Graham v. Florida Dept. of Children and Families, — So.2d —-, 2007 WL 4245627 (Fla. 4th DCA Dec 05, 2007)

The linked-to case is the second appellate decision involving a family feud between two brothers, "Luke" and "Larry" Graham, both of which were vying to be appointed their mother’s guardian with authority over her $850,000+ in assets.  When I first wrote about this case [click here], brother-Larry seemed to be on the losing end of this litigation. After Larry initially lost his bid to be appointed guardian, he apparently took matters into his own hands.  Here’s how the 4th DCA summed up the operative facts at that time:

After the trial court appointed the guardian, Larry surreptitiously took Betty from the residence where she had been placed by the guardian and moved her to California without giving notice to the court or any of the parties. The trial court held Larry in indirect criminal contempt for removing Betty from Florida and otherwise defying the guardianship orders. Larry has refused to reveal his exact whereabouts as well as the whereabouts of his mother.

Based on these facts, in the last opinion the 4th DCA hammered Larry.

Fatally flawed procedural/evidentiary record leads to stunning reversal of all trial-court wins:

The most important person in any contested guardianship proceeding is the judge.  He is both law giver and fact finder.  Convincing the trial judge of the justness of your cause is a precondition to winning this type of case, but it’s not enough.  To protect your trial-court wins you need to make sure you’ve built a procedural and evidentiary record that can survive appellate challenge – even if your trial judge is wiling to give you a pass on these issues.  On the flip side, if you’ve lost at the trial-court level, every procedural and evidentiary mistake made by the other side is an opportunity to be exploited on appeal.

The following appellate rulings from the linked-to opinion – all of which combined together to give brother-Larry a stunning victory on appeal – demonstrate how a fatally flawed procedural and evidentiary record can undo even the most sweeping trail-court wins.

1.  Improper service leads to reversal of criminal contempt order:

When Larry took his mother from Florida to California in defiance of the trial court’s orders, you know the judge must have been fuming. This judge was almost guaranteed to find Larry in contempt.  All the moving side had to do was make sure it complied with the minimum procedural and evidentiary requirements of Florida Rule of Criminal Procedure 3.840, governing indirect criminal contempt, and the judge would do the rest.  This wasn’t done, leading to the following appellate victory for Larry.

Failure to strictly follow the dictates of Rule 3.840, governing indirect criminal contempt, constitutes fundamental, reversible error. Hagan v. State, 853 So.2d 595, 597 (Fla. 5th DCA 2003).

Laurence Graham argues that the trial court’s order is based upon a statement from Catholic Charities, which is not in affidavit form and was not issued upon personal knowledge, that he did not receive notice of the contempt proceedings, and that he was not properly served.

We reject without comment Laurence’s arguments concerning an insufficient affidavit and lack of notice, but agree with his contention that he was not properly served.

It is undisputed here that Laurence was not personally served with the order to show cause and thus, reversal is warranted. See Van Hare v. Van Hare, 870 So.2d 125, 127 (Fla. 4th DCA 2003) (reversing order of criminal contempt for lack of compliance with Rule 3.840).

2.  Guardianship appointment effectively revoked ward’s advanced health care directive without necessary proof, notice and hearing.

Rather than challenge the order appointing his brother as guardian directly, Larry focused instead on the fact that he was the named surrogate under an advanced health care directive executed by his mother. The evidentiary and procedural record was fatally flawed with respect to revoking an advanced health care directive, resulting in a reversal – on procedural grounds – of the order appointing Larry’s brother as guardian.

Laurence Graham contends next that, in appointing Luke Graham as Betty’s temporary plenary guardian, the trial court effectively revoked Betty’s valid Directive, and did so without the necessary proof under section 765.105, Florida Statutes (2007), and without notice and a hearing, in violation of section 744.3115, Florida Statutes (2007). We agree in part.

*     *     *     *     *
In appointing Luke Graham as Betty’s temporary plenary guardian, an act which effectively revoked her Directive, the trial court failed to comply with the requirements of section 744.3115. The court failed to determine whether the Directive was valid before appointing a guardian.

*     *     *     *     *
Therefore, we reverse and remand on this issue for a determination by the trial court of whether Betty’s Directive is valid, and if so, what grounds under section 765.105 require its revocation.

