Life insurance is such an integral part of the estate planning process, that related litigation should be considered as falling within the ambit of trusts-and-estates litigation.  Which is why this Reuters report covering the latest developments in a mega fraud case involving fraudulent viatical settlement contracts caught my eye.  Here’s an excerpt from the linked-to story:

MIAMI (Reuters) – A Florida doctor pleaded guilty on Wednesday to securities fraud in connection with a life insurance scam that cost 28,000 investors nearly $1 billion, prosecutors said.

Clark Mitchell, the former director of a prominent AIDS clinic who was arrested more than five years ago on insurance fraud charges, agreed to be responsible for restitution of $367 million to investors in Mutual Benefits Corp., a Fort Lauderdale company that sought investors in life insurance policies held by elderly or ill people.

U.S. District Judge Paul Huck accepted a plea agreement and set sentencing for March 7, 2007, prosecutors said. It is one of several civil and criminal cases stemming from the company.

Prosecutors said Mutual Benefits directed an international network of agents who conned people into investing in viatical settlements, which are agreements to buy the life insurance death benefit of a terminally ill or elderly person in return for a lump-sum payment.

For a not-very-favorable summary of how this case has been handled from beginning to end, social worker/financial planner/author Gloria Grening Wolk provides comprehensive commentary and source-document links at Reports on Mutual Benefits Corp.  For the DOJ’s spin on the case, see here.

As I wrote here, Democrats are expected to dust off some form of their past proposals for estate tax reform and try to get something passed prior to the 2008 presidential elections.  So what’s the latest news on this front?   Well, the North Carolina Estate Planning Blog had this post on recent public comments by Russ Sullivan, Democratic Staff Director of the Senate Finance Committee, at the joint meeting of the Estate & Gift Tax Committee and Trusts, Estates & Surrogate’s Courts Committee of the NYC Bar Association.

Congress expects to address the estate tax in the second half of 2007. The bottom line is that for any bill to pass both houses, it cannot reduce the revenues raised by estate/gift tax by more than 50% (apparently the reason last year’s proposal didn’t pass is that it cost just a little too much (it reduced revenues by 60%) for some key Democratic senators to support it). Any new estate tax law is highly likely to contain the following provisions:

Step-up in basis (the feedback regarding carryover basis has been loudly and uniformly negative)

Estate tax exemption between $3.5 million and $5 million

Estate tax rate will correspond to the capital gains rate–possibly 15% rate for the first $5-10 million and a higher rate, which "will start with a 3", for the balance over that

Exemptions will be transferable between spouses

No state tax deduction (Apparently the state governors have been terrible lobbiers–not a single one has complained about the loss of state estate tax revenues.)

There will be "offsets" in exchange for the reduction in tax rates. These are likely to include restrictions on discounts available for family limited partnerships, especially those funded with mostly marketable securities. He told us, "Take a good look at some of the proposals from during the Clinton administration."

Unclear whether the estate and gift tax will be reunified–there has been disagreement within the Senate Finance Committee staffs

If we get to 2010 and no estate tax bill has been passed, they will extend the 2009 provisions for a while–even the more progressive Democrats agree that we can’t go back to the pre-2001 law.

Facing your own mortality is never easy.  Imagine what world-famous Evangelist Billy Graham and his wife Ruth must be feeling as two of their sons squabble (now in public) over where they’re to be buried.  The following is an excerpt from this AP report on the now-public family dispute:

CHARLOTTE, N.C. – The uncomfortable topic of where aging evangelist Billy Graham and his wife Ruth will be buried has moved into a public setting after a newspaper reported the family is split over the issue.

Mark DeMoss, a spokesman for the Billy Graham Evangelistic Association, said Wednesday there has been no final decision on where the 88-year-old Graham will be buried after he dies – whether near his home in the mountains of western North Carolina or at a museum and library being built at the association’s headquarters in Charlotte, near where Graham grew up.

"Obviously, there has to be a decision at some point," DeMoss said. "Whether that would be in the coming weeks or just upon death, I don’t know. … It’s unfortunate that it was worked out in The Washington Post."

So what’s the probate-litigation angle?

As I reported here, at least one Florida appellate court (the 4th DCA) has held that a testator’s body is not considered “property.” As such, the general rule of construction found in Probate Code Section 732.6005(2) requiring Wills in Florida to be deemed to pass all property that the testator owns at death does not apply to bodily dispositions. Instead, the 4th DCA formulated the following rule regarding the disposition of a Florida testator’s body:

[A] testamentary disposition is not conclusive of the decedent’s intent if it can be shown by clear and convincing evidence that he intended another disposition of his body.

