Smith v. Smith, — So.3d —-, 2017 WL 3774702 (Fla. August 31, 2017)

How do we protect the elderly from exploitation and abuse, without sacrificing our fundamental rights as we enter old age, like the constitutionally protected right to marry? That balancing act is incredibly difficult to pull off, especially in a state as large and diverse as ours, which not surprisingly (perhaps unavoidably) leads to instances of abuse and recurring cycles of legislative outrage/reform (see here, here).

The tension between the state’s parens patriae role in guardianship proceedings and Florida’s strong public policy favoring the preservation of fundamental rights as we age (even for incapacitated wards), is front and center in F.S. 744.3215(2)(a), the ambiguous guardianship statute at the core of this hotly contested marriage case. But you can’t really understand how this dispute played out before three different courts unless you take a step back and consider the dynamics lurking under the surface, which got me thinking about framing.

Framing Effect:

If you think cases are decided solely on the basis of cold hard logic, you’re kidding yourself. Unconscious biases drive much of our decision making (which I’ve reported on here as applied to bench trials, here as applied to sentencing patterns, and here as applied to settlement negotiations). These biases can play a dominant role in how even the most abstract and non-emotional of issues are decided (including the proper construction of ambiguous guardianship statutes). In fact, the Nobel prize in economics just went to an economist who studies how “predictably irrational” we really are when it comes to making important decisions (see here).

In my opinion, how the Smith case was decided first by the trial judge, then by the 4th DCA, and now by the Florida Supreme Court, is largely attributable to one variable: the framing effect, a cognitive bias that leads people to react to the same choice in different ways depending on how it’s presented. Framing can be an incredibly powerful advocacy tool (see here, here). Now back to the statute.

Legislative History:

F.S. 744.3215(2)(a) was amended in 2006 to address what happens when an incapacitated adult’s right to contract is taken away for his or her own protection, but the right to marry (which is a form of contract) hasn’t also been removed. It’s not a common scenario, but it does happen, as it did in this case.

As amended, the statute now provides that when an incapacitated adult’s right to contract is removed, his or her right to marry isn’t automatically removed as well, but it does become “subject to court approval”. No one disputes court approval in this context is a good idea. But here’s the problem: the statute doesn’t say if court approval has to happen before the marriage is entered into or if it can also happen after the fact. That’s the statutory construction issue decided in this case. (Spoiler alert: FL Supreme Court held court approval after the marriage ceremony is OK too.)

According to the Legislative Staff Analysis for the 2006 amendment to F.S. 744.3215(2)(a), the statutory compromise between not being able to contract but still being able to marry subject to court approval, “reinforc[es] the significance of the right to marry”. The Staff Analysis also reported that the amended statute incorporated the recommendations made by a legislative task force. In its report, the Task Force made the following recommendations, which provided important guidance to the court in this case:

The Task Force spent a significant amount of time debating the concept of the right to marry being a contractual right. It had been suggested that if the court removes the right to contract then the court must remove the right to marry. The language that was agreed upon provides that if the right to contract is removed from the ward but not the right to marry, the right to marry should be subject to court approval. This is because marriage is a contract and requires that an individual understand the relationship and the rights the spouse will acquire at the time the marriage is solemnized. The right to marry should not be removed, as it is a fundamental right, but should be subject to court approval so that the judge can determine if the ward understands the marriage contract and that the ward is not a likely victim of abuse or financial exploitation.

See Guardianship Task Force, Final Report at 8 (2004).

Frame or be Framed:

How a case is framed not only structures the way in which key issues are defined and argued, it also plays a critical role in determining the eventual outcome, as it did in this case.

For example, if you frame the statutory construction issue in this case as an all-or-nothing choice between “void” and “voidable” marriages, the outcome’s inevitable: you’re going to construe F.S. 744.3215(2)(a) as requiring court approval prior to the marriage (otherwise, you’re left opting for a construction of the statute that makes judicial oversight almost impossible). That’s how the 4th DCA framed the issue in its decision, and how the Elder Law Section of the Florida Bar framed the issue in its amicus brief, and — not surprisingly — in both instances they concluded the statute required court approval prior to the marriage (which effectively made it impossible for the non-disabled putative spouse to get her marriage OK’d in court).

On the other hand, if you ditch the void vs. voidable paradigm and instead frame the issue as a choice between court approval before or after the wedding, and an outcome that makes it impossible for the non-disabled putative spouse to ever have her day in court, you’re probably going to construe F.S. 744.3215(2)(a) as permitting court approval before or after the marriage is entered into (it’s the best of both worlds: the marriage remains subject to court approval, and the putative spouse gets her day in court). That’s how the Florida Supreme Court re-framed the issue in its opinion, and the RPPTL Section of the Florida Bar re-framed the issue in its amicus brief, and in both instances they concluded — surprise! —  the statute permits court approval before or after the wedding.

New Frame = Supreme Court Win:

Bottom line, depending on how the issue is framed only one outcome becomes reasonably possible. Behold the power of framing!

Here’s how the Florida Supreme Court re-framed the statutory construction issue relying both on the statute’s actual text (nowhere does the statute contain any reference to void or voidable marriages), and on the statute’s legislative history linked-to above. As to the text of the statute:

The plain language of section 744.3215(2)(a) reflects that the Legislature did not intend for the type of invalid marriage at issue in this case to be classified as either void or voidable according to how these terms have been defined under Florida precedent.

The disputed provision does not use the terms “void” or “voidable,” nor does it use language that embodies the traditional definitions of these terms. Other statutes clearly identify circumstances that render a marriage void; however, such language was not used in section 744.3215(2)(a). For example, section 741.211, Florida Statutes (2016), is titled “Common-law marriages void,” and provides “[n]o common-law marriage … shall be valid.” (Emphasis added.) Similarly, section 741.21, Florida Statutes (2016), is titled “Incestuous marriages prohibited,” and provides that a man or woman “may not” marry certain relatives. (Emphasis added.) In contrast, section 744.3215(2)(a) does not expressly provide that an incapacitated person whose right to contract has been removed is “prohibited” from marrying unless court approval is obtained, or that any marriage entered into would be “void” absent such approval.

. . .

The plain language of section 744.3215(2)(a) is likewise inconsistent with the traditional meaning of a “voidable” marriage. As previously discussed, the statute makes a ward’s “right to marry” contingent on court approval if the right to contract has been removed. In other words, the ward’s ability to enter into a valid marriage depends on court approval. Thus, if the right to marry is not approved, any attempt by the ward to marry would result in an invalid marriage. If court approval is never obtained, the invalidity of the marriage cannot be cured, and the marriage can be given no effect. This is inconsistent with the traditional concept of a “voidable” marriage, which is “good for every purpose” until it is challenged, and “good ab initio” if it is not challenged within the parties’ lifetimes. Kuehmsted, 138 So. at 777.

. . .