3.  Flawed evidentiary record leads to dismissal of entire guardianship proceeding

Larry’s biggest win on appeal was the ruling by the 4th DCA reversing the trial court’s incapacity finding and remanding the case "with directions to dismiss the guardianship proceeding."  What could have lead to such a drastic change of fortune for Larry?  Evidence, plain and simple.  The evidence relied upon by the winning side at the trial-court level was outdated by the time of the incapacity hearing, and Larry’s trial counsel did a good job of building a record for a successful appeal by introducing rock solid evidence countering the incapacity finding.  Here’s how the 4th DCA summarized this final leg of the case:

After finding Laurence in contempt, the trial court found that Betty’s incapacity was established and appointed Luke Graham as her temporary plenary guardian. Laurence claims the trial court erred in doing so without sufficient evidence of Betty’s incapacity pursuant to section 744.331, Florida Statutes. We agree.

A trial court’s ruling on mental capacity cannot be disturbed “unless the evidence shows it is clearly erroneous.” Fleming v. Fleming, 352 So.2d 895, 898 (Fla. 1st DCA 1977) (citing Waterman v. Higgins, 28 Fla. 660, 10 So. 97 (1891)). “In the adjudicatory hearing on a petition alleging incapacity, the partial or total incapacity of the person must be established by clear and convincing evidence.” § 744.331(5)(c), Fla. Stat. (2007). Further, section 744.331(5)(a), Florida Statutes (2007), states:

Upon appointment of the examining committee, the court shall set the date upon which the petition will be heard. The date for the adjudicatory hearing must be set no more than 14 days after the filing of the reports of the examining committee members, unless good cause is shown. The adjudicatory hearing must be conducted at the time and place specified in the notice of hearing and in a manner consistent with due process.

Laurence Graham relies on LeWinter v. Guardianship of LeWinter, 606 So.2d 387 (Fla. 3d DCA 1992), which is analogous to the instant case. In LeWinter, the Second District reversed a finding of incapacity and the appointment of a guardian, concluding that there was no competent evidence to support the order. The court found that although the report of the examining committee established under section 744.331(3)(a) contained findings that the ward lacked the capacity to perform the functions that served the basis for the guardianship, it was filed over six weeks before the hearing, and there was evidence that the ward’s condition had improved in the meantime. LeWinter, 606 So.2d at 388.

Similarly, in the instant case, two of the three examining committee reports were filed two months or more before the hearing. The hearing took place on February 8, 2007. One report was filed on November 21, 2006, and another on December 8, 2006. Further, Laurence Graham submitted a sworn affidavit dated January 20, 2007, from Dr. Clyde Rouse Jr., who was Betty’s previous psychiatrist for 2 years, and again evaluated her in January 2007, stating that Betty’s condition had improved. Dr. Rouse claimed, inter alia: “She looks very well and shows no evidence of any psychiatric symptoms. She reviewed her health care advance directive with me and verbally acknowledged that she had named her son Larry as her surrogate in that document.” He also stated that her condition improved due to medication and in his opinion she “is perfectly competent to make financial decisions, to execute any legal documents such as power of attorney, health care advance directives, etc.” Notably, a report by Dr. David Trader, board certified in general psychiatry and geriatric psychiatry, dated February 14, 2007, a few days after the hearing in question, indicated that “[t]he present examination suggests that Betty Graham has sufficient mental capacity to make financial, medical, testamentary and general personal decisions at this time.”

Because Dr. Rouse’s report indicated an improvement in Betty’s condition and the committee member reports were filed two months prior to the hearing, the record evidence failed to establish Betty’s incapacity by clear and convincing evidence. Thus, we reverse and remand with directions to dismiss the guardianship proceeding. See LeWinter, 606 So.2d at 388.

A NY Times article entitled A Lurid Aftermath to a Hedge Fund Manager’s Life reports on a brewing dispute over a Jupiter, FL estate reportedly “worth at least $25 million.”  The following excerpts from the linked-to article give us a sense of what kind of case this will be (ugly!) and where the battle lines are being drawn:

JUPITER, Fla. — A life of private jets and black-tie balls ended with Seth Tobias, a wealthy investment manager and a familiar presence on CNBC, floating face down in the swimming pool of his mansion here.

*     *     *     *     *

Mr. Tobias, who was 44 years old, had apparently suffered a heart attack, his brother Spence said at the time. The police did not consider his death suspicious.

