Estate of Madrigal v. Madrigal, — So.3d —-, 2009 WL 4061747 (Fla. 3d DCA Nov 25, 2009)

I recently wrote here about the “Undue Influence Worksheet,” a tool for probate litigators and their clients to organize their thinking and zero in on the key evidence determining the outcome of their undue influence case. Why is this so important? Because when it comes to pure fact questions, such as whether your client did or did not unduly influence the testator, expect you’ll only get one shot at winning your case: at trial. As the linked-to case makes clear, it doesn’t matter if a panel of appellate judges would have called your case a different way, as long as your trial judge’s factual determinations are supported by competent substantial evidence, that’s it, game over: the trial judge’s order stands.

In the instant case, following an evidentiary hearing, the trial court entered an order making specific findings of facts and concluding that the sole beneficiary procured the testator’s last will and testament by undue influence. As the trial court’s findings of fact are supported by competent, substantial evidence, and the findings of fact support the trial court’s conclusion of undue influence, we affirm the order under review. See Estate of Brock, 692 So.2d 907, 913 (Fla. 1st DCA 1996) (“[O]ur scope of review requires us to accept the factual findings of the trial court so long as there is support for them by competent substantial evidence. It is axiomatic that the trial court’s resolution of conflicting evidence will not be disturbed by a reviewing court in the absence of a clear showing of error, or that the conclusions reached are erroneous.”).

What’s going on here is pretty basic to how our court system is supposed to work: trial judges decide fact issues, appellate judges decide legal issues. If your case turns on a pure fact issue, don’t expect a “do over” on appeal. This division of labor was at the heart of the Florida Supreme Court’s thinking when it articulated the competent-substantial-evidence standard in Shaw v. Shaw, 334 So.2d 13, 16 (Fla. 1976):

It is clear that the function of the trial court is to evaluate and weigh the testimony and evidence based upon its observation of the bearing, demeanor and credibility of the witnesses appearing in the cause. It is not the function of the appellate court to substitute its judgment for that of the trial court through re-evaluation of the testimony and evidence from the record on appeal before it. The test … is whether the judgment of the trial court is supported by competent evidence. Subject to the appellate court’s right to reject “inherently incredible and improbable testimony or evidence,” it is not the prerogative of an appellate court, upon a de novo consideration of the record, to substitute its judgment for that of the trial court.

OK, you ask, so what’s competent substantial evidence?

Here’s how the phrase was broken down and defined by the 5th DCA in the context of a probate case in Lonergan v. Estate of Budahazi, 669 So.2d 1062, 1064 (Fla. 5th DCA 1996):

The term “competent substantial evidence” does not relate to the quality, character, convincing power, probative value or weight of the evidence but refers to the existence of some evidence (quantity) as to each essential element and as to the legality and admissibility of that evidence. Competency of evidence refers to its admissibility under legal rules of evidence. “Substantial” requires that there be some (more than a mere iota or scintilla), real, material, pertinent, and relevant evidence (as distinguished from ethereal, metaphysical, speculative or merely theoretical evidence or hypothetical possibilities) having definite probative value (that is, “tending to prove”) as to each essential element of the offense charged.

Morgenthau v. Estate of Andzel, — So.3d —-, 2009 WL 5151741 (Fla. 1st DCA Dec 31, 2009)

I recently wrote here about Florida’s ultra-short deadlines for filing creditor claims against probate estates and how they can be unforgiving traps for the unwary. These deadlines are scary because they can fly by without a creditor ever being the wiser.

But, some of you may ask, what about an estate’s duty under F.S. 733.2121 to give “reasonably ascertainable” creditors actual notice of the filing deadline? If I’m a reasonably ascertainable creditor and the estate didn’t give me notice, do I get a free pass? NO says the 1st DCA in the linked-to case above.

