The Florida Bankers Association prepared this white paper proposing new legislation to be titled “Prudent Investor Rule Not to Apply,” aimed at relieving trustees of Irrevocable Life Insurance Trusts (ILITs) from a duty to determine whether decisions made by settlors in the selection of life insurance companies, particular types of life insurance policies, and the continuing payment of policy premiums from funds provided by settlors, are appropriate investments and in the best interest of their beneficiaries. I regularly come across articles discussing how to manage the unique fiduciary risks inherent to ILITs (click here for example), so this new legislation seems like a good idea. If anyone has any questions or comments, contact the chair of the Trust Law Committee of the Florida Bar’s Real Property, Probate and Trust Law Section: Barry Spivey.

Here’s one of those facts of life most probate lawyers learn early on in their careers: testators aren’t always 100% honest when describing their intentions to potential beneficiaries. For example, just because a client tells his second wife (or girlfriend) she’ll be taken care of in his will . . . doesn’t mean he really means it. Or maybe he meant it at the time he said it, but then had second thoughts and just never quite got around to signing that new will.

It’s that kind of common sense that’s at the heart of a recent California appellate decision in which the court held that a widow (second wife) lacked standing to sue her late husband’s estate-planning lawyer for failing to prepare a will that would have disinherited her late husband’s minor son (from a prior marriage) and left everything to her instead. The analysis underlying Myung Chang v. Lederman, 172 Cal.App.4th 67 (Cal.App. 2 Dist. Mar 16, 2009), is thorough and well-reasoned. If you ever find yourself facing a similar claim, you’ll want to pull this opinion and give it a read. When all is said and done, however, I think the court recognized the point I made above and ruled accordingly. Here’s the key excerpt from the opinion:

From a practical standpoint, common experience teaches that potential testators may change their minds more than once after the first meeting [with their estate planning lawyer] . . . [FN6]

FN6. Common experience also teaches that testator’s may not be completely candid when describing their intentions to potential beneficiaries.

For a detailed summary of the Lederman opinion, see Marshall Oldman’s piece in the Metropolitan News-Enterprise [click here].

And for a similar ruling by the South Carolina Supreme Court, see the Wills, Trusts and Estates Prof Blog post entitled South Carolina: No Attorney Duty to Prospective Will Beneficiaries.

U.S. v. Guyton, Slip Copy, 2009 WL 1308431 (M.D.Fla. May 08, 2009)

The IRS is the "über" creditor of any probate estate. Why? Two reasons. First, the personal representative (PR) is personally liable for any of the decedent’s unpaid taxes to the extent the PR pays any debts due by the decedent before paying the decedent’s tax liability. 31 U.S.C. § 3713(b); IRS Manual § 5.5.1. There’s nothing like personal liability to focus the mind. Second, the normal rules simply don’t apply to the IRS. As the court ruled in the linked-to order, the IRS is NOT subject to the limitations periods applicable to all other creditors:

Turning to Defendant’s final threshold argument, case law makes clear that the Government’s claim is not subject to state statutes of limitation, including Florida Statute § 733.705(8), absent its own consent. See e.g., United States v. Summerlin, 310 U.S. 414 (1940); see also United States v. Kellum, 523 F.2d 1284, 1286 (5th Cir.1975).

The Manhattan district attorney’s office’s elder abuse unit is prosecuting Anthony Marshall of exerting undue influence upon his mother, Brooke Astor, when she was diminished by Alzheimer’s disease, to persuade her to sign a codicil to her 2002 will that made Marshall the outright heir of her residuary estate instead of having it pass ultimately to charities.  Marshall is the only son of Brooke Astor, a grande dame of New York society who died in August 2005 at 105 leaving an estate valued at $132 million in addition to a $60 million trust.

This is a will contest, pure and simple. Unfortunately, it’s being litigated as a criminal prosecution. 