But now an unfolding drama over Mr. Tobias’s estate is providing a lurid account of fast money and faster living in the volatile world of hedge funds. Mr. Tobias’s four brothers and Mrs. Tobias are locked in a legal battle over the estate, which is worth at least $25 million. And, in a civil complaint, they have gone so far as to accuse her of murder.

The brothers, Samuel, Spence, Scott and Joshua, claim Mrs. Tobias drugged her husband and lured him into the pool. Bill Ash, a former assistant to Mr. Tobias, said he had told the police that Mrs. Tobias confessed to him that she had cajoled her husband into the water while he was on a cocaine binge with a promise of sex with a male go-go dancer known as Tiger.

*     *     *     *     *
At the center of the dispute is Mr. Tobias’s will, which designates his brothers as beneficiaries but does not name Mrs. Tobias. She contends that she is entitled to the estate because the will was signed before the couple married. In court filings, the Tobias brothers invoke Florida’s “slayer statute,” which prohibits inheritance by a person who murders someone from whom they stand to inherit. They claim she “intentionally killed” her husband “by asphyxiation and drowning.”

Florida’s “pretermitted spouse” statute:

Mrs. Tobias’ argument is based on Florida’s version of the pretermitted spouse rule.  Here’s how that argument is played out:

Mr. Tobias married Mrs. Tobias after making his will.  As such, pursuant to F.S. §732.301, regardless of what the will says, Mrs. Tobias is entitled receive a share of his $25+ million estate equal in value to that which she would have received if Mr. Tobias had died intestate, unless 1) provision has been made for, or waived by, Mrs. Tobias by a nuptial agreement; 2) Mrs. Tobias is otherwise provided for in the will (she apparently is not); or 3) the will discloses an intention not to make provision for Mrs. Tobias.

Pursuant to F.S. §732.102, the intestate share to which Mrs. Tobias would be entitled is as follows: a) If there are no living lineal descendants of Mr. Tobias, she gets the entire intestate estate; b) if there are surviving lineal descendants of Mr. Tobias, all of whom are also Mrs. Tobias’ lineal descendants, she gets  the first $60,000 of the intestate estate, plus one-half of the balance of the intestate estate; and c) if there are surviving lineal descendants of Mr. Tobias, one or more of whom are not lineal descendants of Mrs. Tobias, she gets one-half of the intestate estate.

Florida’s “slayer” statute:

Mr. Tobias’ surviving brothers argue that Mrs. Tobias murdered her husband, and thus she shouldn’t get a penny of the estate under Florida’s version of the “slayer” rule, a doctrine I’ve written about before [see here, here, here].

Florida’s slayer statutes are found at F.S. § 732.802 (probate estates) and F.S. § 736.1104 (trust estates).

Although a murder conviction would make things easier for the Tobias brothers, it’s not a pre-condition to their lawsuit. If Mrs. Tobias were convicted of the murder, that would conclusively divest her of all of her interest in Mr. Tobias’ estate; but if Mrs. Tobias were acquitted of the murder (or never charged), the probate court could still weigh the evidence and determine “by the greater weight of the evidence” whether or not she should be divested. Here is the key language from F.S. § 732.802:

(1) A surviving person who unlawfully and intentionally kills or participates in procuring the death of the decedent is not entitled to any benefits under the will or under the Florida Probate Code, and the estate of the decedent passes as if the killer had predeceased the decedent.

*     *     *     *     *

(5) A final judgment of conviction of murder in any degree is conclusive for purposes of this section. In the absence of a conviction of murder in any degree, the court may determine by the greater weight of the evidence whether the killing was unlawful and intentional for purposes of this section.

Clients are often surprised to learn that, for the most part, inherited assets are received income tax free. In addition to being income tax free, the appreciation on capital assets received from a decedent is also forgiven. The tax mechanism that allows for the forgiveness of the appreciation is known as a “step-up” in basis. A step-up in basis allows the beneficiary to sell an asset received from a decedent income tax free.

Income in Respect of a Decedent (“IRD”)

The primary exception to the general step-up-in-basis rule is income in respect of a decedent (“IRD”). Common examples of IRD include pension, IRA and 401(k) distributions, certain annuity payments and the decedent’s final paycheck.  For a detailed explanation of IRD from a CPA’s perspective, see Maximizing the Tax Deduction for Income in Respect of a Decedent.

