, for the contribution.

Further, the bill provides that, if a trust’s terms require the trustee to act at the direction or with the consent of a trust advisor, a protector, or any other person, or that tax reimbursement or payment decisions be made directly by such a person, the powers granted by the bill to the trustee must instead or also be granted to such person if he or she meets the independence criteria established for trustees. Finally, the bill provides that a person may not be considered a grantor trust beneficiary due solely to implementation of the tax reimbursement or payment provision, including for purposes of determining the elective estate. In other words, a grantor would not become a grantor trust beneficiary simply by receiving tax reimbursement or payment assistance from the trust.

Sounds great, but does it work?

While Florida may be all in on tax breaks for Florida trusts, the IRS isn’t such a big fan. Which means anytime our legislature tries to shape our state laws in a way that makes it easier to lower federal taxes, you need to proceed with caution.

In this case we can take some comfort from the the fact that Florida isn’t the first to pass this kind of grantor-trust tax friendly legislation. As reported in the Legislative Analysis, Colorado, Delaware, New Hampshire, and New York, all beat us to the punch (they’re competing for the same trust business).

But you’ll also want to confirm the tax analysis yourself. For that you’ll want to read a White Paper submitted by an outfit calling itself the Florida Coalition for Modern Laws (“FCML”), which apparently was influential in the drafting and passage of CS/HB 1089. Here’s what FCML’s White Paper had to say about the tax analysis that went into the planning and design of the new statute:

[F.S. 736.08145] has been drafted to fit squarely within the principles of Revenue Ruling 2004-64. First, the reimbursement authority granted to trustees would be purely discretionary, not mandatory, which is consistent with the Revenue Ruling’s holding that a discretionary reimbursement power will not, by itself, cause estate tax inclusion. Second, the “other facts” identified by the Revenue Ruling as having the potential to cause estate tax inclusion if combined with a discretionary reimbursement power are addressed either by existing Florida law or by the proposed statute itself:

  • [F.S. 736.0505(1)(c)] already provides that the trustee’s power to reimburse the grantor for income taxes paid in respect of trust income will not cause the trust assets to be subject to the claims of the grantor’s creditors.
  • The proposed legislation vests the tax reimbursement authority only in disinterested fiduciaries, which ensures that the tax reimbursement authority will not be held by or imputed to the grantor even if he or she has the power to remove the trustee and name himself or herself as successor trustee.

The proposed legislation also incorporates additional safeguards intended to prevent any adverse federal gift or estate tax consequences under current law or as a result of changes in law. These additional tax safeguards are modeled on the most sophisticated statutes recently enacted in other jurisdictions. For example:

  • The proposed legislation provides that insurance policies on the grantor’s life cannot be used to satisfy the grantor’s tax liability; and
  • The reimbursement power cannot be exercised in a manner inconsistent with the marital or charitable deductions or the annual exclusion, or in a manner that would cause the inclusion of such trust’s assets in the grantor’s gross taxable estate for federal estate tax purposes.

Furthermore, if the parties to any trust do not wish to take advantage of the proposed legislation, or are concerned about the financial or tax impact, the trust document can “opt out” of the law or the independent fiduciaries may simply elect out of the application of the proposed legislation.

2020 was another busy year on the legislative front. The vehicles for changes to our probate and trust codes were CH/HB 505, CS/HB 1439 and CS/HB 1089. The last bill is an interesting tax measure involving “grantor trusts” that deserves its own stand-alone post. Here’s my summary of the non-tax legislation I found most significant.

[1] Attorneys need signed written consents to write themselves into their client’s wills or trusts as personal representatives or trustees:

In the estate planning world there are two conflict-of-interest scenarios that have the greatest potential for causing the most trouble. The first is writing yourself into your client’s will or trust as a beneficiary. The “gift to lawyer” conflict is explicitly addressed in ethics rule 4-1.8(c), which was codified in 2013 in F.S. 732.806.

The second high-risk conflict scenario is writing yourself into your client’s will or trust as a personal representative (“PR”) or trustee. These can be high paying jobs. And just because you’re serving as PR or trustee doesn’t mean you can’t also bill for your separate work as attorney for the estate. This particular brand of “self dealing” is covered in the commentary to rule 4-1.8, which strongly suggests there’s an ethics violation in the absence of informed consent, confirmed in writing by the client:

This rule does not prohibit a lawyer or a partner or associate of the lawyer from serving as personal representative of the client’s estate or in another potentially lucrative fiduciary position in connection with a client’s estate planning. A lawyer may prepare a document that appoints the lawyer or a person related to the lawyer to a fiduciary office if the client is properly informed, the appointment does not violate rule 4-1.7, the appointment is not the product of undue influence or improper solicitation by the lawyer, and the client gives informed consent, confirmed in writing. In obtaining the client’s informed consent to the conflict, the lawyer should advise the client in writing concerning who is eligible to serve as a fiduciary, that a person who serves as a fiduciary is entitled to compensation, and that the lawyer may be eligible to receive compensation for serving as a fiduciary in addition to any attorney’s fees that the lawyer or the lawyer’s firm may earn for serving as a lawyer for the fiduciary.

