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.

To be clear, under Florida law there’s no such thing as a separate legal entity known as an “estate.” If you want to sue, get paid from, or transfer property to an “estate,” all of that needs to happen via a court-appointed personal representative (“PR”). You’d be surprised how often this basic point gets overlooked (see here, here).

In the De La Riva case linked below, the 4th DCA provided this short summary of the law as applied to cases where you’re trying to sue an estate:

“[I]t is well-settled that ‘an “[e]state” is not an entity that can be a party to litigation. It is the personal representative of the estate, in a representative capacity, that is the proper party.'” Spradley v. Spradley, 213 So. 3d 1042, 1045 (Fla. 2d DCA 2017) (quoting Ganske v. Spence, 129 S.W.3d 701, 704 n.1 (Tex. App. 2004)). “[O]nly when the proper party is in existence may it then be properly served and substituted ….” Stern v. Horwitz, 249 So. 3d 688, 691 (Fla. 2d DCA 2018) (citations omitted) (emphasis added).

De La Riva v. Chavez, — So.3d —-, 2020 WL 5372283 (Fla. 4th DCA September 09, 2020):

In this case the challenge for plaintiff’s counsel was that the defendant’s estate was dragging its feet on getting a PR appointed. After months of waiting and still no PR, plaintiff’s counsel simply amended his complaint to name a fictitious “John Doe” as PR for the estate. This may have seemed like a clever workaround, but as a matter of law it “nullified the subsequent proceedings,” including plaintiff’s proposal for settlement under F.S. 768.79.

After a failed settlement attempt and a great result at trial, plaintiff’s counsel tried to collect fees from the defendant pursuant to F.S. 768.79. Not so fast said the 4th DCA. You can’t sue a “fictitious” PR called “John Doe” and simply go about your business. No PR means “no fees for you,” so saith the 4th DCA:

“If an indispens[a]ble party to an action dies, ‘the action abates until the deceased party’s estate, or other appropriate legal representative, has been substituted pursuant to [R]ule 1.260(a)(1).'” Schaeffler, 38 So. 3d at 799 (quoting Cope v. Waugh, 627 So. 2d 136, 136 (Fla. 1st DCA 1993)). Moreover, the “[f]ailure to substitute the proper representative or guardian nullifies subsequent proceedings.” Id. at 800; see also Ballard v. Wood, 863 So. 2d 1246, 1249 (Fla. 5th DCA 2004) (finding that a failure to substitute pursuant to Rule 1.260(a)(1) nullified the subsequent proceedings). …

Here, Plaintiff initially complied with the procedures of Rule 1.260(a)(1) by contacting opposing counsel and requesting information regarding the opening of the decedent’s estate. See Vera v. Adeland, 881 So. 2d 707, 710 (Fla. 3d DCA 2004). Error occurred, however, when Plaintiff elected to actively continue the litigation, pursuant to his complaint filed against the fictitious “John Doe,” commenced when no estate had been opened and no personal representative appointed. See In re Marriage of Kirby, 280 So. 3d 98, 100 (Fla. 4th DCA 2019); Adeland, 881 So. 2d at 710 (“If no estate has been opened, then another appropriate representative, such as a guardian ad litem, will need to be substituted.”); see also Mattick v. Lisch, ––– So.3d ––––, 43 Fla. L. Weekly D2467 (Fla. 2d DCA Nov. 2, 2018). Proper procedure required the abatement of the proceedings until such time as a personal representative of the estate could be (and actually had been) substituted as party defendant and served with the complaint. See In re Marriage of Kirby, 280 So. 3d at 100.

Image source: Estate & Probate Legal Group

There are all sorts of reasons why you may not want to commence a probate proceeding, but still have concerns about someone else getting the jump on you by secretly probating an invalid Will. In those cases you’ll want to file a “caveat,” an early-warning system used in probate proceedings that’s authorized by F.S. 731.110 and Probate Rule 5.260.

You can file a caveat before or after the death of the person whose estate is to be administered (with the exception of creditors, who can only file after death). By the way, if your local Clerk of Courts goofs and fails to provide the prior notice you’re entitled to as a caveator, you get a “do over”.

