Covenant Trust Co. v. Guardianship of Ihrman, — So.3d —-, 2010 WL 3564731 (Fla. 4th DCA Sept. 15, 2010)

Clients and lawyers alike must contend with an underfunded court system where procedural due process is often viewed as an unnecessary luxury. So what can you do? First, make sure you do your part to help your judge do his part (see Persuading a Cold Judge). Second, insist on evidentiary hearings (not just argument of counsel) to decide contested issues of fact. Sounds like pretty basic stuff; you’d be surprised how often it doesn’t happen: click here, here, here, here.

Evidence, Evidence, Evidence . . .

In this case a probate judge entered multiple orders — all on issues clearly requiring evidentiary hearings — based on nothing other than argument of counsel. Not surprisingly the 4th DCA reversed all of these orders. The obvious take-away from this case is that evidentiary hearings matter. The less obvious point — but really the more important one — is that it’s up to counsel to make sure they anticipate the tendency in probate proceedings to bypass evidentiary hearings and compensate accordingly. Your worst enemy is the rushed 15-minute hearing where the judge ends up entering an order that takes you the next 12 months to get reversed on appeal.

In this case Covenant Trust Company, an Illinois corporate trustee, got sucked into a contested Florida guardianship proceeding when it received a petition in the mail (i.e., no legal service of process) from the Florida guardian accusing it of breaching its fiduciary duties and asking the Florida probate judge to immediately take control of the trust by, among other things, ordering the trustee to pay guardianship-related expenses in Florida and ordering the trustee to no longer use trust funds to pay its lawyers.

Here’s how the 4th DCA deconstructed each of the probate court’s rulings: all of which were reversed for lack of evidence.

[1] Can a court haul a foreign trustee into a Florida court without evidence? NO

The Illinois trustee argued it shouldn’t be subject to the Florida court’s jurisdiction because it didn’t have enough contacts with Florida to fall under F.S. 48.193, our long-arm statute. Both sides filed conflicting affidavits on this issue, as required under Florida law. Once you have conflicting affidavits, the trial court is required to conduct an evidentiary hearing to sort it all out. That didn’t happen.

Here, Guardian’s and Covenant’s affidavits cannot be reconciled, as Guardian attested Covenant conducted business in Florida, and Covenant denied this. The trial court only held hearings and decided the issue based on the attorneys’ arguments. See Ralph v. McLaughlin, 756 So.2d 240, 241 (Fla. 2d DCA 2000) (where trial court only heard the arguments of counsel before deciding the motions to dismiss based on lack of personal jurisdiction, the Second District, pursuant to Venetian Salami, reversed and remanded the case so the trial court could hold a limited evidentiary hearing on the minimum contacts issue to resolve the conflicting affidavits); Sonson v. Hearn, 17 So.3d 745, 747 n. 1 (Fla. 4th DCA 2009) (citing Leon Shaffer Golnick Adver., Inc. v. Cedar, 423 So.2d 1015, 1017 (Fla. 4th DCA 1982)) (unsworn statements by an attorney at a hearing do not establish facts upon which the trial court can rely). Therefore, the trial court erred by not conducting a limited evidentiary hearing to determine if Covenant had the required minimum contacts to expect to be haled into court in Florida. See Golant v. German Shepherd Dog Club of Am., Inc., 26 So.3d 60, 62-63 (Fla. 4th DCA 2010) (with regard to minimum contacts, due process is met if a non-resident defendant would reasonably anticipate being haled into a Florida court).

Even assuming the Florida court had jurisdiction over the Illinois trustee, it still had to contend with Florida’s special venue statute for trust litigation: F.S. 736.0205. Under this statute the presumption is that you have to sue foreign trustees in their home states (click here, here, here). According to the 4th DCA, the trial court seems to have skipped this point too.

Assuming the trial court has the requisite in personam jurisdiction, Covenant argues section 736.0205 requires this action be brought in Illinois, unless all parties could not be bound by litigation in the courts where the trust is registered. . . . It is not clear from the record if “all interested parties could not be bound by litigation in the courts of the state where the trust is registered or has its principal place of administration.” Thus, if the trial court determines it has in personam jurisdiction, it will next need to determine if the interested parties could be bound by litigation in Illinois. . . . We reverse and remand the case to the trial court with directions to hold an evidentiary hearing on the issue of jurisdiction over Covenant.

[2] Can a court bar a trustee from using trust funds to pay its legal fees without evidence? NO

In trust litigation one of the biggest advantages a trustee-defendant has is its ability to pay for its legal defense with trust funds, while the plaintiff is left to pay for its side of the litigation out of its own pocket. Plaintiffs can level the playing field by getting the court to enter an order cutting the trustee off from trust funds to pay legal fees. This tactic was so troubling to Florida’s trustee community that in 2008 it resulted in a brand new stand-alone statute intended to make sure trustees weren’t unfairly treated in these proceedings: F.S. 736.0802(10). I wrote about the lead-up to this statute and its eventual passage here.

A key procedural protection built into F.S. 736.0802(10) is the trustee’s entitlement to an evidentiary hearing. Again, that didn’t happen. Again, the 4th DCA reversed. Here’s why:

To obtain an order prohibiting Covenant from paying any more attorney’s fees from the trust assets, section 736.0802(10)(b) states that the “party must make a reasonable showing by evidence in the record or by proffering evidence that provides a reasonable basis for a court to conclude that there has been a breach of trust.” No evidence was provided or proffered showing a breach of trust.  . . . Accordingly, the trial court erred in entering this order without making any such finding of breach of trust.

