Posts Tagged ‘Florida Court of Appeals’

New Florida “Trust Protector” Case Shows How the Idea Can Work

DECEMBER 8, 2014 VOLUME 21 NUMBER 44

We’ve written several times about the relatively new concept of “trust protectors.” The idea is that a trust can be much more flexible if someone — necessarily someone who is entirely trustworthy — has the power to make at least some kinds of changes after the trust becomes irrevocable. The precise power of a trust protector can usually be spelled out in the trust document, but frequently includes the power to amend the trust (or even terminate it), to change beneficiaries or to remove a trustee and name a successor.

While trust protectors have been the subject of much writing, they are still new enough not to have been spotted in the court system very often. Some of that, of course, is because the very existence of a trust protector can sometimes avoid the need for court action — or head off a court contest, if someone is unhappy with the trust’s administration. Mostly, though, the idea is too new, and has not even been formalized in many states.

Arizona has a specific statute allowing trust protectors. States are increasingly codifying similar provisions, often as part of the Uniform Trust Code, which has been adopted now in over half of the states. Florida is one of those states, having adopted its version of the Uniform Trust Code — expressly including a provision for trust protectors — in 2008. Now a new appellate case out of Florida gives some insight into how the trust protector might be used.

Zach Moore (not his real name) was a successful businessman who retired to Florida, where he lived with his second wife Patty. He had two children from his first marriage. Like many people, Zach decided that he should have a revocable living trust; he signed trust documents in 1999 and rewrote them in 2008, the same year that Florida adopted the Uniform Trust Code. His new trust included a provision permitting the trustee to name a trust protector in order to amend the trust to clarify any ambiguity in the future. He also included some specific language making it clear that after his death the trust was to be primarily for his wife’s benefit, and that his children’s shares would be created only on her death. He and Patty were named as trustees, and upon his death Patty would continue as sole trustee.

Zach died in 2010, and Patty took over as sole trustee. Not long after that, Zach’s two children brought a suit against Patty alleging that she was not managing the trust properly, and demanding an accounting from her. She filed a motion to dismiss, alleging that they were not beneficiaries of the trust at all — their separate-share trusts, she argued, would be created only upon her death.

The trial judge disagreed, ruling that the trust would divide into separate shares, not be transferred to new trusts. That meant that the children were beneficiaries, although their interests did not arise until Patty’s death. Still, they would have standing to challenge her administration of the trust.

Patty’s response: she appointed a trust protector, as provided for in the trust document. That trust protector amended the trust to make clear that upon Patty’s death the then-trustee was to distribute the remaining assets to a new trust, which would then split into two shares for Zach’s children.

Did that resolve the issue? Not quite. The trial judge ruled that the purported amendment by the trust protector was ineffective, because it did not benefit all the beneficiaries of the original trust — it would leave Zach’s children with no power to challenge Patty’s actions as trustee.

Patty appealed, and the Florida Court of Appeals reversed the trial court’s ruling. The appellate judges first noted that the then-new Florida Trust Code allowed for inclusion of trust protectors, and that the powers given to the trust protector in Zach’s trust were not outside the scope of the law. Importantly, the appellate court specifically rejected the children’s argument that the Uniform Trust Code makes court modification the only way to amend an irrevocable trust.

The Court of Appeals went on to note that the trial judge’s reading of the trust to find a single trust dividing into shares was not unambiguously clear from the trust document. That meant that the trust protector’s actions to clarify an ambiguous provision was clearly within his authority — and the amendment was valid. “From the trust protector’s affidavit,” wrote the court, “it appears that the husband settled on the multiple-trust scheme for the very purpose of preventing the children from challenging the manner in which the wife spent the money” in the trust he had established. That purpose should be upheld, decided the appellate judges; the court specifically approved the trust protector’s amendments. Minassian v. Rachins, December 3, 2014.

Arizona’s trust protector statute is, if anything, broader than Florida’s statute. Powers that can be assigned to a trust protector are spelled out, with the specific provision that they are not limited to those listed. Trust protectors can be an important and effective way to address possible future disputes; it can make sense to include a trust protector, especially in a case where future contentiousness is anticipated.

 

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Marital Agreements and Death of One Spouse

OCTOBER 17, 2011 VOLUME 18 NUMBER 36
John and Marsha, contemplating marriage, want to enter into an agreement spelling out what will happen to their separate and community property if they later divorce, or when one of them dies. Or perhaps John and Marsha have been married for years, but are contemplating separation and maybe divorce — perhaps they want to divide their property interests now, just in case. Or maybe John and Marsha are perfectly happy in their marriage, but they both want to make sure that after one dies the survivor won’t change the ultimate recipients of their combined estate. Can John and Marsha agree to change the nature of their respective property rights and interests?

Yes, of course, they can. Most people are familiar with the concept of a premarital agreement (sometimes called a prenuptial agreement). Less familiar, but still fairly common, is the postnuptial agreement, entered into between spouses even after they have married. Even less common are contracts not to make a new will — John and Marsha can enter into an agreement that neither will change their will without both agreeing, and thereby try to prevent changes after one of them dies.