In this case the holder of an unpaid promissory note filed a creditor claim against the debtor’s probate estate over a year after the estate first published its notice to creditors in a local newspaper. Clearly the creditor had blown past the generally applicable 3-month claims-filing deadline under F.S. 733.702. The creditor argued he shouldn’t be bound to this deadline because he was a reasonably ascertainable creditor and the estate hadn’t complied with its duty under F.S. 733.2121 to give him actual notice of the filing deadline.

Sorry, says the 1st DCA. Unless a creditor asks for an extension to file his claim (and “insufficient notice of the claims period” is one of the grounds for getting an extension), he’s out of luck. Here’s why:

Here, appellant filed a statement of claim past the three month filing window. As such, according to section 733.702(1), the claim was untimely as appellant did not receive actual notice of the claim and was, thus, a creditor who fell in the three month filing window following publication. See also Miller v. Estate of Baer, 837 So.2d 448, 449 (Fla. 4th DCA 2002) (holding creditors who do not receive actual notice have until the close of the three month publication window to file a claim regardless of whether creditor asserts it was entitled to actual notice).

Further, appellant did not file a motion for extension of time to file the claim or otherwise seek an extension. All Florida cases since [May v. Illinois Nat. Ins. Co., 771 So.2d 1143 (Fla.2000)] dealing with the forgiveness of a timeliness issue as to a creditor’s claim where the creditor asserts he or she was a reasonably ascertainable creditor subject to actual notice reach the issue through review of the creditor’s request for an extension, not through creditor’s filing of a statement of claim. Faerber v. D.G., 928 So.2d 517, 518 (Fla. 2d DCA 2006) (reversing a trial court’s grant of creditor/appellee’s motion for extension of time to file a claim where no evidence was considered prior to the grant); Simpson v. Estate of Simpson, 922 So.2d 1027 (Fla. 5th DCA 2006) (reviewing trial court’s denial of appellant’s motion for extension of time based on the allegation he was a readily ascertainable creditor who should have received actual notice of decedent’s death); Longmire v. Estate of Ruffin, 909 So.2d 443 (Fla. 4th DCA 2005) (same); Strulowitz, 839 So.2d 876 (same); Miller, 837 So.2d at 448-50 (same).

While the Statement of Claim listed facts upon which a probate court could grant an extension, the Statement of Claim did not request an extension. Further, at no point in either the initial brief or the reply brief does appellant argue his Statement of Claim should be converted or modified to be read as a motion requesting an extension of time. The proper procedural course for untimely claims is the filing of an extension request prior to the filing of a statement of claim. § 733.702(1)-(3), Fla. Stat. (2007). Under the plain language of the statute, once appellant’s claim fell outside the three month claim period, regardless of his arguments for delay, his claim could only be considered after the probate court’s grant of an extension. Because appellant chose to file only a Statement of Claim and never requested an extension of time to file that claim, the probate court was bound by the relevant statutes to deny the claim. § 733.702(1)-(3), Fla. Stat. (2007).

The Florida Bar Real Property Probate and Trust Law Section is now accepting applications for the 2010 Fellowship class. The RPPTL Section Fellowship program, created in 2007, awards up to 4 fellowships to exceptional Florida attorneys interested in our practice areas. The Fellowship program allows these individuals to be substantially involved in the Section work, receive leadership training and work closely with leading Florida attorneys in their field.

Click here, here for a memo explaining the fellowship program and an application form.

The deadline for applications is April 1, 2010, so please pass this information on to anyone you know who might be interested as soon as possible. If you have any questions, please contact Tae Bronner, co-chair of the RPPTL Fellowship committee, at tae@estatelaw.com or 813-907-6643. The Fellowship memo and application can also be found on the section website at www.rpptl.org.

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Plaintiffs suing estates often fail to realize that they’re really litigating their claims in two separate courts in front of two separate judges:

  1. The trial court adjudicating their lawsuit (this is where the estate’s liability is established); and
  2. The probate court administering the decedent’s probate estate (this is where you go to collect if you win in the trial court).

