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Florida law doesn’t cut creditors any slack when it comes to blowing limitations periods [click here, here for recent examples], but creditors do get some leeway when it comes to “how” they make it known to the world that the estate owes them money.  As long as the creditor files something in the probate proceeding with sufficient detail to put interested parties on notice of “the character and extent of his claim,” that should be sufficient.

Case Study

In re Estate of Koshuba, — So.2d —-, 2007 WL 2934936 (Fla. 2d DCA Oct 10, 2007)

In the linked-to case the creditor filed a petition for administration of the decedent’s estate in an attempt to enforce a real estate sales contract.  Here’s how the court described his petition:

On September 12, 2003, Mr. Koshuba signed a contract agreeing to sell real property to Mr. Zilewicz. Mr. Koshuba died on December 1, 2003, before the parties closed on the contract. In order to enforce his right to purchase the property under the agreement, Mr. Zilewicz filed a Petition for Administration of the estate of Mr. Koshuba on June 17, 2005. The petition alleged, in part:

[Mr. Zilewicz] has an interest in these proceedings because of an obligation between [Mr. Zilewicz] and decedent’s estate. Said obligation consists of a purchase and sales agreement made by and between petitioner and decedent as evidenced by the Notice of Interest in Real Estate recorded in the Public Records of Sarasota County, Florida, under instrument number 2004099787. [Mr. Zilewicz] is willing to act as petitioner because the heirs have made no application to administer the estate.

The trial court appointed Robin Vasquez as personal representative of the estate. On September 16, 2005, Mr. Zilewicz filed an Amended Petition for Appointment of Guardian ad Litem to represent the interests of unidentified heirs. In this document, Mr. Zilewicz alleged: “Petitioner and the decedent entered into a sales and purchase agreement for the purchase of real property located in Sarasota County, Florida. A copy of said agreement is attached hereto as Exhibit A.” This document also lists the nature of assets in the estate as “Unimproved Real Property” and lists the approximate value at time of death as $7000.

Trial Court Says “No,” 2d DCA Says “Yes”

The probate court effectively struck the creditor’s claim because “no cause of action was timely filed by the purchaser in accordance with F.S. 733.702(1), F.S. 733.702(6) and F.S. 733.710.”  The 2d DCA reversed on two grounds: “Form” and “Timeliness.”

Form vs. Substance

Here’s how the 2d DCA addressed the “form” issue, basing it ruling on the pivotal Florida Supreme Court opinion in May v. Illinois National Insurance Co., 771 So.2d 1143 (Fla.2000).

We agree with the Personal Representative’s assertion on appeal that Mr. Zilewicz’s written statements, made within his Petition for Administration and the Amended Petition for a Guardian ad Litem, were substantially sufficient to place interested persons on notice of his claim. The documents filed in the probate proceeding by Mr. Zilewicz are defective as to form, but they sufficiently state the character and extent of his claim.

Timeliness

Here’s how the 2d DCA addressed the “timeliness” issue, focusing on a key 2002 legislative change:

We further conclude that a claim by Mr. Zilewicz was timely filed in accordance with sections 733.702 and 733.710, Florida Statutes (2003). In May, 771 So.2d at 1150, the court held that section 733.702, Florida Statutes (1991), is a statute of limitations that operates as a bar to claims not “ ‘filed within the later of 3 months after the time of the first publication of the notice of administration or, as to any creditor required to be served with a copy of the notice of administration, 30 days after the date of service of such copy of the notice on the creditor.’ “ Section 733.702(1) has since been amended to substitute “on or before” for “within,” thus allowing claims to be filed before the notice of administration. Ch.2002-82, § 6, Laws of Fla. (eff. April 23, 2002). The amendment is pertinent to the instant case and renders the claim timely under section 733.702. Also, Mr. Zilewicz’s claim would not be time barred by the two-year statute of nonclaim in section 733.710, which bars claims not filed within two years after a person’s death.

Berlin v. Pecora, — So.2d —-, 2007 WL 2710764 (Fla. 4th DCA Sep 19, 2007)

In 2003 Michael Pecora shot and killed his partner Jerome Berlin, then committed suicide.  They were the co-owners of Signature Gardens, a well-known banquet hall company in South Florida [click here for back story].

In the linked-to case the issue was whether Pecora’s share of the company was owned as tenants by the entireties (TBE) with his wife.  If it was, then his share of he company would not be subject to claims by creditors, including any wrongful death action Berlin’s estate might be pursuing.

I think this case is another example of "lateral thinking" [click here] in the probate litigation context.  Rather than defending against a wrongful death claim, Pecora’s estate simply argued the estate had no significant assets: the estate’s most valuable asset (a one-half stake in the business) went directly to Pecora’s surviving spouse as TBE property.  "Presto," no assets.