[3] Can a court force a trustee to pay guardianship fees without evidence of the payments being mandated or the trustee acting arbitrarily? NO 

It’s not unusual for probate courts to force the trustees of an incapacitated grantor’s revocable trust to pay for some or all of the grantor’s guardianship costs. This case demonstrates that although that practice may be common, it’s at odds with long-standing Florida law if done over the legitimate objections of the trustees. This is an important point all trustees involved in guardianship proceedings need to remember. Finally, when reading the 4th DCA’s analysis of this issue note again how we come back to the “no-evidence” theme.

In Cohen v. Friedland, 450 So.2d 905, 906 (Fla. 3d DCA 1984) (citing White v. Bacardi, 446 So.2d 150, 155 n. 5 (Fla. 3d DCA 1984)), the Third District explained that “[a] trustee, in the strictest sense, holds legal title to property which he administers for the named beneficiary in accordance with the terms of the instrument creating the trust.” The trust agreement provided that the beneficiary would receive the trust income and the trustees had sole discretion to invade the trust principal for the beneficiary’s maintenance, comfort, and welfare. Id. But “[i]n the absence of proof that the trustee has failed to perform, or has performed arbitrarily, a court is without authority to remove trust assets from control of the trustee to be administered by the court or other guardian.” Id.

In Giglio v. Perretta, 493 So.2d 470, 470 (Fla. 4th DCA 1986), we held the “trial court erred in requiring the trustee to use trust assets to reimburse the guardian of the trust beneficiary for guardianship administration expenses, attorneys fees, and other costs.” We explained that although paying some of these costs may have been allowed, in the trustee’s discretion, these payments were “not legally mandated by the trust provisions,” so the court had “no authority to compel the trustee to make such payments,” nor any authority for the attorney’s fees award. Id. (citing Cohen, 450 So.2d 905).

Further, in Johnson v. Guardianship of Singleton, 743 So.2d 1152, 1153 (Fla. 3d DCA 1999), the Third District, citing Cohen, held that there was “no statutory or other satisfactory legal justification for the award” of legal expenses, where the trial court ordered the trustee “to pay from trust assets the legal expenses incurred” by the guardian.

Here, Covenant, as trustee, was granted, within the trust provision, the discretion to make payments from the trust assets. There was no evidence that Covenant acted arbitrarily. Therefore, the court lacked the authority to order Covenant to remove trust assets. As explained in Giglio, these payments were not legally mandated in the trust terms. Further, as in Johnson, there was no statutory or other legal authority for the court to order the payments. Because the trust did not provide for the payment of attorney’s fees, and Covenant could make payments in its discretion for Lillian’s best interests, the court was without authority to order Covenant to pay Guardian’s attorney $10,000 from the trust assets.

In un-contested probate proceedings, there are all sorts of issues you can resolve via affidavits without incurring the costs and delays inherent to hauling in live witnesses for an evidentiary hearing. By contrast, the minute probate proceedings morph into litigation the rules of evidence apply in full force. Which means you can’t get away with using affidavits unless there’s some sort of applicable hearsay exception. For example, the 5th DCA recently made the point here that affidavits won’t cut it to prove a “lost” will. You need live witnesses for that kind of case.

In a will contest the estate has the initial burden of proving the formal execution and attestation of the will. Once the estate’s done that, the burden of proof then shifts over to the contestant. But what do you do if the will at issue was executed years (perhaps decades) earlier and you simply can’t track down the witnesses? In the past it was an open question as to whether you could use an affidavit to establish prima facie the formal execution and attestation of the will. Here’s how this Legislative White Paper explained the problem:

In proceedings contesting the validity of a will, Florida Statutes § 733.107 provides that “the burden shall be upon the proponent of the will to establish prima facie its formal execution and attestation.” Occasionally, at the time of testator’s death, witnesses to the execution and attestation of a will are dead or otherwise unavailable (i.e. they cannot be located, are incapacitated, or perhaps have no recollection of the signing ceremony). Because the rules of evidence are applicable to probate proceedings, a self proving affidavit or oath of an attesting witness taken outside of the probate proceedings could be excluded as hearsay making it difficult or impossible for the proponent of the will to meet the burden of presenting prima facie proof of due execution and attestation in a will contest, particularly for wills that were executed many years or even decades ago. Should the present unavailability of the attesting witness, who has previously given a sworn statement regarding due execution and attestation, thwart the testator’s constitutional right to dispose of his property by will as recognized by the Florida Supreme Court in Shriners Hospital For Crippled Children v. Zrillic, 563 So.2d 64 (Fla. 1990). The proposed legislation amends Florida Statute §733.l07 to permit self-proving affidavits and oaths of attesting witnesses executed in compliance with the Florida Probate Code to be admitted into evidence to establish the prima facie evidence needed to meet the initial burden of proving formal execution and attestation in contested probate proceedings.

Fear no more, the hearsay problem’s been fixed statutorily in the following new sentence to Florida Statutes § 733.107:

A self-proving affidavit executed in accordance with s. 732.503 or an oath of an attesting witness executed as required in s. 733.201(2) is admissible and establishes prima facie the formal execution and attestation of the will.

“But wait, there’s more!”

