Carroll v. Israelson, — So.3d —-, 2015 WL 3999486 (Fla. 4th DCA July 01, 2015)

In 1951 Florida enacted a statute automatically cutting divorced spouses out of each others’ wills (currently at F.S. 732.507(2)). In 1989 Florida extended this rule to revocable trusts (see F.S. 736.1105). And in 2012 extended it yet again to non-probate transfers such as life insurance policies, annuities, pay-on-death accounts, and retirement planning accounts (see F.S. 732.703, which I wrote about here).

The rationale underlying all these statutes was summed up nicely by the 4th DCA in this case:

“It is an understatement to say that animosities arise in divorce proceedings which are inconsistent with wills executed when everything was rosy in the marriage. Divorce attorneys typically advise clients to revise their estate plans for the post-divorce world. However, with all the stress of divorce litigation, it is not uncommon for people to resist the idea of their own mortality and procrastinate their post-divorce estate planning. And then they die with a will in place that provides for the former spouse.”

This case turns on how broadly the will-revocation statute (and by implication, all of our post-divorce nullification statutes) should be read.

Case Study:

Thomas Carroll was married to Wendy Israelson Carroll for eighteen years. In 2005, when things were good with the marriage, Thomas executed a will whose residuary clause left his entire estate to Wendy’s revocable trust, which benefits Wendy exclusively if she survives Thomas, and her niece and nephew if she predeceases him. The couple divorced in September 2012, and one month later Thomas died, never having changed his 2005 will. Thomas’ mother sued to set aside the residuary clause of her son’s will, arguing that it was nullified by F.S. 732.507(2). As her son’s sole intestate heir, the estate would go to her by default.

Wendy countered that the will’s residuary clause shouldn’t be nullified because her revocable trust (the 100% recipient of the residuary estate) could be administered as if she’d predeceased Thomas (thus benefiting her niece and nephew, but cutting out Thomas’ mom). The only hole in this argument is that Wendy’s still very much alive, so the trusts for her niece and nephew still didn’t exist. No problem said Wendy. She could pretend she was dead, and simply create the trusts after the fact. “Presto!” problem solved. Wendy’s family gets it all, Thomas’ mom gets nothing. This kind of mental gymnastics drives me crazy. But here’s the problem — sometimes it works! According to the 4th DCA:

Exercising vigorous legal gymnastics, the circuit court permitted the placement of the decedent’s residuary assets into twin, newly-created irrevocable trusts for the benefit of the former wife’s niece and nephew.

What’s it mean to be “affected” by an ex-spouse’s will?

Our post-divorce will-revocation statute voids any portion of a will that “affects” an ex-spouse. How broadly or narrowly that word should be read was the crux of this appeal. Ex-wife urged a narrow reading; arguing that she wasn’t “affected” by her ex-husband’s will because she promised not to touch the money (i.e., no direct pecuniary benefit = not being “affected” by the will), and to instead let it all go to two trusts she would create for her niece and nephew. Wrong answer, so says the 4th DCA:

The statute is triggered by the entry of a final judgment of dissolution or annulment. It is broadly written to apply to a provision of a will that “affects” a former spouse. A common definition of “affect” is “to have an effect on.” Webster’s New World Collegiate Dictionary 23 (4th ed.2002). A provision does not need to have a direct pecuniary benefit to “affect” a former spouse within the meaning of the statute. A provision that so “affects” a former spouse “become[s] void” “upon the dissolution.” If a provision is “void,” it is a nullity. Cf. State v. Nelson, 26 So.3d 570, 577 (Fla.2010) ( “A nullity is defined as something that is legally void.”).

Because Article 4 of Thomas’s 2005 will left the residue of his estate to Wendy, she was affected by it. The bequest to the Wendy Family Trust was only to occur if Wendy predeceased Thomas. However, Wendy was very much alive on the date of dissolution and in complete control of the Revocable Trust that created the Wendy Family Trust for her niece and nephew to inherit. As the trustee of the Revocable Trust, Wendy had the authority to “merge any trust held hereunder with any other trusts [she] created” and to alter the terms of the “Wendy Family Trust.” Thus, on the date of the dissolution, Wendy was very much “affected” by Article 4 of the will, so that provision was rendered void by section 732.507(2).

Legal gymnastics = reversal:

Bottom line, courts need to follow the statute.

We reverse the order of the circuit court because it was contrary to section 732.507(2), Florida Statutes (2012). . . . The circuit court used the fiction of Wendy’s death to green light the rewriting of Wendy’s trust documents after Thomas’s death. However, section 732.507(2) becomes operative on the date of dissolution, so it does not allow for such post-death legal gymnastics to manipulate the issue of whether a will provision “affects” the former spouse.

Lesson learned?

When it comes to invalidating a will, never take anything for granted. Judges are conditioned by experience and centuries of common law to enforce wills whenever possible, however possible. Overcoming that kind of institutional bias is never easy — even if you have a statute directly on point supporting nullification. That’s not to say these cases shouldn’t be prosecuted, but it does mean your client’s expectations must be appropriately managed, no matter how much of a “slam dunk” you might think your case is. Remember, it’s all good as long as you don’t over promise.