In other words, if the Grahams want to make sure they get the final word on where they’re going to be buried, they need to make sure they leave behind clear and convincing evidence stating exactly what they want to happen.  Mrs. Graham has apparently already received advice to that effect, as indicated by the following excerpt from the linked-to story:

The Post reported that Ruth Graham recently wrote a notarized memo, witnessed by six people, that states her desire to be buried in the mountains.

Listen to this post

This case underscores the importance Florida law gives to a person’s choice of personal representative in his or her will.  It also proves that just because you may think there are grounds to remove a serving personal representative, it doesn’t mean you have grounds for blocking the initial appointment.  Why does this matter?  Because who gets appointed personal representative (“PR”) of an estate has huge implications in the litigation context.  The named PR can pay his legal fees with probate assets, while the person challenging the PR has to pay his own way.  In the real world, this fact alone can determine the outcome of a contested proceeding, regardless of the underlying legal positions of the parties.

Case Study

Werner v. Estate of McCloskey, 2006 WL 3613178 (Fla. 1st DCA Dec 13, 2006)

The following excerpt from the linked-to opinion speaks to the strength of the legal presumption in favor of the named personal representative:

Section 733.301(1)(a), Florida Statutes (2005), provides that, in testate estates, preference in granting letters of administration must be accorded to “[t]he personal representative ··· nominated by the will····” Moreover, “[i]t is a well recognized principle of law that a testator has the right to name the person who shall administer his estate provided such person is not disqualified by law.” Pontrello v. Estate of Kepler, 528 So.2d 441, 442 (Fla. 2d DCA 1988) (citations omitted). “The general rule is that trial courts are without discretion to refuse to appoint the personal representative specified by the testator in the will unless the person is expressly disqualified under the statute or discretion is granted within the statute.” In re Estate of Miller, 568 So.2d 487, 489 (Fla. 1st DCA 1990) (citations omitted).

Here, the trial court appointed Ms. Niznik rather than appellant because it concluded that appellant “ha[d] a conflict of interest with the estate” (the precise nature of which was not identified). Nothing in section 733.301(1)(a) purports to vest discretion in the trial courts to disregard the preference there specified, as long as the personal representative nominated by the decedent is statutorily qualified to serve. Sections 733.302 and 733.303(1), together, set out the qualifications required of one who wishes to serve as a personal representative. Section 733.302 requires that the person be “sui juris” and “a resident of Florida at the time of the death of the person whose estate is to be administered.”

The appoint-then-remove solution

The following excerpt reminds the parties of the fact that just because a conflict of interest may not disqualify a named PR, it’s certainly a good reason to get rid of him or her once appointed:

We note that, to the extent that, on remand, there exists a legitimate concern about whether appellant has a conflict of interest, section 733.504(9), which lists causes for removal of a personal representative once appointed, includes as a ground “[h]olding or acquiring conflicting or adverse interests against the estate that will or may interfere with the administration of the estate as a whole.”

Joseph v. Chanin, 940 So.2d 483, 31 Fla. L. Weekly D2470 (Fla. 4th DCA Oct 04, 2006)

The linked-to opinion is an excellent case study on exactly how to address a question that comes up ALL THE TIME in probate disputes: what to do when someone takes money from a joint bank account that he or she shouldn’t have and wont give it back when caught red handed.  This appellate opinion serves up the kind of bread-and-butter guidance that makes it easier for judges and attorneys to do their jobs.  No flowery prose or needless digressions.  Just concrete application of the law to a particular set of facts.

Problem:

Assume “A” and “B” live together for years, co-mingling their finances and paying shared expenses out of a single jointly titled checking account.  Assume further that A was siphoning off funds from this account to a separate savings account for “C,” his daughter.  Finally, assume A dies, B finds out about the side account funded for C, and C refuses to give the money back.

Solution: B sues C for “Conversion”

That’s what the plaintiff did in the linked-to case, winning both at trial and on appeal before the 4th DCA.  Here’s the road map drawn by the 4th DCA for future litigants faced with a similar set of facts:

  • Step 1 (B vs. A):  Establish  initial liability of joint account holder.

One joint tenant may bring a conversion action against another joint tenant who wrongfully appropriates more than his share of the money from a joint tenancy account. See Hamilton v. Trapp, 392 So.2d 1001 (Fla. 4th DCA 1981); Allen, 429 So.2d at 371; Nationsbank, 814 So.2d at 1230. Placement of the money into the AmTrust account made it “capable of identification,” Belford Trucking, 243 So.2d at 648, so that Chanin could have sued Meyer Joseph or his estate for conversion from the pooled checking account.