Road map for proving TBE ownership:

  • Step 1: Corporate documents are NOT conclusive evidence; trial testimony and other evidence may trump corporate documents when deciding TBE 

On appeal, Berlin argues that the trial court erred because it overlooked the corporate documents. Berlin cites to several documents as evidence that both corporations established stock ownership in Michael alone. These documents include the minutes of Deux Michel, Inc. showing that Michael owned 200 shares; a February 1984 resolution and stock certificate showing an additional hundred shares issued to Michael, individually; July 1993 minutes of Grand Partners, Inc. reflecting Michael owning 200 shares in the company; and K-1 tax schedules for Deux Michel, Inc. and Grand Partners, Inc. showing Michael as the shareholder.

“[C]orporate records provide a prima facie evidentiary basis for determining ownership of corporate stock.” Sackett v. Shahid, 722 So.2d 273, 275 (Fla. 1st DCA 1998). However,

[I]t is within the trial judge’s province, when acting as trier of both fact and law, to determine the weight of the evidence, evaluate conflicting evidence, and determine the credibility of the witnesses, and such determinations may not be disturbed on appeal unless shown to be unsupported by competent and substantial evidence, or to constitute an abuse of discretion.

Jockey Club, Inc. v. Stern, 408 So.2d 854, 855 (Fla. 3d DCA 1982).

The above mentioned documents provide evidence that Michael was the only recognized name mentioned with stock ownership in the companies. Nevertheless, these documents are contradicted with testimony at trial that the stock was held jointly; evidence and testimony that Michael and Arlene made purchases through a joint account; and other documents admitted at trial indicating joint ownership, thereby providing competent and substantial evidence for the trial court’s ruling.

  • Step 2:  Business purchased with joint bank account funds may create TBE property

Bank accounts are afforded the same presumption of tenancy by the entireties as is real property. Beal Bank, 780 So.2d at 58. Property purchased with joint funds may create a tenancy by the entirety in that property so long as the unities are met. For example, in Winterton v. Kaufmann, 504 So.2d 439 (Fla. 3d DCA 1987), the court found that after the husband died, the wife owned bonds that were purchased with joint funds and kept in a joint safe deposit box. See also Estate of Fields v. Fields, 581 So.2d 1387, 1388 (Fla. 3d DCA 1991) (“The bearer bonds, purchased with joint funds and maintained in the couple’s joint safe deposit box, passed to the wife upon the husband’s death. The bearer bonds were held by the spouses as tenants by the entirety; ownership vested in the wife as the survivor.”). Once tenancy by the entirety property is established, its subsequent transfer to another asset does not terminate the unities of title or possession. See Passalino v. Protective Group Sec., Inc., 886 So.2d 295, 297 (Fla. 4th DCA 2004) (“Transferring the proceeds of the sale of entireties property to a trustee for the benefit of the husband and wife does not terminate the unities of title or possession….”); Lerner v. Lerner, 113 So.2d 212 (Fla. 2d DCA 1959).

  • Step 3: Meet your burden of proof at trial

Under a tenancy by the entirety, “[u]pon the death of one spouse, the surviving spouse continues to be seized of the whole. Thus … after death of one spouse the surviving spouse continues to hold the entire estate….” Cacciatore v. Fisherman’s Wharf Realty Ltd. P’ship, 821 So.2d 1251, 1254 (Fla. 4th DCA 2002). Property held as a tenancy by the entireties possesses six characteristics:

(1) unity of possession (joint ownership and control); (2) unity of interest (the interests in the account must be identical); (3) unity of title (the interests must have originated in the same instrument); (4) unity of time (the interests must have commenced simultaneously); (5) survivorship; (6) unity of marriage (the parties must be married at the time the property became titled in their joint names).

Beal Bank, SSB v. Almand & Assocs., 780 So.2d 45, 52 (Fla.2001) (footnote omitted).

*     *     *     *     *

Here, the six characteristics needed to prove the tenancy by the entirety are largely based upon the assumption that joint funds were used in the inception of the companies, even though the proof of the use of joint funds is illustrated only by checks dated after the inception of the companies and witness testimony.

“[U]nless a tenancy by the entireties is clearly expressed in the instrument, the parties must prove they intended to create a tenancy by the entireties.” Hurlbert v. Shackleton, 560 So.2d 1276, 1279 (Fla. 1st DCA 1990); Morse v. Kohl, Metzger, Spotts, P.A., 725 So.2d 436, 438 (Fla. 4th DCA 1999). The trial court heard testimony from witnesses as well as the admission of several documents in which it found that the intention was to create a tenancy by the entirety. This is a factual question which the court ultimately determined by competent substantial evidence in favor of Arlene. See Sitomer v. Orlan, 660 So.2d 1111, 1115 (Fla. 4th DCA 1995) (“Whether the parties created a tenancy by the entireties in a bank account-whether they were each taking the whole of the account-is a question of fact.”).

Wolfe v. Stevens, — So.2d —-, 2007 WL 2891413 (Fla. 2d DCA Oct 05, 2007)

Florida is the largest recipient of state-to-state migration in the U.S.  Here are a few stats from State-to-State Migration Flows: 1995 to 2000, a U.S. census report:

Florida’s net domestic migration of 607,000, the largest of any state, came primarily from states in the Northeast, particularly New York, which had a net contribution of 238,000 to Florida. Illinois, New Jersey, Ohio, and Pennsylvania also had substantial net outmigration to Florida.