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The general trend in Florida (especially in the trusts and estates context) 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 (click here), estate beneficiaries had standing to sue a decedent’s estate planning attorneys for malpractice (click here), and a successor personal representative had standing to sue his predecessor’s attorney for malpractice (click here). This case is yet another example of that trend.

Case Study

Saadeh v. Connors, — So.3d —-, 2015 WL 3875682 (Fla. 4th DCA June 24, 2015) 

I first wrote about this train-wreck of a guardianship case back in 2012 (see here). Two initial observations: First, this case is yet another example of why the public is clamoring for reform of Florida’s court-administered guardianship system (see here). Second, when a case blows up, there’s going to be collateral damage. And the lawyers involved are often prime targets — no matter whose side they were on. This case is no exception.

After unwinding the mess caused by everyone involved in obtaining the underlying “emergency” guardianship appointment, Karim Saadeh (an immigrant and self-made millionaire) got busying suing everyone in sight — including their lawyers. One of his claims was for malpractice against the lawyer for his court-appointed guardian. That’s the claim dealt with in this appeal.

The defendant lawyer argued the claim against her should be dismissed as a matter of law because there was no privity of contract between her and Mr. Saadeh (the ward), and thus she owed no duty directly to Mr. Saadeh. She also argued that Saadeh’s interests were adverse to her client’s interest, the court-appointed guardian. Sound familiar? It should. A version of this same defense was tried in all of the other third-party malpractice claims (see here, here, here). It didn’t work then, and it’s not working now (although the trial court bought it).

Everything a guardian (and by extension her lawyer) does is supposed to be for the benefit of the ward. If that guardian’s lawyer commits malpractice, the ward can hold her accountable in a direct malpractice suit. . . so sayeth the 4th DCA:

In a 1996 opinion of former Attorney General Robert Butterworth, the existence of this duty of care is explained:

Under the state’s guardianship statutes, it is clear that the ward is the intended beneficiary of the proceedings. Section 744.108, Florida Statutes, authorizes the payment of attorney’s fees to an attorney who has “rendered services to the ward or to the guardian on the ward’s behalf[.]” Thus, the statute itself recognizes that the services performed by an attorney who is compensated from the ward’s estate are performed on behalf of the ward even though the services are technically provided to the guardian. The relationship between the guardian and the ward is such that the ward must be considered to be the primary or intended beneficiary and cannot be considered an “incidental third-party beneficiary.” . . .

Since the ward is the intended beneficiary of the guardianship, an attorney who represents a guardian of a person adjudicated incapacitated and who is compensated from the ward’s estate for such services owes a duty of care to the ward as well as to the guardian.

Fla. AGO 96–94, 1996 WL 680981.

In its amicus brief that we invited and appreciate, the Real Property Probate & Trust Law Section of the Florida Bar indicates agreement with the Attorney General opinion. The Section reminds us that the lack of privity does not foreclose the possibility of a duty of care to a third party intended to benefit from a lawyer’s services. The Section points out that the reasoning in the Attorney General opinion is supported by section 744.1012, Florida Statutes (2009), in which the Legislature states its willful intent to protect incapacitated persons.

Based on the foregoing analysis, we find that Saadeh and everything associated with his well-being is the very essence i.e. the exact point, of our guardianship statutes. As a matter of law, the ward in situations as this, is both the primary and intended beneficiary of his estate. To tolerate anything less would be nonsensical and would strip the ward of the dignity to which the ward is wholly entitled. Whether there was a breach of the duty which caused damages obviously remains to be determined. But Mr. Saadeh has a viable and legally recognizable cause of action against the guardian’s attorney which is available to Mr. Saadeh and which we direct be immediately reinstated. Accordingly, we remand for further proceedings.

Lesson learned?

Trusts and estates lawyers often represent clients in matters that benefit third parties. Examples include a client’s children in an estate-planning engagement (your client is the testator, but his children are third-party beneficiaries of your work), or the beneficiaries of a trust (your client is the trustee, but the trust’s beneficiaries are third-party beneficiaries of your work), or the beneficiaries of a probate estate (your client is the personal representative, but the estate’s beneficiaries are third-party beneficiaries of your work), or the ward in a guardianship proceeding (your client is the guardian, but the ward is a third-party beneficiary of your work).

In all of these cases the attorney has only one client, and our duties of confidentiality and the reciprocal rules protecting our attorney-client communications apply (see here). However, just because the third-party beneficiaries can’t compel you to disclose confidential attorney-client communications, doesn’t mean they can’t sue you for malpractice. That’s the key take-away from this case and others like it, and one that still comes as a surprise to many. By now, it shouldn’t.

If you represent a fiduciary in a contested Florida estate, trust or guardianship proceeding and you commit malpractice, you need to assume the possible universe of plaintiffs in a malpractice suit against you includes not just your client (i.e., the guy who hired you and thinks you’re brilliant), but also every third-party beneficiary of the estate, trust or guardianship estate who thought your client was a jerk and blames you personally for every real or imagined injury he may have caused.