  • Step 2 (B vs. C): Establish liability of third-party who received wrongfully withdrawn funds and refuses to give them back.

As the beneficiary of the funds in the AmTrust account, Barbara Joseph could be held liable for conversion if she exercised dominion over the funds, knowing of Chanin’s claim. See Goodwin v. Alexatos, 584 So.2d 1007, 1011 (Fla. 5th DCA 1991) (citing Wilson Cypress Co. v. Logan, 120 Fla. 124, 162 So. 489 (1935), for the proposition that “[t]he recipient of converted property is liable to the rightful owner in an action for conversion”). Thus, Barbara Joseph became liable for conversion once she refused Chanin’s request to return the money in the AmTrust account. See Uhl v. Holbruner, 146 Fla. 133, 136, 200 So. 359 (1941) (donee liable for conversion where donor of converted bonds had “no title” to convey and donee refused demand to return them); Restatement (Second) Torts §§ 223, 229, 237 (1965).FN3 By such act, Barbara Joseph exercised dominion over the funds inconsistent with Chanin’s right to possess them.

  • Step 3 (B vs. Judge): Last but not least, make sure your trial judge understand the underlying theory of your case.

A finding that a conversion occurred is consistent with the view that “the essence of an action for conversion is not the acquisition of property by the wrongdoer, but rather the refusal to surrender the possession of the subject personalty after demand for possession by one entitled thereto.” Murrell v. Trio Towing Serv., Inc., 294 So.2d 331, 332 (Fla. 3d DCA 1974) (citing 89 C.J.S. Trover and Conversion § 3 (1955); 18 Am.Jur.2d Conversion § 43 (1965)). The demand by the rightful owner gives “the person in possession actual notice of the rights of the person who is legally entitled to possession.” Ernie Passeos, Inc. v. O’Halloran, 855 So.2d 106, 109 (Fla. 2d DCA 2003).

I previously wrote here about the very public litigation involving guardianship proceedings for legendary New York socialite Brooke Astor.  Well, it’s almost inevitable that part 2 of any guardianship case will be a fight over fees (see generally), and this case is no exception.  The following is an excerpt from In Aftermath of the Astor Case, How the Final Fees Piled Up, a New York Times piece reporting on the case:

The legal drama over the health care and finances of Brooke Astor, New York’s legendary socialite and philanthropist, played out for nearly three months amid allegations and recriminations of financial duplicity, greed and outright forgery.

The case against her son, Anthony D. Marshall, came to a halt on Oct. 13 when the parties in the feud reached a settlement, averting what could have been an expensive and sensational trial scheduled to begin less than a week later.

But everything comes with a price. In the seven weeks since the agreement, those involved in the case have filed bills with Justice John E. H. Stackhouse of State Supreme Court in Manhattan for fees totaling about $3 million for the services of 56 lawyers, 65 legal assistants, 6 accountants, 5 bankers, 6 doctors, 2 public relations firms and a law school professor. Under state law, such payments would come out of Mrs. Astor’s assets, valued at over $120 million.

But yesterday, Justice Stackhouse issued an order that approved a smaller amount, $2.22 million, calling the original figure “staggering” and saying that some charges were for work that was not in the best interest of Mrs. Astor, who is 104. The justice denied payments for the public relations firms, the time lawyers spent talking with reporters and the hours logged preparing the fee applications themselves.

Yikes!!  According to my math the court refused payment of close to $800,000 in fees.  Unless these professionals have fee agreements in place requiring the litigants/their clients to pay their fees, they just did a whole lot of free work for a $120 million+ guardianship estate.

Lesson learned:

In a guardianship case, either you need to be ready to work on a pro bono basis or you need to have an engagement agreement in place requiring whomever hires you to personally pay your fees if the court wont authorize payment of your fees from the guardianship estate.  The risk of the court refusing payment of fees will be borne by someone, just make sure that if it’s going to be you the decision is a conscious one.

Source: Death and Taxes – The Blog

In re Raborn, — F.3d —-, 2006 WL 3409104 (11th Cir.(Fla.) Nov 28, 2006)

WARNING:

The status of every single land-trust deed executed in Florida prior to 2004 remains unsettled and subject to attack in a bankruptcy proceeding.  Ultimate resolution of this issue depends on how the Florida Supreme Court answers the questions certified to it by the U.S. 11th Circuit Court of Appeals.

In the linked-to opinion the 11th Circuit is asked to weigh in once again on a bankruptcy case that has been roiling Florida’s land-trust legal landscape since 2001.  The stakes are high . . . literally every land trust deed recorded prior to 2004 in the State of Florida is potentially subject to attack in a bankruptcy proceeding.