But there’s a second, equally important use for caveats. If you’re going to challenge a Will you already know about, you need to file a caveat in those cases too. In other words, simply filing an answer and affirmative defenses isn’t enough, you need to do both (file your answer and also file a separate caveat). Why? Because caveats are the best tool we have for making sure your side gets its day in court before someone else’s contested Will gets admitted to probate, a problem I’ve written about before. Here’s how the 2d DCA summarized the controlling law on this point in the Crescenzo case below:

[W]hen an interested person other than a creditor files a caveat and challenges the decedent’s will, “the probate court [is] obliged to make a determination on [the] challenge to the will prior to appointing a personal representative and admitting the will to probate.” In re Estate of Hartman, 836 So.2d 1038, 1039 (Fla. 2d DCA 2002); see also Rocca v. Boyansky, 80 So.3d 377, 381 (Fla. 3d DCA 2012). The filing of a caveat has “the effect of precluding the admission of the will to probate” until the party filing it has the opportunity to litigate his challenge. Barry v. Walker, 103 Fla. 533, 137 So. 711, 714 (1931); see also Rocca, 80 So.3d at 381 (holding that “will contests and the rights of caveators must be determined” prior to the letters of administration being issued).

But what if you don’t file a caveat and just file an answer, are you out of luck? Maybe not ….

Crescenzo v. Simpson, — So.3d —-, 2018 WL 1219709 (Fla. 2d DCA March 09, 2018):

In this case the contestant didn’t file a caveat, but did file an “Answer and Affirmative Defenses.” In most civil litigation that’s all you need to do. Not so in probate. So what happened? The probate judge ignored the answer and entered an order admitting the contested will to probate sans trial.

Conceding that caveats are mandatory if you want to guarantee a trial before a contested Will’s admitted, on appeal the contestant argued his answer was the “functional equivalent” of a caveat. Did this work? Yes … but just barely, so saith the 2d DCA:

As in Guth’s Estate, here we think any variance in form between Mr. Crescenzo’s answer and a true caveat is immaterial. There is no question that his answer identified his interest in the estate; there is no question that his answer put the court and the parties on notice of a will contest; there is no question that his answer precisely identified the decedent and will to which his challenge pertained; and there is no question that he was looking for a decision on his will contest before the will was admitted to probate. This is a case in which the substance of what Mr. Crescenzo was doing is obvious and any defect in form is inconsequential. See, e.g., Fla. Prob. R. 5.020(a) (“No defect of form impairs substantial rights ….”); In re Estate of Koshuba, 993 So.2d 983, 986 (Fla. 2d DCA 2007) (“We agree … that Mr. Zilewicz’s written statements, made within his Petition for Administration and the Amended Petition for a Guardian ad Litem, were substantially sufficient to place interested persons on notice of his claim. The documents filed in the probate proceeding … are defective as to form, but they sufficiently state the character and extent of his claim.”); Harbour House Props., Inc. v. Estate of Stone, 443 So.2d 136, 137 (Fla. 3d DCA 1983) (“The creditor’s response to the motion to strike its claim became the functional equivalent of a motion to excuse the untimely filing of a claim against the estate.”).

Because Mr. Crescenzo’s “Answer and Affirmative Defenses” was the functional equivalent of a caveat on the facts of this case, we conclude that the probate court erred in entering its order without first addressing Mr. Crescenzo’s will contest. We reverse and remand with instructions for the probate court to vacate the order admitting Ms. Quinones’ will to probate and appointing Ms. Simpson as personal representative and to conduct further proceedings consistent with this opinion.

So what’s the takeaway?

We can all agree no one should have to prosecute an appeal just to preserve your side’s right to a trial before a contested Will’s admitted to probate. In this case the contestant salvaged his trial by convincing the 2d DCA his answer was the “functional equivalent” of a caveat. And you may want to remember that argument if you ever find yourself in the same position (it can happen to the best of us).

But the real takeaway from this case is to not put yourself in this situation to begin with. If you want to guarantee a Will won’t get admitted until after your challenge is tried, simply filing an answer and affirmative defenses isn’t enough, you also need to file a separate caveat.