As reported in Brooke Astor’s son Anthony Marshall goes on trial for stealing from socialite mom, Marshall – who is 84 – is effectively looking at spending the rest of his life behind bars if he loses this trial:

Marshall faces up to 25 years in prison, if convicted. He and Morrissey have pleaded not guilty. Prosecutors filed an 18-count indictment against Marshall . . . three months after Astor died on Aug. 13, 2007.

Marshall stole artwork from his mom, gave himself a $1 million raise for acting as her financial adviser and spent her cash to buy a 55-foot yacht and pay the captain’s $52,000 annual salary, the indictment charged.

Lesson learned?

As our population ages, I suspect more and more local prosecutors will feel compelled to prosecute what are essentially inheritance disputes as criminal matters. Whether you think this is good or bad public policy is almost beside the point; it’s a fact of life we’ll have to deal with. Which means probate litigators will need to start teaming up with criminal defense attorneys much more frequently, advise their clients to “plead the 5th” at the first hint of trouble [click here], and consider what steps they as lawyers need to take to avoid becoming prosecution targets themselves [click here].

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Probate litigator Stephen P. Heuston of Frese, Hansen, Anderson, Anderson, Heuston & Whitehead, P.A., in Melbourne, Florida, was on the winning side of Belanger v. Salvation Army, 2009 WL 223884 (11th Cir.(Fla.) Feb 02, 2009), a high-profile case that received a good amount of press (and I wrote about here and here).  I invited Mr. Heuston to share some of the lessons he drew from this case with the rest of us and he was kind enough to accept.

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

[A]  The plaintiffs chose to bring the action in Federal District Court so all argument was done by written pleadings. The order from the trial court was on The Salvation Army’s Motion to Dismiss, which was our first pleading filed. The point being there was very little strategic decision making due to how early we were in the process. On appeal The Salvation Army presented basically the same arguments as set forth in their Motion to Dismiss. Because the case presented an issue of first impression (the interpretation of Florida’s pay-on-death statute 655.82 as to whether a charity is a permissible beneficiary) the 11th Cir. Court of Appeals heard oral arguments. Arguments made by both parties were consistent with their written briefs.

[Q]  Do you think this case will have lasting repercussions in terms of how POD accounts are used in Florida or how charities do business in Florida?

[A]  Very much so. I had many charities and the Florida Bankers Association and the International Florida Bankers Association who were following this case closely. Charities were obviously concerned because this was an inexpensive means for donors to make gifts at death. There are no legal fees or other transaction costs to set up a POD account naming a charity as a beneficiary on a bank account. There are no records kept on how much money is transferred to charities by means of POD accounts but I have been told by several charities that if donors were not able to use POD accounts to name a charity that it would have a significant negative impact on charitable fundraising. Additionally, the banks were concerned because if Florida law was interpreted to have not allowed charities to be a permissible POD beneficiary the banks were concerned about liability for having paid out to charitable POD beneficiaries since the Florida POD statute became effective in 1995. Additionally, the Florida statute was derived from the Uniform Nonprobate Transfers on Death Act, which has been adopted in some version by 48 states. A negative interpretation of the Florida statute could have had an impact on similar statutes in other states, possibly impeding this popular form of charitable giving in other states.

[Q]  From your perspective as probate litigator, do you think there’s anything that could have been done in terms of estate planning to avoid this litigation or at least mitigate its financial impact? 

[A]  Difficult to say. A similar bequest by will or trust would have been more costly to set up and could have still been challenged on other grounds by the decedent’s children. One possibility would have been for the decedent, Mr. Belanger, to explain to his two children that is was his intent to leave the POD bequest to the charity and explain why he was doing so. Many challenges to bequests to charities result from the shock to the children who were unaware of their parents charitable intent. Many children in those situations feel hurt and become suspicious of the charity and its involvement in procuring the bequest. If the parent can explain to the children the purpose and reasoning for the charitable gift then this can often times eliminate or at least reduce the hurt that might otherwise result from finding out only after the parent has died.