My firm’s policy is to avoid serving as PR or trustee for our clients — whenever possible.  There are situations, however, when clients need this assistance. The problem is there are some attorneys who ALWAYS solicit this business and ALWAYS write themselves in as PRs and trustees for their clients, a practice that’s long been a focus of criticism.

We now have a statuary fix. A client’s informed consent, confirmed in writing, is no longer a suggestion, it’s now mandated in new F.S. 733.617(8) for attorneys serving as PRs, and in new F.S. 736.0708(4) for attorneys serving as trustees. Here’s how the Legislative Analysis explains the intended effect of these new statutes:

For these disclosures to be sufficient, the testator must execute a written statement acknowledging that the disclosures were made prior to the will or trust’s execution. The written acknowledgment must be in a separate writing from the will or trust, but it may be annexed to the will or trust. The written acknowledgment may be executed before or after the execution of the will or trust.

The statutes do not affect the validity of the instrument and do not disqualify the named fiduciary from serving. Thus, the attorney can serve without a signed acknowledgment. However, the service will be without compensation to the fiduciary.

And here’s the statutorily-mandated form of “written acknowledgment” for wills in new F.S. 733.617(8) . (The mandated acknowledgment for trusts in new F.S. 736.0708(4) is virtually identical.)

I,   (Name)  , declare that:

I have designated my attorney, an attorney employed in the same law firm as my attorney, or a person related to my attorney as a nominated personal representative in my will or codicil dated   (insert date)  .

Before executing the will or codicil, I was informed that:

1. Subject to certain statutory limitations, most family members, regardless of their residence, and any other individuals who are residents of Florida, including friends and corporate fiduciaries, are eligible to serve as a personal representative.

2. Any person, including an attorney, who serves as a personal representative is entitled to receive reasonable compensation for serving as a personal representative.

3. Compensation payable to the personal representative is in addition to any attorney fees payable to the attorney or the attorney’s firm for legal services rendered to the personal representative.

(Signature)

(Testator)

(Insert date)

[2] Personal representatives and conflict-of-interest transactions:

Personal representatives are fiduciaries, which means they’re subject to all the duties generally applicable to trustees, including the duty to avoid conflicts of interest. The specter of a conflict of interest appears any time a personal representative seeks to sell an estate asset to himself or engage in any other business transaction that could potentially benefit him at the expense of the beneficiaries of the estate.

But what if the personal representative doesn’t want to sell an estate asset to himself or a corporation he owns, but instead plans on selling to some entity owned by his wife (or agent or attorney). Is this one-step-removed work around OK? As a matter of logic, one would assume we’d all agree it’s not. But it’s always easier to simply point to a statute than trying to convince your judge that your “logic” is better than your opponent’s “logic.” Which is why CH/HB 505 amended F.S. 733.610 to explicitly expand the statute’s reach to address all forms of conflicts. The underlined text is what’s new.

Any sale or encumbrance to the personal representative or the personal representative’s spouse, agent, or attorney, or any corporation, other entity, or trust in which the personal representative, or the personal representative’s spouse, agent, or attorney, has a substantial beneficial or ownership interest, or any transaction that is affected by a conflict of interest on the part of the personal representative, is voidable by any interested person except one who has consented after fair disclosure, unless …

[3] Service of “formal notice” does NOT equal personal jurisdiction:

Non-residents can’t be pulled into Florida litigation if they don’t have the kind of “minimum contacts” with this state necessary to satisfy our long-arm statute requirements under F.S. 48.193, and the constitutional due process requirements articulated by our supreme court in Venetian Salami Co. v. Parthenais, 554 So.2d 499 (Fla. 1989). This is basic stuff. And as previously explained by 3d DCA, these jurisdictional rules have always applied in Florida probate proceedings.

Unfortunately, the less than artfully drafted language of 731.301(2) muddied the waters on what should have been an obvious point, leading some to believe “formal notice” is enough to subject non-residents to a Florida court’s personal jurisdiction (it’s not). CH/HB 505 amended 731.301(2), adding the following sentence, hopefully avoiding future confusion on this important jurisdictional issue.

The court does not acquire personal jurisdiction over a person by service of formal notice.

As explained in the bill’s Legislative Analysis, if you want to assert personal jurisdiction over a non-resident litigant, including in contested probate and trust proceedings, formal notice won’t cut it; you have to serve a summons in accordance with all of the requirements of Ch. 48, just like in any other kind of litigation here in Florida.

