I’ve been consumed by work on an appellate brief, which kept me away from the blog. During my absence Florida’s appellate courts have been busy publishing probate-related opinions. I’ve listed the four newly published opinions below and intend to have write ups for all four of them soon. Stay tuned!

A long-simmering feud between the family of civil-rights icon Rosa Parks and the people who cared for her at the end of her life has erupted into a court fight over her estate. The Wall Street Journal first ran a story on this unfortunate turn of events here, although a later story reported by the Detroit News here seems to indicate an amicable settlement may be within sight.

Most probate litigators also handle contested guardianship proceedings. This is not by coincidence. Unresolved guardianship disputes have a way of spilling over after a person’s death. Ms. Park’s story is all too common. The best way to manage these disputes is to work through them at the first available opportunity. Ignoring unresolved grievances while a person is under the care of a guardian wont make them go away. They simply come back around again as probate litigation.

Harrell v. Snyder, 2005 WL 2899461 (Fla. 5th DCA Nov. 4, 2005) In this case, the decedent had divorced his wife several years before his death, but never got around to changing his will. So when he died, his ex-wife became personal representative of his estate under the terms of his last will (although she was deemed to have predeceased him for purposes of the will’s dispositive provisions). The decedent was not survived by any minor children and had not remarried prior to death, so his homestead property was freely devisable . . . or was it? Brevard County Judge Kerry I. Evander ruled that the personal representative had the authority to both take control of the freely-devisable homestead property and to sell it. The Fifth DCA disagreed, holding as follows:

Bottom line, in the absence of specific instructions authorizing the personal representative to sell freely-devisable homestead property, such property passes to the residuary beneficiaries of the decedent’s estate. In an opinion I wrote about here, the Florida Supreme Court provided the following directive regarding the sale of freely-devisable homestead property:

We therefore . . . hold that where a decedent is not survived by a spouse or minor children, the decedent’s homestead property passes to the residuary devisees, not the general devisees, unless there is a specific testamentary disposition ordering the property to be sold and the proceeds made a part of the general estate.

Estate of Blount v. C.I.R., — F.3d —-, 2005 WL 2838478 (11th Cir. Oct 31, 2005)

Buy-sell agreements are often used in business succession planning to fix the fair market value of a closely held business interest for gift and estate tax purposes. In this case the decedent, George C. Blount (founder of Blount Construction Company), executed an amendment to his 1981 buy-sell agreement in November of 1996, about one month after being diagnosed with cancer and a little under a year prior to his death in September of 1997. After his death the IRS successfully challenged the tax-planning effectiveness of the buy-sell agreement on grounds that came into play only because the agreement had been “substantially modified” after October 8. 1990.

Two Key Points:

  • Always exercise extreme caution when revising any buy-sell agreement entered into before October 8, 1990 because of the IRS’s aggressiveness in disallowing estate-tax valuation discounts if the agreement was “substantially modified” after that date.
  • If a closely-held business purchases life insurance to fund a buy-sell agreement obligation, the value of those insurance proceeds may not be counted for purposes of establishing the estate-tax value of the business.

Valdes v. Estate of Valdes, 2005 WL 2861179 (Fla. 3d DCA Nov. 2, 2005) Ambiguity is the bane of a probate practitioners life. When the answers are clear, opposing parties are able to define their positions with certainty and usually come to some sort of negotiated compromise without the need for expensive litigation. When the law is “fuzzy,” litigation is often the only tool available to achieve clarity. Which is why the concrete, unambiguous, nuts-and-bolts guidance provided by the Third DCA in this case should be welcomed. Here the key legal question was the following: may a probate judge revisit earlier decisions setting the amount of reasonable family allowance? Miami-Dade Probate Judge Arthur Rothenberg said YES, and was upheld on appeal (although his second ruling reducing the amount of family allowance was reversed). The appellate court provided the following summary of the law:

Section 2005->Ch0732->Section%20403#0732.403″>732.403 authorizes a probate court to award a “reasonable allowance” out of the money of the estate for the benefit of a surviving spouse or lineal heirs the decedent was supporting or was obligated to support during administration of the estate. 2005->Ch0732->Section%20403#0732.403″>§ 732.403, Fla. Stat. A surviving spouse and qualified lineal descendant are “entitled” to a family allowance without regard to the necessity of the allowance. DeSmidt v. DeSmidt, 563 So.2d 193, 194 (Fla. 2d DCA 1990). However, the reasonableness of the allowance must still be established. Id. As such, we conclude the probate court necessarily retains the authority to re-examine and modify an award, either upward or downward as circumstances may require, during the course of administration of the estate. Id.

As reported here, because Scott Peterson was convicted of killing his pregnant wife, a California judge ruled last Friday that he is not entitled to collect the benefits of her life insurance policy. The judge said the money should go to the executor of Laci Peterson’s estate, her mother, Sharon Rocha.

Although the news report does not mention California’s “Slayer Statute” as the basis for the judge’s ruling, I assume that must have been the basis for the ruling. Florida’s Slayer Statutes are found at 2005->Ch0732->Section%20802#0732.802″>F.S. § 732.802 (probate estates) and 2005->Ch0737->Section%20625#0737.625″>F.S. § 737.625 (trust estates), and would have resulted in the same outcome.

John H. Langbein, the Sterling Professor of Law and Legal History at Yale Law School, has just published a commentary that is highly critical of the Connecticut probate system entitled Don’t Die In Connecticut: A will can’t protect you from the state’s predatory probate system, considered a national disgrace, Hartford Courant, Oct. 23, 2005.