Accordingly, we conclude that the Legislature did not intend for the concept of a “void” or “voidable” marriage to apply to the disputed provision. We hold that section 744.3215(2)(a) does not preclude the possibility of ratification of a marriage if the court subsequently gives its approval, but an unapproved marriage is invalid and can be given legal effect only if court approval is obtained.

And here’s what the court had to say about how its reading of the statue lines up with the statute’s legislative history:

The legislative intent, as declared in section 744.1012, Florida Statutes (2016), [evidencing] the goal of protecting incapacitated persons from exploitation while upholding their rights … combined with the legislative history of the Florida Guardianship Laws, demonstrates the Legislature’s consistent efforts to uphold incapacitated persons’ rights to the greatest extent possible. Therefore, the Legislature likely did not intend for section 744.3215(2)(a) to render a ward’s unapproved marriage absolutely void, particularly in cases such as this, where the ward was not deemed incapacitated with respect to his right to marry, the parties were engaged prior to his incapacitation, the guardian was asked twice to obtain the court’s approval, and there is no evidence whatsoever of abuse or financial exploitation.

Similarly, to interpret section 744.3215(2)(a) as rendering a ward’s unapproved marriage merely voidable would undermine the Legislature’s efforts to safeguard a ward’s inalienable right “to be protected against abuse, neglect, and exploitation.” § 744.3215(1)(d), Fla. Stat. As previously discussed, if a ward whose right to contract has been removed enters into a marriage without obtaining court approval, and such a union is considered voidable, the effect is that the marriage is essentially valid “for every purpose” unless and until it is challenged in a direct proceeding during the ward’s lifetime. This affords the ward and the ward’s estate little, if any, protection from financial exploitation if the ward passes away before the validity of the marriage can be challenged.

The interpretation of section 744.3215(2)(a) the Legislature likely intended—that, absent court approval, a marriage entered into by a ward whose right to contract has been removed is invalid, but ratifiable—advances both objectives of the Florida Guardianship Laws. It protects the ward and the ward’s estate by allowing a court to assess the risk of abuse and exploitation before the alleged spouse acquires any rights as a result of the marriage. It also upholds the ward’s fundamental right to marry to the greatest extent possible by allowing for the possibility of ratification.

…

Based upon the foregoing, we answer the certified question by holding that a ward’s failure to obtain court approval prior to exercising the right to marry does not render the marriage void or voidable. Instead, we conclude that under section 744.3215(2)(a), court approval is required before a ward whose right to contract has been removed may enter a valid marriage. Any marriage entered into without court approval is invalid. However, the statute does not prevent the ward or the intended spouse from seeking court approval after marrying in order to ratify the marriage. Accordingly, we quash the decision of the Fourth District and remand to the district court for proceedings consistent with this opinion.

If you’re a working probate attorney, elective share claims loom large in your practice. Which means anytime the thicket of interconnected and complicated statutes making up this body of law gets changed, it’s worth paying attention to. And recently there’s been an uptick in activity on the legislative front.

In 2016 our legislature amended F.S. 732.201 to make explicit what most of us had assumed was always the case: elective share claims set a floor — not a ceiling — on the amount of assets a surviving spouse is entitled to from an estate (see here).

This year a much broader package of reforms was introduced via Senate Bill 724. For those of us in the trenches, a good first start in terms of making sense of how these changes will actually impact our day-to-day practice is the bill’s Legislative Staff Analysis, which I’ve summarized below. All of these changes took effect on July 1, 2017.

[1] Homestead is Now Included in the Elective Estate:

This is a big deal. Previously, homestead property was specifically excluded from the elective estate. Now, homestead property is expressly included in the elective estate (F.S. 732.2035(2)), unless the surviving spouse has waived his or her homestead rights (F.S. 732.2045(1)(i)). If the homestead passes to the surviving spouse in fee simple, it’s valued at its fair market value on the date of the decedent’s death, but if the surviving spouse takes a life estate or an undivided one-half interest in the homestead, it’s valued at one-half of its fair market value on the decedent’s death date (see F.S. 732.2055(1) and 732.2095(2)).

[2] Extension of Time to File:

This change will make life easier for claimants. In order to exercise the option to take the elective share, a surviving spouse must file his or her election by the earlier of 6 months after the date the surviving spouse is served with the estate’s Letters of Administration, or 2 years after the death of the surviving spouse (F.S. 732.2135(1)). Previously, if you wanted to ask for an extension to file your claim, you had to do that before your original filing deadline. That’s changed. Now you can file for an extension up to 40 days after your original filing deadline (F.S. 732.2135(2)).

[3] Elective Share Trusts and the “Unproductive Property” Trap:

If done properly, an “elective share trust” allows a person to satisfy his or her surviving spouse’s elective share rights, while still retaining the right to say what happens to the elective-share assets when the surviving spouse dies. This planning device can be especially useful where a person wants to provide for a second wife or husband, but make sure the family assets go back to his or her children from a prior marriage when the surviving spouse dies. Given the natural tensions inherent to all blended families, it’s not uncommon for these trusts to end up getting litigated.

Drafting an enforceable elective share trust can be technically challenging. For example, in order to qualify as an elective share trust, the trust agreement must provide the surviving spouse with the ability to convert unproductive trust assets into productive assets (e.g., compel the trustee to sell a vacant lot that’s producing no income). Previously, if you left that clause out you could end up in court (see here). Not any more. Revised F.S. 738.606 will now “save” your trust by adding that clause statutorily if it got left out in the drafting process. This is a welcomed change.

[4] Attorney’s Fees and Costs:

It kills me when unscrupulous litigants use the threat of catastrophic legal fees to brow beat adversaries into accepting legally baseless claims. Little by little this threat is getting chipped away in the trusts and estates context by giving our court’s expanded cost-shifting powers (see F.S. 733.106(4) and F.S. 736.1005(2)). And now those expanded powers have come to elective share litigation.

Previously, if a court concluded an election was made or pursued in bad faith, the court could assess attorney’s fees and costs against the surviving spouse or the surviving spouse’s estate. Bad faith is a high standard to meet — so it’s gone! Under new F.S. 732.2151, a probate judge’s cost-shifting authority’s been significantly expanded to the much more generous “as chancery requires” standard. “The well settled rule in chancery cases is that a court of equity may, as justice requires, order that costs follow the result of the suit, apportion the costs between the parties, or require all costs be paid by the prevailing party.” Estate of Brock, 695 So.2d 714, 716 (Fla. 1st DCA 1996).

The new statute also addresses the mechanics of fee shifting in the probate context, authorizing a court to do one or more of the following:

  • Direct payment from the estate;
  • Direct payment from a party’s interest in the elective share or the elective estate; or
  • Enter a judgment that can be satisfied from other property of a party.

And last but not least, if the personal representative fails to file a petition to determine the amount of the elective share, as required by the Probate Rules, the surviving spouse can get paid from the estate for doing that job.

