Shuck v. Smalls, — So.3d —-, 2012 WL 6027820 (Fla. 4th DCA December 05, 2012)

In civil litigation you usually have years to file your complaint: most statute of limitations periods fall within the 2-6 year range. Not surprisingly, most civil litigators assume the same rules apply to probate litigation. Big mistake! For example, under F.S. 733.212(3) you’ve only got 3 months to file a will contest after you’ve been formally served with the petition for administration. This ultra-short limitations period is a huge trap for the unwary and – not surprisingly – a recurring topic on this blog [click here, here].

Can the 5-day mail rule buy you more time to file your will contest? NO

When you miss a filing deadline by just a few days, the 5-day grace period for mailed service under Probate Rule 5.042(b) can be a life saver. Not so for will contests. Why? Because the 5-day mail rule doesn’t apply to pleadings and motions served by formal notice. In this case the petition for administration was served by certified mail on the will challengers. This counts as formal notice. Bottom line: no 5-day grace period. So saith the 4th DCA:

In this case, appellants’ petition challenging the will and the qualifications of the personal representative were untimely under section 733.212(3), Florida Statutes. On February 10, 2006, counsel for Smalls served the Notice of Administration by certified mail on appellants Charles Shuck, Carol Shuck, and Sandra Walker. Charles and Carol Shuck received the Notice of Administration on February 13, 2006, and Sandra Walker received it on February 14, 2006. However, appellants’ petition was not filed until May 19, 2006, which was over three months after the Notice of Administration.

Appellants suggest that their petition was timely because Florida Probate Rule 5.042 (2006) provided for an additional five-day grace period because service was achieved by mail. This argument is without merit. The relevant version of rule 5.042(d) provides:

(d) Additional Time After Service by Mail. Except when serving formal notice, or when serving a motion, pleading, or other paper in the manner provided for service of formal notice, when an interested person has the right or is required to act within a prescribed period after the service of notice or other paper on the interested person and the notice or paper is served by mail, 5 days shall be added to the prescribed period.

Fla. Prob. R. 5.042(d) (2006) (emphasis added).

Here, the Notice of Administration was served on appellants by formal notice. Because appellants received formal notice, the five-day grace period provided by rule 5.042 was inapplicable and the three-month limitations period expired before the petition was filed.

Can filing a time-barred will contest get you (and your lawyer) sanctioned under 57.105? YES 

In this case the parties challenging the will somehow managed to convince the trial judge to give them a pass on their time-barred will contest; the trial court denied a motion to dismiss. At the time, this probably felt like a big win. Not so in retrospect. According to the 4th DCA, just because you managed to pull a fast one on your trial judge at the beginning of the case doesn’t mean you get a free pass from then on.

Because the petition was clearly time-barred, we agree with appellees’ argument on cross-appeal that the trial court abused its discretion in failing to award section 57.105 attorney’s fees from the inception of the case. Cf. Zweibach v. Gordimer, 884 So.2d 244 (Fla. 2d DCA 2004) (a time-barred claim may expose a party to an award of fees under section 57.105). Even though appellants were able to persuade the trial court to deny the motion to dismiss, this does not change the fact that their claims were clearly time-barred and were objectively frivolous at the inception of the case. That appellants were able to convince the trial court to make a legally incorrect ruling on the motion to dismiss should not shield them from liability under section 57.105.

Also, because the case was time barred, the attorneys should have known better . . . which means they’re personally on the hook for 50% of the $441,500 in attorney’s fees, plus cost and expert witness fees ultimately awarded against their clients. Here’s why:

Finally, we note that section 57.105(1), Florida Statutes (2007), shifts attorney’s fees and costs to “a losing party and the losing party’s attorney” in equal amounts when the court finds that a claim or defense was not supported by the material facts necessary to establish it, or that it would not be supported by applying then-existing law to those material facts. However, the losing party’s attorney is not personally responsible if he or she has acted in good faith, based on the representations of his or her client as to the existence of those material facts. Id. “Fees must be assessed against counsel as provided by statute unless the attorney can show good faith. This places the burden where it should be.” Horticultural Enters. v. Plantas Decorativas, LTDA, 623 So.2d 821, 822 (Fla. 5th DCA 1993).

In this case, the fees awarded under section 57.105 presumptively should have been awarded against both appellants and their counsel. Furthermore, because appellants’ claims were time-barred, this precludes appellants’ attorneys, as a matter of law, from asserting any good faith reliance upon the representations of their clients.

Does a sanctions order under F.S. 57.105 = a fee-shifting order under F.S. 733.106(4)? YES

Under F.S. 733.106(4) a probate judge can shift the cost of litigating frivolous probate claims against the losing side’s share of the inheritance by directing “from what part of the estate they shall be paid.” As I wrote here, according to the 4th DCA “this section does not give the trial court unbridled discretion to award fees from any part of the estate,” so it’s reversible error to shift legal fees under F.S. 733.106(4) in the absence of a finding of “bad faith, wrongdoing, or frivolousness.”

