Hill v. Davis, — So.3d —-, 2011 WL 3847252 (Fla. Sep 01, 2011)

I previously wrote here about the split between the 1st DCA and the 3d DCA regarding whether the 3-month statute of limitations period contained in F.S. 733.212(3) applies to personal-representative disqualification motions. The statute provides as follows:

(3) Any interested person on whom a copy of the notice of administration is served must object to the validity of the will, the qualifications of the personal representative, the venue, or the jurisdiction of the court by filing a petition or other pleading requesting relief in accordance with the Florida Probate Rules on or before the date that is 3 months after the date of service of a copy of the notice of administration on the objecting person, or those objections are forever barred.

3d DCA said NO, statute doesn’t apply to PR disqualification motions, 1st DCA said YES it does. The Florida Supreme Court has now weighed in, holding that YES, the  the 3-month statute of limitations period contained in F.S. 733.212(3) DOES apply to personal-representative disqualification motions.

The issue before us is whether an objection to the qualifications of a personal representative of an estate is barred by the three-month filing deadline set forth in section 733.212(3), Florida Statutes (2007), a provision of the Florida Probate Code, when the objection is not filed within that statutory time frame. For the reasons explained below, we hold that section 733.212(3) bars an objection to the qualifications of a personal representative, including an objection that the personal representative was never qualified to serve, if the objection is not timely filed under this statute, except where fraud, misrepresentation, or misconduct with regard to the qualifications is not apparent on the face of the petition or discovered within the statutory time frame. Accordingly, because fraud, misrepresentation, or misconduct was not alleged in relation to the objection to the personal representative in this case, we approve the decision of the First District Court of Appeal in Hill.FN1 To the extent that the decision of the Third District in Angelus involved allegations of fraud and misrepresentation not revealed in the petition for administration, we approve the result in Angelus. However, we disapprove Angelus to the extent that it holds section 733.212(3) does not bar objections that a personal representative was never qualified to serve. We turn first to the facts of this case.

FN1. This case does not involve a proceeding filed under probate code sections 733.504, Florida Statutes (2007), and 733.506, Florida Statutes (2007), which provide for an adversary proceeding to remove a personal representative for reasons set forth in section 733.504. Thus, our decision in this case is limited to objections filed pursuant to section 733.212(3).

 

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Most people (including most lawyers) assume that a minor’s parents, i.e., a minor’s “natural guardians” under F.S. 744.301, can make all decisions on behalf of their children, and that this authority extends to voting on behalf of their children under F.S. 733.301 with respect to who gets appointed personal representative (PR) of an estate when applying the “majority in interest of the heirs” test.

WRONG answer: under subsection (2) of F.S. 733.301, a minor’s parent/natural guardian is NOT authorized to vote on behalf of his or her child with respect to who gets appointed PR; you need a court-appointed guardian of the property to vote on behalf of the minor.

This all makes sense if you remember two points: [1] any time a minor (i.e., someone under 18) inherits $15,000+, a court-appointed guardian of the property is mandatory; and [2] a PR is only required for estates having a value of at least $75,000 (i.e., estates too large to qualify for summary administration). In other words, if the estate is too small to trigger the $15,000-guardian requirement, it’s probably too small to need a PR, and vice versa.

Long v. Willis, — So.3d —-, 2011 WL 3587411 (Fla. 2d DCA Aug 17, 2011):

In this case the parent/natural guardian of one of the decedent’s heirs sought to vote on behalf of her three minor children for the appointment of PR of their father’s estate. The decedent, who died intestate, had married and divorced twice prior to his death, so his only heirs were his two adult children from his first marriage and his three minor children from his second marriage. The appellant in this case was the decedent’s second ex-wife and the mother of his three minor children.

The 2d DCA does an excellent job of dissecting the interrelated probate statutes and rules at play in this type of situation while also delivering solid practical advice for how the different (and apparently conflicting) timing requirements can all be made to work together in a reasonable manner. This kind of appellate-court-sanctioned statutory road map is gold for practicing probate lawyers.

[1.]  Is a court-appointed guardian of the property necessary to exercise a minor’s vote in the appointment of a PR? YES

Ms. Long argues that as the natural guardian of Mr. Long’s three minor children, she represents the majority in interest of the heirs and, therefore, has the right to select the personal representative. Significantly, the statute does not entitle a natural guardian to such a right. Rather, section 733.301(2) provides that “[a] guardian of the property of a ward who if competent would be entitled to appointment as, or to select, the personal representative may exercise the right to select the personal representative.” (Emphasis added.)

Ms. Long admits that the court never appointed her as the guardian of the property of her children, but she nevertheless claims that as their parent and natural guardian, under In re Estate of Phillips, 190 So.2d 15, 17 (Fla. 4th DCA 1966), she should have this power. In Phillips, which involved a dispute over the domicile of the decedent at the time of his death, the Fourth District affirmed that the decedent’s five-year-old son, acting through his mother and natural guardian, the decedent’s former spouse, was entitled to preference in selecting the administrator under section 732.44, Florida Statutes (1965), because he was the decedent’s sole heir and next of kin. Id.

