$25 million probate battle pits Florida's slayer statute against its pretermitted-spouse statute

A NY Times article entitled A Lurid Aftermath to a Hedge Fund Manager’s Life reports on a brewing dispute over a Jupiter, FL estate reportedly "worth at least $25 million."  The following excerpts from the linked-to article give us a sense of what kind of case this will be (ugly!) and where the battle lines are being drawn:

JUPITER, Fla. — A life of private jets and black-tie balls ended with Seth Tobias, a wealthy investment manager and a familiar presence on CNBC, floating face down in the swimming pool of his mansion here.

*     *     *     *     *

Mr. Tobias, who was 44 years old, had apparently suffered a heart attack, his brother Spence said at the time. The police did not consider his death suspicious.

But now an unfolding drama over Mr. Tobias’s estate is providing a lurid account of fast money and faster living in the volatile world of hedge funds. Mr. Tobias’s four brothers and Mrs. Tobias are locked in a legal battle over the estate, which is worth at least $25 million. And, in a civil complaint, they have gone so far as to accuse her of murder.

The brothers, Samuel, Spence, Scott and Joshua, claim Mrs. Tobias drugged her husband and lured him into the pool. Bill Ash, a former assistant to Mr. Tobias, said he had told the police that Mrs. Tobias confessed to him that she had cajoled her husband into the water while he was on a cocaine binge with a promise of sex with a male go-go dancer known as Tiger.

*     *     *     *     *
At the center of the dispute is Mr. Tobias’s will, which designates his brothers as beneficiaries but does not name Mrs. Tobias. She contends that she is entitled to the estate because the will was signed before the couple married. In court filings, the Tobias brothers invoke Florida’s “slayer statute,” which prohibits inheritance by a person who murders someone from whom they stand to inherit. They claim she “intentionally killed” her husband “by asphyxiation and drowning.”

Florida's "pretermitted spouse" statute:

Mrs. Tobias' argument is based on Florida's version of the pretermitted spouse rule.  Here's how that argument is played out:

Mr. Tobias married Mrs. Tobias after making his will.  As such, pursuant to F.S. §732.301, regardless of what the will says, Mrs. Tobias is entitled receive a share of his $25+ million estate equal in value to that which she would have received if Mr. Tobias had died intestate, unless 1) provision has been made for, or waived by, Mrs. Tobias by a nuptial agreement; 2) Mrs. Tobias is otherwise provided for in the will (she apparently is not); or 3) the will discloses an intention not to make provision for Mrs. Tobias.


Pursuant to F.S. §732.102, the intestate share to which Mrs. Tobias would be entitled is as follows: a) If there are no living lineal descendants of Mr. Tobias, she gets the entire intestate estate; b) if there are surviving lineal descendants of Mr. Tobias, all of whom are also Mrs. Tobias' lineal descendants, she gets  the first $60,000 of the intestate estate, plus one-half of the balance of the intestate estate; and c) if there are surviving lineal descendants of Mr. Tobias, one or more of whom are not lineal descendants of Mrs. Tobias, she gets one-half of the intestate estate.

Florida's "slayer" statute:

Mr. Tobias' surviving brothers argue that Mrs. Tobias murdered her husband, and thus she shouldn't get a penny of the estate under Florida's version of the "slayer" rule, a doctrine I've written about before [see here, here, here]. 

Florida’s slayer statutes are found at F.S. § 732.802 (probate estates) and F.S. § 736.1104 (trust estates).

Although a murder conviction would make things easier for the Tobias brothers, it's not a pre-condition to their lawsuit. If Mrs. Tobias were convicted of the murder, that would conclusively divest her of all of her interest in Mr. Tobias' estate; but if Mrs. Tobias were acquitted of the murder (or never charged), the probate court could still weigh the evidence and determine "by the greater weight of the evidence" whether or not she should be divested. Here is the key language from F.S. § 732.802:

(1) A surviving person who unlawfully and intentionally kills or participates in procuring the death of the decedent is not entitled to any benefits under the will or under the Florida Probate Code, and the estate of the decedent passes as if the killer had predeceased the decedent.

*     *     *     *     *

(5) A final judgment of conviction of murder in any degree is conclusive for purposes of this section. In the absence of a conviction of murder in any degree, the court may determine by the greater weight of the evidence whether the killing was unlawful and intentional for purposes of this section.

The Trustee's Duty to Inform and Report Under Florida's New Trust Code

At it's core, the job of trustee is as much about keeping beneficiaries adequately informed as anything else.  Most trust litigation can be traced back to a trustee's inability to adequately explain him or herself to the trust beneficiaries.  The importance of the trustee's duty to "inform and report" is summarized nicely in The Trustee's Duty to Inform and Report Under the Uniform Trust Code," 40 Real Property, Probate and Trust J. 373 (Summer 2005), by author and Denver, Colorado, trusts-and-estates attorney Kevin Millard:

To be able to enforce the trustee’s duties, the beneficiary of a trust must know of the existence of the trust and be informed about the administration of the trust. If there were no duty to inform and report to the beneficiary, the beneficiary might never become aware of breaches of trust or might be unaware of breaches until it is too late to obtain relief. In addition, providing information to the beneficiary protects the trustee from claims being brought long after events that allegedly constituted a breach, because the statute of limitations or the doctrine of laches will prevent the beneficiary from pursuing stale claims. As a result, the duty to inform and report to the beneficiary is fundamental to the trust relationship.

Florida Trust Code: Duty to Inform and Account

Under F.S. 736.0813 a Florida trustee has the duty to keep the "qualified beneficiaries" of an irrevocable trust reasonably informed of the trust and its administration.  The extent of this duty - which is limited solely to qualified beneficiaries - includes, but is not limited to, the following 5 specifically defined reporting duties:

  1. Within 60 days after acceptance of the trust, the trustee shall give notice to the qualified beneficiaries of the acceptance of the trust and the full name and address of the trustee.
  2. Within 60 days after the date the trustee acquires knowledge of the creation of an irrevocable trust, or the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, whether by the death of the settlor or otherwise, the trustee shall give notice to the qualified beneficiaries of the trust's existence, the identity of the settlor or settlors, the right to request a copy of the trust instrument, and the right to receive trust accountings.
  3. Upon reasonable request, the trustee shall provide a qualified beneficiary with a complete copy of the trust instrument.
  4. A trustee of an irrevocable trust shall provide a trust accounting, as set forth in F.S. 736.08135, to each qualified beneficiary annually and on termination of the trust or on change of the trustee.
  5. Upon reasonable request, the trustee shall provide a qualified beneficiary with relevant information about the assets and liabilities of the trust and the particulars relating to administration.
Qualified Beneficiaries:

The term “qualified beneficiary” is used pervasively throughout the Florida Trust Code, not just with respect to a trustee's duty to inform and report.  So if you're a Florida trustee, you need to know this term cold.

As used in the Florida Trust Code, the term “beneficiary” refers to the universe of persons who have a beneficial interest in a trust, as well as to any person who has a power of appointment over trust property in a capacity other than as trustee. F.S. 736.0103(4)  It is immaterial for this purpose whether the beneficial interest is present or future, vested or contingent, or whether the person having the interest is ascertainable or even living. By contrast, the term “qualified beneficiary” encompasses only a limited subset of all trust beneficiaries. In effect, the class is limited to living persons who are current beneficiaries, intermediate beneficiaries, and first-line remainder beneficiaries, whether vested or contingent.  Here's how its defined in F.S. 736.0103(14):

(14) "Qualified beneficiary" means a living beneficiary who, on the date the beneficiary's qualification is determined:

(a) Is a distributee or permissible distributee of trust income or principal;

(b) Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in paragraph (a) terminated on that date without causing the trust to terminate; or

(c) Would be a distributee or permissible distributee of trust income or principal if the trust terminated in accordance with its terms on that date.

Tenancy by the entirety as shield in wrongful death litigation

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.”).

New Florida legislation expressly authorizes mandatory arbitration clauses in wills and trusts

Effective July 1, 2007, Florida adopted legislation expressly authorizing mandatory arbitration clauses in wills and trusts.  The new 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 s. 44.104.

Two of the Florida attorneys instrumental in passage of the new 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 legalfees
  2. Prudent investing disputes
  3. Document construction
  4. Principal and income disputes, includingadjustment powers
  5. Trust terminations or severances
  6. Accounting disputes
  7. Declaratory relief in general

This list of "ideal" abritration senarios implicitly recognizes that arbitration is NOT the best solution for resolving ALL disputes, a view I share and have written about [click here].

Sample arbitation clauses:

Sample clauses are often the best way to understand in concrete terms how a general concept may be applied in the real world.  Note that all of the sample clauses do two things:

  • require arbitration; and
  • define the procedural rules that would govern the arbitation proceeding (for example, who appoints the arbitrator, how many arbitrators are required, what are the discovery rules, etc). 

Under the new Florida arbitration statute, if the settlor does not identify  the procdural rules he or she would like to apply the default rules are provided by F.S. 44.104.

The AAA's website [click here] provides specific procedural rules for arbitrating such wills-and-trusts claims and the following sample arbitration clause:

AAA Standard Arbitration Clause:

In order to save the cost of court proceedings and promote the prompt and final resolution of any dispute regarding the interpretation of my will (or my trust) or the administration of my estate or any trust under my will (or my trust), I direct that any such dispute shall be settled by arbitration administered by the American Arbitration Association under its Arbitration Rules for Wills and Trusts then in effect. Nevertheless the following matters shall not be arbitrable questions regarding my competency, attempts to remove a fiduciary, or questions concerning the amount of bond of a fiduciary. In addition, arbitration may be waived by all sui juris parties in interest.

The arbitrator(s) shall be a practicing lawyer licensed to practice law in the state whose laws govern my will (or my trust) and whose practice has been devoted primarily to wills and trusts for at least ten years. The arbitrator(s) shall apply the substantive law (and the law of remedies, if applicable) of the state whose laws govern my will (or my trust). The arbitrator's decision shall not be appealable to any court, but shall be final and binding on any and all persons who have or may have an interest in my estate or any trust under my will (or my trust), including unborn or incapacitated persons, such as minors or incompetents. Judgment on the arbitrator's award may be entered in any court having jurisdiction thereof.

The authors of Resolving Disputes with Ease and Grace also provided four sample arbitration clauses, including the following two:

Generic provision—Short version:

It is my hope and expectation that there will be no dispute in relation to this Trust [my estate]. Nevertheless, if there is any dispute or controversy among any of the Trustee [personal representative] and the beneficiaries involving any aspect of this Trust [my estate] or its administration, the parties to the dispute may agree on the manner of resolution. If there is no such agreement, the disputing parties shall submit the matter to mediation, and, if unresolved by mediation, to binding arbitration. If a party to the dispute fails to participate in good faith in the mediation or arbitration, the arbitrator or the court having jurisdiction over this trust [my estate] is authorized to award costs and attorney’s fees from that party’s beneficial share or from other amounts payable to that party (including amounts payable to that party as compensation for services as a fiduciary).

Generic provision—Long version with forfeiture clause:

[Comment: As with other language in these sample clauses, the forfeiture provision in paragraph (c) below has not been tested in the courts. Assuming that a mandatory arbitration provision in a will or trust is otherwise enforceable in a given jurisdiction, it is believed that a forfeiture provision is likely to be enforceable also, including in jurisdictions that do not recognize the validity of no-contest provisions.]

(a) It is my hope and expectation that there will be no dispute in relation to this Trust [my estate]. Nevertheless, if there is any dispute or controversy among any of the Trustee [personal representative] and the beneficiaries involving any aspect of this Trust [my estate] or its administration, the parties to the dispute may agree on the manner of resolution. If there is no such agreement, the disputing parties shall submit the matter to mediation, and, if unresolved by mediation, to binding arbitration. If the parties are unable to agree on the selection of a mediator or arbitrator, the court having jurisdiction over this Trust [my estate] shall select the mediator or arbitrator. [The mediator or arbitrator shall have the following qualifications: ACTEC fellow; attorney with at least 10 years’ experience in trusts and estates; etc.]

(b) In the case of arbitration, the arbitrator shall establish the procedure for arbitrating the matter or matters and recognizing the goals of privacy, efficiency, less formality than in a judicial tribunal, and less expense than might be incurred in a judicial forum, while reaching a fair result. The decision of the arbitrator shall be final and binding on the Trustee [Executor], all beneficiaries, and their heirs, successors, and assigns. If the arbitrator determines that a guardian ad litem is needed to represent the interests of unborn, unascertained, or incapacitated interested persons, a guardian ad litem shall be appointed by the court having jurisdiction over this Trust [my estate].

(c) If a disputing beneficiary fails to participate in good faith in the agreed-on procedure for resolution, or in the mediation or arbitration if there is no such agreement, the disputing beneficiary’s interest in this Trust [my estate] shall be forfeited and the beneficiary, if an individual, shall be treated as having predeceased the Settlor [me] [with no surviving issue]. If for any reason it is determined by the court having jurisdiction over this Trust [my estate] that the foregoing provision for forfeiture is not effective, the arbitrator or the court having jurisdiction over this trust [my estate] is authorized to award costs and attorney’s fees from the beneficiary’s share or from other amounts payable to the beneficiary.

(d) The provisions of subparagraph (c) above shall not apply to the beneficial interests of:

(1) the Settlor’s [my] spouse, to the extent that his [her] interest would otherwise qualify for an estate or gift tax marital deduction;

(2) any beneficiary, to the extent that the beneficial interest would otherwise qualify for an income, gift, or estate tax deduction for charitable purposes unless and until all such charitable beneficial interests have expired.

If, however, the Settlor’s [my] spouse or any such beneficiary who is a disputing beneficiary to whom the above forfeiture provisions do not apply nevertheless fails to participate in good faith in the agreed-on procedure for resolution or in the mediation or arbitration, the arbitrator or the court having jurisdiction over this trust [my estate] is authorized to award costs and attorney’s fees from his, her, or its beneficial share.

(e) The acceptance of the Trust by any trustee or co-trustee constitutes the trustee’s or co-trustee’s agreement to comply with the above provisions. If a trustee or co-trustee is a party to a dispute and fails to participate in good faith in the agreed-on procedure for resolution or in the mediation or arbitration, it shall be deemed that the trustee or co-trustee has breached its fiduciary duties and has resigned, and the court having jurisdiction over this Trust is authorized to surcharge the trustee or co-trustee for costs, attorney’s fees, and any other sums deemed appropriate. [The personal representative’s consent to act constitutes his, her, or its agreement to comply with the above provisions. If a personal representative is a party to a dispute and fails to participate in good faith in the agreed-on procedure for resolution or in the mediation or arbitration, it shall be deemed that the personal representative has breached his, her, or its fiduciary duties and has resigned, and the court having jurisdiction over my estate is authorized to surcharge the personal representative for costs, attorney’s fees, and any other sums deemed appropriate.]

(f) If the validity of these provisions requiring arbitration is contested, the court having jurisdiction over this Trust [my estate] shall resolve that issue prior to resolution of the balance of the dispute. If the arbitration provisions are determined to be valid, the balance of the disputed issues shall be resolved as provided in this Article __.

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.

Why sue trusts? Because that's where the money is

“I rob banks because that's where the money is.”  Celebrity bank robber Willie Sutton gets credit for that gem.  The same logic applies to why trusts are often enmeshed in litigation: because that's where the money is.  The opposite is also true: no trust money usually = no lawsuit.

Can you sue a testamentary trust to collect on a decedent's personal debts? NO

One way to pull off the no-trust-money disappearing act is to obtain a court ruling dismissing a lawsuit against the trust because the trust is an improper party.  In other words, the trustee argues that regardless of the merits of the plaintiff's claims, the plaintiff is simply suing the wrong party. 

A recent case out of the Middle District in Florida is a great example of this defense strategy.  In Ziino v. Baker, --- F.Supp.2d ----, 2007 WL 2433902 (M.D.Fla. Aug 22, 2007), a trust was created by a settlor who subsequently died.  The plaintiff in this case had pending claims against the settlor. The plaintiff sued the deceased settlor's testamentary trust directly rather than suing his probate estate.  Why? I'm guessing because that's where the money was.  Rather than getting caught up in the merits of the case, the trustee successfully diverted the lawsuit away from the trust to the probate estate.  "Poof," claim goes away.  Here's how the Ziino court explained its ruling:

The Trustees move to dismiss the Complaint as against themselves on the ground that Florida law prohibits a creditor from bringing a direct action against a trust or its trustees after the death of the settlor, if that action is dependent upon the individual liability of the settlor.  .  .  .  The Florida Trust Code provides that:

After the death of a settlor, no creditor of the settlor may bring, maintain, or continue any direct action against a trust described in s. 733.707(3), the trustee of the trust, or any beneficiary of the trust that is dependent on the individual liability of the settlor. Such claims and causes of action against the settlor shall be presented and enforced against the settlor's estate as provided in part VII of chapter 733, and the personal representative of the settlor's estate may obtain payment from the trustee of a trust described in s. 733.707(3) as provided in ss. 733 .607(2), 733.707(3), and 736.05053.

Fla. Stat. § 736.1014(1). Accordingly, the Trustees are not proper parties to Count I because the settlor, William Wellman, is deceased and in Count I the Plaintiff purported to allege actions that are dependent upon the individual liability of the settlor. See Tobin v. Damian, 723 So.2d 396 (Fla. 4th DCA 1999).

Can you sue a spendthrift trust because the trust beneficiary isn't paying child support or alimony? YES

However, the issue in Ziino that should be of most interest to estate planners is the issue the plaintiff won on: piercing the protective wall of a spendthrift trust.  These types of trusts are at the heart of many estate plans.  One of the primary arguments for these trusts is their well-deserved reputation as asset protection vehicles.  Ziino is important because it addresses the rare exceptions to the general asset-protection benefits of spendthrift trusts: claims for alimony and child support. 

Here's how the Ziino court articulated this point:

Although Count III is obliquely drafted, in that Count the Plaintiff seeks a writ of garnishment under Florida law. In other words, the Plaintiff is seeking to garnish any disbursement from the Trust to Laura Wellman in order to satisfy her child support obligations evidenced by the promissory notes. Moreover, the Plaintiff has alleged in Count III that traditional remedies are not available to recover the child support owed, in that Laura Wellman does not have sufficient assets to satisfy the promissory notes. When “traditional remedies are not effective,” Florida law permits a court to garnish disbursements from a spendthrift trust to effect the collection of alimony and child support. See Bacardi v. White, 463 So.2d 218, 222 (Fla.1985).

Why do you think the plaintiff in Ziino sued the trust to collect on claims against the beneficiary for unpaid child support?  Answer: "because that's where the money is!"

Trust Accounting: Remedy or Cause of Action?

Becker v. Davis, 491 F.3d 1292 (11th Cir.(Fla.) Jul 11, 2007)

In trusts-and-estates litigation there are certain remedies that take on a life of their own; often plead as stand-alone causes of action.  They're not, they're remedies.  Examples include "constructive trusts" (see here) and "accountings."

The remedy v. cause-of-action distinction is not just semantics.  Understanding the distinction can have real life consequences: and the linked-to-case is a great example.

In the linked-to case one of the parties sued for a trust accounting in connection with a business dispute subject to an arbitration clause.  The trial court ruled the trust accounting "count" was not subject to the arbitration clause because it was an independent cause of action.  Wrong answer.  A trust accounting is a remedy.  Not a cause of action, so it can't be litigated as a stand alone claim.  Here's how the 11th Circuit articulated this point in its reversal of the trial court's ruling:

[A]n accounting is a remedy attached to a separate independent cause of action. See Johnson v. Pullman, Inc., 845 F.2d 911, 913 (11th Cir.1988) (“Although plaintiff's complaint contained a count in which an accounting was sought, that relief would not be available here absent some independent cause of action.”).

Accordingly, if the four substantive claims brought by the Trust against the defendants arise out of the agreements and are therefore subject to arbitration, as the parties agree, the Trust's claim for an accounting, which is merely a remedy for any liability, would also arise out of the agreements. Furthermore, to the extent that Becker's individual claims rely on the terms of the agreements and are therefore subject to arbitration, Becker's individual claim for an accounting of the Trust's assets also rely on the terms of the agreements and are subject to arbitration. Accordingly, we find that the district court erred in not sending Count Nineteen to arbitration.

Of lost wills and "virtually" adopted heirs

In re Estate of Musil, --- So.2d ----, 2007 WL 2317189 (Fla. 2d DCA Aug 15, 2007)

The stuff of most probate disputes isn't the dramatic will contest.  Rather, it's the secondary, less sexy bread-and-butter issues that usually rule the day.  For that reason cases like the linked-to opinion are useful. Practitioners and judges alike get practical guidance they can use over and over again.