Is it any wonder then that Florida probate proceedings often require service by publication when an individual cannot be located in Florida?

The linked-to case is instructive because it reports on a personal representative that got service by publication WRONG.  Which means we now all have a specific example of what NOT to do if we want to make our next attempted service by publication stick.

Here’s why the 2d DCA said the PR got it wrong:

Stevens, as personal representative of her mother’s estate, sued Wolfe alleging that he had defrauded their mother out of her home by falsifying Stevens’ and the mother’s signatures on a “Deed to Trust .” Approximately two months after filing suit, Stevens filed a sworn statement for constructive service pursuant to sections 49.031 and 49.041, Florida Statutes (2005), and subsequently served Wolfe by publication. Wolfe did not respond, and the trial court entered a default final judgment against him. Approximately seven months later, Wolfe moved to set aside the final judgment under Florida Rule of Civil Procedure 1.540 on the ground that service was defective because Stevens had failed to conduct a diligent search before resorting to service by publication. The trial court denied Wolfe’s motion finding that he had actual notice of the final judgment and that in failing to act diligently to set it aside, “he was not reasonable.”

“‘When a complainant resorts to constructive service, he should make an honest and conscientious effort, reasonably appropriate to the circumstances, to acquire the information necessary to fully comply with the controlling statutes, to the end that the defendant, if it be reasonably possible, may be accorded notice of the suit.’“ Gmaz v. King, 238 So.2d 511, 514 (Fla. 2d DCA 1970) (quoting Klinger v. Milton Holding Co., 186 So. 526, 534 (1939)). If constructive service is challenged on the ground that the plaintiff failed to conduct a diligent search, the trial court must determine whether the plaintiff “reasonably employed knowledge at his command, made diligent inquiry, and exerted an honest and conscientious effort appropriate to the circumstances, to acquire the information necessary to enable him to effect personal service on the defendant.” McDaniel v. McElvy, 108 So. 820, 831 (Fla.1926); see Gmaz, 238 So.2d at 514. Further, “when a ‘red flag’ is waved to a complainant notifying or warning him of facts which put him on a reasonable course of inquiry as to the whereabouts or residence of a party-defendant to his law suit, he is bound to follow that course to its logical end.” Id.

Stevens had notice of facts that she should have followed before resorting to service by publication. The record indicates that when Stevens filed her complaint she and her attorney knew that Wolfe was represented by counsel. However, instead of contacting Wolfe’s attorney regarding the lawsuit, Stevens filed an affidavit of diligent search and inquiry and proceeded to serve Wolfe by publication. At the hearing on Wolfe’s motion to set aside the final judgment, Stevens’ attorney admitted he had the address and phone number of Wolfe’s attorney and that he could have notified him of the lawsuit but he “made the decision, knowing all the circumstances regarding the accusations that were going back and forth, that I would rather go the statutory route.” Under these circumstances, we cannot conclude that Stevens exercised due diligence in attempting to locate Wolfe. Accordingly, service by publication was improper. See Levenson v. McCarty, 877 So.2d 818 (Fla. 4th DCA 2004) (holding that where the plaintiff made no attempt to contact the defendant by telephone or through his known attorneys, service by publication was improper); Torelli v. Travelers Indem. Co., 495 So.2d 837 (Fla. 3d DCA 1986) (holding that the plaintiff did not exercise due diligence in attempting to locate the defendant where she failed to follow an obvious lead to the defendant’s whereabouts by inquiring of the defendant’s known attorney).

Question:

Why did trust law become statute law in the United States?

Answer:

Because in today’s world the most common trust asset is a diversified portfolio of marketable securities.  Uniform legislation involving trusts, which culminated in the Uniform Trust Code ("UTC"), which was adopted by Florida effective July 1, 2007 [click here], was needed to "clear away" centuries of common law that worked when trusts usually only held real property, but clearly did NOT work when it came to managing investment portfolios.

In his recently published article entitled Why Did Trust Law Become Statute Law in the United States?  Prof. John H. Langbein of Yale Law School explains how codification of trust law facilities trustee management of the modern investment portfolio, and overrides common law governing trusts to the extent its inconsistent with modern portfolio management.

Trustees: what can the the new Florida Trust Code do for you?

In order to take full advantage of the new Florida Trust Code’s default rules, Florida trustees need to understand how they simplify trust administration in Florida.  Prof. Langbein’s linked-to article provides the following road map for figuring out how the Florida UTC makes life easier for Florida trustees.  (I’ve cross-referenced Prof. Langbein’s UTC citations to the new Florida Trust Code.)