After the Phillips decision, the legislature replaced section 732.44, which gave appointment preference to the decedent’s “next of kin” but provided no guidance for circumstances in which the next of kin was legally incompetent. The replacement statute, section 733.301, addresses the issue of legally incompetent heirs by clearly and unambiguously limiting the right to select a personal representative to the guardian of the property of such heirs, not to their natural parents. The legislature appears to have the right to create this limitation.

Thus, the probate court correctly ruled that Ms. Long could not vote for her children.

[2.]  If a parent is served with a 20-day formal notice of someone else’s petition for appointment as PR, does this parent have only 20 days to petition for and obtain an order appointing a guardian of the property and for that guardian to vote/object on behalf of the minor? NO

We conclude the probate court erred in ruling that Mr. Long’s children were time-barred from challenging the right of their aunt to appointment and that it was without authority to allow these children to seek the appointment of a guardian of the property. First, although Florida Probate Rule 5.040(a)(2) provides that where an interested person on whom formal notice is served does not serve written defenses within twenty days, the probate court may consider the pleading ex parte, Florida courts treat this rule as merely procedural; it is “‘in no sense’ a statute of limitations or a mandatory non-claim provision.” Tanner v. Estate of Tanner, 476 So.2d 793, 794 (Fla. 1st DCA 1985). Applying this reasoning in Tanner, the First District held that where the decedent’s beneficiaries filed a joint answer to the petition for administration asserting defenses five days after the time for answers had expired but before the hearing on the petition for administration and the order granting letters, the answer was timely filed. Id. Here, as in Tanner, Ms. Long, on behalf of Mr. Long’s minor children, filed the objection to the appointment of Ms. Willis as personal representative just four days after the twenty-day answer period expired and well before the probate court issued the order granting letters. Accordingly, we conclude that the trial court had the authority to consider and should have considered the minor children’s objection before the issuance of letters.

Second, we are convinced that the probate court had authority to allow Mr. Long’s minor children the opportunity to participate in the vote of the heirs. See § 733.301(1)(b)(2). By requiring a guardian of the property, section 733.301(2) creates significant procedural impediments for minor children who wish to participate in the selection of a personal representative in a contested proceeding. When there is no conflict within a family, such children may well have time to obtain a guardian of the property before the petition for administration is filed. But in a case like this, even if the mother had understood the law, she could not realistically have obtained a guardian of the property for the children and allowed that guardian to vote for the children within the twenty-day response time. We conclude that the probate court had authority and should have allowed Ms. Long a reasonable time to obtain a guardian of the property to vote for the children.

 

In 2008 the AARP’s Public Policy Institute published a provocative report entitled Power of Attorney Abuse: What States Can Do About It.The AARP report highlighted what was wrong with existing POA statutes, how those failings lead to the exploitation of vulnerable adults, and urged state legislators to adopt the Uniform Power of Attorney Act or “UPOAA” as the best means for reform.

Florida heard the call for reform: effective October 1, 2011, we will be the latest state to adopt its version of the UPOAA at Part II of Chapter 709 of the Florida Statutes [click here].

For an excellent plain-English explanation of Florida’s version of the UPOAA and how it will affect every new POA drafted in this state, you’ll want to read THE FLORIDA POWER OF ATTORNEY ACT – MORE DURABLE THAN EVER by Tami Conetta, of Northern Trust in Sarasota. Ms. Conetta’s paper also contains a copy of the Chapter 709 White Paper prepared by the Florida Bar’s RPPTL Section. And for those of you who find yourselves litigating the new statute, you’ll also want to read the official legislative white paper for the new statute contained in Florida Senate’s Bill Analysis and Fiscal Impact Statement.

Here are some highlights from Ms. Conetta’s excellent paper explaining our new POA statute (Part II of Chapter 709):

Existing POA’s Grandfathered In: F.S. 709.2402

A power of attorney executed prior to the effective date of the Act will remain valid under the Act provided its execution complied with the law of Florida at the time of its execution. If the power of attorney is a durable (or springing) one, it will remain durable (or springing) under the new Act.

“Springing” POA’s no longer valid (but existing POA’s grandfathered in): F.S. 709.2108

Contingent, or “springing”, powers of attorney will not be authorized after the effective date of the Act. Those in existence prior to the effective date will continue to be recognized.

New Co-agent and Successor Agent Provisions [F.S. 709.2111]; Automatic Revocation upon Divorce [F.S. 709.2109(2)(b)]:

Subject to the qualification requirements (natural persons who are 18 years of age or older and financial institutions with trust powers), the principal may designate a single agent or, if desired, the principal may designate two or more persons to act as co-agents. Unless the power of attorney provides otherwise, each co-agent may exercise its authority independently. This is a significant change from current law.

Even where the power of attorney requires two or more agents to act jointly, there is a special exception for banking transactions to allow any one of the agents to sign checks and otherwise handle banking matters with a single signature.