IRD can also include post-death sales of the decedent’s property if the sales contract was finalized prior to death.  This can be a very big deal.

For example,  assume Dad owned real property with a basis of $1,000 and a fair market value of $1,000,000 on the day he died.  Usually, this property would receive a step-up in basis to its date-of-death value.  So Son would inherit the property with a basis of $1,000,000.  If Son sells the property 1 day after Dad dies, he pays zero income tax on the sale.  However, if the real property was subject to a pre-death sales contract, and the sale closes 1 day after Dad dies, the gain would be considered IRD and Dad’s estate would have to pay income tax on $999,000 in gain.  Assuming a 15% tax rate, the tax bite would be $149,850!

IRS Rules Gain from Post-Death Sale of Decedent’s Real Property under Pre-Death Contract Wasn’t IRD: "Economically material contingencies might have disrupted the sale prior to Decedent’s death." 

Obviously, spotting IRD issues in a probate proceeding and knowing how to best manage them can save your client big bucks; and turn your average probate lawyer into the family hero.  In Private Letter Ruling 200744001, the IRS provides an excellent road map for understanding what IRD is and, most importantly, how to avoid paying income taxes on IRD if the pre-death contract is subject to "economically material contingencies that might have disrupted the sale prior to Decedent’s death."  Remember that phrase, it’s the key to everything that’s going on in this private letter ruling.

IRS Private Letter Ruling 200744001:

Facts:

The information submitted states that Taxpayer, Decedent’s revocable trust, entered into a contract to sell a plot of real property on D1, with an intended closing date of D2. Before D2, however, a gas pipeline was discovered underneath the property, causing the parties to delay the sale until Taxpayer, the buyer and the pipeline’s operating company could resolve a number of issues. The parties needed to address matters such as providing for an easement for the pipeline company to enter onto the property as well as providing that the pipeline company would provide restitution for any damage to the property. Before the parties could resolve these issues, Decedent died on D3. The sale did not actually close until D4.

Law:

Section 691(a)(1) provides that the amount of all items of gross income in respect of a decedent (IRD) which are not properly includible in respect of the taxable period in which falls the date of the decedent’s death or a prior period (including the amount of all items of gross income in respect of a prior decedent, if the right to receive such amount was acquired by reason of the death of the prior decedent or by bequest, devise, or inheritance from the prior decedent) shall be included in the gross income, for the taxable year when received, of: (A) the estate of the decedent, if the right to receive the amount is acquired by the decedent’s es tate from the decedent; (B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent’s estate from the decedent; or (C) the person who acquires from the dec edent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent’s estate of such right.

Section 1.691(a)-1(b) of the Income Tax Regulations provides that the term “income in respect of decedent” refers to those amounts to which a decedent was entitled as gross income but which were not properly includible in computing the decedent’s taxable income for the taxable year ending with the date of the decedent’s death or for a previous taxable year under the method of accounting employed by the decedent. Thus, the term includes income to which the decedent had a contingent claim at the time of the decedent’s death.

Section 1014(a) provides that the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or ot herwise disposed of before the decedent’s death by such person, be the fair market value of the property at the date of the decedent’s death.

Section 1014(b)(1) provides, in part, that for purposes of section 1014(a), property acquired by bequest, devise or inherit ance, or by the decedent’s estate from the decedent shall be considered to have been acquired from or to have passed from the decedent.

In Rev. Rul. 78-32, 1978-1 C.B. 198, prior to death, a decedent had entered into a binding contract to sell real estate, had substantially completed all of the substantive prerequisites of consummation of the sale, and was unconditionally entitled to the proceeds of the sale at the time of death. The ruling holds that the gain realized from the sale of the real estate that was completed by the decedent’s executor is income in respect of a decedent within the meaning of § 691(a).

In Taxpayer’s case, important issues needed to be addressed before the sale of the property could be closed. The closing was delayed until D4 because of these issues. Taxpayer needed to attend to substantive as well as ministerial matters. The pipeline was not discovered until after the original contract was entered into; this created economically material contingencies that might have disrupted the sale prior to Decedent’s death.

Ruling:

Based solely on the facts and representations submitted, we conclude that any gain realized from the sale of the property after Decedent’s death does not constitute income in respect of a decedent within the meaning of § 691. We further conclude that basis of the property in Taxpayer’s hands before the sale should be determined under § 1014(a).