[5] Contribution to the Elective Share:

Ideally, you want to make sure no one gets anything until you’ve calculated how much the elective share is going to be. Bringing assets back into the estate is never easy, but sometimes it’s unavoidable. Beneficiaries who have received a distribution of property that is included in the elective estate, as well as “direct recipients” (F.S. 732.2025(1)), must give those assets back (i.e., “contribute”) to the extent necessary to satisfy an elective share shortfall (F.S. 732.2085(1)).

Those who owe a contribution must, as a general matter, pay interest on the contribution at the statutory interest rate. This interest starts accruing 90 days after the contribution order under current law. But what if there’s no contribution order? The statute’s been amended so that interest begins accruing on any amount of the elective share not satisfied within 2 years of the date of the decedent’s death, regardless of whether an order of contribution was entered (F.S. 732.2145(1)).

But wait, there’s more!

Elective share claims can be among the most technically challenging matters any probate lawyer ever has to contend with. So anytime that body of law changes, you’ll want to draw on as much professional commentary as possible to figure out all the implications. Which brings me to an excellent Florida Bar Journal article I’d recommend entitled Recent Amendments Bring Important Changes to Florida’s Elective Share, by Lauren Y. Detzel and Brian M. Malec. Here’s an excerpt:

The amendments made to Florida’s elective share laws during the 2016 and 2017 legislative sessions should be welcome news to surviving spouses. The protections enacted, including the opportunity for surviving spouses to obtain attorneys’ fees and costs in litigation and their entitlement to interest on delayed elective share payments, further Florida’s public policy and remove the inequities that disadvantaged surviving spouses in elective share litigation under prior law. Given the importance of the elective share, however, do not be surprised if additional legislative proposals are made to continue refining perceived injustices in the current regime.

Flinn v. Doty, — So.3d —-, 2017 WL 923508 (Fla. 4th DCA March 8, 2017)

If you’re trying to collect on a judgment by going after homestead property, one of the few theories of recovery available to you is Florida’s “equitable lien” doctrine, which allows you to foreclose on the debtor’s homestead property if: [1] the money you’re chasing was obtained fraudulently or through egregious conduct, and [2] those same dollars were used to invest in, purchase or improve the targeted homestead property (see here, here, here).

But is that the only equitable arrow we have in our homestead-busting quiver? NO.

Florida’s “equitable subrogation” doctrine:

Another line of attack to consider when targeting homestead property is Florida’s “equitable subrogation” doctrine, which is triggered when a debtor’s “unjustly enriched” by wrongfully taking your client’s money (or property) and using those same dollars to pay off a pre-existing mortgage on the targeted homestead property. A key aspect of this homestead-piercing theory is that it doesn’t require a finding of egregious conduct by the defendant, all you need to prove is unjust enrichment. That’s a big deal.

But you won’t understand this strategy if you don’t have a clear understanding of its operative terms, which are thoughtfully explained in Piercing The Homestead Veil, a must-read for any litigator trying to make sense of the 4th DCA’s Flinn opinion and its progenitor, Palm Beach Savings & Loan Ass’n v. Fishbein, 619 So.2d 267, 270 (Fla. 1993). Here’s an excerpt:

“Subrogation means to put one party in the shoes of another, so equitable subrogation is ‘subrogation that arises by operation of law or by implication in equity to prevent fraud or injustice.’ In real property litigation, it is often used as a remedy that puts a wronged party in the shoes of a pre-existing lienholder. In a sense, this kind of subrogation is not the imposition of a new lien, but merely a shifting of power to enforce a lien from one party to another. . . . Unjust enrichment is a claim that the plaintiff conferred a benefit on the defendant that was knowingly accepted or retained by the defendant, and it would be unjust for the defendant to retain the benefit without paying the plaintiff the fair value of it.”

According to the Piercing authors, equitable subrogation’s at the heart of the Flinn case, but you wouldn’t know it from reading the 4th DCA’s opinion.

Case Study: Is “unjust enrichment” enough to pierce Florida’s homestead shield? YES

This case involves a family dispute over several properties deeded by a father to one of his children (a daughter). Daughter sold the properties and used $206,000 of the sales proceeds to pay off a pre-existing mortgage on her home and kept the remaining $185,000 for herself. The property transfers were challenged by her siblings, who claimed that dad lacked the capacity to execute the deeds and that he’d been the victim of daughter’s undue influence. The trial court ruled in favor of the challengers on the lack-of-capacity count, but not the undue-influence count.

The trial court then imposed two equitable liens on the defendant’s homestead property, one for return of the $206,000 she used to pay off her mortgage, and the second for $185,000 to collect on the remaining sales-proceeds funds. There was no finding of egregious conduct.

Defendant cried foul, arguing her homestead property is creditor protected and in the absence of an egregious-conduct finding, the equitable-lien exception doesn’t apply. On appeal the 4th DCA said YES to the first lien and NO to the second. Here’s why:

Applying [Palm Beach Savings & Loan Ass’n v. Fishbein, 619 So.2d 267, 270 (Fla. 1993)] to this case, the court did not err in foreclosing on the equitable lien of $206,000 because it was imposed to prevent unjust enrichment by appellant, who used the proceeds of the sale of her parents’ property to pay off her pre-existing mortgage on her home. While appellant contends that there still must be a showing of egregious conduct on her part, Fishbein clearly rejects such a finding. Unjust enrichment is sufficient in these circumstances to permit an equitable lien against a homestead.

The court did err, however, in including the $185,000 lien as part of the foreclosure proceeding. First, the complaint did not seek to impose that lien against appellant’s home. It only alleged that it was entitled to enforce the $206,000 lien. Second, the $185,000 lien did not satisfy any pre-existing obligations on the home. In fact, it appears to be unrelated to the home. Therefore, it could not be imposed under Fishbein.

Piercing The Homestead Veil, by Michael V. Hargett and T. Bradford Petrino:

You can’t really “see” something if you don’t have a word to describe what it is you’re looking at. For example, the ancient Greeks couldn’t see the color blue because they didn’t have a word for that color (see here). Same goes for lawyers, we can’t really understand (“see”) what our appellate courts are doing if they (and we) don’t use the right operative terms to describe the legal remedies they’re actually applying (vs. what they “say” they’re doing).

And according to the authors of Piercing The Homestead Veil, that’s exactly what’s been going on with Florida’s “equitable subrogation” doctrine as applied to homestead property, starting with the Florida supreme court’s 1993 opinion in Fishbein, and continuing 24 years later with the 4th DCA’s Flinn opinion (which is based entirely on Fishbein). In both cases the appellate courts described what they were doing as imposing equitable liens, but a careful examination of the facts of each case and the remedies actually granted by each respective court reveals that what they were in fact doing was granting equitable subrogation. Here’s how the Piercing authors deconstruct Fishbein:

“[O]n appeal to the supreme court, Palm Beach S&L didn’t argue that it was entitled to a constitutional exception, it argued because its loan proceeds were used to satisfy the prior liens, it stands in the shoes of the prior lienors under the doctrine of equitable subrogation.’ And so the Supreme Court reversed the Fourth DCA and allowed the equitable lien, but it never expressly declared that subrogation is how it got there—instead the Court based its conclusion on three points which we must piece together on our own: $930,000 of the $1.2 million mortgage was used directly to pay o liens on the homestead, Palm Beach S&L was entitled to a $930,000 equitable lien on the homestead—but not more than the amount used to benefit the homestead—and ‘Mrs. Fishbein stands in no worse position than she stood in before the execution of the [fraudulent] mortgage . . . .’