In this case the losing side tried to get the fee-shifing order under F.S. 733.106(4) reversed because the judge didn’t make a specific finding of “bad faith, wrongdoing, or frivolousness.” True enough, said the 4th DCA, but this kind of finding is basically implied any time a judge sanctions you under F.S. 57.105. So if you’re already getting sanctioned under that statute, the specific findings needed for a fee-shifting order under F.S. 733.106(4) are satisfied by default. Bottom line: if you’re getting nailed with a 57.105 sanction in a probate case, expect to also get it under 733.106(4). Here’s why:

Section 733.106(4), Florida Statutes (2007), provides that “[w]hen costs and attorney’s fees are to be paid from the estate, the court may direct from what part of the estate they shall be paid.” In In re Estate of Lane, 562 So.2d 352, 353 (Fla. 4th DCA 1990), however, we limited a trial court’s discretion under section 733.106(4) to circumstances in which the will contestant engaged in “bad faith or wrongdoing.” FN3 More recently, we reaffirmed the bad faith requirement pronounced in Lane, but clarified that frivolous litigation would support an assessment of fees under section 733.106(4). See Geary v. Butzel Long, P.C., 13 So.3d 149, 153 (Fla. 4th DCA 2009).

Appellants contend that the trial court should not have awarded fees against only their share of the estate under section 733.106(4), because the trial court did not make any specific finding that appellants’ claims were frivolous or filed in bad faith. However, because we have concluded that appellants’ claims were frivolous from their inception, this is sufficient to satisfy the “bad faith or wrongdoing” requirement of Lane. See Geary, 13 So.3d at 153. Thus, the trial court did not abuse its discretion in assessing fees against appellants’ share of the estate under section 733.106(4).

FN3. Although the Florida Supreme Court did not specifically mention a “bad faith” requirement when it discussed section 733.106(4) in Carman v. Gilbert, 641 So.2d 1323, 1326 (Fla.1994), we do not read Carman as explicitly or implicitly overruling Lane. The issue of whether Lane correctly interpreted section 733.106(4) was not before the court in Carman.

Jacobson v. Sklaire, — So.3d —-, 2012 WL 1414447 (Fla. 3d DCA April 25, 2012)

Will I personally have to pay the other side’s legal fees if I lose this lawsuit?

That’s a question we usually don’t have to grapple with because Florida, like the rest of the U.S., follows the “American rule“: win or lose, all sides pay their own legal fees unless there’s specific statutory (or contractual) authority saying otherwise. For trustees, the prospect of being personally liable for an opposing party’s legal fees is doubly remote. They usually don’t even have to pay their own legal fees (the trust is usually on the hook for that expense), let alone someone else’s.

Everyone pays their own legal fees, and trustees get to pay their fees from trust assets. That’s the norm, and where you need to start from if you’re representing a trustee in any litigation. But you can’t stop there. From beginning to end, each decision made in any case involves its own distinct litigation risk analysis. And one of the biggest risks trustees will want managed/analyzed in any case is personal liability for legal fees. So if your trustee client is facing the prospect of litigation, he needs to know that NO, trustees don’t always get their legal fees paid from trust assets [click here], and YES, he could be personally liable for a beneficiary’s legal fees if the case is lost. It’s this second risk your trustee clients will probably find most surprising, and it’s also the focus of the 3d DCA opinion linked-to above.

Can a trustee be personally liable for a beneficiary’s legal fees in a breach of trust lawsuit?

It doesn’t happen often, but under F.S. 736.1004 it is possible for a trustee to end up being personally liable for a beneficiary’s legal fees, which is what happened in this case. Here’s how the 3d DCA summed up the operative facts and its ruling in three short paragraphs:

Jacob Sklaire died in 2004. He created the Jacob Sklaire Trust, in which he gifted to his wife, Joyce [the Beneficiary], $475,000. At his death, the Trust contained approximately $636,000. Michelle and Aline, daughters, are Co–Trustees and remainder beneficiaries of the Jacob Sklaire Trust. After Jacob died, the Co–Trustees refused to distribute the gift to the Beneficiary, who then filed a complaint to compel distribution of the gift from the Trust. The Co–Trustees answered, asserting defenses of lack of capacity, undue influence and fraud, and counterclaimed for funds allegedly wrongfully taken by the Beneficiary from trust assets during Jacob’s life. The trial court denied the affirmative defenses and dismissed the counterclaim with prejudice. The Beneficiary prevailed at trial, and the trial court awarded her costs and fees from the Trust. The Co–Trustees appealed the final judgment and this Court affirmed.

The Co–Trustees thereafter agreed to an order taxing the Beneficiary’s costs against the Trust, and agreed to pay the Beneficiary’s attorney’s fees from the Trust. The Co–Trustees had, however, without court approval paid their own attorney’s fees out of the same Trust during the course of the litigation, counterclaim and appeal, leaving less than necessary to pay the Final Judgment and orders on attorney’s fees and costs. The Beneficiary filed motions to compel payment, and moved to hold the Co–Trustees personally liable for the amounts, asserting breach of fiduciary duty. The trial court awarded the Beneficiary’s appellate fees and costs against the Trust and deferred ruling on the Co–Trustees’ individual liability.

The bulk of the money that was improperly diverted from the Trust was ultimately repaid by the Co–Trustees’ original law firm, and by the Co–Trustees themselves. There were, however, insufficient funds left in the Trust to completely satisfy a balance of about $112,000 remaining from the original amounts ordered repaid, i.e., what was improperly removed from the Trust originally, plus attorney’s fees, plus post-judgment interest. Following an evidentiary hearing, the trial court rendered the order on appeal here, which found that the Co–Trustees in this breach of trust action were jointly and severally liable to the Beneficiary for attorney’s fees and costs pursuant to [F.S. 736.1004]. Finding no error, we affirm.