Image source: deeds.com

Deeding property “into” and “out” of trusts is the kind of bread and butter work trusts and estates lawyers do all the time. But just because deeds-to-trust are commonplace, doesn’t mean you don’t have to sweat the details. Skip the basics of F.S. 689.07, and the property you thought was going into your trust will instead find itself in the middle of someone else’s lawsuit (see here).

On the other hand, ignoring the formalities of your trust agreement can just as easily get you into trouble on the way out. In one case a surviving widow found herself embroiled in almost a decade of litigation that all started because of her husband’s failed attempt to deed a condo unit out of his revocable trust (see here, here, and here).

Deeding property “out” of a revocable trust:

A big selling point for revocable trusts is retained control. As long as my trust is revocable, I retain 100% control over the assets “in” my trust (i.e., assets titled in the name of the trustee), which means this property essentially never stops being “my” property (even if it’s not titled in my name individually). When you couple retained control with the benefits of probate-avoidance, you have a winning combination that’s made revocable trusts central to modern estate planning.

But when it comes to real estate held in revocable trusts, retained control brings with it serious, if subtle risks. The technical formalities required to convey valid title can conflict with the common sense, lived experience of most non-lawyers — especially if the property’s transferred back to the client individually or as a gift to some family member. “If the property’s mine,” the thinking goes, “who cares if I don’t dot every ‘i’ and cross every ‘t’ when I sign a deed transferring my own property out of my own trust?”

Answer: no one cares … until after you’re dead and your heirs (or some unsuspecting third-party purchaser) start suing each other, which is exactly what happened in the following case.

Schlossberg v. Estate of Kaporovsky, — So.3d —-, 2020 WL 4496139 (Fla. 4th DCA August 05, 2020)

This case involved a revocable trust and the settlor’s condominium. The settlor was the mother of two children, a daughter and a son. Mom’s trust was pretty typical. While she was alive she was the sole beneficiary of her trust. Mom also retained the right to revoke her trust at any time in whole or in part “by instrument delivered in writing to the trustee.” Mom and daughter were the co-trustees.

The condo at the core of this case was the subject of three separate deeds.

  1. In 2000, mom executed a deed conveying ownership of her condo to herself and her daughter as joint tenants with right of survivorship.
  2. In 2004, mom executed a second deed, this time conveying her retained interest in the condo to her revocable trust.
  3. In 2005, mom and daughter, as co-trustees of mom’s revocable trust, executed a third deed, this time conveying mom’s retained interest in the condo back to mom individually for life, remainder to daughter upon mom’s death.

The 2005 deed was executed by mom and daughter as follows, which is critical to the outcome of this case.

This Quit-Claim Deed, Executed this … day of … 2005 by [Mom], a single woman and [Daughter], a single woman, individually and as Trustees of the [MOM] INTERVIVOS TRUST AGREEMENT dated … first party, to [Mom], a life estate, with the remainder to [Daughter] …. second party.

Fast forward to 2009. Mom dies and litigation breaks out between her children. As part of that litigation son challenged the validity of the 2005 deed.

Son’s argument focused on a strict reading of mom’s trust (the type of reading that’s perfectly legal, but likely would have seemed absurd to mom). First, because mom was the sole beneficiary of her trust, distribution of the trust’s interest in the condo to sister violated the trust’s terms. Second, because sister was a co-trustee of mom’s trust, distribution of the trust’s interest in the condo to sister was a conflict of interest that violated sister’s fiduciary duties as trustee.

The trial court agreed with son, ruling that the 2005 deed was void. Not so fast said the 4th DCA, which rejected both of son’s strict-construction arguments.

The 2005 deed, executed by the settlor individually, as well as by both trustees of the trust, is valid in accordance with the trust provisions for two reasons. First, the trust allowed the settlor to revoke the trust in whole or in part by a written instrument delivered to the trustees. Second, the trust authorized the trustees to apply any part of the trust assets to the settlor’s use.

