Fernandez-Fox v. Estate Of Lindsay, — So.2d —-, 2008 WL 160920 (Fla. 5th DCA Jan 18, 2008)

This case is an example of what NOT to do.  When a creditor filed a claim against this estate the personal representative moved to strike the claim rather than simply objecting to it in accordance with F.S. 733.705(2).  This mistake cost the estate an easy opportunity to cut off liability cheaply and quickly.  Here’s how the 5th DCA made this point:

[T]he Florida Probate Code requires an objection to be served according to specific requirements. These include filing within a specified time period, personal service on the claimant, and a statement notifying the claimant of the time period limiting claimant’s right to assert an independent action. Fla. Prob. R. 5.496. In this case, the motion to strike never indicated that it was also an objection and, more importantly, the motion to strike did not contain a statement that the claimant was limited to a thirty day period to file an independent action. Under the rule, this is required for an objection. Thus, even assuming that the motion to strike could double as an objection, it failed to comply with the rules governing the manner for objecting to a claim.

An objection must comply with the statutory requirements of section 733.705 and Rule 5.496. Because the motion to strike did not meet the requirements for an objection, the trial court erred by treating the two as the same.

Lesson learned?

When it comes to creditor claims in probate proceedings sometimes substance trumps form [click here], and as this case shows . . .  sometimes it doesn’t.  Failure to scrupulously follow the creditor-claim rules contained in F.S. 733.701-733.710 can cost you dearly.

Raborn v. Menotte, — So.2d —-, 2008 WL 90037 (Fla. Jan 10, 2008)

The linked-to Florida Supreme Court opinion is the latest chapter in a bankruptcy proceeding that’s been ongoing since 2001, has been the subject of numerous appeals in the federal-court system, and single-handedly resulted in a 2004 amendment to F.S. 689.07(1), which governs conveyances of real property to trusts.  I previously wrote about this case here.

For the family involved in this case, the question was whether the family horse farm, which was deeded to one of the children as trustee of a trust benefiting him and his two siblings, would be exposed to the trustee’s personal creditor’s in the context of his personal bankruptcy.  For lawyers, the question is: "How can I draft a deed-to-trust that ensures none of my clients ever get sucked into this kind of nightmare?"  For those looking for sample forms, an excellent starting point are documents provided by the ABA, which I discuss and link to in a blog post entitled The ABA Promotes Land Trusts.

In order to understand the issues shaping the form text contained in the ABA documents, the Florida Supreme Court provides the following concrete guidance in the linked-to opinion explaining when a deed conveying title to a trustee conveys fee-simple title (thus exposing the trust assets to the trustee’s personal creditors) or mere legal title (which does NOT expose the trust assets to the trustee’s personal creditors):

    Though inartfully drafted, section 689.07(1) is unambiguous. A “deed or conveyance of real estate” that simply adds the words “trustee” or “as trustee” to the grantee’s name is “declared to have granted a fee simple estate,” unless a declaration of trust is of record when the deed is recorded, or the deed itself either names any beneficiaries or the nature and purpose of the trust, if any, or facially expresses a contrary intention. See One Harbor Fin. Ltd. v. Hynes Props., LLC, 884 So.2d 1039, 1043 (Fla. 5th DCA 2004). In other words, a deed that simply refers to the grantee as “trustee” conveys a fee simple estate in Florida with three exceptions. These three exceptions are: (1) the deed names the beneficiaries or states the nature and purpose of the trust; (2) the deed expresses a contrary intention; or (3) a declaration of trust is of record. See id.