If an agent becomes unable to act as a result of the agent’s death, incapacity, resignation, declination, or failure to qualify, the appointed successor agent (if any) may commence serving as agent. The filing of a petition for dissolution of marriage terminates the authority of an agent who is married to the principal unless the power of attorney provides otherwise.

New Drafting Requirements for POA’s containing “Superpowers”: F.S. 709.2202

The Act clearly allows a principal to grant authority to the agent to take significant actions that can impact the principal’s estate plan or gifting program, but one must be careful in the drafting and implementation of these powers as there are additional execution formalities and restrictions on the authorization. Special note should be made of the application of these rules to powers of attorney executed on or after October 1, 2011. These rules do NOT affect existing powers of attorney prior to that date. [See F.S. 709.2202(5): “This section does not apply to a power of attorney executed before October 1, 2011.”]

Minimum Requirements. The following mandatory minimum requirements must be met:

  • The authority must be specific. For example, “My agent may create and fund a revocable trust on my behalf.”
  • [ ** NEW DRAFTING REQUIREMENT ** ]: The principal must sign or initial next to each specific enumeration of the authority.
  • The agent may only exercise the authority consistent with the duty to preserve the principal’s estate plan.
  • The exercise must not be prohibited by any governing document affected. For example, “My agent may amend or revoke my revocable trust.” But the trust agreement says the right of amendment or revocation is personal to the grantor and may not be exercised by anyone else.

The Superpowers. The powers that may be granted to the agent under this provision include:

  • Create an inter vivos trust.
  • With respect to a trust created by or on behalf of the principal, amend, modify, revoke or terminate the trust, but only if the trust instrument explicitly provides for amendment, modification, revocation or termination by the settlor’s agent.
  • Make a gift (subject to restrictions).
  • Create or change rights of survivorship.
  • Create or change a beneficiary designation.
  • Waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan.
  • Disclaim property and powers of appointment.

Modifiable Restrictions. If the agent is not related to the principal, the agent may not use these powers to benefit himself or anyone to whom the agent has a support obligation.

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Effective October 1, 2011, a surviving spouse’s intestate share of an estate will go up from 50% to 100% of the estate if the decedent’s descendants are also descendants of the surviving spouse. If you’re a probate lawyer this is a BIG deal; you’ll need to know this new statute cold.

Here’s how the new intestacy regime for surviving spouses is explained in the Florida House of Representative’s Staff Analysis of CS/HB 325:

Intestate Estate

When an individual dies (the decedent) without a will, a person’s will is declared invalid, or assets are not distributed by a valid will, then the individual is considered “intestate.” Since there is no will to direct the distribution of assets, Florida law provides the distribution of assets that remain after paying debts and the expense of conducting the probate proceedings.

Florida law on intestate succession provides that various family members receive a share of the decedent’s estate:

  • If there are no surviving descendants of the decedent, then the spouse receives the entire intestate estate.
  • If there are surviving descendants of the decedent, who are all also lineal descendants of the surviving spouse, then the surviving spouse receives the first $60,000 in property of the estate, plus one-half of the remaining balance of the estate subject to distribution. [HERE IS WHERE THE LAW IS CHANGING. EFFECTIVE OCTOBER 1, 2011, THIS SURVIVING SPOUSE NOW GETS 100% OF THE ESTATE.]
  • If there are surviving descendants of the decedent, one or more of whom are not lineal descendants of the surviving spouse, then the surviving spouse receives one half of the estate and the lineal descendants receive the other half.
  • There are additional provisions for distribution in situations beyond these, which distribute assets to other family members, but those are not relevant to the changes made in this bill. See ss. 732.103 and 732.104, F.S.

Effect of the Bill- Intestate Share of Spouse (Section 2)

The bill amends s. 732.102(2), F.S., to provide that the intestate share of a surviving spouse, where all of the decedent’s descendants are also descendants of the surviving spouse, is the entire estate. For example, if a husband passes away and was survived by his wife and two children and the wife was the mother of both children and neither had any other children, the wife would now inherit the entire estate rather than the first $60,000 and half of the remaining estate.

The bill also creates s. 732.102(4), F.S., to provide that if the surviving spouse has descendants that are also descendants of the decedent, but the surviving spouse also has a descendant not related to the decedent, then the surviving spouse’s intestate share is half of the estate. The lineal descendants of the decedent would inherit the remaining half of the estate under s. 732.103, F.S.

For a reliable, user-friendly chart summarizing the new law, you’ll also want to rely on Fort Lauderdale estate planning attorney David Shulman’s excellent Intestacy Flow Chart.

Attorneys representing trustees, personal representatives, guardians and other fiduciaries operating in Florida have long had to deal with the common-law “fiduciary exception” to the attorney-client privilege. The basic rule is that if the attorney-client communication had to do with normal administration issues the beneficiaries of the trust or estate were entitled to the information, and the trustee, PR, guardian, etc., couldn’t claim the privilege. If the communication had to do with the fiduciary’s own self interests, for example, if he or she is being sued for malfeasance, then the communications were privileged. I wrote here about the application of this rule in the context of a contested guardianship proceeding.