Does there have to be a finding of “bad faith, wrongdoing, or frivolousness” before a court can shift fees under F.S. 736.1004?

The probate code version of F.S. 736.1004 is F.S. 733.106. Most trusts and estates litigators would consider these statutes as being analogous, with the only difference being one applies in trust actions and the other in probate proceedings. Under F.S. 733.106, a probate judge can shift fees against the losing side by directing “from what part of the estate they shall be paid.” As I wrote here, according to the 4th DCA “this section does not give the trial court unbridled discretion to award fees from any part of the estate,” so it’s reversible error to shift legal fees under F.S. 733.106 in the absence of a finding of “bad faith, wrongdoing, or frivolousness.” This precondition doesn’t appear anywhere within the text of the statute, but according to the 4th DCA it’s necessary for the reasons explained in Geary v. Butzel Long, P.C., 13 So.3d 149 (Fla. 4th DCA 2009):

In In re Estate of Lane, 562 So.2d 352 (Fla. 4th DCA 1990), we examined the propriety of a probate court’s order assessing attorney’s fees from a will contest proportionally against the specific beneficiaries as well as the residuary estate. We noted that section 733.106(4), Florida Statutes, permits the court to direct from what part of an estate a fee assessment shall be paid (just as section 733.6175(2) does). However, we explained:

This section does not give the trial court unbridled discretion to award fees from any part of the estate. Before the trial court may assesses fees against a beneficiary’s share of an estate there must be a finding of bad faith or wrongdoing by the beneficiary or other circumstances which would warrant such an assessment.

Id. at 353. Despite our use of “bad faith and wrongdoing,” we relied on and agreed with Cohen v. Schwartz, 538 So.2d 922 (Fla. 3d DCA 1989), in which the court suggested that in trying to close a prolonged estate, the trial court could assess attorney’s fees against a beneficiary’s portion of the estate for frivolous litigation consistent with section 733.106(4). We agree that if the litigation pursued is frivolous, then the court would have the authority under that section to assess fees against a specific beneficiary’s portion of the estate.

We don’t know if the trial court in the Sklaire case predicated its fee-shifting ruling on a finding of “bad faith, wrongdoing, or frivolousness,” nor do we know if the issue was even addressed by the litigants in their appellate briefs. It’s simply not mentioned in the 3d DCA’s opinion. However, given the amount of attention the 4th DCA’s F.S. 733.106 rulings have attracted in certain probate Bar circles (a lot!), I think it’s only a matter of time before someone argues the same precondition should apply to F.S. 736.1004. Unlike the 4th DCA’s critics, I don’t think this is a big deal.

As a practical matter, most trial judges aren’t going to assess legal fees against a losing party unless someone’s really made a mess of things or gone way beyond the bounds of acceptable behavior. So if your trial judge is inclined to assess fees, he or she is probably not in a good mood to begin with, which means it shouldn’t be all that difficult to also get a finding of “bad faith, wrongdoing, or frivolousness” if you ask for it. So why not ask? If your fee order gets appealed, you’ll be glad you did.

Listen to this post

A decade ago states were racing to pass legislation making dynasty trusts possible. According to one 2005 study I wrote about here, the winners of that legislative race (including Florida) reaped roughly $100 billion in new trust business. So yes, the stakes are high.

Today, the legislative race is all about asset protection trusts. The concept originated offshore in the Cook Islands, a tiny chain of islands in the South Pacific, and migrated onshore when Alaska became the first U.S. state making self-settled asset protection trusts legal. Currently there are 14 states with some form of domestic asset protection trust (DAPT) legislation in effect (Florida isn’t one of them).

Love ’em or hate ’em, you’ll want to hang on to this 14-state DAPT chart.

The latest puff piece touting the benefits of DAPT’s appeared in this month’s issue of the ABA’s Real Property, Trust and Estate Law Journal entitled The Domestic Asset Protection Trust: Ranking the Jurisdictions. The ABA article has an easy to read chart summarizing the DAPT legislation in the 14 states where they’re currently legal. Sooner or later someone’s going to ask you if it’s a good idea to set up a DAPT in state “X”. When they do, you’ll be glad you have this 14-state DAPT chart handy.

Are DAPT’s a good idea?

I was, and am, a big fan of dynasty trusts. DAPT’s, not so much. And I’m not alone. My views are reflected in the following quote from this blog post by California attorney Jay Adkisson, author of the Wealth Conservation blog, one of the best blogs published in the trusts and estates universe:

[T]he real problem with DAPTs is that they are so far significantly untested. We’ve got a pretty good idea after the Anderson and Lawrence cases what happens with [foreign asset protection trusts (it’s not pretty, click here)], but what will happen with DAPTs is largely a crapshoot. Whether they realize it or not, many clients in DAPTs are the lab rats in a great legal experiment which, in this author’s opinion, is not hopeful as far as DAPTs for non-DAPT settlors and their assets are concerned.

*  *  *  *  *

For what it is worth, your writer and his law firm only very rarely use self-settled trusts of any kind for asset protection planning. My advice has long been to “avoid self-settled trusts altogether whenever possible”

What about “exemption” planning for Florida residents?