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In Florida a death certificate is prima facie proof of the “fact, place, date, and time of death as well as the identity of the decedent.” F.S. 731.103(1). But it’s not conclusive proof of any fact related to the death.  If estate assets or insurance proceeds are at stake, you’ll need a lot more than a death certificate to prove a missing person’s death under F.S. 731.103(3).

In a BBC article entitled Family want Fossett declared dead, we get a glimpse of the quantity and quality of the circumstantial evidence Steve Fossett’s wife submitted in Illinois to legally establish the fact of his death.  (And here’s a copy of the order declaring his death.) Presumably the same evidence would be needed in a Florida courtroom. Here’s the BBC report in its entirety:

Mr Fossett has been missing for three months since his single-engine plane disappeared over the Nevada desert. In a written statement Peggy Fossett said that it was a difficult day for her family, but that they now “must accept that Steve did not survive”.

There has been no trace of the 63-year-old aviator since he took off from Yerington, NV, on 3 September. The flight had been expected to last about three hours and Mr Fossett was not required to, and did not, file a flight plan. “As painful as it is for Mrs Fossett, other members of the family and his many friends, it is time to initiate this process,” lawyer Michael A LoVallo, who filed the petition in Cook County Circuit Court, was quoted by the Associated Press as saying.

‘Vast wealth’

The move is a step towards taking control of Mr Fossett’s estate. The court papers said Mr Fossett’s “wealth is vast, surpassing eight figures in liquid assets, various entities and real estate”.

The petition said there was no chance that he could have survived in the soaring desert temperatures, even if he lived through a crash. “Fossett did not have any reason to disappear,” AP quoted the petition as saying. “Fossett was happy and passionately involved in his pursuit of adventure.”

In the weeks after Mr Fossett’s disappearance Nevada Civil Air Patrol carried out a series of extensive aerial searches in both Nevada and California. At the height of the operation 45 planes were scouring the mountainous terrain. The search, also joined by many private planes, did discover several previously undiscovered downed planes – some of which were decades old – but neither Mr Fossett, nor his plane, were found.

Mr Fossett reportedly took the flight to look for locations that could be used for an attempt on the land speed record. Mr Fossett has racked up about 100 world records. In March 2005, he became the first to fly a plane solo, non-stop around the globe.

In the latest twist to the Brooke Astor estate litigation [click here for a chronology of the case], Ms. Astor’s son, Anthony D. Marshall, has been indicted on charges of plundering his mother’s $198 million estate.  Here’s an excerpt from an AP article headlined Brooke Astor’s son accused of plundering estate:

An indictment charges Marshall, 83, with grand larceny, criminal possession of stolen property, forgery, scheme to defraud, falsifying business records, offering a false instrument for filing and conspiracy.

The top count, grand larceny, is punishable by up to 25 years in prison.

Marshall’s former attorney, Francis X. Morrissey Jr., also has been indicted on those charges.

"The indictment charges that Marshall and Morrissey took advantage of Mrs. Astor’s diminished mental capacity in a scheme to defraud her and others out of millions of dollars," said District Attorney Robert Morgenthau.

Marshall’s son, Philip, prompted the criminal investigation last year after he accused his father of neglecting Astor’s care and stealing her money.

While a criminal indictment may seem like a win for the parties suing Mr. Marshall in the NY probate proceedings, in the long run it will likely cause more harm than good in the civil litigation.  For example, as previously reported by the NY Times in Talks on Astor Estate Halted to Clear Way for a Criminal Inquiry, settlement discussions that were apparently making good progress have now been halted at the behest of the prosecutor’s office:

The district attorney’s office wants the settlement talks, being held under the auspices of the Westchester County Surrogate’s Court, held at bay to prevent prosecutors from losing a strategic edge, should indictments and a criminal trial result, according to the people who have been briefed.

This could happen, for example, if their key witnesses were deposed in the Westchester case by Mr. Marshall’s lawyers, who could then learn details of the district attorney’s line of inquiry, the people said.

*     *     *     *     *

During a half-hour hearing .  .  . Judge Anthony A. Scarpino asked a representative for the attorney general if the office’s position regarding settlement talks remained the same. He was told that it did.

“Negotiations are on hold status, as far as we’re concerned,” the judge then said, without mentioning the specific reason behind the stalled talks.