This ambiguous rule created uncertainty for fiduciaries and their attorneys, inhibiting the free flow of information between client and attorney, which is bad news for all concerned. To get a sense of the kind of trouble this ambiguity can lead to you’ll want to read the US Supreme Court’s recent discussion of the rule in U.S. v. Jicarilla Apache Nation, — S.Ct. —-, 2011 WL 2297786 (U.S. Jun 13, 2011).

[1] New Statutory Attorney-Client Privilege Protection: F.S. 90.5021:

The Florida Bar’s Probate & Trust Litigation Committee has been working on getting rid of the rule by statute since 2005. Well, those efforts have borne fruit: under new F.S. 90.5021 the “fiduciary exception” to the attorney-client privilege is now history in Florida.

Here’s how the new attorney-client privilege legislation is explained in Florida House of Representative’s Staff Analysis of CS/HB 325:

Lawyer-Client Privilege

Section 90.502(1)(c), F.S., provides that a communication between lawyer and client is confidential if it is not intended to be disclosed to a third person. Section 90.502(2), F.S., provides that a client has a privilege to refuse or prevent another party from disclosing those communications.

There has been some issue as to whether the attorney-client privilege applies to a trustee or guardian who employs an attorney in connection with his or her duties as trustee or guardian. The Florida Second District Court of Appeal has addressed both situations.

In Jacob v. Barton, the trustee was being sued by the beneficiary. The issue before the court was whether the attorney client privilege applied to the trustee or the beneficiary. The court ruled that the privilege applied if the work being done was on behalf and for the benefit of the trustee, but if the ultimate benefit was for the beneficiary, the privilege would not apply since the beneficiary was the “real client.” The court in Tripp v. Salkovitz, furthered this reasoning to a guardian. The guardian employed an attorney to assist in the duties of administrating the guardianship. The guardian was later sued for mismanagement by a beneficiary after the ward’s death. The court ruled that the privilege applies only if the attorney was representing the interests of the guardian and not the ward. In both cases, the court mandated that the lower court conduct an in camera review of the records in question and determine which, if any, fell under the attorney-client privilege.

Effect of the Bill (Section 1, Section 8, Section 11)

The bill creates s. 90.5021, F.S., which provides that, for purposes of this section, a client acts a fiduciary when serving as a personal representative, a trustee, an administrator ad litem, a curator, a guardian or guardian ad litem, a conservator, or an attorney-in-fact. The bill also provides that a communication between a client, acting as a fiduciary, and the client’s lawyer is privileged and protected pursuant to s. 90.502, F.S., and that nothing in this section affects the crime-fraud exception to the lawyer-client privilege set forth in s. 90.502(4)(a), F.S.

The bill also amends s. 733.212(2)(b), F.S., to provide that a notice be included on the notice of administration regarding the fiduciary lawyer-client relationship.

The bill amends s. 736.0813, F.S., to require the trustee of a trust to include a notice regarding the fiduciary lawyer-client relationship in various statutory mandated notices to the beneficiaries of the trust.

[2] New PR/Trustee Reporting Requirements: F.S. 733.212(2)(b) & F.S. 736.0813:

In order to make sure trust and estate beneficiaries don’t get caught by surprise by this turn of events, the new legislation also creates new reporting requirements for ALL trustees and personal representatives. The new legislation amends F.S. 733.212(2)(b), to provide that a notice be included on the notice of administration regarding the fiduciary lawyer-client relationship, and F.S. 736.0813, to require the trustee of a trust to include a notice regarding the fiduciary lawyer-client relationship in various statutory mandated notices to the beneficiaries of the trust.

Crawford v. Barker, — So.3d —-, 2011 WL 2224808 (Fla. Jun 09, 2011)

In 1951 Florida enacted a statute automatically cutting divorced spouses out of each other’s wills (currently at F.S. 732.507(2)). In 1989 Florida enacted a similar statute for revocable trusts (currently at F.S. 736.1105). The same inequities that lead to post-divorce automatic revocation statutes for wills and revocable trusts are now playing themselves out in cases involving beneficiary-designated non-probate assets benefiting ex-spouses.

Florida courts have traditionally applied classic contract interpretation rules to beneficiary-designated assets benefiting ex-spouses. In most cases this means the ex-spouse gets the assets. In Smith v. Smith, 919 So.2d 525 (Fla. 5th DCA 2005), which I wrote about here, the court articulated the majority approach in Florida as follows:

In the present, case the marital settlement agreement fails to make specific reference to the proceeds of the life insurance policy in question, and the decedent, in the words of the Florida Supreme Court, . . . “did just what he needed to ensure that the proceeds would go to [Ms. Smith]-he did nothing.” [Cooper v. Muccitelli (Cooper II), 682 So.2d 77, 79 (Fla.1996)]. He had a year and a half to execute change of beneficiary forms as required by his policy of insurance, but for whatever reason, he did not do so. Thus, Ms. Smith is entitled to the proceeds of the life insurance policies.

