If ownership of a business asset is contested in an estate, the answer to “who gets it?” might be found in the controlling contract, not the decedent’s will or trust. This key point is often overlooked.
For example, in the Blechman case there was a dispute over ownership of the decedent’s 1/2 interest in an LLC. In that case the LLC operating agreement contained the following clause:
… in the event of a death of a Member during the duration of this Agreement, the Membership Interest of the deceased Member shall pass to and immediately vest in the deceased Member’s then living children and issue of any deceased child per stirpes.
Based on this text the court ruled the contested LLC interests were never part of the decedent’s probate estate, but instead transferred immediately to his children, bypassing his trust (which favored the decedent’s girlfriend). Bottom line, the LLC operating agreement controlled, not the decedent’s trust.
Procedurally, the Blechman case was litigated within the probate proceeding as part of a contested estate accounting action. That’s not the only way these cases play out.
Breach of Contract vs. Non-Probate Transfer
Sometimes the controlling contract doesn’t result in a non-probate transfer, but instead sets up a breach of contract claim against the estate as a form of “agreement concerning succession” governed by F.S. 732.701.
While the end result is the same (contract controls, not the decedent’s will or trust), your litigation path is different. These cases are litigated as contested creditor claims that get adjudicated not by your probate judge, but as “independent actions” before a different judge sitting in the civil division. That’s what happened in the Finlaw case below.
In this case the decedent signed a partnership agreement governed by Ohio law that contained the following clause:
Each partner, who shall ultimately become a surviving spouse, further agrees to have prepared and execute a last will and testament so as to vest his or her interest in this Partnership in his or her children (lineal descendants).
The decedent subsequently executed a will that left her partnership interest not to her child, but to a grandson. After decedent died, her son filed a creditor claim against the estate asserting an interest in the partnership due to the decedent’s failure to execute her will in conformity with the above-quoted provision of the partnership agreement. Grandson objected, triggering son’s obligation to file an independent action. This is all classic probate creditor-claim procedure.
As his independent action son filed this complaint for declaratory judgment pursuant to F.S. 86.011 and F.S. 86.041 asking the court to construe the partnership agreement and determine that he, rather than the grandson, is the sole beneficiary of the decedent’s interest in the partnership. In a thoughtful and very instructive 11-page final judgment the trial court ruled in son’s favor.
At trial and on appeal grandson argued that no matter what the partnership agreement said, what the decedent really wanted, as reflected in her will, was for him to get this asset. That may be true, but it doesn’t matter. Contracts trump wills — under both Ohio and Florida law — so saith the 2d DCA:
Under both Ohio and Florida law, where contracting parties expressly agree on the disposition of property upon death, that agreement generally controls over a testamentary disposition of the property. See Barnecut v. Barnecut, 3 Ohio App.2d 132, 209 N.E.2d 609, 612-13 (1964) (holding that where a partnership agreement called for the settlement of a partnership interest, the interest did not become a part of the decedent’s estate); Blechman v. Est. of Blechman, 160 So. 3d 152, 159 (Fla. 4th DCA 2015) (observing “the general principle that express language in a contractual agreement ‘specifically addressing the disposition of [property] upon death’ will defeat a testamentary disposition of said property”) (alteration in original) (quoting Murray Van & Storage, Inc. v. Murray, 364 So. 2d 68, 68 (Fla. 4th DCA 1978))); see also Swanda v. Paramount Com. Real Est. Invs., No. C-030425, 2004 WL 1124587, at *2 (Ohio Ct. App. May 21, 2004) (holding partner’s attempt to transfer partnership share by will ineffective where transfer was contrary to partnership agreement).
Thus, having agreed in the partnership agreement to devise the partnership interest only to her children who are lineal descendants, the decedent’s subsequent devise to her grandson instead was contrary to the terms of the agreement. The trial court did not err in so concluding.