What’s scary about this dual-court approach is that it creates a huge trap for the unwary: you can spend years and a fortune in fees litigating claims against an estate in a trial court and never be the wiser to the fact that you’ve blown past one of the ultra-short limitations periods applicable in a probate court under F.S. 733.702 or F.S. 733.710; which means no matter how spectacular your win might be at trial, you’ll never be able to collect on your judgment in the probate court.

Case Study

Mack v. Perri, — So.3d —-, (Fla. 1st DCA Dec 22, 2009)

That’s the trap the plaintiffs in the linked-to opinion apparently fell into. Here are the key dates/facts as summarized by the 1st DCA:

The decedent, George Watts, a physician, died on November 18, 2004. The first notice to creditors was published on May 14, 2005. On October 31, 2005, the Macks first filed their claims against the Estate based on alleged medical malpractice in connection with surgery Dr. Watts performed on Susan Mack’s ankle. The Macks filed a malpractice action against the Estate on January 30, 2006. In February 2009, the Estate filed a petition in the probate court to limit the Macks’ claim in the malpractice action to the proceeds of malpractice insurance, see section 733.702(4)(b), Florida Statutes (2005), and the Macks filed petitions seeking to strike the Estate’s objections to their claims.

Wrapped up into that one short paragraph are three important takeaways for anyone involved in litigation against a Florida probate estate:

Lesson #1: Never, ever forget F.S. § 733.710(1): Florida’s two-year non-claim statute:

In the linked-to case the estate waited until February 2009, almost five years after the decedent died, to spring its trap on the unsuspecting plaintiffs. By then the two-year non-claim period for the estate had clearly run making it impossible for the plaintiffs to get the extension needed to preserve their claim against the probate estate. Here’s how the 1st DCA explained this point:

We agree with the trial court that the Macks’ claims against the estate are barred by sections 733.702(1)(3), and 733.710(1), Florida Statutes (2005). The Macks’ claims were filed more than three months from the date the notice to creditors was first published. See § 733.702(1). Further, the Macks did not file a request for an extension of time under section 733.702(3) until after the running of the two-year non-claim period in section 733.710(1). As the Supreme Court held in May v. Illinois National Insurance Company, 771 So.2d 1143, 1157 (Fla.2000), “section 733 .710 is a jurisdictional statute of nonclaim that automatically bars untimely claims and is not subject to waiver or extension in the probate proceeding.” The May court explained that this statute “represents a decision by the legislature that 2 years from the date of death is the outside time limit to which a decedent’s estate in Florida should be exposed by claims on the decedent’s assets.” Id. (quoting Comerica Bank & Trust, F.S.B. v. SDI Operating Partners, L.P., 673 So.2d 163, 167 (Fla. 4th DCA 1996)). Here, the Macks’ claims were untimely filed under section 733.702(1). Although section 733.702(3) provides for an extension, the claim and motion for an extension must be filed before the operation of the two-year non-claim provision. May, 771 So.2d at 1157.

Lesson #2: Never say never: Florida’s two-year non-claim statute doesn’t bar ALL claims:

Even if you blow past the two-year mark for perfecting your claim against a probate estate, all may not be lost. In the linked-to case the estate recognized that even though the plaintiffs were barred by F.S. § 733.710(1) from asserting claims against the decedent’s probate estate, the decedent’s malpractice insurance was still fair game under F.S. 733.702(4), which provides as follows:

(4) Nothing in this section affects or prevents:

(a) A proceeding to enforce any mortgage, security interest, or other lien on property of the decedent.

(b) To the limits of casualty insurance protection only, any proceeding to establish liability that is protected by the casualty insurance.

(c) The filing of a cross-claim or counterclaim against the estate in an action instituted by the estate; however, no recovery on a cross-claim or counterclaim shall exceed the estate’s recovery in that action.