This remedy was subrogation in all but name. We conclude that Fishbein supports equitable subrogation as a remedy that pierces—or perhaps more aptly, bypasses—the homestead protection without a requirement that the party claiming the homestead exemption committed fraud or egregious conduct. Of course, the same essential conditions in Fishbein must be met: circumstances that support an equitable remedy in the first place, such as unjust enrichment, and direct application of wrongfully acquired funds to satisfy a pre- existing valid lien against the homestead.”

And here’s how the Piercing authors deconstruct the 4th DCA’s Flinn opinion as viewed through the equitable-subrogation prism:

“The court stated that it granted an equitable lien. However, the facts and remedy suggest that the doctrine of equitable subrogation was employed by the court because there was a prior lien on Ms. Flinn’s homestead, and the court limited the remedy to the amount of the prior lien. . . . Therefore, Flinn v. Doty was decided under the doctrine of equitable subrogation and resulted in the Doty estate stepping into the shoes of Flinn’s prior lienholder. The resulting $206,000 lien fell within a voluntary exception to the homestead exemption and passed constitutional muster.”

So what’s the takeaway?

We can’t do our jobs as attorneys if we can’t predict with some degree of certainty what a court’s likely to do when faced with a creditor claim involving homestead property. And it’s impossible to do that if you can’t fit the various strands of Florida’s large and unruly body of homestead law into coherent frameworks that can be logically applied to particular categories of facts. Step one in that process is making sure you’re using the right operative terms to understand the remedies courts are willing to apply in the homestead context. Fortunately, that’s exactly what the Piercing authors have done for us in their insightful and scholarly analysis of 4th DCA’s Flinn opinion.  Great stuff, a worthy addition to any litigator’s toolbox.

Dingle v. Dellinger, 134 So.3d 484 (Fla. 5th DCA February 7, 2014)

There’s nothing like the threat of a malpractice suit to focus the mind. And in the trusts-and-estates context this risk is exponentially greater for all sorts of reasons, including the fact that you can get sued by lots of people who were never even your clients.

The general trend in Florida is that a third-party beneficiary of your legal services can sue you for malpractice — and it doesn’t matter that the third party was never your client and had zero privity of contract with you. Examples of this trend include cases in which the beneficiaries of a deceased ward’s estate had standing to sue the guardian’s lawyers for malpractice (see here), estate beneficiaries had standing to sue a decedent’s estate planning attorneys for malpractice (see here), a successor personal representative had standing to sue his predecessor’s attorney for malpractice (see here), and an elderly man who had been improperly subjected to a guardianship proceeding had standing to sue the attorney for his former court-appointed guardian for malpractice (see here). This case is yet another example of that trend.

Case Study:

In this case a man hired a lawyer to draft a quitclaim deed that would gift certain real estate titled in the name of a corporation that he was the sole owner of. The client died a few months after the deed was recorded. The client’s surviving spouse then challenged the validity of the deed her husband had executed, ultimately winning that case (and thus presumably getting to keep the contested property for herself). For more on that backstory, see Dingle v. Prikhdina, 59 So.3d 326 (Fla. 5th DCA 2011).

The intended third-party beneficiaries of the now invalidated deed sued the drafting attorney for malpractice. The attorney filed a motion to dismiss, arguing that because the plaintiffs were never her clients they couldn’t sue her. The trial judge agreed and dismissed the case.

Not so fast said the 5th DCA. The rule in Florida is that the third-party beneficiaries of your legal services can sue you for malpractice, even if they were never your clients and had zero privity of contract with you.

If the parties are not in privity, to bring a legal malpractice action, the plaintiff must be an intended third-party beneficiary of the lawyer’s services. See Espinosa, 612 So.2d at 1380. To assert a third-party beneficiary claim, the complaint must allege: (1) a contract; (2) an intent that the contract primarily and directly benefit the third party; (3) breach of the contract; and (4) resulting damages to the third party.[FN1] See, e.g., Caretta Trucking, Inc. v. Cheoy Lee Shipyards, Ltd., 647 So.2d 1028, 1031 (Fla. 4th DCA 1994). A party is an intended beneficiary only if the parties to the contract clearly express, or the contract itself expresses, an intent to primarily and directly benefit the third party or a class of persons to which that party claims to belong. See id.; see also Jenne v. Church & Tower, Inc., 814 So.2d 522, 524 (Fla. 4th DCA 2002) (explaining that courts look to nature or terms of contract to find parties’ clear or manifest intent that it is for third party’s benefit). Thus, it is not necessary that the third-party beneficiary is named in the contract. See Fla. Power & Light Co. v. Mid–Valley, Inc., 763 F.2d 1316, 1321 (11th Cir.1985). Rather, the parties’ pre- or post-contract actions may establish their intent. Id.

[FN1] Although an intended third-party beneficiary may maintain a legal malpractice action in theories of either tort (negligence) or contract (third-party beneficiary), the contractual theory is conceptually superfluous because the crux of the action must lie in tort as there can be no recovery without negligence. McAbee v. Edwards, 340 So.2d 1167, 1169 (Fla. 4th DCA 1976).

What if it’s a two-sided deal?

The lawyer-defendant argued the deed she drafted was a two-sided real estate transaction, which meant she couldn’t ethically represent both sides of the same deal, which meant she couldn’t be sued by the other side either. Here’s how that argument was made:

[Lawyer] insists that she did not have a duty of care to the [plaintiffs] because the requirement of privity in attorney malpractice actions has only been relaxed where there is only one “side” to a transaction (e.g., wills, trusts, estate planning and adoptions), and this case involved a two-sided real estate transaction. Thus, [lawyer] contends that because she was employed by [the party executing the deed], she could not ethically represent the [plaintiffs’] interests or be held responsible to them.

. . . Courts usually reject the contention that the attorney for a seller, buyer, lender, or mortgagor owed a duty to another party. Thus, as a general rule, when a transaction involves two interests to be protected, an attorney employed by one of the parties to the transaction cannot be held responsible to other parties unless it is alleged and proved that the attorney committed some nonnegligent tort such as fraud or theft. See, e.g., Adams v. Chenowith, 349 So.2d 230, 231 (Fla. 4th DCA 1977).