Palm Beach County board certified trusts and estates attorney Pete Matwiczyk responded to this blog post with an insightful warning: the new legislation’s a good start, but not a complete fix. To understand why you need to read Mr. Matwiczyk’s comments. With his permission, I’ve quoted them below.

This legislation puts a patch on the problem, but not a complete fix. I brought the issue to the attention of Lee McElroy and the probate litigation committee of RPPTL. Lee was the prime mover and (I believe) the draftsperson of the white paper. After the legislative patch, only wills with self proving affidavits, or with living witnesses who are available to give an affidavit can be saved. Be very careful about the wills in your will vault, especially if they were drafted by the long retired and deceased partner who drafted wills before the adoption of the Florida Probate Code, in 1974, which allowed for and popularized the use of self proving affidavits.

Consider a challenge that is otherwise completely without merit, but that succeeds only because the proponent cannot meet the strict evidentiary requirements to establish due execution. The legislation falls short. In that case, even the new 733.107 does not save the document after the burden shifts to the proponent.

Section 733.107 is derived, in part, from the UPC. States other than Florida have developed or adopted solutions so that wills that otherwise qualify as valid wills under the statute of wills, are not rendered invalid just because a challenge is filed and there are no witnesses to overcome the hearsay rule. For example, not all states have adopted an absolute burden shift approach once a contest is filed. The burden shift need not be absolute, but could be the subject of a proffer type proceeding, just like was enacted as part of 736.0802 (10) prohibiting payment of trustee attorney fees.

Another possible Florida specific remedy would be an amendment to the evidence code, for a limited exception (of some type) but reaching beyond the probate code, into the evidence code. According to what I heard, the evidence code was a more ambitious undertaking that would have apparently taken too long with an unpredictable outcome.

Back in 2007 I wrote here about a provocative Florida Bar Journal article [click here] by renowned trusts and estates attorney Jeffrey A. Baskies sounding the alarm on the unfair economic burden borne by widows and widowers receiving life estates in homestead property and the inability of these surviving spouses to use partition actions to remedy their situations. Here’s how Mr. Baskies summed up the problem:

Florida’s homestead laws have created a new trap for surviving spouses — the life estate that was designed to protect them has instead trapped them in homes they no longer want and can no longer afford.

This situation has become acute as a result of the convergence of several developments over the past five years. There has been a tremendous increase in property taxes statewide. While many homesteads have benefitted from the “save our homes” cap on ad valorem property taxes, for those that were purchased in the last few years, the base for property taxes may already be inflated. Homeowners’ insurance costs for everyone have increased as much as several hundred percent. For many surviving spouses, there have been special assessments for condo and homeowners’ associations for hurricane damage. For those in single family homes, many have had to pay for significant repairs not covered by insurance. Floridians benefitting from the “save our homes” cap on their property taxes have a generalized fear of moving, because to do so could result in significantly increased taxes as a result of purchasing a new home (even a less expensive one). Finally, as a result of increased property values, many surviving spouses who want to move fear they cannot find a reasonable alternative place to live.

Combined, these factors have created a difficult situation for many Florida residents. But, when coupled with an inability to alter or sell their life interests, many surviving spouses are trapped in their homesteads. If they no longer desire to live in their homes or they can no longer afford to do so, what can they do and where can they go?

Legislators responded to Mr. Baskies’ call to action by amending F.S. 732.401 to allow a surviving spouse to opt out of a life estate and instead take a 50% tenancy-in-common interest in the homestead property. As explained in this Legislative White Paper, taking a 50% tenancy-in-common interest in lieu of a life estate can offer significant benefits to surviving spouses. If the surviving spouse is incapacitated, F.S. 744.444(9) has been amended to empower her guardian to make the election for her.

A key provision of this new legislation is the applicable deadline: the election must be made within 6 months after the decedent’s death and during the surviving spouse’s lifetime. Bottom line, the new statute and the Legislative White Paper explaining how it works should be required reading for all Florida probate lawyers.

But What about Post-death Disclaimers of Homestead Rights?

Another way surviving spouses have always been able to opt out of homestead property rights is via a post-death disclaimer. However, there’s been conflicting trial-court rulings on exactly what happens as a matter of law when a surviving spouses disclaims his or her homestead-property rights. Here’s how the conflcting authority was summarized in this Legislative White Paper:

In reviewing the effect of a spouse’s disclaimer of his or her homestead interest, circuit courts have reached conflicting results. See In Re: Estate of Joseph T Ryerson, Jr., No. 93-307 (Fla. 15th Cir. Ct., June 17, 1993), affd, per curiam, No. 93-2074 (Fla. 4th DCA July 20,1994) and In re: Estate of Frances N Janien, 12 Fla. 1. Weekly Supp. 221 (February 28, 2005), Case No. 502004CP000973 (Fla. 15th Cir. Ct., (December 6, 2004), in which the courts held that where homestead was invalidly devised, a post death disclaimer of the surviving spouse’s life estate in homestead did not divest the decedent’s descendants of their vested remainder interests. At least one other circuit court has reached an opposite result under similar facts and held that the spouse’s disclaimer would divest the decedent’s descendants of their interests and give effect to the otherwise invalid devise. See In Re: Estate of Harry Sudakoff, No. 91-87 (Fla. 12th Cir. Ct. March 25, 1994), affd, per curiam, No. 94-02102 (Fla. 2d DCA, March 10, 1995). 