According to Prof. Langbein’s Testimony to Connecticut Legislature Committee on Program Review and Investigations, Hartford, CT. October 7, 2005 [click here], Florida has a “responsible probate system” that compares very favorably to Connecticut’s system. In fact, the good professor had the following sage words of advice for the citizens of his fair state:

When citizens of our state ask me about Connecticut probate, I give this simple advice: Try not to die in Connecticut. If you are a person of means, you should–late in life–establish your domicile in some place such as Florida or Maine or Arizona that has a responsible probate system. You can still own a Connecticut home and spend plenty of time here. Indeed, if you place title to your Connecticut home in a Florida trust, your trustee can even transfer the house after your death without going through Connecticut probate.

Source: Wills, Trusts & Estates Prof Blog

Sandler v. Jaffe, 2005 WL 2655765 (Fla. 4th DCA Oct. 19, 2005) Elderly parents often title bank accounts jointly with their children. Although extremely common, the problem with this type of arrangement is that the temptation to walk away with some of mom or dad’s funds can sometimes be irresistible. This case is a prime example of that risk. Facts: Concerned about possible incapacity issues arising out of her advanced age, mom titled all her bank accounts jointly with her daughter; daughter then transferred $84,000 from one of these joint accounts to an account titled in the name of her own husband and daughter (the family dynamics of this case are “interesting” to say the least). Mom finds out about transfer, sues daughter for return of funds, then dies while lawsuit is pending. Mom’s other child, son, carries on with suit as personal representative of mom’s estate. Key points of the case:

  • Daughter argued that 2005->Ch0655->Section%2078#0655.78″>F.S. § 655.78(1) absolved her from any liability. The 4th DCA rejected this argument, noting that this statute is intended to protect banks from getting drawn into disputes between title holders of an account. It in no way shields joint title holders from liability for their own actions.
  • Daughter argued that since she was a joint title-holder with right of survivorship, she was entitled to all of the funds at mom’s death anyway or, in the alternative, mom gifted all of these funds to her when she titled the bank accounts jointly. So no harm done. These arguments failed because mom actually found out about the transfers pre-death and sued for their return.

Lesson learned: Obviously mom was trying to plan for her incapacity; she certainly never intended to gift all of her estate to her daughter at the expense of her son. Joint bank accounts are a clumsy way of planning for incapacity and often run afoul of the “Trust, but verify” maxim. Revocable trusts are a much better alternative.

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Conflicts between current beneficiaries of a trust that want to maximize current income distributions and remainder beneficiaries of a trust that want to maximize their remainder interest are at the core of almost all disputes involving a trust’s administration. In the past the best trustees could do to manage this inevitable conflict was to invest trust assets in income producing securities (e.g., bonds) while also trying to ensure an acceptable level of capital appreciation for the remainder beneficiaries. This type of investing inevitably leads to lower overall growth of the trust’s portfolio. Savvy use of Florida’s Principal and Income Act can deliver a win-win solution to this age old conundrum.Here’s how:

First, increase the anticipated remainder interest of the trust by investing the trust’s portfolio in accordance with the Modern Portfolio Theory. This investment approach is in stark contrast to traditional trust investment approaches that artificially skewed portfolios in favor of high income producing assets (e.g., bonds).

Second, increase current distributions to the income beneficiaries by relying on the authority granted under F.S. § 738.104 to make adjustments between principal and income or the authority granted under F.S. § 738.1041 to convert the trust into a “unitrust.”

This solution works because investing in accordance with the Modern Portfolio Theory increases the size of the trust “pie,” thereby creating win-win options for all concerned. Using a case-study approach the authors of The Appropriate Withdrawal Rate: Comparing a Total Return Trust to a Principal and Income Trust, 31 ACTEC J. 118 (2005), do a great job of explaining in plain English how a trustee can both increase current distributions and deliver a higher expected return to the remaindermen using the solution outlined above.

The NY Times reported here on oral arguments made in Gonzalez v. Oregon, the United States Supreme Court case testing the limits of federal authority over decisions made at the state level regarding medical care. In 2001, United States Attorney General John Ashcroft determined that Oregon’s assisted-suicide legislation was not a legitimate medical practice and thus doctors who prescribe the deadly drugs would be in violation of the Controlled Substances Act (“CSA”).

In Oregon v. Ashcroft, 368 F.3d 1118 (9th Cir. 2004), the Ninth Circuit ruled against the federal authorities, holding that attempting to criminally prosecute physicians if they help terminally ill patients commit suicide in accordance with Oregon’s Death With Dignity Act exceeded federal authority, stating as follows:

“To be perfectly clear, we take no position on the merits or morality of physician assisted suicide. We express no opinion on whether the practice is inconsistent with the public interest or constitutes illegitimate medical care. This case is simply about who gets to decide. All parties agree that the question before us is whether Congress authorized the Attorney General to determine that physician assisted suicide violates the CSA. We hold that the Attorney General lacked Congress’ requisite authorization. The Ashcroft Directive violates the “clear statement” rule, contradicts the plain language of the CSA, and contravenes the express intent of Congress.” (Emphasis added.)

This case goes to the heart of the “states’ rights or New Federalism” debate often separating Republicans and Democrats. What’s ironic is that in this instance it’s a Republican administration advocating for more federal authority – an argument usually reserved for Democrats – and directly contrary to the “New Federalism” philosophy usually advocated by Republicans. Stay tuned for more.

Source: Wills, Trusts & Estates Prof Blog