Bonus material

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Complex estate litigation usually doesn’t get resolved in a single winner-take-all trial. These cases usually get played out in multiple “mini” trials (sometimes before the same judge, sometimes not) turning on an evolving set of contingencies that no one could have predicted in advance.

If you’re smart, it’s these “unknown unknowns” that keep you up at night. Case in point: who knew that winning a “defalcation” ruling in a bankruptcy proceeding against your client’s former probate lawyer could end up immunizing his insurance carrier from liability?

Case Study

In re West, Slip Copy, 2015 WL 2445315 (Bkrtcy. M.D.Fla., May 20, 2015)

I first wrote about this case here, when a bankruptcy judge ruled that a probate attorney (“West”) had been dishonest and breached his fiduciary duty to his former client (“Aleta”) when he billed her in accordance with Florida’s statutory fee schedule. Applying the fee schedule contained in F.S. 733.6171, West estimated his firm’s fees would be a little over three hundred thousand dollars based on a percentage value of the $23 million estate. Aleta testified that she was “shocked” by that amount, but that West told her that the bill was “set by Florida statute and law,” and that, prior to his passing, her father had known about it. Anyway, Aleta made two payments before falling out with West, ultimately suing him for a return of the fees already paid. The case was moved to the bankruptcy court when West and his wife jointly filed for chapter 7 bankruptcy.

The bankruptcy judge hammered West, ordering him to pay back $212,478 in fees. The judge also concluded that West’s billing-related statements to Aleta were dishonest, intentional and fraudulent. These findings resulted in a “defalcation” ruling, which meant West’s $212,478 debt to Aleta was not dischargeable in bankruptcy. If West actually had the money to pay this debt, this was good news for Aleta. If he didn’t, then the defalcation ruling wasn’t much of a win . . . unless West’s insurance carrier, Florida Lawyers Mutual (“FLM”), was also on the hook. That’s the issue the court grappled with this time around.

Is the insurance carrier “off the hook”? YES

Aleta apparently hoped to collect her $212,478 judgment from FLM, West’s malpractice insurance carrier. FLM had other ideas, arguing that the prior defalcation ruling meant West’s actions fell under his policy’s coverage exclusion for any claim “arising out of a . . . dishonest, intentional . . . or fraudulent act, error or omission.” Aleta argued the policy exclusion was limited to criminal acts, which West’s conduct falls short of. The bankruptcy court wasn’t convinced, concluding that because its prior defalcation ruling was based on a finding that West’s actions had been dishonest, intentional and fraudulent, the coverage exclusion also applied. Bottom line, FLM was “off the hook for West’s liability.” Here’s why:

Florida law requires courts to liberally construe policy exclusions in favor of insureds. This is not to say that courts must always side against insurers. When policy “language is plain and unambiguous, there is no occasion for the Court to construe it.” Instead, courts must simply apply the policy’s plain meaning. The policy exclusion in this case is unmistakably clear: it does not cover dishonest or fraudulent conduct.

A fair look at the facts of this case definitively shows that Aleta’s claim falls within that exclusion. To review, West lied to Aleta by telling her that the he was bound by Florida law to charge a percentage fee. He furthered this fraud when he told Aleta that her father had approved this arrangement. And in a time where he knew she was dependent upon his professional judgment and care, West took advantage of the trust and confidence that Aleta placed within him. This was intentional and dishonest—to say the least. Even the narrowest reading of the policy’s terms would not cut in favor of Aleta’s position. Florida Lawyers Mutual is off the hook for West’s liability. West is not. He remains liable to Aleta for $212,478.

Lesson learned?

In estate litigation it’s the “unknown unknowns” that can convert today’s big win into tomorrow’s bitter set back. The bankruptcy judge’s defalcation ruling against West was clearly a “win” for Aleta, but it also immunized West’s insurance carrier from liability. This may have all been part of a grand strategy, or it could have been an unintended consequence. Either way, we now have one more contingency we can transfer from the “unknown unknown” column to the much easier to handle “things we know we don’t know” column. Will a defalcation ruling always immunize a lawyer’s insurance carrier from liability? We don’t know. But that’s OK, we now know this is a possible risk (it’s a known unknown), and can plan accordingly. And for those of us making a living in the crazy world of civil litigation, that counts as a win.

The number of registrants far exceeded our expectations for this meeting, so we’ve had to move to a larger venue graciously provided by the folks at Northern Trust.

For those of you who didn’t see the first notice, I’m one of the volunteers working on bringing this exciting new opportunity to Miami. If you are at all interested in this topic, I encourage you to attend this free organizational meeting by clicking the “register now” button below.

REGISTER NOW!

STEP Miami, in conjunction with the STEP Contentious Trusts & Estates Special Interest Group, is hosting an organizational meeting on Wednesday June 10, 2015 from 6:00 PM to 8:00 PM at Northern Trust’s Downtown Miami office located at:

600 Brickell Avenue
Suite 2400
Miami, FL 33131

What’s this all about?