  • Transaction Empowerment
  • Allocating Expenses and Receipts
  • Facilitating Pooled Investments
  • Fiduciary Investing

1.   Transaction Empowerment

Historically, third parties doing business with trustees had a duty to independently verify that the trustee was authorized to enter into the subject transaction.  Florida UTC section 736.1016 eliminates this duty.  Historically, trustees were very limited in their authority to engage in business transactions.  A primary goal of new uniform trust legislation was to equip trustees as a matter of default law with essentially unlimited transaction authority.  Florida UTC sections 736.0815 and 736.0816 codify this regime.

2.   Allocating Expenses and Receipts

A trust containing financial assets requires the trustee to pay a great deal of attention to apportioning the receipts and expenses of a trust between or among different classes of beneficiaries (typically life and remainder interests).  Codifying fiduciary law on this point allowed for the development of sound default rules for allocating such such receipts and expenses.  A prefatory note to the UTC recognizes that the Uniform Principal and Income Act ("UPI") accomplished this goal, and that "a jurisdiction enacting the revised Uniform Principal and Income Act may wish to include it either as part of this Code or as part of its probate laws."  Florida incorporated its version of the UPI into stand alone Chapter 738 of the Florida Statutes.

3.   Facilitating Pooled Investments

Historically, trustees were barred from pooling funds from different trusts for investment purposes.  In today’s world, pooling trust-fund investments via mutual funds and other similar financial products needed to build an adequately diversified investment portfolio is a must.  Florida UTC section 736.0802(g) facilitates mutual-fund investing by expressly overriding existing common law and authorizing bank trust departments to invest in affiliated mutual funds.

4.   Fiduciary Investing

Historically, trustees were very limited in the types of assets they could invest in.  Again, this approach makes perfect sense if most trusts only own real property, it simply does not work in a world where most trusts are invested in marketable securities and managed in accordance with the "modern portfolio theory."  Florida UTC section 736.0901 recognizes that the Florida Uniform Prudent Investor Act previously overrode the common law on this point by simply cross referencing to Florida Statutes Chapter 518.

In re Guardianship of Stephens, — So.2d —-, 2007 WL 2811591 (Fla. 2d DCA Sep 28, 2007)

Who gets appointed to be mom’s guardian isn’t decided by family members, and it isn’t even decided by mom . . . it’s decided by a judge.  This fact of life under Florida law usually doesn’t sit well with family members, which I’ve written about before [click here].

The facts:

From a practitioner’s perspective, however, the real question is: “What does it take to convince a trial court that family members should NOT be appointed as guardian?”  To answer that question you need appellate decisions with lots of facts, the more detailed the better.  The linked-to case delivers on this front in spades.  Here’s why the judge in this case appointed Lutheran Services Florida as guardian of mom’s property and person – and NOT any of her 9! adult children:

The Magistrate was presented with evidence that the family was “dysfunctional,” that the siblings were unable to get along and cooperate with each other to care for their mother, and that there were serious conflicts about how the family business should be run, inclusive of the Ward’s assets and money in general. Some of the siblings had made choices which could be in conflict with and affect the Ward’s financial stability, such as, for example, setting up an irrevocable trust containing questionable terms. Some of the siblings had created “alliances” to the exclusion of other siblings. They were unable to come together on simple issues, including the core issue concerning their mother’s care. As evidenced by this appeal, they could not even agree on the designation of a guardian. In view of family dynamics, appointing one of the siblings as a guardian for any purpose would clearly not be in the Ward’s best interests.

The law:

The linked-to case also provides a solid summary of Florida law governing the appointment of a guardian in contested proceedings:

Section 744.312(1), Florida Statutes (2006), styled “Considerations in appointment of guardian,” provides that “the court may appoint any person [FN3] who is fit and proper and qualified to act as guardian, whether related to the ward or not.” (Emphasis added.) Section 744.312(2) adds:

The court shall give preference to the appointment of a person who:

(a) Is related by blood or marriage to the ward;

(b) Has educational, professional, or business experience relevant to the nature of the services sought to be provided;

(c) Has the capacity to manage the financial resources involved; or

(d) Has the ability to meet the requirements of the law and the unique needs of the individual case.

(Emphasis added.) While the wishes of the ward shall be considered in appointing a guardian, they are not controlling. § 744.312(3)(a); Ahlman v. Wolf, 413 So.2d 787, 788 (Fla. 3d DCA 1982).

[FN3.] The reference to “person” in this context includes individuals or corporate entities that typically represent wards when no qualified family members are available or willing to serve as guardian. See § 1.01(3), Fla. Stat. (2006).

*     *     *     *     *

We  .  .  .  realize that family members would naturally believe they should be “entitled” to appointment. However, in the guardianship arena, the legislature has rightly determined that such expectations are not binding on the court. Thus any “preference” for family applies only within certain discretionary bounds. The guardianship statute does not confer upon certain family members an absolute and automatic right to be appointed guardians. See In re Guardianship of R.N.B., 429 So.2d 796, 797 (Fla. 4th DCA 1983) (“Indeed, the statute provides that the court may appoint any person ‘who is qualified to act as guardian, whether related to the ward or not.’ “ (quoting section 744.312(1), Fla. Stat. (1981))). The best interests of the Ward-which include choosing a qualified guardian for the Ward-come first. Family member preference in and of itself is secondary, regardless of how well qualified the family members are.