Lesson #3: The clock starts ticking as soon as the first notice to creditors is published:

Under F.S. § 733.702 creditors have three months after the notice of creditors is fist published to file their claims. But F.S. 733.2121 says publication “shall be once a week for 2 consecutive weeks.” So when does the “publication” clock start ticking? After the first or second week? The plaintiffs tried to salvage their claim by arguing for week two. Nice try, but no cigar says the 1st DCA:

We also reject the Macks’ assertion that their claim was timely filed when measured from the date of publication of a second notice to creditors by the estate. The time period under section 733.702(1) runs from “the time of the first publication of the notice to creditors.” As the Supreme Court held in Estate of Williamson v. Murphy, 95 So.2d 244, 247 (Fla.1957), a second publication will be deemed “unnecessary surplusage” which has no “affect [on] the validity or effectiveness of the first notice published.”

Celebrity probate litigation is never boring, which explains why there’s always lots of good stuff out there to write about [click here, here, here], and why a new probate blog out of Michigan, The Probate Lawyer Blog, by author and probate litigator Andrew Mayoras, is all about celebrity probate litigation, all the time [click here].

So it shouldn’t come as a surprise that a probate battle involving pseudo celebrity “Leopard Lady” Kitty Tipton-Oakes, widow of jazz musician Billy Tipton, was picked for the pilot program of a new cable series called “The Will: Family Secrets Revealed.” I didn’t see the episode, but TV critic Linda Stasi gave it rave reviews in the New York Post [click here]. Ms. Stasi’s one complaint: “As evidenced by the media feeding frenzy over the estate of Brooke Astor, it’s just shocking that it took this long for a network to come up with an idea this juicy.”

And for all you probate lawyers out there looking for your 15 minutes of fame, take heart, the show’s producers are actively looking for more war stories to share with the rest of us, give them a call [click here].

At a top current rate of 45%, the federal estate tax automatically makes the IRS the single largest creditor of most large estates. If the estate tax is looming in the background it’s imperative that every decision made by the parties and their lawyers with respect to how they characterize and prosecute their trust/probate claims be considered against this backdrop. I recently presented a national NBI seminar on this very same topic [click here].

At long last probate litigators and their clients have clearer guidance from the IRS on exactly how to make sure they maximize the tax-deduction benefits of estate litigation. The IRS has issued final regulations under IRC § 2053 governing estate tax deductions for administration expenses and claims against estates. Click here for a link to the new reg’s, which became effective on October 20, 2009.

In its background summary for the new reg’s [click here] the IRS explained its thinking for why they were needed:

The amount an estate may deduct for claims against the estate has been a highly litigious issue. See the Background in the notice of proposed rulemaking published in the Federal Register on April 23, 2007 (REG-143316-03, 2007-1 C.B. 1292 [72 FR 20080]). Unlike section 2031, section 2053(a) does not contain a specific directive to value a deductible claim at its value at the time of the decedent’s death. Section 2053 specifically contemplates expenses such as funeral and administration expenses, which are only determinable after the decedent’s death.

The lack of consistency in the case law has resulted in different estate tax treatment of estates that are similarly situated, depending only upon the jurisdiction in which the executor resides. The Treasury Department and the IRS believe that similarly-situated estates should be treated consistently by having section 2053(a)(3) construed and applied in the same way in all jurisdictions.

Accordingly, in an effort to further the goal of effective and fair administration of the tax laws, the Treasury Department and the IRS published proposed regulations in the Federal Register on April 23, 2007. In formulating the proposed rule, the Treasury Department and the IRS carefully considered: the statutory framework and legislative history of section 2053 and its predecessors; the existing regulatory provisions under section 2053, particularly those that are generally applicable to all amounts deductible under section 2053; the numerous judicial decisions involving an issue under section 2053(a)(3) and the analysis and conclusion in each; and, the practical consequences of various possible alternatives for determining the amount deductible under section 2053(a)(3).

To help us make sense of it all estate-tax gurus Steve R. Akers and Jonathan G. Blattmachr/Mitchell M. Gans published excellent materials pointing out opportunities and pitfalls built into the new reg’s for practitioners and clients alike [click here, here].