Especially in a state like Florida, which affords extremely generous asset protection to its residents in the form of statutorily-sanctioned creditor exempt assets (think homestead property, TBE property, insurance, annuities, pension plans, IRA’s), there’s a lot of very effective planning you can do way before you need to even consider a DAPT. I did a seminar back in 2005 on this type of planning. Much has changed since then, so don’t rely on my outline without doing your own research, but if you’re interested in a better understanding of what I mean by exemption planning, click here for a copy of the 2005 outline.

Hirchert Family Trust v. Hirchert, — So.3d —-, 2011 WL 2415787 (Fla. 5 Dist. Jun 17, 2011)

One crack in the almost impenetrable shield protecting Florida homestead property from creditors is the amorphous “equitable lien” doctrine. In In re Gosman, 2007 WL 707365 (Bankr.S.D.Fla. Mar 05, 2007), the bankruptcy court articulated the following two-part test for determining “the very narrow circumstances warranting the imposition of an equitable lien” on homestead property under Florida law:

  1. that the money was obtained fraudulently or through egregious conduct, and
  2. that the money obtained was utilized to invest in, purchase or improve the targeted homestead property.

Does a trustee’s breach of fiduciary duty = “fraud” for equitable lien purposes? YES!

What’s interesting about the linked-to case above, especially for trusts and estates litigators, is that the 5th DCA held that a trustee’s breach of fiduciary duty is a form of “constructive fraud” warranting imposition of an equitable lien on the trustee’s Florida homestead property if, as happened in this case, the money obtained as a result of the breach was used to invest in, purchase or improve the targeted homestead property.

Contrary to the trial court’s conclusion, we believe that a breach of fiduciary duty is “constructive fraud” and thus may form the basis to apply the exception to the homestead protection. As this court explained in First Union National Bank of Florida v. Whitener, 715 So.2d 979, 982 (Fla. 5th DCA 1998):

Constructive fraud is the term typically applied where a duty under a confidential or fiduciary relationship has been abused, or where an unconscionable advantage has been taken. Constructive fraud may be based on misrepresentation or concealment, or the fraud may consist of taking an improper advantage of the fiduciary relationship at the expense of the confiding party.

In Allie v. Ionata, 466 So.2d 1108, 1110 (Fla. 5th DCA 1985), this court further explained:

Florida courts have recognized that constructive fraud may exist independently of an intent to defraud. It is a term which is applied to a great variety of transactions that equity regards as wrongful, to which it attributes the same or similar effects of those that follow from actual fraud and for which it gives the same or similar relief.

(Emphasis added).

So what can you do with an equitable lien on homestead property? THINK FORCED SALE

Once you’re granted an equitable lien on homestead property, your judgment or “debt” is now secured to the extent of the value of the homestead property. This debt can be satisfied just like any other secured debt, subject to whatever equitable conditions your trial judge may impose. For example, you could obtain a court order compelling a sale of the targeted homestead property by a court-appointed receiver to satisfy the debt owed to you. That’s what the plaintiff/successor trustee in the linked-to case did.

[T]he [trial] court entered a postjudgment order (“Postjudgment Order”) that is in essence a mandatory injunction requiring Appellee to convey the Kissimmee Property to a court-appointed Receiver, who was instructed to sell the property.

By the way, this type of enforcement order isn’t an outlier. It’s exactly the type of order you’d expect to get if your judge follows the approach accepted in most jurisdictions, as reflected in section 56 of Restatement (Third) of Restitution & Unjust Enrichment, comment “c”:

Enforcement of equitable lien. An equitable lien has the ordinary characteristics of a lien for security, the obligation secured being the defendant’s liability for unjust enrichment in the amount determined by the court. The lien is accordingly subject to the defendant’s right of redemption: the lien may be discharged, and the property freed from the encumbrance, if the defendant pays the claimant the amount of the underlying liability. If the judgment is not satisfied, the claimant/lienholder can obtain a judicial sale of the property subject to lien, the proceeds being applied to the satisfaction of the defendant’s obligation to the claimant. If the proceeds are inadequate for this purpose, the claimant has an unsecured claim against the defendant for the deficiency.

. . .

Restitution via equitable lien is a flexible and adaptable remedy, because the court that imposes the lien can establish whatever conditions to its enforcement (or “foreclosure”) may be appropriate in the circumstances of the case. In particular, an equitable lien that may be foreclosed only on stated conditions can be used to shield an innocent recipient from the prejudicial effect of personal liability in various circumstances.

While we know what the federal estate tax rules are until the end of 2012, what happens in 2013 and beyond is anyone’s guess. Under current law the estate tax exemption is scheduled to drop significantly from $5,120,000 in 2012 to $1,000,000 in 2013, and the top estate tax rate is scheduled to jump from 35% to 55%.

At a top rate of 55%, the federal estate tax automatically makes the IRS the single largest creditor for most large estates. That’s the bad news. Here’s the good news: as I’ve previously explained here and here, with a reasonable amount of sensitivity to the tax issues looming in the background of every taxable estate, litigation can often be shaped to create win-win opportunities by mining the tax code for “free money” to settle cases.

