Bellamy v. Langfitt, — So.3d —-, 2012 WL 385606 (Fla. 3d DCA February 08, 2012) 

There is a central tension in the law of trusts between the rights of settlors to specify exactly how they want their trusts administered, and the rights of beneficiaries to have their trusts administered in a fair and equitable manner.

The 3d DCA’s opinion in this case crystallizes that tension. After presumably having full access to all of the relevant evidence, the probate judge in this case made a factual determination, concluding it was in the beneficiaries’ best interest to modify the trust by eliminating a clause requiring a corporate trustee at all times. Based on a “no-modification” clause in the trust agreement, the 3d DCA reversed, even if, as the 3d DCA admitted, the trial judge’s ruling was in the best interests of the trust’s beneficiaries.

Does settlor’s “intent” always prevail? NO

Effectuating settlor intent is the primary guiding principle of trust law. What’s often overlooked is that this principle has always been subject to limitations based on competing public policy concerns. For example, a trust clause disinheriting a beneficiary for marrying someone of a certain faith won’t be enforced on public policy grounds, no matter how clearly this outcome violates the settlor’s intent (a topic I previously wrote about here). Another more common example is the spendthrift clause found in most well drafted trust agreements. No matter what the settlor’s intent may be, for public policy reasons, under F.S. 736.0503 some creditors are permitted to bypass the trust’s spendthrift clause, particularly those who supply the beneficiary with “necessaries” (usually food and shelter, but sometimes clothing and transportation, if these are not extravagant). Most jurisdictions, like Florida in F.S. 736.0503, also permit courts to ignore a settlor’s spendthrift clause to satisfy a beneficiary’s child support and alimony payment obligations.

Beneficiary’s “best interests” vs. Settlor’s conflicting “intent”:

Traditionally, strong public policy principles were the only limits placed on settlor intent. That’s changing. Today, a trust beneficiary’s “best interests” are also weighed heavily against, and sometime permitted to trump, a settlor’s contrary intent. Prof. Gallanis recently published an excellent article examining this trend in trust law entitled, The New Direction of American Trust Law. Here’s an excerpt:

In navigating between the extremes of settlor control and beneficiary control, the law of trusts has at times taken a position more favorable to the settlor, and at other times a position more favorable to the beneficiaries. . . . [A]fter decades of favoring the settlor, [American trust law] is moving in a new direction, with a reassertion of the interests and rights of the beneficiaries. I [believe] this new direction is appropriate and welcome.

. . . 

[T]he new direction of American trust law is to rebalance the wishes of the settlor with the ownership rights of the beneficiaries. The administration of the trust must, in the end, be for the benefit of the beneficiaries, and their equitable ownership over the trust assets must be respected.

For trust-administration clauses, such as the mandatory corporate trustee clause at issue in the 3d DCA opinion linked-to above, the new trend in trust law is based on the doctrine of “administrative deviation,” which permits the modification/deletion of problematic trust clauses if they conflict with the best interests of the beneficiaries. This doctrine was codified in section 412(b) of the Uniform Trust Code. Florida adopted its own version of the rule in F.S. 736.04115.

Why can beneficiary “best interest” trump settlor “intent” in these cases? The answer is found in the comment to UTC section 412(b):

Although the settlor is granted considerable latitude in defining the purposes of the trust, the principle that a trust have a purpose which is for the benefit of its beneficiaries precludes unreasonable restrictions on the use of trust property. An owner’s freedom to be capricious about the use of the owner’s own property ends when the property is impressed with a trust for the benefit of others. 

Case Study: 

The estate/trust at the center of the linked-to case above has been litigated for years. In order to resolve one facet of that litigation, the parties entered into a settlement agreement permitting the trust’s corporate trustee to resign without liability and allowing the trust to proceed into the future without a corporate trustee. The no-corporate-trustee element of the deal required modification of the trust agreement, which contained a mandatory corporate-trustee clause.

After presumably considering the terms and purposes of the trust, the facts and circumstances surrounding the creation of the trust, and extrinsic evidence relevant to the proposed modification, the trial judge approved the settlement agreement — even if it was contrary to the settlor’s intended mandatory corporate-trustee clause — because the settlement agreement was fair, reasonable and in the best interests of the trust’s beneficiaries. The 3d DCA reversed based on a no-modification clause included in the trust agreement . . . even if the modification was in the best interest of the beneficiaries:

In Paragraph 18 of the Trust, as restated in 2002, Mr. Bellamy specifically addressed, and prohibited, the judicial modification of the Trust, specifically providing: “[T]o the extent permitted by law, I prohibit a court from modifying the terms of this Trust Agreement under Florida Statutes s. 737.4031(2) or any statute of similar import.” . . . 

In the instant case, the trial court found that the settlement agreement was in the best interest of the beneficiaries and that Paragraph 2 was being modified to allow Merrill Lynch to act as a custodian, as opposed to a trustee, because the “purpose of having a corporate trustee is no longer served because the Trust is substantially administered.” As Paragraph 18 of the Trust prohibits the judicial modification of the Trust, even if it is in the best interest of the beneficiaries, we conclude that the trial court erred by modifying Paragraph 2.

Lesson learned?

Given the general trend in trust law codified in F.S. 736.04115, which weighs heavily the “best interests” of trust beneficiaries vs. strict adherence to settlor intent, settlors and their lawyers can’t assume the clear text of a trust agreement will always be followed.

