As reported here by the North Carolina Estate Planning Blog, on June 25 the U.S. Supreme Court agreed to review a Second Circuit Court of Appeals case addressing whether the investment expenses of trusts are fully deductible or subject to a 2% floor [see here]. The Circuit Courts are in disagreement on this issue. The Second Circuit Court of Appeals case is Michael J. Knight, Trustee of the William L. Rudkin Testamentary Trust v. Comm’r of Internal Revenue, and is available here.

In Rudkin the Second Circuit held that IRC Sec. 67(e) grants an estate or trust an exception from the 2% reduction in itemized deductions only for "costs of a type" that "individuals are incapable of incurring." On the surface, the Second Circuit appeared to create a narrow window for an estate or trust to claim a full deduction for its administrative costs. In reality, however, it potentially eliminates a full deduction for any administrative cost of an estate or trust.

Not surprisingly, the Second Circuit’s ruling has been the subject of some controversy.  The following is a representative example from Did the second circuit err in Rudkin Testamentary Trust?

Dozens of law reviews and journals have discussed the interpretation of Sec. 67(e) since the controversy first arose in O’Neill. (3) So far, none has urged the interpretation adopted by the Second Circuit. Indeed, the panel’s interpretation even conflicts with IRS Form 1041, U.S. Income Tax Return for Estates and Trusts, and most state fiduciary income tax forms, which allow a full deduction for legal and accounting fees. Under the court’s definition, legal and accounting fees should not be fully deductible (at least in the Second Circuit), because individuals are capable of incurring them. Thus, the court’s interpretation is bound to foster confusion and noncompliance.

While the $4,448 deficiency in Rudkin is undoubtedly small, the Second Circuit’s position has serious implications. Its endorsement and application will create a substantial tax debt for trustees who must incur costs to comply with their legally mandated duties, such as those imposed under the Uniform Prudent Investor Act. It will also generate substantial litigation over a basic deduction that Congress intended for trustees carrying out such duties, all based on a questionable interpretation.

Weiss v. Berkett, 949 So.2d 1092 (Fla. 3d DCA Feb 07, 2007)

This one-paragraph opinion doesn’t explain the facts of the case, but it appears that a probate adversarial proceeding was dismissed for lack of prosecution under Florida Rule of Civil Procedure 1.420(e).  The party whose claim was dismissed then filed a Petition for Writ of Prohibition with the 3d DCA apparently arguing that the trial court improperly applied Rule 1.420(e).  The 3d DCA agreed as follows:

We grant the petition for writ of prohibition. The Florida Rules of Civil Procedure apply to adversarial proceedings in probate court. See Mangasarian v. Mercurio, 570 So.2d 356 (Fla. 3d DCA 1990); Fla. Prob. R. 5.020(d)(2); Fla. R. Civ. P. 1.420(e). The trial court has exceeded its jurisdiction as the order under review does not comport with the requirements of Florida Rule of Civil Procedure 1.420(e) for dismissal for lack of prosecution.

Sample Pleading:

After initially posting on this case, the petitioner, Patricia Pollak Weiss, posted a comment (see below) and was kind enough to email me a copy of her winning Petition for Writ of Prohibition, which, with her authorization, I’ve copied to this blog post for those interested in reviewing it for future reference.

Lesson learned:

Adversarial proceedings in probate are subject to dismissal for lack of prosecution under Florida Rule of Civil Procedure 1.420(e), which provides as follows:

(e) Failure to Prosecute. In all actions in which it appears on the face of the record that no activity by filing of pleadings, order of court, or otherwise has occurred for a period of 10 months, and no order staying the action has been issued nor stipulation for stay approved by the court, any interested person, whether a party to the action or not, the court, or the clerk of the court may serve notice to all parties that no such activity has occurred. If no such record activity has occurred within the 10 months immediately preceding the service of such notice, and no record activity occurs within the 60 days immediately following the service of such notice, and if no stay was issued or approved prior to the expiration of such 60-day period, the action shall be dismissed by the court on its own motion or on the motion of any interested person, whether a party to the action or not, after reasonable notice to the parties, unless a party shows good cause in writing at least 5 days before the hearing on the motion why the action should remain pending. Mere inaction for a period of less than 1 year shall not be sufficient cause for dismissal for failure to prosecute.

