Gossett v. Gossett, — So.3d —-, 2015 WL 8947627 (Fla. 4th DCA December 16, 2015)

As a general rule, a trust litigant can’t have it both ways: he can’t simultaneously benefit from and contest the validity of the same trust agreement. Which means that if a beneficiary wants to sue to invalidate a trust agreement, he first has to renounce his interest in the trust and give back any contested trust assets he’s previously received. Known as the “renunciation rule,” it’s an equitable doctrine I’ve written about before that’s premised on three underlying rationales. Renunciation:

  1. protects the trustee if the trust is invalidated,
  2. shows that the suit is sincere and not vexatious, and
  3. ensures the property is available for disposition and free from third-party claims.  Barnett Nat’l Bank of Jacksonville v. Murrey, 49 So.2d 535, 536–37 (Fla.1950).

But what if the same trust agreement’s been amended on multiple occasions (which often happens) and no matter what version finally gets upheld in court, your beneficiary client’s guaranteed a floor amount of the trust. Does this beneficiary have to renounce all his interest in the contested trust, or just the share that’s in dispute? That’s the question at the heart of this case.

The renunciation doctrine doesn’t force you to give back uncontested trust assets:

This case involves a trust agreement that had been amended five times. The 4th and 5th amendments included the settlor’s wife, the 3d cut her out. According to the 4th DCA:

At some point after executing the Third Amended Trust, the settlor filed for divorce from the surviving spouse, but was still married when he died. The settlor died from a stroke he suffered on the same day he and the surviving spouse were in a divorce settlement meeting.

Settlor’s son from a prior marriage challenged the 4th and 5th amendments to his dad’s trust. Wife shot back, contending son’s lawsuit was barred as a matter of law because he’d already accepted limited trust distributions, which he refused to give back. In his defense son argued he didn’t have to give the money back because “he was entitled to an equal or greater amount under each of the Amended Trusts.” This was the same argument that won the day in the Fintak case, which I wrote about here. Apparently unswayed by the 2d DCA’s reasoning/holding in Fintak, the trial court dismissed son’s trust challenge. Wrong answer says the 4th DCA. Here’s why:

[T]he [central] issue [in this appeal] is whether the renunciation rule applies to the son under the circumstances of this case. We find Fintak v. Fintak, 120 So.3d 177 (Fla. 2d DCA 2013), helpful in arriving at the answer. . .

[T]he son is in a similar situation as the settlor in Fintak. He will receive more than the distributed amounts under any version of the Trust. Applying the three rationales underlying the renunciation rule, the son prevails. First, the trustee is protected because the son is entitled to more than the distributions made under any of the Amended Trusts. Second, the risk of vexatious and insincere claims is present in any case, but no more so here. Third, the distribution to the son is free from third-party claims as he is entitled to more than the distributed amount. “[A]n individual cannot be estopped from challenging an instrument by accepting that which he or she is legally entitled to receive regardless of whether the instrument is sustained or overthrown.” Id. at 185 . . .

Although the son did not restore the monies received, the renunciation rule is inapplicable where none of the three rationales support its application.

Lesson learned?

There are two key takeaways from this case, one practical and the other doctrinal. First, just because the law and facts are clearly on your side, doesn’t mean you’re going to win. As I reported here, our courts are overworked and underfunded. In that context, you can’t expect perfection. Client expectations need to be managed accordingly.

Second, the renunciation rule’s an equitable doctrine that should be applied “equitably” based on the particular facts and circumstances of each case. If a litigant’s entitled to a floor % of the trust no matter what happens, that fact should bar dismissal of his or her complaint. Blindly applying an all-or-nothing standard invites unfair manipulation, which is exactly what son accused wife of in this case:

The son alleged that the surviving spouse, as trustee, began sending him distributions under the Fifth Amended Trust, while failing to provide him with Trust documents he had requested. The distributions were sent to the son when he was in financial need, and the surviving spouse intended that he accept them to prohibit him from challenging the validity of the Fourth and Fifth Amended Trusts.