Usually, for the reasons explained by Prof. Gallanis in The New Direction of American Trust Law, the flexibility injected into irrevocable trusts by F.S. 736.04115 is a good thing. But sometimes a client has very good reasons for making sure his trust is administered exactly the way he’s planned. In those cases a careful estate planner will want to include the type of no-modification clause at the heart of the linked-to case above, which is explicitly sanctioned in F.S. 736.04115(3) as follows:

(3) This section shall not apply to:
. . .
(b) Any trust created after December 31, 2000, if:
. . .
2. The terms of the trust expressly prohibit judicial modification.

Full Disclosure:

I represented one of the parties in this case years ago. Neither I nor anyone at my firm has been involved in this case for years. However, to be clear, this blog post only reflects my personal views in my individual capacity. It does not necessarily represent the views of my law firm or my past clients, and is not sponsored or endorsed by them. The case-specific information contained in this blog post is based solely on the 3d DCA’s opinion, and is provided only for educational purposes and is not intended to provide specific legal advice. No representation is made about the accuracy of the information posted on this blog site. Blog topics may or may not be updated and entries may be out-of-date at the time you view them.

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Mark R. Manceri of Fort Lauderdale, Florida was on the winning side of Jervis v. Tucker, — So.3d —-, 2012 WL 385518 (Fla. 4th DCA February 08, 2012), a case I wrote about here.

I invited Mark to share some of the lessons he drew from this case with the rest of us and he kindly accepted.

[Q] What strategic decisions did you make in this case that were particularly outcome determinative at the trial-court level? On appeal?

Focusing on the fact that this was a case of trust construction and not a factual question of testamentary capacity.

[Q] If you had to do it all over again, would you have done anything different in terms of framing the issues for your trial-court judge? On appeal?

I would not change the issues. However, the are several other counts of the complaint that I also feel my clients would have prevailed on if they were to be decided.

[Q] Looking back from your perspective as a litigator, do you think there’s anything that could have been done in terms of better estate planning while the trust settlor was alive to avoid this litigation or at least mitigate its financial impact on the family?

While it may not be clear from the Opinion, the appellant was the very substantial beneficiary of the change under the Second Amendment while he was serving as Guardian and the Trustee. As the Opinion states, the Court was never made aware of the change so there was a clear question of transparency that should have, in my opinion, been addressed.

[Q] Any final words of wisdom for estate planners and probate lawyers of the world based on what you learned in this case?

Remember that the fiduciaries we represent need to act under a higher standard and that should always be kept in mind.

For those of you interested in viewing past interviews done for this blog, click here.

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Most trusts and estates litigators don’t start out specializing in this niche, they evolve into it. They either start out as pure estate/tax planners (like me) and morph into T&E litigation, or they start out as pure commercial civil litigators and morph into just doing T&E litigation. How you come to the practice obviously influences how you work a case and counsel your clients. What I’ve noticed is that T&E litigators who come to this niche from a non-litigation estate planning perspective, tend to view each case as an abject lesson in “what not to do” as an estate planner. That’s certainly my perspective, which is why litigation-prevention is a recurring them on this blog and a topic I ask about in every interview I’ve done for this blog [click here].

So it’s not surprising I found a recent article by law professor Gerry W. Beyer especially interesting and worth holding onto for future reference. Prof. Beyer’s article is entitled Will Contests–Prediction and Prevention, and was published in the Estate Planning & Community Property Law Journal, Vol. 4, p. 1, 2011. It does a good job of identifying likely estate planning landmines and proposing reasonable planning solutions to mitigate the risk and/or costs of related litigation. Here is the abstract of Prof. Beyer’s article as posted here on SSRN:

An estate planner must always be on guard when drafting instruments that may supply incentive for someone to contest a will. Anytime an individual would take more through intestacy or under a prior will, the potential for a will contest exists, especially if the estate is large. Although will contests are relatively rare, the prudent attorney must recognize situations that are likely to inspire a will contest and take steps during the drafting stage to reduce the probability of a will contest action and the chances of its success.

This article examines the situations which provide an enhanced likelihood of a will contest and then details the techniques a prudent attorney should consider. An important caveat is in order. Although this article discusses a wide range of strategies that may be helpful in preventing will contests, these techniques vary widely in both cost and predictability of results. There is no uniform approach to use for all clients. Each situation needs to be carefully examined on its own merits before deciding which, if any, of the techniques should be used.

Jervis v. Tucker, — So.3d —-, 2012 WL 385518 (Fla. 4th DCA February 08, 2012)

If you want to really understand what’s going on in this case you need to start at the basics and build up from there. The conceptual building blocks of this case are the following:

[1]  First, “an adjudication of incompetency shifts the burden of going forward with the evidence on testamentary capacity to the proponent of the [trust].” In re Estate of Ziy, 223 So.2d 42, 43 (Fla.1969); see also Grimes v. Estate of Stewart, 506 So.2d 465, 467 (Fla. 5th DCA 1987)(“Although a declared incompetent may have sufficient lucid moments during which to execute a valid [trust], nevertheless, adjudication of incompetency of a testator creates a prima facia case against the proponent of such a [trust].”).

[2]  Second, summary judgment is warranted when the clear text of the trust agreement supports your side of the argument. Why? Because as a matter of law the trial court is prohibited from considering extrinsic facts to explain/construe the clear text of a contested trust agreement. No extrinsic facts = no need for trial. See In re Estate of Barry, 689 So.2d 1186, 1187–88 (Fla. 4th DCA 1997) (“Where the terms of an agreement … are unambiguous, its meaning and the intent of the maker are discerned solely from the face of the document, as the language used and its plan [sic] meaning controls.”)