Forman v. State Dept. of Children & Families, 2007 WL 601628 (Fla. 4th DCA Feb 28, 2007)

Sometimes it’s good to review the basics, like needing a license to practice law.  And no, a power of attorney wont cut it.  The fact that we need an appellate opinion to make this point should probably be troubling.  But here we are . . .

Mrs. Forman’s daughter, Sara Leftow, has filed a brief on behalf of her mother. It appears that Ms. Leftow is acting under a power of attorney to proceed on her mother’s behalf. Ms. Leftow’s brief raises valid points of concern.

However, pleadings filed by a non-lawyer on behalf of another are a nullity. See Torrey v. Leesburg Reg’l Med. Ctr., 769 So.2d 1040, 1043 (Fla.2000). The same rule applies to briefs filed in this court. Ms. Leftow’s power of attorney to act on her mother’s behalf authorizes her to act as her mother’s agent, not as her mother’s attorney at law. See Hodges v. Surratt, 366 So.2d 768, 773 (Fla. 4th DCA 1979); Pryor v. King, 485 So.2d 28, 29 (Fla. 1st DCA 1986) (holding that trial court was correct in not allowing appellant’s wife, who was armed with appellant’s power of attorney, to represent him in a quiet title action).

The Florida rule declaring a non-lawyer’s pleadings filed on behalf of another to be a nullity is the product of the state’s policy against the unauthorized practice of law. See Torrey, 769 So.2d at 1043.

Favreau v. Favreau, 940 So.2d 1188 (Fla. 5th DCA Oct 06, 2006)

Pro se (self-represented) litigants are not sensitive to the sanctions normally applied to counsel for bringing frivolous actions, and indigent litigants are not sensitive to fee-shifting or fines.  Little wonder then that an out of control pro se litigant can be especially difficult for both courts and opposing parties to contend with.  (For a recent in depth analysis of this issue from Harvard Law student J. Caleb Donaldson, see "Vexatious Pro Se Civil Litigants in the Massachusetts Courts" (2006)).

The linked-to case is a good example of a Florida probate court using its "inherent power" to manage a vexatious pro se litigant.  The next time you’re confronted with the pro se litigant "from hell," you’ll be happy you read this opinion .  .  .

The order is not a reviewable non-final order. See Florida Rule of Appellate Procedure 9.130. The remaining avenue for review is certiorari but Edna has failed to establish the requisites for issuance of the writ in this case. A court has the inherent power to prevent abuse of court procedure which interferes with the effective administration of justice. Platel v. Maguire, Voorhis & Wells, P.A., 436 So.2d 303 (Fla. 5th DCA 1983). A requirement that pleadings be accompanied by an attorney’s signature is not a restraint which amounts to a complete denial of access to courts. Id.; May v. Barthet, 886 So.2d 324 (Fla. 4th DCA 2004); see also § 68.093, Fla. Stat. (2005) (the Florida Vexatious Litigant Law). The trial court followed procedural requirements by issuing an order to show cause, affording Edna an opportunity to explain why she should not be barred from future pro se filings. Edna has failed to establish a clear departure from the essential requirements of law resulting in irreparable harm. See Cape Canaveral Hospital, Inc. v. Leal, 917 So.2d 336 (Fla. 5th DCA 2005).