New legislation addresses this conflicting authority by codifying the Ryerson approach in new subsection (4) of F.S. 732.401 and new subsection (3) of F.S. 732.4015.

Magill v. Dresner, — So.3d —-, 2010 WL 3025111 (Fla. 3d DCA Aug 04, 2010)

Planning for incapacity – not just death – is a cornerstone of modern estate planning. And let’s be clear, the type of incapacity most likely to affect any of us is dementia. According to the Alzheimer’s Association’s 2010 report: 5.3 million people in the US have Alzheimer’s, it’s the 7th leading cause of death, it’s annual cost to our society is 172 billion dollars, and 10.9 million unpaid caregivers bear most of the burden.

What’s scary about dementia is that you’re vulnerable to the worst forms of abuse and exploitation by your own caregivers. The single most effective way to plan against this risk is choosing the right person – in advance – to be your legal guardian in the event of incapacity. The way you do that under Florida law is by executing a “Declaration Naming Preneed Guardian” in which you make known to the world the one person (or group of persons) you think is best suited to serve as your guardian if at some later date you become incapacitated.

Here’s the statutory scheme controlling how these documents work in real life:

  • F.S. 744.3045: This is the key statute. It creates a statutory presumption in favor of appointing your designated preneed guardian. This directive’s been interpreted as requiring a probate judge to appoint your designated preneed guardian unless there’s “substantial, competent evidence” establishing that:
  • your designated preneed guardian is disqualified from serving as a matter of law under F.S. 744.309 (e.g., a felony conviction will automatically disqualify you); or
  • the court determines under F.S. 744.312 that it’s NOT in your best interest to appoint your designated preneed guardian (which is what happened in this case).

Preneed guardianship designations work fine most of the time. The linked-to case above is an example of when things go wrong. Rather than waiting to actually read the ward’s Declaration Naming Preneed Guardian, the court simply relied upon a verbal summary of the document provided by counsel for one of the parties (which turned out to be wrong!) and then proceeded to rule on the merits of the case in the absence of “substantial, competent evidence.”

The 3d DCA reversed this ruling, ultimately honoring the ward’s preneed guardian designation. Nice to know, but not especially helpful to practicing lawyers called upon to actually litigate these cases. What lawyers need to know is what kind of evidence is outcome determinative. Once you know that, you can plan ahead for your next trial. Here’s what the 3d DCA had to say about that:

We find that the probate court abused its discretion in appointing Dresner as Shirley’s plenary guardian. First, the probate court failed to properly consider the Declaration prior to appointing Dresner. It is undisputed that the Declaration was not filed with the probate court until June 24, 2009, eight days after the hearing on the petition. Therefore, the probate court did not have the Declaration before it when it concluded that the Declaration required all three daughters to act in unison as guardian. Instead, the probate court based its conclusion on representations made by Tew concerning the Declaration as well as other testamentary documents Shirley executed. This was error.

Translation: Representations of counsel aren’t evidence, if you don’t have the actual Declaration in evidence, your judge shouldn’t rule.

Second, contrary to the probate court’s belief, the Declaration is clear that it is Shirley’s wish that in the event of her incapacitation her three daughters are to serve as her guardian. The probate court did not make a factual finding that any of the daughters was unqualified, unwilling, or unable to serve as guardian. Rather, the probate court based its conclusion on a belief that the Declaration required them to act in unison, and that because one of the sisters, Maureen, was not in agreement with the appellants concerning their mother’s living arrangement, she could not appoint all three to serve as guardian. Because the Declaration does not require unanimity among the daughters in order to be appointed or serve as guardian, this conclusion was also erroneous.

Translation: A court can’t ignore a person’s preneed guardian designation in the absence of a factual finding – based upon substantial, competent evidence – that the designated preneed guardian is “unqualified, unwilling, or unable to serve as guardian.”

Finally, there was no evidence that the appointment of the daughters as guardian would not be in Shirley’s best interest. The record reveals simply that the appellants and Maureen are in disagreement concerning one aspect of their mother’s life-her living arrangement. As already explained, the Declaration does not require that they be in agreement on all aspects of their mother’s life or care. Because Dresner and Nguyen agreed with Maureen’s proposal for her mother’s living arrangement and the probate court ultimately appointed Dresner as plenary guardian, the probate court’s ruling has the effect of allowing the minority of the designated preneed guardians to control the majority. This result, however, is contrary to the plain language of the Declaration, which clearly allows for decisions concerning guardianship matters to be made by majority rule rather than minority. Additionally, the probate court’s finding that Shirley’s assets will “dissipate very quickly” because the appellants and Maureen cannot agree on this one aspect of their mother’s life has no basis in fact in the record.

Translation: A court can’t ignore a person’s preneed guardian designation in the absence of a factual finding – based upon substantial, competent evidence – that appointing the designated preneed guardian would NOT be in the ward’s “best interests.”

For the above reasons, the record lacks substantial competent evidence to overcome the statutory presumption that the designated preneed guardians, as set forth in Shirley’s Declaration, are entitled to serve as her plenary guardian. Accordingly, we reverse the order on appeal appointing Dresner the plenary guardian and reverse with directions to the probate court to appoint all three daughters, the appellants and Maureen, as the plenary guardian of their mother, Shirley.

The vast majority of cases settle. So for most probate litigants the question isn’t am I going to settle, but when. If we were all the type of rational actors assumed by classic economic theory, knowing when to settle would be easy. All you have to do is get far enough along in the discovery process to accurately run a cost-benefit analysis and voila! the ideal settlement point would be obvious.