This defense works . . . unless the entire purpose of the deal was to benefit the non-clients. In those cases lawyers can still be sued, even if the deal is usually considered a two-sided transaction. So saith the 5th DCA:

This case involved a real estate transaction, typically a two-sided transaction. However, here, based on the allegations contained in the complaint, there was no adversarial relationship or differing interests to be protected, as the [plaintiffs’] interests were not in conflict with [the client’s interests], thus suggesting a one-sided transaction. See generally Freedom Mortg. Corp. v. Burnham Mortg., Inc., 720 F.Supp.2d 978 (N.D.Ill.2010) (holding that mortgage lender sufficiently pled that primary purpose and intent of attorney’s representation of mortgage broker and title insurer were to influence lender, giving rise to duty of care running from attorney to lender, as third-party beneficiary of attorney-client relationship; although broker and title insurer hired attorney as closing agent presumably to act in their best interests, attorney’s work was nonadversarial as to lender in sense that attorney’s services as closing agent were typically relied upon by all parties to real estate transaction); Kirby v. Chester, 174 Ga.App. 881, 331 S.E.2d 915 (1985) (concluding that closing attorney owed duty to nonclient lender that relied on attorney’s title certification to loan money); Flaherty v. Weinberg, 303 Md. 116, 492 A.2d 618, 629–30 (1985) (determining that unrepresented mortgagor-buyer’s complaint, which alleged that mortgagee-lender retained attorney to intentionally benefit both parties, who had identical interests in the property, alleged sufficient facts to survive dismissal); 4 Legal Malpractice § 34:4 (2013 ed.) (“The rule of privity of contract prevails where a nonclient sues the attorney for errors in handling a transfer of property interests, in creating a security interest, searching title or representing a client in the transaction, who is sued by another party to the transaction.”) (collecting cases); see also Jimerson v. First Am. Title Ins. Co., 989 P.2d 258, 261 (Colo.App.1999) (explaining that professional supplier of information may be liable for its negligence to person with whom it has no contractual relationship, providing that supplier of information knows that recipient of information will provide it to that person or knows that information is to be used to influence transaction); Stuart v. Freiberg, 142 Conn.App. 684, 69 A.3d 320 (2013) (holding that genuine issue of material fact existed as to whether estate beneficiaries were intended beneficiaries of accountant’s work for estate executor, and therefore, whether accountant owed them duty of care, precluded summary judgment in professional malpractice claim against accountant).

Note to readers:

The linked-to opinion was published in 2014. I try to report on cases as they’re published. I don’t always succeed. This blog post is part of an ongoing project to report on older cases I wasn’t able to get to previously.

Cohen v. Shushan, et al., — So.3d —-, 2017 WL 1018422 (Fla. 2d DCA March 15, 2017)

A person’s “status” as a surviving spouse triggers all sorts of valuable inheritance rights under Florida law, including entitlement to inheritance by intestacy (see here); elective share, family allowance, homestead and exempt property rights; inheritance as a pretermitted spouse; and preference in appointment as personal representative. Not surprisingly, whether or not a decedent was validly married is often the central question in a contested estate.

If the couple was allegedly married in Florida, figuring out their marital status is easy. We legislatively abolished common-law marriage in this state half a century ago (see F.S. 741.211), so whether you’re married or not isn’t a facts and circumstances kind of question. If you don’t have a marriage license, you’re not married, end of story (see here).

But what if the couple was allegedly married in some other part of the globe that recognizes various forms of civil unions? In those cases whether or not they were married will turn on the law of the foreign jurisdiction. Here’s how the 2d DCA summarized this point.

“Florida has traditionally approved of the sanctity of marriage, and the act of marriage, regardless of where it is contracted.” Johnson v. Lincoln Square Props., Inc., 571 So.2d 541, 542 (Fla. 2d DCA 1990). Thus, “[u]nder principles of comity a marriage by citizens of a foreign country, if valid under foreign law, may be treated as valid in Florida ….” Montano v. Montano, 520 So.2d 52, 52–53 (Fla. 3d DCA 1988). Conversely, if a purported marital relationship in a foreign jurisdiction would be deemed invalid in that jurisdiction, it must be deemed invalid here. See, e.g., Betemariam v. Said, 48 So.3d 121, 125 (Fla. 4th DCA 2010) (holding that because the Commonwealth of Virginia mandated a marriage license as a condition of marriage, and the litigants had never obtained such a license, “[t]he trial court had no choice but to determine that no legal marriage had occurred”); Farah v. Farah, 16 Va.App. 329, 429 S.E.2d 626, 629 (1993) (“A marriage that is void where it was celebrated is void everywhere.” (citing Spradlin v. State Comp. Comm’r, 145 W.Va. 202, 113 S.E.2d 832, 834 (1960))). We must look, then, to the evidence presented below as to whether reputed spouses are considered married under Israeli law.

What about the in-between cases?

In Florida, whether or not you’re married is a yes or no question; either you are or you’re not. We don’t do in-between. In much of the world a person’s marital status isn’t anywhere near as cut and dry. For example, in some parts of the world living together in a committed relationship can trigger property rights that are the functional equivalent of a common-law marriage, while never bestowing the status of being “married” on the couple. Does that distinction matter? That’s the question at the heart of this case.

“Reputed” spouses under Israeli law:

Marriages in Israel are performed only through religious institutions. Jewish couples must marry through the Chief Rabbinate, whereas Catholics, Druze and Muslims all marry through their own state-sanctioned and publicly funded religious legal systems. Bottom line, any couple whose marriage is not in keeping with the religious law of their respective religions, or who belong to a religious tradition that does not have its own state hierarchy, simply falls outside the boundaries of marriages recognized by the Israeli state.

For these reasons many Israeli couples have opted to cohabitate and establish families without going through the process of obtaining religious marriages. These couples are referred to as yedu’im be-tzibur (ידועים בציבור‎), translated literally as a couple “known in the public,” but also referred to as “reputed spouses” (that’s the term used by the 2d DCA), and they’re entitled to all of the property rights we in the U.S. would normally associate with a common-law marriage, but they don’t have the legal status of being married. Here’s how the 2d DCA summarized this point:

While Israel has . . . established the reputed spouse relationship as something of an alternative to marriage, and indeed, has conferred a broad array of rights to reputed spouse couples that . . . are “equal” to marriage, Israeli law has purposely kept the status of these two relationships separate. Reputed spouses are not married spouses under Israeli law.

OK, so we get the distinction: reputed spouses aren’t married under Israeli law. But here’s the kicker: under Israeli law they are entitled to inheritance rights, just like married couples, a key point made by the dissent in this case:

[T]he rights of reputed spouses are nearly identical to the rights of formally married people in Israel. One of those rights of reputed spouses is entitlement to an inheritance, as evidenced by the Israeli inheritance order contained in the record.

If a “reputed” spouse is entitled to inheritance rights under Israeli law, what does she get in Florida?