He reiterated that protracted litigation as a result of an inability to settle the case was “going to cost the charities a lot of money” by eroding their bequests. The settlement discussions spanned two weeks or so last month. The talks, spurred by the question of which of Mrs. Astor’s wills should be the valid one, focused on how much money the main charities would receive from her estate, which is valued at about $132 million, in addition to a trust estimated to be worth more than $60 million.

Not only do the civil litigants lose control of the case once a criminal indictment is issued, discovery becomes much more challenging because the other side can now "plead the 5th" and simply refuse to answer your questions in a deposition.  I’ve written before about this tactic [click here].  Ask yourself: who really benefits when the other side is indicted?

Lesson learned:

Criminal indictment = more expensive and time consuming civil litigation = unhappy client.

Estate of Jelke v. C.I.R., — F.3d —-, 2007 WL 3378539 (11th Cir. Nov 15, 2007)

The best nugget of wisdom – and most entertaining quote – found in this opinion comes from Judge Carnes’ dissent:

The death of a human being is profoundly important to the person who dies, but it matters not one whit to the laws of economics, which dictate the self-interest of the living.

At the end of the day, once you strip away all the extraneous drama inherent to most trusts-and-estates litigation, that’s what it all boils down to: the laws of economics, dollars and cents, i.e., "show me the money."  Forget that bit of insight in the heat of a case and you’re toast.

Now back to the scintillating world of estate-tax valuation law.

In this case the 11th Circuit reversed the Tax Court by holding that the proper valuation approach for estate tax purposes of stock interest owned by the decedent in a closely-held, investment holding company, was to apply a dollar-for-dollar reduction of the company’s entire built-in capital gains tax liability.  The logic of this approach is best understood in terms of a concrete example, which the court provided at Footnote 25:

FN25. The Second Circuit used an example from tax treatise, Bittker & Eustice, Federal Income Taxation of Corporations and Shareholders ¶ 10.41 [4] n. 11 (Warren, Gorham & Lamont, 6th ed.1998), to illustrate that a hypothetical buyer and seller would allow a discount for built in capital gains tax:

In the example, A owns 100% of the stock of X corporation, which owns one asset, a machine with a value of $1,000, and a basis of $200. Bittker assumes a 25% tax rate and points out that if X sells the machine to Z for $1,000, X will pay tax of $200 on the $800 gain. Bittker adds that if Z buys the stock for $1,000 “on the mistaken theory that the stock is worth the value of the corporate assets,” Z will have lost $200 economically “because it paid too much for the stock, failing to account for the built-in tax liability (which can be viewed as the potential tax on disposition of the machine, or as the potential loss from lock of depreciation on $800 [of] basis that Z will not enjoy.”) Because of Z’s loss, Bittker concludes, “Z will want to pay only $800 for the stock, in which even A will have effectively ‘paid’ the $200 built-in gains tax.”

Estate of Eisenberg, 155 F.3d at 58 n. 15.

Now that I’ve hit the tax issue, I want to come back to Judge Carnes’ dissent.  He argues that the majority took the easy road when it overruled the Tax Court.  For Judge Carnes, taking the easy road is a much bigger SIN than calling a tax issue the wrong way.  Taking the easy road leads to the downfall of civilization!!  So saith Judge Carnes:

The tax code is nowhere near the center of my intellectual life, and generally I find estate tax law about as exciting as Hegel’s metaphysical theory of the identity of opposites. There is, however, more involved in this case than just the estate tax issue presented, which is how to determine the fair market value of the decedent’s distinctly minority interest in CCC, a closely held corporation whose assets consist primarily of marketable securities with a built-in capital gains tax liability.

The broader principles implicated by the majority opinion are timeless. They were discussed by Teddy Roosevelt at the close of the century before last:


I wish to preach not the doctrine of ignoble ease but the doctrine of the strenuous life; the life of toil and effort; of labor and strife; to preach that highest form of success which comes not to the man who desires mere easy peace but to the man who does not shrink from danger, from hardship, or from bitter toil, and who out of these wins the splendid ultimate triumph.