What if I can't find the original will, what if I only have a copy?

I get this question with some frequency.  I'm sure most probate practitioners would say the same. In the linked-to opinion the court does a good job of explaining what needs to be done to have a photocopy of a will accepted into probate:

A will that was in the possession of the testator before his death and that cannot be located after his death is presumed to have been destroyed by the testator with the intention of revoking it. See Carlton v. Sims ( In re Estate of Carlton), 276 So.2d 832, 833 (Fla.1973); Walton v. Estate of Walton, 601 So.2d 1266, 1266 (Fla. 3d DCA 1992). The proponent of the lost or destroyed will bears the burden of overcoming the presumption that the will was intentionally destroyed. Daul, 754 So.2d at 848. “The first step in overcoming this presumption is” to establish the terms of the will and to offer it for probate. In re Estate of Parker, 382 So.2d 652, 653 (Fla.1980). Section 733.207, Florida Statutes (2005), outlines the procedure for establishing a lost or destroyed will:

Any interested person may establish the full and precise terms of a lost or destroyed will and offer the will for probate. The specific content of the will must be proved by the testimony of two disinterested witnesses, or, if a correct copy is provided, it shall be proved by one disinterested witness.

See also Fla. Prob. R. 5.510 (stating additional requirements for the establishment and probate of a lost or destroyed will).

But he raised me like his own son, don't I have any rights?

According to U.S. census data married couples made up 71% of all households in 1970 but decreased to 53% in 2000.  Nontraditional families, made up of adults raising children who are not biologically related to them, are obviously an increasingly common phenomenon.  Many of these "parent/child" relationships are never formalized in an adoption proceeding.

Against this backdrop we can expect to see more cases where people who are not related to a decedent by blood or adoption feel entitled to a stake in the estate.  "Virtual adoption" is the only available remedy in these cases.  Get to know this concept, you'll be seeing more of it (see here).  Here's how the court in the linked-to opinion summarized the elements of this claim in Florida:

Following the reasoning in [Sheffield v. Barry, 14 So.2d 417 (Fla.1943)] and in other cases, the Fifth District listed the five elements of virtual adoption in its review of a judgment that determined heirs. Poole v. Burnett (In re Heirs of Hodge), 470 So.2d 740, 741 (Fla. 5th DCA 1985). The elements of a virtual adoption include:

1. an agreement between the natural and adoptive parents;

2. performance by the natural parents of the child in giving up custody;

3. performance by the child by living in the home of the adoptive parents;

4. partial performance by the foster parents in taking the child into the home and treating the child as their child; and

5. intestacy of the foster parents.

Id. The Fifth District also recognized the Sheffield court's acknowledgment that in Florida, the purpose of virtual adoption is to provide the child with “an enforceable contractual right.” Id.

Marshall v. Marshall: The Supreme Court's Get-Out-of-Probate-Free Card.

I've previously written about how the U.S. Supreme Court's ruling in Marshall v. Marshall will lead to more trusts-and-estates cases being litigated in Federal Court (see here).  In Marshall v. Marshall: The Supreme Court's Get-Out-of-Probate-Free Card, University of Washington School of Law law student Julian Hurst (2008 J.D. Candidate) examines Marshall's "practical consequences from the perspective of probate law and for those who find themselves challenging the validity of a will or trust."

One of these days you'll either be pushing for federal jurisdiction or opposing it in some form of trusts-and-estates litigation.  When that day comes, remember the linked-to law review article.  Here's the abstract:

Abstract:

The probate exception to federal jurisdiction is a legal doctrine self-imposed by federal courts barring jurisdiction over probating wills or administering estates, or related actions that would interfere with property in the custody of state courts. Courts have struggled with cases that fall at the margins of the exception, creating one of the most mysterious and esoteric branches of the law of federal jurisdiction.

In Marshall v. Marshall, the Supreme Court addressed the federal probate exception for the first time in over 60 years. Eight members of the Court held that the doctrine was legitimate, but more narrow than many lower courts thought. Unfortunately, the decision leaves as many questions as answers. The history, scope and purpose of the federal probate exception, as well as its place in the Supreme Court's federal jurisdiction jurisprudence, has already been treated by other authors. I will examine Marshall's practical consequences from the perspective of probate law and for those who find themselves challenging the validity of a will or trust.

Truth is stranger than fiction

The saying "truth is stranger than fiction" didn't originate in a trusts-and-estates case (see here) . . . but it should have. 

For example, say you went to a movie and the plot line revolved around a brilliant but eccentric MIT professor who allegedly staged his own "hit" by two masked men with Russian accents then blamed his son in order to gain the upper hand in litigation involving a family trust.  You'd say "no way, that could never happen."  And you'd be wrong.  As reported in Former MIT professor headed to trial in allegedly staged shooting that's exactly the real life drama currently playing itself out in a Boston courtroom:

CAMBRIDGE, Massachusetts (AP) -- What the former MIT professor and wealthy businessman told police sounded like a scene from a bad spy novel: He was shot by two masked men with Russian accents, and saved only because two of the bullets bounced off his belt buckle.


Five months later came the indictment -- against him.

Prosecutors say John J. Donovan Sr. staged his own shooting to gain an advantage in a legal battle with his own children for control of trusts that he claims are worth at least $180 million. He's accused of trying to get back at his oldest son by falsely accusing him of hiring his would-be killers.

*     *     *     *     *
Donovan is charged with filing a false police report, a misdemeanor that carries a maximum one-year sentence. His trial is scheduled to begin Friday in Middlesex Superior Court.

"John Donovan repeatedly provided false information to police about a crime that did not occur in order to 'frame' his son for a crime his son did not commit and had no part in," prosecutors claim in court documents.

*     *     *     *     *

During the 911 call Donovan made from his cell phone after the shooting, he told a state police dispatcher that his son James, now 40, "laundered $180 million" and had threatened to kill him.

Prosecutors say Donovan made up the story to exact revenge, but his lawyer Barry Klickstein calls Donovan "the innocent victim of a violent crime."

Sons Conceived In Vitro Ruled Covered by Trusts

As technology races ahead in the development of new forms of assisted reproductive technology, the courts are struggling to keep up.  From a probate litigation standpoint, the question is what legal rights - if any - does a child both born and conceived after the father's death have?  In an article entitled Posthumous Reproduction, Prof. Charles P. Kindregan, Jr., of Suffolk University Law School in Boston, described the legal landscape this way:

Until very recently, legal issues surrounding posthumous children focused on inheritance rights of a child who was conceived while the biological parents were alive with the child being born after the death of the father. The law largely deals with this problem by providing for the legal heirship of children born within the normal gestational period following the death of the father. But the development of such technologies as intrauterine insemination, in vitro fertilization, surrogacy, cryopreservation of gametes and embryos and (someday) human reproductive cloning have created the potential for an entirely different set of legal issues. These issues are not based on the birth of a child after the death of the father when the child is conceived prior to the father’s death. Instead, the new reality is based on conceiving a child or implanting a preexisting embryo after the death of a genetic parent or parents. This article explores some of the evolving issues created by the use of cryopreserved gametes and embryos after the death of one or both gamete providers.

In Florida, the inheritance rights of a child who was conceived while the biological parents were alive but born after the death of the father, are governed by Florida Statute section 732.106:

732.106 Afterborn heirs.--Heirs of the decedent conceived before his or her death, but born thereafter, inherit intestate property as if they had been born in the decedent's lifetime.

Florida has no statute governing the inheritance rights of a child conceived after the father's death.  In the absence of guiding legislation, courts are forced to fall back upon general rules of construction within the probate and trust context.  That's what a court in New York recently did, as reported on in Sons Conceived In Vitro Ruled Covered by Trusts, when it ruled that two children conceived and born after the father's death were nonetheless intended beneficiaries of the father's trust.  My guess is that a Florida court faced with similar facts would likely come to the same conclusion.  Here's an excerpt from the linked-two story:

Three years after James B. died of Hodgkin's lymphoma, his wife Nancy gave birth to the couple's first son, who was named James in honor of his late father.

Two years later -- nearly six years after her husband's death -- Nancy gave birth to their second son, Warren.

Now, as the boys approach their first and third birthdays, their in vitro conception has raised an issue of first impression that New York's Legislature did not consider, for obvious reasons, when it first drafted the Estates, Powers and Trusts Law in the early 1960s.

Specifically, in Matter of Martin B., Manhattan Surrogate Renee Roth had to decide whether the "issue" and "descendants" provided for in seven 1969 trusts includes children conceived with the cryopreserved semen of the grantor's late son -- James B., as he is known in court papers -- whose death preceded his own sons' conception.

Surrogate Roth ruled that the grantor's intent is controlling and that, although his trusts were understandably silent on the subject, they appeared to favor inclusion of young James and Warren among his "issue" and "descendants."

"[The] instruments provide that, upon the death of the Grantor's wife, the trust fund would benefit his sons and their families equally," Surrogate Roth wrote. "In view of such overall dispositive scheme, a sympathetic reading of these instruments warrants the conclusion that the Grantor intended all members of his bloodline to receive their share."

*     *     *     *     *

[Surrogate Roth] noted that the New York Legislature has addressed the same issue vis-à-vis wills: A recent amendment to the Estates, Powers and Trusts Law excludes "post-conceived" children from sharing in a parent's estate, absent a contrary provision.

That amendment, however, is "applicable only to wills and to 'after-borns' who are the children of the testators themselves," Surrogate Roth wrote. "Moreover, the concerns to winding up a decedent's estate differ from those related to identifying whether a class disposition to a grantor's issue includes a child conceived after the father's death but before the disposition became effective."

THE COMPLETELY INSANE LAW OF PARTIAL INSANITY

Last year I wrote here about a case out of the 3d DCA that had me puzzled.  The 2006 case was a will contest involving allegations of "insane delusion".  I couldn't reconcile the 3d DCA's apparent retreat from the extremely tough "lucid interval" standard generally applicable to testamentary capacity cases.

What the 3d DCA failed to explicitly state was that lack of testamentary capacity can be established in two ways: (1) general incapacity (governed by the insane-delusion standard) or (2) by establishing some specific and narrower form of insane delusion that is the direct cause of the invalid will.  This second testamentary-capacity line of attack is worth remembering.


As if on cue, professor Bradley E.S. Fogel of St. Louis University School of Law just published an article in the Spring 2007 edition of the ABA's Real Property, Probate and Trust Journal providing an excellent summary of the law governing insane-delusion will contests.  The article is entitled THE COMPLETELY INSANE LAW OF PARTIAL INSANITY: THE IMPACT OF MONOMANIA ON TESTAMENTARY CAPACITY.  Here's the editor's synopsis of his article:

In this Article, the author discusses the doctrine of monomania, which permits a court to invalidate a will based on the testator’s insane delusion if that insane delusion caused the testator to dispose of his property in a way that he otherwise would not have. The author argues that the monomania doctrine is fatally flawed and that the doctrine should be abandoned in favor of using the general test for capacity to make all testamentary capacity decisions.

Drafting trustee settlement agreements that stick

Commercial Capital Resources, LLC v. Giovannetti, 955 So.2d 1151 (Fla. 3d DCA Mar 28, 2007)

So you've been negotiating a settlement of contentious litigation for over 10 hours, it's now late into the night and you've finally got what looks like a deal put together, and then you get handed a "draft" settlement agreement by the mediator (who happens to be a senior judge with a zillion years of experience under his belt).  You don't want to be the guy who mucks up the deal at the last minute, and you don't want to be disrespectful to the judge, but the settlement agreement doesn't seem to get the trustee release language right.  The release language seems to focus on the trustee as an individual, vs. a fiduciary representing a trust estate and its beneficiaries.  Here's what the release language says:

[Trustee], CCR ... and all other named parties and defendants joined in the pending litigation will execute general releases in favor of [Giovannetti].... [Giovannetti] ... will execute general releases in favor of [Trustee], CCR ... and all other named parties and defendants joined in the pending litigation.... [Trustee] agrees that in his capacity as “trustee” of any trust ... without prejudice to his fiduciary obligations or duty to provide proper and necessary notice and disclosures to investors, that he will refrain from taking any action [sic] initiate or to solicit the investors to initiate a law suit against [Giovannetti], and that if any such action is brought against [Giovannetti], [Trustee] will resign as trustee from any trust involved in or bringing the action.

As the linked-to case shows, the professionals who signed off on this deal ended up back in court and eventually before an appellate court . . . all after executing a settlement agreement they probably all assumed was meant to end the litigation once and for all (what their clients were thinking is anyone's guess).

Lesson learned:

In retrospect, one could say that the settlement agreement litigated in the linked-to case was fundamentally flawed because it focused on the trustee as an individual vs. as a fiduciary virtually representing trust beneficiaries.  But that would be a cheap shot.  In reality, what probably happened here is that the lawyers were under pressure to draft a technically demanding settlement agreement late at night, after hours of intensive negotiation.  I've done this myself and lived to regret it.  The true lesson from this case (which I'm still working on) is that you want to draft the key portions of your settlement agreement in advance . . . when you're NOT subject to the pressure and stress of the moment.

4 questions to ask yourself before filing any lawsuit

Mike Dillon, General Counsel for Sun Microsystems, Inc., publishes a great blog called The Legal Thing.  In a blog post entitled On Litigation...(Azul), Mr. Dillon shared his "four principals" for evaluating when litigation is appropriate.  I thought his comments were dead on, and applicable to any form of litigation - including probate litigation.  I've reproduced his four principals below with my practice-specific comments:

No. 1 - You only litigate when you have an important interest to protect. Litigation is costly. Incredibly costly. But it is not the expense that is the real issue, it's the diversion of resources. Time employees spend reviewing e-mails and documents, educating lawyers and preparing for depositions is time away from the business. That's the real cost of litigation.


Probate comment: Ask your lawyer to assume the worst case scenario and then estimate how long you should expect the process to last (1 to 2 years is the norm) and how much it will all cost (it will always be higher than you expected).  Then ask yourself, "is it really worth it?"  If the answer is yes, then proceed to point no. 2, otherwise stop immediately and move on with your life.

No. 2 - A non-judicial resolution is almost always preferable. When you file a complaint, you are turning over resolution of an issue to a third party - be it a judge, arbitrator or jury. To a great degree you lose control of the outcome.

Probate comment: In the probate-litigation context, every penny spent on legal fees siphons off a piece of the family inheritance to a third party: the lawyers.  The quickest way to stop the bleeding is to settle the case.  Mediation should be a no-brainer in this type of litigation.

No. 3 - You litigate when you have a high degree of confidence that you will prevail. Bluffing is for weekend games of Texas Hold'em . When you file suit, you need to have fully evaluated all aspects of the case to ensure that the outcome will be favorable.

Probate comment:  Pick your battles carefully.  This is where lateral thinking pays off.  In the probate-litigation context there are often multiple approaches to achieve a desired result.  Some approaches usually favor the defendant, some usually favor the plaintiff.  Depending on what side you're on, play to your strengths.  How you address this point no. 3 will inform points 1 and 2 above.

No. 4 - You litigate to win. This means that your employees, board and management team fully understand and support the commitment (both financial and time) required to prevail. It also means having seasoned litigation counsel who understand your business and objectives.

Probate comment: Litigation is not a negotiation strategy.  Once you've decided a lawsuit is your last best option, you need to be willing to see the process through to the end.

U.S. Supreme Court agrees to hear case on whether the investment expenses of trusts are fully deductible or subject to a 2% floor

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.

Resulting trusts: viable tools for litigating real property claims?

Key v. Trattmann, --- So.2d ----, 2007 WL 1517827 (Fla. 1st DCA May 25, 2007)

A common theme running through much trusts and estates litigation is the betrayal of confidences.  Be it among family members or erstwhile friends, notions of fairness -- not commercial imperatives -- often drive the litigation.  The linked-to case speaks to this point by providing an effective tool for successfully contesting title to real property on equitable grounds under a "resulting trust" theory.

Resulting Trusts

In the linked-to case "Mr. Key" purchased and maintained real property in Tallahassee with his own funds. In order to help "Mr. Trattmann" obtain U.S. citizenship, Mr. Key allowed the property to be titled in Mr. Trattmann's name, subject to Mr. Trattmann's promise to convey the property to him on demand.  Mr. Trattmann later denied the existence of this promise, and Mr. Key sued to obtain title.  The trial court granted summary judgment in Mr. Trattmann's favor based partly on two affirmative defenses: the claim was barred by (1) the statue of frauds and (2) the applicable statue of limitations.  In the linked-to opinion the 1st DCA reversed the trial court, and in the process provided an excellent litigation road map for counsel/parties finding themselves on either side of a resulting trust claim.

  • Florida law
As a starting point, the 1st DCA summarized the circumstances under which Florida courts may recognize the existence of a resulting trust:

A resulting trust arises where an express trust fails, in whole or in part; where the purposes of an express trust are fully accomplished, without exhausting the trust estate; or, of particular pertinence here, “‘where a person furnishes money to purchase property in the name of another, with both parties intending at the time that the legal title be held by the named grantee for the benefit of the unnamed purchaser of the property.’“ Steigman v. Danese, 502 So.2d 463, 467 (Fla. 1st DCA 1987) (quoting Steinhardt v. Steinhardt, 445 So.2d 352, 357-58 (Fla. 3d DCA 1984)), disapproved of on other grounds by Spohr v. Berryman, 589 So.2d 225, 228-29 (Fla.1991), and order vacated by In re Estate of Danese, 601 So.2d 570, 571 (Fla. 1st DCA 1992). See also F.J. Holmes Equip., Inc. v. Babcock Bldg. Supply, Inc., 553 So.2d 748, 749 (Fla. 5th DCA 1989) (“A resulting trust may arise in favor of one who furnishes money used to purchase property the legal title to which is taken in the name of another.”). A resulting trust can, indeed, be “founded on the presumed intention of the parties that the one furnishing the money should have the beneficial interest, while the other held the title for convenience or for a collateral purpose.” Frank v. Eeles, 13 So.2d 216, 218 (Fla.1943) (internal quotation marks and citation omitted). See also Restatement (Third) of Trusts § 7 cmt. c (2003).

  • Statute of Frauds: NOT applicable
The trial court found that even if a resulting trust had arisen, the plaintiff's claims were barred by Florida's statute of frauds because the promise to convey the real property alleged by the plaintiff was not in writing.  The 1st DCA rejected the trial court's ruling as follows:

The statute of frauds does not apply to resulting trusts . . . [b]ecause a resulting trust arises not ex contractu but by operation of law, the statute of frauds does not pertain. See, e.g., Williams v. Grogan, 100 So.2d 407, 410 (Fla.1958) (“A trust which is created by operation of law is not within the statute of frauds and may be proved by parol evidence.”); Stonley v. Moore, 851 So.2d 905, 906 (Fla. 3d DCA 2003) (reversing summary judgment entered on a claim seeking to establish a resulting or constructive trust where the trial court relied on the statute of frauds, because “‘resulting trusts involving real estate can be based on parol evidence’”) (quoting Zanakis v. Zanakis, 629 So.2d 181, 183 (Fla. 4th DCA 1993)).

  • Statute of Limitations: the clock starts ticking when the dispute is made known, NOT when the contested property is first purchased
In trust disputes, determining when the clock starts ticking for statute of limitations grounds can be tricky.  In fact, the Florida Bankers Association is currently proposing revisions to the current statute of limitations applicable to trust disputes (see here).


Although unclear from the opinion, the trial court apparently assumed that the cause of action arose at or about the time the property was first purchased.  The 1st DCA rejected that conclusion, making clear that under Florida law trust disputes do not accrue until the trustee actually repudiates the trust.

Applying a statute of limitations to a resulting trust,[FN5] the Fifth District held that the “beneficiary of a resulting trust is not bound to act until the trustee repudiates the trust or begins to hold the property adversely with knowledge on the part of the beneficiary.” Bradbury v. Fuller, 385 So.2d 7, 8 (Fla. 5th DCA 1980). See also Grable v. Nunez, 64 So.2d 154, 160 (Fla.1953) (“The statutes of limitations do not operate against a resulting trust until the trustee has disclaimed the trust and begins to hold adversely to the beneficial interest.”). Thus, assuming [as the trial court did that F.S. 95.11(3)(k) and (6)] applies, it would not have begun running until Mr. Trattmann refused to convey the property to Mr. Key.


FN5
. The rights of beneficiaries of resulting trusts to enforce their rights against the trustee or third persons are subject to the same rules regarding the doctrine of laches and statutes of limitations as apply in the case of express trusts. See § 98, and also compare §§ 96 and 97. The so-called doctrine of merger, which applies to express trusts (see § 69), also applies to resulting trusts.

Restatement (Third) of Trusts § 7 cmt. h (2003). See also supra note 1.