Private foundations are a growing phenomenon.  A piece by Petra Pasternak in The Recorder entitled Small Firms Find Profit in Nonprofits reported on the trend as follows:

[T]he nonprofit sector is exploding. In California, the number of private foundations more than doubled in the past decade, while the number of public charities swelled by nearly 60 percent, according to the National Center for Charitable Statistics.

And their wealth is growing. California private foundations owned about $34.9 billion in total assets in October 1997. That has since ballooned to $78.2 billion in September of this year.

Private foundations are not a big part of my practice, but they do come up with some frequency.  A basic question that sometimes gets lost in the tax arcana surrounding private foundations is "how long will this thing last?"  In the absence of an express termination date, the presumption is that the private foundation will go on in perpetuity after the client’s death.  The longer the private foundation remains in existence after the client’s death, the more likely it is that it will veer — perhaps dramatically — away from the client’s original philanthropic intent.

For example, a recent NY Times article by Stephanie Strom provides dramatic anecdotal evidence of what can go wrong when private foundations become "orphaned" because the original donor has died and there are no remaining family members to oversee distributions.  Entitled Donors Gone, Trusts Veer From Their Wishes, the investigation uncovered several examples of abuse.  Here’s an excerpt:

When Mamie Dues died in 1974, she left the fortune her husband, Cesle, had made in movie theaters in El Paso to a foundation controlled by a local bank there. The couple had no heirs and no other family.

*     *     *     *     *

Three decades later, however, the foundation’s legal address is in Delaware, and a global bank, JPMorgan, manages it from an office in Dallas. While its assets have grown to almost $6 million, from $5.1 million in 2000, its giving has fallen sharply, and the local group that once decided who would receive its money no longer has a say in its operations.

Such is the fate of many “orphan” trusts and foundations around the country that have been left in the hands of lawyers or local banks that have then been swallowed up by multinational financial institutions.

With no family members to encourage gifts to the original donor’s favorite causes, the banks and lawyers have wide latitude to change the way the trusts operate and to decide which charities will receive grants.

Banks can reduce gifts and increase the foundation’s assets, thus increasing their fees. At the same time, banks and lawyers stand to gain personal influence and prestige by selecting new charities.

*     *     *     *     *

An examination of several orphan trusts found these cases:

¶When large global banks take over, the number of grants often drops sharply, reducing the bank’s administrative costs. But bank fees, which are based on the amount in the trust, increase..

¶Small local grant recipients that have historically received money are either dropped in favor of larger charities or receive money far more sporadically.

¶New grant recipients sometimes include the alma maters of trustees or organizations with which they and their families have personal relationships.

¶Regulators have limited ability to identify such trusts and foundations and monitor them.

Lesson learned?

The simplest way to address the "orphan" trust problem is to define a termination date for the private foundation keyed off of the original donor’s date of death.  If the private foundation terminates within 10, 20 or even 50 years after the original donor’s date of death, it is much more likely that a family member or someone else with a personal link to the donor who shares his or her vision/values will still be around — and in charge — when the private foundation’s last charitable dollar is given away.

I’ve received a number of inquiries regarding the $1 million estate-planning/probate malpractice verdict recently upheld on appeal, which I previously wrote about [click here].  I think many practitioners are trying to figure out what went wrong in that case and what they can do to avoid making the same mistakes.

Against this backdrop, a recently published article by LawPRO, a Canadian professional liability (malpractice) insurance provider, should be of interest.  Wills & estates law claims on the rise by Deborah Petch and Dan Pinnington provides claims statistics and risk management advice specifically focused on the probate/estate planning practice area.  Although written for a Canadian audience, the advice seems equally applicable in Florida.

I was especially interested to see that "lawyer/client communication failures" was far and away the single most common cause of malpractice claims.  This finding is in line with the med-mal statistics and "don’t-be-a-jerk" risk management advice given to doctors I previously wrote about [click here].  Another way of stating the don’t-be-a-jerk rule is: respectfully listen to and communicate with your clients.

Here are a few excerpts from the linked-to article:

In both count and cost, wills and estates-related legal malpractice claims have slowly increased over the last several years. By area of law, wills and estates is the fifth most common area of claims: Only litigation, real estate, corporate and family claims are higher. 

Over the last five years, wills and estates-related claims averaged 6.0 per cent of LAWPRO’s claims count (112 claims per year), and 5.4 per cent of our claims costs ($3.9 million per year). On average, resolving a wills and estates claim costs LAWPRO $34,404.

This article examines the reality behind the numbers: It highlights the most common errors, and the steps you can take to reduce the likelihood of a claim.

The most common errors

In the wills and estates area, the most common causes of claims
are the following:

  1. lawyer/client communication failures;
  2. inadequate discovery of facts or inadequate investigation;
  3. failure to know or properly apply the law;
  4. time and deadline-related errors;
  5. conflicts of interest; and
  6. clerical/delegation.