Buroz-Henriquez v. De Buroz, — So.3d —-, 2009 WL 3271354 (Fla. 3d DCA Oct 14, 2009)

It’s not unusual in probate litigation for parties to underestimate the importance of complying with discovery deadlines. However, this frustrating fact of life is also an opportunity: I recently won a case simply by obtaining an ex parte order compelling a recalcitrant will-challenger to respond to my pending discovery requests. For reasons that remain unclear to me, this bit of pressure was enough to get this guy out of the case: he voluntarily withdrew his claim with prejudice in lieu of complying with my discovery order. The basis for my order was a local rule applicable in Miami (Admin. Order 06-09), but the underlying authority should be applicable anywhere in Florida.

In the linked-to case the winning side used a discovery-sanctions order to not only default the sitting personal representative out the estate, they also walked away with an order compelling the estate to pay $25,875 in attorneys fees. All that just because the losing side couldn’t get its act together when it came to responding to discovery deadlines.

Lesson learned? Use an opponent’s recalcitrance to your advantage. Push him to respond to discovery deadlines by relying on the kind of authority cited in Admin. Order 06-09; and once you’ve got your first order — follow the example of the winning side in the linked-to case: move for a default judgment and other sanctions if it’s ignored.

In the linked-to opinion the 3d DCA explains what kind of findings need to be included in a probate judge’s order defaulting an opponent out of a case as a discovery sanction. The order in this case didn’t contain the necessary findings, so it got bounced back to the trial judge for a “do over.”

It is well established that before a court may dismiss a cause or default a party as a sanction, it must first consider each of the following six factors set forth in Kozel v. Ostendorf, 629 So.2d 817, 818 (Fla.1993):

[1] whether the attorney’s disobedience was willful, deliberate, or contumacious, rather than an act of neglect or inexperience; [2] whether the attorney has been previously sanctioned; [3] whether the client was personally involved in the act of disobedience; [4] whether the delay prejudiced the opposing party through undue expense, loss of evidence, or in some other fashion; [5] whether the attorney offered reasonable justification for noncompliance; and [6] whether the delay created significant problems of judicial administration.

Accord Ham v. Dunmire, 891 So.2d 492 (Fla.2004). Moreover, before a trial court enters the extreme sanction of dismissal or default, it must set forth explicit findings of fact in the order imposing the sanction. Alvarado v. Snow White & The Seven Dwarfs, Inc., 8 So.3d 388 (Fla. 3d DCA 2009) (reversing and remanding dismissal for findings on all six Kozel factors); Coconut Grove Playhouse, Inc. v. Knight-Ridder, Inc., 935 So.2d 597 (Fla. 3d DCA 2006) (quashing order tantamount to default and remanding for trial court to make express findings). “Express findings are required to ensure that the trial judge has consciously determined that the failure was more than a mistake, neglect, or inadvertence, and to assist the reviewing court to the extent the record is susceptible to more than one interpretation.” Ham, 891 So.2d at 496 (citing Commonwealth Fed. Savings & Loan Ass’n v. Tubero, 569 So.2d 1271, 1273 (Fla.1990)).

Because the order on appeal contains no findings of fact concerning any of the Kozel factors, we are compelled to reverse the order and remand for consideration of the Kozel factors. In doing so, we do not address the merits of the underlying claims for contempt and sanctions made by the appellee below. If, on remand, the trial court determines that, after considering the Kozel factors, sanctions of dismissal and/or default are appropriate, then the trial court shall include in its order findings of fact with respect to each factor. See Alvarado, 8 So.3d at 389.

Wells v. Wells, — So.3d —-, 2009 WL 2949277 (Fla. 4th DCA Sep 16, 2009)

Florida’s declaratory-judgment act (F.S. Chapter 86) is based on the Uniform Declaratory Judgment Act, which was finalized almost a hundred years ago in 1922 [click here].  The early 20th Century vintage of this statute explains why it uses archaic phrases rooted in medieval English jurisprudence, like cestui que trust, when the “Plain English” version of the phrase: “trust beneficiary”, would do just as well (for more on the post-1970s “Plain English Movement” click here).  For all you trusts-and-estates Geeks out there, click here for more on the etymology of “cestui que trust”.