Evidentiary road map for undue influence and lack of testamentary capacity cases

Diaz v. Ashworth, --- So.2d ----, 2007 WL 1484550 (Fla. 3d DCA May 23, 2007)

A prospective client comes to see you about challenging a will on undue influence and/or lack of testamentary capacity grounds.  The client wants to know "how much will it cost, how long will it take, what are my chances of winning?"  You ask yourself what may be the most important question of all "should I take this case?" 

Unless you understand the evidentiary issues you'll need to address in connection with each claim, you can't possibly expect to answer any of the questions posed above with any degree of certainty.  And misjudging those questions usually equals an unhappy client who doesn't want to pay his lawyer (yikes!)

Which is why the linked-to opinion is so important.  In this case the highly regarded Miami-Dade senior trial judge, Herbert Stettin, did such a good job of laying out the evidentiary issues underlying a will contest based upon undue influence and lack of testamentary capacity grounds, that the 3d DCA simply copied his order and adopted its reasoning as their own.

Evidence and Undue Influence Claims:

I found the discussion addressing evidentiary issues arising in an undue influence case especially helpful.  When reading the excerpt provided below, keep in mind the following three points.

  • Key statute: §733.107(2)
  • Burden of proof: preponderance of the evidence
  • Building your case: note the importance given to medical testimony
For further background, an excellent starting place is Florida's New Statutory Presumption of Undue Influence, 77 Fla. B.J. 20, 21 (2003).

Judge Stettin:

Petitioner's second claim is that Mr. and Mrs. Ashworth unduly influenced Mr. Mesa to make the July 10, 2003 will. Father Diaz argues that the evidence shows the Ashworths never had a prior close relationship with Mr. Mesa, that their deep involvement in the making of the will, together with their attempts to insulate Mr. Mesa from contact with others after the will was made, all done at a time when Mr. Mesa was in the final stages of the AIDS illness, prove that the Ashworths obtained the will in question by unduly influencing Mr. Mesa's decision.

[Carpenter analysis]

The starting point to determine whether a will has been procured by the exercise of undue influence is the analysis required by In re: Estate of Carpenter, 253 So.2d 697 (Fla.1971). Under Carpenter, once it is established by the proponent that the will was properly executed, the contestant then must show, prima facie, the existence of a confidential relationship between the testator and the active procurement of the will by the proponent. Carpenter discusses those factual circumstances which may give rise to such a determination which, once made, results in a presumption that the will is the product of undue influence. Using the Carpenter test, I find that a presumption of undue influence was established by the evidence. Mr. Ashworth is the sole beneficiary under the July 10, 2003 will; he was present at its execution; Mrs. Ashworth was present on July 9, 2003, when Mrs. Mesa stated that he wished to make a will; Mr. Ashworth recommended that his attorney, Mr. Pilafian, draw the will; while disputed as to whether he learned of it on July 9 or July 10, 2003, Mr. Ashworth was aware of the contents of the will before it was signed; and Mrs. Ashworth was one of the subscribing witnesses. Add to this fact that Mr. Ashworth brought Mr. Mesa to Mr. Pilafian's office to sign the will and that he and his wife were active in caring for him after the will was signed, and it is clear the Ashworths occupied a confidential relationship with Mr. Mesa.

[Shifting burden of proof under Carpenter]

Carpenter provides that once evidence of such a presumption of undue influence has been made, it does not shift the burden of proof to the proponent of the will to prove the will was not the product of undue influence. Rather, it merely shifts to the proponent “the burden of coming forward with a reasonable explanation for [the beneficiary's] active role in the decedent's affairs, and specifically, in the preparation of the will ...”. 253 So.2d at 704. Carpenter holds that it then becomes the responsibility of the trial court to determine whether the proponent has, prima facie, satisfied this burden of reasonable explanation. Finally, once all these presumptions and burdens are met, the decision rests on the traditional evidentiary test of who has proven their case by a preponderance of the evidence.

[Impact of F.S. 733.107(2) on Carpenter analysis]

Subsequent to Carpenter, however, the legislature enacted an amendment to § 733.107, Fla. Stat ., to prohibit the shifting of the burden of proof in presumption of undue influences cases. See, e.g., Hack v. Janes, 878 So.2d 440, 443 (Fla. 5th DCA 2004). As it now stands, in those cases where the proponent of a will satisfies, prima facie, a presumption of undue influence in the making of the will, the proponent of the will has the burden of proving the will was not the product of undue influence. That burden must be met by a preponderance of the evidence as determined by the trier of fact.

[Application of law to facts]

Using these standards, I find that the Petitioner has proven by a preponderance of the evidence that the will was not the product of undue influence by Mr. and Mrs. Ashworth. Mr. Mesa was capable of making his own decision about who would receive his property when he signed the Ashworth will. The will he signed on July 10, 2003, and the two previous wills he made in the two years prior to 2003, each named non-relatives as beneficiaries. Each will was very basic. On July 10, 2003, Mr. Mesa knew what a will was and he was clear about his wishes as to who should inherit his property. On the same day as the Ashworth will, Mr. Mesa also made another significant decision to reject further medical treatment and to enter hospice care at his home rather than spend his last days in an institution. Dr. Steinhart's records and testimony are clear that Mr. Mesa was competent to make these decisions. I find the preponderance of the evidence in this case is that Mr. Mesa was competent and not unduly influenced in making the will dated July 10, 2003.

Evidence and Lack of Testamentary Capacity Claims:

I wrote about the last 3d DCA testamentary capacity case here.  Without mentioning that opinion (perhaps purposely?), Judge Stettin also did a great job of summarizing the state of the law in Florida with respect to what it takes to successfully prosecute a will challenge based on lack of testamentary capacity (again notice the importance given to medical testimony).  Here again the 3d DCA simply adopted his reasoning as its own.

Judge Stettin:

[Applicable legal standard]

In Raimi v. Furlong, 702 So.2d 1273, 1286 (Fla. 3d DCA 1998), our Third District concisely set out the applicable standards for a determination of testamentary incompetence, stating:

It has long been emphasized that the right to dispose of one's property by will is highly valuable and it is the policy of the law to hold a last will and testament good wherever possible. See In re Weihe's Estate, 268 So.2d 446, 451 (Fla. 4th DCA 1972), quashed on existing facts, 275 So.2d 244 (Fla.1973); In re Dunson's Estate, 141 So.2d at 604. To execute a valid will, the testator need only have testamentary capacity (i.e. be of “sound mind”) which has been described as having the ability to mentally understand in a general way (1) the nature and extent of the property to be disposed of, (2) the testator's relation to those who would naturally claim a substantial benefit from his will, and (3) a general understanding of the practical effect of the will as executed. See In re Wilmott's Estate, 66 So.2d 465, 467 (Fla.1953); In re Weihe's Estate, 268 So.2d at 448; In re Dunson's Estate, 141 So.2d at 604. A testator may still have testamentary capacity to execute a valid will even though he may frequently be intoxicated, use narcotics, have an enfeebled mind, failing memory, [or] vacillating judgment.” In re Weihe's Estate, 268 So.2d at 448. Moreover, an insane individual or one who exhibits “queer conduct” may execute a valid will as long as it is done during a lucid interval. See Id.; see also Coppock v. Carlson, 547 So.2d 946, 947 (Fla. 3d DCA 1989) (whether testator had the required testamentary capacity is determined solely by his mental state at the time he executed the instrument), rev. denied, 558 So.2d 17 (Fla.1990).

[Application of law to facts]

Applying these standards, I find that Mr. Mesa was competent to make the July 10, 2003, Ashworth will. He understood the nature and extent of his property, he knew those who would naturally claim a substantial benefit from his will, and it is clear that he was aware of the practical effect of the will he signed. He knew that he was going to die. He made an informed decision to accept hospice care instead of further treatment just prior to making the Ashworth will. Dr. Steinhart believed Mr. Mesa was competent to make such an obviously important decision.

Estate funds: possession is nine-tenths of the law

Morrison v. West, --- So.2d ----, 2007 WL 1135659 (Fla. 4th DCA Apr 18, 2007)

The linked-to case is a good example of why estate funds MUST remain subject to court control until all reasonably foreseeable debts are paid -- including attorney's fees.  Once estate funds are distributed no one should be misled by false expectations about the power of lawyers or even the courts to get those funds back.  The old saying we learned as children that "possession is nine-tenths of the law" is all too true when it comes to estate funds.

In the linked-to case client, Ms. Carla Morrison, hired North Carolina attorney William West to represent her in litigation against her husband's multi-million dollar estate.  He did so and worked out a settlement agreement that included a $1 million pay out to Morrison.  Morrison then fired West and hired attorney Gary Woodfield to represent her.  At a hearing to approve the settlement agreement Mr. Woodfield represented to the court that his client had agreed to retain the $1 million payment in his firm's trust account until a fee dispute with West was worked out.

COURT: [Morrison] agrees that it goes to your trust account until the fee arrangements are resolved?

WOODFIELD: She does. I have discussed that with her. She is in agreement with that, Mr. West is in agreement with that, and Mr. Pressly is in agreement with that.

And hopefully we will be able to amicably resolve the matter and that will be the end of it.

The trial court approved the settlement and executed the final judgment on January 20, 2005. Neither the final judgment nor the settlement agreement referred to the disbursement of the $1 million to West.

For reasons unexplained in the linked-to opinion, the funds left Mr. Woodfield's trust account the very next month - and have yet to be returned despite a standing court order directing client to give the money back.

In February 2005, West learned that Woodfield released the $1 million in the Edwards & Angell trust account to Morrison. On June 30, 2005, West filed a motion to modify the final judgment and requested that Morrison be ordered to redeposit the $1 million into the court registry pending further proceedings. On February 21, 2006, the trial court held a hearing on West's motion to modify the final judgment. West, Woodfield, and Morrison testified at the hearing.  The trial court ruled:

And having observed the witness testimony today I find that Carla Morrison did in fact authorize Mr. Woodfield to withhold that $1 million and place it in a trust account, bank account, interest bearing until the fee issue has been resolved. I find that that portion of her testimony regarding it be for a short time only is not credible. And I find the testimony of Mr. West regarding these fee disputes to be credible.

So I am directing that this money be placed back in the Edwards and Angell trust account, interest bearing, not to be released under any circumstances without a further Court order until the fee issues are resolved.

The trial court directed that the money be returned to the Edwards & Angell account within 30 days. Morrison never complied.

Lesson learned?

Always keep your eye on the money.  When in doubt, make sure you have the appropriate orders in place to ensure estate funds don't get distributed until you're sure all interested parties - including the attorneys - have been provided for.  Sure, you can always sue for the return of wrongfully distributed estate funds (733.812), but why put yourself in that position to begin with?

When do probate proceedings bar a claim for intentional interference with an expectancy of inheritance?

Schilling v. Herrera, --- So.2d ----, 2007 WL 981627 (Fla. 3d DCA Apr 04, 2007)

Anna Nicole Smith's U.S. Supreme Court case revolved around whether federal courts have jurisdiction to adjudicate state-law tortious interference claims.  Since she won (see here) the expectation has been that more tortious interference claims would be litigated in federal court (see here).  With this background in mind, this 3d DCA opinion is especially timely because it explains when probate proceedings will effectively bar such claims in Florida.

In DeWitt v. Duce, 408 So.2d 216 (Fla.1981), the Florida Supreme Court articulated the governing rule in Florida as follows: a claim for intentional interference with an expectancy of inheritance is barred by F.S. 733.103(2) if the plaintiff had an adequate remedy in probate with a fair opportunity to pursue it.  By implication, when the plaintiff did NOT have a fair opportunity to pursue his or her claim in probate, the claim is NOT precluded by the rule in DeWitt.

In the linked-to opinion the 3d DCA held that the plaintiff's tortious interference claim was not precluded by DeWitt because the plaintiff was essentially prevented from pursuing his claims in probate.  In other words, the claim was not barred because there were two frauds committed in the case.  The first against the decedent, the second against the plaintiff.  Here's how the 3d DCA articulated its reasoning:

We find that DeWitt is factually distinguishable, and therefore inapplicable. A review of the amended complaint reflects that Mr. Schilling has alleged two separate frauds. The first alleged fraud stems from Ms. Herrera's undue influence over the deceased in procuring the will, whereas the second alleged fraud stems from Ms. Herrera's actions in preventing Mr. Schilling from contesting the will in probate court. We acknowledge that pursuant to DeWitt, if only the first type of fraud was involved, Mr. Schilling's collateral attack of the will would be barred. However, language contained in DeWitt clearly indicates that a subsequent action for intentional interference with an expectancy of inheritance may be permitted where “the circumstances surrounding the tortious conduct effectively preclude adequate relief in the probate court.” Id. at 219.

 Good lawyering pays off

When the client walks through the door, tells you the probate proceeding is complete, but asks what can you do for him, not many attorneys would have a good answer.  In this case, Fort Lauderdale probate litigator Brandan J. Pratt figured out a winning strategy and successfully pursued it through to appeal.  Very solid lawyering indeed.

You can't sue someone else's personal representative for breach of fiduciary duty or get fees for thwarting someone else's testamentary intent

Harding v. Rosoff, --- So.2d ----, 2007 WL 461381(Fla. 4th DCA Feb 14, 2007)

This is the second appellate opinion arising out of this piece of probate litigation.  I wrote about the first appeal here.  In this sad case a 95 year old woman inadvertently failed to comply with the technical  requirements necessary to effectively exercise a power of appointment she had under a trust created by her brother over 30 years ago.

The default beneficiary under brother's trust sued the probate estate over the attempted exercise of the power of appointment and won.  Rather than being content with this win, default trust beneficiary then sued the personal representative of sister's estate for attorneys' fees.  The trial court said NO WAY, and the 4th DCA agreed as follows:

  • Court: You can't sue someone else's personal representative for breach of fiduciary duty:

The personal representatives argue that there can be no surcharge, which is a charge against a fiduciary to compensate a beneficiary for the breach of fiduciary duty, Merkel v. Guardianship of Jacoby, 862 So.2d 906 (Fla. 2d DCA 2003), because there was no fiduciary duty to Harding. They point out that they are fiduciaries only of the Teresa Rosoff estate and that Harding is not a beneficiary of that estate. Harding is a beneficiary of the Molinari Trust, but the personal representatives are not fiduciaries of the trust. We are not persuaded by Harding that there is a fiduciary duty to her, but we need not decide that issue because the pursuance of the litigation by the personal representatives was consistent with the testator's intent. Although they lost and we affirmed, we noted that “Teresa's apparent intent has been thwarted.” Rosoff, 901 So.2d at 1010. The trial court was correct in finding no impropriety by the personal representatives.

  • Court: You don't get fees for thwarting the testatrix's intent:

Harding also contends that she should have been awarded attorney's fees and costs for prevailing in the litigation under section 733.106, Florida Statutes (2005), because the litigation benefited the estate. In re Estate of Udell, 501 So.2d 1286 (Fla. 4th DCA 1986). Harding has cited no cases, however, which would support her theory that there was a benefit to the estate under these specific facts. She relies on In re Estate of McCune, 223 So.2d 787 (Fla. 4th DCA 1969), in which we stated that services which carry out the intent of the testator as expressed in the will are compensable from the estate. As we previously noted, however, this litigation thwarted the testator's intent. Harding also cites Robinson v. Robinson, 805 So.2d 94 (Fla. 4th DCA 2002), in which this court affirmed an award of attorney's fees to a beneficiary who successfully reformed a trust. In Robinson, however, the fees were awarded from the trust, not the estate. Under these facts, in which the litigation determined only who would be the beneficiary of the Molinari Trust, the trial court did not err in finding that there was no benefit to the estate.

The Art of the "General Release"

Hernandez v. Gil, -- So.2d. ---, 2007 WL 466029 (Fla. 3d DCA Feb 14, 2007)

Drafting a settlement agreement is always part science, part art.  The drafting needs to be technically solid.  The economic aspects of the deal need to be clearly worked out, although this issue is usually pretty simple, no matter how many zeros are after the dollar sign (party A pays part B $___ to settle).  The less tangible aspect of the deal - but probably the most important contribution made by counsel - is anticipating everything that can go wrong and working defenses against these contingencies into the deal. 

The Art of the "General Release"

The linked-to opinion is an example of superb lawyering anticipating and building defenses against an unscrupulous litigant into a global settlement agreement.  In this case son challenged probate of his father's will by suing his mother and a friend of the family, who were dad's PRs and trustees of dad's trust.  Son settles case against dad's estate in exchange for certain estate assets and the exchange of general releases.  Son then breaches deal by suing again when mom passes away. 

Fortunately the lawyers negotiating the original settlement deal had anticipated this turn of events in the form of general releases that shielded the good guys from this type of attack.  Here's how the 3d DCA described the three categories of general release at issue in this case:

  • First general release: shield mom's estate from future attack by disgruntled son:

Pursuant to the clear and unambiguous language of the first general release executed by Hernandez, Hernandez agreed to release his mother, Doña Alicia, from any and all causes of action and to renounce any right in Doña Alicia's estate, except to the extent, if any, that Doña Alicia named him a beneficiary under her will. Further, if not named as a beneficiary under his mother's will, Hernandez agreed not to contest the validity of the will and waived his right to enter an appearance in any probate proceeding pertaining to his mother's estate and, to the extent that he would make such challenge or enter any such appearance, he would be deemed to have predeceased his mother.

  • Second general release: shield the trustee from future attack by disgruntled son:

In a second analogously termed release, Hernandez agreed to renounce any right, title, or interest, vested or contingent, he had, has, or may have in the future in the Trust and in any other trust in which either of his parents was a settlor or beneficiary.

  • Third general release: shield family friend from individual future attack by disgruntled son:

In a third release, Hernandez agreed to release Gil, individually, and in her capacity as executrix and personal representative of Don Manolo's estate, and in her capacity as the trustee of the Trust, from any and all claims whatsoever, in law or in equity, which he ever had, has, or may have in the future.

Lesson learned?

Good drafting worked . . . to an extent.  Although no one could physically prohibit disgruntled son from breaching the terms of the settlement deal, the general releases he signed provided effective tools for shielding against his future attacks.  Here's how the 3d DCA described how disgruntled son breached original deal and how the general releases described above worked to thwart him:

The record indicates that Doña Alicia died in July 2003 and did not name Hernandez as a beneficiary under her last will and testament. Not surprisingly, Hernandez entered an appearance in the probate proceedings of his mother's estate and filed a petition challenging the administration of her will, in clear contravention of the express terms of the GSA. Hernandez also filed a lawsuit against Gil, individually, for tortious interference with his rights to his mother's inheritance. Pursuant to the clear and unambiguous language of the GSA and the corresponding releases, Hernandez bargained away his right to challenge his mother's will and in the event that he did so, he would be deemed to have predeceased his mother. Having challenged his mother's will, Hernandez is deemed to have predeceased her and therefore, has no right to any inheritance from his mother.

Fraud trumps "technical deficiencies" when validating land trusts

Keller v. Estate of Keller, 2007 WL 162770 (Fla. 4th DCA Jan 24, 2007)

The underlying facts of this tragic divorce/murder/land-trust case are recounted in lured detail in Court TV's write up of the case: THE KELLERS AND THEIR MILLIONS: A Bloody Meeting.  Before the divorce was finalized, Mrs. Keller was murdered.  Mr. Keller is now in jail charged with her murder.  Mr. Keller's reported $72+ million fortune is mostly in real estate.  His real estate investments were held in various land trusts.  (I've written recently about land trusts here and here.)


During his marriage to mail-order bride Mrs. Keller, Mr. Keller lead her to believe he was transferring a 50% beneficial interest in certain land trusts to her, when in fact he later testified that he had purposely failed to comply with the "technicalities" needed to transfer interests in a land trust.  When he tried to raise his own deliberate failure to comply with the requisite formalities for transferring title, the trial court ruled against him and the 4th DCA upheld that ruling based on the following rationale:

Another issue involves a number of other trusts which are factually similar. In 1999, at a time when Mrs. Keller was a minority beneficiary of the trusts, Mr. Keller, at her request, made written changes on each trust document to reflect that she had a fifty percent beneficial ownership interest. He testified in the dissolution proceeding that he had deliberately not followed through on certain formalities required by the trust instruments regarding the altering of the beneficial ownership interests. Again, his testimony, which was in conflict with his written changes on the trust instruments, was found not credible. There was ample evidence to support the trial court's conclusion that Mr. Keller was estopped from raising the technical deficiencies, which included the fact that Mrs. Keller was equally jointly liable on the indebtedness on most, if not all of these properties. Cotton v. Williams, 1 Fla. 37, 54 (Fla.1846) (“No man can avoid his own deed by which an estate has passed, on account of his own fraud in executing it.”).