But we all know it’s never that easy. Why? According to behavioral economists it’s because most of us make decisions for all sorts of reasons that often have nothing to do with cold, hard reason. Makes sense to me, especially in the probate litigation context.

Which is why an article in this month’s Estate Planning Journal by Chicago, Illinois attorney Howard M. Helsinger entitled Advising the Trust or Estate Litigant: When to Raise or Fold caught my attention. Drawing both on his own experience in the trenches and an impressive grasp of economic theory, Mr. Helsinger does a great job of applying behavioral economics to the dynamics at play in most contested probate proceedings (especially settlement negotiations). Good stuff; highly recommended for the practicing probate litigator. Here’s an excerpt:

Lessons from behavioral economics

The conventional mode of valuing a case … presumes an economically rational actor…. But behavioral economists have for a while now been demonstrating that, in many cases, people do not act like the “rational person” of classical economics. They engage in behaviors that fail to maximize their utility. Various factors discussed in the economics literature are relevant to the situation of estate and trust litigants.

Endowment effect. The value people assign to an item is often exaggerated by what is known as the “endowment effect.” Individuals tend to overvalue what they already possess. Assume, for example, that half of a class of law students is given a coffee mug bearing the university’s logo. It costs $8 at the university bookstore, and the sticker bearing the price is still on the bottom. Assume also that we know from prior study that the average price people would pay for this coffee mug is $5. Repeated studies have demonstrated that those students who receive this coffee mug will demand more than $5 to part with it, even though they would probably have been willing to pay no more than that to acquire it.

Although an individual might be willing to pay no more than $100 for a ticket to a Chicago Bears game, the same individual will demand more than that to sell the ticket he or she already possesses. Indeed, Duke University students who were fortunate to win a ticket to a Duke basketball game after camping out for a week demanded at average of $2,400 to sell it. Other students, who had also camped out, but had not won a ticket, would pay only $170 to acquire one. Ownership itself clearly enhances the perceived value of possessions. Indeed, even anticipated ownership may increase their value. The longer an auction participant is the high bidder, the greater he or she is likely to value the object.

Passions. Passions also distort judgment. Dan Ariely, for example, describes studies demonstrating, not surprisingly, the distorting impact of sexual arousal on the judgment of young males. That is an unlikely factor in trust and estate litigation, but we should expect similar distortions as a result of grief, sibling rivalry, and the other passions with which we are familiar in decedent’s estates.

Undervalue costs. A third significant factor distorting the judgment of litigants is a tendency to overly discount the likely future cost of litigation. Quite independent of the distortions of passion, anger, and possession, people tend to underestimate and undervalue future costs.

Self-serving bias. A fourth factor is known as “self-serving bias.” Its effects are probably familiar to all of us: “[W]hen married couples estimate the fraction of various household tasks they are responsible for, their estimates typically add to more than 100 percent.” Well over half of us think we are better than average as drivers, better than average as managers, in better than average health, more ethical than the average. Empirical studies also demonstrate that “people tend to arrive at judgments of what is fair or right that are biased in the direction of their own self-interests.” The result, in litigation, is likely to be that “[e]ven when parties have the same information, they will come to different conclusions about what a fair settlement would be and base their predictions of judicial behavior on their own views of what is fair.” …

Practice tips

How then should attorney respond to these irrationalities? Estate and trust litigation is so often carried out in the context of grief, mourning, guilt, jealousy, and anger, that it may be that irrationality is its dominant characteristic. Attorneys advising in such circumstances have an opportunity to temper those distortions….

An especially suggestive study indicates that in confronting self-serving bias, it is not sufficient to merely make litigants aware of the existence of such biases. They are likely to assume that the other side may be subject to such biases, but not them. What has been shown to be effective, however, is asking the litigant actually to list the weaknesses in his or her own case. We lawyers should be aware of such weaknesses—asking our clients to make such a list would be an easy way of enhancing their awareness and perhaps reducing their self-serving bias. Of course, we lawyers, if we are to make effective use of techniques such as this, need to be aware of our own self-serving biases and sensitive to the countervailing temptations we may ourselves face to fan the flames of litigation.

Price v. Austin, — So.3d —-, 2010 WL 3120212 (Fla. 1st DCA Aug 10, 2010)

Over the last few years probate lawyers have been scratching their heads wondering if, when and how Civ. Pro. Rule 1.525, the rule setting a 30-day post-judgment deadline for filing fee motions in civil litigation, applies to contested probate and trust proceedings. This is an important issue; the last thing any lawyer wants to do is blow a deadline for claiming fees on behalf of his client. Here’s what the rule says:

Any party seeking a judgment taxing costs, attorneys’ fees, or both shall serve a motion no later than 30 days after filing of the judgment, including a judgment of dismissal, or the service of a notice of voluntary dismissal.