So if foreign law says a couple isn’t married, but the survivor’s still entitled to inheritance rights equivalent to those of a surviving spouse, what does he or she get in Florida? Nothing. Why? Because a person’s “status” as a spouse really matters. In Florida, we don’t do in-between; either you’re married or you’re not. And if you’re not married you don’t get spousal inheritance rights, so saith the 2d DCA:

[M]arriage, under the law, is not simply a bundle of rights and privileges; it is also a status. While we sense from the case before us that the line, as it were, between the statuses of reputed spouses and married couples in Israel has drawn closer over time, perhaps to a point of near proximity, even near equivalency, nevertheless, as both of the experts who testified before the probate court concluded, that line remains firmly entrenched. For better or for worse, under Israeli law marriage is a different legal relationship than a reputed spouse relationship. To borrow from another ceremonious phrase, the two have not become one. Were we to hold otherwise and approximate a reputed spouse relationship as “close enough” for purposes of marriage, our court would simultaneously diminish, if only imperceptibly, the uniqueness of the marital status in the affairs of society and do offense to a sovereign nation’s authority to define, for itself, the precise boundaries of marriage within its own jurisdiction. Cf. Johnson, 571 So.2d at 542; Montano, 520 So.2d at 52–53; Betemariam, 48 So.3d at 125; Farah, 429 S.E.2d at 629. We cannot affirm such a construction of the law.

The dissent charges that this view of Israeli law amounts to a “myopic focus on the technical status of marriage.” True enough.[FN8] Comity requires us to look, closely and carefully, at a foreign nation’s law in this case, not blur its distinctions. Our decision upholds a fine—but very clear—distinction that has been set within Israel’s marital law, one we must maintain out of respect to Israel’s law-making authority. Because Ms. Shushan and the late Mr. Cohen’s legal union was not entered into through any recognized religious authority, they were not married under Israeli law. Ms. Shushan, therefore, could not be a surviving spouse of Mr. Cohen under section 732.102. Accordingly, we reverse the probate court’s order and remand this case for further proceedings consistent with this opinion.

[FN8] Although we might quibble with the implication in our colleague’s choice of adjective that one lawful marriage might merely be “technical,” as opposed to another that would, presumably, hold more genuine legal significance. Under the law, one is either married, or one is not.

scott-rick-signingI previously reported here on the “Florida Electronic Wills Act”. The legislature passed this bill back in May over strong opposition from the Real Property, Probate and Trust Law Section of The Florida Bar. For the public policy arguments for and against the bill, see here and here.

Proving once again that in politics, as in baseball, “it ain’t over till it’s over,” Gov. Rick Scott just vetoed the Electronic Wills Act, even though it was enacted by the Florida senate on a 34-0 vote.

What’s interesting about this process is that the governor doesn’t just issue a veto and leave it at that; he publishes a letter explaining the reasons for his veto. If you’re a trusts and estates lawyer, no matter what your views may have been on the wisdom of this legislation, you’ll find the governor’s veto letter interesting reading. Here’s an excerpt:

The bill creates the “Florida Electronic Wills Act” which authorizes the creation of electronic wills, and provides that the execution of electronic wills may be witnessed and notarized through the use of remote technology. The bill also specifies that electronic wills of residents and nonresidents may be probated in Florida.

This bill has generated much debate among stakeholders who seek to find the right balance between providing safeguards to protect the will-making process from exploitation and fraud while also incorporating technological options that make wills financially accessible to a greater number of Florida’s citizens. While the idea of electronic wills is innovative and may transform estate planning for Floridians, I believe this bill fails to strike the proper balance between competing concerns.

As Governor, I oversee the appointment of notaries public in the State of Florida and have a responsibility to ensure that notaries safeguard the most vulnerable Floridians against fraud and exploitation. While the concept of remote notarization is meant to provide increased access to legal services like estate planning, the remote notarization provisions in the bill do not adequately ensure authentication of the identity of the parties to the transaction and are not cohesive with the notary provisions set forth in Chapter 117, Florida Statutes.

Furthermore, providing an additional Florida venue for the probate of nonresident wills based only upon the qualified custodian’s location in this state could burden Florida’s court system with the probate of estates that may have no Florida nexus other than that the wills were created and stored here. Additionally, if the state where the decedent is domiciled does not recognize electronic wills as a valid declaration of intent, the individual could be left intestate.

Furthermore, I have concerns with the delayed implementation of the remote witnessing, remote notarization, and nonresident venue provisions of this bill. The Legislature delayed these provisions to April 1, 2018, in order to address “substantive changes and outstanding questions” during the next legislative session. Rather than sign an imperfect bill into law, I encourage the Legislature to continue to work on answering these outstanding questions and address the issues comprehensively during the next legislative session.

For the reasons stated above, I withhold my approval of . . . House Bill 277 and do hereby veto the same.

 

If you make your living in and around our probate courts you’ll find the FY 2015-16 Probate Court Statistical Reference Guide interesting reading. The chart below provides the “cases filed” data for three of our largest circuits/counties: Miami-Dade (11th Cir), Broward (17th Cir), and Palm Beach (15th Cir). For prior years see (2014-15), (2013-14), (2012-13), (2011-12).

And as a rough measure of the crushing case load your average big-city probate judge is saddled with in Florida, I took the total filing figures for Miami-Dade (11th Cir), Broward (17th Cir), and Palm Beach (15th Cir) and divided them by the number of probate judges serving in each of those counties. (In Palm Beach County there are 6 part time probate judges and 1 full time probate judge; for purposes of my chart I count them as 4 full time probate judges.)

So what’s it all mean?

In Miami-Dade – on average – each probate judge took on 3,070 NEW cases in FY 2015-16, in Broward the figure was slightly lower at 2,866/judge, with Palm Beach scoring the lowest at 2,108/judge (almost 1,000 fewer cases per judge than Miami-Dade!). Keep in mind these figures don’t take into account each judge’s EXISTING case load or other administrative duties. These stat’s may be appropriate for uncontested proceedings, which represent the vast majority of the matters handled by a typical probate judge, but when it comes to that small % of estates that are litigated, these same case-load numbers (confirmed by personal experience) make two points glaringly clear to me:

[1]  We aren’t doing our jobs as planners if we don’t anticipate — and plan accordingly for — the structural limitations inherent to an overworked and underfunded state court system. As I’ve previously written here, one important aspect of that kind of planning should be “privatizing” the dispute resolution process to the maximum extent possible by including mandatory arbitration clauses in all our wills and trusts. Arbitration may not be perfect, but at least you get some say in who’s going to decide your case and what his or her minimum qualifications need to be. And in the arbitration process (which is privately funded) you also have a fighting chance of getting your arbitrator to actually read your briefs and invest the time and mental focus needed to thoughtfully evaluate the complex tax, state law and family dynamics underlying these cases (a luxury that’s all but impossible in a state court system that forces our judges to juggle thousands of cases at a time with little or no support).