Lesson learned:

As a trust-and-estates attorney I would rationalize the court's actions not only on notions of equity -- which is the heart and soul of divorce litigation -- but also on the distinction between equitable and legal title I wrote about hereMr. Keller's actions may have purposely avoided the requirements for transferring legal title, but his actions were certainly sufficient to transfer equitable title.

Testamentary capacity: is the "lucid interval" standard still good law?

Miami Rescue Mission, Inc. v. Roberts, 943 So.2d 274, 31 Fla. L. Weekly D2979 (Fla. 3d DCA Nov 29, 2006)

In 1998 the 3d DCA held in Raimi v. Furlong, 702 So.2d 1273 (Fla. 3d DCA 1998), that just because you're "insane" doesn't mean you necessarily lack testamentary capacity if you happen to sign your will during a "lucid interval."  Based on this very tough standard for proving incapacity, the 3rd DCA overturned the trial court’s finding of incompetency as a matter of law because at trial the testifying neurologist was unable to determine if the testator was lucid or not at the precise moment she executed the contested will. Here's the key text from Raimi:

It has long been emphasized that the right to dispose of one’s property by will is highly valuable and its is the policy of the law [in Florida] to hold a last will and testament good wherever possible. To execute a valid will, the testator need only have testamentary capacity (i.e., be of “sound mind”) which has been described as having the ability to mentally understand in a general way (1) the nature and extent of the property to be disposed of, (2) the testator’s relation to those who would naturally claim a substantial benefit from his will, and (3) a general understanding of the practical effect of the will as executed. A testator may still have testamentary capacity to execute a valid will even though he may frequently be intoxicated, use narcotics, have an enfeebled mind, failing memory, [or] vacillating judgment. Moreover, an insane individual or one who exhibits “queer conduct” may execute a valid will as long as it is done during a lucid interval. Indeed, it is only critical that the testator possess testamentary capacity at the time of the execution of the will.

Fast forward to 2006.  In an apparent retreat from its own "lucid interval" standard, in the linked-to opinion the 3d DCA now seems to be saying lack of testamentary capacity can be established by "clear and convincing" evidence regarding the testator's general health and mental wellbeing in the days leading up to the will signing.  Although the 3d DCA does cite to Raimi for a procedural point, it never discusses why the "lucid interval" standard it applied in that case apparently does not apply in this case.  Instead, the 3d DCA reaches back to Florida Supreme Court precedents from 1919 and 1933 to support its current ruling.

“Where there is an insane delusion in regard to one who is the object of the testator's bounty, which causes him to make a will he would not have made but for that delusion, the will cannot be sustained.” Newman v. Smith, 77 Fla. 633, 667 and 688, 82 So. 236, 236 (1919). Further, “an insane delusion has been defined as a spontaneous conception and acceptance as a fact of that which has no real existence except in imagination. The conception must be persistently adhered to against all evidence and reason.” Hooper v. Stokes, 107 Fla. 607, 145 So. 855, 856 (1933).

Lesson learned?

The 3d DCA notes that the trial judge, Celeste Hardee Muir, entered a 22-page order "carefully" explaining the evidence she relied on in reaching her conclusion to revoke the testator's latest will on incapacity grounds.  That's probably the key line in this opinion.  It's tough (maybe impossible?) to reconcile the 3d DCA's ruling in Raimi with its current ruling in the linked-to case. I would guess the differing outcomes may be the result of an extremely compelling set of facts in the latest case.  So is this case an example of "bad facts making bad law" or a concious retreat from the lucid-interval standard?  Who knows, the 3d DCA certainly didn't discuss the point.  Not exactly concrete guidance for future litigants and their attorneys .  .  .

Personal representative to lawyer: So what can possibly go wrong after you've settled the case?

Johnson v. Clark, 2006 WL 3780511 (M.D.Fla. Dec 20, 2006)

No surprises.  That, in a nutshell, is probably the single most important ingredient in any successful attorney-client relationship . . . especially so in the litigation context.  Which is why this case is an excellent resource for Florida probate counsel.

Hammering out a settlement agreement is usually considered probate-litigation Nirvana.  But just because the trustee or personal representative signs off on the deal doesn't mean you're home free.  If one of the beneficiaries is determined to undermine the deal then all the "what ifs" need to be anticipated and factored into the deal (remember - no surprises!). 

So what can you do to ensure the deal sticks?  First of all, you'll want to get  a court order approving the deal after a hearing where all beneficiaries were given an opportunity to object.  Counsel in this case did this.  So far so good.  But what can you do if a beneficiary starts up a whole new piece of litigation covering the same ground covered by the settlement agreement?  As we all know, you can't stop someone from suing you, all you can do is mitigate the risk and cost of such actions.

Virtual Representation

Although the virtual-representation concept summarized below provides an effective tool for disposing of litigation by disgruntled beneficiaries in the settlement-agreement context, the cost of having to litigate this issue should have been anticipated as part of  the settlement deal and shifted over to the estate in the form of an indemnification clause (remember - no surprises!).

The doctrine of virtual representation provides that “[a] person who is not a party to an action but who is represented by a party is bound by and entitled to the benefits of a judgment as though he were a party.” Restatement (Second) of Judgments § 41(1). Further, it is well-settled that in cases involving claims by a trustee and individual beneficiaries, a trustee, in his representative capacity, acts on behalf of the trust representing the interests of the trust and its beneficiaries; a beneficiary is therefore bound by a judgment properly obtained by a trustee acting in his representative capacity. See § 737.402(t), Florida Statutes (2006); Restatement (Second) of Judgments § 41(1)(a) (“A person is represented by a party who is the trustee of an estate or interest of which the person is a beneficiary····”). In Florida, the doctrine of virtual representation has been codified [in F.S. 731.303].

Intervenor Status

But what if you happen to be the attorney representing the disgruntled beneficiary?  What kind of options can you open up for this client?  The virtual-representation concept bars your client from undoing a settlement deal entered into by his or her trustee, but what if your client had independent standing in the case?  Well, then it's a whole new ballgame.  As discussed in the following excerpts from the linked-to opinion, if your client is granted "intervenor status" in the case, presto: independent standing!

Although [Weiss v. Courshon, 618 So.2d 255 (Fla. 3d DCA 1993)] has a similar fact pattern to that presented here, the one glaring and significant difference between the beneficiaries in Weiss and Clark in the present case-the fact that Clark never formally became an intervenor in the probate proceedings-dictates the different result here. While it is true that Clark objected to the Mediation Agreement and even appealed the court's order approving the settlement, Clark was not an intervenor to the trustee's claims and neither the Mediation Agreement nor the Order approving it expressly reserved his individual claims. . . . . .

FN6. Although the [Weiss v. Courshon, 618 So.2d 255 (Fla. 3d DCA 1993)] court did not specifically cite to it, Florida law provides that “[a]nyone claiming an interest in pending litigation may at any time be permitted to assert a right by intervention.” Fla. R.Civ.P.1.230. “[T]he general rule [is] that it is too late to apply for intervention after final decree has been entered, though there are cases where in the interest of justice leave to intervene has been granted after final decree.” Wags Transp. Sys., Inc. v. City of Miami Beach, 88 So.2d 751, 752 (Fla.1956) (internal citations omitted) (holding that potential loss of intervenors' homes satisfied the interest of justice exception). Further, the Virtual Representation Statute represents a policy decision by the Florida legislature, which weighs heavily against the possibility that facts of this case would warrant a late grant of intervenor status, even if Clark had actually requested such status. See id.

The "Standard" General Release

Say it's 11 PM on a Friday night and you've been negotiating a settlement deal for the last 18 hours, you've worked through the all the economics of the deal and someone says "how about we just agree to the 'standard' general release?"  Freeze, because that last statement is nonsense.  Do yourself and everyone else involved a favor and insist on the parties agreeing to the explicit text of the release.  If anyone blows a gasket at this latest middle-of-the-night example of your intransigence, you may want to share this last bit of guidance from the linked-to opinion:

The Florida Supreme Court has recognized that “there are no ‘standard’ general releases; all are unique. The fact that a proposed release is described as being ‘general’ is virtually meaningless. [I]t would be essential to know what is being released, who is being released, and any conditions or terms of the release.” Swartzel v. Publix Super Markets, Inc., 882 So.2d 449, 453 (Fla. 4th DCA 2004). In other words, the covenant to execute “mutual general releases” as set forth in the Mediation Agreement essentially had no meaning until the actual general releases were executed . . .

Do you know how to retrieve funds wrongfully taken from a joint bank account?

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).

Florida's land-trust law remains unsettled in bankruptcy proceedings

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!

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So what is it, cash or tangible property?

Baldwin v. Estate Of Winters, 2006 WL 3299834 (Fla. 4th DCA Nov 15, 2006)

So what is it, cash or tangible property?  The linked-to case demonstrates this seemingly basic/esoteric question can have a real-life impact on who gets what from an estate.  The contested writing was described as follows by the 4th DCA:

On May 22, 1999, two copies of a typewritten letter were prepared on the testator's personal stationery. They directed the same personal representative “to give to Allan Baldwin a new car of his choice from [her] estate.” Each copy was signed by the testator, witnessed, and notarized.

If this document devised tangible property, then F.S. 732.515 governs, if it devises a monetary amount, then the general rules governing codicils under F.S. 732.502 governs.  The probate court ruled it was a devise of a monetary amount, NOT tangible property, thereby rejecting Mr. Baldwin's argument for application of the less demanding rules applicable to devises of tangible property under F.S. 732.515.

Here's how the 4th DCA summarized its ruling:

[W]e agree with the probate court's initial ruling that the separate writing was not a proper devise of tangible property, pursuant to section 732.515. Because the devise was of a monetary amount, it could not be effectuated through a separate writing under the 1997 version of section 732.515.

Missing the forest for the trees: judicial construction of trust provisions designed to minimize estate tax without ever mentioning the tax-savings goals driving the disputed trust provisions

Fleck-Rubin v. Fleck, 933 So.2d 38, 31 Fla. L. Weekly D1369 (Fla. 2d DCA May 12, 2006)

The trial court in this case ruled that an estate tax marital deduction trust (obviously designed to qualify as a "general power of appointment marital deduction trust") failed to give the surviving spouse an unlimited withdrawal power over these trust assets . . . . in spite of the fact that in the absence of such withdrawal power the entire tax-savings design of the trust would fall apart?!

Estate-tax planning is a HUGE (and usually the primary) consideration driving how most trusts are drafted.  Failing to understand the estate tax issues underlying the entire design of a trust document is like trying to order off a Chinese menu with no English translations . . . you know it's a menu, but have only the vaguest idea of what's actually being said on a given page.  The same applies to the construction of most trust documents: if you don't understand the tax planning concepts driving the trust's design and drafting, then how can you possibly be expected to correctly construe the trust's text?  Short answer: you can't.

Although the 2d DCA achieves the right result, in a classic example of missing the forest for the trees it grounds its reversal of the trial court's mistaken order on the meaning of the word "shall" without ever once discussing the single most important indication of the settlor's intent:  estate tax planning.  For the record, here's how the 2d DCA explained its ruling:

In this appeal, we are asked to determine whether the terms of the trust agreement permitted Sondra to remove all the funds and assets of Trust A without her cotrustee's consent. The trial court considered two provisions in determining that Sondra did not have the authority to unilaterally remove the funds and assets of Trust A-paragraph 3(a)-(e) and paragraph 9(f). Paragraph 3(b) provides that “[t]he Trustees shall make distributions to my wife from the principal of Trust A, even to the complete exhaustion thereof····” (Emphasis added.) Paragraph 9(f) provides:

9. The following additional provisions and limitations, when applicable, shall govern the administration and disposition of the trust property:

····

(f) Notwithstanding any provision to the contrary elsewhere contained in this instrument, neither my wife nor any lineal descendant of mine shall, while serving as a Trustee hereunder, participate in the exercise by the Trustees of any discretionary power or authority conferred upon the Trustees by any provision of this instrument with respect to the distribution, or the withholding from distribution, of the principal of any trust estate held hereunder for the benefit of such one or with respect to the distribution, the withholding from distribution, or other application of the net income therefrom; and all such powers and authorities shall be exercised solely by the other Trustee.

(Emphasis added.)

The trial court determined that paragraph 9(f) required Sondra to obtain the authorization of the cotrustee, Aaron, for the transfer of the funds and assets from Trust A to herself since she was then the beneficiary and a cotrustee of that Trust. Paragraph 9(f), however, applied only to a trustee's exercise of any discretionary authority. The unambiguous language of paragraph 3(b) allowed Sondra to demand distributions from Trust A “even to the complete exhaustion thereof.” Such distributions were not subject to the approval or discretion of Aaron, as cotrustee, since paragraph 3(b) provided that the trustees “shall make distributions” requested by Sondra. Because the trustees had no discretion under paragraph 3(b), paragraph 9(f) was inapplicable.

Lesson learned:

Trust litigation is demanding: not only do you have to know how to litigate a case, you also have to understand the complex estate-tax issues underlying almost all trust design and drafting.

What happens when the originally signed copy of the will is missing?

Pierre v. Estate of Pierre, 928 So.2d 1252, 31 Fla. L. Weekly D1434 (Fla. 3d DCA May 24, 2006)

Suppose mom writes a will that cuts out estranged son, suppose further estranged son reappears on the scene shortly before mom’s death after 10 years of no contact with mom and somehow the will that cut him out goes “missing.” Well, estranged son might be smiling because if mom died without a will (i.e., intestate), then as one of her lineal descendants he gets a piece of the estate. Under Florida law, if the originally signed copy of a will is missing, it is presumed that the testator’s intent was to destroy the will and thus a photocopy of the will is not valid. However, this presumption can be overcome, which is what happened in this case.

Here’s how the 3d DCA explained the law in Florida governing lost wills:

When a person who executes a will dies and the will cannot be located, a rebuttable presumption arises that he or she destroyed the will with an intent to revoke it. See In re Estate of Hatten, 880 So.2d 1271, 1274 (Fla. 3d DCA 2004)(stating that when a decedent who has made a will dies, and the will cannot be found among the decedent's personal papers or in other logical locations, a rebuttable presumption arises that the decedent herself destroyed the will with the intent to revoke it). The presumption may, however, be rebutted with competent substantial evidence that the interested party had access to the testatrix's home, an opportunity to destroy the will, and a pecuniary interest in doing so. See Walton v. Estate of Walton, 601 So.2d 1266, 1267 (Fla. 3d DCA 1992)(explaining that the presumption that a decedent destroyed her will with the intention of revoking it may be overcome by competent and substantial evidence, and that “the existence of persons with an adverse interest in destroying a will who have an opportunity to do so, may serve to rebut the presumption that the will has been revoked”).

As we conclude that there is competent substantial record evidence to support the trial court's finding that the presumption of revocation was overcome, we affirm.

Trustees: How Not to Get Sued

Lawsuits against trustees are on the rise.  That is the conclusion to be drawn from the following statistic, as reported in the on-line article entitled How Not to Get Sued:

[L]awsuits and arbitration cases concerning breach of fiduciary duties are increasing at a compound annual rate of 22 percent, according to an analysis of NASD figures by the Center for Fiduciary Studies, of Sewickley, Pa.

The linked-to article goes on to address key strategies for avoiding trustee lawsuits, which are encapsulated in the following 4 bullet points:

  • Know the client's risk tolerance
  • Serve the client's needs
  • Keep careful records
  • Be particularly careful to document anything unusual

The Society of Fiduciary Advisors has also published its BEST PRACTICES FOR INDIVIDUAL INVESTORS, which provides excellent risk-management guidance for trustee/investment advisors.

Higher Standards for Professional Trustees?

In trust litigation the identity of the trustee (i.e., individual vs. corporate, inexperienced vs. professional) has a large impact on how the case is handled.  Prof. Melanie B. Leslie (Professor of Law, Cardozo Law School) has recently published an interesting article addressing the different standards of care that are (or should be) applied to professional trustees in light of the fact that many jurisdictions, including Florida, have adopted the Uniform Trust Code, which some view as overly protective of corporate trustees.  The article is entitled Common Law, Common Sense: Fiduciary Standards and Trustee Identity, 27 Cardozo L. Rev. 2713 (2006).   The following is the article's SSRN abstract:

Abstract:
The past twenty years have seen significant changes in the law governing trustees' fiduciary duties. Though fiduciary duty law is a common law creation, recent changes are not a result of common-law evolution, but legislative action. The push to codify trust law, including fiduciary duties, has come from a few sources, including academics, who have argued that trust law should be more uniform, and banking institutions, who have pushed for legislation to ease the burdens of trust management.

In some significant respects, legislative changes to fiduciary duties have not improved upon the common law. In fact, a few important statutes have replaced theoretically sound common law standards with rules that undermine the historical objectives of trust law. In some instances, scholars have justified changes by claiming that they are necessary to protect the non-professional, poorly counseled trustee. But, by and large, it is the large, institutional trustees who have benefited - significantly - from the statutory changes in the rules.

This article argues that recent statutes would be much improved if they differentiated between professional and non-professional trustees. There are critical distinctions between professional and non-professionals: differences in settlor's expectations and objectives, negotiation settings, monitoring costs and the trustee's response to liability rules. These distinctions justify having different fiduciary standards for different types of trustees.

Courts, with their case specific approach to rules, intuitively understand that the identity of the trustee should make a difference in assessing liability for breach of fiduciary duty. Either expressly or implicitly, courts gradually have developed two sets of rules. Thus, changing fiduciary standards to protect the non-professional was never really necessary.

Estate lawyer's activities queried

In Florida, trustees and personal representatives have an affirmative statutory duty to keep trust and estate beneficiaries informed (see new Ch. 736 for trustees; 733.602 and 733.604 for PRs).  Additionally, being pro-active, let alone responsive, with respect to keeping everyone informed is probably the cheapest way to avoid getting sued by the beneficiaries, a point underscored in this newspaper article.  The following is an excerpt from the linked-to article:

Friday, August 18, 2006
By FRED CONTRADA
fcontrada@repub.com

AMHERST - When William J. Bernotas shot his estranged wife Jean Hosmer to death in front of the Northampton police station in 1999 and then turned the gun on himself, he left their two children orphans.

One of Hosmer's sisters came forward to take care of Sandra and Kevin Bernotas, but their estate was entrusted to Amherst lawyer Nancy J. Sardeson.

Now the family has questions about how the estate has been managed and Sardeson has been suspended from practicing law for failing to provide the answers.

Use of Power of Attorney to Prey on Elderly

Conseco Ins. Co. v. Clark, 2006 WL 2024401 (M.D.Fla. Jul 17, 2006) (NO. 8:06CV462 T30EAJ)

Exploitation of the elderly is endemic.  This case provides a good road map for probate litigators involved in cases where the decedent was victimized by his or her power-of-attorney holder, with the facts coming to light in the context of probate proceedings.

If someone has taken the time to prepare estate planning documents, a power of attorney is usually part of the package.  But my sense is that the POA usually doesn't receive the level of scrutiny is should -- especially when it comes to retirees who move to Florida and detach themselves from the web of family and friends that looked after and supported them "back home."

The victim in this case was Anthony Jeski, who was 89 years old when he died in 2005 the resident of a Florida nursing home.  Myra Clark acted as Mr. Jeski's power of attorney from 1997 to 2005.  Originally, the sole remainder beneficiary of Mr. Jeski's seven annuity contracts (paying $342,177.58 at his death), revocable trust, which contained $40,000 at his death,  a Prudential insurance contract whose value was unreported, and the heir who would receive title to his $158,000 condominium, was Mr. Jeski's nephew Joseph Dal Campo.  This all changed in 2002, when Ms. Clark used the power of attorney to write Mr. Campo out, and write herself in, as sole beneficiary of all of the annuity contracts, the revocable trust, the insurance policy, and last but not least, quit claim the condo to herself for $11.00.  Oh, and guess who was the agent that sold Mr. Jeski his annuity contracts?  Ms. Clark's husband.

Confronted with this set of facts, litigation counsel for Mr. Campo could pursue a number of different strategies.  In this case, Mr. Campo pursued the following claims, all of which were essentially "blessed" by the trial court.