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

[A]  When representing charitable organizations the probate litigation attorney should advise the charity to not be intimidated by the legal process. If the facts and law favor the interest of the charity then the charity should do a cost-benefit analysis to determine if defending their interest and upholding the intent of the donor is justified. If it is justified then the charity should persevere during the legal proceeding and continue for as long as it makes economic sense. It is often times left to the charity to defend the charitable intent of the decedent. There are many in the probate process or trust administration who may attempt to frustrate the intent of the decedent, e.g. disgruntled children or other family members, and it is often advisable for the charity to defend against legal actions that impede the decedent’s charitable intent.

Blake v. Waks, — So.3d —-, 2009 WL 1212242 (Fla. 3d DCA May 06, 2009) (NO. 3D09-980)

One of the defining characteristics of probate litigation is that cases are always decided by judges: no juries here. So if you’re afraid you won’t get a fair hearing because a judge says or does something demonstrating bias against you, you’re entitled to request that he or she disqualify himself or herself. F.S. § 38.10; Fla. R. Jud. Adm. 2.330. In the linked-to opinion the 3d DCA applied this standard in granting a request to disqualify a probate judge for apparently being biased against the petitioner. Here’s the court’s one-paragraph explanation of its ruling:

According to duly executed affidavits, in denying agreed motions to disburse the net proceeds of an intestate estate to the petitioner Blake, a genealogical researcher who had found and who held unchallenged powers of attorney from the previously unknown heirs of the decedent, see Morse v. Clark, 890 So.2d 496 (Fla. 5th DCA 2004) (recognizing party status of genealogical service holding assignments from heirs), the presiding probate division circuit judge volunteered the statement, among others, that she did not trust him to make the required distribution to his principals. This comment, based on nothing in the record or otherwise, well justified the petitioner’s expressed belief that she was not impartial, and therefore required the granting of his application for her disqualification. See Grandview Palace Condo. Ass’n v. City of N. Bay Vill., 974 So.2d 1170 (Fla. 3d DCA 2008); Miami Dade Coll. v. Turnberry Invs., 979 So.2d 1211 (Fla. 3d DCA 2008).

Bayview Loan Servicing, LLC v. Giblin, — So.3d —-, 2009 WL 1139236 (Fla. 4th DCA Apr 29, 2009)

Here are the key facts of this case as reported by the 4th DCA:

Decedent and Nivia Giblin were married in 1959. They had a daughter together. In 1981 they separated but never divorced. In 2000, decedent purchased a piece of residential property in Broward County. Title to the property was placed in the decedent’s name. The wife and daughter lived in the home, but decedent never did. Decedent died in 2001.

Is this the decedent’s homestead property? YES

As crazy as it may sound, yes, you can own homestead property you’ve never lived in if your “family” lives in the house. You get to this conclusion by applying the literal text of Article X, section 4 of the Florida Constitution, which provides in relevant part as follows:

(a) There shall be exempt from forced sale under process of any court .  .  .  the following property owned by a natural person:

(1) a homestead  .  .  .  [if it is] the residence of the owner or the owner’s family;

*  *  *

(b) These exemptions shall inure to the surviving spouse or heirs of the owner.

(c) The homestead shall not be subject to devise if the owner is survived by spouse or minor child, except the homestead may be devised to the owner’s spouse if there be no minor child….

(emphasis added).

Based on this language the 4th DCA affirmed a trial-court order ruling that the subject property was in fact the decedent’s homestead . . . even if he never lived in the place. Here’s how the court summarized its reasoning:

The language of article X, section 4 is clear and unambiguous. Here, decedent was a natural person who owned property occupied by his wife and child at the time of his death; thus, the property is homestead. Because decedent died leaving a spouse, the descent of his property is controlled by section 732.401(1), Florida Statutes (2001). As such, the wife is entitled to a life estate in the homestead with a vested remainder to the descendants. § 732.401(1), Fla. Stat.