My guess is that the sub-section of § 68.093 alluded to above by the 5th DCA is the following:

(4) In addition to any other relief provided in this section, the court in any judicial circuit may, on its own motion or on the motion of any party, enter a prefiling order prohibiting a vexatious litigant from commencing, pro se, any new action in the courts of that circuit without first obtaining leave of the administrative judge of that circuit. Disobedience of such an order may be punished as contempt of court by the administrative judge of that circuit. Leave of court shall be granted by the administrative judge only upon a showing that the proposed action is meritorious and is not being filed for the purpose of delay or harassment. The administrative judge may condition the filing of the proposed action upon the furnishing of security as provided in this section.

Thanks to the Wills, Trusts & Estates Prof Blog for reporting here on a Florida trial involving a nursing home’s failure to honor a patient’s living will.  Of course, it is now impossible to mention any sort of dispute involving living wills without considering the implications of the Terry Schiavo case (the definitive historical record of this case was compiled here by Florida blogger Matt Conigliaro).  As the following excerpt from Jury: Home violated living will reveals, Ms. Schiavo’s tragedy continues to reverberate through Flroida’s courts.

In Florida’s first prolongation-of-life trial, jurors found that the Joseph L. Morse Geriatric Center in West Palm Beach failed to honor the living will and advance directive of Madeline Neumann, a 92-year-old Alzheimer’s patient who stipulated that she did not want to be kept alive by artificial means.

The jury found that Morse Geriatric should pay $150,000 in damages. But the panel declined to find Morse’s former medical director, Dr. Jaimy Bensimon, negligent for his role in Neumann’s prolonged death.

*     *     *     *     *
Awareness of advance directives and self-determination has improved since the time of Neumann’s death, said Jim Nosich, Bensimon’s attorney.

"I think Terri Schiavo beat this case to the punch in terms of education," he said, referring to the Pinellas County woman whose case sparked a national debate on end-of-life issues.

Education and awareness — not money — was at the heart of Neumann’s case, according to attorneys Jack Scarola and Marnie Poncy, who represented Scheible, Neumann’s granddaughter and health-care surrogate.

"We undertook this case because of the importance of those legal issues," Scarola said. "The verdict confirmed the accuracy of this message."

The Schiavo case became a game of political football, according to Scarola, overshadowing the rights of health-care self-determination.

"Madeline Neumann is everybody’s grandparent, everybody’s parent," Scarola said. "This is what we can expect to happen to every single one of us. Nursing homes are now on notice that there are economic consequences to their neglect of these responsibilities."

Tampa probate litigator Steven L. Hearn provided an excellent case-law update for the 26th Annual Attorney/Trust Officer Liaison Conference.  As always happens when I review someone else’s case-law list, I found cases on his list that I had missed.  Below is a list of cases covered by Mr. Hearn which I had not blogged on.  I intend on posting individual discussions for these cases over the next several weeks.  Stay tuned!

Law.com reported on an interesting issue in Abandonment at Issue in Family’s Feud Over Distribution of 9/11-Related Funds regarding the rights of a surviving parent that abandoned a pre-deceased child.  I’d be interested if anyone has seen similar Florida law on this point.  Here is an excerpt from the linked-to story:

 A judge in Brooklyn on Wednesday heard testimony in a case that pits the mother of a man who died in the 2001 terrorist attacks on the World Trade Center against her former husband, who wants half of their son’s $2.9 million award from the federal September 11th Victim Compensation Fund.

Brooklyn Surrogate Margarita Lopez Torres held a daylong hearing that included testimony from the mother, Elsie Goss-Caldwell; the father, Leon Caldwell; their eldest son, Leon Jr.; and family friends.

The case might turn on Lopez Torres’ interpretation of Estates, Powers and Trusts Law §4-1.4(a), which precludes the distribution of a deceased child’s estate to a partner who has refused to provide for, or abandoned, a child before the child reached age 21.