  • Breach of Fiduciary Duty.  Key point here was that the trial court held that Mr. Campo was an "interested person" with respect to his uncle's power of attorney, and thus Ms. Clark owed him the same fiduciary duties applicable to trustees in Florida.
  • Fraud.  The trial court dismissed this claim, but hinted strongly that if the plaintiff could allege facts showing he had himself relied upon fraudulent statements made by Ms. Clark, then the claim could proceed.
  • Civil Conspiracy.  The trial court let this claim proceed.  Key point being that Ms. Clark's husband was thus brought into the case as a named defendant.
  • Exploitation of an Elderly Person.  The trial court dismissed this claim with instructions to the plaintiff on how to replead the claim, hinting again that the judge was predisposed to let this count proceed.  This can be a very powerful weapon, because by statute the successful plaintiff is entitled to treble damages and his attorney's fees.  See Counsel Beware: Considerations Before Implementing Florida’s Civil Theft Statute for a good summary of what trial counsel needs to know with respect to asserting these types of claims.
  • Tortious Interference with Expectancy.  The trial court let this count proceed with respect to all non-probate assets (i.e., everything except the condo).  This is an important weapon to keep handy when most if not all of the key assets in dispute fall outside of the probate court's jurisdiction.

For an interesting non-Florida case dealing with legal and ethical issues surrounding the drafting of a power of attorney see In re Winthrop, 848 N.E.2d 961 (Ill. 2006), and a related discussion of the case in Helen Gunnarson's article, POA Perils, 94 Ill. B.J. 403 (2006), in which she concludes as follows:

The complexity of the proceeding does . . . suggest that reinventing the wheel when it comes to drafting powers of attorney may be unwise. Even more important, an attorney would be well advised to exercise extra caution when a third party initiates a request for the attorney to draft an instrument for an elderly person.

Second DCA to Probate Court: Don't Rewrite the Will!

Owens v. Estate of Davis, ex rel. Holzauser, __ So.2d __, 2006 WL 1716786 (Fla. 2d DCA June 23, 2006) 


In this case the decedent’s surviving wife claimed her statutory “elective share” (30%) of the estate. So the question then became: after wife gets her 30%, who gets the remaining 70% of the estate? The decedent’s will did not address this scenario, so what the probate court should have done is simply order that the remaining 70% of the estate pass according to Florida’s intestate succession law (F.S. § 732.103). That is not what happened. Instead one of the heirs apparently convinced the probate court that to figure out the most "equal or equitable" way of distributing the rest of the estate he should consider extrinsic evidence regarding what the decedent would have wanted to happen. The probate court went along with that approach and was reversed by the Second DCA. Here’s how the Second DCA summed up its rationale for reversal:

"The terms of Mr. Davis's will are clear and unambiguous; however, the will does not specify how the probate court should distribute Mr. Davis's residuary estate if his wife claims her elective share. When Mr. Davis's wife claimed her elective share, rather than let the residuary estate pass according to the law of intestate succession, the probate court considered extrinsic evidence to determine how to distribute those assets. The trial court's consideration of extrinsic evidence to “rewrite” the will was error:

The court may not alter or reconstruct a will according to its notion of what the testator would or should have done···· It is not the purpose of the court to make a will or to attempt to improve on one that the testator has made. Nor may the court produce a distribution that it may think equal or more equitable. In re Estate of Barker, 448 So.2d 28, 31-32 (Fla. 1st DCA 1984) (quoting 18 Fla. Jur.2d Decedent's Property § 358, at 216)."

(Emphasis added.)

Botched Will Provision Unlawfully Devising 34-Acre Farm Leads to Litigation

Vinson v. Johnson, __ So.2d __, 2006 WL 1650609 (Fla. 1st DCA June 16, 2006)

Suppose a client with 9! children asks you what’s the best way to provide for the orderly disposition of his 34-acre farm. He wants to ensure that the farm either stays in the family intact, or is sold as a single property, not piecemeal. A simple way to effectuate this type of plan is to put the property in a trust, partnership or LLC and include purchase-and-sale provisions that achieve the desired outcome. The wrong answer is to say: “heck, that’s simple, just say in your will that all of the kids have to agree to a sale.”

That’s what the Vinson clan learned in this case. The portion of Vinson Sr.’s will at issue in the case was described as follows by the First DCA:

Hardy Vinson, Sr., executed a will leaving his 34-acre farm and home in Alachua County to his nine living children as tenants in common. The will provided in pertinent part:

The “Vinson Estate” shall not be subject to partition or forced sale by any heir, but shall only be sold upon agreement of all heirs. Taxes and ownership expenses shall be shared equally among the children. Any heir that pays more than his or her share shall be entitled to contribution from the nonpaying heirs upon sale of the property.

When 5 of Vinson Sr.’s 9 children sued for partition of the farm, the trial court ruled in their favor. On appeal the First DCA held that the clause in the will prohibiting partition or sale was an “unlawful restraint on alienation of real property” and upheld the trial court’s ruling. The First DCA explained its rationale as follows:

When real property is conveyed in fee simple, the grantee or devisee acquires a right to sell or dispose of the property as an incident to the right of ownership. The right of alienation is said to be an inherent and inseparable quality of the estate. See1. 61 Am.Jur.2d Perpetuities, Etc. § 102 (2002); 3 Thompson Real Property § 29.03(b), at 707 (2001). An absolute restraint on alienation is inconsistent with the right of ownership and is therefore invalid. See generally Iglehart v. Phillips, 383 So.2d 610 (Fla.1980) (surveying the case law pertaining to restraints on alienation).

The rule against restraints on alienation applies to restrictions on partition of real property, as well as restrictions on sale. The right to seek partition of property owned jointly in a tenancy in common is an incident to the right of individual ownership. See Richard R. Powell, The Law of Real Property, § 77 ¶ 846 (1991). While there appears to be no precedent in Florida for the precise issue presented in this case, other states have held that prohibitions against partition or forced sale of property devised in a will are unlawful restraints on alienation.

(Emphasis added.)

Florida's "Family Member" Evidentiary Presumption

Della Ratta v. Della Ratta, 2006 WL 1235760, 31 Fla. L. Weekly D1325 (Fla. 4th DCA May 10, 2006)

Dating back to 1884, Florida's "family member" evidentiary presumption was at the heart of this recent piece of litigation revolving around a son's lawsuit against his mother and step-father for ownership of a condo' he lived in and fixed up based on an understanding that the property would be his. Intra-family disputes over vaguely defined economic arrangements are of course nothing new to the probate-litigation arena. What makes this case interesting is how a public-policy decision was made by the Florida Supreme Court in 1884 to "presume" the non-existence of economic obligations between family members living in the same home. Here's how the Fourth DCA articulated the rule:

The supreme court articulated the "family member presumption" in Mills v. Joiner, 20 Fla. 479, 1884 WL 2067 (1884). There, a daughter sued her father for payment for housekeeping services she performed for him and her mother in their home for almost ten years. During this time, she lived in the home with her parents. The daughter alleged that her father agreed to pay for her services. Seven years later, the father reneged on the deal. At trial, the court charged the jury that the daughter could not recover unless she proved "'a special contract or express promise that she was to be paid for her services.'" Id. at 492; Mills, 20 Fla. 479, 1884 WL 2067, at *4 (emphasis in original). The jury found for the father.


It is a presumption of law that the father is not bound to pay a child, though of full age, for services while living with him at home and as one of the family; but this presumption may be overcome by proof of a special contract,[FN1] express promise, or an implied promise; and such implied promise or understanding may be inferred from the facts and circumstances shown in evidence. Id. at 492-93; Mills, 1884 WL 2067, at *4 (boldface supplied); see also Brown, 47 So.2d at 759, 763 (supreme court followed Mills in affirming the ruling that a daughter had not proved an express or implied contract that overcame the family member presumption, even though the daughter had rendered services to her mother for many years).

The "family member presumption" described in Mills applies to personal services that a child performs for a parent while living "at home with [the parent] and as one of the family." Id. at 492; Mills, 1884 WL 2067 at *4.

[FN1.] In WPB, Ltd. v. Supran, 720 So.2d 1091, 1092 (Fla. 4th DCA 1998), we explained that a "special contract"

is one with peculiar provisions or stipulations not found in the ordinary contract relating to the same subject matter. These provisions are such as, if omitted from the ordinary contract, the law will never supply.

(citing 17 C.J.S. Contracts § 10 (1963))."A special contract is always an express contract, 'one whose provisions are expressed and not dependent on implication.' " Id. (citing Fitzpatrick v. Vermont State Treasurer, 144 Vt. 204, 475 A.2d 1074, 1077 (1984)).

The Sponsor's Note to F.S. § 90.302 does a good job of putting this case in context by explaining the significance of evidentiary presumptions in general:

All presumptions that are not conclusive are rebuttable presumptions. For several decades, courts and legal scholars have wrangled over the purpose and function of these presumptions. The view espoused by Professor Thayer (Thayer, Preliminary Treatise on Evidence 313-352 (1898) ) and Wigmore (9 Wigmore, Evidence §§ 2485-2493 (3rd ed. 1940) ), accepted by most courts (see Morgan, Presumptions, 10 Rutgers L.Rev. 512, 516 (1956) ), and adopted by the American Law Institute's Model Code of Evidence, is that a presumption is a preliminary assumption of fact that disappears from the case upon the introduction of evidence sufficient to sustain a finding of the nonexistence of the presumed fact.


Professors Morgan and McCormick argue that a presumption should shift the burden of proof to the adverse party. Morgan, Some Problems of Proof 81 (1956); McCormick, Evidence § 317 (1945). They believe that presumptions are created for reasons of policy and argue that, if the policy underlying a presumption is of sufficient weight to require a finding of the presumed fact when there is no contrary evidence, it should be of sufficient weight to require a finding when the mind of the trier of fact is in equilibrium or if he does not believe the contrary evidence.

Domicile ≠ Jurisdiction

Pastor v. Pastor, __ So.2d __ (Fla. 4th DCA April 19, 2006)

One of the overarching themes of Florida's probate code is the tension between constitutionally protected due-process rights and Florida's strong public policy favoring the speedy administration of estates. In order to move things along as quickly as possible, Florida law provides extremely short windows of opportunities for litigants to file objections. For example, under F.S. § 733.212 potential litigants served with a notice of administration have only 3 months to object "to the validity of the will, the qualifications of the personal representative, venue, or jurisdiction of the court" or those objections "are forever barred."

In this case the objecting party tried to get around the 3-month limitations period contained in F.S. § 733.212 by arguing that an objection to domicile was like objecting to the court's subject matter jurisdiction, and thus not subject to waiver. Not surprisingly, this argument was shot down both at the trial court level and by the Fourth DCA, which explained its ruling as follows:

For the purpose of overcoming the bar of section 733.212(3), Appellant contends that an issue of domicile is an attack on subject matter jurisdiction and is not waived by failing to timely file. The trial court correctly recognized that subject matter jurisdiction is not determined by the decedent's domicile; rather, it is based on the power of the court over the class of cases to which the controversy belongs. See Ruth v. Department of Legal Affairs, 684 So.2d 181, 185 (Fla.1996); Chase Bank of Texas Nat'l Ass'n. v. Department of Ins., 860 So.2d 472, 475 (Fla. 1st DCA 2003).

. . . . .

We are not unmindful of Appellant's argument that finding such an objection to subject matter jurisdiction can be waived under the statute will effectively allow Florida courts to probate a non-domiciliary's estate through domiciliary administration. Nevertheless, we conclude that Appellant may not challenge the court's jurisdiction where he received the notice of administration, the trial court determined domicile through the verified petition, and the three-month period to object to jurisdiction passed before filing his claims. There is a "strong public policy" in this state "in favor of settling and closing estates in a speedy manner." May v. Illinois Nat'l Ins. Co., 771 So.2d 1143, 1151 (Fla.2000). If the court were to hold that domicile is a component of subject matter jurisdiction, any estate could be re-opened based on such a belated objection. This would render section 733.212(3) meaningless and would contravene Florida's public policy as expressed in May. See also In re Estate of Williamson, 95 So.2d 244 (Fla.1957).

(Emphasis added.)

Lesson Learned:

In the probate-litigation context, there is a huge advantage to understanding how quickly claims may be cut off. If you represent the party expecting to defend against a possible challenge, the probate code provides ample opportunities for building almost air-tight defenses to litigation. If you represent a party that is thinking about filing an objection, quick decisive action is of paramount importance.

Trust Construction 101

Roberts v. Sarros, __ So.2d __ (Fla. 2d DCA Feb 15, 2006)

Probate appellate decisions come in all flavors. Some sparkle with creative lawyering by one of the advocates (see here), some can make you dizzy following the appellate court's complex but ultimately convincing line of reasoning (see here), and some just get the job done. This is one of those cases that just get's the job done. No fireworks, just good lawyering and solid guidance for us practitioners.

In this case the Second DCA walks us through an exercise probate lawyers encounter every day: how to read or "construe" a trust agreement.

Step 1: Zero in on the problematic language. I say problematic because no matter how ambiguous a provision may be, it doesn't really matter if it has no impact on any of the interested parties. In this case the problematic language revolved around whether a surviving widow had the authority to revise a trust agreement after her husband had passed away. Surviving widow signed a trust amendment disinheriting one set of her grandchildren. Grandchildren understandably didn't think this was a good idea, and the case ended up in court. Here's the "problematic" language, as described by the Second DCA:

Article XV of the Trust provides, "AMENDMENT AND REVOCATION: This Trust is subject to revocation, change or amendment, in writing, by the Grantors from time to time." Article XII contains rules of construction for the Trust instrument, including the following provision that is pertinent to this appeal: "Unless the context required [sic] otherwise, masculine personal pronouns include the feminine, and the singular and plural may be construed interchangeably."

Step 2: Identify the applicable law. Here's what the Second DCA had to say about the law in Florida applicable to trust-construction disputes:

This court has recognized that "[t]he polestar of trust interpretation is the settlors' intent." L'Argent v. Barnett Bank, N.A., 730 So.2d 395, 397 (Fla. 2d DCA 1999). If the trust language is unambiguous, the settlors' intent as expressed in the trust controls and the court cannot resort to extrinsic evidence. Id.; Ludwig v. AmSouth Bank of Fla., 686 So.2d 1373, 1376 (Fla. 2d DCA 1997). In determining the settlors' intent, the court should not "resort to isolated words and phrases"; instead, the court should construe "the instrument as a whole," taking into account the general dispositional scheme. Pounds v. Pounds, 703 So.2d 487, 488 (Fla. 5th DCA 1997); see also L'Argent, 730 So.2d at 397.

Step 3: Apply law to the facts. At the trial court level the judge ruled that surviving widow lacked the authority to amend the trust agreement. The trial court agreed with the disinherited-grandchildren when they argued that use of the plural form "Grantors" in the trust-amendment section meant widow lacked authority to unilaterally amend the document. The Second DCA reversed, based on the following line of reasoning:

[I]n considering the trust instrument as a whole, it is clear that if the singular/plural clause were not applied, it would produce absurd results. Every reference in Article I is to the plural form "Grantors." Article I deals with the disposition of principal and income of the Trust to the Grantors during their lifetime. If the references to the "Grantors" were construed to mean only the plural form, then after the death of the first Grantor the surviving Grantor could no longer receive income from the Trust. Such a result is contrary to the stated purpose of the Trust, which is to provide for the McNeills "for so long as they may live." Article I also provides that "the Trustees shall make payments from the principal of the Trust Fund to or for the benefit of the Grantors in such sums and at such times as the Grantors may request from time to time." Again, if construed to mean only the plural "Grantors," then the surviving Grantor would have no access to the principal of the Trust even though the trust was established to provide proper care for the McNeills and to allow them to maintain "a style of living to which they have been accustomed."


Like Article I, Article XV must be construed in accordance with the singular/plural clause. This is consistent, as in Article I, with the overall plan that the Grantors retain control over their assets as long as either of them lived. Nothing in the context of Article XV requires that "Grantors" be construed to mean only the plural form. When construed to include the singular "Grantor," Louise M. McNeill, as the surviving Grantor, could amend the Trust pursuant to the power to revoke or amend contained in Article XV. Thus, we reverse the trial court's order granting summary judgment as to count I and determining that the Amendment by Louise M. McNeill was invalid and remand for further proceedings on the Appellees' complaint.

How to Fix a Broken Trust: Post Mortem Trust Reformations of Drafting Mistakes

Popp ex rel. Estate of Davis v. Rex, 2005 WL 3299727, 30 Fla. L. Weekly D2760 (Fla. 4th DCA Dec 07, 2005)

I've written before (see here) on how challenging it can be for attorneys drafting estate-planning documents to cover every issue that possibly could come up decades in the future when the document is put to the test in a probate-related dispute. Even minor mistakes/omissions can morph into years of probate litigation. Well, that's exactly what happened in this case.

The case involves the reformation of the Virginia F. Davis 1986 Irrevocable Trust (the "1986 trust"), which provided that when Mrs. Davis died it would be divided in half with one share for each of her two sons and each son's share would be distributed in three installments-one immediately, one five years later, and the last one five years after that. Mrs. Davis died on November 2, 2000, predeceased by her husband (i.e., about 14 years after the 1986 trust was signed). The litigation in question arose in the context of probate-administration proceedings involving one of Mrs. Davis' children, Scott F. Davis, who died without issue on November 19, 2002 (i.e., about 16 years after the 1986 trust was signed) - having received only one of the three installment payments he was originally entitled to under the 1986 trust.

Under Mr. Davis' will, the residuary beneficiaries of his estate were the Pittsburgh State University Foundation, Inc. and the WPBT Communications Foundation, Inc.

According to the Fourth DCA, the 1986 trust contained the following drafting error:

The 1986 trust, as a result of a drafting error, omitted instructions as to what would happen if one of the sons died without children before he had received his installment payments. The trust provisions expressly covered what would happen if a son died with children (providing that the unpaid installments would go to those children) but stopped without going to the next step, directing where the unpaid installments should go if a son had no issue. (Emphasis added.)

Based on the following evidence, Palm Beach County Judge Gary L. Vonhof entered a final judgment reforming the 1986 trust so that the share of a deceased son without issue would go to the other son:

  • Testimony of drafting attorney in favor of the requested trust reformation;
  • Testimony of a financial advisor who worked with Mrs. Davis in connection with creating the 1986 trust, also in favor of the requested trust reformation; and

  • The text of a comparable, but separate, revocable trust established by Mrs. Davis that provided that in the event one of her two sons died without issue, his share was to go to her other son.

The Fourth DCA upheld the trial court's ruling, based on the following:

When this court previously decided [Davis v. Rex, 876 So.2d 609 (Fla. 4th DCA 2004)], we sent the case back to the trial court to determine if the trust should be reformed. We held, citing In re Estate of Robinson, 720 So.2d 540, 543 (Fla. 4th DCA 1998), "that a trust with testamentary aspects may be reformed after the death of the settlor for a unilateral drafting mistake so long as reformation is not contrary to the interest of the settlor." Davis, 876 So.2d at 611. This mistake must be shown by clear and convincing evidence. Robinson, 720 So.2d at 542.

Family to Contest Revised Will of St. Petersburg Millionaire: Latest Twist in a Two-year Battle over $1.5 Million Estate

Any time an attorney writes himself or one of his relatives into a client's will, red flags should shoot up all over the place. If this same attorney is also cutting the testator's family out of the will, the ethical and legal issues become so thick the attorney is almost guaranteeing future litigation over the will. That's exactly what happened in a St. Petersburg, Florida, case, as reported in this newspaper story. Here are a few excerpts from that story:

The millionaire walked into the St. Petersburg law office.


Harry Lieffers Jr., 76, looked over a five-page document and, with a few strokes of a pen, cut his two daughters and stepson out of his will.

On that October day in 2003, Lieffers decided that his roughly $1.5-million estate would be divided equally among two people: His 43-year-old real estate agent and the agent's 22-year-old girlfriend.

"I wish to reward them for the kindness they have shown me," the will said.

The attorney who drafted the will was the girlfriend's uncle.

The document, filed after Lieffers' death last month, is the latest point of contention in a two-year battle over Lieffers' health and estate.

Lieffers' children say he was vulnerable because of dementia and Alzheimer's disease. They say his real estate agent, Gerard Growney, and the attorney, Alan Watson, took advantage of Lieffers.

The family has filed a complaint against Watson with the Florida Bar and plan to contest the will.

* * * *

Lieffers' children know a lengthy court battle may wipe out all of the funds, but they believe Lieffers would have wanted them to push forward.

"If we ever needed Dad, he was there for us," said daughter Reibel. "We will continue to be there for him, to preserve his last wishes now that he is gone." (Emphasis added.)

Did Drafting Attorney Violate Florida Bar Ethics Rule?

Based on the linked-to story, the answer appears to be NO. Rule Reg. Fla. Bar 4-1.8(c) prohibits an attorney from preparing an instrument giving the attorney or a person related to the attorney any "substantial gift" from a client, including a testamentary gift, unless the client is related to the proposed donee. A person's niece or nephew is not considered "related" for purposes of this rule. The Florida Bar will have to grapple with this case, but the overriding question for all concerned should be "why get caught up in this mess to begin with?"