The 3d DCA broke with the majority rule in Barker v. Crawford, 16 So.3d 901 (Fla. 3d DCA 2009), crafting a form of post-divorce automatic revocation rule based on the facts of the case. The Florida Supreme Court then stepped in, reversed the 3d DCA, and in the linked-to opinion above reiterated that the rule in Florida for these cases is the majority approach articulated in Smith v. Smith.

Case Study:

In the linked-to case above the decedent opened a deferred compensation fund while married and named his spouse as the beneficiary of that fund in the event of his death. He subsequently divorced and he and his spouse entered into a marital settlement agreement that provided in relevant part as follows:

“Husband shall retain retirement money with the Town of Surfside and the Deferred Compensation Fund f/ka/ [sic] Pepsco.”

The agreement also provided that the husband “shall retain annuity with Pacific Life.” The agreement did not contain a general waiver provision or any other provision referencing the pension, annuity, or the deferred compensation fund at issue in this case.

About a year after the divorce the decedent passed away, never having removed his ex spouse as the beneficiary of his deferred comp’ plan. The 3d DCA ruled that the post-divorce ownership of his deferred comp’ plan = ex wife didn’t get the money unless husband re-affirmed his intent to benefit her post-divorce (which he hadn’t, he’d done nothing). The Florida Supreme Court reversed the 3d DCA and instead reaffirmed the approach taken by the 5th DCA in Smith v. Smith.

Absent the marital settlement agreement providing who is or is not to receive the death benefits or specifying the beneficiary, courts should look no further than the named beneficiary on the policy, plan, or account. General language such as language stating who is to receive ownership is not specific enough to override the plain language of the beneficiary designation. Magic words are not required; however, if the parties wish to specify in a marital settlement agreement that a spouse will not receive the death benefits or wish to specify a particular beneficiary, this should be done clearly and unambiguously. Otherwise, the unifying principle of Cooper II, Smith, and Luszcz applies—that the spouse who receives the policy, plan, or account as part of the marital settlement agreement is free to designate whomever he or she chooses as the beneficiary.

………..

We now apply the rule of law to this case. Here, the settlement agreement provided: “Husband shall retain retirement money with” the deferred compensation fund. The agreement did not state who would receive the death benefits or who should be the beneficiary of the deferred compensation fund. However, the contract with Nationwide Retirement Solutions clearly designated Linda Crawford as the beneficiary. Accordingly, looking to the plain language of these documents, the beneficiary designation controls.

………..In sum, we conclude, after reviewing the language of the marital settlement agreement, that the agreement gave Manuel Crawford ownership of the deferred compensation fund. As the owner, he had the right to designate the beneficiary of his choosing under the terms of the agreement—he was not obligated by the agreement to either maintain or change the beneficiary, and the agreement did not specify who was or was not to receive the death benefits. Thus, because the beneficiary designated on the deferred compensation fund is Linda Crawford, she is entitled to the death benefits.

Florida Needs to Adopt UPC 2-804:

It is inconsistent and illogical to have an automatic post-divorce revocation statute for wills (F.S. 732.507(2)), and revocable trusts (F.S. 736.1105), but not for beneficiary-designated non-probate assets benefiting ex-spouses. Clearly it is not the judiciary’s role to create revocation law where none exists (which is what the 3d DCA tried to do). This problem needs a legislative fix.

The way to fix this problem in Florida is by adopting section 2-804 of the Uniform Probate Code, which is the UPC’s version of an automatic post-divorce revocation statute applicable to beneficiary-designated non-probate assets. For an excellent discussion of why this is a good idea you’ll want to read an article written by Tampa attorney Suzanne Glickman entitled A Fair Presumption: Why Florida Needs a Divorce Revocation Statute for Beneficiary-Designated Nonprobate Assets. Here’s an excerpt from the introduction:

Life insurance and other nonprobate assets such as annuities, pay-on-death accounts, and retirement planning accounts have become increasingly popular as estate planning tools. In 2004, Americans purchased $3.1 trillion in new life insurance coverage, a ten percent increase from just ten years before. Purchases made by Floridians accounted for nearly $154 million of this national total. At the end of 2004, there was $17.5 trillion in life insurance policy coverage in the United States. However, it is likely that some of those policies will not provide security for the individuals for whom they were intended, especially if the policyholder resides in Florida. An unfortunate but familiar scenario occurs when a divorced individual fails to change the designated beneficiary on his or her life insurance policy or other contract-based estate planning tool, and the ex-spouse receives the insurance proceeds upon that individual’s death. Whether due to over-sight, mistake, or poor comprehension of the way contracts such as life insurance policies operate, the outcome is especially regrettable when the decedent policyholder leaves behind minor children or a financially struggling family.

While some jurisdictions have enacted legislation to avoid [this result], Florida has not. This Article will propose a Florida divorce revocation statute for nonprobate assets such as life insurance policies, annuities, IRAs and retirement-planning accounts, pay-on-death accounts, and any other type of contract-based asset designating an ex-spouse as beneficiary. By automatically revoking nonprobate asset beneficiary designations upon divorce, such a statute will more accurately enforce the deceased policyholder’s intent and avoid seemingly inequitable results . . .