Case Study:

OK, now let’s apply these general principles to the facts of the case. The trust settlor, Bernice J. Meikle, executed a trust agreement in 1991. She later amended this trust agreement (we’re not told exactly when). According to the 4th DCA, this first amendment addressed Ms. Meikle’s ability to further amend her trust if she was ever adjudicated incapacitated.

[Key Trust Agreement Text:]

[T]he first amendment to Meikle’s trust contains language which provides for the suspension of rights “[i]f, at any time during the continuance of [the] trust, Grantor is adjudicated incapacitated by a court of appropriate jurisdiction.”

The Grantor’s powers and those of Grantor/Trustee may be restored either by virtue of [1] an order of an appropriate court having jurisdiction over Grantor, or [2] upon the issuance and receipt by the Trustee of a written opinion from . . . two . . . licensed physicians who have examined the Grantor.

Incapacity Adjudication:

On October 30, 2000, Ms. Meikle was adjudicated incapacitated. A little over a year later, on December 27, 2001, Ms. Meikle executed a second amendment to her trust agreement without [1] obtaining an approving court order, or [2] written opinions from two licensed physicians (oops!).

After Ms. Meikle’s death in 2007 the second amendment to her trust agreement was challenged (surprise!). Based on her adjudication of incapacity in 2000, Ms. Meikle was presumed incapacitated when she executed her second amendment in 2001. This evidentiary presumption can, however, be overcome at trial.

Carefully Reading Trust Text = Summary Judgment = No Trial = Happy Clients:

What can’t be overcome at trial is the clear text of the trust agreement. Here’s where counsel for the contestants nailed it. By focusing on the clear text of the trust agreement, he was able to skip a trial and win on summary judgment. Why? Because by its own terms the trust agreement required one of two preconditions to be satisfied for the second amendment to be valid. These requirements weren’t satisfied, thus the second amendment fails . . . regardless of whether or not Ms. Meikle did in fact have testamentary capacity. Thus no need for a trial.

[4th DCA:]

The plain meaning of the document shows that Meikle’s capacity must have been restored by the court in order to amend her trust once she was adjudicated incapacitated . . . Without a court order restoring her rights, she must have obtained two opinions by licensed physicians. . . . Dr. Button, a licensed physician who had met with Meikle many times, opined that she possessed capacity to amend the trust; however, Dr. Strang, a nursing home administrator with expert experience and medical schooling—but without a physician’s license—submitted the other opinion. This is contrary to what was unambiguously required.

. . . The first amendment to the trust, a valid amendment made before the determination that Meikle was incapacitated, expressly stated that certain things had to occur in order to restore capacity in the event the court declared Meikle incapacitated. Because the proper proof to restore capacity to amend was not presented by Meikle, she did not have the power to amend her trust at the time she did. Accordingly, no genuine issue of material fact exists, as it is clear that Meikle’s power to control her property was never restored.

An “insider’s” view:

For an insider’s view of this case, you’ll want to read this interview of one of the attorneys on the winning side of the case.

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Under Florida law, the three elements of a legal malpractice action are generally described as follows:

  1. the existence of an attorney/client relationship between the plaintiff and the attorney (i.e., “privity of contract“);
  2. the attorney’s neglect of a reasonable duty; and
  3. that such negligence resulted in and was the proximate cause of loss to the plaintiff.

The “privity of contract” requirement has been relaxed/eliminated where it was the apparent intent of the client to benefit a third party. The most common example of this exception being in the estate planning area, where the plaintiff is a named beneficiary of the decedent’s will and the attorney-defendant drafted the will. However, the third party intended beneficiary exception to the rule of privity is NOT limited to will drafting cases. It can extend to any third party who was the intended beneficiary of the lawyer’s work. How far the privity exception goes is what this case is all about. 

Case Study

Hodge v. Cichon, — So.3d —-, 2012 WL 315846 (Fla. 5th DCA February 03, 2012)

In this case the plaintiffs were named beneficiaries of the decedent’s will. Prior to his death, the decedent was adjudicated partially incompetent and three guardians were appointed for him. The guardians then obtained a court order allowing them to implement an estate-tax savings plan, including the creation of a family limited partnership (“FLP”). The goal of this estate planning was to reduce taxes for the benefit of the estate’s beneficiaries, including the plaintiffs. Unfortunately, when the decedent died, about 2 1/2 years later, the FLP plan hadn’t been fully implemented, thus forfeiting the anticipated tax savings.

Can estate beneficiaries sue guardians’ lawyers for estate planning malpractice? YES!

Apparently, during the course of the guardianship proceeding the plaintiffs in this case had been at odds with the guardians and their attorneys. It’s undeniable, that the plaintiffs were never represented as counsel by the lawyers for the guardians. And yet, these same plaintiffs sued the guardians’ lawyers for malpractice. Why? Because they were the intended third-party beneficiaries of the lawyers’ work, NOT because there was ever any kind of attorney/client relationship between them and the lawyers. So says the 5th DCA:

Generally, a party who retains an attorney is in privity with that attorney and may bring a negligence action for legal malpractice. Angel, Cohen & Rogovin v. Oberon Inv., N.V., 512 So.2d 192, 194 (Fla.1987). A limited exception to the privity requirement in the area of will drafting allows an intended beneficiary to file a legal malpractice claim for losses resulting from a lawyer’s actions or inactions, where it was the apparent intent of the client to benefit that third party. Id.; See Espinosa v. Sparber, Shevin, Shapo, Rosen & Heilbronner, 612 So.2d 1378, 1380 (Fla.1993); Kinney v. Shinholser, 663 So.2d 643, 646 (Fla. 5th DCA 1995). Standing to pursue a legal malpractice action is conferred upon “those who can show that the testator’s intent as expressed in the will is frustrated by the negligence of the testator’s attorney.” Espinosa, 612 So.2d at 1380. While the standing exception has been relaxed in will drafting situations, “the third party intended beneficiary exception to the rule of privity is not limited to will drafting cases.” Winston v. Brogan, 844 F.Supp. 753, 756 (S.D.Fla.1994) (citing Greenberg v. Mahoney Adams & Criser, P.A., 614 So.2d 604, 605 (Fla. 1st DCA 1993)).