According to a study reported on by the Wall Street Journal, as many as 70% of all families lose a part of their inherited wealth due to some form of estate dispute. There is no professional organization in South Florida today that addresses this serious problem from an international perspective. STEP Miami seeks to fill that gap.

The demand for this specialized forum has long existed in South Florida, but is rising sharply in recent years. The primary factor driving this growth trend is the increasing number of non-U.S. residents owning property or investments in Florida. For example, according to a September 2014 Report prepared by the National Association of Realtors, approximately 25% of all foreign home buyers in the U.S. buy in Florida. And a Miami Downtown Development Authority study found that more than 90% of the demand for new downtown Miami residential units came from foreign buyers; 65% were from South America. South Florida is also a growing hub for ultrahigh-net-worth Latin American families. A recent Knight Frank study found that Miami ranked sixth on a survey list of “most important” cities to UHNW individuals (London was first; New York was second).

About the STEP Contentious Trusts and Estates Special Interest Group

This specialist group serves practitioners who are working with, or have an interest in, trusts and estate practice from a “contentious” angle (that’s polite UK speak for litigation). It provides a forum for sharing international trust and estate jurisprudence and marshaling expertise and best practices in dealing with trust and estate disputes on an international level.

About STEP Miami

Founded in 2000, the STEP Miami Branch is one of the largest and most active in the Americas. Consistent with the objectives of STEP, the Miami branch provides practitioners with access to high level trusts and estates resources for all its members. The branch is run by a committee of 12 directors  and comprises an expanding membership of nearly 200 professionals from across Miami’s accountancy, legal, banking and fiduciary sectors.

THANK YOU TO OUR SPONSOR!

 

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Assume you have a case involving a $55 million trust created under “Grandfather’s” Will, that provides for a life-time trust for his son (“Father”), containing the following testamentary power of appointment (“POA”):

[T]hree quarters (3/4) [of the Trust estate] shall be distributed to [Father’s] then living issue as [Father] shall by his Last Will and Testament appoint, and in default of appointment, to his then living issue on the principle of representation.

In his Will, Father exercised this POA in a way that disinherited or “excluded” one of his three children (i.e., one of Father’s “then living issue”). Is that legal? The answer to that question depends in large part on whether the POA is deemed to be exclusionary or nonexclusionary.

Is it exclusionary or nonexclusionary?

If it’s exclusionary, Father was authorized to disinherit (i.e., “exclude”) his child, if it’s nonexeclusionary, he wasn’t. The POA’s ambiguous on this point because it doesn’t explicitly say one way or the other. So what’s the default presumption?  Under English common law, POAs were deemed to be nonexeclusionary unless expressly stated otherwise, which means every member of the class covered by the POA was presumed to be entitled to a “substantial” and not “illusory” share of the trust. (This presumption’s been abolished by statute in England).

As noted by the only Florida appellate court to address this issue directly, the old English rule was “unworkable” in practice “because it put the burden on the donee of the power to try to figure out how little could be directed to a nonfavored member of the class. If a court later determined that amount to be illusory, the entire power of appointment would fail.” Ferrell-French v. Ferrell, 691 So.2d 500, 501 (Fla. 4th DCA 1997). Not surprisingly, the Ferrell court adopted the opposite presumption: “We hold that a power of appointment is [exclusionary], unless the donor expressly manifests a contrary intent.” Id. at 502. By the way, this presumption was applied (if not explicitly stated) in Cody v. Cody, a 1st DCA case I wrote about here. Florida’s approach also reflects the modern trend, as stated in Restatement (Third) of Property (Wills & Don. Trans.) § 17.5 (2011):

A power of appointment whose permissible appointees are defined and limited is either exclusionary or nonexclusionary. An exclusionary power is one in which the donor has authorized the donee to appoint to any one or more of the permissible appointees, to the exclusion of the others. A nonexclusionary power is one in which the donor has specified that the donee cannot make an appointment that excludes any permissible appointee or one or more designated permissible appointees from a share of the appointive property. In determining whether a power is exclusionary or nonexclusionary, the power is exclusionary unless the terms of the power expressly provide that an appointment must benefit each permissible appointee or one or more designated permissible appointees.

Case Study

Sefton v. Sefton, — Cal.Rptr.3d —-, 2015 WL 1870302 (Cal.App. 4 Dist. April 24, 2015)

Grandfather’s trust was created under a Will he executed in 1955, which apparently remained unchanged through the date of his death in 1966. At that time California’s courts still followed the old English rule, which deemed POAs to be nonexclusionary unless the donor explicitly expressed a contrary intent. In 1970, California reversed this presumption by statute. Father died in 2006. Disinherited son filed suit in 2010, challenging his Father’s exercise of the POA excluding him from the trust. The case dragged on for four years.

For disinherited son (and his lawyers), it must have been a gut-wrenching roller coaster ride of a case: disinherited son lost not once, but twice at the trial court level. In both instances he kept his case alive only after winning long-shot appeals, ultimately resulting in his share of the $55 million trust going from 0% to 1/3. (The California appellate court ruled that Father’s exercise of the POA was invalid under the pre-1970 controlling law, which meant the POA failed, which meant disinherited son was entitled to a 1/3 intestate share of the trust).