What is striking to most lawyers is that law-related errors rank third.  Lawyer/client communication-related errors are actually the most common, representing almost 40 percent of the errors in the wills and estates area.

*     *     *     *     *

Avoiding communications errors

When it comes to avoiding or reducing the likelihood of a communications-related claim, the importance of putting things in writing cannot be over-emphasized. While the failure to have written confirmation of instructions and advice is not negligence in and of itself, such written communication can be extremely helpful in defending you in the unhappy event that a claim is made against you. Why? Because more often than not, this type of claim involves the lawyer recalling that one thing was said or done, or not said or not done, and a disappointed beneficiary that alleges something different. This type of claim is very hard for LAWPRO to defend successfully. At the end of the day it essentially comes down to a question of credibility. Unfortunately, we frequently find inadequate documentation in the lawyer’s file to back up the lawyer’s version of what occurred. All too frequently, we see files with no correspondence or reporting letters whatsoever.

Fortunately this error is one of the easiest to prevent. You can significantly reduce your claims exposure by documenting your work. Confirm the information that your client provided to you, your advice to the client, the client’s instructions to you, and what steps were taken on those instructions. Document the time spent reviewing the provisions of the will, including what issues were discussed. This can be done in your notes, and in interim or final reporting letters, or even in an e-mail message.

Even taking a few seconds to make more detailed dockets can be a lifesaver. "Conference with client re review of draft will, including provisions re cottage” is much better than just "Conference with client re draft will."

A special caution is warranted for matters involving family members and close friends: We do see claims on these matters, and quite often find almost no documentation in the file. This probably happens because the lawyer is familiar with the personal circumstances of the client, and fails to make and document all appropriate inquiries. It would be best not to act for them; but, if you feel that you must, treat them as though you had never met them before. Remember, often it is not your client who is the potential claimant, rather it is a beneficiary or disappointed beneficiary, with whom you have no personal relationship.

In re Estate of Magee, — So.2d —-, 2007 WL 2781131 (Fla. 2d DCA Sep 26, 2007)

When all else fails, one way to win a probate dispute is to challenge the portion of the probate code at issue on constitutional grounds.  A successful example of this approach was the Florida Supreme Court’s 1990 decision in Shriners Hospital for Crippled Children v. Zrillic, 563 So.2d 64 (Fla.1990), where the court struck down Florida’s mortmain statute, then codified at section 732.803, because it violated article 1, section 2 of the Florida Constitution by impermissibly infringing on the decedent’s testamentary rights.

How hard is it to set aside a statute on constitutional grounds? VERY

Courts will bend over backwards to uphold a probate statute being challenged on constitutional grounds.  In Shriners Florida’s Supreme Court ruled that the “reasonable relationship” or “rational basis” standard applies to review a statute that potentially infringes on (but does not destroy entirely) property or testamentary rights.  This is the lowest level of scrutiny applied by courts deciding constitutional issues through judicial review. The higher levels are typically referred to as intermediate scrutiny and strict scrutiny.

Is Florida’s spousal elective share statute constitutional? YES

In the linked-to case Florida’s spousal elective share statutes [click: 732.201 to 732.2155] were challenged on constitutional grounds.  The argument was that Florida law requiring that at least 30% of every married person’s estate be set aside for a surviving spouse — regardless of whether the surviving spouse had any financial need whatsoever — violated the decedent’s constitutionally protected property rights.

Nice try, but no cigar.  The 2d DCA upheld the constitutionality of Florida’s elective share statutory scheme under the rational basis test.  The following excerpt from the linked-to opinion sums up the court’s reasoning and also provides good guidance for anyone considering a future constitutional challenge to any other portion of Florida’s probate code.

Fortunately, the Florida Supreme Court has recently clarified that the test to be applied in evaluating statutes and regulations that infringe on property rights or testamentary rights-at least those that do not require the absolute destruction of property-is not the “least restrictive means” test urged by Judith here, but rather a “reasonable relationship” test. In Haire v. Florida Department of Agriculture & Consumer Services, 870 So.2d 774, 783 (Fla.2004), the court explained,

[W]e have held that “[a]ll … property rights are held subject to the fair exercise of the [police] power,” Golden v. McCarty, 337 So.2d 388, 390 (Fla.1976) (emphasis supplied), and have used the reasonable relationship test … to evaluate statutes and regulations that infringe on property rights.

Id. (footnotes omitted).

As support for this proposition, the court expressly cited Zrillic. Haire, 870 So.2d 783 n. 9. In reconciling the cases, therefore, the Florida Supreme Court has now established that the “reasonable relationship” or “rational basis” standard applies to review a statute that potentially infringes on (but does not destroy entirely) property or testamentary rights.