Appellees take the position that there is “absolutely no evidence of any attorney/client relationship” between Appellants and Appellees. The record demonstrates that the overall intent of Cowart’s retaining counsel was to create and establish a FLP for the purpose of preserving and maintaining the estate assets and preventing its dissipation through estate taxes. The petition seeking appointment of a guardian of Cowart’s property noted that “[t]he estate plan calls for the creation of a family limited partnership into which the Ward’s assets are transferred.” The expectation, according to the petition, was that “[u]nder current tax laws, the implementation of this estate tax planning may save the estate as much as forty percent (40%) in estate taxes.” The purpose of the estate plan was to benefit all named and intended beneficiaries; the larger the net estate, the better for all who might partake.

While there may have been animosity or acrimony among the various heirs and beneficiaries, the actions of retained counsel and the direction of the court in ordering the implementation of the estate plan were intended to benefit all and harm none. As noted in Winston, and as appears herein, while there may be conflict among the parties, there is no indication of a conflict of interest regarding the need to maximize the estate vis-à-vis less taxes and estate preservation. 844 F.Supp. at 756. If the dispute concerns whether or not Appellants were intended beneficiaries, the issue is one of fact for the jury to determine. See id. at 757.

Lesson learned? Guardianship lawyers beware

It’s not unusual for guardianship lawyers to get drawn into complex tax planning for wealthy wards. How might this happen? Assume “mom” is elderly and suffering from dementia. For her own safety, her children have her adjudicated legally incapacitated, and a guardian is appointed for her. Once the family takes stock of mom’s assets, they realize she’s done little to no estate planning. With a little tax planning, maybe involving a FLP, the family can save hundreds of thousands of dollars in taxes without prejudicing mom in any way. The family asks the guardianship court for approval to proceed, gets it, and tells guardian to make it happen. Guardian turns to lawyer (i.e., you), says make it happen. Ward dies before you make it happen. Presto! Guardianship lawyer is now a defendant in an estate planning malpractice suit. That’s what happened in Winston v. Brogan, 844 F.Supp. 753 (S.D.Fla.1994) (cited by the 5th DCA above), and what happened in this case.

Bottom line, if you’re a guardianship lawyer, make sure you know what you’re doing before you get pulled into some complex, tax-driven estate planning as part of a guardianship proceeding. Complex tax planning is usually not part of the deal for most guardianship lawyers. Don’t dabble; make the guardian hire an expert. If you get this wrong, you can get sued, and the plaintiffs won’t be your client, the guardian (who may love you!), it’ll be people you never met (or may have even been adverse to you in the guardianship proceeding): the estate’s beneficiaries.

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Estate planners beware. As reported here by the WSJ, “When it comes to blended families, estate planning can be a special kind of hell.” A corollary to that observation: blended families are always at risk for probate litigation. Yes, I said always! This case being a prime example: this is now the third appellate decision published by the 3d DCA chronicling almost 10 years of litigation between a widow and her deceased husband’s sons from a prior marriage (the initial complaint was filed in early 2003). For the prior installments of this long-running dispute, see here and here.

Case Study

Aronson v. Aronson, — So.3d —-, 2012 WL 280565 (Fla. 3d DCA February 01, 2012)

In July of 1996 Mr. Aronson deeded a condo located on Key Biscayne, FL to his revocable trust. Under the terms of his revocable trust, Doreen (Mr. Aronson’s wife) had the condo for life, and at her death it would go to Mr. Aronson’s sons from a prior marriage. A few months later, in December of 1996, Mr. Aronson deeded this same condo directly to Doreen. In 2000 the couple sold a home in Massachusetts, which had been titled in Doreen’s name alone, and moved into the Key Biscayne condo, which became their homestead residence. Mr. Aronson died in 2001.

Who got the condo when Mr. Aronson died?

Because of the two conflicting deeds, this was the first issue litigated. As I reported here, at trial the court ruled in favor of Doreen. On appeal, the 3d DCA reversed, ruling that an individual can’t deed a property in his individual capacity if he’s previously deeded it over to his revocable trust, even if he had the authority at any time to revoke his own trust.

So if the deed-to-trust was valid, where did this leave Doreen? “In a twinkle of an eye,” surviving spouse’s property rights vested.

Not surprisingly, based on the 3d DCA’s first opinion, all of the parties assumed they were stuck litigating their competing claims to the Key Biscayne condo within the parameters of Mr. Aronson’s revocable trust. In fact, this is the governing assumption underlying the 3d DCA’s original opinion for this case, click here.