Former Playboy Playmate, model, aspiring actress and professional celebrity Anna Nicole Smith probably wanted to be remembered for a lot of things, but her most lasting impact may have been in the court room.

In a 2006 win at the US Supreme Court, Anna Nicole Smith’s battle over her late husband’s $1.6 billion estate redefined the “probate exception” to federal court jurisdiction over trusts-and-estates related litigation [see here, here], in a way that is likely to result in a greater number of such cases being litigated in federal court [see here, here].

In 2007 Anna Nicole Smith died in Florida triggering litigation over where she would be buried [see here, here, here]. Not surprisingly, this case had a major impact on Florida law governing burial disputes and, I am told, is likely to result in legislation specifically designed to govern all such future disputes in Florida. This type of statue would be a first for Florida.

Now, in 2011, Anna Nicole Smith’s estate battle has resulted in a significant Supreme Court decision redefining the power of federal bankruptcy judges. In Stern v. Marshall, — S.Ct. —-, 2011 WL 2472792 (U.S. Jun 23, 2011), the Supreme Court ruled that a bankruptcy judge, who awarded Smith $475 million in 2000, did not have the constitutional right to try a probate case. Because the battle over oil tycoon J. Howard Marshall II’s wealth outlived most of the parties to the suits, Chief Justice John G. Roberts Jr. compared it to “Bleak House,” Charles Dickens’ novel about a lawsuit that never ends.

This “suit has, in course of time, become so complicated, that … no two … lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause: innumerable young people have married into it;” and, sadly, the original parties “have died out of it.” A “long procession of [judges] has come in and gone out” during that time, and still the suit “drags its weary length before the Court.”

Those words were not written about this case, see C. Dickens, Bleak House, in 1 Works of Charles Dickens 4–5 (1891), but they could have been.

After Smith’s death in 2007, Howard K. Stern, her former domestic partner, had carried on the case as executor of her estate. The estate’s sole beneficiary is Smith’s daughter, Dannielynn Birkhead, who will be 5 in September. The Supreme Court’s ruling effectively ends any claim Smith’s estate may have had to her late husband’s vast estate.

Here’s an excerpt from an AP piece entitled Court rules against Anna Nicole Smith’s estate in battle for deceased oil tycoon’s estate that does a good job of putting the Supreme Court’s ruling in context:

The family of E. Pierce Marshall, son of J. Howard Marshall, cheered the decision.

“J. Howard’s wishes were always perfectly clear: He gave Anna Nicole Smith approximately $8 million in gifts during his lifetime, and those gifts were all that he intended to give her,” said Eric Brunstad, the Marshalls’ lawyer.

The convoluted dispute over the elder Marshall’s money has its roots in a Houston strip club where he met Smith. The two were wed in 1994 when he was 89 and she 26. Marshall died the next year and his will left his estate to his son and nothing to Smith.

Smith challenged the will, claiming that her husband promised to leave her more than $300 million above the cash and gifts showered on her during their 14-month marriage. A Houston jury said Marshall was mentally fit and under no undue pressure when he wrote a will leaving nearly all of his $1.6 billion estate to his son and nothing to Smith, a decision that has been upheld by the federal appeals court.

Smith moved to California after Marshall’s death and then filed bankruptcy in Los Angeles, alleging in federal court filings that her husband promised her a large share of the estate. A bankruptcy judge awarded her $475 million from Marshall’s estate, with a federal judge reducing that amount to $89 million in 2002.

Smith had wanted the courts to accept that ruling. But the 9th U.S. Circuit Court of Appeals in in San Francisco appeals court threw the bankruptcy court ruling out, saying a bankruptcy judge could not rule on the probate case [see here].

Roberts agreed with that decision, and was joined in his judgment by Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito.

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When a business owner passes away you may be asked if this means the business needs to stop operating until the probate court appoints a personal representative or enters some other order having to do with the decedent’s estate. The answer is usually NO.

Even when owned 100% by a decedent, corporations retain their separate legal existence, which means the corporation’s asset don’t automatically become assets of the probate estate. This rule is sometimes forgotten when probate courts deal with closely-held businesses. For example, earlier this year I wrote about a probate judge getting reversed for failing to recognize the separate legal existence of a New York LLC for jurisdictional purposes, even if a Florida decedent owned 50% of the LLC.

Case Study

BankAtlantic v. Estate of Glatzer — So.3d —-, 2011 WL 1877839 (Fla. 3d DCA May 18, 2011)

In the linked-to case the dispute was over control of cash in a bank account held in the name of a deceased physician’s professional association or “PA.” A PA is a form of corporation. The probate judge ruled the cash in the PA’s account had to be transferred to the estate’s control, even though this cash had been pledged as security by the PA for a loan that came due when the physician died. As explained by the 3d DCA, this ruling ignored the separate legal existence of the PA, warranting reversal. Here’s why:

The decedent personally guaranteed his professional association’s promissory note, and his death constituted an event of default under that note. The orders requiring transfer of the funds to a different bank thus impaired BankAtlantic’s right of setoff. Although the parties agreed that the deceased physician owned all of the shares of his professional association, there was no evidence presented to support a “piercing of the corporate veil” under Dania Jai–Alai Palace v. Sykes, 450 So.2d 1114 (Fla.1984), or any other alter ego theory. While the appellee Estate was apparently entitled to take possession of the professional association stock held by the doctor at his death, no such conclusion extended to the association’s funds on deposit in the corporate name at BankAtlantic. In Gettinger v. Gettinger, 165 So.2d 757 (Fla.1964), the Supreme Court of Florida held that “the affairs of a corporation, even though substantially owned by a decedent, cannot be administered by decedent’s executor as assets of the decedent’s estate.” In this case, “substantially” is 100%, and the result is identical.