[4] A “notice of administration” now has to put parties on notice they might forfeit their chance to challenge a trust if they don’t also challenge the settlor’s will:

As explained by the 4th DCA in its Pasquale decision, if a revocable trust is incorporated by reference into the settlor’s pour-over will (which almost always happens), you can’t challenge the validity of the trust without also challenging the validity of the will.

According to the Legislative Analysis, this interplay between will and trust contests, “may confuse a beneficiary as he or she may also receive a trust limitation notice stating there is a six month deadline to object to the trust in addition to a notice of administration stating there is a three month deadline to object to the will.” In an effort to avoid this confusion, CH/HB 505 amended F.S. 733.212 to add the following additional disclosure requirement for probate notices of administration:

(f) That, under certain circumstances and by failing to contest the will, the recipient of the notice of administration may be waiving his or her right to contest the validity of a trust or other writing incorporated by reference into a will.

[5] New tools for very small estates:

We’ve all had those calls from a friend or family member about someone who passed away with a few thousand dollars in a bank account that now needs to be probated. The attorney’s fees for that work can often exceed the value of the account. Well, we now have two new alternatives to formal administration designed specifically for these scenarios.

CS/HB 1439 amended F.S. 655.059(2)(b) (authorizing greater informal disclosure from banks to a decedent’s family) and created new F.S. 735.303 and F.S. 735.304. Here’s how the bill’s Legislative Analysis described the intended effect of these new statutory tools.

The bill amends s. 655.059, F.S., to correct the citation to the Gramm-Leach-Bliley Act and to provide additional exceptions to the general rule that a financial institution’s books and records relating to deposit accounts must be kept confidential by the financial institution. …

The bill creates s. 735.303, F.S., to authorize certain family members of a decedent to present a sworn affidavit to a financial institution in this state and receive up to $1,000 from “qualified accounts”, defined as a depository account or certificate of deposit held by a financial institution in the sole name of the decedent without a pay-on-death or any other survivor designation. The bill does not require a court proceeding, order, or judgment in order for the family member to receive the funds. …

The bill creates s. 735.304, F.S., to provide another form of disposition of personal property without administration for intestate property in small estates. It allows a beneficiary of an intestate decedent to file an affidavit with the court to request distribution of certain assets of the decedent. …

Illustration: Ben Jones for The Intercept

Florida’s Trust Code consists overwhelmingly of default rules that settlors are free to opt out of or modify anytime. There are, however, a core set of rules listed in F.S. 736.0105 that are mandatory; you can’t draft around them. For example, under F.S. 736.0105(2)(e) your trust agreement can’t eliminate the “power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice.” This rule is taken verbatim from section 105(b)(13) of the Uniform Trust Code.

Especially as applied in Wallace, a 3d DCA opinion discussed below, F.S. 736.0105(2)(e) falls into the category of mandatory rules that paradoxically further settlor intent, even while simultaneously voiding a clause in the trust agreement. In other words, this kind of mandatory rule protects settlors (and their attorneys) from including provisions in their trust agreements that are ultimately self defeating. As in, they’d essentially allow trustees to loot their trusts.

Here’s how Prof. Langbien, one of the architects of the Uniform Trust Code, introduces the concept of “intent implementing mandatory rules” in his essay entitled Mandatory Rules in the Law of Trusts:

These are rules that channel and facilitate, rather than defeat, the settlor’s purpose. Included are the rule that prevents the settlor from dispensing with fiduciary obligations; the rule that prevents the settlor from dispensing with good faith in trust administration; the rule that limits the permitted scope of exculpation clauses; and the rule that requires that the existence and terms of the trust be disclosed to the beneficiary. Such terms, were they allowed, would authorize the trustee to loot the trust. The mandatory rules do not forbid the settlor from naming the trustee as a beneficiary, but they do force the settlor to articulate that intent with clarity. Accordingly, these rules are cautionary and protective in character, guarding the settlor (and the truly intended beneficiaries) against misunderstanding or imposition.

Wallace v. Comprehensive Personal Care Services, Inc., — So.3d —-, 2020 WL 2893658 (Fla. 3d DCA June 03, 2020)

This case involved a trust agreement containing a detailed mechanism for removing a family-member trustee who’s “disabled.” These clauses are common; they’re intended to provide a smooth, non-judicial mechanism for removing a parent as trustee if he or she becomes cognitively impaired due to old age or some other reason. On the other hand, if mom or dad is determined incapacitated in a guardianship proceeding, that works too.

Against this backdrop one of the trustee’s sons sued to have his father removed as trustee on the following grounds:

[Son] alleged [Father’s] mental condition rendered him unable to serve in that capacity, as evident from certain large and inappropriate gifts [Father] made from trust assets to new friends who were not beneficiaries of the trust.