End of the story? No way! Based on a motion for reconsideration filed by Mr. Aronson’s sons, the 3d DCA reversed course, adopting an entirely new theory in the linked-to opinion above, ruling instead that the condo should have never been treated like a trust asset because this was an invalid devise of homestead property. Invalid homestead devise = life estate to Doreen, vested remainder interest for Mr. Aronson’s sons, skip the trust entirely. Bottom line, while the deed-to-trust trumped the later deed to Doreen, because it resulted in an invalid homestead devise, this deed should have also been ignored. Confused? The 3d DCA apparently was. Here’s how the 3d DCA explained its thinking this time around:

We reverse the judgments under review. First, it is undisputable the Key Biscayne condominium was the decedent’s homestead at the time of his death. Second, article X, section 4(c) of the Florida Constitution provides that “[t]he homestead shall not be subject to devise if the owner is survived by spouse or minor child, except the homestead may be devised to the owner’s spouse if there be no minor child.” Art. X, § 4(c), Fla. Const. Third, the Florida legislature has made clear its command that this provision shall apply equally to property held by a revocable trust as to testamentary bequests. § 732.4015(2)(a), Fla. Stat. (2001) . . . Finally, section 732.401(1) of the Florida Statutes (2001), provides:

(1) If not devised as authorized by law and the constitution, the homestead shall descend in the same manner as other intestate property; but if the decedent is survived by a spouse and one or more descendants, the surviving spouse shall take a life estate in the homestead, with a vested remainder to the descendants in being at the time of the decedent’s death per stirpes.

(emphasis added). Because the Key Biscayne condominium was Hillard’s homestead and because his wife, Doreen, survived him, the condominium was not subject to disposition through the trust. . . . At the moment of Hillard’s death, his homestead property passed outside of probate, see §§ 733.607, .608, Fla. Stat. (2001) . . . , in a twinkle of an eye, as it were, to his wife for life, and thereafter to his surviving sons, James and Jonathan per stirpes. § 732.401(1), Fla. Stat. From that moment forward, the trustees had no power or authority with respect to the former marital home. The widow became responsible for the expenses of the property, and, of course, remains so for as long as she remains a life tenant. . . .

Lesson learned?

There are a few big takeaways from this case. First, estate planning for blended families is always tricky. This family could have avoided over a decade of acrimony and litigation expenses if Mr. Aronson had consulted with a qualified estate planner up front.

Second, Florida’s maddeningly complex homestead laws can befuddle the best of us (ask the 3d DCA). This area of law is counter intuitive and often results in bizarre outcomes even the most deranged law school professor couldn’t dream up (this case being a prime example!). If you’re cleaning up one of these messes, start at first principles and take nothing for granted (click here for “Kelley’s Homestead Paradigm,” the ultimate probate lawyer’s homestead-law cheat sheet.)

Third, it took these litigants over 10 years (and multiple trials/appeals) to figure out what, “in a twinkle of an eye” (using the 3d DCA’s phrase), happened automatically as a matter of law when Mr. Aronson died back in 2001. Starting in 2010, there are added consequences to this kind of delay. In 2010 F.S. 732.401 was amended to allow a surviving spouse 6 months to opt out of a life estate and instead take a 50% tenancy-in-common interest in the homestead property. As I explained here, taking a 50% tenancy-in-common interest in lieu of a life estate can offer significant benefits to surviving spouses. Surviving spouses, and their lawyers, no longer have the luxury of waiting years to untangle the mess caused by an invalid homestead devise. Due to the new 6-month deadline contained in F.S. 732.401, you now have only 6 months to do what the parties in this case needed 10+ years to figure out. 6 months vs. 10 years. Yeah, no pressure . . .

Bonus:

Now that you know what I have to say about this case, you’ll want to read this excellent analysis of the case by two of the smartest Florida homestead lawyers practicing today, Jeff Baskies and Charlie Nash, as published in Steve Leimberg’s Asset Protection Planning Email Newsletter – Archive Message #198. Here’s the executive summary of their piece:

For the third time in less than 5 years, the Florida 3rd District Court of Appeal (covering Miami-Dade County) issued a retraction of a potentially ground-breaking and rule-changing homestead decision.

First, in 2007, the 3rd DCA’s decision in Chames v. Demayo (holding that a waiver of the homestead creditor protection in an attorney’s fee contract was valid) shook the homestead world, until it was overturned, first en banc by the 3rd DCA and then by the Florida Supreme Court. Interestingly, the en banc opinion of the 3rd DCA overturned the original opinion and “got it right” according to the Florida Supreme Court.

Next, in 2011, a three-judge panel of the 3rd DCA issued a ruling in Habeeb v. Linder holding that a husband’s joinder in a warranty deed of homestead property to his wife’s revocable trust constituted a waiver of his post death homestead rights due to his transfer of “all hereditaments” in the “form” warranty deed. That ruling was subsequently withdrawn after significant criticism.

Now, in the latest decision in a very long-running Florida probate litigation, Aronson v. Aronson, (this current line of cases being called “Aronson II” as a prior ruling – “Aronson I” – held that a deed signed by the husband individually was a nullity as it was executed after the husband had already transferred title to his revocable trust) the 3rd DCA on February 1, 2012, withdrew its October 2010 ruling.

Had the original ruling in Aronson II stood, then the post-death consequences of any transfer of a homestead to a revocable trust would again be up for controversy. Fortunately, the 3rd DCA in its substituted decision in Aronson II seems to have reached the correct result regarding the constitutional devise restrictions.

Lubee v. Adams, — So.3d —-, 2012 WL 163911 (Fla. 2d DCA January 20, 2012)

Are you a “reasonably ascertainable” creditor or not? If the answer is YES, then under F.S. 733.710 you have up to 2 years after the decedent dies to file your claim against the estate. If the answer is NO, then under F.S. 733.702 you only have 3 months after the estate’s “notice to creditors” is first published to file your claim. 3 months vs. 2 years. That’s a big difference. 

This case is all about who has the burden of proving whether or not you’re a “reasonably ascertainable” creditor.