    In this case, the deed itself clearly expresses that the grantors, Robert and Lenore Raborn, intended to deed the Raborn family farm to Douglas Raborn in trust. Thus, the deed falls under the “contrary intention” exception in section 689.07(1). This “contrary intention” is expressed in the deed in multiple ways. First, the deed is entitled “Conveyance Deed to Trustee Under Trust Agreement.” In re Raborn, 470 F.3d at 1321. It then identifies Robert and Lenore Raborn as “Settlors under the Raborn Farm Trust Agreement dated January 25, 1991” and conveys the farm to Douglas Raborn, not simply as “trustee” or “as trustee,” but “as Trustee under the Raborn Farm Trust Agreement dated January 25, 1991.” Id. The deed then amplifies the limited nature of the conveyance by stating that the trustee is “to have and to hold the said estate with the appurtenances upon the trust and for the uses and purposes herein and in said Trust Agreement set forth.” Id. Moreover, the deed repeatedly refers to the Trust Agreement and acknowledges the Trustee’s broad power to deal with the property. Id. Finally, the grantors/settlors signed the deed and swore before a notary public that they “executed said instrument for the purposes therein expressed.” Id. In light of these facts, though no beneficiaries are named and the nature and purpose of the trust is not stated, this deed expresses the grantor’s clear intent to deed the Raborn family farm to Douglas Raborn to be held in trust in accordance with the Raborn Farm Trust Agreement dated January 25, 1991.

    Accordingly, section 689.07(1) does not operate to declare that this deed conveyed a fee simple estate to the grantee.FN2 Instead, Douglas Raborn holds mere legal title as trustee.

FN2. As noted by the amicus curiae and undisputed by the appellant, this result is consistent with the standard practice in Florida. Florida lawyers and their clients have long understood and relied on the fact that specifically identifying the trust by its name or date in a deed is sufficient to indicate the grantor’s intention to convey real property in trust and thus avoid any contrary dictate of section 689.07(1). See Administration of Trusts in Florida, 14.11 (Fla. Bar Cont’ng Legal Educ. 3rd ed.2001).

  • 5th DCA: Wheeler v. Powers, — So.2d —-, 2008 WL 160881 (Fla. 5th DCA Jan 18, 2008) (Standing to Revoke Probate)
  • 5th DCA: Fernandez-Fox v. Estate Of Lindsay, — So.2d —-, 2008 WL 160920 (Fla. 5th DCA Jan 18, 2008) (Deadlines to File Independent Actions)
  • 2d DCA: In re Estate of McKibbin, — So.2d —-, 2008 WL 161322 (Fla. 2d DCA Jan 18, 2008) (Powers of Attorney)

Macier v. Estate of Giamportone, — So.2d —-, 2008 WL 80199 (Fla. 3d DCA Jan 09, 2008)

Sometimes new assets are discovered after probate proceedings are completed and it becomes necessary to "reopen" an estate.  Examples include stocks, bonds, real estate holdings or cash.  Finding a new will after an estate is closed is NOT a valid basis for reopening an estate.  The controlling statute is F.S. 733.903, which provides as follows:

733.903. Subsequent administration

The final settlement of an estate and the discharge of the personal representative shall not prevent further administration. The order of discharge may not be revoked based upon the discovery of a will or later will.

In the linked-to case the probate court’s order reopening an estate was upheld on appeal.  The three-paragraph opinion is cryptic, to say the least; but here it is:

Richard Macier and Foreclosure Management Services, Inc. appeal a non-final order of the circuit court, probate division, re-opening the Estate of Bessie Giamportone, Appellee, and denying the appellants’ motion to quash service and to dismiss the motion to re-open the Estate. Inasmuch as the probate judge had jurisdiction and the power to re-open the Estate under section 733.903, Florida Statutes (2007), as well as the authority to protect an alleged property interest of the Estate, we affirm.

Macier and Foreclosure Management Services were given the courtesy of notice, based on the personal representative’s knowledge of the name and address of their counsel in other litigation among the parties in the civil division of the circuit court. This afforded them the opportunity to be heard, and it also provided them actual notice of the actions taken in the probate court so that they may move to dissolve the injunction entered there.

At this interlocutory point, and with the matter apparently referred for criminal investigation, the probate judge assuredly did not abuse his discretion or disregard any controlling principle of law.

Knight v. C.I.R. , — S.Ct. —-, 2008 WL 140749 (U.S. Jan 16, 2008)

In an opinion that will have significant implications for every estate or trust paying U.S. income taxes, the Supreme Court has just ruled on the level of deductibility Internal Revenue Code Section 67(e)(1) permits for trust investment advisory fees (IAFs). The trustee/taxpayer in this case argued that IAFs are fully deductible before arriving at a trust’s taxable income.  As I previously reported [click here], this argument lost both at trial and before the Second Circuit.