As further explained in Haire,

Under this standard of review … a “state statute must be upheld … if there is any reasonable relationship between the act and the furtherance of a valid governmental objective.” Lane v. Chiles, 698 So.2d 260, 262 (Fla.1997) (emphasis supplied). Specifically, with respect to substantive due process, a statute is valid if it “bears a rational relation to a legitimate legislative purpose in safeguarding the public health, safety, or general welfare and is not discriminatory, arbitrary, or oppressive.” Chicago Title Ins. Co. v. Butler, 770 So.2d 1210, 1215 (Fla.2000).

870 So.2d at 782.

As noted above and acknowledged by Judith, this state has a “strong public policy concerning the protection of the surviving spouse of [a] marriage in existence at the time of the decedent’s death.” See Via, 656 So.2d at 461. The provisions of the elective share statute thus serve a legitimate legislative purpose. The statutes are rationally related to that purpose in that they seek to provide any surviving spouse who has not waived such protections a minority share in the assets of the decedent in the event that spouse did not receive as much through testamentary dispositions. [FN3] This legislative scheme has strong historical roots in the common law, in existence before the enactment of our state constitution and undisturbed until now.

We therefore affirm the order on appeal.

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One of the primary benefits of mediating trusts-and-estates disputes is that the mediation session focuses everyone’s attention and brings the case “to a head” in much the same way as a trial date; except it happens before the parties pour huge sums of money – and time – into pretrial discovery and motion practice. Taking full advantage of this window of opportunity requires thorough preparation, and nothing beats a good checklist when it comes to making sure you’ve covered all your basis.

California attorney and mediator David Laufer has just published the “mother” of all premediation checklists in How To Prepare For Mediation: The Mediator’s Check List Of Key Legal And Factual Issues.  The next time you’re getting ready to mediate a case pull this checklist, you’ll be happy you did . . . and so will your client.

THE MEDIATOR’S CHECK LIST

ALL INFORMATION WILL BE MAINTAINED IN THE STRICTEST CONFIDENCE.

A CONFIDENTIALITY AGREEMENT HAS BEEN SIGNED BY ALL PARTICIPANTS IN THE MEDIATION BEFORE THE EXCHANGE OF ANY CONFIDENTIAL INFORMATION.

PARTIES

1. Identify each party and title of all participants involved in the dispute.

2. Identify each Disputant required to be present during the mediation process.

3. Identify each decision maker who will not be present during the entire mediation process.

4. Describe any special needs, demands, interests and goals of each Disputant and Counsel.

DISPUTE

5. Describe each claim, dispute and defense.

6. Describe each Disputant’s demands –the best case outcome-to be achieved in the Mediation.

7. Identify and quote the key statutes governing the claims and defenses.

8. Identify and quote the key cases governing the outcome of the liability issues. For example: Stout v. Turney (1978) 22 Cal.3d 718: “Of the two measures the ‘out-of-pocket’ rule has been termed more consistent with the logic and purpose of the tort form of action (i. e., compensation for loss sustained rather than satisfaction of contractual expectations) while the ‘benefit-of-the-bargain’ rule has been observed to be a more effective deterrent (in that it contemplates an award even when the property received has a value equal to what was given for it.)”

9. Identify the legal support for each demand for special, general and punitive damages.

10. Identify all defenses to the claims for special, general damages and punitive damages.

11. Identify key disputed facts discussed in the legal briefs.

12. Identify any key facts and legal issues overlooked by Counsel and the Disputants.

13. Identify other issues that may have an effect on the dispute, including change in case and statute law, change in management, change in key decision maker, vacations, trial dates, motions for summary judgment, divorce, employment termination, surgery, promotion, restructure of company, bankruptcy, sale of business, cancellation of insurance coverage, and the need for closure.

14. Should the mediation be conducted in segments? For example, if the claimant is rehired in wrongful terminations claim will the damage claim be resolved? If the franchisor reinstates a franchise will the damage claim be resolved? If the insurance company renews the insurance policy will the claim for bad faith claim be dismissed?

15. Identify possible resolutions of dispute by restoring, creating or enhancing a commercial relationship that the defendant may be able to provide as an alternative to payment of money damages. For example, a HR Director may be able to re-hire an employee without consulting with a higher authority, whereas the payment of a damage claim may have to go through several levels of review and approval and consultations with the company’s risk manger for reporting to an insurance carrier or audit committee.

EVIDENCE:

16. Identify and quote the key provisions of the key documents each party relies on to support a claim or defense.

17. Identify key witnesses necessary to support each Disputant’s claim or defense, and summarize the testimony.

18. Identify key authenticated documents that have been exchanged to support or refute the damage claims.

19. Identify all out of pocket expenses (loss of earnings, medical bills , repairs) exchanged to support or refute the claim.

20. Identify a key decision maker who has surfaced during the mediation.

21. Have arrangements been made to assure that the identified decision makers will be present during the mediation?

22. Which newly identified decision makers will not be able to participate in the mediation process? Should the mediation be rescheduled?