Case Study:

Personal representatives have a duty under F.S. 733.2121 to search out the decedent’s reasonably ascertainable creditors and personally serve them with a “notice to creditors.” Once personally served, reasonably ascertainable creditors have 30 days to file their claims.

In this case Mr. Lubee, the creditor, wasn’t identified by the personal representative as a reasonably ascertainable creditor of the estate, which means he was never served with a notice to creditors. Mr. Lubee saw things differently, arguing he was a reasonably ascertainable creditor, and as such he should have been personally served with a notice to creditors. Because he wasn’t served with a notice to creditors, Mr. Lubee argued the 30-day post service deadline applicable to him (as a reasonably ascertainable creditor) was never triggered, which means he could file his claim any time within 2 years after the decedent’s date of death (which he did).

Burden of Proof:

Mr. Lubee’s argument works if you assume ALL creditors are reasonably ascertainable, and it’s up to the estate to prove they’re NOT. His argument fails if you assume NO creditor is reasonably ascertainable, unless proven otherwise. Unfortunately for Mr. Lubee, first the trial court, then the 2d DCA ruled creditors bear the burden of proof, so his claim failed.

According to the 2d DCA, because Mr. Lubee wasn’t identified by the estate as a reasonably ascertainable creditor, he had two options: [1] file his claim within the 3-month post publication deadline generally applicable to all creditors; or [2] file for an extension of time under F.S. 733.702(3) within the 2-year window of F.S. 733.710, prove his status as a reasonably ascertainable creditor within the context of that proceeding, then subsequently file his creditor claim. He did neither, so his claim failed as a matter of law. By the way, this two-step process is the exact same formula previously adopted by the 1st DCA in Morgenthau v. Estate of Andzel, — So.3d —-, 2009 WL 5151741 (Fla. 1st DCA Dec 31, 2009), which I wrote about here.

Bottom line, when in doubt, no one’s a reasonably ascertainable creditor until a court says you are. Here’s how the 2d DCA explained its ruling:

There is no dispute that Mr. Lubee did not file his claim in the probate proceeding within three months following the publication of notice to creditors and that he did not file a motion for extension of time or otherwise seek an extension. There is also no dispute that Mr. Lubee was not served with a copy of the notice to creditors pursuant to sections 733.702(1) and 733.2121(3)(a). However, Mr. Lubee contends that because he was a readily ascertainable creditor entitled to be served with a copy of the notice to creditors pursuant to those sections, he was only required to file his claim in the probate proceeding within thirty days after service of the notice on him or, at a maximum, within two years of the decedent’s death. He argues that because he was never served with the notice to creditors, he timely filed his claim within the two-year window of section 733.710.

Because a notice to creditors was published on November 16, 2007, creditors not entitled to actual notice were required to file their claims on or before February 16, 2008. See § 733.702(1). Creditors who were served with the notice to creditors were required to file their claims within thirty days following service. See id. Because he was not served with a copy of the notice to creditors, Mr. Lubee was required to file his claim in the probate proceeding within the three-month window following publication. Alternatively, Mr. Lubee could seek an extension from the probate court pursuant to section 733.702(3) within the two-year window of section 733.710. See Morgenthau v. Estate of Andzel, 26 So.3d 628, 632 (Fla. 1st DCA 2009) [click here]; cf. Miller v. Estate of Baer, 837 So.2d 448, 449 (Fla. 4th DCA 2002) (affirming order enforcing claim against estate where creditor failed to file claim within three-month window of section 733.702(1) but did file motion for extension of time within two-year window of section 733.710). It is undisputed that he did neither. Mr. Lubee’s filing of his claim in the probate proceeding within two years of the decedent’s death did not amount to a request for an extension of time and did not otherwise comply with the requirements of section 733.702. Mr. Lubee’s claim in the probate proceeding was untimely and therefore barred. As a result, the issue of whether or not Mr. Lubee was a readily ascertainable creditor was immaterial in the civil proceeding, and the trial court correctly granted partial summary judgment in favor of the personal representative.

Saewitz v. Saewitz, — So.3d —-, 2012 WL 10854 (Fla. 3d DCA January 04, 2012)

Tortious interference with an expected inheritance is a relatively new cause of action that’s still evolving. So anytime one of these cases makes it into a Florida appellate opinion, it’s noteworthy. The last time was back in 2007, coincidentally also before the 3d DCA. See Schilling v. Herrera, — So.2d —-, 2007 WL 981627 (Fla. 3d DCA 2007). In that case the issue on appeal was when probate proceedings will effectively bar a tortious interference claim [click here]. This time around the issue is damages; or more specifically, how the lack of concrete damages evidence can get your case tossed out of court.

The five elements of this cause of action are generally described as follows:

  1. the existence of some sort of expectancy on the plaintiff’s part involving an inheritance;
  2. the defendant’s intentional interference with such expectancy;
  3. involvement of tortious conduct, such as fraud, duress, or undue influence, in the defendant’s interference;
  4. reasonable certainty that the plaintiff’s expectancy would have been realized if not for the defendant’s interference; and
  5. damages.

No damages = No case:

In this case the decedent’s two daughters sued their stepmother for tortiously interfering with their expected inheritance. Both the trial court and the 3d DCA seem to concede that the first four elements of the plaintiffs’ case were proved. However, just because you have evidence of wrongdoing doesn’t mean you have a lawsuit. You also need to quantify – and prove – economic damages. I’m often contacted by potential plaintiffs with sad stories of some truly appalling conduct, but when you try to nail them down on how they’ve been hurt economically, they can’t tell you. Just because you’ve been wronged, doesn’t mean you have a lawsuit. You need to be able to quantify concrete economic damages. Here’s how the 3d DCA put it:

The daughters’ initial brief on this appeal persuasively chronicles the record evidence presented to the jury of manipulative activity taken by their stepmother during their father’s dying days and preceding months to contravene their father’s wishes with respect to the disposition of his estate. It is apodictic, however, that a plaintiff’s initial proof of a prima facie case of both conversion and tortious interference in her case-in-chief requires more than proof of liability. Prima facie proof of damages is required as well.

