Cautionary tale: why funding a revocable trust REALLY matters when it comes to real property

Vaughan v. Boerckel, --- So.2d ----, 2007 WL 2428516 (Fla. 4th DCA Aug 29, 2007)

If an estate plan involves real property, all of the formalities for conveying real property must be observed.  When it comes to conveying real property, Florida law treats wills and trusts very differently.  Forgetting this distinction can cause an entire estate plan to collapse in on itself (and maybe get the estate planning attorney in big trouble).

The law:

The key statute to keep in mind in this regard is F.S. 689.06, which provides that real property must be conveyed by deed or will.  Therefore, as a general rule, a declaration of trust alone will not be sufficient to convey real property to a trustee unless the declaration of trust contains language that both:

  • purports to convey the real estate from the present owner to the trustee; and
  • complies with the formalities required for a deed. 
An exception to this general rule applies to owners of real property who become trustees of their own property for the benefit of third parties. In this situation, a valid trust is created as long as there is a written declaration of trust in compliance with F.S. 689.05.

The facts:

In the linked-to case the decedent executed a pour-over will and revocable trust.  The decedent owned 5 separate items of real property in New York, all of which were titled in the name of a single holding company called Eloise Management Corporation, Inc., a New York Corporation ("Eloise").  At the time of his death the decedent owned 100% of the stock of Eloise.  The decedent never deeded the real property to his revocable trust.

The decedent's revocable trust expressly identified the 5 items of real property and expressly provided for the conveyance of each separate item of real property from the trust to 5 separate family members (excluding second wife). The revocable trust complied with the formalities required for a deed, but contained NO language purporting to convey the real estate from its present owner to the trustee. Here's the key revocable trust language:

Upon my death, the Trustee shall distribute the then Trust Estate as follows:

a) I or the ELOISE MANAGEMENT CORPORATION, INC., a New York corporation wholly owned by me, are the owners of certain real property situated in the State of New York, as follows:

(i) 1430 Omega Street, Elmont, New York;

(ii) 1422 Omega Street, Elmont, New York;

(iii) 217 Franklin Avenue, Franklin Square, New York;

(iv) 205 Franklin Avenue, Franklin Square, New York;

(v) 20 Ronald Avenue, Hicksville, New York.

b) Upon my death, I direct that my Trustees distribute to my wife, MARY INTERLANDI, to have sole use and possessions during her lifetime, the real property situated at 1422 Omega Street, Elmont, New York, together with the furniture and furnishings therein contained. Upon her death or upon my death if she shall predecease me, said real property and contents shall be distributed to my grandson, BRETT BOERCKEL, outright and free of trust.

c) Upon my death, I direct that my Trustees distribute the real property situated at 1430 Omega Street, Elmont, New York, together with the furniture and furnishings therein contained, to my daughter, IRENE VAUGHAN, outright and free of trust. If IRENE VAUGHAN shall predecease me, then said real property shall be distributed to my grandson, CRAIG FIELDING.

d) Upon my death, the Trustees shall distribute the real property at 20 Ronald Avenue, Hicksville, New York, together with the furniture and the furnishings therein to my son, ROBERT BOERCKEL, outright and free of trust.

e) Upon my death, the Trustees shall distribute the real property at 217 Franklin Avenue, Franklin Square, New York, together with the furniture and the furnishings therein to my grandson, BRETT BOERCKEL, outright and free of trust.

f) Upon my death, the Trustees shall distribute the real property at 205 Franklin Avenue, Franklin Square, New York, together with the furniture and furnishings therein to my grandson, BRETT BOERCKEL, outright and free of trust.

The litigation:

When the decedent died his second wife claimed all of the real property for herself - and won at the trial court level on summary judgment.  Here's how the court summarized the widow's winning argument:

Mrs. Boerckel filed a motion for summary judgment, arguing that because Decedent failed to execute the deeds transferring the Properties from Eloise either to himself,FN1 individually, or to the Trust,FN2 the Properties were owned by Eloise at the time of Decedent's death and thus did not become a part of the corpus of the Trust. Because the Properties did not pass to the Trust, Paragraphs 7.3(a)-(f) of the Trust were ineffective, and the Eloise stock passed to Mrs. Boerckel as part of the residue of the Trust under Paragraph 7.4(a).