Is litigation financing the wave of the future for estate litigants?

Estate litigation is a highly-specialized, labor intensive endeavor. Which means it’s expensive, and there aren’t a lot of lawyers who do this kind of work full time. Result: heirs with decent prospects of inheriting significant sums often have to abandon legitimate claims simply because they can’t afford to prosecute them. Sometimes this problem is solved by the attorney taking the case on a contingency-fee basis. But that’s a risky proposition, which again means legitimate claims that should prevail on the merits are often abandoned for economic reasons. That didn’t happen in this case. Why? Because the claimant found a third-party lender willing to finance the cost of his legal representation.

Litigation financing has been around for a long time (especially overseas), but remains somewhat controversial in the U.S. If done right, these deals are both legal (as explained by the 4th DCA in Kraft v. Mason, 668 So.2d 679 (4th DCA 1996)) and ethical (as explained by the Florida Bar in Ethics Opinion 00-3, and the ABA in this white paper). Estate litigants facing off against well-funded opponents are especially vulnerable to financial pressure to abandon legitimate claims. For the right kind of case, litigation financing can level the playing field.

I predict we’ll see more of these deals as the industry matures and gains wider acceptance among lawyers and their clients. The law firm on the winning side of the California case was Van Dyke & Associates, and the lender was Law Finance Group (LFG). Here’s an excerpt from LFG’s press release on the case:

“From the outset, we understood the significant uphill battle we were facing. With the trial court having granted our wealthy opponent’s demurrer without leave to amend, our disinherited client’s case was entirely in the hands of the court of appeal. As a case of first impression, the outcome was anything but certain. LFG stepped in to assist us when we needed them most. Together, we debated the merits and analyzed the probability of success. After two separate appeals, we finally emerged with a total victory for our client. Many others believed in the case, but few had the wisdom to invest in it.  Only one had the resources to fund it to the finish line. Thanks again LFG.” – Richard S. Van Dyke, Esq., Managing Partner, Van Dyke & Associates, LLP

The Sefton II opinion can be reviewed at: http://www.courts.ca.gov/opinions/documents/D065898.PDF

For more information regarding Law Finance Group’s trust and estate litigation finance practice, please contact:  Wendy A. Walker at (212) 446-6767 or  wwalker@lawfinance.com.

Stay tuned for more!

If you make your living in and around our probate courts you’ll find the FY 2013-14 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 here (2012-13), here (2011-12).

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 at the end of this post I’ve provided a glossary with the official definition given for each of the categories listed in my chart. Finally, 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 and divided them by the number of probate judges serving in each of those counties.

So what’s it all mean?

In Miami-Dade – on average – each probate judge took on 3,069 NEW cases in FY 2013-14, in Broward the figure was even higher at 3,899/judge, with Palm Beach scoring the lowest at 1,950/judge. 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 2013-14 Probate Court Filing Statistics

Type of Case Miami-Dade (11th Cir) Broward (17th Cir) Palm Beach (15th Cir)
Probate 4,039  4,177  4,686
Baker Act  5,135  5,515  1,439
Substance Abuse 1,058  1,010  665
Other Social Cases 1,062  464  255
Guardianship 932  450  515
Trust 48  80  242
Total 12,274  11,696  7,802
# Judges 4 3 4
Total/Judge 3,069  3,899  1,950

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, Florida Statutes.

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, Florida Statues; appointment of guardian advocates for individuals with developmental disabilities pursuant to section 393.12, Florida Statutes; and actions to remove the disabilities of non-age minors pursuant to sections 743.08 and 743.09, Florida Statutes.

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, Florida Statutes.

Florida Mental Health Act or Baker 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, Florida Statutes.

Substance Abuse Act: All matters related to the involuntary assessment/treatment of substance abuse pursuant to sections 397.6811 and 397.693, Florida Statutes.

Other Social Cases: All other matters involving involuntary commitment not included under the Baker and Substance Abuse Act categories. The following types of cases would be included, but not limited to:

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

I’m one of the volunteers working on bringing this exciting new opportunity to Miami. If you are at all interested in this topic, I encourage you to attend this free organizational meeting by clicking the “register now” button below.

REGISTER NOW!

STEP Miami, in conjunction with the STEP Contentious Trusts & Estates Special Interest Group, is hosting an organizational meeting on Wednesday June 10, 2015 from 6:00 PM to 8:00 PM at the Miami office of Kobre & Kim LLP located in Downtown Miami at:

2 South Biscayne Boulevard
35th Floor
Miami, FL 33131

Click here for all the details.

Discussions will be led by current STEP Miami members followed by drinks and networking. All practitioners in this field, be they a STEP Member or not, are welcome to attend.

About the STEP Contentious Trusts and Estates Special Interest Group

This specialist group serves practitioners who are working with, or have an interest in, trusts and estate practice from a “contentious” angle (that’s polite UK speak for litigation). It provides a forum for sharing international trust and estate jurisprudence and marshaling expertise and best practices in dealing with trust and estate disputes on an international level.