The reason this case was litigated in the first place is that both points made by the 4th DCA were implied by the text of the controlling documents, but neither was stated explicitly. If mom had wanted to revoke her trust with regard to her trust’s retained interest in the condo, the deed should have affirmatively said so. It didn’t, which was enough for the trial court to rule against sister. Anyway, in a bit of reverse engineering the 4th DCA found the 2005 deed was a de facto revocation.

[Mom’s] trust provided that the trust could be revoked, in whole or in part, by an instrument in writing delivered to the trustees. It did not describe the form of that instrument. “Ordinarily a power to revoke the trust will be interpreted as including a power to revoke the trust in part by withdrawing a part of the trust property from the trust.” Restatement (Second) of Trusts § 330 (1959). The deed, withdrawing the condo from the trust, was a written instrument executed by both co-trustees and the settlor. It had the effect of removing the condo from the trust. Therefore, the settlor revoked the trust in part as to the condominium.

The second leg of the 4th DCA’s thinking is equally sensible, although here again the court was forced to reverse engineer a set of transactions that are implied by the facts, but never explicitly stated.

If mom had wanted to properly distribute assets out of her revocable trust to her daughter while mom was the only beneficiary, mom could have easily done so by signing two deeds: one from the trustees to mom individually, a second from mom individually to daughter individually. That’s not what happened. Instead, both steps were collapsed into a single deed, which ultimately worked but “cost” the family in terms of litigation that in hindsight was avoidable. Here’s how the 4th DCA explained its rationale on this point:

The parties agree that the trustees could convey the condo to the settlor. The trustees did so through the 2005 deed. This would also have been considered the application of the trust assets for the settlor’s use, which the trustees are specifically authorized to do through conveyance of property. Thus, the co-trustees could have conveyed the property to the settlor, which would have removed the condo from the trust. Then the settlor could have conveyed the property free of trust to herself for life with remainder to Wisotsky. …

Applying the principle of Countrywide Funding to this case, the trustees had the authority to convey the property to the settlor within the terms of the trust, either as a principal distribution for her use or as a partial revocation of the trust. Then the settlor, individually could have conveyed the property to herself for a life estate, remainder to her daughter. Therefore, when the quitclaim deed was executed by both trustees and by the settlor individually, the deed accomplished with a single conveyance the same requirements as two separate conveyances. We see no need to demand two separate conveyances.

[Son] argues that the trustees had no power to gift the remainder interest in the condo unit to [Sister]. However, when the one transaction is considered the combination of two transactions, it is apparent that the trustees did not gift the remainder interest, [Mom] did.

Lesson learned?

As a litigator, you’ll want to consider the 4th DCA’s reasoning no matter what side of the case you’re on. The de facto trust revocation and two-stepped trust distribution found to exist in this case both required a few logic steps that weren’t facially apparent from the text of the controlling documents. Instead, the court was required to stitch together a coherent legal argument based on the facts of the case. Good stuff.

As a planner, the solution is easy (in hindsight, it always is). If your client wants to take real property “out” of her revocable trust and give it away to someone else, make sure you document the gift in a way that irrefutably complies with the terms of the trust agreement. In this case that documentation would have included (1) an explicit written revocation of the trust with regard to mom’s condo, and/or (2) two separate deeds: one from the trustees to mom individually, a second from mom individually to daughter individually.

Image by Megan Tatem, redbook

Under the Florida Uniform Disposition of Community Property Rights at Death Act, married couples moving to Florida from community property jurisdictions bring their testamentary community property rights with them. This includes couples moving to Florida from any of our nine U.S. community property states, and also includes those moving to Florida from anywhere else on the planet that’s a community property jurisdiction (think virtually all of continental Europe and Latin America).

These valuable property rights can dramatically reshape the ultimate disposition of an estate, but are often overlooked by unsuspecting practitioners in common law states like Florida, who by training and experience are generally unaccustomed to spotting community-property issues … until it’s too late.

Community property in Florida? You bet!

Our nine community property states include our two most populous states (California and Texas), and collectively represent over 30% of the entire U.S. population. This slice of the populace is too big to ignore anywhere in the U.S., but especially so in Florida, the first choice for relocating retirees within the U.S., and the single largest recipient of state-to-state migration in the U.S. To the extent any of these domestic migrants are married and come from a community property jurisdiction, they bringing their testamentary community property rights with them.