By the way, this isn’t the first time a court has come to this conclusion. See In re Colwell, 196 F.3d 1225 (11th Cir. 1999) (Under Florida law, homestead exemption can be established to each of two people who, while married, are legitimately living apart in separate residences, if they otherwise meet requirements of exemption.); Law v. Law, 738 So.2d 522 (Fla. 4th DCA 1999) (Husband, who permanently resided in separate home from wife, was entitled to homestead exemption on that residence from former wife’s lien, even though husband and current wife owned another home for which they claimed homestead exemption, where there was no indication that husband and wife were separated for illegitimate reasons.)

Lesson learned?  .  .  .  Florida’s homestead law is NOT intuitive.

You can’t assume you know the answer to that “simple” homestead question a colleague or client calls about “just to pick your brain.” If the stakes are high enough, researching the issue – before it’s litigated – is always the way to go. Once you’re in court and briefing the issue you may be surprised by what you find . . . as I’m sure the losing side in this case was.

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Probate litigator Norman A. Fleisher of Gutter Chaves Josepher Rubin Forman Fleisher P.A. in Boca Raton, Florida, was on the winning side of Hernandez v. Gil, a hard-fought case that wound up before the 3d DCA on three different occasions, resulting in a PCA and two fascinating written opinions I wrote about here and here.

Norm graciously agreed to share some of the lessons he drew from this case with the rest of us.

Hi Norm. Thanks for taking the time. First question, looking back, what strategic decisions did you make in this case that were particularly outcome determinative? Would you have done anything differently?

The most important decisions were not unusual. We were always concerned that the opposing party might try to circumvent the settlement, so our focus was to make the agreement as clear as the English language would allow. One unusual aspect of the settlement is that the opposing party was asked to personally appear before the Judge when the settlement agreement was approved and to state, under oath, that he understood the agreement, approved the agreement, and wanted the Judge to approve the agreement. The transcript of that hearing has been very useful in subsequent proceedings.

From your perspective as probate litigator, do you think there’s anything that could have been done in terms of estate planning to avoid this litigation or at least mitigate its financial impact on the family?

Not really. The estate planning documents have never been the issue in this case. The issue has been the enforcement of the settlement agreement. Mr. Hernandez attempted to challenge his mother’s documents following her death, but the settlement agreement explicitly prohibited him from making such a challenge.

The three appellate decisions in this case apparently revolved around enforcing your settlement agreement. If you knew then what you know now, would your settlement agreement have been different? How so?

I have struggled with this issue for years. I’ve wondered if we could have made the agreement clearer, and when preparing for the hearings and oral arguments I would play devil’s advocate and try to think of ways the agreement was somehow vague or open to alternative interpretations. But fortunately, every time we brought the agreement before the court or the appellate panel the Judges always agreed that the agreement and the releases were clear.

Any final words of wisdom for probate lawyers of the world based on what you learned in this case?

As any probate litigator will tell you, trust and estate litigations are often not based on reason. It is easy for a lawyer to be dispassionate about the dispute, but for the parties these matters are deeply emotional. So even though a settlement agreement is clear, and even though an opposing party may have lost every hearing, and even though the court may have severely sanctioned the opposing party, the deeply personal nature of these matters may still cause the opposing party to refuse to quit. The lesson for lawyers was set forth in the 3rd DCA’s last opinion on this matter [click here] – sometimes a lawyer who is asked to fight on for a lost cause must simply say no to a client or a potential client.

Thanks again Norm for taking the time.

Thank you for your interest.

Hansen v. Bothe, — So.3d —-, 2009 WL 1066296 (Fla. 2d DCA Apr 22, 2009)

In the linked-to opinion the decedent’s sole “intestate” heir, his mother, was pitted against her son’s ex-wife and the 9 remainder beneficiaries of his revocable trust. Two key questions were litigated/ appealed in this case:

First, did the trust’s remainder beneficiaries even have standing to participate in the case? Probate judge said “no,” 2d DCA said “yes.” [Click here to see why].

Second, did the decedent’s divorce cause his trust to collapse in on itself and thus cease to exist under Florida’s merger doctrine? No trust =  mom gets everything as son’s sole intestate heir. Probate judge said “yes,” and was again reversed by the 2d DCA.