By now there’s no question the rule applies in any "adversary" probate proceeding and in all trust litigation. In 2008 the 2d DCA held here that the rule applies in Trust litigation, then in 2009 the 5th DCA held here that the rule applies in adversary probate proceedings, and now in the linked-to opinion the 1st DCA has come to the same conclusion with respect to adversary guardianship proceedings:

[A] notice that the proceeding for incapacity was adversary was served on June 12, 2008. On July 7, 2008, the court entered an order determining total incapacity. Over a year later, on September 18, 2009, appellant served a verified petition to approve payment of fees. Florida Probate Rule 5.025(d)(2) provides that, once a proceeding under the probate rules has been declared to be adversarial, it “shall be conducted similar to suits of a civil nature and the Florida Rules of Civil Procedure shall govern, including entry of defaults.” Florida Rule of Civil Procedure 1.525 requires a motion for attorney’s fees to be filed “no later than 30 days after filing the judgment….” In Hays v. Lawrence, 1 So.3d 1176, 1177 (Fla. 5th DCA 2009), the court held that, in a proceeding declared as adversarial, rule 1.525 governed a motion for attorney’s fees filed pursuant to section 733.106(2) and affirmed a denial of a claim for attorney’s fees as untimely under the rule. Although Hays involved a different fee statute than the case before us, section 733.106(2) and section 744.108, applicable here, are similar. Both statutes are legislative expressions of the desirability of the payment of attorney’s fees for services rendered under the specified proceeding. Accordingly, because the petition for attorney’s fees was untimely filed under rule 1.525, the trial court’s order denying fees is AFFIRMED.

Must be an "adversary" proceeding:

An important point to keep in mind with respect to contested guardianship (and probate) proceedings is that Rule 1.525 only applies to "adversary" proceedings (assume the rule applies to all trust proceedings). So if someone tries to block your fee petition by citing to this rule, make sure your judge understands it simply does NOT apply to probate and guardianship proceedings that have NOT been declared adversarial in accordance with Florida Probate Rule 5.025.

Listen to this post

When you can and can’t use affidavits is one of those technical questions probate lawyers don’t often ask themselves. Especially when you’re talking about neutral third-party witnesses (such as the witnesses to a will signing), my sense is that most lawyers will opt for affidavits whenever possible to avoid the expense and inconvenience of hauling live witnesses into court.

The issue in this case was whether live witness testimony is required as a matter of law to prove a lost will, or whether affidavits alone will do if your probate judge says OK. But first a short recap on the law governing lost wills in Florida:

  1. When an original will that is known to have existed cannot be located after the death of the decedent, the presumption is that the testator destroyed the will with the intent to revoke it.
  2. The proponent of the lost will has the burden of introducing competent, substantial evidence to overcome the presumption of revocation.
  3. The first step in overcoming the presumption of revocation is by the establishment and admission to probate of the lost or destroyed will pursuant to F.S. 733.207.
  4. Under F.S. 733.207, if you can come up with a copy of the lost will, then all you need is “the testimony of . . . one disinterested witness” to prove up the terms or “content” of the lost will you’re trying to probate.

For prior blog posts covering lost/destroyed wills click here, here, here, here.

Case Study

Brennan v. Estate of Brennan, — So.3d —-, 2010 WL 2866987 (Fla. 5th DCA Jul 23, 2010)

The 5th DCA ruled that “the submission of affidavits was insufficient pursuant to section 733.207 to establish [a] lost will.” In other words, live witness testimony is required, it’s NOT optional. Here’s how the 5th DCA explained its ruling:

In In re Estate of Parker, 382 So.2d at 654, the supreme court, interpreting an earlier version of section 733.207, discussed the proof required to establish a lost will in the presence and absence of a correct copy of the will, explaining: “A draft which is an accurate and correct reflection of the contents of a lost will is not the same as a ‘correct copy.’ To prove the former the statute requires the testimony of two witnesses. To prove the latter, the testimony of one witness suffices.” (Emphasis added.)

The Third District took the same position in In re Estate of Hatten, 880 So.2d 1271, 1275 (Fla. 3d DCA 2004), when it stated: “As explained by the statute, establishment of a will can be accomplished only if there is the testimony of a disinterested witness plus a copy of the will, or if there is the testimony of two disinterested witnesses.” (Emphasis added.) See also In re Estate of Musil, 965 So.2d 1157 (Fla. 2d DCA 2007) (niece failed to present testimony of at least one disinterested witness to prove execution and content of will as required to establish lost or destroyed will); In re Estate of Kero, 591 So.2d 675 (Fla. 4th DCA 1992) (testimony of one subscribing witness to original will’s proper execution proved content of original).

In this case, the only testimony in support of the petition to establish lost will came from Ms. Honsberger, who had an interest in the outcome of the case. The statute requires the testimony of at least one disinterested witness, which she was not. Although the trial judge indicated, and the parties agreed, that an additional evidentiary hearing would be scheduled so that Ms. Honsberger could present the testimony of a disinterested witness, no such hearing was conducted. Instead, the trial court admitted the lost 2002 will to probate upon the submission of witness affidavits alone. These affidavits merely stated that the witnesses saw the decedent execute the will and that they signed as witnesses immediately thereafter. Appellants did not stipulate to the submission of affidavits in lieu of testimony. Accordingly, we find an evidentiary hearing should have been conducted and that the submission of affidavits was insufficient pursuant to 2009->Ch0733->Section%20207#0733.207″>section 733.207 to establish the lost will.

Lesson learned?

A case about affidavits may seem trivial. It’s not. Why? Because it’s the type of “in-the-trenches” know how experienced lawyers bring to bear when meeting with new clients and estimating how long a case will take to litigate and how much it’s going to cost. If your client knows – up front – that you can’t get a lost will admitted to probate in the absence of a mini-trial with live witnesses, and that mini-trials are expensive and can take a long time to litigate, then all is well. If not, then all will not be well once everyone realizes what was supposed to be a simple “on the papers” proceeding you could knock out with a few affidavits . . . is anything but simple.