About STEP Miami

Founded in 2000, the STEP Miami Branch is one of the largest and most active in the Americas. Consistent with the objectives of STEP, the Miami branch provides practitioners with access to high level trusts and estates resources for all its members. The branch is run by a committee of 12 directors  and comprises an expanding membership of nearly 200 professionals from across Miami’s accountancy, legal, banking and fiduciary sectors.

THANK YOU TO OUR SPONSOR!

 

No matter how perfect your estate planning structure might be, family culture all too often eats all this great planning for breakfast – “and then spits out the bones.” I love that last line, which comes from a fascinating blog post by Matthew Wesley entitled Culture Does Indeed Eat Structure for Breakfast. Here’s an excerpt:

Trusts fail and litigation ensues. Family behavior undoes financial plans. Tax strategies sit on the shelf because of lack of political will. Family feuds destroy otherwise healthy businesses. And the structural work of family governance specialists is a hollow shell that does not begin to address the family dynamics that, as it were, stand back, smirk, and then eviscerate all of this good work. . . . Why? Because culture eats structure for breakfast.

So what’s the fix?

Wesley’s solution is to work on improving family culture (which he describes as closed or “tribal” in nature), rather than focusing exclusively on beautifully designed planning structures that often get ignored when inheritance feuds break out.

So if this is true – if culture does eat structure for breakfast – then what is the answer? How does one change culture in wealthy families? To find the answer it is useful to look at the nature of family cultures.

Families are often “closed” systems. Families, in this sense, are “tribal”. Being tribal, families often operate in rote ways. They repeat mythic stories, each tribe member has defined roles, and the tribe operates out of these roles often in well-worn, almost scripted ways. Families enact and then reenact their comedies and dramas as they move forward – often with each comedy or drama having a similar feel to those that came before much like formulaic TV writing where every episode follows the same templated arc of development. These tribal systems are inevitably disrupted by key “kinship” events: marriages, divorces, births, deaths, sickness, youth, maturation, old age. In resilient tribal cultures, these events are culturally assimilated and in brittle cultures these events can fracture the unity of the tribe. In either case, the tribe adapts or simply falls apart.

A “structuralist” response to tribal warfare: mandatory arbitration clauses:

So what can estate planners (the ultimate structuralists!) do to help family tribes “adapt” rather than “simply fall apart” when tested by disputed inter-generational wealth transfers?

Step one: accept reality. A certain percentage of estates will be disputed (maybe 70%), no matter how perfect your estate-planning advice might be or how many family counseling sessions may have taken place while the senior generation was alive.

Court battles turn small smoldering disputes into life-altering conflagrations. So step two needs to be: pre-emptively “opt out” of an overworked and underfunded public court system that asks our state court judges to juggle thousands of cases at a time. (In Miami-Dade – on average – each of our probate judges took on 2,848 new cases in FY 2012-13, and in Broward the figure was even higher at 3,105/judge). And how do we keep family disputes out of court? Think arbitration. As I’ve previously written, mandatory arbitration clauses should be incorporated into all wills and trusts — especially in Florida, which was the first state in the nation to specifically authorize them by statute (see here).

If Wesley’s right about family culture overwhelming even the best laid plans (and I believe he is), planning structures need to have flexibility built into them to allow for changing family dynamics over time. Which means planning for a better dispute resolution process is essential. And mandatory arbitration clauses are the single best tool we have to make that kind of pre-emptive planning actually mean something in the heat of post-death “tribal” warfare. In the absence of this kind of process planning, all it takes is one side to believe he or she will gain some kind of advantage by keeping the case in court. If that happens, no matter how sensible mediation or any other form of alternative dispute resolution might be for all concerned, the family’s going to get sucked into court. And when that happens — all bets are off.

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When it comes to wills and trusts, drafting mistakes come in all shapes and sizes. If the document’s written in a sloppy way that’s open to more than one reasonable interpretation, it’s “ambiguous” and there’s a two-step process for litigating that kind of mistake (see here).

Sometimes the mistake goes beyond sloppiness to actually omitting important text. For that kind of mistake we need to “reform” the document to insert the missing text, an equitable remedy that’s been around for a long time in Florida. In 2007 this rule was codified (and expanded upon) for trust agreements in F.S. 736.0415, which provides as follows:

Upon application of a settlor or any interested person, the court may reform the terms of a trust, even if unambiguous, to conform the terms to the settlor’s intent if it is proved by clear and convincing evidence that both the accomplishment of the settlor’s intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement. In determining the settlor’s original intent, the court may consider evidence relevant to the settlor’s intent even though the evidence contradicts an apparent plain meaning of the trust instrument.