For trusts and estates litigators, the primary value of this case is the 3d DCA’s discussion of what kind of damages evidence you need to put on. First you need to define what expected inheritance the defendant defrauded you out of; then you need to prove with “reasonable certainty” the amount of economic damages you’ve suffered.

The substance of the evidence the daughters presented to the jury on the element of damages is found in the testimony of three witnesses: Jack Rosenberg, the decedent’s accountant; Ron Goldstein, a friend of the decedent; and Lynn Saewitz. Rosenberg provided general testimony that the value of the assets involved in the litigation was “over a million dollars” or “in the millions [of dollars].” Goldstein similarly testified the value of the allegedly misappropriated assets at “seven figures.” Although denying any wrongdoing, Lynn Saewitz similarly indicated the value of the assets in question was in the “millions of dollars.” However, none of the testimony was tied to a legally relevant time period. . . . This omission alone deprives this testimony of any probative value.

Additionally, this testimony is insufficient to satisfy the “reasonable certainty” threshold necessary to be considered legally probative of the amount or extent of damages suffered by the daughters. “Under the reasonable certainty rule, … recovery is denied where the fact of damages and the extent of damages cannot be established with a reasonable degree of certainty.” . . . The proof adduced must be sufficiently definite for a reviewing court to perform its review obligation. . . . In the case before us, the proof adduced by the daughters in their case-in-chief fails to meet this fundamental requirement. . .

Improvise. Adapt. Overcome.

To say the decedent’s daughters must have been crushed by the outcome of this case is probably putting it mildly. Why? Because according to them they weren’t able to prove damages with reasonable certainty due to their stepmother’s failure to turn over accounting documents she was supposed to produce during pre-trial discovery. In a lesson for all of us, this complaint got them nowhere.

According to the 3d DCA counsel for the daughters needed to, as we used to say in the Marine Corps when things didn’t go as planned: improvise, adapt and overcome. In other words, if your opponent doesn’t hand you the facts needed to prove your case, you don’t just cry foul, you find some other way to get the job done: you improvise, you adapt, you overcome. Here’s how the 3d DCA made this same point in the milder vernacular of appellate-court speak:

The daughters argued below, and renew their argument before us, that they were prevented from proving their damages in this case by the failure of counsel for the stepmother to engage in discovery in good faith. The daughters specifically point to the fact, revealed during the testimony of Jack Rosenberg, that defense counsel failed to inquire of him or his accounting firm for documents relating to the value of the decedent’s assets in response to a request for production that indisputably included them. As trustee of the Max P. Saewitz Revocable Trust, [stepmother] had the legal obligation to make such an inquiry. . . . The testimony of Jack Rosenberg indicated his firm had responsive documentation. During the course of the argument on the motion for directed verdict, counsel for the daughters placed substantial reliance on this lapse by defense counsel to ask the trial court to either re-open the case to allow more evidence on the element of damages, or, alternatively, grant a new trial as a sanction against [the stepmother] and her counsel for abuse of discovery. The trial court denied relief.

* * * * *

[T]he precise identification of each asset at issue was known to counsel for the daughters well before trial. If a prima facie case of the value of these assets could have been proven through the records or testimony of the decedent’s accountants, it follows the assets also could have been valued by experts retained by the daughters. Unless knowingly waived or excused by the daughters themselves, counsel’s obligation to the daughters in this case included an independent obligation to be prepared to present a prima facie case on the value of the daughters’ damage claim at trial. The actions of defense counsel, even if a violation of a legal or ethical obligation existed, were not the “but for” cause of the daughters’ failure to present a prima facie case to the jury.

Lesson learned? 

According to the 3d DCA, the “but for” cause of the plaintiffs’ loss in this case wasn’t their stepmother’s stonewalling, “even if a violation of a legal or ethical obligation existed,” it was their own failure to retain their own independent expert to prove damages. Bottom line, when all is said and done it’s up to you to win your case. If your opponent doesn’t make this easy for you, don’t expect your judge to come to your rescue. Repeat after me, improvise, adapt and overcome . . . improvise, adapt and overcome . . . improvise, adapt and overcome . . . improvise, adapt and overcome . . .

Rosenkrantz v. Feit, — So.3d —-, 2011 WL 6183525 (Fla. 3d DCA Dec 14, 2011)

As I reported here, on October 1, 2011 Florida overhauled its power of attorney (POA) statutory regime based in large part on the Uniform Power of Attorney Act. The new statute was supposed to clarify some of the ambiguities inherent to the old statute. Based on the 3d DCA’s observations in this case, the new statute appears to be delivering on this front.

Less ambiguity = greater certainty for anyone seeking legal advice about POA’s and what their rights, duties or obligations as an attorney-in-fact may be.  Win, lose or draw, certainty in the law is always a good thing.