And then there’s Puerto Rico. It’s not only the largest U.S. territory by population, it’s also a community property jurisdiction. One in three migrants to the U.S. mainland from Puerto Rico settles in Florida. If they’re married, they too bringing their community property rights with them. But it doesn’t end there.

Florida is the single largest recipient of all international migration to the U.S., and the number one destination for South American migrants to the U.S. To the extent any of these international migrants are married and come from a community property jurisdiction, they too bringing their testamentary community property rights with them.

A User’s Guide to Prosecuting Claims under Florida’s Uniform Disposition of Community Property Rights at Death Act:

OK, so there are probably way more Floridians walking around with testamentary community property rights than most of us would have guessed. Should Florida attorneys be concerned? YES! These claims are subject to Florida’s ultra-short filing deadlines for probate creditor claims. As I reported here, if these property rights aren’t claimed on a timely basis — they’re forfeited. This is a huge trap for the unwary.

For those of you looking for a practical guide to evaluating these claims, you’ll want to read A User’s Guide to Prosecuting Claims under Florida’s Uniform Disposition of Community Property Rights at Death Act, which is my CLE presentation on the subject. Here’s an excerpt:

There are two distinct property systems in the United States: common law and community property. “Common law is the dominant property system in the United States and has been adopted by 41 states [including Florida]. The theory underlying common law is that each spouse is a separate individual with separate legal and property rights.” “The theory underlying community property is analogous to that of a partnership. Each spouse contributes labor (and in some states, capital) for the benefit of the community, and shares equally in the profits and income earned by the community. Thus, each spouse owns an automatic 50% interest in all community property, regardless of which spouse acquired the community property.”

A couple’s community property rights are a product of their marital domicile. By contrast, the law governing a decedent’s estate is a product of his or her domicile at death.

Black letter Florida law tells us that “[a]dministration of an estate is governed by the law of the decedent’s domicile.” In fact, the Florida Probate Rules ensure practitioners focus on a decedent’s domicile at death by explicitly requiring its disclosure in seven separate rules. But what about marital domicile (i.e., the “domicile that a husband and wife, as a married couple, have established as their home.”)? This distinct species of domicile is never even mentioned in Florida’s probate rules.

In today’s highly mobile society where a couple’s marital domicile often changes multiple times over a lifetime, this statutory blind spot is a trap for unsuspecting practitioners in a common law states like Florida, who by training and experience are generally  unaccustomed to spotting community-property issues. Why? Because even though Florida is not a community property state, if a person dies here but at some point in the past (no matter how many years ago) shared a martial domicile with his or her surviving spouse in a community property jurisdiction, that one fact alone can dramatically reshape the ultimate disposition of the entire estate, no matter what the decedent’s will or trust may say to the contrary.

Image source: The Most Perfect Album | WNYC Studios

In Florida we don’t have jury trials in will contests. But if you’re creative and the facts line up just right, your inheritance case could be decided by a jury if it’s framed as a “tortious interference with an expectancy” claim. The question then becomes, does it matter? Short answer: YES!

If you think of will contests as proxies for all forms of inheritance litigation, there’s plenty of data comparing the results of jury and non-jury trials in these cases. And that data paints a clear picture: the mechanisms we use to decide these disputes are systemically biased in favor of certain outcomes. As reported in Mediation and Jury Trials as Means of Resolving Will Contests, if you’re the plaintiff (i.e., the person contesting the will) your chances of success increase dramatically if your case is decided by a jury:

Research in Davidson County, Tennessee, where jury trials may be used as an alternative to judicial decision making, revealed that ten of twelve [83%] will contests before a judge were resolved in favor of the [defendant], but just seven of twelve [58%] before a jury were resolved in favor of the [defendant]. … In a nationwide study of will contests based on undue influence or lack of testamentary capacity whose appeals where reported from February 3, 1997 to January 27, 1998, it revealed that, when before a judge at the trial level, the [plaintiff] prevailed only five of twenty-two times [23%]; if the contestant went before a jury, the [plaintiff] prevailed six of eight times [75%] …

There are likely as many theories for why judges and juries decide these cases differently as there are lawyers. I don’t think it’s because jurors aren’t as smart, or because they’re more susceptible to bias, judges walk around with the same biases as everybody else.