It is important to note that each of those types of agreements must be prepared in conformance with state law — and the requirements are different for each type of agreement and in each state. That can make it very confusing to figure out how to make an effective agreement. Depending on family circumstances, relative wealth of the spouses and other factors, it might well be worth exploring an agreement. One important rule that governs at least prenuptial and postnuptial agreements: the spouses should each have separate legal counsel (that is, each should have their own lawyer).

So what happens if a couple has signed an agreement and one spouse dies? Assuming the agreement is valid and enforceable, the deceased spouse’s heirs or estate should be able to get appropriate orders effecting the terms of the agreement. What happens if the couple’s situation changes? In most cases, nothing prevents them from changing the terms of their agreement.

Here’s a common scenario: John and Marsha sign an agreement about how they will treat their property (in this case it is not going to matter whether they sign before or after their marriage). The agreement provides that neither is entitled to receive anything from the other’s estate.

After the agreement is signed, John decides to leave a substantial sum of money (or a life insurance policy, or an IRA — it doesn’t matter which kind of asset) to Marsha anyway, and he changes his will, or makes her beneficiary. If John dies, can his other heirs — the children of his first marriage, perhaps — set aside the bequest to Marsha?

Assuming the documents are properly signed, and John was competent and not subjected to undue influence, the agreement probably will not prevent Marsha from inheriting. The agreement probably did not say any will provision or beneficiary designation would be invalid — it more likely just provided that John did not have to do anything to benefit Marsha, but probably does not prevent him from leaving her anything.

That’s not the situation in a recent Florida case, however. Jeffery and Andrea Steffens’ postnuptial agreement gives some insight into how tricky it can sometimes be to figure out what the agreement means.

In 2002 Jeffrey Steffens signed his will. He left most of his estate to his wife Andrea. Five years later, though, the marriage was shaky and Jeffrey and Andrea were considering separation or even divorce. They signed their postnuptial agreement in 2007, providing that each waived any right to receive any property from the other’s estate. Two years later, when Jeffrey died, the couple was still married.

Andrea filed Jeffrey’s 2002 will and asked the probate court to appoint her as personal representative. Jeffrey’s first wife, acting on behalf of his (and her) minor children, objected, and argued that Andrea had waived the right to receive under Jeffrey’s 2002 will.

The postnuptial agreement expressly authorized either spouse to leave the other more than money by will or beneficiary designation, but it also had each spouse waiving any right to claim property from the other’s estate. Since the will had been signed before the postnuptial agreement, and since Jeffrey did not sign a new will leaving anything to Andrea after signing the agreement, the probate court agreed with Jeffrey’s first wife.

The Florida Court of  Appeals upheld the probate court ruling. Consequently, Andrea received nothing from Jeffrey’s estate, and instead it went to the children of his first marriage. Steffens v. Evans, October 5, 2011.

Was that what Jeffrey Steffens wanted, or would have wanted? It may not be clear. Andrea sought court permission to produce evidence about what Jeffrey actually intended, but the probate judge (and the appellate court) denied her the opportunity, ruling that the agreement was unambiguous.

Assume for a moment that Jeffrey was hopeful about his relationship with Andrea, and wanted his 2002 will to be effective. What might he have done? One easy step would have been to simply “republish” his will — perhaps by signing a new copy of the exact same document, or even by signing a statement that he intended the will to remain effective. It would have been important that he have two witnesses sign at the same time. Just telling Andrea — or even a third person (even, for that matter, his first wife) — what he wanted would not have been sufficient.

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Even With a Will the Probate Court May Need to Interpret

NOVEMBER 15, 2010 VOLUME 17 NUMBER 36
When we help you plan your estate our goal is to figure out who you would want to be in charge of your finances and personal affairs, who should receive your assets and in what proportion, and what you want done at a future time when you are unable to take care of things yourself. Our purpose is to figure all of that out and reduce it to writing — and to assure that your wishes are clearly and legally expressed. That is why we ask you all of those annoying questions about what should happen if your heirs or agents should die before you. That is why we spin out those disturbing scenarios of multiple deaths and incapacities, of family break-ups and failures.

There is a point at which it no longer makes sense to try to figure out every eventuality, and we recognize that we will not cover every conceivable sequence and circumstance. There are principles of probate law that help fill in the blanks for common issues — but sometimes they are not obvious, or do not seem quite right. Then the probate court may have to interpret a will or trust, or figure out the legal effect of the document.

A simple illustration of this principle arises in the Florida probate court interpretation of Cecelia Lorenzo. Her will was properly drawn up, and it was clear. Half of her estate was to pass to her brother, and the other half to her sister’s husband. If either of those recipients died before her, she directed that the deceased beneficiary’s share should go to his wife. That seems obvious, and easy to interpret.

The problem with Ms. Lorenzo’s will did not appear obvious at the time it was written. Later, but before her death, both her brother and her sister-in-law died. That meant half of her estate was supposed to pass to one of two people who were no longer living.

Long-standing principles of construction almost addressed the problem. Under the laws of Florida (the same rules apply in Arizona), if the will does not provide otherwise a deceased beneficiary’s share passes to the named beneficiary’s children if he or she dies before the will’s signer. One catch: that principle only applies if the named beneficiary is a relative (in Florida’s case, that means “descended from the testator’s grandparents”).