[2]  We aren’t doing our jobs as litigators if we don’t anticipate — and plan accordingly for — the “cold judge” factor I wrote about here; which needs to be weighed heavily every time you ask a court system designed to handle un-contested proceedings on a mass-production basis to adjudicate a complex trial or basically rule on any technically demanding issue or pre-trial motion of any significance that can’t be disposed of in the few minutes allotted to the average probate matter.

FY 2015-16 Probate Court Filing Statistics:

Type of Case Miami-Dade (11th Cir) Broward (17th Cir) Palm Beach (15th Cir)
Probate 4,147  3,720  4,873
Baker Act  4,895  3,175  1,813
Substance Abuse 823  874  714
Other Social Cases 1,408  351  257
Guardianship 934  450  522
Trust 73  29  254
Total 12,280  8,599  8,433
# Judges 4 3 4*
Total/Judge 3,070  2,866  2,108

*In Palm Beach County (15th Cir) there are 6 part time probate judges and 1 full time probate judge. For purposes of the chart I count them as 4 full time probate judges.

You’d be surprised how varied a probate judge’s docket is:

But numbers alone don’t tell the whole story. To understand the breadth of issues a typical probate judge contends with in an average year, you’ll want to read the official definition given for each of the categories listed in my chart by the Florida Office of the State Courts Administrator 2015-16 Glossary:

Probate:

All matters relating to the validity of wills and their execution; distribution, management, sale, transfer and accounting of estate property; and ancillary administration pursuant to Chapters 731, 732, 733, 734, and 735, F.S.

Baker Act (Mental Health Act):

All matters relating to the care and treatment of individuals with mental, emotional, and behavioral disorders pursuant to sections 394.463 and 394.467, F.S.

Substance Abuse Act (Marchman Act):

All matters related to the involuntary assessment/treatment of substance abuse pursuant to Sections 397.6811 and 397.693, F.S.

Other Social Cases (Probate):

All other matters involving involuntary commitment not included under the Baker and Substance Abuse Act categories. All matters involving the following, but not limited to:

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

Guardianship (Adult or Minor):

All matters relating to determination of status; contracts and conveyances of incompetents; maintenance custody of wards and their property interests; control and restoration of rights; appointment and removal of guardians pursuant to Chapter 744, F.S.; appointment of guardian advocates for individuals with developmental disabilities pursuant to section 393.12, F.S.; and actions to remove the disabilities of non-age minors pursuant to sections 743.08 and 743.09, F.S.

Trusts:

All matters relating to the right of property, real or personal, held by one party for the benefit of another pursuant to Chapter 736, F.S.

Delbrouck v. Eberling, — So.3d —-, 2015 WL 5948724 (Fla. 4th DCA October 14, 2015)

Real-Estate-LawContested probate proceedings often revolve around conflicting claims to specific property that’s titled in the decedent’s name but claimed by someone else.

If the dispute revolves around the decedent’s homestead property (a common scenario), we’ve developed a good amount of law over the years to guide us in how those cases should be handled. Basically, when it comes to homestead (“the” classic non-probate asset), who gets what is not a probate matter, it needs to be litigated in a separate civil action (see here); and the estate has no business using estate funds to litigate those disputes (see here).

On the other hand, if the property at issue was not the decedent’s homestead property, there’s a lot less guidance on how those claims should be handled by our probate judges, which is why the linked-to case above should be of interest to working probate lawyers.

So who gets to occupy the decedent’s contested real estate?

This case involved the estate of Leon Delbrouck, originally from Belgium, who lived in Ft. Lauderdale since 1966 and owned a successful auto repair business (see here). At the time of Delbrouck’s death one of his sons occupied several parcels of real property that were titled in his father’s name, including a residence and the business. According to son, he and his father had operated the business together since 1977, and he continued to operate it after his father retired. This son claimed a constructive trust in the property, which the estate contested.

Am I entitled to an evidentiary hearing?

Son claimed he was entitled to continue occupying the contested property (and running the business) pending the outcome of his constructive-trust action. In support of his argument son pointed to F.S. 733.607(1), which provides in relevant part as follows:

[A]ny real property or tangible personal property may be left with, or surrendered to, the person presumptively entitled to it unless possession of the property by the personal representative will be necessary for purposes of administration.

The PR countered by arguing that anytime the estate wants to take possession of property titled in the decedent’s name all it has to do is say so, and that’s “conclusive evidence” of its right to possession; end of story, no questions asked. In support of its argument the PR also quoted F.S. 733.607(1), but relied on an alternate sentence, which provides as follows:

The request by a personal representative for delivery of any property possessed by a beneficiary is conclusive evidence that the possession of the property by the personal representative is necessary for the purposes of administration, in any action against the beneficiary for possession of it.

If the PR’s argument holds, then who needs courts? That’s not how we adjudicate property disputes, not even in the alternate universe probate proceedings sometimes occupy. So saith the 4th DCA:

The emphasized language establishes that a PR’s need for the property requested for administration of the estate cannot be contested. We do not construe the statute to mean a personal representative’s right to possession or ownership after a decedent’s death cannot be contested in a probate proceeding. The very fact that the statute speaks of “conclusive evidence” implies that an evidentiary hearing may be required when the right to possession of a decedent’s property is genuinely disputed. If ownership of an asset can be contested during probate, it cannot be the case that a personal representative’s assertion of the right to possession can never be challenged. [FN2]

[FN2] Apart from a claim of ownership, a right of possession can arise under other circumstances; for example, a tenancy under a lease.

. . . We agree with the appellant that section 733.607 does not eliminate the need to take evidence where a colorable factual issue exists over the right to possession of property, even if titled in the name of the decedent.

So what’s a judge to do?

If there’s a dispute over who gets to keep certain property owned by the decedent pending the outcome of related litigation, the 4th DCA concluded probate courts should adopt the following procedure (which makes sense to me):

We conclude that, when property is titled in a decedent, but another claims a colorable right to possess the same property, the question of who should temporarily possess the property, pending final resolution of the claim of entitlement, is a factual question that should be resolved by a prompt preliminary evidentiary hearing.

This kind of common sense ruling interpreting a probate statute in a reasonable way, even if the specific text at issue could conceivable be read otherwise, carries a little more weight if appellate courts in other parts of the state have encountered similar situations and come to similar conclusions. Which is why the 4th DCA’s reliance on an analogous opinion by the 3d DCA is so helpful. If you find yourself in this situation it helps to be able to point to multiple appellate opinions standing for the same proposition. Here’s how the 4th DCA summarized its take (and reliance upon) the 3d DCA’s prior holding:

Swartz v. Russell, 481 So.2d 64 (Fla. 3d DCA 1985), is instructive. In Swartz, a decedent’s children and spouse were disputing ownership and possession of real property used in a restaurant business. Id. at 64–65. Because of the conflict and disputes, the administrator ad litem of the estate appointed by the court sought authorization to take possession of all real property, including the restaurant. Id. at 65. One of the sons objected, because he claimed that he had an oral agreement to purchase the business and property from his brother and mother, and he had an oral lease on the property. Id. The trial court ordered the administrator to take possession after a non-evidentiary hearing in which the court concluded that there were no factual issues as to the administrator’s right of possession. Id. The appellate court reversed, concluding that because there were factual disputes as to whether the oral agreements had been partially performed, and thus were enforceable, the probate court erred in ordering that the administrator take possession without affording an evidentiary hearing on the factual issues which would determine the right of possession. Id. at 66.