Contested Guardianship Proceeding as Precursor to Probate Litigation

One final note, if you read the linked-to story you'll note this family drama started out as a contested guardianship proceeding, emphasizing once again the remarks I've made (see here and here) regarding how these types of proceedings usually end up being precursors to probate litigation. Perhaps if someone had sought discovery of Mr. Lieffers' will as part of the contested guardianship proceedings the parties would have found out about his will's controversial dispositive provisions before his death and worked out these issues while he was still around to comment.

Source: Thanks to Heraldblog@gmail.com for brining this item to my attention!

Failure to Account for Statutory Apportionment of Taxes and Administrative Expenses Leads to Post Mediation Litigation

Sheets v. Palmer, 2005 WL 3403620 (Fla. 1st DCA Dec 14, 2005)

In this case the parties settled a will contest by executing a settlement agreement that provided, in part, that the party challenging the will would

"receive a $38,500.00 credit from the Estate as a specific bequest made to him under the terms of the . . . [w]ill."

Apparently when the settlement agreement was signed the parties did not address if this "bequest" would bear any of the taxes and administrative expenses of the estate. Well, they should have. The residuary assets of the estate were insufficient to cover these expenses. As such, the personal representative said the $38,500.00 specific bequest would have to bear a proportionate share of these expenses. The will-challenger said NO, arguing the parties never intended that result. Duval County Judge James L. Harrison agreed.

The First DCA said not so fast, holding as follows:

  • In the absence of specific language in the will voiding the statutory apportionment scheme, a probate court does NOT have the discretionary authority to relieve a specific bequest of its obligation to bear a proportionate share of estate taxes and administrative expenses, thus warranting reversal of this portion of the probate court's order. F.S. §§ 733.817(5)(a)1. and 733.805(1)(d).
  • A probate court DOES have the discretionary authority to direct from what part of the estate attorneys' fees and costs shall be paid, thus these items could be allocated away from the settlement bequest. F.S. § 733.106(4).
  • A probate court DOES have the discretionary authority to direct from what part of the estate interest and penalties on estate taxes shall be paid, thus these items could be allocated away from the settlement bequest. F.S. § 733.817(5)(g).

Lesson Learned:

It can be incredibly frustrating to find yourself in litigation after apparently settling a case in mediation. However, as this case makes clear, carefully drafting the settlement agreement is just as important as negotiating the underlying deal. If the parties had explicitly addressed in the settlement agreement whether or not the $38,500.00 specific bequest would have to bear a proportionate share of the estate's taxes and expenses, the acrimony, expense and delay associated with this post mediation litigation might have been avoided.

Wanting to Keep Your Wife Happy Does Not Undue Influence Make

Zoldan v. Zohlman, 2005 WL 3180190 (Fla. 3d DCA Nov 30, 2005)

The decedent was 90 years old when his 78 year old wife threatened to divorce him unless he signed an irrevocable contract requiring him to treat his step-daughter as an heir equal to his three sons under his will. Afraid he might be abandoned/divorced if he didn't comply, the decedent signed the contract. That was enough for Dade County Judge Herbert Stettin to invalidate the whole deal on undue influence grounds. The Third DCA said not so fast, reversing on the grounds that wanting to keep your wife happy does not undue influence make. Well, OK, that's not what they said exactly, but it's what they meant. The Third DCA's more judicious way of making the point was as follows:

The Florida Probate Code provides that a will is void, either wholly or in part, if its execution is procured by fraud, duress, mistake, or undue influence. § 732.5165, Fla. Stat. (2003). The undue influence required for invalidation of a testamentary document is conduct amounting to duress, force, or coercion to such a degree that the free agency and willpower of the testator is destroyed. Mere affection and attachment or a desire to gratify the wishes of one who is esteemed or trusted may not alone be sufficient to amount to undue influence. E.g., In re Peters' Estate, 155 Fla. 453, 20 So.2d 487, 492 (Fla.1945); Derovanesian v. Derovanesian, 857 So.2d 240 (Fla. 3d DCA 2003), rev. denied,868 So.2d 522 (Fla.2004); Raimi v. Furlong, 702 So.2d 1273, 1287 (Fla. 3d DCA 1997); Coppock v. Carlson, 547 So.2d 946 (Fla. 3d DCA 1989); and cases cited therein. (Emphasis added)

Woe Be it to the Litigant Who Loses the Moral High Ground

DeMello v. Buckman, 2005 WL 2990487 (Fla. 4th DCA Nov 09, 2005)

When advising parties involved in trust litigation there are two fronts I like to focus on: (i) the legal substance of the case and (ii) what I refer to as "capturing the moral high ground." Being right on the law is crucial, although not always sufficient. When in doubt, the litigant occupying the moral high ground is much more likely to get the nod from the trial judge (and the other side is just as likely to get hammered).

This case deals with the suit by one sister against another sister as trustee of their deceased parents' inter vivos trust. I'll leave it up to you to decide who captured (or lost) the moral high ground here before Broward County Judge Mark A. Speiser. Fortunately for the losing side, however, the Fourth DCA reversed most of the trial judge's final judgment on appeal (lesson learned: sometimes it pays to appeal). The most interesting issues addressed by the Fourth DCA were the following:

  • Courts have a limited role in supervising the exercise of a trustee's discretion, thus warranting reversal of the trial judge's award of damages for selling a residence owned by the trust for less than the contesting trust beneficiary thought the house should have been sold for.
The court has a limited role in supervising the exercise of the trustee's discretion. As stated in Scott on Trusts: [T]he court will not control [a trustee's] exercise of [discretion] as long as he does not exceed the limits of the discretion conferred upon him. The court will not substitute its own judgment for his. Even where the trustee has discretion, however, the court will not permit him to abuse the discretion. This ordinarily means that so long as he acts not only in good faith and from proper motives, but also within the bounds of a reasonable judgment, the court will not interfere; but the court will interfere when he acts outside the bounds of a reasonable judgment. In other words, although there is a field, often a wide field, within which the trustee may determine whether to act or not and when and how to act, beyond that field the court will control him. How wide that field is depends upon the terms of the trust, the nature of the power, and all the circumstances. (Footnote omitted). 3 Austin Wakeman Scott & William Franklin Fratcher, The Law of Trusts § 187 (4th ed. 1988).

A recent Florida Bar Journal article I wrote about here provided a comprehensive survey of current Florida law on this subject.

  • Under Florida Civil Procedure Rule 1.120(g), "special damages" must be specially plead in the complaint. It is not uncommon to seek compensation for lost income arising from trustee mismanagement. Here's what the Fourth DCA had to say about special damages in this case:
The court awarded three items of damage to Buckman: (1) mortgage payments not received in the amount of $33,832.89; (2) foregone investment income on mortgage down payment not received in the amount of $3,928.50; and (3) foregone investment income on other mortgage payments not received in the amount of $821.88. Even if we were to decide that these were compensable items of damage, which we do not decide, none of these items of damage were specially pleaded in the complaint, and all of them constitute items of special damage. Therefore, Buckman is not entitled to recover these items of damage.
  • In the absence of contrary evidence, it was improper to award as damages the trust's payment of legal fees incurred by the trustee in the administration of the trust prior to litigation, especially if the amount is within that deemed presumptively reasonable by F.S. § 737.2041.
  • In the absence of contrary evidence, it was improper to award as damages the trust's payment of the CPA who prepared the tax return for the trust. The Fourth DCA specifically noted that trustees are obligated under F.S. § 737.402(u) to file tax returns and pay taxes on the trust, as well as authorized under F.S. § 737.402(2)(y) to hire accountants.

"Win-Win" Trust Administration: How to please BOTH current income beneficiaries and remaindermen

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.

Source: Wills, Trusts & Estates Prof Blog

A Trustee's Duties and Responsibilities Under Discretionary Invasion Provisions

Disputes revolving around whether the trustee of a "discretionary" trust acted appropriately or not often get bogged down because one side or the other fails to grasp the following basic concept: in Florida, discretionary authority does not translate into "I-can-do-whatever-I-want" authority. This Florida Bar Journal article by attorney Peter B. Tiernan does an excellent job of summarizing the current state of the law in Florida on this point.

Are law firms seeing an increase in estate litigation?

In 2006 the exemption amount for federal estate taxes is $2.0 million, in 2009 it goes up to $3.5 million. If the Republicans have their way, estate taxes will either disappear all together or essentially become inconsequential. The Democratic response is to freeze the estate tax exemption at the 2009 level.

Even in the absence of estate tax repeal, estates that are inconsequential for estate-tax planning purpose are already more than large enough for most families to litigate over. Moreover, demographic trends may soon lead to dramatic jumps in estate litigation. A March 2006 newspaper article entitled Law firms see rise in inheritance feuds, had the following to say about the expected increase in estate disputes as the World War II generation passes away leaving trillions to their children, the baby-boomer generation:

Legal disputes over inherited property are making headlines [locally and] . . . nationwide in the case of Anna Nicole Smith, a former Playmate of the Year. But the millions at stake in these high-profile lawsuits pale in comparison to the trillions of dollars of wealth that will be bequested, inherited and fought over in the next 50 years. As in-court arguments over inherited wealth become more common, law firms are strengthening their trust-and-estate litigation services to meet the demand.

*    *    *    *    *
The perfect storm

The reasons for the flurry of trust-and estate-related legal battles are many.
According to an article in the Dispute Resolution Journal, an estimated $41 trillion of wealth will be transferred in the United States from the “Greatest Generation” to their kids, the baby boomers, between 1998 and 2052 [click here]. The massive transfer in wealth alone is enough to spur more family feuds . . .

*    *    *    *    *

Some lawyers say baby boomers seem much more willing to air their family problems in court than their parents were. Well-publicized trials also contribute to the rise in demand for estate litigation.

Divided Families: Civil Disengagement Instead of War

Mediated settlement agreements are the norm in Florida when in comes to probate litigation. An excellent resource for thoughtful articles on why probate mediation has "taken off" over the last decade can be found here on the Mediate.com website. But just when you thought mediation was the answer to all of your problems, this interesting post on the Wills, Trusts & Estates Prof Blog (which is reproduced below) discusses yet another option for the creative probate attorney: civil disengagement.

In a recent newsletter, Gerald Le Van, a strong proponent of family wealth mediation, introduces the concept of "civil disengagement" as an alternative to financially and emotionally costly litigation when family members cannot reach an amiable solution.


Mr. Le Van explains that civil disengagement:

  • acknowledges current irreconcilable differences,
  • but avoids family litigation;
  • manages each divided camp separately,
  • but leaves the door open to family reunification in later generations.

See Gerald Le Van, Divided Families: Civil Disengagement Instead of War (Aug. 2005).

Choice-of-law Clause Will Not Override Florida's Statutory Regime for Designating the Venue of Trust Litigation

Perry v. Agnew, 2005 WL 1397427 (Fla. 2d DCA June 15, 2005) (Trial Court Reversed)

Sometimes the best defense is a good offense. In this case, an individual trustee working out of his office in Boston, Massachusetts was sued by three beneficiaries, one of whom was a resident of Florida. The trustee moved to dismiss the complaint for improper venue under F.S. § 737.203. Charlotte County Judge Isaac Anderson, Jr. denied the trustee's motion to dismiss on two grounds, the most interesting of which was based on a finding that the trust's Florida choice-of-law provision exempted it from the application of F.S. § 737.203.

Continue Reading...

Avoid Litigation - Don't Surprise or Confuse Your Heirs

The California based Estate Business and Tax Law Blog reported here that this litigation-related excerpt from the new book by Nancy Keates, The Wall Street Journal Guide to the Business of Life was in today's Wall Street Journal:


Don't surprise or confuse your heirs:

A contested will can make legal fees skyrocket. Making clear decisions, telling your heirs exactly what to expect, and being explicit in your will, will help reduce the risk of a legal fight. One common problem is a poorly drafted will that can lead to ambiguities about the deceased's wishes and, ultimately, increase the risk of legal fights. Another thing to watch out for are conflicting directives between the will and, say, a life insurance policy or a retirement account.

I couldn't have said it better myself.

Fourth DCA says party being sued does not have the right to complain that a terminated trust's "winding up" period is being unduly extended by the litigation

McMullin v. Beaver, 2005 WL 1278870 (Fla. 4th DCA June 1, 2005) (Trial Court Reversed)

When a trust terminates as of a certain date, it is reasonable to assume that winding up the affairs of that trust may take some time after the termination date. But what if the "winding up" process includes filing a lawsuit after the trust termination date? Indian River Circuit Court Judge Robert A. Hawley ruled that was too much, and granted final summary judgement against the plaintiff trustee, finding that the trustee lacked standing to bring the action because the trust was already terminated. Although unclear from this opinion, apparently the defendants in this case argued that the trustee was attempting to unduly extend the winding up period for the trust by commencing litigation after the trust's termination date.

The Fourth DCA disagreed, and reversed the trial court finding that the trustee did in fact have standing to file his lawsuit after the trust termination date.

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Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest?

The March 2005 edition of the Yale Law Journal contains this interesting (perhaps even provocative) article by the noted Yale Law School Professor John H. Langbien. The logic underlying his thesis is somewhat circular in nature, although it is sure to warm the hearts of corporate fiduciaries (or more specifically, the "business development" folks at large banks). In a world dominated by an ever smaller group of financial-services conglomerates that maximize shareholder returns by cross selling an ever growing array of financial products and services to a single set of clients (the fancy word for this is "synergy"), it is no surprise that corporate fiduciaries seek to cross sell to their trust clients as well. The only problem is that they are hampered by these old fuddy duddy fiduciary self-dealing prohibitions that were developed within the context of a supposedly more genteel 18th century English business culture. The gist of Prof. Langbien's article is that if today's corporate environment conflicts with two-century's worth of Anglo-American fiduciary common law, then there must be something wrong with the law (see what I mean by the circular nature of this argument). Prof. Langbien proposes a technical fix that could be easily incorporated into state statutory regimes governing trustees and other fiduciaries (e.g., personal representatives of estates).

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When two trust beneficiaries sue the same bank-trustee in two different counties . . . then appeal to two different DCAs . . . then obtain conflicting rulings on the same issue . . . well, things get interesting

Whitener v. First Union National Bank of Florida, 2005 WL 1047268 (Fla. 5th DCA May 6, 2005) (Trial Court Order Quashed)

This case involves a single trust divided into two parts. The same trustee for both trusts was First Union National Bank of Florida ("First Union"). One beneficiary sued First Union in Duval County, which falls under the jurisdiction of the First DCA. In the course of the Duval-county litigation, the First DCA ruled that certain documents fell within the crime-fraud exception of the attorney-client privilege, and were thus discoverable. The second beneficiary sued First Union in Seminole County, which falls under the jurisdiction of the Fifth DCA. In the course of the Seminole-county litigation, the Fifth DCA ruled in the case cited at the top of this post that the same documents addressed by the First DCA were privileged, and thus due to their previous disclosure, counsel for the Seminole-county litigant was disqualified. Not to be so easily deterred, the Seminole-county litigant simply hired the lawyers involved in the Duval-county litigation and moved forward with her case . . . with the benefit of the "privileged" documents her previous attorneys were disqualified for obtaining.

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A Great Example of Why Every Florida Will Should Be "Self Proved"

Jordan v. Fehr, 2005 WL 831382 (Fla. 1 DCA April 12, 2005) (TRIAL COURT REVERSED)

Under F.S. § 733.201(1), a Will that that is "self-proved" in accordance with the statutory form provided in F.S. § 732.503, is admissible to probate without the testimony of the attesting witnesses. If the Will is not self-proved, under F.S. § 733.107 the proponent of the Will has the burden of esablising "prima facie" its formal execution and attestation. OK, now that I've spun your head with all these rules, what do they mean in real life you may ask?

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Will Construction Statute Applied to Testamentary Trust

Lumbert v. Estate of Carter, 867 So.2d 1175 (Fla. 5th DCA Feb. 27, 2004) (TRIAL COURT REVERSED)

Molly Joy Carter ("Mom") executed a will on February 23, 1994 that left all of her $1.5 million estate in trust for her only child, Lisa Lumbert ("Daughter"), until Daughter reached certain ages, at which time the trust assets were to be distributed to her outright and free of trust.

Mom died and her will was admitted to probate on August 30, 2000. Fourteen months later Daughter died on October 15, 2001 at age 41. At the time of Daughter's death, most of Mom's $1.5 million estate was still being administered, so only about $100,000 had been transferred to Mom's testamentary trust for Daughter. Mom's brothers and sister argued that Article IV E. of Mom's trust for Daughter should control what happens with the rest of Mom's estate, which would result in most of Mom's estate going to them. Daughter's surviving husband argued that Articles IV D. of Mom's trust should control, which would, not surprisingly, result in most (i.e., two-thirds) of Mom's estate going to him.

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Failure to Strictly Follow Statutory Requirements Renders Attempted Will Revocation Ineffective

Dahly v. Dahly, 866 So.2d 745 (Fla. 5th DCA Feb. 13, 2004) (TRIAL COURT REVERSED)

The decedent had attempted to revoke portions of his will by "lining through the name of the designated personal representative, placing the word 'delete' over certain paragraphs in the will, and placing his signature with the words, 'Please draw up a new will making all changes noted here' on a note in the adjoining margin." Based on the decedent's apparent intent to revoke his will, Orange County Circuit Court Judge Lawrence R. Kirkwood ruled that the decedent's will and codicil were invalid and non-enforceable. The 5th DCA reversed on the grounds that the decedent's attempted revocation did not comply with the will-execution formalities contained in Section 732.502, or comply with the "revocation by writing" requirements contained in Section 732.505, or comply with the "revocation by act" requirements contained in Section 732.506.

What if Some Family Members Get More Than Others?

If the client intends on disinheriting or making a significantly less substantial gift to one of his children or any other “natural object of the client’s bounty,” consideration should be given to addressing this fact in the will or trust, although attempting to explain the underlying reasons for the disparate treatment should be avoided. For example:

I recognize and understand that I have intentionally failed to provide for DAUGHTER and that SON#1 is treated more favorably than SON#2. I have carefully considered the disposition of my estate and declare that said unequal treatment reflects my intentions.

What if "Undue Influence" is Suspected?

If there is reason to believe the will or trust may be challenged on undue influence grounds the estate planning attorney should consider including language in the will or trust that addresses the issue head on. The following is an example of such clause:

I recognize that my children SON and DAUGHTER may not understand my reasons for giving a larger share of my estate to GIRLFRIEND. They may believe that GIRLFRIEND influenced me to give her a larger share of my estate, and they may consider challenging the validity of this instrument. I state unequivocally that GIRLFRIEND has not asked me to make a larger gift to her, nor is she even aware that I am doing so. I have given very careful consideration to my testamentary affairs, and I affirm that the dispositions made in this instrument reflect my decisions, which I have carefully and unequivocally reached after careful deliberation and after seeking the advice and counsel of my attorney PERRY MASON, who has prepared this instrument at my direction. My attorney and I are initialing here, ________ (testator), _________ (attorney), to reflect my attention to and understanding of this paragraph.

What if Testamentary Capacity is Questioned?

If the client has already been diagnosed as suffering from diminished capacity, but the estate planning attorney is confident the client has the requisite mental capacity to execute a testamentary instrument under Florida law, then in addition to other efforts focused on documenting the client’s current mental capacity, it may be helpful to explicitly address the issue in the document. For example:

Because I have been diagnosed as having senile dementia, probable Alzheimer’s, I recognize that some persons who will be disappointed with the provisions of my testamentary plan may question my capacity and may consider challenging the validity of this instrument. However, my illness has not progressed to the point that my judgment and thinking about my assets, my loved ones and my estate plan have been materially impaired. I have given very careful consideration to my testamentary affairs, and I affirm that the dispositions made in this instrument reflect my decisions, which I have carefully and unequivocally reach after deliberation and after seeking the advice and counsel of my attorney PERRY MASON, who has prepared this instrument at my direction. My attorney and I are initialing here, ________ (testator), _________ (attorney), to reflect my attention to and understanding of this paragraph.

Can You Tilt the Litigation Playing Field to Your Advantage?

For estate planners planning for litigation-avoidance in the trust context, protecting the trustee will be a clear priority. The goal is to ensure the trustee will be invested with the level of fiduciary independence and financial resources to appropriately manage any threatened and/or filed lawsuits or other coercive tactics by disgruntled heirs. Balanced against the need to protect the trustee, however, must also be concerns for appropriate “checks and balances” on the trustee’s authority – especially if the trust is intended to remain in existence for the lifetime of a surviving spouse or the grantor’s children, and more important still if the trust is intended to remain in existence for multiple generations. The “checks and balances” issue was addressed in the post entitled “Who Picks the Trustee and When Can You Fire Him.”