This case revolves around a common estate planning scenario: in 1991 mom and dad deeded real property to a trust created for their three children.  One of their children, their son Douglas K. Raborn, was the trustee of the trust.  The subject deed apparently contained the type of language that most Florida attorneys would say was sufficient to effectuate the desired title conveyance.  Here’s how the 11th Circuit described key terms of the deed:

The . . . “Conveyance Deed to Trustee Under Trust Agreement” (“Deed”), was recorded in the Palm Beach County real estate records on 5 February 1991. .  .  .  .  The Deed names Mr. and Mrs. Raborn as “Settlors under the Raborn Farm Trust Agreement dated January 25, 1991” and conveys the farm to “Douglas K. Raborn, as Trustee under the Raborn Farm Trust Agreement dated January 25, 1991.” According to the Deed, the Trustee is “to have and to hold the said real estate with the appurtenances upon the trust and for the uses and purposes herein and in said Trust Agreement set forth.” The Deed repeatedly refers to the Trust Agreement and acknowledges the Trustee’s broad powers to deal with the property. The Settlors signed the Deed and swore before a notary public “that they executed said instrument for the purposes therein expressed.”

Now here’s the scary part: when son, the trustee, declared bankruptcy 10 years later in 2001, the bankruptcy trustee argued that the real property deeded to him as trustee of the land trust was deeded to him  in fee simple thus making it a part of the bankruptcy estate and subject to the claims of son’s personal creditors.  On appeal to the district court the bankruptcy trustee won this argument in 2004!!??

Fast forward to 2006.  The case is before the 11th Circuit once again.  Concluding that it needed clarity on Florida’s land-trust law before it could rule on the federal bankruptcy-law issues, the 11th Circuit certified the following two questions to the Florida Supreme Court:

Whether, under Florida Statutes section 689.07(1) as it existed before its 2004 amendment, this Deed-which is a recorded real estate conveyance deed to a named trustee of a private express trust identified in the deed by name and date, and contains other language referring to the unrecorded trust agreement, the settlors, and the beneficiaries-conveys only legal title to the property in trust to the grantee as trustee.

This question is solely an issue of Florida state law that should be decided by the Florida Supreme Court.

If the state court answers this first question in the negative and determines that the Deed-viewed in the light of the unamended statute-did not convey the property in trust, we also certify the following question:

Whether, as a matter of Florida law, the 2004 statutory amendment to Florida Statutes section 689.07(1) applies retroactively to the Deed in this particular case and causes the Deed-in the light of the amendmentFN5-to convey only legal title to the grantee in trust.FN6

In certifying these questions, our intent is not to restrict the issues considered by the state court, including whether the Deed and Trust Agreement were effective to create a valid “Illinois Land Trust” covered under Florida Statutes section 689.071 rather than section 689.07(1).FN7

FN5. Although the 2004 bill expressly states that the amendment only clarifies existing law and applies retroactively, the district court pointed to conflicting statements in the Senate Staff Analysis and Economic Impact Report. At one point, the report stipulates that the amendment was meant to “supersede[ ] the contrary federal district court ruling in the bankruptcy matter of In re Raborn.” At another point, the report states, “This bill would not affect the recent contrary ruling of a federal district court in bankruptcy. However the bill would apply to future judicial actions.”

FN6. We would need to answer for ourselves the question of whether federal law would allow retroactive application of the statute to this case, even if state law would allow it.

FN7. We are aware that the Florida Legislature extensively amended Florida Statutes section 689.071, effective 1 October 2006. This amendment to Florida’s land trust provision purports “to clarify existing law and applies to all land trusts whether created before, on, or after October 1, 2006.” Once again, we do not know whether, under Florida law, this amendment applies retroactively to this case. Even if state law would allow retroactive application of the amended land trust statute to this case, however, we would need to address the issue of whether such retroactive application is permissible as a matter of federal law.

Stay tuned for more!
Continue Reading Florida’s land-trust law remains unsettled in bankruptcy proceedings

Other than as an excuse to note Florida’s Slayer Statute (see here), which automatically disinherits a killer, this latest report from the bizzaro world usually inhabited by FOX News isn’t particularly interesting.  For all the details go to Former California Pastor Accused of Killing Man for His Multimillion-Dollar Trust Fund, although the following excerpt pretty much sums up the story:

A preacher was arrested at the Mexican border and accused of deliberately crashing his pickup truck and killing an 85-year-old passenger in a scheme to get his hands on the farmer’s multimillion-dollar trust fund.