Our statue’s based on section 415 of the Uniform Trust Code, which includes the following commentary:

Reformation is different from resolving an ambiguity. Resolving an ambiguity involves the interpretation of language already in the instrument. Reformation, on the other hand, may involve the addition of language not originally in the instrument, or the deletion of language originally included by mistake, if necessary to conform the instrument to the settlor’s intent. Because reformation may involve the addition of language to the instrument, or the deletion of language that may appear clear on its face, reliance on extrinsic evidence is essential. To guard against the possibility of unreliable or contrived evidence in such circumstance, the higher standard of clear and convincing proof is required. See Restatement (Third) of Property: Donative Transfers § 12.1 cmt. e (Tentative Draft No. 1, approved 1995). . . . See also John H. Langbein & Lawrence W. Waggoner, Reformation of Wills on the Ground of Mistake: Change of Direction in American Law?, 130 U. Pa. L. Rev. 521 (1982).

[Reformation] applies whether the mistake is one of expression or one of inducement. A mistake of expression occurs when the terms of the trust misstate the settlor’s intention, fail to include a term that was intended to be included, or include a term that was not intended to be excluded [sic included]. A mistake in the inducement occurs when the terms of the trust accurately reflect what the settlor intended to be included or excluded but this intention was based on a mistake of fact or law. . . . Mistakes of expression are frequently caused by scriveners’ errors while mistakes of inducement often trace to errors of the settlor.

But what if the drafting mistake is huge, like omitting the list of trust beneficiaries who are supposed to inherit it all when the settlor dies. Does F.S. 736.0415 still apply, or is it limited to only fixing minor typo’s or “scrivener’s errors”? That’s the question at the heart of this case.

Case Study

Megiel-Rollo v. Megiel, — So.3d —-, 2015 WL 1740365 (Fla. 2d DCA April 17, 2015)

In the linked-to case above the attorney drafting the trust agreement never got around to preparing a list of trust beneficiaries that was supposed to be attached to the trust agreement. In other words, as drafted, the trust agreement was a blank slate as far as testamentary beneficiaries were concerned. Without testamentary beneficiaries, the trust’s only beneficiary would have been the settlor, who was also the trust’s only trustee.

The “merger doctrine” terminates a trust if the legal and equitable interests in the same trust are held by the same person as both sole trustee and sole beneficiary (as discussed by the 2d DCA in this 2009 case). If the trust failed, its assets would be distributed according to the settlor’s earlier-dated will that split everything equally among her three children. According to the trust’s drafting attorney, the settlor intended to include only two of her three children as trust beneficiaries. So that’s the conflict driving this case: if the trust is effective, one child is cut out, if it fails, all three share equally.

Is Florida’s trust-reformation statute limited to only fixing “simple scrivener’s errors”? NO

The child that was allegedly cut out of the trust argued F.S. 736.0415 couldn’t be used to reform her mother’s trust because the rule’s supposed to only apply to minor drafting errors (i.e., simple scrivener’s errors), not something as fundamental as who the trust’s beneficiaries are supposed to be.

Sharon argues that “the concept of a ‘mistake’ which would warrant reformation [of a trust] is intended to address simple scrivener’s errors that are contrary to the intent of the [settlor].” In other words, some errors in trusts are subject to correction by reformation, but others are not. According to Sharon, reformation is not available under section 736.0415 where, as in this case, the mistake amounts to a complete failure to designate any remainder beneficiaries that would result in a merger.

The trial court basically agreed with Sharon, denying the reformation claim pretrial by summary judgment. Not so fast, says the 2d DCA. First, limiting F.S. 736.0415 to “simple scrivener’s errors” is tantamount to re-writing the statute. Why? Because this limitation is nowhere to be found within the statute’s broadly-worded provisions. If you want to re-write a statue that’s a job for our legislature, not our courts. Strike one:

The broad scope of the language used in the statute is inconsistent with the notion that reformation is available to correct some mistakes in a trust, i.e., “simple scrivener’s error,” but not others. . . . For this court to read such a limitation into the statute would amount to judicial legislation of the sort in which we will not indulge.

Second, according to the 2d DCA F.S. 736.0415 is a “remedial statute,” which means it “should be liberally construed in favor of granting access to the remedy provided by the Legislature.” This is an important point: when in doubt, your judge should always opt in favor of giving you a chance to apply the statute. Strike two:

Our conclusion finds additional support in the status of section 736.0415 as a remedial statute. “A remedial statute is one which confers a remedy, and a remedy is the means employed in enforcing a right or in redressing an injury.” Grammer v. Roman, 174 So.2d 443, 446 (Fla. 2d DCA 1965). As a remedial statute, section 736.0415 “should be liberally construed in favor of granting access to the remedy provided by the Legislature.” The Golf Channel, Inc. v. Jenkins, 752 So.2d 561, 565–66 (Fla.2000). “Courts should not interpret remedial statutes strictly or narrowly to thwart the intent of the Legislature.” E.A.R. v. State, 4 So.3d 614, 629 (Fla.2009). The limiting construction that Sharon urges us to place on section 736.0415 is inconsistent with our duty to give this remedial statute a liberal rather than a narrow construction.