Case Study:

In this case an elderly mother executed a POA naming her two children as her co-attorneys-in-fact. As long as everyone does their part, naming two children in your POA as co-attorneys-in-fact is OK and done all the time. Unfortunately, in this case one of the siblings (Sister) believed her brother was improperly blocking her attempts to account for their mother’s assets. What to do? Given the ambiguities inherent to the old statute, the answer was unclear. Bottom line, Sister was compelled to invest valuable time and money into filing a declaratory judgment action just to figure out who was supposed to do what under her mother’s POA. On appeal, the legal issue was whether a declaratory judgment action was appropriate in this case. The 3d DCA said yes. The 3d DCA then went out of its way to point out how the ambiguities giving rise to Sister’s declaratory judgment action in the first place have now been largely resolved by our new POA statutory regime. Less ambiguity = greater certainty = less time and money wasted on declaratory judgment actions. That’s a good thing.

Here’s an excerpt from the 3d DCA’s opinion:

Gertrude Feit executed a Durable Power of Attorney when she began having memory loss. Gertrude named her daughter, Rosenkrantz, and her son, James Feit, as attorneys-in-fact to oversee her financial affairs. Gertrude and James live in Miami–Dade County, Florida. Rosenkrantz, who lives in New York, alleges that her brother refuses fully to account for their mother’s assets, and objects to her efforts to obtain information directly from the financial institutions. Rosenkrantz contends that James’ actions impair her ability to carry out her responsibilities as a co-attorney-in-fact, and she is in doubt as to her rights under the power of attorney.

*****

Rosenkrantz thus sought declaratory relief to determine: 1) the extent to which she can, as a co-attorney-in-fact, act without the concurrence of a co-attorney who may be acting in derogation of his fiduciary duty; and 2) whether she, as one co-attorney, is entitled to an accounting from the other co-attorney. If the allegations are proven as pled, it is clear that Rosenkrantz acted properly and prudently in seeking to fulfill her fiduciary role.FN2 . . .

FN2. It should be noted that the Florida Legislature addressed these very issues in its 2011 revisions to Chapter 709. Among the several significant changes, the new statutory scheme provides:

— A principal may designate two or more persons to act as co-agents, and unless the power of attorney otherwise provides, each co-agent may exercise its authority independently. § 709.2111(1), Fla. Stat. (2011).

— If a power of attorney requires that two or more persons act together as co-agents, one or more of the agents may delegate to a co-agent the authority to conduct banking transactions pursuant to the power of attorney. § 709.2111(6).

— An agent may be required by a co-agent to disclose receipts, disbursements, or transactions conducted on behalf of the principal. § 709.2114(6).

— An agent (including a co-agent) may petition a court to construe or enforce a power of attorney, review the agent’s conduct, terminate the agent’s authority, remove the agent, and grant other appropriate relief. § 709.2116(1).

— An agent’s exercise of power may be challenged in a proceeding brought on behalf of the principal on the grounds that the exercise of the power was affected by a conflict of interest. § 709.2116(4).

Listen to this post

What “rights” do I have in an inheritance from my parents? Under Florida law, generally speaking the answer is none. At most I might expect or hope to one day maybe inherit a share of dad’s estate, but an “expectancy”  isn’t a property right. These basic property-law and inheritance principles are at the heart of this case.

Case Study

Layne v. Layne, — So.3d —-, 2011 WL 5560563 (Fla. 1st DCA Nov 16, 2011)

In this case “Son” owned a townhouse 50/50 with his “Dad” and Dad’s wife at the time. A few years later, Son deeded his 1/2 share in the townhouse to Dad and Dad’s now ex-wife, resulting in Dad and ex-wife each owning a 1/2 interest in the whole property as tenants in common. Dad dies intestate, survived by two heirs: Son and his sister. Son claims 1/2 of dad’s intestate estate, including a share of Dad’s interest in the townhouse.

Ex-wife cried foul, saying Son shouldn’t get any part of the townhouse. Why? According to ex-wife when Son deeded his share of the townhouse to Dad, he also deeded away his 1/2 share of Dad’s future intestate estate (which included the townhouse). Sound crazy? Well, the trial court actually bought this argument and ruled against Son.

Does a child have a property right in an expected future inheritance from a parent? NO

On appeal the 1st DCA reversed the trial court’s ruling based in large part on the basic principles outlined above. Sometimes even the savviest judge can get the basics wrong. That’s why opinions like this one are helpful, especially for practicing probate lawyers. The following is an excerpt from the 1st DCA’s linked-to opinion:

The court’s order states that Appellant’s quitclaim deed operated to “convey all of his interest” in the townhouse; thus, he is not entitled to any portion of the property that would otherwise pass to him as a beneficiary of his father’s estate. Any right Appellant has to take an interest in the property as a beneficiary did not, however, exist at the time Appellant executed the quitclaim deed. A quitclaim deed conveys only that interest in a property held by the grantor at the time of the conveyance. See, e.g., Blitch v. Sapp, 142 Fla. 166, 194 So. 328, 330 (1940) (holding “a ‘quit-claim’ deed yields only such interest in land as the grantor had at the time of the making of such deed.”). In other words, “[t]he possibility that a person will inherit property from an ancestor is but an expectancy and not an interest in property. While a descendant may expect or hope to inherit, neither a present nor future interest in property actually exists in the absence of a conveyance.” Diaz v. Rood, 851 So.2d 843, 845 (Fla. 2d DCA 2003); see also § 732.101(2), Fla. Stat. (“The decedent’s death is the event that vests the heirs’ right to the decedent’s intestate property.”).

We recognize that the court in Diaz also held that it is possible to convey an expectancy. 851 So.2d at 845. In that case, however, the assignment in question made it clear that the grantor was doing just that; here, the quitclaim deed conveyed only Appellant’s interest in the townhouse as it existed at the time of the conveyance. It did not expressly convey any future right to the property Appellant may acquire by virtue of an expectancy, such as a will or via intestacy.