As reported here by CNN, Judge Larry Seidlin has decided to retire in part "to pursue the many opportunities that have been offered to me outside the judicial system."  (See here for law.com’s more lengthy report.)  The speculation has been that Judge Seidlin will now "pursue" some sort of TV deal.  As I reported here, Judge Seidlin’s performance during the Anna Nicole Smith proceeding in Florida was the subject of much criticism.  Perhaps any press (good or bad) is enough to land a daytime TV deal?  Anyway, the following is the entire CNN report (it’s short):

(CNN) — The Florida judge noted for his unorthodox oversight of the Anna Nicole Smith case says he is retiring at the end of July.

"As a judge, I have been deeply touched by the thousands of children and families in crisis who have come before me to share their struggles," Broward County Circuit Judge Larry Seidlin wrote June 13 to Florida Gov. Charlie Crist.

"I hope that by working together, we have made a positive difference in their lives," Seidlin added. "I consider myself among the most fortunate people on earth."

The letter was made public Tuesday.

"Nevertheless," he continued, "it is now time for me to devote more of my daily life to my own young family and to pursue the many opportunities that have been offered to me outside the judicial system, and I have disregarded until now."

The 57-year-old Bronx native wept on the bench during his oversight of the disposition of Smith’s remains.

CNN legal analyst Jeffrey Toobin referred to him as "Judge Judy’s wacky little brother."

Some observers speculated he was using his platform as a dais from which to try out for a job on television.

Listen to this post

As Florida practitioners (and courts) work their way through Florida’s new trust code (FTC), there are a few resources all should keep handy until we start getting some appellate opinions construing the new code:

  1. Legislative Staff Analysis of FTC. Prof. David F. Powell’s Scrivener’s Summary of the FTC was basically incorporated verbatim into the Legislative Staff Analysis for the FTC. The value of Prof. Powell’s explanation of all of the important subsections of the FTC and the underlying policy rationales for material changes to existing Florida trust law cannot be overstated. This is the definitive resource for understanding the FTC.
  2. Final Committee Draft of FTC.  Contains cross references to all corresponding Uniform Trust Code provisions.  UTC commentary should be helpful in the absence of Florida appellate opinions.
  3. The New Florida Trust Code, Part 1, and The New Florida Trust Code, Part 2. Prof. Powell’s excellent two-part series published in the Florida Bar Journal explaining the new FTC. Manny practitioners consider this to be the “unofficial” legislative history for the new FTC.
  4. UTC Reporter’s Summary of FTC.

Failing to properly coordinate how a claim against an estate is administered in the probate proceeding with how the claim is reported to the IRS for estate-tax deduction purposes can be a multimillion dollar mistake (see here).

In order to get this process right certainty as to what the applicable tax rules are is key.  Which is why the latest action by the IRS on this front should be helpful.  As reported here by Joel A. Schoenmeyer in the Death and Taxes Blog, the IRS is proposing amendments to the regulations relating to the amount deductible from a decedent’s gross estate for claims against the estate (see here). 

In its "background" explanation to the proposed rule amendment, the IRS cited the need for greater uniformity amongst the courts as the primary reason for the proposed rule change.  Here’s an excerpt:

The amount an estate may deduct for claims against the estate has been a highly litigious issue. Unlike section 2031, section 2053(a) does not contain a specific directive to value a deductible claim at its date of death value. Section 2053, in fact, specifically contemplates expenses such as funeral and administration expenses, which are only determinable after the decedent’s date of death. Although numerous courts have addressed section 2053(a)(3), there is little or no consistency among the conclusions of those courts with regard to the extent (if any) to which post-death events are to be considered in valuing such claims.

*  *  *  *  *

After carefully considering the numerous judicial decisions and the analysis and conclusion in each, the legislative history of section 2053 and its predecessors, and the various possible alternatives, and in order to further the goal of the effective and fair administration of the tax laws, the proposed regulations adopt rules based on the premise that an estate may deduct under section 2053(a)(3) only amounts actually paid in settlement of claims against the estate. If the resolution of a contested or contingent claim cannot be reached prior to the expiration of the period of limitations for claims for refund, the estate may file a protective claim for refund to preserve its right to claim a deduction under section 2053(a).