Congress shocked everyone by letting the estate tax lapse in 2010. What I’ve found most interesting about this state of affairs are the unintended consequences:

First, no estate tax in 2010 is great news for the super rich, like George Steinbrenner’s heirs, but bad news for the moderately wealthy, people who have assets between $1.3 million and $3.5 million. For these families dying in 2010 likely means higher taxes. This is a federal tax issue only Congress can address.

Second, no estate tax in 2010 could lead to the unintended disinheritance of widows and widowers, which could in turn lead to expensive legal fights among family members. Potential inheritance litigation caused by Congressional inaction is a state-law issue that state legislators can step in and fix. And that’s exactly what they’ve been doing.

Increased probate litigation threat: Florida’s statutory fix: 733.1051 & 736.04114

As reported by Forbes in States Race To Clean Up Congress’ Estate Tax Mess, state legislators have been busy passing legislation aimed at avoiding the unintended disinheritance of widows and widowers caused by the unforeseen lapse of the federal estate tax in 2010. Florida has now joined the club with passage of two new pieces of legislation: 733.1051 (governing wills), and 736.04114 (governing trusts). This White Paper does a good job of explaining the reasoning behind the new legislation.

Most states enacted simple one-size-fits-all statutes. The upside to this approach is that it’s less expensive to implement. Here’s how these statutes were described in the Forbes piece:

Most of the new emergency laws would set a default rule for interpreting wills and trusts while the federal estate tax is repealed, if the document itself doesn’t spell one out. The rule: Any tax terms or formulas should be read as if the estate tax law of 2009 were still in effect. The proposed emergency laws also typically include a backstop provision allowing any potential beneficiary or executor to go to court, within a year from the date of death, if he or she doesn’t think that this default is what the deceased really wanted.

The downside to the one-size-fits-all approach is that saving court costs is given priority over ensuring the testator’s intent is followed. Maybe the testator knew exactly what would happen if he died in 2010 and intended that outcome? A one-size-fits all statute could essentially strip this testator of his testamentary freedom.

Florida didn’t adopt a one-size-fits-all statute, opting instead for a more nuanced approach aimed at determining the testator’s probable intent from all of the facts and circumstances. If your primary goal is effectuating testator intent, Florida’s approach makes sense. But it comes at a cost: Florida’s legislation makes it impossible to avoid the time and expense of a judicial construction proceeding. Here’s how the Forbes piece described Florida’s approach:

One renegade state–Florida–is proposing to send folks with ambiguous documents to court from the start to determine the deceased’s intent, instead of assuming the deceased wanted to follow the estate tax law of 2009. The court could consider outside evidence, such as the estate attorney’s testimony. The proposed law would allow estate assets to be used to pay for this proceeding and says that heirs might have to wait for distributions pending the outcome of the court’s decision.

Townsend v. Morton, — So.3d —-, 2010 WL 2218327 (Fla. 5th DCA Jun 04, 2010)

Deeds are common will-substitutes, so no surprise they come up with some frequency in inheritance disputes . . .  and this blog [click here, here, here]. This case is about when a court will let you unwind a deed that was “procured by fraud, deceit, trickery, or artifice.” All common accusations in inheritance disputes.

The property at the center of this family drama was a 46.3 acre cattle farm mom had inherited from her father. In exchange for son paying over $137,000 of mom’s debts, she executed a deed conveying a remainder interest in the cattle farm to son, retaining a life estate for herself. Some time later son figures out that the guy who’s been living with mom is actually married to her. According to the 5th DCA, mom had repeatedly “lied to him about her marital status.” Although unstated in the opinion, mom’s marital status is significant. Why? Because § 4(c) of Article X of Florida’s Constitution requires both spouses to sign any deed conveying an interest in homestead property. Oops! I’m guessing son – a licensed real estate broker for 16 years – spotted this homestead issue, so he got mom and her husband to both sign a new deed. So far so good.

Here’s the problem: The third deed conveyed full title to son, no life estate for mom; he now owned the farm all by himself. Mom cried foul, saying she had no idea she’d just signed over the family farm.

As a lawyer for mom, if you heard this story you’d know there’s a lawsuit in here somewhere. The tough part is figuring out how to fit these facts into a cause of action your client can successfully pursue in court. Well, look no further. Think “Rescission“. And here’s your road map courtesy of the 5th DCA:

Rescission is an equitable remedy adopted long ago by the courts, and the continued vitality of cases of ancient vintage that have applied this remedy is a testament to its age. See, e.g., Smith v. Richards, 38 U.S. (13 Pet.) 26, 36, 10 L.Ed. 42 (1839); Columbus Hotel Corp. v. Hotel Mgmt. Co., 116 Fla. 464, 156 So. 893, 897 (1934). Over the many years that the courts have utilized the equitable remedy of rescission, some principles have been firmly established regarding its applicability.

The courts have established that rescission is a proper remedy to relieve a party from obligations and provisions of an instrument procured by fraud, deceit, trickery, or artifice. Smith; Columbus Hotel. As the court explained in Columbus Hotel:

Equity will grant to a complaining party rescission of an agreement procured through fraud, deceit, artifice, or trickery practiced upon him by the opposite party, even after it had been partially executed, in cases where it is made to appear that the complaining party would not have entered into such agreement, nor changed his position thereby, if it had not been for the influence of such fraud, deceit, artifice, or trickery so practiced upon him.