So, to recap: Ms. Lorenzo’s will left half of her estate to her brother, who was surely descended from Ms. Lorenzo’s grandparents. Her brother died after the will was signed but before Ms. Lorenzo died. Her will said that in that event her brother’s half of the estate was instead to go to her sister-in-law — who was not descended from Ms. Lorenzo’s grandparents. Does that mean that the two children of Ms. Lorenzo’s brother (and his wife) receive the brother’s share, or not?

The probate court said yes, the niece and nephew should share half of Ms. Lorenzo’s estate. The Florida Court of Appeals said no, and reversed the probate judge’s holding. Because the will named Ms. Lorenzo’s sister-in-law in the event that her brother predeceased her, the bequest was to a person who was not a blood relative. That meant the bequest lapsed as a result of the deaths of Ms. Lorenzo’s brother and sister-in-law, and her entire estate passed to her sister’s husband, who had been named to receive the other half. Lorenzo v. Medina, November 10, 2010.

That might have been Ms. Lorenzo’s intention, but it seems unlikely. If the scenario had been reversed, with her brother-in-law and her sister dying before her, the result would have been the opposite — and it is hard to imagine that she intended opposite results in the two scenarios. More likely, she (and her lawyer) just didn’t think through every permutation, and then she didn’t update her will after the deaths of her brother and sister-in-law.

The court opinion doesn’t tell us how old Ms. Lorenzo’s will was at the time of her death. We are left to speculate about how long she had known of the deaths of her brother and sister-in-law, and whether she had ever considered what effect their deaths had on her own estate plan. But there is another lesson to be learned from Ms. Lorenzo: it is a good idea to update your estate plan every five years or so, just to be sure your intentions are not overtaken by family circumstances.

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“Full Faith and Credit” Applies In Two-State Probate Actione

APRIL 5, 2004 VOLUME 11, NUMBER 40

A Florida court found Alvarado Kelly incompetent in 1960, and appointed a guardian to manage his property. Fifteen years later Mr. Kelly moved to a facility in Mississippi operated by Sarah Cuevas; he lived in that facility until his death twenty five years later. After his death Mr. Kelly’s brother William and Ms. Cuevas became embroiled in a legal dispute involving the courts of both states.

Mr. Kelly had signed a will while he lived in Mississippi, and he had named Ms. Cuevas as executrix (what we in Arizona would call “personal representative”). Shortly after his death Ms. Cuevas filed the will for probate with the Mississippi courts, gave notice to William Kelly as the next of kin, and secured a court order appointing her as executrix and finding the will to be Mr. Kelly’s valid will.

William Kelly then filed a proceeding in the Florida courts. He acknowledged that there had been a finding in Mississippi, but he argued that it was invalid both because he had not actually participated and because his brother had never been a resident of Mississippi.

William Kelly argued that since his brother had been adjudged incompetent and the Florida courts had never given specific permission for him to relocate to Mississippi, he remained a resident of Florida for the rest of his life. He also insisted that the will was invalid because Ms. Cuevas had exercised undue influence.

Ms. Cuevas filed a motion to dismiss the Florida probate, but the Florida court agreed with William Kelly that her appointment by the Mississippi court was invalid. A Florida bank was appointed as personal representative of Mr. Kelly’s estate and authorized to collect his assets.

The Florida Court of Appeals reversed the probate court’s decision, however. In doing so, it relied partly on the U.S. Constitution, which requires the courts of each state to give “full faith and credit” to the courts of sister states in most situations.

In this case, ruled the appellate court, Ms. Cuevas had given William Kelly notice of the pending Mississippi proceedings, and an opportunity to file pleadings and present his argument that any proceedings should be in Florida. When the Mississippi court admitted Mr. Kelly’s will to probate it made a determination that he was domiciled in Mississippi; if William Kelly disagreed with that conclusion he needed to make his argument in Mississippi, rather than just filing his own proceeding in Florida. Cuevas v. Kelly, March 26, 2004.

Mr. Kelly’s probate proceedings provide an interesting illustration of the “full faith and credit” clause of the Constitution, and of its application to probate proceedings. It also demonstrates that it is unwise to ignore the proceedings in another state, hoping to later file a competing action in a more friendly jurisdiction.

December, 2005, update: In a related case in the Mississippi courts, that state’s Court of Appeals ruled that probate proceedings were proper in Mississippi. William Kelly, the decedent’s brother, had argued in the Mississippi proceedings that there was no jurisdiction for a probate there, since (he insisted) all of Alvarado Kelly’s assets necessarily belonged in Florida where he had resided when he had last been competent to select a residence. The Mississippi chancery court (where probate proceedings are tried) had ruled that it would be “impossible” to imagine that Alvarado Kelly had lived in Mississippi for thirty years without accumulating clothing or other personal items. His death in Mississippi, coupled with the existence of any assets at all, gave Mississippi courts jurisdiction over his estate, and the Court of Appeals agrees that those probate proceedings were properly initiated. In the Matter of Estate of Kelly, December 6, 2005.

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