. . . The point in this case is that the stock of the professional association is an asset of the Estate, but the funds of the professional association are a step removed from the Estate. The decedent’s Estate essentially ignored the separate corporate existence of the professional association and that entity’s obligations to its own creditors.

TTSI Irrevocable Trust v. Reliastar Life Ins. Co., — So.3d —-, 2011 WL 1810601 (Fla. 5th DCA May 13, 2011)

Trusts and estates lawyers usually focus on the estate-tax planning benefits of life insurance, especially when used to fund an irrevocable life insurance trust or “ILIT”. What we don’t often focus on are the non-tax, state law requirements peculiar to life insurance contracts, such as the insurable interest requirement. What makes this ILIT case interesting is that it has nothing to do with taxes. Instead it’s all about how an ILIT can fall apart for non-tax reasons if you blow Florida’s insurable interest requirement.

Insurable Interest:

Florida codified the insurable interest doctrine for life insurance contracts in F.S. 627.404, which requires that an insurable interest exist at the time the policy is applied for. An insurable interest is established when the purchaser of the policy will benefit more from that person being alive, whether emotionally or financially. The obvious point being that we don’t want people buying life insurance contracts then killing the insured to collect on the policy [click here]. Without an insurable interest, a life insurance policy is considered void ab initio.

When an individual purchases a life insurance policy on himself or herself, there is automatically an insurable interest. An insurable interest can also be created under F.S. 627.404 when there is a strong relationship between the purchaser and the insured based on blood, marriage or pecuniary interest.

Case Study:

In this case a life insurance agent purchased a $370,912 life insurance policy on the life of his 85-year-old client. The life insurance was owned by an ILIT of which the life insurance agent and his children were the only beneficiaries. The case revolved around two primary issues:

  1. Did insurance agent have an insurable interest in the life of his client?
  2. If there was no insurable interest, was life insurance agent entitled to a refund of the premiums paid on the policy?

Under the facts of this case, the anwer to both questions was NO.

[1] Insurable Interest? NO

You can have an insurable interest in a non-family member’s life under F.S. 627.404 if the insured is worth more to you alive than dead. Here’s how the statute lays out this prong of the insurable interest test:

An individual has an insurable interest in the life, body, and health of another person if such individual has an expectation of a substantial pecuniary advantage through the continued life, health, and safety of that other person and consequent substantial pecuniary loss by reason of the death, injury, or disability of that other person.

Insurance agent argued he satisfied this prong of the insurable interest test because the insured was one of his “key” clients. Here’s how the 5th DCA described the trial court’s ruling and why this ruling meant the subject life insurance policy was void ab initio.

In January, 2009, TTSI filed a 3–count complaint against ReliaStar for breach of contract, anticipatory breach of contract, and declaratory relief, requesting that the court require ReliaStar to reinstate the policy. ReliaStar answered the complaint and later moved for summary judgment based on the argument that the policy was void ab initio because TTSI never had an insurable interest in Ms. Tennant’s life. At the trial level, TTSI argued that Ms. Tennant was a “key client” of Mr. Moses and therefore it had an insurable interest in Ms. Tennant’s life. The trial court rejected TTSI’s argument and determined that no insurable interest existed. See § 627.404, Fla. Stat. (2004). That ruling is not challenged on appeal.

Where the owner of an insurance policy lacks an insurable interest in the life of the insured, the policy is void ab initio because it is considered a “wagering contract” and contrary to public policy. See, e.g., Knott v. State ex rel. Guar. Income Life Ins. Co., 136 Fla. 184, 186 So. 788, 789 (1939) (“[I]t has been uniformly held that a contract of insurance upon a life in which the insurer has no interest is a pure wager, that gives the insurer a sinister counter-interest in having the life come to an end.”); Lopez v. Life Ins. Co. of America, 406 So.2d 1155, 1158 (Fla. 4th DCA 1981) (“Florida law requires that an individual contracting for insurance on the life of another have an insurable interest … The obvious purpose of that requirement is to prevent so-called ‘wagering’ contracts.”), approved, 443 So.2d 947 (Fla.1983); Aetna Ins. Co. v. King, 265 So.2d 716, 718 (Fla. 1st DCA 1972) (“The public policy of this state renders an insurance policy invalid when the insured has no insurable interest in the property or the risk insured on the grounds that same constitutes a wagering contract.”); Atkinson v. Wal–Mart Stores, Inc., No. 8:08–CV–691–T–30TBM, 2009 WL 1458020, at *3 (M.D.Fla. May 26, 2009) (“Florida courts have long held that insurable interest is necessary to the validity of an insurance contract and, if it is lacking, the policy is considered a wagering contract and void ab initio as against public policy.”).