Father moved to dismiss the claim, arguing that the terms of the trust agreement prohibited his removal unless he was first adjudicated as being incapacitated in a guardianship proceeding. And (to my surprise) the trial court agreed, dismissing the claim.

Can you limit a court’s ability to remove a trustee to the same standard as incapacity in guardianship proceedings? NO

The floor level of cognition required to protect against your personal rights being stripped away in a guardianship proceeding is, for all sorts of really good reasons, way lower than the floor level of competence the law requires of trustees.

So even assuming the trial court correctly interpreted the trust agreement in this case (I have my doubts), does a clause that shields a trustee from removal unless he’s first adjudicated incapacitated in a guardianship proceeding run afoul of our mandatory rules for judicial supervision of trustees? Yes, of course. As Prof. Langbien might put it, such “terms, were they allowed, would authorize [a clearly incapacitated trustee who still has the minimum level of cognition required to win in a guardianship proceeding] to loot the trust,” as alleged in this case.

Here’s how the 3d DCA summed up its reasoning for reversing the trial court’s dismissal order and allowing the claim for removal to proceed against the trustee — even if he hasn’t been adjudicated incapacitated in a guardianship proceeding.

[A] trust document … cannot eliminate or curtail the probate court’s power and responsibility under the Trust Code to remove a trustee when necessary in the interests of justice to protect the interests of the beneficiaries. §§ 736.0706, 736.1001, and 736.0201, Fla. Stats.; see McCormick v. Cox, 118 So. 3d 980, 988 (Fla. 3d DCA 2013) (“The court’s power to remove a trustee and to appoint a special trustee is well settled.”); Aiello v. Hyland, 793 So. 2d 1150, 1151 (Fla. 4th DCA 2001) (“Section 737.201(1)(a) [now § 736.0202, Fla. Stat.] unequivocally confers upon this Court the discretion and authority to remove a trustee where appropriate.”).

At oral argument, [Father] acknowledged this principle of law but argued it should not apply in the unique facts of this case. [Father] pointed out that he was the settlor who placed the assets in the trust; he is still the major beneficiary of the trust during his lifetime; and the attempt to remove him is based on his mental condition. In these circumstances, he argued, removing him as trustee is tantamount to declaring him a ward and depriving him of control over his own property and therefore should occur only if the standard for imposing a guardianship on him under section 744.331 of Florida Statutes could be met as he argues is the intent of the trustee removal provisions in the trust documents.

We do not agree. In the first place, [Father’s] argument improperly conflates the law of trusts with the law of guardianships. For good reason, the standard for removal of a trustee under section 736.0706 of the Trust Code is less exacting than the standard for imposing a guardianship under section 744.331 of the Guardianship Code. Persons may lack the accounting, business, legal, or mental acumen to serve as trustees regarding the property of others even when their condition would not justify the imposition of a guardianship over them regarding their own property.

Secondly, removing [Father] as trustee would not rise to the level of making [Father] a ward. The assets in the trust, even if once owned by [Father], stopped being [Father’s] property when they became the res of an irrevocable trust. Removing [Father] as trustee of the irrevocable trust, therefore, would not constitute an elimination of his control over his own property. Indeed, even if removed as trustee, [Father] would still have control over any property he personally owned, including any distributions made to him under the provisions of the trust.

So what’s the take away?

At its core this was a trust-construction dispute. When your trial judge rules against you in this kind of case, on appeal you of course need to make the standard arguments for why your reading of the document makes more sense. But you always want to have multiple arrows in your quiver. So when possible, you’ll want to craft an argument for why your reading of the document isn’t just reasonable, it’s also the only permissible option as a matter of law. This case is an excellent example of that tactic.

From a drafter’s perspective, my take away is philosophical. I don’t think the trust agreement in this case could have been written any better. That said, this case again demonstrates why none of us should ever be 100% certain a judge, who is of necessity a generalist, is going to interpret the words written by an estate-planning specialist in the way they were intended.

This isn’t a knock on the judiciary; it’s a reminder that we’re all human, and before we ask someone else (i.e., a judge) to decide our disputes for us, we need to interrogate the certainties we walk around with as specialists (read: arrogance). Which brings me to this wonderful bit of wisdom from a veteran litigator.

No lawyer should fashion himself a “superstar.” None can make all, or even most of, the calls correctly. Measured judgment is key, luck and bad fortune are always present, results are seldom perfect, and success can never be assured. … In the legal world, arrogance tends to be a self-correcting mistake, given how the law, not to mention the courts, has a perturbing tendency to bring us up short, to show us our misjudgments, even if they were only that the right cause would always prevail.

Robert E. Shapiro, The Tragedy of James Comey: A Lawyer’s Tale, Litigation, Volume 45, Number 1, Fall 2018.