Estate of Bates v. Comm’r, T.C. Memo. 2012-314, 2012 WL 5445778 (U.S.Tax Ct. Nov. 7, 2012):

Consider the economics of the settlement agreement reached in the Tax Court case linked-to above. In this case the estate settled a will/trust contest by paying the challenger approximately $500,000 to drop his claims. The decedent in this case died in 2005, when the top estate tax rate was 47%. If the $500,000 settlement is a tax deductible expense, the heirs get a 47% deduction = to $235,000. Bottom line, if done right a $500,000 settlement payment “costs” the heirs only $265,000 after taxes. This is the kind of math that gets deals done and makes probate litigators look like geniuses . . . or not.

When the estate filed its estate tax return, instead of characterizing the $500,000 settlement payment as a validly deductible creditor claim under IRC § 2053, the exact opposite was done. The payment was characterized as a NON-deductible payment to an estate beneficiary as follows:

FUNDS PAID TO REGGIE LOPEZ IN EXCESS OF BEQUEST BY DECEDENT IN SETTLEMENT OF TRUST CONTEST LAWSUIT TO SETTLE TITLE TO BENEFICIARIES

As explained by the Tax Court, there’s no way this kind of payment was ever going to fly as an estate tax deduction.

The estate contends that the settlement payment to Mr. Lopez is deductible. Pursuant to section 2053(a)(3), a claim against an estate is deductible if it is supported by adequate consideration and not attributable to the testator’s testamentary intent. See sec.2053(c)(1)(A); Estate of Huntington v. Commissioner, 100 T.C. 313, 316, 1993 WL 99962 (1993), aff’d, 16 F.3d 462 (1st Cir.1994); Estate of Lazar v. Commissioner, 58 T.C. 543, 553, 1972 WL 2476 (1972); Estate of Pollard v. Commissioner, 52 T.C. 741, 745, 1969 WL 1656 (1969). The settlement payment to Mr. Lopez is not deductible because the payment lacked adequate consideration and was consistent with decedent’s testamentary intent. See sec.2053(c)(1)(A); Estate of Huntington v. Commissioner, 100 T.C. at 316; Estate of Lazar v. Commissioner, 58 T.C. at 553; Estate of Pollard v. Commissioner, 52 T.C. at 745.

In support of his determination, respondent cites Estate of Huntington and Estate of Lazar, where the Court concluded that settlement payments to beneficiaries were not deductible. The estate contends that these cases are distinguishable because the settlement payments were paid to family members. While the settlement payments in these cases were to family members, the Court’s reasoning is equally applicable to cases involving nonfamily members. Decedent had a longstanding and extremely close relationship with Mr. Lopez, expressly provided that he would receive estate assets, and memorialized her testamentary intent in both the First Trust and the Second Trust. In addition, the superior court resolved the amount of estate assets that Mr. Lopez was entitled to receive, and the settlement payment was paid in full satisfaction of any claim relating to the First Trust or the Second Trust. Furthermore, on the estate tax return, the estate reported that Mr. Lopez was a beneficiary and the settlement payment was paid to settle title to beneficiaries. During decedent’s lifetime Mr. Lopez was paid for the services he rendered, and no part of the settlement payment related to a claim for unpaid services. In short, Mr. Lopez’s claim represented a beneficiary’s claim to a distributive share of the estate rather than a creditor’s claim against the estate. See Estate of Lazar v. Commissioner, 58 T.C. at 552.

Lesson learned?

If you’re dealing with a taxable estate, it’s imperative that every decision made by the parties and their lawyers with respect to how they characterize and prosecute their trust/probate claims is considered against this backdrop. Whether a dispute is resolved through litigation or settlement, the nature of the underlying action determines the proper tax consequences. The taxability of a settlement is controlled by the nature of the litigation. The nature of the litigation is in turn controlled by the origin and character of the claim that gave rise to the litigation. And it’s the parties – not the IRS – that ultimately control this initial link in the causal chain.

Is it possible to frame the same set of facts as either a creditor claim against the estate or a will contest? If the answer is yes, one type of case is tax deductible (creditor claim), the other isn’t (will contest). Did the contestant’s lawyer only prosecute the challenger’s individual interests or did this lawyer help the estate properly administer the estate for everyone’s benefit? If it’s the former, no tax deduction; if it’s the latter, challenger’s legal fees may be tax deductible (think more free money to settle). Get these questions right, everyone wins. Get them wrong . . . not so good.

Miami Children’s Hosp. Found., Inc. v. Estate of Hillman, — So.3d —-, 2012 WL 4795648 (Fla. 4th DCA October 10, 2012)

In April 2004 Elaine B. Hillman amended her trust, including the following charitable bequest:

TWENTY–FIVE PERCENT (25%) to MIAMI CHILDREN’S HOSPITAL FOUNDATION, CRANIAL/FACIAL FOUNDATION, located at 3000 S.W. 62nd Avenue, Miami, FL 33155, ATT: Dr. Anthony Wolf [sic].

In January 2006  — almost two years later — a new not-for-profit calling itself the Miami Care Foundation was incorporated. Ms. Hillman died on July 13, 2007. According to the 4th DCA, the Miami Care Foundation contested Miami Children’s Hospital Foundation’s claim to the charitable bequest on the following grounds:

Ms. Hillman wanted Dr. Wolfe to have the ability to direct and control the assets of the pourover trust and Dr. Wolfe was now the head of [the Miami Care Foundation].