Florida’s Merger Doctrine:

Mom’s argument for intestacy was made in two steps. Step one: argue the decedent’s divorce divested his ex-wife of any interest in the trust by operation of F.S. 736.1105. Mom was right on this point. So far so good. Step two: argue the decedent’s divorce divested the 9 remainder beneficiaries of any interest in the trust because son became the sole owner of the trust’s assets upon his divorce, causing the trust to collapse in on itself and terminate under Florida’s trust-merger doctrine. No trust =  mom gets everything as son’s sole intestate heir.

Here’s where things took a wrong turn. As explained by the 2d DCA, just because a person retains complete control over the assets of his own revocable trust, serves as his own trustee, and retains the power to divest any beneficiary at any time, doesn’t mean his revocable trust isn’t a valid trust (if it did, no revocable trust would ever be valid under Florida law!). Here’s how the 2d DCA explained Florida’s merger doctrine and why it didn’t apply in this case:

The circuit court relied on the merger doctrine to conclude that the trust ceased to exist. The merger doctrine terminates the trust if the legal and equitable interests in the trust are held by one person. Mary F. Radford, George Gleason Bogert & George Taylor Bogert, The Law of Trusts & Trustees, § 1003 (3d ed.2006). Courts hesitate to employ the doctrine where injustice or frustration of the settlors’ intent would result. Id. Upon the establishment of a trust, the legal title is held by the trustee, but equitable title rests with the beneficiary. In re Wells, 259 B.R. 776, 779 (Bankr.M.D.Fla.2001).

The rationale behind the merger doctrine holds that “[w]hen the trustee is the only beneficiary, the trust is no longer needed to carry out the intention of the settlor.” The merger doctrine is applicable where either the entire beneficial interest passes to the trustee or where the legal title passes to a sole beneficiary. Upon merger of the legal and equitable titles, the holder of both interests possesses fee simple ownership of the property.

Id. (citations and footnote omitted).

Merger is inapplicable here. To the extent that Andreas Bothe became the sole grantor/trustee upon divorce, he held sole legal title; his intended remainder beneficiaries, however, retained an equitable interest. See Wells, 259 B.R. at 779; see also Denver Found. v. Wells Fargo Bank, N.A., 163 P.3d 1116, 1125 (Colo .2007) (emphasizing that for the doctrine of merger to apply, the legal and beneficial interests must be completely coextensive; if other equitable interests remain, the trust will not terminate).

A celebrity’s best earning years may come long after he or she passes away, as reported by Forbes in its annual Top-Earning Dead Celebrities list. The NY Times reported on one estate that’s trying to join the Forbes list in Protecting Brando Legacy, Trustees You Can’t Refuse.  In the excerpt below two points caught my eye: (i) the estate’s focus on intellectual property rights and (ii) the incredible amount of litigation Brando’s estate has been involved in (26 cases and counting!):

On Friday the Brando trustees — the movie producer Mike Medavoy, the accountant Larry Dressler and Brando’s former personal assistant Avra Douglas — filed suit in Los Angeles County Superior Court against a group of companies that own and operate the Broadcast Center Apartments near CBS Television City, claiming infringement of Brando’s trademarked name.

It was one small step for those who have been trying to make a business out of Brando’s legacy ever since he died, at 80, in 2004.

The trustees are also expected to announce on Monday that they have begun operating as Brando Enterprises, a business partnership designed to protect and manage the Brando brand, and have hired a Los Angeles licensing agency, Brand Sense Partners, to help them.

If the coalition finds new value in what Brando left behind, it will be a welcome change for the heirs and trustees. Until now they have spent time and resources on an extraordinary tangle of litigation. A summary recently compiled by lawyers for the Brando trust showed that 26 separate legal cases had been opened since late 2003.

But the Brando legal team is now mostly on offense. “I’m the guy who makes them an offer they can’t refuse,” said Jeffrey I. Abrams, a lawyer who has been helping the estate hunt for trademark infringers.