The Uniform Declaratory Judgment Act’s use of obscure legalese (adopted without change by Florida) may also explain why the trial court judge in the linked-to case dismissed a claim for declaratory judgment filed by a trust beneficiary (i.e., a cestui que trust), when F.S. § 86.041 specifically authorizes a cestui que trust to file these sorts of claims. Anyway, we now have an appellate opinion confirming what should be an obvious point of statutory construction. Here’s how the 4th DCA summed up its ruling:

Section 86.041, Florida Statutes (2007) provides, in part:

Any person interested as or through an executor, administrator, trustee, guardian, or other fiduciary, creditor, devisee, legatee, heir, next of kin, or cestui que trust, in the administration of a trust, a guardianship, or of the estate of a decedent, an infant, a mental incompetent, or insolvent may have a declaration of rights or equitable or legal relations in respect thereto:

(1) To ascertain any class of creditors, devisees, legatees, heirs, next of kin, or others; or

(2) To direct the executor, administrator, or trustee to refrain from doing any particular act in his or her fiduciary capacity; or

(3) To determine any question arising in the administration of the guardianship, estate, or trust, including questions of construction of wills and other writings.

Id. In King v. Pinellas Central Bank & Trust Co., 339 So.2d 712 (Fla. 2d DCA 1976), the court interpreted section 86.041 as follows:

This statute is specific that any person … may bring a suit for declaratory judgment to have his rights declared under the trust and to direct the trustee to refrain from doing any particular act in his fiduciary capacity. The trustee is presumed to protect the rights of all of the beneficiaries of a trust and, therefore, we hold that all antagonistic and adverse interests were before the court through the trustee.

Id. at 713. Furthermore, “[t]he declaratory judgment act is to be liberally administered and construed.” Dent v. Belin, 483 So.2d 61, 62 (Fla. 1st DCA 1986). Thus, we hold that pursuant to section 86.041, Fla. Stat., Cheryl, as a beneficiary and potentially wrongfully removed co-Trustee, has standing as an interested person to bring a cause of action for declaratory judgment in the present case.

Vaughn v. Boerckel, — So.3d —-, 2009 WL 3364856 (Fla. 4th DCA Oct 21, 2009)

This is the second time the running trust-and-estate litigation between the decedent’s widow (his second wife) and his children and grandchildren from his first marriage has gone to the 4th DCA. The first time around the widow came out on top [click here]. This time around she wasn’t so lucky.

In the linked-to opinion above the probate judge was confronted with the following basic question: can the decedent’s widow be sued individually and held personally liable for damages she may have caused as trustee of the decedent’s trust and/or as the life tenant of several items of real property left to her by the decedent? The probate judge said NO; on appeal the 4th DCA said YES.

Life Tenant’s Personal Liability:

I’ve written before about the potential lopped-sided unfairness resulting from how Florida law treats life estates in homes; and to make matters worse, under Florida law a life tenant can’t force a sale of the property through a partition action.  Ft. Lauderdale attorney Jeffrey A. Baskies published in excellent article in the June 2007 edition of the Florida Bar Journal that summed up the current state of affairs as follows:

[S]urviving spouses — who are ostensibly “protected” by the Florida Constitution and statutes (given the “right” to live “rent-free in a homestead”) — are required to bear 100 percent of the burden of the state’s two largest fiscal crises: the escalation in property taxes and homeowners’ insurance. In addition, costs of ordinary upkeep, interest payments on mortgages and, in many cases, virtually all of the special assessments are also the burden of the surviving spouse. Further exacerbating the situation, many widows live in communities which have charged (and are still charging) assessments to repair common areas damaged by the hurricanes the state faced these past few years — with the promise of active hurricane seasons for the foreseeable future.