Finally, limiting the statute’s application to “simple scrivener’s errors” is impractical. There’s no way to articulate that rule in a way that would give anyone (least of all our judges) any objective guidance as to how they’re supposed to “enforce such a vague and amorphous standard in a fair and consistent manner.” One person’s “simple and routine matter” is another’s “complex and unusual” life-altering event. Strike three:

Finally, we note that the construction that Sharon urges us to place on section 736.0415 is impractical and would prove to be incapable of judicial enforcement. Sharon does not explain how the courts might distinguish “simple scrivener’s errors” that are subject to correction by reformation from the more complex and substantive errors that are not. Under such a rule, when litigation arises, simplicity would inevitably be in the eye of the beholder. The courts would be unable to enforce such a vague and amorphous standard in a fair and consistent manner. Moreover, seemingly routine matters regarding a trust’s administration may have a substantial impact on the interests of the beneficiaries and other interested parties. See, e.g., Morey v. Everbank, 93 So.3d 482, 484–89 (Fla. 1st DCA 2012) (addressing the issue of whether the provisions of a trust were such as to waive the exemption from creditors’ claims of two life insurance policies in the amount of $250,000 each). There is just no way to distinguish the simple and routine matter from the complex and unusual.

It ain’t over ’til it’s over

Bottom line, the party seeking reformation in this case is entitled to her day in court — but it won’t be easy. The case is getting remanded back to the same trial-court judge that’s already ruled against reformation once. And when the petitioner gets back to that same judge, she’ll have to prove her case on the merits by clear and convincing evidence.

On remand, Denise must have an opportunity to prove her claim for reformation of the Trust. In accordance with section 736.0415, the standard of proof that she will be required to meet to establish her claim is clear and convincing evidence. See Reid v. Estate of Sonder, 63 So. 3d 7, 10 (Fla. 3d DCA 2011).

In other words, this case is far from over. In the Reid case cited above, the 3d DCA reversed a trial-court judge’s ruling against a trust reformation on technical legal grounds — just like this case (see here); but when the case got back to the same trial-court judge on remand, he simply ruled against reformation again, but this time on the merits, finding that the clear-and-convincing evidence standard hadn’t been met (see here). That’s what happens in bench trials: the same person is both lawgiver and fact finder.

Lesson learned?

If you or your attorney make a mistake, and there’s “clear and convincing evidence” that the mistake is contrary to your testamentary intent, there’s a remedy for that problem, and it’s found in F.S. 736.0415. And according to the 2d DCA, because the statute’s “remedial” in nature, courts should err on the side of granting access to it whenever possible — no matter how big the drafting error might be. But don’t think F.S. 736.0415 is a cure all. If a drafting attorney messes up, that mistake isn’t going to go away unless the rule’s extremely tough “clear and convincing evidence” standard is met, which can be daunting — as the drafting attorney in the Reid case learned (see here). And don’t expect F.S. 736.0415 to give your clients an after-the-fact “do over” just because events don’t pan out as expected — as the parties in the Morey case learned (see here).

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As reported by the WSJ in an article entitled Matters of Trust: Super-Rich Set Up Companies, the über wealthy are increasingly setting up their own privately-held family trust companies or “FTCs” to administer their trusts. Here’s an excerpt:

It isn’t enough to have a trust fund any more. The next step is to have your own trust company.

A small but increasing number of the super rich are setting up their own trust companies — boutique trust firms owned or controlled by wealthy families themselves. Some want more say over how their trust assets are handled; others want to consolidate a bunch of family trusts under one umbrella.

This isn’t a game for the average trust-fund baby. Families typically should have at least $100 million to set one up, and most that do have at least $250 million. Experts estimate there are only a couple hundred private trust companies in the U.S.

Still, their numbers have increased in the past decade as trust lawyers begin to tout their benefits. John P.C. Duncan, a Chicago lawyer who specializes in private trust companies, is setting up 16 this year, compared with only five four years ago. The South Dakota Trust Co., Sioux Falls, which provides back-office and other services for private trust companies, is helping to administer 12 private trust companies this year, up from five last year.

Florida Family Trust Company Act

The WSJ piece was published in 2007. To maintain its edge in the hyper competitive trust-fund business, Florida needed to react to this new trend, and it finally has. With the passage of CS/SB 1238, effective October 1, 2015, we now have the “Florida Family Trust Company Act,” found in F.S. Chapter 662.

The dollars at stake in this kind of planning are going to be significant, so if you’re thinking about setting one of these up you’ll want to get the lay of the land. First, read the legislative Staff Analysis summarizing the new act. Second, read Florida Family Trust Companies: Tax and Nontax Considerations, an excellent article in this month’s Florida Bar Journal explaining the nuts and bolts of the new act. Here’s an excerpt:

On June 13, 2014, Governor Scott signed the Florida Family Trust Company Act, creating F.S. Ch. 662. The act, which becomes effective October 1, 2015, governs the formation and operation of family trust companies (FTC) in Florida. At least 14 other states currently have legislation authorizing FTCs (private trust companies). The act, together with favorable trust law and the absence of a state income tax, should allow Florida financial, banking, accounting, and legal service providers to gain a share of the growing FTC business. However, unresolved federal income and transfer tax issues continue to loom over the use of FTCs, whether in Florida or elsewhere. This article provides an overview of the act and discusses key tax and nontax considerations related to FTCs.