156 So. at 897; see Smith, 38 U.S. (13 Pet.) at 36 (“In 1 Maddock’s Chancery, 208, it is thus stated. If, indeed, a man, upon a treaty for any contract, make a false representation, whether knowingly or not, by means of which he puts the party bargaining under a mistake upon the terms of bargain, it is a fraud, and relievable in equity.”); see also Webb v. Kirkland, 899 So.2d 344, 346-47 (Fla. 2d DCA 2005) (holding that rescission of a warranty deed procured by fraud is appropriate); Bass v. Farish, 616 So.2d 1146, 1147 (Fla. 4th DCA 1993). The courts also have established that in order to grant rescission of an instrument, the other party must be restored to the position it occupied prior to its execution. See Webb; Bass; Lang v. Horne, 156 Fla. 605, 23 So.2d 848, 853 (1945).

Townsend claims that the third deed was obtained by fraud and should be rescinded. The elements that must be established to prove a claim of fraud are: “(1) a false statement concerning a material fact; (2) the representor’s knowledge that the representation is false; (3) an intention that the representation induce another to act on it; and, (4) consequent injury by the party acting in reliance on the representation.” Johnson v. Davis, 480 So.2d 625, 627 (Fla.1985); see also Webb, 899 So.2d at 346; Taylor Woodrow Homes Fla., Inc. v. 4/46-A Corp., 850 So.2d 536, 542 (Fla. 5th DCA 2003); Lopez-Infante v. Union Cent. Life Ins. Co., 809 So.2d 13, 15 (Fla. 3d DCA 2002).

Bessard v. Bessard, — So.3d —-, 2010 WL 1875627 (Fla. 3d DCA May 12, 2010)

Durable powers of attorney (POAs) are an integral part of modern estate planning. The prevalence of POAs means they come up with some frequency in estate-related litigation [click here]. That’s what happened in the linked-to case. What’s interesting about this case is it’s focus on F.S. 709.08(11), a little-known subclause of Florida’s durable POA statute entitling the prevailing party in POA litigation to attorney’s fees and costs. Here’s what the statute says:

(11) DAMAGES AND COSTS.– In any judicial action under this section, including, but not limited to, the unreasonable refusal of a third party to allow an attorney in fact to act pursuant to the power, and challenges to the proper exercise of authority by the attorney in fact, the prevailing party is entitled to damages and costs, including reasonable attorney’s fees.

In this case a father signed a durable POA granting his son (“Joseph”) authority over his property while he underwent treatment for leukemia, tuberculosis “and other medical infirmities.” The POA was challenged in court by Joseph’s mother and two sisters. Before the court could rule on the merits of the case, Joseph’s father died. At that point Joseph sought to have the case dismissed as moot. Joseph also filed a “renunciation” of his powers under the POA.

The trial court granted Joseph’s motion to dismiss, but also granted a motion for attorney’s fees and costs filed by his mother and sisters as the prevailing parties. On appeal the 3d DCA affirmed the trial court’s attorney’s fee order as follows:

As to the attorney’s fees and costs awarded to the appellees as the prevailing parties, we also affirm. Section 709.08(11), Florida Statutes (2007), provides that the prevailing party in power of attorney litigation is entitled to attorney’s fees and costs. The determination of the prevailing party for the purpose of awarding attorney’s fees and costs is based on whether the party seeking fees succeeded on any significant issue(s) in the litigation. See Moritz v. Hoyt Enters., Inc., 604 So.2d 807, 810 (Fla.1992) (holding “that the party prevailing on the significant issues in the litigation is the party that should be considered the prevailing party for attorney’s fees”); Boxer Max Corp. v. Cane A. Sucre, Inc., 905 So.2d 916, 918 (Fla. 3d DCA 2005) (“The ‘prevailing party,’ for purposes of attorney’s fees, is a party which the trial court determines prevailed on significant issues in the litigation.”).

Joseph contends that because the trial court never determined whether the signature on the power of attorney was executed by Mr. Bessard, and if executed whether it was done so knowingly and voluntarily, the trial court erred in granting the appellees attorney’s fees and costs as the prevailing parties. We disagree. The appellees sought to have the power of attorney declared void, contending that the document was a fraud. When Joseph renunciated the powers granted to him under the power of attorney, agreed that the document be declared null and void, and destroyed the original and all copies, his actions necessarily mooted the complaint and was the functional equivalent of a judgment or verdict in favor of the appellees. See Augustin v. Health Options of S. Fla., Inc., 580 So.2d 314, 315 (Fla. 3d DCA 1991) (finding that when the defendant changed its position in the matter and made full payment as prayed for in the plaintiff’s complaint, it necessarily mooted the complaint and was the functional equivalent of a judgment or verdict in favor of the plaintiff entitling the plaintiff to an award of attorney’s fees as the prevailing party); see also Smith v. Adler, 596 So.2d 696, 697 (Fla. 4th DCA 1992) (holding that “it is [the] results, not [the] procedure, which govern the determination” of which party prevailed for purposes of awarding attorney’s fees).

Lesson learned?

Litigation can be very expensive. Any time your client has a shot at getting the losing side to pay his or her attorney’s fees, it’s a BIG deal. Just as importantly, the downside risk of F.S. 709.08(11) needs to be understood by all at the outset. This disclosure should be prominent in your retainer agreements.