In my opinion it has more to do with how lawyers and non-lawyers think about the world generally. Lawyers are trained to focus first on what’s the right “legal” answer, then on what’s “fair” for all concerned. For the rest of humanity this calculus is usually reversed. Not surprisingly, these contrasting world views produce different outcomes. Here’s how Prof. Chester, the author of the article and study quoted above, makes this point:

Although judges certainly bring discretion and equitable decision-making to bear when adjudicating will contests, they are still more conscious of preserving the law of the matter than are juries: juries may focus more on fair (natural) distribution of the estate than on preservation of a dead person’s (theoretical) intent. In addition, juries may not impose a stringent notion of what influence might be undue or what degree of mental weakness may rise to the level of incapacity. Instead, they may reason backward. Jurors may collectively feel that if a testator left property in an unnatural manner, he or she must have been crazy, or under undue influence, or both.

This may all sound good in theory, but does it hold up in practice? According to the following two Florida appellate opinions, the answer is clearly YES. In both juries decided the case one way (in favor of the contestant/plaintiff) and judges decided the same case the other way (in favor of the proponent/defendant).

Case Study #1: Mulvey v. Stephens, 250 So.3d 106 (Fla. 4th DCA June 27, 2018)

This case involved inheritance litigation between a decedent’s second wife and a daughter from his first marriage. The litigation took two forms. First a will contest (decided by a judge), then a tortious interference claim (decided by a jury).

Daughter lost her non-jury bench trial on the will contest. Daughter then sued again, this time filing a tortious interference lawsuit (daughter challenged a pre-death transfer of valuable real estate to second wife). By reframing her claim, daughter was now entitled to a jury trial.

The operative facts were the same in both lawsuits: according to the daughter, her father lacked capacity and was the victim of second wife’s undue influence both when he signed his will and when he made the contested property transfer. Does this raise estoppel issues? According to the 4th DCA, the answer is a definite maybe.

Here, we question whether [Florida law] permits the same parties to challenge the same purported tortious conduct in two separate actions, one in the probate court and one in the general civil division. But the Widow does not assert the probate court’s decision has preclusive effect on the subsequent civil action. Thus, for purposes of this appeal, we assume it does not.

So daughter got a second bite at the apple, this time before a jury. Did this make a difference? Of course, jury found in daughter’s favor. Second wife cried foul, seeking a directed verdict in her favor on the grounds that daughter had presented no evidence to support her tortious interference claim. The trial judge let the jury verdict stand. Undeterred, second wife appealed; and her luck was better with the judges at the 4th DCA. Daughter’s jury-trial win was reversed. Here’s why:

We review the court’s denial of a motion for [judgment notwithstanding the verdict (JNOV)] de novo. Alterra Healthcare Corp. v. Campbell, 78 So.3d 595, 601 (Fla. 2d DCA 2011). A JNOV is appropriate only when there is no evidence upon which the jury could rely in finding for the non-moving party. Id. …

Because there was no evidence of tortious conduct by the Widow, the Daughter could not prevail on her claim for tortious interference with expectancy. The trial court erred when it denied the Widow’s motion for judgment notwithstanding the verdict. Accordingly, we reverse the final judgment and remand with instructions to grant the Widow’s motion for judgment notwithstanding the verdict.

Case Study #2: Henry v. Jones, 202 So.3d 129 (Fla. 2d DCA October 14, 2016)

This case involved a brother suing his sister for tortious interference with an expectancy, claiming his sister had improperly diverted substantial sums of money from their mother’s account while acting as her caregiver. The case was put to a jury, which sided with the brother (another win for the challenger/plaintiff).

The trial judge stepped in and voided the jury’s verdict ruling it was “contrary to the manifest weight of the evidence,” and ordered a new trial. Brother appealed. And lost again. Here’s why:

Where a trial court orders a new trial, we review that decision under an abuse of discretion standard. Moore v. Gillett, 96 So.3d 933, 938 (Fla. 2d DCA 2012).