Click here for my prior blog post with a link to the Baskies article.

So what happens if a life tenant decides to simply not pay up, can the remaindermen sue her for damages? YES says the 4th DCA:

Among other duties, life tenants are legally bound to pay property taxes during the continuance of their estate. Chapman v. Chapman, 526 So.2d 131, 135 (Fla. 3d DCA 1988). A life tenant who commits an unreasonable act which results in damage to the corpus of the property or the remaindermen may be liable for damages. Id.

Trustee’s Personal Liability:

Florida’s common law subjecting trustee’s to personal liability was codified in Florida’s new trust code at F.S. 736.1002(1), which states that the trustee’s liability is the greater of any profit the trustee made from the breach and the amount required to restore the trust to what it would have been but for the breach, including lost income, capital gain, or appreciation that would have resulted from a property administration. In the linked-to opinion above the 4th DCA summarized Florida’s pre-code basis for holding trustee’s personally liable as follows:

[The widow’s potential personal liability as a life tenant] is independent of the law making a trustee personally liable for defalcations in handling the trust. See Flagship Bank of Orlando v. Reinman, Harrell, Silberhorn, Moule Graham, P.A., 503 So.2d 913, 916 (Fla. 5th DCA 1987) (citing Restatement (Second) of Trusts § 205 as to liability of a trustee for breaches of trust causing losses to trust); see also Beaubien v. Cambridge Consol., Ltd., 652 So.2d 936, 938 (Fla. 5th DCA 1995) (holding that it was error to dismiss complaint against individual defendants who had acted as agents of corporate trustee, who could be held “personally liable”).

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Florida’s adoption of a modified version of the Uniform Trust Code in 2007 was good news for all sorts of reasons. One primary benefit was the UTC’s beefed up litigation defenses for trustees. Two of those defenses are the subject of an interesting article just published in the ABA’s Probate & Property Magazine by Arizona trusts-and-estates litigator Kevin J. Parker entitled Trustee Defenses: Statute of Limitations, Laches, Self-Executing Accounting Release Provisions, and Exculpatory Clauses.

FTC authorizes exculpatory clauses: F.S. 736.1011

If you’re working with a client at the drafting stage and there’s even a hint of future trouble, you need to consider folding an exculpatory clause into the trust agreement.  As explained in the Parker article, these clause weren’t always enforced in the past. Under the UTC/FTC, they’re now expressly authorized by statute:

Many trusts include a provision that purports to immunize the trustee from liability to the beneficiaries absent something beyond “ordinary” negligence or breach of fiduciary duty, such as fraud or intentional misconduct.

In the early days, such clauses were held unenforceable as against public policy. The modern rule (reflected in the Restatement and uniform statutes) provides for enforceability of such clauses, with certain limitations, although some state statutes still invalidate such clauses.

Most states deal with exculpatory clauses in trust instruments in one of three ways. Some states follow the Restatement principles. Some states have adopted the Uniform Trust Code. Some states have, by statute, nullified exculpatory clauses as being against public policy.

The Restatement and Uniform Trust Code provisions are similar. Both provide that exculpatory clauses are generally enforceable. Both provide that such clauses are to be strictly construed. Both establish substantive limitations, providing that the exculpatory clause does not relieve the trustee from bad faith, intentional misconduct, or reckless indifference. Both the Restatement and Uniform Trust Code also provide that an exculpatory clause will be unenforceable if insertion of the clause into the trust instrument was itself a breach of fiduciary duty.

When it comes to exculpatory clauses, Florida law tracks the UTC pretty closely, subject to one significant modification.  Like UTC 1008, under F.S. 736.1011 an exculpatory clause may relieve a trustee of liability for breaches resulting from ordinary negligence, but not for breaches committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries. Under F.S. 736.0105(2) these restrictions are mandatory; you can’t draft around them.

