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

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

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

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

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

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

····

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

(Emphasis added.)

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

Lesson learned:

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