With respect to protecting the trustee, two clauses can be employed to “tilt” the litigation playing field in favor of the trustee: an “exculpation” clause and a “litigation-defense-fees” clause. An exculpation clause actually expands the trustee’s discretionary authority by narrowing the grounds upon which he or she may be sued. This is accomplished by lowering the standard of care generally applicable to fiduciaries under Florida law. Example:

Exculpation. A fiduciary’s exercise or non-exercise of the powers and discretions granted in this instrument shall be conclusive on all persons, and no fiduciary shall be liable for any act or omission taken or not taken that causes a loss to any trust established under this instrument or to any beneficiary thereof, unless such act or omission is the result of the fiduciary’s bad faith or reckless indifference to the purposes of this instrument or the interests of the beneficiaries.

Under Florida’s new trust code exculpation clauses for anything other than “bad faith” or “reckless indifference to the purposes of the trust or the interests of the beneficiaries” are explicitly sanctioned. See F.S. §736.1011.

The second provision to consider is one that explicitly states that a fiduciary’s litigation costs will be “advanced” in the event of litigation. Essentially, the beneficiary would thus be paying the fiduciary’s defense costs up until a court rules against the fiduciary. Under Florida law a trustee involved in any litigation including breach-of-trust allegations must obtain prior court approval to pay legal defense fees. F.S. §737.403(2)(e). The following clause would essentially override the default rule in Florida. Example:

Legal Defense Indemnification. In the absence of bad faith or reckless indifference to the purposes of this instrument or the interests of the beneficiaries, the fiduciary shall be indemnified from the trust for any and all liability, cost, and expense incurred by the fiduciary by reason of any act or omission taken or not taken on behalf of any trust hereunder. In furtherance thereof, in the case of litigation expenses, including attorney’s fees, the fiduciary shall be indemnified for such expenses as they are incurred, which expenses the fiduciary may pay out of the trust or trusts as to which the act or omission is alleged to have been taken or not taken. The fiduciary’s right to indemnification hereunder shall not await the resolution of the litigation or a determination that the fiduciary is entitled to indemnification under this paragraph; provided, however, that if a court of competent jurisdiction subsequently determines that the fiduciary engaged in intentional misconduct or gross negligence, the fiduciary shall repay to the trust all costs and expenses previously indemnified hereunder.

A recent Miami-Dade case provides an example of how a trustee may find himself bearing the expenses of litigation in the absence of proper planning. In Brigham v. Brigham, 2006 WL 1479813, 31 Fla. L. Weekly D1517 (Fla. 3d DCA 2006), the Third DCA articulated the rule in Florida as follows:

Appellees brought suit against Appellants in their trust roles and as individuals for trust mismanagement. Because Appellants defended against individual liability, their personal interests conflicted with their position as trustees. See Shriner v. Dyer, 462 So.2d 1122, 1124 (Fla. 4th DCA 1984). When a trustee’s individual interests conflict with his or her duties to a trust, court approval is necessary before a trustee can use trust funds to pay his or her own attorneys’ fees. § 737.403, Fla. Stat. (2003).

This rule has been carried over into Florida’s new trust code. See F.S. §736.802(10).

Are Arbitration Clauses Enforceable?

If the likelihood of an estate dispute is high, consideration should be given to including an alternative dispute resolution clause (ADR) in the will and/or trust document.  One possible form of ADR is mandatory arbitration, which is expressly authorized by Florida statute [click here].  An alternative to a mandatory arbitration clause approach is to include a clause in the document that encourages ADR generally and creates negative consequences for unduly litigious behavior. For example:

If there is a dispute or controversy of any nature involving the disposition or administration of this Trust, I direct the parties in dispute to submit the matter to mediation or some other method of alternative dispute resolution selected by them. If a party refuses to submit the matter to alternative dispute resolution, or if a party refuses to participate in good faith, I authorize the court having jurisdiction over the Trust to award costs and attorney’s fees from that party’s beneficial share or from other amounts payable to that party (including amounts payable to that party as compensation for service as fiduciary) as in chancery actions.

What about recent real-life examples of probate litigation caused by improper estate planning?

The consequences of un-clear drafting or ill-considered provisions included in testamentary documents can be years of litigation. The cost of avoiding this type of litigation is always pennies on the dollar: an extra hour working on the document or the cost of an “extra set of eyes” is usually less than a rounding error when compared to the cost of litigation. The following cases are examples of this type of cost. Note that these cases all generated appellate opinions. In other words, not only were they litigated at the trial court level, but they generated appellate court proceedings as well. The number of un-appealed litigation arising out of sloppy drafting is in all likelihood several orders of magnitude higher.

Popp v. Rex, 916 So.2d 954 (Fla. 4th DCA 2005)

The case involved the reformation of the Virginia F. Davis 1986 Irrevocable Trust (the “1986 trust”), which provided that when Mrs. Davis died it would be divided in half with one share for each of her two sons and each son’s share would be distributed in three installments-one immediately, one five years later, and the last one five years after that. Mrs. Davis died on November 2, 2000, predeceased by her husband (i.e., about 14 years after the 1986 trust was signed). The litigation in question arose in the context of probate-administration proceedings involving one of Mrs. Davis’ children, Scott F. Davis, who died without issue on November 19, 2002 (i.e., about 16 years after the 1986 trust was signed) - having received only one of the three installment payments he was originally entitled to under the 1986 trust. Under Scott Davis’ will, the residuary beneficiaries of his estate were the Pittsburgh State University Foundation, Inc. and the WPBT Communications Foundation, Inc. According to the Fourth DCA, the 1986 trust contained the following drafting error:

The 1986 trust, as a result of a drafting error, omitted instructions as to what would happen if one of the sons died without children before he had received his installment payments. The trust provisions expressly covered what would happen if a son died with children (providing that the unpaid installments would go to those children) but stopped without going to the next step, directing where the unpaid installments should go if a son had no issue.

Roberts v. Sarros, 920 So.2d 193 (Fla. 2d DCA 2006)

In this case the Second DCA was asked to rule on an internal inconsistency within a trust agreement. The problematic language revolved around whether a surviving widow had the authority to revise a trust agreement after her husband had passed away. Surviving widow signed a trust amendment disinheriting one set of her grandchildren. Grandchildren understandably didn’t think this was a good idea, and the case ended up in court. Here’s the “problematic” language, as described by the Second DCA:

Article XV of the Trust provides, “AMENDMENT AND REVOCATION: This Trust is subject to revocation, change or amendment, in writing, by the Grantors from time to time.” Article XII contains rules of construction for the Trust instrument, including the following provision that is pertinent to this appeal: “Unless the context required [sic] otherwise, masculine personal pronouns include the feminine, and the singular and plural may be construed interchangeably.”

At the trial court level the judge ruled that surviving widow lacked the authority to amend the trust agreement. The trial court agreed with the disinherited-grandchildren when they argued that use of the plural form “Grantors” in the trust-amendment section meant widow lacked authority to unilaterally amend the document. The Second DCA reversed, based on the following line of reasoning:

[I]n considering the trust instrument as a whole, it is clear that if the singular/plural clause were not applied, it would produce absurd results. Every reference in Article I is to the plural form “Grantors.” Article I deals with the disposition of principal and income of the Trust to the Grantors during their lifetime. If the references to the “Grantors” were construed to mean only the plural form, then after the death of the first Grantor the surviving Grantor could no longer receive income from the Trust. Such a result is contrary to the stated purpose of the Trust, which is to provide for the McNeills “for so long as they may live.” Article I also provides that “the Trustees shall make payments from the principal of the Trust Fund to or for the benefit of the Grantors in such sums and at such times as the Grantors may request from time to time.” Again, if construed to mean only the plural “Grantors,” then the surviving Grantor would have no access to the principal of the Trust even though the trust was established to provide proper care for the McNeills and to allow them to maintain “a style of living to which they have been accustomed.”

Like Article I, Article XV must be construed in accordance with the singular/plural clause. This is consistent, as in Article I, with the overall plan that the Grantors retain control over their assets as long as either of them lived. Nothing in the context of Article XV requires that “Grantors” be construed to mean only the plural form. When construed to include the singular “Grantor,” Louise M. McNeill, as the surviving Grantor, could amend the Trust pursuant to the power to revoke or amend contained in Article XV. Thus, we reverse the trial court’s order granting summary judgment as to count I and determining that the Amendment by Louise M. McNeill was invalid and remand for further proceedings on the Appellees’ complaint.

Vinson v. Johnson, 2006 WL 1650609, 31 Fla. L. Weekly D1659 (Fla. 1st DCA 2006)

Suppose a client with 9! children asks you what’s the best way to provide for the orderly disposition of his 34-acre farm. He wants to ensure that the farm either stays in the family intact, or is sold as a single property, not piecemeal. A simple way to effectuate this type of plan is to put the property in a trust, partnership or LLC and include purchase-and-sale provisions that achieve the desired outcome. The wrong answer is to say: “heck, that’s simple, just say in your will that all of the kids have to agree to a sale.” That’s what the Vinson clan learned in this case. The portion of Vinson Sr.’s will at issue in the case was described as follows by the First DCA:

Hardy Vinson, Sr., executed a will leaving his 34-acre farm and home in Alachua County to his nine living children as tenants in common. The will provided in pertinent part:

The “Vinson Estate” shall not be subject to partition or forced sale by any heir, but shall only be sold upon agreement of all heirs. Taxes and ownership expenses shall be shared equally among the children. Any heir that pays more than his or her share shall be entitled to contribution from the nonpaying heirs upon sale of the property.

When 5 of Vinson Sr.’s 9 children sued for partition of the farm (surprise!?), the trial court ruled in their favor. On appeal the First DCA held that the clause in the will prohibiting partition or sale was an “unlawful restraint on alienation of real property” and upheld the trial court’s ruling. The First DCA explained its rationale as follows:

When real property is conveyed in fee simple, the grantee or devisee acquires a right to sell or dispose of the property as an incident to the right of ownership. The right of alienation is said to be an inherent and inseparable quality of the estate. See 61 Am.Jur.2d Perpetuities, Etc. § 102 (2002); 3 Thompson Real Property § 29.03(b), at 707 (2001). An absolute restraint on alienation is inconsistent with the right of ownership and is therefore invalid. See generally Iglehart v. Phillips, 383 So.2d 610 (Fla.1980) (surveying the case law pertaining to restraints on alienation).

The rule against restraints on alienation applies to restrictions on partition of real property, as well as restrictions on sale. The right to seek partition of property owned jointly in a tenancy in common is an incident to the right of individual ownership. See Richard R. Powell, The Law of Real Property, § 77 846 (1991). While there appears to be no precedent in Florida for the precise issue presented in this case, other states have held that prohibitions against partition or forced sale of property devised in a will are unlawful restraints on alienation.

My list of favorite trusts & estates litigation quotes . . . .

  • Is this it?

“Death is not the end. There remains the litigation over the estate.”

Ambrose Bierce

  • Happy families

“All happy families resemble one another, but each unhappy family is unhappy in its own way.”

Leo Tolstoy

  • Trusts

"Put not your trust in money, but put your money in trust."


Oliver Wendell Holmes

How Much Are Current And Remainder Beneficiaries Entitled To?

There is often an inherent conflict of interest between the current and remainder beneficiaries of a trust. There are two ways to address that issue: provide for contemporaneous trust distributions to family members or explicitly override the trustee’s duty of impartiality between current and remainder beneficiaries under F.S. 736.0803. For example, if the trust is created for the life-time support of a client’s child or surviving spouse but the client also wants to allow trust assets to be distributed to each child’s own family, the following clause should be considered:

Distributions to Family. The Trustee shall pay or apply such sums of income or principal from each beneficiary’s separate trust as in the Trustee’s discretion are necessary or advisable for that beneficiary’s health, education, support, and maintenance, or as any Corporate Trustee in its discretion determines to be in that beneficiary’s best interests. After being reasonably assured that the beneficiary has sufficient means for his or her continued support, the Trustee in its discretion also may pay any sums of income or principal that it deems necessary or advisable for the health, education, support, and maintenance of the beneficiary’s descendants, or as any Independent Trustee in its discretion determines to be in their best interests, either individually or collectively.

With respect to the second approach, the following is an example of language explicitly overriding the trustee’s duty of impartiality between current and remainder beneficiaries:

Duty of Impartiality. In exercising its discretion to make distributions to or for the beneficiary of this trust, the trustee shall consider the needs of the remainder beneficiaries to be subordinate to the interests of the current beneficiaries. No good faith decision to invade principal for the benefit of a current beneficiary shall be subject to challenge by any remainder beneficiary.

Do You Have To Sell The Family Business?

If the client’s wealth is the product of a family-run business or a single concentrated stock investment, he (and the family) may be reluctant to divest themselves of this asset upon the client’s death. This is an understandable sentiment; unfortunately it runs head on into the general fiduciary duty to “diversify.” The duty to diversify may be waived by the client if he explicitly expresses this intention in the testamentary instrument. The following two sample clauses address this issue:

Original Assets. Except as otherwise provided to the contrary, to retain the original assets it receives for as long as it deems best, and to dispose of those assets when it deems advisable, including any interests in XYZ FAMILY BUSINESS or other affiliated or successor entities, as more specifically set out in Article ___, even though such assets, because of their character or lack of diversification, would otherwise be considered improper investments for the Trustee.

Retention of Stock. I authorize the Trustee to retain the assets that it receives, including shares of stock or other interests in XYZ FAMILY BUSINESS, or its successors in interest, or any other company or entity carrying on or directly or indirectly controlling the whole or any part of its present business (collectively referred to as “the company”), for as long as the Trustee deems best, and to dispose of those assets when it deems advisable. I intentionally excuse the Trustee from the duty to diversify investments by the sale or other disposition of interests in the company that ordinarily would apply under the prudent investor rule, and I direct that the Trustee not be held liable for any loss or risk (even so-called “uncompensated risk”) incurred as a result of this failure to diversify. Nothing in this paragraph will be interpreted in any manner to limit the Trustee’s authority to sell some or all of the interests in the company.

Planners should note that concentrated-stock positions can lead to huge litigation exposure for fiduciaries – especially deep-pocket corporate trustees. In In re Chase Manhattan Bank, 809 N.Y.S.2d 360 (N.Y.A.D. 4 Dept. Feb 03, 2006), a recent high profile case out of New York, the existence of the type of waiver-of-duty-to-diversify clause provided above enabled Chase Manhattan Bank to completely reverse on appeal a $24+ million judgment entered against it at trial. The New York appellate court focused on the following provisions:

The trust was funded with a concentration of Kodak stock. Decedent’s will provided that “[i]t is my desire and hope that said stock will be held by my said Executors and by my said Trustee to be distributed to the ultimate beneficiaries under this Will, and neither my Executors nor my said Trustee shall dispose of such stock for the purpose of diversification of investment and neither they [n]or it shall be held liable for any diminution in the value of such stock.” Decedent’s will further provided that “[t]he foregoing .  .  .  shall not prevent my said Executors or my said Trustee from disposing of all or part of the stock of [Kodak] in case there shall be some compelling reason other than diversification of investment for doing so.”

What If Surviving Spouse Wants More?

In those cases where a client wants to provide for a spouse that is not the parent of the client’s children (at the very least to avoid an elective-share claim), Florida law specifically provides a very useful tool in the form of an “elective share trust.” Similar to the QTIP trust now familiar to most estate planners, an elective share trust allows a client to provide for a surviving spouse for life – but retain control over the ultimate disposition of these assets when the surviving spouse passes away. This type of trust is also effective as a “stand by” mechanism to capture any additional estate assets in trust that may be necessary to satisfy an elective share claim. For example:

Despite any other provision of this Trust Agreement, if my wife or her designated representative elects the Elective Share in my estate, any trust created under this Trust and not qualifying for the federal marital deduction in which my wife is a beneficiary will be divided into two parts, with the least amount of that trust as is needed to satisfy the balance of the Elective Share unpaid by other sources under Section 732.2075 of the Florida Statutes being held as a separate trust (the “Elective Share Trust”) and administered so as to qualify under Section 732.2025 of the Florida Statutes (including the right for my wife to require the Trustee to make the trust property productive or to convert it within a reasonable time). Unless the original trust already provides for a qualifying invasion power or a qualifying power of appointment for my wife, the Personal Representative in its discretion may elect to create an invasion power for the Elective Share Trust for purposes of valuation under Section 732.2095 of the Florida Statutes. If an invasion power is created, the Personal Representative shall designate that such a power is to apply by filing a notice with my wife and in the probate court within 6 months after the election by my wife of the Elective Share.

Who Gets The House?

In light of skyrocketing real estate values in Florida, for most Floridians their single most valuable asset is their home. If a homeowner is survived by a spouse or minor children, his or her residence is protected homestead property under Florida’s Constitution (Art. X, § 4(c)) and Probate Code (F.S. §731.201(29)), and thus not subject to devise pursuant to F.S. § 732.4015. However, if the homeowner’s residence is NOT protected homestead property, one might be forgiven for assuming that the residence was “freely” devisable.

Not so fast said the Florida Supreme Court in McKean v. Warburton, 2005 WL 3601898 (Fla. September 8, 2005). If a homeowner that expects NOT to be survived by a spouse or minor children wants to make sure that his or her single most valuable asset at death can be used to satisfy pre-residuary bequests, the Florida Supreme Court’s holding in this case requires that the homeowner specifically provide in his or her Will that the homestead property be sold and added to the general probate estate. Specifically, the Florida Supreme Court provided the following drafting advice for all Florida estate planners:

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.

Who Pays Uncle Sam?

If estate tax is an issue, the estate plan for a married couple will likely include at least two wills and two revocable trusts and may also include an irrevocable insurance trust. If the client’s spouse is not the mother of his children, or the remainder beneficiaries of an existing QTIP do not approve of widowed client’s second wife, an inherent source of conflict arises every time a QTIP marital-deduction trust is incorporated into the estate plan. Children of first marriage get remainder assets of QTIP, but only after such assets have been used to pay estate tax of second-wife’s estate (or estate taxes of widower’s estate). If the estate is of any size, who bears the estate tax may be the single biggest economic factor driving potential litigation. As such, it is imperative that tax payment provisions included in the testamentary documents be properly coordinated to address tax allocation issues related to QTIP trusts. This means the tax payment language in the will, the revocable trust, and the QTIP (and perhaps the insurance trust as well) all have to coordinate with one another. The following example clauses address these issues in the will and revocable trust:

Will -- Tax-Payment Language

Expenses and Taxes. The term “expenses” includes all estate transmission or management expenses of my probate estate and all costs of my last illness and funeral; the term “estate taxes” means all state and federal estate, inheritance, or transfer taxes payable by reason of my death (including the generation-skipping transfer tax on any direct skip created by the express terms of this Will rather than by disclaimer), plus any related interest and penalties attributable to these taxes, but excluding any other generation-skipping taxes. I direct that all expenses of my estate and all estate taxes charged with respect to my gross estate for estate tax purposes (including estate taxes on assets that do not pass under this Will) be paid by the trustee of my Revocable Trust, as permitted under Section 733.817 and despite Section 738.201(2)(c) of the Florida Statutes. For these purposes, I incorporate by reference the tax apportionment provisions of my Revocable Trust. To the extent these amounts are not paid by my Revocable Trust, they are to be paid from my Residuary Estate, without apportionment, except to the extent provided in my Revocable Trust as to nonprobate and nontaxable assets.

Revocable Trust – Tax-Payment Language

If any portion of the Marital Trust is included in my wife’s gross estate for federal estate tax purposes, unless my wife specifically directs to the contrary in her Last Will, the Trustee shall pay from that portion the amount certified by my wife’s Personal Representative that state and federal estate taxes (including penalties and interest) for her estate are increased over the amount of those taxes computed as if that portion were not included in her gross estate (as provided in Section 2207A of the Internal Revenue Code). The Trustee may pay those taxes directly or to the Personal Representative of my wife’s estate, and the Trustee is to be held harmless from any liability for making payments in reliance on that certification.

I waive all rights of recovery under Sections 2206, 2207, 2207A, and 2207B of the Internal Revenue Code.

The Trustee may rely on a written statement signed by my Personal Representative as to the amount of those expenses and taxes. The Trustee may make payment directly or to my Personal Representative, as my Personal Representative requests. The Trustee will be held harmless from any liability in making payments as so directed.

Who Picks The Trustee And When Can You Fire Him?

If the client’s current spouse is not the mother of his children, a reasonable precaution against future litigation is to ensure that second-wife and children are not co-fiduciaries. In the trust context this issue can be addressed by appointing different trustees for different sub-trusts and giving the respective beneficiaries of such trusts the independent authority to vote in successor trustees as needed. For example:

After my Disability. If my personal rights under this Trust Agreement are suspended, my son, SON#1, if he is age 21 or older, shall be appointed as the successor Co-Trustee. If my son fails or ceases to serve, I appoint my mother, MOTHER, as the successor Co-Trustee. My successor individual Trustee shall designate a Corporate Co-Trustee to serve with him or her.