Vice President Theodore Roosevelt, The Strenuous Life, Address before the Hamilton Club in Chicago, Illinois (April 10, 1899), in The Penguin Book of Twentieth-Century Speeches 1 (Brian MacArthur ed., 1992). By adopting and extending the arbitrary assumption rule of least effort from Estate of Dunn v. Commissioner, 301 F.3d 339 (5th Cir.2002), the majority gives in to the judicial equivalent of the doctrine of ignoble ease. To avoid the effort, labor, and toil that is required for a more accurate calculation of the estate tax due, the majority simply assumes a result that we all know is wrong. We can do better than that. The tax court did.

I will be speaking on December 11 and 12 on probate litigation at an NBI seminar entitled The Probate Process from Start to Finish."  Click here for a PDF copy of the brochure.  The dates and locations for the seminar are:

  • Miami, Florida – December 10, 2007
  • Dania, Florida – December 11, 2007
  • West Palm Beach, Florida – December 12, 2007

If you’re an attorney looking to expand your practice into probate-administration matters, this introductory-level seminar is probably a good idea for you.  Here’s how to register:

  • WEB: register online at www.nbi-sems.com
  • PHONE: (800) 930-6182 – weekdays 7:00 AM – 5:30 PM CST
  • FAX: (715) 835-1405
  • MAIL: NBI, Inc. P.O. Box 3067, Eau Claire, WI 54702

The statute governing removal of personal representatives ("PR") in Florida is 733.504.  Acrimony – no matter how heated – is usually NOT sufficient to warrant removal of a PR [click here for recent example].  However, the outcome may be different if you can establish a detailed factual record proving that the acrimony is such that a significant portion of the estate will be eaten up in litigation expenses if the designated PR is not removed.  Note the shift in emphasis from "I don’t like him" so please remove him as PR, to "the estate assets will be wasted" so please remove him as PR.

Mark Fass of the New York Law Journal recently published an article entitled ‘Vexatious’ Attorney Conduct Results in Removal of Executor.  In that NY case, the PR (referred to as "executor") was removed based upon a detailed factual record proving that a PR’s representation by a particular law firm was so likely to result in litigation and waste of estate assets, that the PR should be removed.  The court agreed, and removed the PR.  Here’s an excerpt from the linked-to article:

The "vexatious conduct" of the attorneys in the distribution of a woman’s estate has led to the disqualification of their client as executrix of the estate.

The complex familial dispute began with the intestate death of 83-year-old Roseanna DeLaune, in 1997. Pursuant to statute, her sister, Paula M. Venezia, was appointed administrator; her heirs included her disabled nephew, William Pennington III.

Venezia hired her childhood friend from Manhattan’s Little Italy, attorney Alfred Sica, to serve as counsel. He in turn hired the firm now known as Vaneria & Spanos.

In 2003, Venezia, 85, died, leaving the entirety of her own million-dollar estate to the same nephew, Pennington. She nominated her goddaughter, Joanne Zaccaria, to serve as executrix. Zaccaria, who had no role in the disbursement of the first estate, hired the same counsel — Sica and Vaneria & Spanos.

Meanwhile, over the intervening six years, the administration of DeLaune’s estate had devolved into what Sica later termed "combat" between himself and Pennington.

Loath to let history repeat itself, Pennington objected to Zaccaria’s appointment, based in part on her selection of the attorneys he crossed swords with following the death of his first aunt.

Brooklyn Surrogate Margarita Lopez Torres has granted the petition, disqualifying Zaccaria from overseeing Venezia’s estate. The surrogate cited the "vexatious conduct" of Zaccaria’s chosen attorneys during the administration of the previous estate.

"To permit Zaccaria to serve as executor, along with her chosen counsel of Vaneria & Spanos and Alfred Sica, Esq., would be detrimental to this estate," Surrogate Lopez Torres held in Estate of Venezia, 2100/2003.

"Because of the excessively hostile and bitter relationship between the nominated fiduciary, her counsel and Pennington, the appointment of Zaccaria as fiduciary … would have the practical effect of rendering the bequests of decedent to her nephew a nullity, as this estate would surely be taken down the inevitable road to further combative litigation," she said.

Lesson learned:

The concept of "issue framing" is nothing new in politics [click here].  Same idea applies in litigation. How an issue is "framed" in estate proceedings is everything.  If a litigant frames the issue in terms of his or her personal interests, a probate court is not likely to respond favorably.  By contrast, as the linked-to article shows, if the litigant frames the issue in terms of preserving estate assets – the likelihood of success goes way up.