[2] Void Life Insurance Policy = No Refunds

Insurance agent then argued that if the life insurance policy wasn’t valid, at the very least he should be entitled to a refund of premiums paid. Strike two: trial court said NO to this too, and the 5th DCA agreed. Here’s why:

TTSI argues that notwithstanding the invalidity of the insurance policy, it is still entitled to a refund of the premiums paid. In support thereof, TTSI cites to Gonzalez v. Eagle Ins., Co., 948 So.2d 1 (Fla. 3d DCA 2006), Perlman v. Prudential Ins. Co. of America, Inc., 686 So.2d 1378 (Fla. 3d DCA 1997), and Diaz v. Fla. Ins. Guar. Ass’n, Inc., 650 So.2d 675 (Fla. 3d DCA 1995) for the proposition that where a policy is rescinded or declared void, a refund of premiums paid, in part or in whole, is required in order to return to the status quo. These cases are readily distinguishable. In each of these cases, a party sought to rescind an insurance contract because of an alleged fraud in the inducement. Rescission is an equitable remedy where the primary obligation is to undo the original transaction and restore the former status of the parties. Billian v. Mobil Corp., 710 So.2d 984, 990 (Fla. 4th DCA 1998). Moreover, rescission is an elective remedy and the party may, but is not obligated to, exercise its right to rescind the transaction. See, e.g., Towers v. Clarendon Nat’l Ins. Co., 927 So.2d 913, 914 (Fla. 2d DCA 2006).

By contrast, the present case does not involve a voidable contract. Rather, neither party could elect to give effect to the policy at issue because it was void at the outset. Furthermore, as a general rule, contracts that are void as contrary to public policy will not be enforced by the courts and the parties will be left as the court found them. See, e.g., Harris v. Gonzalez, 789 So.2d 405 (Fla. 4th DCA 2001); Castro v. Sangles, 637 So.2d 989 (Fla. 3d DCA 1994). We see no reason to depart from the general rule where, as in the instant case, the party seeking to enforce the contract is the only party who engaged in deceptive and misleading conduct at the time the contract was entered into. See also Sec. Mut. Life Ins. Co. v. Little, 119 Ark. 498, 178 S.W. 418 (1915) (where party enters into unlawful contracts for insurance policies on the lives of persons on which it had no insurable interest, contracts are unenforceable and party is not entitled to recover amounts previously paid to insurer).

Marger v. De Rosa, — So.3d —-, 2011 WL 252942 (Fla. 2d DCA January 28, 2011)

A joint tenancy with right of survivorship (JTWROS) is a type of concurrent estate in which co-owners have a right of survivorship, meaning that if one owner dies, that owner’s interest in the property will pass to the surviving owner or owners by operation of law, and avoiding probate. The deceased owner’s interest in the property simply evaporates and cannot be inherited by his or her heirs.

Back in 1984 the 2d DCA ruled in Ostyn v. Olympic, 455 So.2d 1137 (Fla. 2d DCA 1984), that if a person owns homestead property as JTWROS, then at the point of death the decedent’s interest in his homestead property evaporates, leaving nothing for a surviving spouse to assert homestead rights against. This time around the 2d DCA came to the same conclusion with respect to the decedent’s minor children: at the point of death the decedent’s interest in his homestead property evaporated, leaving nothing for the minor children to assert homestead rights against. Here’s how the 2d DCA explained its ruling:

In 1995, Mr. De Rosa and his mother, Harriet S. De Rosa, purchased a home in Largo, Florida. The warranty deed to the house states that Mr. De Rosa and his mother own it as “joint tenants with full right of survivorship and not as tenants in common.” At the time of the conveyance, Mr. De Rosa had two minor children. When he died intestate in 2008, he had no surviving spouse, but he did have two minor children and one adult child.

Harriet S. De Rosa claimed title to the property when her son died. Mr. Marger forcefully argues that the house should have homestead status for the benefit of the children. We conclude that the trial court correctly applied our precedent in Ostyn v. Olympic, 455 So.2d 1137 (Fla. 2d DCA 1984), in holding that the house was not homestead and became the sole property of Harriet S. De Rosa at the instant of her son’s death.

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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.” This language does not restrict the type of interests in real property a person may acquire or how a person may title his or her property. Instead, it restricts a person’s attempt to devise property he or she owns when homestead status has attached to that property. Thus, even though Mr. De Rosa had children who were eligible for homestead protection at the time he purchased this property along with his mother, he was free to take the property as a joint tenant with the right of survivorship. In so doing, the property did not become homestead property when he and his mother purchased it. Thus, when Mr. De Rosa died, his interest in the property terminated, and it became the sole property of his mother as the surviving joint tenant without any life estate for the benefit of his children.