Moreover, “it takes a stronger showing of error in order to reverse an order granting a new trial than an order denying a new trial.” Thus we begin with the presumption that the trial court properly exercised its discretion, and we will not disturb the trial court’s ruling absent a clear abuse of that discretion. However, “such orders must nevertheless be supported by the record or by findings of influence outside the record.”

Id. at 938 (citation omitted) (first quoting Harris v. Grunow, 71 So.3d 186, 188 (Fla. 3d DCA 2011); and then quoting Reynolds v. Towne Mgmt. of Fla., Inc., 426 So.2d 1011, 1013 (Fla. 2d DCA 1983)). …

As noted above, we presume that the trial court’s exercise of discretion was proper absent a demonstration of a clear abuse of discretion, and a ruling “that is unsupported by the record constitutes a clear abuse of discretion.” Moore, 96 So.3d at 938. The record here supports the trial court’s conclusion that the verdict was contrary to the manifest weight of the evidence. We therefore affirm the order granting a new trial on that basis.

Are jury trials a good idea in inheritance cases? YES!

Tortious interference claims and the jury-trial rights they trigger should be pursued whenever possible. Not because jury trials are magic bullets; as demonstrated above, there’s always the risk that a jury’s equitable solution to what is in essence a family dispute can unravel on appeal or get voided by your trial-court judge. The prospect of a jury trial should be pursued because it helps resolve these cases where they should always get resolved: at mediation, by compromise. Here again from Prof. Chester, the author of the article and study quoted above:

I contend that mediated settlement of will contests works best where the right to a jury trial is preserved, giving contestants more leverage at the mediation stage. In mediation, what is a fair distribution of the estate in light of a particular family’s circumstances can be worked out by the parties. Attorneys representing the parties, who otherwise would become deeply involved in the case, can be relegated to a relatively minor role, such as approving a settlement after it is reached.

Wise words indeed.

Image source: I Got a Prenup to Protect My Emotions | Glamour

Prenuptial agreements get litigated all the time in probate proceedings. The challenge in these cases (as in all inheritance litigation) is to not let yourself get caught up in your client’s wishful thinking. Just because a certain outcome seems really unfair doesn’t mean your probate judge will (or should) rule in your favor. This may seem like an obvious point, but you’d be surprised how hard it can be not to fall into this trap in real life. This case is a prime example.

Wilson v. Wilson as Trustee of Paul C. Wilson Living Trust, — So.3d —-, 2019 WL 3808162 (Fla. 4th DCA August 14, 2019)

In this case the decedent and his wife entered into a prenuptial agreement in 2011 that contained all the standard waivers, including a waiver of wife’s elective share rights. In 2014 husband executed a revocable trust that contained the following clause:

There shall be set aside from the property of this trust as much property as is necessary to satisfy the Wife’s elective share pursuant to Section 732.201, et seq., of the Florida Statutes, provided the requirements thereunder are satisfied and a timely election is filed.

If this sentence had ended right before the word “provided,” one could reasonably construe it as a 30% formula clause based on our elective share statutes (under F.S. 732.2065 wife gets 30% of husband’s elective estate). But when you add the text after the word “provided,” it seems pretty clear the clause is pre-conditioned on wife asserting her elective share rights.

Husband died in 2017. When wife did what she was told to do in her husband’s trust (file an elective share claim), husband’s son from a prior marriage objected. Based on wife’s contractual waiver her elective share claim was dead on arrival. Now you might ask yourself (I certainly did), why would husband include a self-canceling clause in his trust? I have no idea, and the 4th DCA doesn’t tell us. And I’m sure wife thought it was all really unfair.

So wife tried to salvage her formula bequest by arguing that husband unilaterally amended their prenup when he signed his trust agreement; thus voiding her elective share waiver. Sounds plausible. Here’s the problem, the moment wife framed her case as a unilateral amendment of the couple’s prenup she was doomed as a matter of law. Here’s why:

We find that the language of the prenuptial agreement unambiguously waived the wife’s elective share. The agreement clearly stipulates that each party has waived their right to the estate of the other, including the right to an elective share. The creation of the trust agreement could not modify the prenuptial agreement since it was not signed by both parties as required by the prenuptial agreement. The controlling Florida Statute also states that modification of a prenuptial agreement is valid only if signed by both parties. See § 61.079(6), Fla. Stat. (2014) (“After marriage, a premarital agreement may be amended, revoked, or abandoned only by a written agreement signed by the parties.”).