Drafting error or ambiguity?

If “Ms. Hillman wanted Dr. Wolfe to have the ability to direct and control” her charitable bequest, her trust agreement could have easily been written to say so. It wasn’t. To me, this sounds like a drafting error that could have been addressed under F.S. 736.0415, a Florida Trust Code provision I’ve previously written about here allowing judges to re-write or “reform” trust agreements to the extent needed to conform the text to the settlor’s intent. A judge’s authority under this statute goes way beyond simply fixing “typos”. We know this because the statute specifically says a judge can reform a trust agreement even if the text is un-ambiguous. In other words, the key question is what’s the settlor’s intent, NOT whether the text is ambiguous. This last point is especially important in light of the 4th DCA’s ultimate ruling in this case.

For reasons unexplained in the appellate opinion, the Miami Care Foundation chose to litigate its claim under an ambiguous-trust theory. OK, so maybe the clause as drafted wasn’t a picture of clarity, but that alone doesn’t get you to a legal finding of ambiguity (i.e., the document is open to more than one reasonable interpretation). The text was clear, it just didn’t say what the settlor intended it to say.

At the trial court level the Miami Care Foundation won on the facts (the judge found in its favor on the issue of settlor intent), but on appeal the law caught up with it (no legal finding of ambiguity), resulting in reversal and the ultimate failure of its cause. Here’s how the 4th DCA put it:

In Scheurer v. Tomberlin, 240 So.2d 172 (Fla. 1st DCA 1970), the court quoted 35 Fla. Jur., Wills, Section 253, as follows:

A court may, in proper case, look beyond the face of a will if there is an ambiguity as to the person to whom it is applicable; if there is a latent ambiguity as to the identity of a legatee or devisee, or a mere inaccuracy in the designation or description contained in the will, extrinsic evidence is admissible to explain the ambiguity or inaccuracy and identify the person designated. Thus, parol evidence is admissible to explain the meaning of a description of a beneficiary named in a will that might apply to each of several persons, or to rectify a mistake made in the description of a beneficiary.

Scheurer, 240 So.2d at 175. However, “the general rule is that misnomer of a legatee will not defeat a bequest where the one intended can be identified with certainty.” Mass. Audubon Soc’y v. Ormond Vill. Imp. Ass’n, 152 Fla. 1, 10 So.2d 494, 495 (1942).

The bequest in Ms. Hillman’s First Amendment to Trust which is at issue in this case states: “TWENTY–FIVE PERCENT (25%) to MIAMI CHILDREN’S HOSPITAL FOUNDATION, CRANIAL/FACIAL FOUNDATION, located at 3000 S.W. 62nd Avenue, Miami, FL 33155, ATT: Dr. Anthony Wolf [sic].” This appears to unambiguously name MCHF as the beneficiary.

We therefore reverse and remand and direct the trial court to vacate its order determining that Miami Care Foundation, Inc. was the beneficiary of the pourover trust, and enter an order designating Miami Children’s Hospital, Inc. as the beneficiary of the pourover trust.

Listen to this post

“Don’t be original.” Sage advice for estate planners. But sometimes clients insist on pulling us out of our comfort zones, especially when it comes to “doing what’s best” for their children long after mom and dad have passed away. I mean, how can you argue with a guy who says the least his children can do is marry within the family faith if they want a piece of the family inheritance? Answer: you can’t, nor should you. But don’t walk into this minefield unprepared. The unintended consequences can include years of divisive litigation, as one family learned in a case the LA Times reported on in Jewish disinheritance upheld by Illinois high court [click here].

The Power of Incentives:

On the flip side of this issue, if you’re a probate litigator you’ll want to spot the potential traps lurking under will or trust clauses seeking to “incentivize” heirs to live a certain way, marry or not marry certain people, complete a certain degree, enter a certain profession, abstain from certain self-destructive conduct, etc. Generally speaking, you’ll find these directives in incentive trusts, and they’ve probably been around in one form or another for as long as people have been writing wills.

Here’s the rub. Clients don’t want to pay a fortune for the legal research needed simply to understand what kind of minefield they’re stepping into with these clauses, let alone how to successfully navigate through it. For that kind of basic research you’ll want to read Prof. Gerry Beyer’s article entitled Manipulating the Conduct of Beneficiaries with Conditional Gifts. Although Prof. Beyer writes for a Texas audience, the legal principles are widely applicable and just as useful for busy Florida lawyers. Here’s an excerpt:

Some conditions are relatively benign such as a provision requiring property to be held in trust until the beneficiary reaches a specified age. However, testators and settlors may use conditions to control or influence nuances of the beneficiary’s behavior. For example, a testator left his house and $30,000 to his wife on the condition that she smoke five cigarettes per day for the rest of her life to get even for her distain of his practice. See Widow Fumes at Order to Start Smoking, SAN ANTONIO EXPRESS-NEWS Sept. 10, 1993, at 6A. Will the court force a beneficiary to engage in a dangerous habit to receive the property? If not, would the wife get the property free of the condition or would the property pass under other provisions of the testator’s will? What about a will provision providing $500 per month for the police officer who gives the most traffic tickets to motorists for double-parking? Dead Man Had Will, Way to Get Double-Parkers, WASH. POST, Aug. 25, 1998, at A2. This month’s article explores conditional gifts and focuses on how to increase the likelihood that the court will enforce the conditions.