Note to readers:

The linked-to opinion was published in 2015. I try to report on cases as they’re published. I don’t always succeed. This blog post is part of an ongoing project to report on older cases I wasn’t able to get to previously.

Metaphors-make-your-pointPowers of appointment are the Swiss Army knife of modern estate planning. They’re deceptively simple yet adaptable to almost any planning contingency. And they’re ubiquitous, often incorporated into even the most basic trust agreements for all sorts of good reasons (see here). These clauses don’t get litigated all that often, but when they do, the stakes can be huge (see here).

Specific-reference requirement:

Because power-of-appointment clauses are so common and they’ve been around for so long, it’s easy to take the traditional drafting conventions for granted. For example, a standard power-of-appointment clause will almost always include some kind of “specific-reference” requirement. Here’s a typical example, which was quoted by the 1st DCA in Cessac v. Stevens, a 2013 power-of-appointment case I wrote about here.

Upon the death of my daughter, SALLY, the Trustees shall transfer and deliver the remaining principal of this share of the trust, together with any accumulated or undistributed income thereon to or for the benefit of such one or more persons, corporations or other organizations, in such amounts and subject to such trusts, terms and conditions as my daughter may, by her will, appoint, making specific reference to the power herein granted . . .

Not only is the specific-reference requirement included in most power-of-appointment clauses, it’s also baked into our probate code at F.S. 732.607, which provides as follows:

A general residuary clause in a will, or a will making general disposition of all the testator’s property, does not exercise a power of appointment held by the testator unless specific reference is made to the power or there is some other indication of intent to include the property subject to the power.

Ever wonder where the specific-reference requirement came from? If you see it everywhere, it’s safe to assume it didn’t just get there by accident. Well look no further. As explained in an excellent RPTE Law Journal article that was just published entitled Using Equity To Aid The Exercise Of A Power Of Appointment that Fails To Specifically Refer To The Power, this requirement was originally meant to address a specific estate tax issue — that ceased to exist over half a century ago!

Federal estate tax law prior to October 21, 1942, provided that the value of property subject to a general power of appointment was included in the donee’s gross estate for federal estate tax purposes only if the general power was exercised. Thus, to prevent inadvertent exercise of the general power and inclusion of the appointive property in the donee’s gross estate, a specific-reference clause was usually added to the provision granting the general power.

Concern over inadvertent exercise of a general power of appointment for estate tax purposes disappeared for general powers of appointment created after October 21, 1942. Section 2041 of the Internal Revenue Code of 1986, as amended (Code), provides that the value of property subject to a general power created after October 21, 1942, is included in the donee’s gross estate irrespective of whether the power is exercised. Thus, “inadvertent exercise of a general power created after October 21, 1942, no longer has adverse estate tax consequences.” See Restatement (Third) of Property § 19.10 cmt. d.

Equitable exception doctrine to the rescue:

A typical will or trust agreement is going to be chock full of archaic sounding clauses that may or may not continue to serve a useful purpose. These clauses are usually harmless, but sometimes they’re not. Making specific reference to a power-of-appointment clause may not sound like much of a burden, but you’d be surprised how often this gets mucked up by sloppy drafting.

Rather than hammer family members (and other favored classes of beneficiaries) for these drafting mistakes, the English courts of chancery developed the “equitable exception” doctrine, which salvages bad drafting as long as the defective will or trust is arguably somewhere close to the mark. The doctrine’s been applied in the U.S. (but not Florida), and is articulated in Restatement (First) of Property § 347 as follows:

Failure of an appointment to satisfy formal requirements imposed by the donor does not cause the appointment to be ineffective in equity if (a) the appointment approximates the manner of appointment prescribed by the donor; and (b) the appointee is a wife, child, adopted child or creditor of the donee, or a charity, or a person who has paid value for the appointment.

If you ever find yourself litigating a power-of-appointment clause — no matter what side of the case you’re on — you’ll want to be aware of this equitable rule and how it might impact your case. And to do that you’re going to want to read Using Equity To Aid The Exercise Of A Power Of Appointment that Fails To Specifically Refer To The Power. For example, here’s what the author had to say about the significance of the 1st DCA’s opinion in Cessac v. Stevens:

In summary, the Cessac decision is important on three fronts. First, the decision revealed the court’s willingness to move from case precedent requiring strict compliance with a specific-reference requirement to use of the equitable rule when facts and circumstances permit. Second, the decision highlighted the fact that to have substantial compliance under the equitable rule, the donee must execute a document containing at least a blanket-exercise clause. Third, the decision determined that a state statute corresponding to Uniform Probate Code section 2-610 [such as F.S. 732.607] does not apply when a power contains a specific-reference requirement.

The willingness of the Florida District Court of Appeals in Cessac to move from case precedent requiring strict compliance with a specific-reference requirement to possible use of the equitable rule appears to have been influenced by three factors. First, the court’s willingness to even consider use of the equitable rule reflects its role as a court of equity as well as a court of law. Second, the court recognized that each decision regarding the effectiveness of an exercise of a power should be limited to the facts and circumstances of each case because the court wanted to apply the equitable rule after recognizing under the facts there that “Ms. Cessac will not receive the assets the decedent [donee] apparently intended for her to receive,” but could not apply the rule because the donee’s will failed to even refer to the powers of appointment there. Third, the court cited with approval In re Passmore, where the Supreme Court of Pennsylvania was also willing to move from prior Pennsylvania case precedent requiring strict compliance with a specific-reference requirement to use of the equitable rule when facts and circumstances permit. . . .

Accordingly, the Cessac and Passmore decisions reveal that the equitable rule can be considered and applied by a state court even though precedent applicable to that court may advocate strict compliance with a specific-reference requirement.

Good stuff, well worth holding on to.

STEP-conference-2017I recently had the pleasure of speaking at the 2017 STEP Caribbean Conference. I co-presented with Cayman Islands trust litigator Rachael Reynolds. We had fun going through the practical “what ifs” a Caribbean trustee should consider if faced with the prospect of getting pulled into a Florida courtroom.

The Society of Trust and Estate Practitioners or “STEP” is a global organization of international trust and estate lawyers, bankers, accountants and other professionals that originated in the UK, which explains why STEP isn’t nearly as well known in the US as it should be. If your practice involves international trust and estate matters, you need to be in STEP (I’m a member of STEP’s Miami Branch).