In addition, under F.S. 736.1011 an exculpatory clause is unenforceable if it was inserted as a result of an abuse of a fiduciary or confidential relationship between the trustee and settlor. This latter restriction applies to terms that were drafted or caused to be drafted by the trustee unless the trustee proves that the term is fair and its existence and contents were adequately communicated directly to the settlor.

Here’s where Florida law and the UTC part ways. Unlike the UTC, Florida law adds the requirement that an exculpatory clause drafted by or at the direction of the trustee must be directly communicated to the settlor in order to be enforceable. This requirement is meant to clearly distance Florida law from a statement in the comments to UTC section 1008 that disclosure to the settlor’s attorney would suffice for this purpose.

By the way, here’s an example of a typical FTC exculpation clause:

The exercise or non-exercise of the powers and discretions granted in the Trust by any of my Covered Trustees shall be conclusive on all persons, and they shall not be liable for any act or omission taken or not taken that causes a loss to the Trust or to any beneficiary thereof, unless such act or omission is the result of their bad faith or reckless indifference to the purposes of the Trust or the interests of the beneficiaries. It is my intent that my Covered Trustees shall be relieved of liability to the maximum extent permitted by Section 736.1011 of the Florida Statutes, and, notwithstanding any provision in the Trust to the contrary, the Trust shall be construed in accordance with and to achieve such intent. In furtherance thereof, I hereby confirm that this exculpatory clause was not drafted or caused to be drafted by any of my Covered Trustees, this exculpatory clause’s existence and contents were adequately communicated directly to me, and I believe that this exculpatory clause is fair under the circumstances.

Triggering FTC’s ultra-short limitations periods for lawsuits against trustees: think “limitation notice”: F.S. 736.1008

Another way to protect a trustee from frivolous litigation is to make sure you give a recalcitrant beneficiary the least amount of time possible to sue. Historically limitations periods were unclear in the trust context, and they were usually pro-beneficiary. Under the UTC the tide has turned, with the limitations-period regime now being decidedly pro-trustee. Here’s how the Parker article put it:

The law on the time limits for a beneficiary to bring an action against a trustee has evolved over time. In early cases, the courts were pro-beneficiary, rejecting time limit defenses on various grounds, including that the cause of action was not time barred unless and until a certain period of time had elapsed after termination of the trust or resignation of the trustee, or that statutes of limitation were tolled until full disclosure had been made by the trustee. Some courts held that statutes of limitation did not apply at all, on the theory that claims against trustees were equitable claims and therefore only equitable timeliness defenses (laches, for example) were available to the trustee. The modern rules are more pro-trustee.

The shortest limitations period provided in Florida’s trust code is a mere 6 months! The protective value of a 6-month limitations period can’t be over stated, and Florida trustees are cheating themselves if they don’t take full advantage of this tool.

Here’s how it works: under F.S. 736.1008 the 6-month limitations period applies to actions on matters the trustee has adequately disclosed on a trust accounting or other trust disclosure document when the trustee has provided the beneficiary with a related limitation notice. So getting your limitations notice right is key. Fortunately, the statute provides a sample clause in 2009->Ch0736->Section%201008#0736.1008″>F.S. 736.1008(3)(c):

A limitation notice may but is not required to be in the following form: “An action for breach of trust based on matters disclosed in a trust accounting or other written report of the trustee may be subject to a 6-month statute of limitations from the receipt of the trust accounting or other written report. If you have questions, please consult your attorney.”

Word to the wise: use the statutorily provided sample clause.

For trustees NOT taking advantage of Florida’s ultra-short 6-month limitations period, 2009->Ch0736->Section%201008#0736.1008″>F.S. 736.1008(1)(a) provides that the claims are barred as provided under Florida’s general limitations period rules, which are found in F.S. Ch. 95. Under these rules assume your trustee will be exposed for at least 4 years to the threat of a lawsuit. 6 months vs. 4 years: that’s a huge difference. Which limitations period applies to your trustee may very well be the single most important factor controlling whether or not he gets sued. Yeah, this is a big deal.