23. Identify all people who have had input on the value of claim.

24. Will an expert (and describe the area of expertise) be helpful in resolving the Dispute.

25. Will it be necessary to postpone the mediation pending a verification of an appraisal, an expert opinion or other information that needs to be made available to key decision makers.

SETTLEMENT

26. Identify all sources of insurance or other funds that will be available to pay a settlement.

27. What has been offered, demanded and rejected in any prior settlement discussions?

28. Describe what each Disputant demands as the minimum acceptable settlement to avoid a trial or other consequence.

29. Identify other cases or settlements of similar cases that have resulted in the minimum acceptable settlement value demanded during the mediation.

30. Is there a settlement in kind or a source of creating settlement value other than the payment of money that may result in resolution of the dispute? For example, in a dispute over the under-sized beams for a construction project, will the under-sized beams create value for another use for another project? In looking for value or settlements in kind, the Disputants should be encouraged to look for all potential sources of value.

RESOLUTION

31. Is a partial resolution possible?

32. Have the parties documented the settlement and final resolution in an enforceable format in compliance with the law?

33. Is the settlement confidential? If so, under what conditions may it be disclosed?

34. Has the mediator completed her case file, closure documents and procedures for any future references to the mediation. In court-annexed mediations the Mediator must file a form stating the matter resulted in partial agreement, total agreement or non-agreement.

35. For any information that has been disclosed to the Mediator in confidence, state how disclosure of that information affected the mediation?

FEES

36. Is there a dispute between the parties and their lawyers about the amount that is owed to the lawyers?

37. Is there a dispute between a party and her insurance company over coverage, legal fees and costs?

38. Identify the legal basis for the claim of recovery of reasonable attorney fees and costs.

39. Identify all objections to the claim for attorney’s fees and costs.

40. List all legal fees, expert fees and costs incurred by each party through the date of the first mediation session.

41. How much of any settlement payment will be paid to the lawyers?

42. Has the Mediator made arrangement for final payment of her fees, received evaluation forms of her performance and obtained permission to use favorable evaluations by Counsel and Disputants as references for marketing purposes?

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Effective July 1, 2007, Florida became the first state in the nation to pass legislation expressly authorizing mandatory arbitration clauses in all wills and trusts. The statute provides as follows:

731.401 Arbitration of disputes.—

(1) A provision in a will or trust requiring the arbitration of disputes, other than disputes of the validity of all or a part of a will or trust, between or among the beneficiaries and a fiduciary under the will or trust, or any combination of such persons or entities, is enforceable.

(2) Unless otherwise specified in the will or trust, a will or trust provision requiring arbitration shall be presumed to require binding arbitration under chapter 682, the Revised Florida Arbitration Code. If an arbitration enforceable under this section is governed under chapter 682, the arbitration provision in the will or trust shall be treated as an agreement for the purposes of applying chapter 682.

The legislative Staff Analysis for this statute doesn’t say much. If you’re looking for the analytical thinking underlying this new legislation, what you’ll want to read is the ACTEC Arbitration Task Force Report.

So far Florida’s arbitration statute has received a good amount of well-deserved praise. See Making Arbitration Truly Mandatory by Michael P. Bruyere & Meghan D. Marino.

Florida recently became the first state to adopt a law that makes the mandatory arbitration clauses in trust documents truly mandatory. This landmark legislation has the potential to provide a solution to a dilemma now experienced in every other U.S. jurisdiction: while mandatory arbitration clauses offer great benefits, there’s no guarantee they’ll actually be enforced.

Mandatory arbitration is often good for everyone involved in a trust dispute. Grantors are assured that their private lives remain out of the courts and therefore free from public exposure. Trustees can protect trust assets, while limiting their liability, thus reducing the overall cost of trust administration. Beneficiaries can avoid the emotional damage and cost of protracted litigation. And the public doesn’t have to fund a legal process in which the wealthy battle over their trust funds.

Unfortunately, most states’ laws fail to guarantee that courts will enforce trusts’ mandatory arbitration clauses. Recent judicial decisions embrace an outdated distinction between a contract and a trust agreement and therefore reach inequitable results.

The best solution is for all state legislatures to follow Florida’s lead and pass legislation that secures for their citizens the benefits offered by mandatory arbitration of trust disputes.

Two of the Florida attorneys instrumental in passage of this legislation, Bruce M. Stone and Robert W. Goldman, also co-authored a 2005 ACTEC article discussing mandatory arbitration clauses in wills and trusts entitled Resolving Disputes with Ease and Grace. The ACTEC article does a good job of summarizing the pros and cons of arbitration, concluding that arbitration is likely “ideal” in the following circumstances:

  1. Fee disputes, including fiduciary and legal fees
  2. Prudent investing disputes
  3. Document construction
  4. Principal and income disputes, including adjustment powers
  5. Trust terminations or severances
  6. Accounting disputes
  7. Declaratory relief in general

Sample Arbitration Clauses

Sample clauses are often the best way to understand in concrete terms how a general concept gets applied in the real world. You can also find sample arbitration clauses in the ACTEC article, Resolving Disputes with Ease and Grace.