FN1. Thereby allowing the Properties to pass to the Trust pursuant to the pour-over provision of the Will.

FN2. Thus making the Properties part of the corpus of the Trust.

The decedents' children and grandchildren argued that because the holding company holding title to the real property became an asset of the trust, and the trust owned 100% of the stock of the holding company, the trustee was obligated to convey the real property out to the intended beneficiaries.  The court rejected this argument relying principally on the following 1986 3d DCA opinion:

We conclude that this case is more analogous to Flinn v. Van Devere, 502 So.2d 454 (Fla. 3d DCA 1986), wherein the Third District concluded that realty owned by the decedent was not validly transferred to a trust she established during her lifetime and thus remained an estate asset and the property passed under the residuary clause of her will rather than the trust. Id. at 454. The court held that the decedent's execution of a form instrument creating a standard inter vivos “living trust” of property owned by her and listed in an accompanying schedule was ineffective with respect to the real estate described because the settlor did not, as is required, also execute a deed which conveyed the realty to the trustees. Id. at 455. The court explained that the trust documents themselves plainly cannot be regarded as such a deed “for the obvious reason that, although they comply with the necessary formalities of two witnesses and an adequate legal description, they contain no expression which purports to convey, grant or transfer the real estate.” Id. The court also reasoned that the “only reference in the simultaneously executed will to the trust is the direction that the personal representative make demand upon the trustees for the trust's share of any estate taxes.” Id. The court found this language to be clearly insufficient to manifest an intention to incorporate the provisions of the trust for the disposition of the assets after the settlor's death into the will, so as to render them, in effect, testamentary in nature. Id. at 455-56. The court noted that such a result was required even though it would run contrary to the decedent's “actual desires and intentions.” Id. at 456. Even though the Will in this case did incorporate the Trust instrument by reference, the property in Flinn was not corporately-owned as in this case, and the corporate existence cannot be disregarded.

In sum, we conclude that the trial court did not err in finding that Mrs. Boerckel was entitled to summary judgment as a matter of law as to Counts I and II of the Petition. The Properties never became a part of the corpus of the Trust because the Decedent failed to execute the deeds that would have resulted in a funding of the Trust, thereby causing Paragraphs 7.3(a)-(f) to lapse. The Final Summary Judgment in favor of Mrs. Boerckel is affirmed.

Lesson learned:

Serious estate planning doesn’t stop when the documents are executed. Step two always focuses on ensuring the client’s assets are properly titled and if there’s a revocable trust involved, that the trust gets funded. If real property is involved, funding the trust entails executing deeds. In this case the client skipped step two and his estate plan was turned on its head. Maybe this is what he wanted all along? Who knows, but at the very least this case is an excellent case study to share with planning clients the next time they ask “do we really need to spend the money funding our revocable trusts?”

By the way, don't shed too many tears for the decedent, as noted in the linked-to case, his estate planning attorney gave him clear warning of what was going to happen if he didn't execute the necessary deeds and he chose to ignore those warnings:

Petitioners deposed Fred Weinstein, Esq., the Decedent's estate-planning attorney who prepared both Decedent's Will and the Trust. Weinstein testified that at the time the Trust was written, the Properties were not in the Trust, and prior to the Trust being signed, it was indicated that Weinstein would prepare deeds conveying the New York Properties from Decedent to the Trust. Weinstein testified that at the time the Trust was signed, Decedent's intent was to have the Properties go to the named distributees. However, after the Trust was signed, Weinstein prepared such deeds and advised Decedent that the failure to sign the deeds “would defeat the purpose of the rest of the Trust,” but Decedent refused to sign the deeds.

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Comments (1) Read through and enter the discussion with the form at the end
Paul Roman - September 19, 2007 4:12 PM

I think the decision is wrong. By clearly indicating that the property might be owned by his wholly-owned corporation, the decedent impliedly directed the trustees to cause the corporation to distribute the property to the trust (although it would have been preferable to have specifically directed them to do so before distributing the stock).

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