Unfortunately for the trustee he also lost before the Supreme Court, which ruled in the linked-to opinion that most IAFs are are deductible only to the extent that they exceed 2 percent of a trust’s adjusted gross income (AGI), often referred to as the “2 percent-of-AGI floor.”

But the news isn’t all bad.  Some IAFs remain fully deductible if they can be construed as being uniquely applicable to trusts.  Chief Justice Roberts hinted at this reading of the statute during oral arguments, as reported here on law.com:

Several times during the argument hour, Chief Justice John Roberts brought up the idea of breaking up the costs for investment advice into those representing "general stock picking advice," and those for "specialized fiduciary advice," and only providing an exception for the latter. Justice Antonin Scalia, however, expressed skepticism about whether it would be possible to "slice up" adviser fees.

And here’s how this approach was expressed in the Court’s linked-to opinion (which was written by Chief Justice Roberts):

As the Solicitor General concedes, some trust-related investment advisory fees may be fully deductible “if an investment advisor were to impose a special, additional charge applicable only to its fiduciary accounts.” Brief for Respondent 25. There is nothing in the record, however, to suggest that Warfield charged the Trustee anything extra, or treated the Trust any differently than it would have treated an individual with similar objectives, because of the Trustee’s fiduciary obligations. See App. 24-27. It is conceivable, moreover, that a trust may have an unusual investment objective, or may require a specialized balancing of the interests of various parties, such that a reasonable comparison with individual investors would be improper. In such a case, the incremental cost of expert advice beyond what would normally be required for the ordinary taxpayer would not be subject to the 2% floor. Here, however, the Trust has not asserted that its investment objective or its requisite balancing of competing interests was distinctive. Accordingly, we conclude that the investment advisory fees incurred by the Trust are subject to the 2% floor.

Chames v. DeMayo, — So.2d —-, 2007 WL 4440212 (Fla. Dec 20, 2007)

Within the probate context there are two aspects of Florida’s constitutional homestead protections that loom large: the debtor protections found in sections 4(a) and (b) of article 10 of the Florida Constitution; and the limitations on devise found in section 4(c) of article 10.

Homestead Debtor Protections:

For probate practitioners this case is important because the Florida Supreme Court clearly defines the public policy reasons for why Florida’s constitutional homestead debtor protections are NOT purely personal rights that may be waived by a homeowner like any other constitutional protection.  Florida’s homestead laws protect not only the homeowner, they also protect the homeowner’s family and the State.  So no matter what the homeowner/debtor may say, the "State" has a stake in the outcome and will thus limit the homeowner’s personal property rights in his or her home to the extent necessary to protect those public interests.  That’s been the law in Florida for over a hundred years, and in the linked-to opinion the Florida Supreme Court makes clear it sees no reason to change things now.

Here’s how the Florida Supreme Court made this point:

Chames argues that waiver of the homestead exemption should be permitted because we have permitted waiver of other constitutional rights. This would be the most compelling reason for receding from Carter and Sherbill, for if indeed we have held that other constitutional rights can be waived, it would seem anomalous to prohibit waiver of the homestead exemption. We do not agree, however, that such an inconsistency exists.

It is true that we recently noted that “most personal constitutional rights may be waived.” In re Rule 4-1.5(f)(4)(B), 939 So.2d at 1038; see also In re Shambow’s Estate, 153 Fla. 762, 15 So.2d 837, 837 (Fla.1943) (“It is fundamental that constitutional rights which are personal may be waived.”). However, an individual cannot waive a right designed to protect both the individual and the public. See, e.g., Coastal Caisson Drill Co. v. Am. Cas. Co. of Reading, Pa., 523 So.2d 791, 793 (Fla. 2d DCA 1988), approved, 542 So.2d 957 (Fla.1989); Asbury Arms Dev. Corp. v. Fla. Dep’t of Bus. Regulations, 456 So.2d 1291, 1293 (Fla. 2d DCA 1984). We have repeatedly recognized that the homestead exemption protects not only the debtor, but also the debtor’s family and the State. See Havoco, 790 So.2d at 1020; Snyder, 699 So.2d at 1002; Caggiano, 605 So.2d at 60; Lopez, 531 So.2d at 948; Slatcoff, 76 So.2d at 794; Hill, 84 So. at 192. Therefore, the right to the homestead exemption is not purely personal as some others are.