* * * * *

Conditional bequests may be an effective way to carry out a testator’s or settlor’s intent. Courts uphold a wide array of conditions as long as they are phrased appropriately, not contrary to public policy, and not illegal. . . . . Whether to provide incentive for accomplishment, motivation for achievement, protection for the naive, or revenge from the grave, well-drafted conditional gifts may survive to do the bidding of the dead.

Below is a list of the types of clauses Prof. Beyer covers in his article, which includes all the usual suspects.

Restraints on Marriage:

  1. Restraints on First Marriage
  2. Restraint on Marriage Before a Certain Age
  3. Restraints Requiring Consent by a Designee
  4. Conditions Requiring a Beneficiary to Become Married
  5. Conditions Requiring a Beneficiary Remain Married
  6. Conditions Requiring a Beneficiary Be Married
  7. Conditions Preventing the Remarriage of Spouse

Conditions Encouraging Divorce or Separation:

  1. Benefit Conditioned on Divorce of Current Spouse
  2. Condition Requiring that a Beneficiary’s Spouse be Deceased

Conditions Involving Religion:

  1. Joining or Adhering to a Particular Faith
  2. Raising a Child in a Particular Faith

Conditions Involving Behavior:

  1. Being Drug, Alcohol, or Other Vice Free
  2. Not Being Involved in Crime
  3. Acquiring a Certain Level of Education
  4. Attaining a Certain Age
  5. Waiving Rights
  6. Not Placing Surviving Spouse in Nursing Home

Other Personal Conduct:

  1. Requiring that Beneficiaries Not Communicate with Disinherited Siblings
  2. Not Joining the Military
  3. Requiring a Beneficiary to Resume or Maintain a Family Name

Connell v. Connell, — So.3d —-, 2012 WL 3101842 (Fla. 2d DCA August 01, 2012)

Joint bank accounts and other forms of joint property get litigated all the time in contested probate proceedings, which means they end up as recurring topics on this blog [see here, here, here, here]. This time around the issue was who owned a $58,350 men’s Rolex watch and $19,386 men’s diamond ring the decedent purchased with funds from a joint checking account shortly before his death.

Back Story:

The decedent at the heart of this case was a 95 year old retired jeweler who enjoyed wearing expensive jewelry. In August 2009 while shopping with his wife (a woman 26 years his junior he married eleven months prior to his death) the decedent purchased a $58,350 men’s Rolex watch. In February 2010 he purchased a $19,386 men’s diamond ring. On both occasions the decedent used funds from a checking account titled jointly with his wife. According to the 2d DCA:

The decedent wore the watch and ring every day. Before he went to bed he took them off and put them in a pocket of one of his suits. In the two weeks before his death, the decedent was hospitalized twice. Before going to the hospital, he gave the watch and ring to Fana to put away, and she put them in her purse.

Decedent died in March 2010. Decedent’s son/personal representative (PR) asked surviving spouse to return the watch and ring. Wife said no; PR sued.

So who gets the watch and ring?

Decedent and surviving spouse had signed an Antenuptial Agreement, which contained the following joint-property clause:

“Upon the death of one party during the continuation of the marriage and prior to any divorce, dissolution or separation of the parties, the survivor shall succeed to the entire interest of the deceased party in all other jointly-owned property.”

However, according to the Antenuptial Agreement, any property the decedent owned individually at death was all his, to dispose of as he pleased.

Bottom line, wife gets the watch and ring if they’re joint property; son/PR gets them if they weren’t. Seems simple right? It’s not. 

2d DCA Speaks:

The first question that needs to get answered is whether the watch and ring were purchased with joint funds. Answer: NO. Here’s why:

It is undisputed that the joint checking account was a joint tenancy with a right of survivorship, not a tenancy by the entireties. When a joint account holder withdraws funds from a bank account that is held as a joint tenancy with the right of survivorship, it “terminates the ‘joint tenancy nature of the [funds] and severs the right of survivorship as to the funds withdrawn.’” Wexler v. Rich, 80 So.3d 1097, 1100 (Fla. 4th DCA 2012) (quoting Sitomer v. Orlan ex rel. Sitomer, 660 So.2d 1111, 1114 (Fla. 4th DCA 1995) (alteration in Sitomer)). When a joint tenant conveys an interest to a stranger, it “destroys the unities of possession and title.” Sitomer, 660 So.2d at 1114. We also note that Fana consented to the withdrawal of the funds for the jewelry purchases, so the decedent was not liable to her for her share of the joint account. See Nationsbank, N.A. v. Coastal Utils., Inc., 814 So.2d 1227, 1230 (Fla. 4th DCA 2002) (stating that “the withdrawing joint tenant is liable to the joint owner for that person’s share of the withdrawn funds”). Thus, once the funds were withdrawn from the Connells’ joint checking account, the funds lost their joint character.

OK, so if the watch and ring weren’t purchased with joint funds, were they owned jointly? Because items of personal property, such as watches and rings, don’t have documentation of title, you’re left litigating whether the facts and circumstances indicate the couple intended joint vs. separate ownership. According to the 2d DCA, the facts weighed in favor of separate ownership. End result: PR gets the watch and ring.