At its core, the job of trustee is as much about keeping beneficiaries adequately informed as anything else.  Most trust litigation can be traced back to a trustee’s inability to adequately explain him or herself to the trust beneficiaries.  The importance of the trustee’s duty to “inform and report” is summarized nicely in The Trustee’s Duty to Inform and Report Under the Uniform Trust Code,” 40 Real Property, Probate and Trust J. 373 (Summer 2005), by author and Denver, Colorado, trusts-and-estates attorney Kevin Millard:

To be able to enforce the trustee’s duties, the beneficiary of a trust must know of the existence of the trust and be informed about the administration of the trust. If there were no duty to inform and report to the beneficiary, the beneficiary might never become aware of breaches of trust or might be unaware of breaches until it is too late to obtain relief. In addition, providing information to the beneficiary protects the trustee from claims being brought long after events that allegedly constituted a breach, because the statute of limitations or the doctrine of laches will prevent the beneficiary from pursuing stale claims. As a result, the duty to inform and report to the beneficiary is fundamental to the trust relationship.

Florida Trust Code: Duty to Inform and Account

Under F.S. 736.0813 a Florida trustee has the duty to keep the “qualified beneficiaries” of an irrevocable trust reasonably informed of the trust and its administration.  The extent of this duty – which is limited solely to qualified beneficiaries – includes, but is not limited to, the following 5 specifically defined reporting duties:

  1. Within 60 days after acceptance of the trust, the trustee shall give notice to the qualified beneficiaries of the acceptance of the trust and the full name and address of the trustee.
  2. Within 60 days after the date the trustee acquires knowledge of the creation of an irrevocable trust, or the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, whether by the death of the settlor or otherwise, the trustee shall give notice to the qualified beneficiaries of the trust’s existence, the identity of the settlor or settlors, the right to request a copy of the trust instrument, and the right to receive trust accountings.
  3. Upon reasonable request, the trustee shall provide a qualified beneficiary with a complete copy of the trust instrument.
  4. A trustee of an irrevocable trust shall provide a trust accounting, as set forth in F.S. 736.08135, to each qualified beneficiary annually and on termination of the trust or on change of the trustee.
  5. Upon reasonable request, the trustee shall provide a qualified beneficiary with relevant information about the assets and liabilities of the trust and the particulars relating to administration.

Qualified Beneficiaries:

The term “qualified beneficiary” is used pervasively throughout the Florida Trust Code, not just with respect to a trustee’s duty to inform and report.  So if you’re a Florida trustee, you need to know this term cold.

As used in the Florida Trust Code, the term “beneficiary” refers to the universe of persons who have a beneficial interest in a trust, as well as to any person who has a power of appointment over trust property in a capacity other than as trustee. F.S. 736.0103(4)  It is immaterial for this purpose whether the beneficial interest is present or future, vested or contingent, or whether the person having the interest is ascertainable or even living. By contrast, the term “qualified beneficiary” encompasses only a limited subset of all trust beneficiaries. In effect, the class is limited to living persons who are current beneficiaries, intermediate beneficiaries, and first-line remainder beneficiaries, whether vested or contingent.  Here’s how its defined in F.S. 736.0103(16):

(14) “Qualified beneficiary” means a living beneficiary who, on the date the beneficiary’s qualification is determined:

(a) Is a distributee or permissible distributee of trust income or principal;

(b) Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in paragraph (a) terminated on that date without causing the trust to terminate; or

(c) Would be a distributee or permissible distributee of trust income or principal if the trust terminated in accordance with its terms on that date.

I recently had the pleasure of speaking at a luncheon hosted by the Miami Branch of the "Society of Trusts and Estates Practitioners" (STEP).  Originating in the U.K., this organization has grown exponentially in the last few years by attracting international planners from around the world.

I was asked to explain Florida’s new trust code – in 30 minutes or less.  Feeling a bit overwhelmed by the scope of the topic, I did what any good litigator would do: I redefined the question to my liking, speaking instead on how Florida’s new trust code fits into competition for trusts-and-estates business at the "macro" state level.  Entitled Jurisdictional Competition for Trust Funds: Florida’s Competitive Strengths, the discussion outline should be of interest to anyone who’s ever been asked to explain why Florida is better/just as good as jurisdiction "X" [you fill in the blank] for trust "situs" purposes.