Homestead Limitations on Devise:

In contrast to Florida’s homestead debtor-protection rights, the limitations on the devise of homestead property ARE purely personal in nature, and thus ARE subject to waiver [click here for explanatory examples].  For Florida probate practitioners understanding this distinction is the key to any hope of making sense of Florida’s convoluted homestead laws.  Here’s how the amicus curiae brief of the Real Property Probate & Trust Law Section of the Florida Bar explained the difference between the constitutional homestead protections for general creditor-debtor relationships found in article 10, sections 4 (a) and (b), versus the homestead protections involving the devise of homestead property and other intra-family transactions found in article 10, section 4 (c) of the Florida Constitution:

[S]ections (4) (a) and (b) protect Floridians from general creditors. Section 4 (c), on the other hand, protects the surviving spouse and minor children from having the homestead transferred out from under them without the consent of both spouses.

Section 4 (c) has nothing to do with protection from general creditors and is manifestly a pure, personal right that is subject to waiver. Similarly, waiver of homestead in agreements between spouses is permissible in the context of nuptial agreements and divorce settlements. See Hartwell v. Blasingame, 584 So. 2d 6 (Fla. 1991); §732.702, Fla. Stat.; Myers v. Lehrer, 671 So. 2d 864, 866 (Fla. 4th DCA 1996)

Sections 4 (a) and (b), on the other hand, when applied to general creditors are mandatory and have precisely expressed exceptions, precluding all others. See Sherbill v. Miller Mfg. Co., 89 So. 2d 28, 31 (Fla. 1956); see also In re Clements, 194 B.R. 923, 925 (M.D.Fla. 1996) (confirming that under the expressio unius est exclusio alterius rule, homestead, in Florida, may not be used to satisfy debts other than those expressly permitted by article X, section 4). To be sure, the purpose of sections 4 (a) and (b) in the context of a general creditor-debtor relationship is to protect each of us from being destitute and, in that regard, might be considered a personal right and waivable. See City of Treasure Island v. Strong, 215 So. 2d 473, 479 (Fla. 1968) (“[I]t is firmly established that such constitutional rights designed solely for the protection of the individual concerned may be lost through waiver.”). But, this homestead protection is also designed to promote the stability and welfare of the state, which would otherwise be burdened as the caregiver for its destitute citizens. See McKean v. Warburton, 919 So. 2d 341, 344 (Fla. 2005); Public Health Trust v. Lopez, 531 So. 2d 946, 948 (Fla. 1988). Because of the state’s interest in protecting debtors in the general creditor-debtor relationship, the homestead protection cannot be lost through waiver. See Sherbill v. Miller Mfg. Co., 89 So.2d at 31.

For more background on this case and a link to the underlying 3d DCA opinion click here and here.

Click here for a PDF copy of the Agenda and related Reports/White Papers for the upcoming meeting of the Florida Bar’s Probate & Trust Litigation Committee.  These materials are an excellent way to keep up on the latest probate-related developments that could affect you, your firm or your clients.  I found the following items to be especially interesting:

New Legislation:

Fiduciary Lawyer-Client Privilege: [ITEM 3]

New F.S. 90.5021 is being proposed to address the attorney-client privilege issues I wrote about here.

Payment of trustee’s fees from trust assets: [ITEM 4]

A revision to F.S. 736.0802(10) is being proposed to address the conflict-of-interest issues that come up when a trustee uses trust assets to pay for his legal defense in a breach of trust lawsuit.  I recently wrote about this here.

White Papers:

Collateral Attack on the Validity of A Marriage after Death Based Upon Undue Influence:  [ITEM 6]

No jury trial in breach of trust action: [ITEM 8]

Questions/comments regarding the meeting and the linked-to materials should be directed to the committee chair: William ("Bill") T. Hennessey.