Further, any testamentary gifts, by will or codicil, envisioned by the prenuptial agreement would not invalidate any of the provisions of the prenuptial agreement. Therefore, even if the decedent gave the wife a testamentary gift, the waiver of the elective share would still be effective. Thus, if the decedent intended to give the wife a testamentary gift, he could have done so by will or codicil without relying on an elective share and specifically the requirements of the elective share statute.

But what about “reforming” the trust?

There’s an alternative path this case could have gone down. Rather than framing the case in terms of a unilateral amendment of the couple’s prenup, wife could have instead focused on “reforming” the text of husband’s revocable trust. In other words, focus the case on the trust, not the prenup.

A trust reformation action allows a court to re-write a trust — even if the text is clear and unambiguous — if you prove the text as written contains a mistake; it doesn’t reflect husband’s actual intent. This is an equitable remedy that’s been around for a long time and in 2007 was codified in section 736.0415 of our trust code (for more on the backstory to this statute see here).

By the way, a trust-reformation strategy may have been considered and abandoned in this case for good reason (reformation cases are never easy), or used in the case and simply not addressed in the 4th DCA’s opinion. There’s no way to know. But this I do know: reformation is a powerful tool that’s available in trust litigation but foreign to contract-construction litigation (thus easily overlooked). If it’s not already part of your litigation toolbox, it should be.

Illustration: Calum Heath, Bloomberg

It’s an election year, which means if you’re a trusts and estates lawyer, you (and your clients) once again get to ruminate on the future of the estate tax.

And elections do matter. President Trump’s 2018 tax bill included a huge win for the wealthy, doubling the amount that can be passed to heirs tax free to about $22 million for a married couple (indexed for inflation, in 2020 it’s over $23 million).

My own very subjective sense of the news is that the estate tax hasn’t garnered nearly as much attention this election cycle as it has in the past, but that may just be me. Anyway, the NYT recently published an excellent opinion piece by NYU Law Prof. Lily Batchelder entitled Tax the Rich and Their Heirs that’s packed with the kind of statistics law and economics nerds (like me!) love. Regardless of your politics, it’s well worth reading. Here’s an excerpt:

A massive transfer of wealth is underway and will accelerate in the coming years. Baby boomers and the generation that preceded them currently own $84 trillion, or 81 percent of all U.S. household wealth — wealth that will before long be inherited by their children and other beneficiaries.

This extraordinary transfer of resources will further cement the economic inequality that plagues the United States because this wealth is tightly concentrated in the hands of a few. And it will be passed on as taxes on such transfers are at historic lows.

Among high-income countries, the United States has one of the lowest levels of intergenerational economic mobility, meaning a child’s economic future is heavily influenced by his or her parents’ income. We have the second-highest level of income inequality after taxes and government transfers, and the highest level of wealth inequality. These disparities are sharply skewed by race. Median black household wealth is only 9 percent that of white households, a racial wealth gap that is even larger than in 1968. New research suggests the pandemic will further increase wealth inequality, as the affluent save more and the poor earn less.

Effectively addressing these systemic inequalities will require many things. But increasing the taxation of inheritances is one vital component.

This year, Americans will inherit about $765 billion. People who were already rich will inherit a lot more than people who weren’t wealthy. So will white households; they are twice as likely as black households to receive an inheritance, and receiving an inheritance is associated with an increase in wealth that is 26 times larger for white families than for black families. (This accounting of inheritances includes gifts and bequests, other than those to spouses or to support minor children.)

Roughly 40 percent of all household wealth stems from inheritances. This means that 40 percent of why some Americans are extraordinarily well off has nothing to do with smarts, hard work, frugality, lucky gambles or entrepreneurial ingenuity. It is simply because they were born to rich parents.