Source: Wills, Trusts & Estates Prof Blog

Rice v. Greene, 2006 WL 3327665 (Fla. 5th DCA Nov 17, 2006)

It’s not often that a probate-related case forces the parties to distinguish between Equitable Title in real property (i.e., the present right to possession with the right to acquire legal title once a preceding condition has been met) and Marketable Title in real property.  Well that’s exactly what happened in this case.

Here widow inherited real property from her husband in 1994 pursuant to her late husband’s will . . . but she never got around to probating the will.  Ten years later widow sells the same property to two different buyers.  "Buyer A" bought the property in June 2004 and received a warranty deed from widow.  A few months later in October of 2004 widow sold same property to "Buyer B" and also gave him a warranty deed.  Buyer B recorded his deed before Buyer A. 

So who owns what?

  • Upon husband’s death, widow instantly vested as an equitable owner of the property . . . even though she never probated his will.  F.S. 732.514.
  • Although she had equitable ownership, widow’s failure to probate her husband’s will meant she never acquired marketable title.  F.S. 733.103(1).
  • Buyer A was out of luck under Florida’s recording statute (F.S. 695.01(1)), because Buyer B recorded his deed first.  This doesn’t mean Buyer B had clear title, only that Buyer A is now out of the picture and Buyer B has first dibs on working with one apparently easily confused widow on cleaning up the title mess she created.

Here are a few excerpts from the linked-to case summarizing the points above:

[Buyer A] is correct that under section 733.103, Mr. Schwartz’s unprobated will was ineffective to “prove title” to the property, under section 732.514. But, it was Mr. Schwartz’s death that vested Mrs. Schwartz’s rights in the property. Reading these statutes in concert, it is clear that because Mrs. Schwartz never offered Mr. Schwartz’s will for probate, she lacked marketable title to the property. However, she clearly acquired equitable title to the property upon her husband’s death, assuming, as have the parties, that Mr. Schwartz’s will, which was presented to the court below, is authentic. Admittedly, because Mrs. Schwartz’s title was not marketable, under certain circumstances, it might have been subject to divestment for the payment of claims, expenses of administration or taxes. Regardless, those are matters that affect the quality of the title, which is not at issue here. Instead, the only issue is which party has a priority claim to the property as between [Buyer A] and [Buyer B].

**********
“[A]n unrecorded deed is not good or effectual in law or equity against creditors or subsequent purchasers for valuable consideration who are without notice of the transaction.” Fryer v. Morgan, 714 So.2d 542, 545 (Fla. 3d DCA 1998). Therefore, because [Buyer B] had no notice of the earlier warranty deed between [Buyer A] and Mrs. Schwartz and paid valuable consideration for the property, [Buyer B’s] recording of his warranty deed before [Buyer A] gives [Buyer B] priority to the property. Since there is no genuine issue of material fact and [Buyer B] is entitled to judgment under section 695.01(1), the trial court did not err in granting [Buyer B’s] motion for summary judgment.

We do note that the language of the final judgment is overly broad, in that it purports to quiet title to the property in [Buyer B]. While the final judgment adjudicated the dispute between [the buyers] .  .  .  much more work is necessary before [Buyer B] will have marketable title to the property.

I previously wrote here about the very public battle going on between the family of a very wealthy donor and Princeton University.  The same public relations issues at play in that case were also at play (albeit on a much smaller scale) in a probate case involving the University of Wisconsin, as reported in Woman wins probate fight with UW:

The case highlights a dilemma for nonprofit groups: how hard to pursue money they believe is theirs. Fight too hard and they risk antagonizing potential donors, but too soft might mean they lose money for their cause.

The “dilemma” faced by charities is a product of the different expectations the public has when it comes to non-profits: they aren’t supposed to be driven solely by economic concerns.  Unlike private litigants, we seem to expect more from charities.  Note how the opposing side in the UW case expressed indignation at the university’s “inexplicable” decision to “needlessly” litigate the contested inheritance:

The foundation’s tactics drew harsh criticism from North Central Trust Co., the administrator of Mennes’ estate. In July, company lawyers told the high court in a brief the foundation was “inexplicably” fighting the case even after losing several rounds. They said the litigation was draining the estate of money meant for the university and his daughter.

“If the foundation develops a reputation for needlessly engaging family members in litigation, it is less likely that people will provide for the University of Wisconsin (as opposed to other worthy causes) in their estate plans,” the lawyers wrote.

Lesson learned?

There’s no getting around the different expectations the public . . . and judges . . .  have when charities are involved in probate litigation.  Whether the charity is your client or the opposing side, simply being aware of this dynamic may make or break your case.

Thanks to Chicago-area attorney Joel A. Schoenmeyer, author of Death and Taxes – The Blog, for bringing this article to my attention in his blog post entitled Charitable Beneficiaries Play Hardball.