The trial court’s determination that the decedent did not make a gift of the watch and ring to Fana is not at issue on appeal. The trial court made a factual determination in the original order to the effect that the decedent’s delivery of the watch and ring to Fana prior to his hospitalization was not made with the intention of gifting the property to her, but rather it was a temporary delivery for the purpose of safekeeping while he was in the hospital. The trial court did not change this ruling on rehearing.

*  *  *  *  *

Moreover, the fact that the decedent purchased the watch and ring with funds from the joint checking account (and a small contribution of cash from Fana) while they were shopping together does not make the watch and ring the joint property of the Connells. Rather, it is for whom the watch and ring were purchased rather than how they were purchased that is important. . . . Fana seems to equate the term “acquired jointly” with her being “involved” in the purchases that were made when they were together at the jewelry stores. However, the circumstances reveal that she was merely assisting the decedent buy a watch and ring for himself, not that they intended to jointly own the jewelry.

A joint tenancy has the characteristic of survivorship and to create a joint tenancy four unities must be present: the unities of possession, interest, title, and time. Beal Bank, SSB v. Almand & Assocs., 780 So.2d 45, 53 (Fla.2001). The unity of possession is joint ownership and control. Id. at 52. Here, the unity of possession was not present in either the watch or the ring. The watch and ring were intended for the decedent’s exclusive use. The decedent had been in the jewelry business, and he enjoyed expensive jewelry. He had the possession and use of the watch and ring. In fact, the trial court even made the oral finding on rehearing that the items were “personal to the decedent.”

Furthermore, the watch and ring were jewelry items designed for a man. Fana never wore or used the watch and ring. And she referred to the items as “his” jewelry. When the decedent was not wearing the watch and ring, he put them in the pocket of one of his suits. Fana only took possession to store them for safekeeping before the decedent went to the hospital. The trial court found in its original order that if the decedent had returned from the hospital, “he would have again resumed using both the ring and watch.” In the original order the trial court also determined that the circumstances indicated the decedent’s “intention, consistent with his actions, to use these items of jewelry for his personal benefit.”

The circumstances here failed to show the unity of possession as to Fana with respect to the watch and ring. Therefore, the watch and ring were the separate property of the decedent. 

Lesson learned?

The law governing joint property cases is tricky and litigating them can be a fact-intensive undertaking (think depositions, subpoenas, production requests, interrogatories, etc.) Translation: these cases are rarely viable from a purely economic perspective (then again, litigants are rarely logical purists, see here). Even if the law and facts are a “slam dunk” in your favor, these cases are inherently uncertain and expensive to litigate. Consider the basic facts of this case: lawsuit was first filed in 2010, trial took place in 2011 (PR lost), appeal decided in 2012 (PR wins). In other words, two years after his father’s death (and after having to overcome a trial-court loss by again rolling the dice on an appeal), PR finally gets the watch and ring back. Hope it was worth it.

Listen to this post

There’s a good reason why homestead litigation is a recurring theme for probate practitioners; it’s a non-intuitive thicket of complexity that can trip up even the best and brightest. A good first step in making sense of this complexity is to work through a trustworthy chart that graphically summarize the key “do’s” and “don’ts” in a single easy-to-read snapshot. To that end I have two favorite charts. The first is Kelley’s Homestead Paradigm, by attorney Rohan Kelley, and the second is Restrictions on Transfers of Florida Homestead Property, by attorney Charles Rubin. Both are reliable, user-friendly tools for the practicing probate lawyer. Good stuff, highly recommended.

 

Beekhuis v. Morris, — So.3d —-, 2012 WL 2121258 (Fla. 4th DCA June 13, 2012)

F.S. 736.0201 tells us that “judicial proceedings concerning trusts shall be commenced by filing a complaint and shall be governed by the Florida Rules of Civil Procedure.” It’s a simple rule, which I’ve been writing about for years [click here].

If you want to get your hands on trust property, all you have to do is file a complaint and follow the Rules of Civil Procedure. Is that really too much to ask for? Apparently it was in this case. In the midst of a contested guardianship proceeding, and in response to nothing more than a motion filed by the guardian, the probate judge simply entered an ex parte order compelling the ward’s trustee to hand over trust assets. Wrong answer! So saith the 4th DCA:

Beekhuis argues that the probate court did not have jurisdiction over the trust or its trustee because she “filed no pleadings and sought no relief in her capacity as [t]rustee and did not subject either herself or the trust to the jurisdiction of the probate court.” See Chaffin v. Overstreet, 982 So.2d 11, 14 (Fla. 5th DCA 2008) (explaining that appearing before the probate court in one capacity does not subject that party in a separate capacity to the jurisdiction of the court); see also Mfrs. Nat. Bank of Detroit v. Moons, 659 So.2d 474, 475 (Fla. 4th DCA 1995) (holding that the probate court did not have jurisdiction over the trustees because there was no service of process on trustees and the trustees did not voluntarily submit to the jurisdiction of the court).

We conclude that it was error for the probate court to assert jurisdiction over the trust property and Beekhuis, in her capacity as trustee, when the original pleadings never raised any claim over the trust or its property, and Beekhuis continually asserted that the court lacked jurisdiction over the trust and trustee. See Chaffin, 982 So.2d at 14.