After my Death. After my death, I appoint the following persons as successor Trustees under this Trust Agreement:

(a) Marital Trust and Family Trust. I appoint my wife as the sole Trustee of the Marital Trust and the Family Trust.

(b) Trusts for Descendants. I appoint each of my descendants as Co-Trustee of his or her separate trust, but only when that descendant has reached age 18. The successor individual Trustee shall designate a Corporate Co-Trustee to serve with him or her.

(c) Other Trusts. I appoint my son, SON#1, if he is age 18 or older, as the successor Co-Trustee of all other trusts created by this Trust Agreement. If my son fails or ceases to serve, I appoint my mother, MOTHER, as the successor Co-Trustee. The successor individual Trustee shall designate a Corporate Co-Trustee to serve with him or her.

Lord Acton was right when he observed that “power tends to corrupt; absolute power corrupts absolutely.” No matter how ethical and well-intentioned a trustee may be, or how close the family relation between trustee and beneficiary, basic human nature is such that a person’s sense of morality often lessens as his or her power increases (see here and here). In the trust context this dynamic can produce unintended consequences when trust beneficiaries are left with no viable recourse short of costly litigation in the face of a trustee that has clearly ceased acting as an “agent” for the original trust grantor, and has instead convinced himself that this is “his” money and he knows what’s best for the now middle-aged beneficiaries who “just want to cause trouble."  One middle-ground approach is to require an independent trustee for the trust, but also giving a majority (or super majority?) of the trust’s beneficiaries or some other trusted person (or committee) the discretion to periodically replace the independent trustee and appoint a new independent trustee without court order. For example:

Unrestricted Right to Remove. Upon the third anniversary date of my death, and every three years thereafter, the persons listed in Section ____ may remove any Independent Trustee for any reason by giving 30 days’ written notice to that Trustee and to the permissible current income beneficiaries, including the natural or legal guardians of any beneficiaries who are then disabled.

Who's in and Who's Out (Identifying Beneficiaries)?

A presumably basic question, like “who’s a beneficiary?” can be the source of costly – yet avoidable – litigation. First, the testamentary document should explicitly define the client’s “children,” taking into account if any children are being disinherited and also the possibility of later-born children, adopted children and illegitimate children. For example:

Family. I am married to WIFE, who is referred to as “my wife” in this Will. My wife and I are both citizens of the United States. My wife and I have three children, SON#1, SON#2 and DAUGHTER. References to “my children” mean my children named above, as well as any other children of mine born or adopted after the execution of this Will; except SON#1, whom I expressly exclude from any provision of this Will and who is to receive no benefit under it; references to “my descendants” mean my children named above (except SON#1) and their descendants, but not the descendants of SON#1, whom I expressly exclude from any provision of this Will and who are to receive no benefit under it.

Effect of Adoption. A legally adopted child (and any descendants of that child) will be regarded as a descendant of the adopting parent only if the petition for adoption was filed with the court before the child’s thirteenth birthday. If the legal relationship between a parent and child is terminated by a court while the parent is alive, that child and that child’s descendants will not be regarded as descendants of that parent. If a parent dies and the legal relationship with that deceased parent’s child had not been terminated before that parent’s death, the deceased parent’s child and that child’s descendants will continue to be regarded as descendants of the deceased parent even if the child is later adopted by another person.

Infant in Gestation. For all purposes of this Will, an infant in gestation who is later born alive will be deemed to be in being during the period of gestation for the purpose of qualifying the infant, after it is born, as a beneficiary of this Will.

What if the definition of “family” changes due to divorce? Florida has two statutes that treat a spouse as being predeceased for purposes of a will (F.S. §732.507(2)) and a revocable trust (F.S. §737.106) executed prior to the dissolution of marriage. Note, however, that while a divorce is pending the surviving spouse still has homestead, elective share and exempt property rights under Florida law. Moreover, non-probate assets, such as insurance policies, IRAs, and pension plan benefits are governed by their beneficiary designation forms – not the subsequent divorce of the named beneficiary (see here). Bottom line, no amount of drafting will address all issues for a divorcing client. All estate planning documents should be reviewed and appropriately revised as soon as divorce proceedings are commenced.

But what about divorce not involving the client and his or her spouse directly? For example, what about divorce at the next generational level? The following sample clause addresses this issue within the context of a trust agreement:

Marital Relationships. The following rules apply to each person who is a beneficiary or a permissible appointee under this Trust Agreement and who is married to a descendant of mine. Such a person will cease to be a beneficiary and will be excluded from the class of permissible appointees upon: (a) the legal termination of the marriage to my descendant (whether before or after my death), or (b) the death of my descendant if a dissolution of marriage proceeding was pending when he or she died. The Trust will be administered as if that person had died upon the happening of the terminating event described above. If that person is not disqualified as provided above, he or she will remain a beneficiary (or permissible appointee), even if that person remarries after the death of my descendant.

How can I defend against possible probate litigation in my estate planning?

“To fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting.”  Sun Tzu, The Art of War

Properly drafted estate planning documents can both decrease the likelihood of an estate claim and, in the event of an attack by a disgruntled heir or beneficiary of the estate, increase the chances that the estate plan will be successfully defended. Ideally, properly drafted estate planning documents will in fact dissuade a potential challenger from even commencing litigation. That is in fact the ultimate goal: dissuading a potential litigant from ever even filing his or her lawsuit.

The following discussion assumes Florida law will be governing the testamentary instrument. As such, drafting techniques commonly employed in other jurisdictions but unenforceable in Florida are not addressed. (For example, in terrorem clauses are enforceable in New York, but not enforceable under Florida law - see here).

Anticipating Evidentiary Issues

By anticipating evidentiary issues unique to estate claims planners can ensure the proper record is developed to shield an estate plan against future attack and also make sure clients avoid inadvertently creating a record that might undermine their estate plans in the future.

1.         General Rule; Self-Proving Affidavits

The initial burden is upon the proponent of a will to establish prima facie formal execution and attestation of the will. F.S. §733.107(1). The value of self-proving affidavits should not be underestimated with respect to this evidentiary point. Under F.S. §733.201(1) a will that is “self-proved” in accordance with the statutory form provided in F.S. § 732.503 is admissible to probate without the testimony of the attesting witnesses. If the will is not self-proved under F.S. § 733.107 the proponent of the will has the burden of establishing “prima facie” its formal execution and attestation via the alternate options spelled out in F.S. §733.201(2) and (3).

A simple statutory form can make all the difference in the world if it shifts the burden of proof in a will contest. A recent example underscores this point. In Jordan v. Fehr, 902 So.2d 198 (Fla. 1st DCA 2005), one of the attesting witnesses described his role as follows:

“I’m like a monkey, I wrote my name and address and I was gone.”

Based on this kind of testimony is it any wonder that the First DCA reversed the trial court’s refusal to grant summary judgment in favor of the party challenging the will? Would the outcome have been different if the attesting witnesses had simply signed a self-proving affidavit and thus shifted the burden of proof to the challenging party? Maybe not, but then again, maybe it would have been just enough to tip the case the other way. Yes, a simple statutory form can be a big deal.

2.         Shifting Burden of Proof in Undue Influence Cases

Effective April 23, 2002, F.S. §733.107 was amended to add a new subsection (2) providing: “The presumption of undue influence implements public policy against abuse of fiduciary or confidential relationships and is therefore a presumption shifting the burden of proof under ss. 90.301-90.304.” F.S. §90.302(2) provides a presumption affecting the burden of proof; it “imposes upon the party against whom it operates the burden of proof concerning the nonexistence of the presumed fact.” In other words, once the presumption of undue influence is established by a challenger, the proponent must affirmatively disprove the existence of undue influence. Obviously, planners must be sensitive to any situation that might give rise to such presumption. In general the presumption is created by showing that one having a substantial benefit under the will possessed a confidential relationship with the decedent and was active in the procurement of the will. The prong to focus on here is “active procurement.” Planners need to be especially sensitive to the existence of factors considered relevant by Florida courts when determining if the alleged undue influencer “actively procured” the will or trust benefiting him or her. These factors include: 

  • presence of the beneficiary at the execution of the will; 
  • presence of the beneficiary on those occasions when the testator expressed a desire to make a will; 
  • recommendation by the beneficiary of an attorney to draw the will; 
  • knowledge of the contents of the will by the beneficiary prior to execution; 
  • giving of instructions on preparation of the will by the beneficiary to the attorney drawing the will; 
  • securing of witnesses to the will by the beneficiary; and 
  • safekeeping of the will by the beneficiary subsequent to execution.

3.         Attorney as Witness

Communications concerning a will by the testator to his or her attorney are not privileged after the demise of the testator. F.S. §90.502(4)(b). See also Swidler & Berlin v. U.S., 524 U.S. 399, 118 S.Ct. 2081 (1998):

[T]he general rule with respect to confidential communications . . . is that such communications are privileged during the testator’s lifetime and, also, after the testator’s death unless sought to be disclosed in litigation between the testator’s heirs. [Citation omitted.] The rationale for such disclosure is that it furthers the client’s intent.   [Citation omitted.] Indeed, in Glover v. Patten, 165 U.S. 394, 406-408, 17 S.Ct. 411, 416, 41 L.Ed. 760 (1897), this Court, in recognizing the testamentary exception, expressly assumed that the privilege continues after the individual’s death. The Court explained that testamentary disclosure was permissible because the privilege, which normally protects the client’s interests, could be impliedly waived in order to fulfill the client’s testamentary intent. [Citation omitted.]

Attorneys should also consider whether or not they might be needed as litigation counsel for the estate. The preferred practice appears to be for an attorney who anticipates testifying to decline to serve as advocate for either side of the controversy. See Rule Reg. Fla. Bar 4-3.7. The following excerpt from the official “Comment” to Rule 4-3.7 articulates the prejudice/conflict-of-interest concerns underlying the rule:

Combining the roles of advocate and witness can prejudice the opposing party and can involve a conflict of interest between the lawyer and client.

The opposing party has proper objection where the combination of roles may prejudice that party’s rights in the litigation. A witness is required to testify on the basis of personal knowledge, while an advocate is expected to explain and comment on evidence given by others. It may not be clear whether a statement by an advocate-witness should be taken as proof or as an analysis of the proof.

In Eccles v. Nelson, 919 So.2d 658 (Fla. 5th DCA 2006), the trial court’s ruling disqualifying the will-drafting attorney as litigation counsel was upheld on appeal by the 5th DCA on the following two grounds: First, Rule 4-3.7 supports disqualification and, second, disqualification of the will-drafting attorney did not violate his client’s constitutional First Amendment right to association because Florida courts have a substantial and legitimate governmental interest in protecting the integrity of the litigation process.

Attorney-client privilege issues also need to be considered anytime a trustee is the target of breach-of-trust allegations. In those instances whether or not the trustee’s confidential communications with his or her attorney are privileged may turn on the court’s determination of who the attorney’s “real client” is: the trustee or the beneficiaries. The Second DCA recently addressed this issue in Tripp v. Salkovitz, 919 So.2d 716 (Fla. 2d DCA 2006), articulating the governing Florida rule as follows:

Usually, a lawyer retained by a trust represents the trustee, not the beneficiary, even though the fees are paid with trust funds that would otherwise go to the beneficiary. If the attorney represents the trustee, the trustee holds the lawyer-client privilege. In some circumstances, however, the beneficiary may be the person who will ultimately benefit from the legal work the trustee has instructed the attorney to perform. See, e.g., Riggs Nat’l Bank of Washington, D.C. v. Zimmer, 355 A.2d 709, 711 (Del.Ch.Ct.1976) (noting that legal memorandum concerning trust tax issues, written before beneficiaries’ litigation against trustee began, was prepared for the benefit of the trust beneficiaries) (cited in [ Barnett Banks Trust Co., N.A. v.] Compson, 629 So.2d [849, 850 (Fla. 2d DCA 1993)]). In that situation, the beneficiary may be considered the attorney’s “real client” and would be the holder of the lawyer-client privilege. But if the “real client” is the trustee, the beneficiary would have to prove the existence of some exception to overcome the privilege. [Citation omitted.]

Identifying Potential Litigants

Another way of framing this issue is by asking the following question: who would have “standing” to challenge the client’s will or trust? In Florida that question is answered largely by determining if the potential litigant would be considered an “interested person” in the client’s estate. The term “interested person” is broadly defined in F.S. §731.201(21), and explicitly includes personal representatives and trustees. Any “interested person” may petition for revocation of probate. F.S. §733.109. Note also that F.S. §733.109(1) specifically expands the class of possible interested persons to disinherited beneficiaries of prior wills. The prudent approach is to consider all heirs at law as interested persons in the estate. The class of persons potentially falling within the class of a person’s heirs may also include a child that was raised by the decedent but never legally adopted under the doctrine of “virtual adoption.” See Williams v. Dorrell, 714 So.2d 574 (Fla. 3d DCA 1998).

Standing may also be the product of contractual rights if the claimant alleges the decedent breached an agreement to make a will validly created under F.S. 732.701(1). This claim is technically not an attack against the decedent’s will, but rather one for breach of contract that would have to be prosecuted like any other creditor’s claim under Part VII of Chapter 733.

It is also important to note that certain potential probate litigants can be essentially “bought out” if they receive their specified share of the estate. At that point they lose any standing to challenge any other aspect of the probate administration process. For example, in Cason ex rel. Saferight v. Hammock, 908 So.2d 512 (Fla. 5th DCA 2005), the Fifth DCA held that the trial court was wrong when it ruled that the party seeking to remove the personal representative lacked standing because she did not fall within the definition of an “interested person” under F.S. §731.201(21). The estate had argued that because the petitioner was only entitled to a specific devise of $5,000 and there were sufficient estate funds to pay this specific devise, she was not an “interested person” and therefore under Fla. Prob. Rule 5.440(a) she lacked standing. The Fifth DCA held that the estate would have been correct . . . if the devise had already been paid. Because the devise had not been paid, the petitioner continued to have standing (oops!).

Identifying Potential Probate Litigation Claims

“The truly wise man, we are told, can perceive things before they come to pass; how much more than those that are already manifest.”  Sun Tzu, The Art of War

The following discussion is not intended to cover every conceivable claim that could arguably be asserted by disgruntled beneficiaries or disinherited family members. The focus here is on highlighting the most likely avenues of attack. The operative assumption is that thoughtful estate planners who are sensitive to these dangers and proactively engaged with their clients in guarding against them will in all likelihood greatly diminish the likelihood of estate litigation in all of its possible permutations.

1.         Execution Formalities

Although execution formalities should be second nature to estate planners, it is helpful to periodically review them nonetheless. F.S. §732.502 requires that a will be in writing, that it be signed at the end by the testator or by another at the testator’s direction, and that the testator sign, or acknowledge signing or directing another to sign, in the presence of two witnesses. It is not required that the testator sign in the presence of the witnesses if he or she acknowledges his or her signature to them. It is mandatory, however, that the witnesses sign in the presence of each other and of the testator. F.S. §732.502(1)(c). F.S. §737.111 provides that the testamentary aspects of a trust executed on or after October 1, 1995, are invalid unless the instrument is executed by the settlor with the formalities for the execution of a will.

2.         Lack of Testamentary Capacity

F.S. §732.501 provides that the testator must be of sound mind and be at least 18 years of age or an emancipated minor. Testamentary competency means the ability to understand generally the nature and extent of one’s property, the relationship of those who would be the natural objects of the testator’s bounty, and a general understanding of the practical effect of a will. Although there is no provision in the trust statute similar to F.S. §732.501, general law as to the inability of an incompetent person or a minor to contract should be applicable to execution of a trust.

3.         Fraud, Duress, Mistake & Undue Influence

F.S. §732.5165 specifically provides that a will, or any part of it, is void if procured by fraud, duress, undue influence, or mistake. Under F.S. §737.206 fraud, duress, mistake, or undue influence may be asserted as grounds for trust contests as well.

A fraud claim would be based on the general elements applicable to all fraud claims: false representations of material facts, knowledge by the perpetrator that the representations are false, intent that the representation be acted upon, and a resulting injury. Fraud defeats the testator’s wishes through deceit. Examples of duress would include the execution of a will or trust under threat of blackmail or force. Here the idea is that the testamentary instrument is not the voluntary act of the testator and is thus invalid. Undue influence is a substitution of the mind of another for the mind of the testator that induces the testator to act contrary to his or her wishes. In Zoldan v. Zohlman, 915 So.2d 235 (Fla. 3d DCA 2005), the Third DCA recently articulated the rule as follows when it reversed a trial court ruling finding undue influence based on the decedent’s alleged desire to please his spouse:

The Florida Probate Code provides that a will is void, either wholly or in part, if its execution is procured by fraud, duress, mistake, or undue influence. § 732.5165, Fla. Stat. (2003). The undue influence required for invalidation of a testamentary document is conduct amounting to duress, force, or coercion to such a degree that the free agency and willpower of the testator is destroyed. Mere affection and attachment or a desire to gratify the wishes of one who is esteemed or trusted may not alone be sufficient to amount to undue influence. E.g., In re Peters’ Estate, 155 Fla. 453, 20 So.2d 487, 492 (Fla.1945); Derovanesian v. Derovanesian, 857 So.2d 240 (Fla. 3d DCA 2003), rev. denied,868 So.2d 522 (Fla.2004); Raimi v. Furlong, 702 So.2d 1273, 1287 (Fla. 3d DCA 1997); Coppock v. Carlson, 547 So.2d 946 (Fla. 3d DCA 1989); and cases cited therein.

Estate claims based on “mistake” are predicated on the decedent’s execution of one instrument under the belief that he or she was executing another. “Mistake” in this context does not mean a mistake in the decedent’s understanding of a factual situation, a mistake in wording, or a scrivener’s error in drafting the will.

4.         Spousal Elective Share Claims

The right to an “elective share” is granted to the surviving spouse of any decedent domiciled in Florida with no restriction as to the residence of that surviving spouse. F.S. §732.201. The elective share is equal to 30% of the “elective estate.” F.S. §732.2065. The “elective estate” includes both probate and non-probate assets. F.S. §732.2035. The elective share is in addition to a surviving spouse’s rights to homestead property, exempt property, and allowances as provided in Part IV of F.S. Chapter 732. F.S. §732.2105.

5.         Tortious Interference in Estate Planning

The tort of interference with an expectancy of inheritance authorizes the injured beneficiary to bring what amounts to a derivative action to recover damages. The tort is recognized to advance a public policy for the protection of the testator’s interest in freely disposing of his or her property by gift or devise, rather than the disappointed beneficiary’s expectancy. The most significant characteristic of this action is that it is not a probate-centered lawsuit. In fact the claim may be brought only under circumstances that do not usurp the jurisdiction of the probate court, constitute an impermissible collateral attack on an order or judgment entered in probate, or improperly delegate, to disappointed beneficiaries, the responsibility for the protection of a competent testator’s right to dispose of property freely and without improper interference. 

It should also be noted that in light of the 2006 U.S. Supreme Court opinion involving tortious interference claims asserted by former Playboy model Ana Nicole Smith, these claims may become more common – in federal court. Martha Neil in her article More Probate Suits Seen in Smith Ruling, ABA J. e-Report, May 5, 2006, reported that the Ana Nicole Smith case is expected “to open federal courtroom doors to a deluge of new estate-related litigation.” Here is an excerpt from her article:

Meanwhile, even those on the other side expect the Supreme Court decision in Smith’s case to open federal courtroom doors to a deluge of new estate-related litigation. 

“I think it’s going to be read primarily by litigators and it’s going to create another new litigation opportunity,” says James R. Wade, a Denver lawyer and former probate judge who filed an amicus brief on behalf of the National College of Probate Judges. “I think that the litigators are going to see opportunities which they hadn’t even thought of before of bringing probate cases in federal court.”

Litigation Red Flags

“All happy families resemble one another, but each unhappy family is unhappy in its own way.”  Leo Tolstoy

Strained relations between client and family or among the presumptive beneficiaries of the estate are the primary “red flags” to be considered when planning for future estate litigation. In truly troubled families, where substance abuse, cult influence, extreme profligacy or other deviant behavior is evident, considering the likelihood of estate litigation and properly planning to guard against it could be the difference between abject poverty and substantial comfort for the estate’s beneficiaries. Estate planning in the absence of this information is akin to a pilot flying blind. However, once the “red flags” are spotted, effective prophylactic estate planning is very feasible and a true bargain when compared to the cost of litigation.