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Wednesday, October 11, 2017

Florida 2017 Notable Cases

Can improper execution of a trust be validated under Fla. Stat. 736.0415, Florida’s statute permitting reformation?

The decision in Kelly v. Lindenau, 42 Fla. L. Weekly D1133 (Fla. 3d DCA May 17, 2017) is in keeping with Florida’s long-standing tradition of strictly enforcing execution requirements of wills and trusts, notwithstanding the intent of the testator or settlor. In Kelly, the Second District Court of Appeals held that Fla. Stat. 736.0415, Florida’s trust reformation statute, was not an appropriate remedy to correct execution defects of a trust which conveyed real property to the decedent’s beneficiaries upon his death.  This case, like many other cases, emphasizes the importance of a Florida resident having a knowledgeable Florida attorney familiar with the legal requirements of creating a valid will or trust. 

In the case of Kelly v. Lindenau, 42 Fla. L. Weekly D1133 (Fla. 3d DCA May 17, 2017), Ralph Falkenthal created his revocable trust while he was residing in Illinois. His trust was validly executed under Illinois law, and directed that the trust assets would go to his wife if she survived him and if she did not survive him then equally to his three children. After Ralph’s wife predeceased him, he purchased a home Bradenton, Florida where he resided with Donna Lindenau. While in Florida, Ralph executed a first amendment to his trust (which is not at issue in this case). Two years later, he executed a second amendment to his trust that provided for a devise of a Sarasota property to his son from his previous marriage, Jeff. This amendment also provided for a devise of his Bradenton property to Donna. The amendments were prepared by Ralph’s Illinois attorney, despite the fact that Ralph was residing in Florida at the time the amendments were executed. The trust amendments, while executed in the presence of 2 witnesses, were only signed by one of the witnesses, and therefore was not validly executed. The Florida Trust Code requires that a trust with testamentary aspects be signed with the same formalities as a will. Fla. Stat. 736.0403. The Florida Probate Code provides that a will must be signed in the presence of two attesting witnesses, and those witnesses must sign in the presence of each other and the testator. Fla. Stat. 732.502.

Judy, Ralph’s daughter from his prior marriage, filed a petition for declaratory judgement as successor trustee with regards to the validity of the amendments. Donna objected and relied on a “mistake of law” argument, claiming that the failure to obtain the second witness’s signature was a mistake of law hindering Ralph’s intent. The decedent’s other two children, Jill and Jeff, brought a motion for summary judgement, asserting that the amendments were invalid because they did not meet the execution requirements under Florida law. The trial court denied the motion for summary judgement, and at a subsequent bench trial, the court granted Donna’s reformation request made pursuant to Florida’s reformation statute, Fla. Stat. 736.0415, and ordered that Donna was the rightful owner of the Bradenton home.

On appeal, the Second District Court of Appeals reversed the trial court’s holding, concluding that reformation was not appropriate to correct the execution defects. The court relied upon the language of the reformation statute, which states that a trust may be reformed to conform with the settlor’s intent, “if it is proved by clear and convincing evidence that both the accomplishment of the settlor’s intent and the terms of the trust were affected by a mistake of fact or law, whether in expression or inducement” [emphasis supplied]. In other words, the statute focuses on the reformation of the terms of the trust, not the execution of it.

The court in Kelly relied upon Crawford v. Watkins, 75 So.2d 194 (Fla. 1954), in which the Florida Supreme Court upheld a circuit court’s refusal to admit a will to probate where one of the two witnesses to a will refused to sign. The court in Crawford stated that the signature of a witness serves “as testimony of the fact that all legal steps necessary to make the will a legal instrument have been taken by a testator.”

The Takeaway?

Florida’s reformation statute cannot be used to validate an improperly executed trust, notwithstanding the intent of the testator or settlor. State laws regarding valid execution of estate planning documents are not all the same. What may have been a validly executed trust amendment under Illinois law, was not valid under Florida law. This unfortunate outcome could have been prevented had the decedent employed a competent Florida attorney, familiar with the execution requirements of estate planning documents under Florida law.

Can an estate be liable for damages if a person gets into an accident while driving the decedent’s car prior to the appointment of a personal representative?

In the case of Depriest v. Greeson, 213 So.3d 1022 (1st DCA February 21, 2017), the decedent’s daughter caused an accident using the decedent’s car after the death of the decedent and prior to the appointment of her step-brother as personal representative. The First District Court of appeals held that prior to the appointment of a personal representative, the law does not impose a duty upon the nominated personal representative to act or prevent harm to the estate. However, it is important to keep in mind that the Depriest holding is based upon a unique set of facts. A different timeline could have led to a very different result. 

In Depriest v. Greeson, 213 So.3d 1022 (1st DCA February 21, 2017), the decedent’s car was owned solely by the decedent and was not bequeathed to any beneficiary under the decedent’s will. The decedent’s daughter and step-son were equal beneficiaries under the residuary clause of the will, and therefore neither the daughter nor the step-son had any specific right to the car. As such, the car became an asset of the decedent’s estate subject to administration, and its ownership could not be determined until resolution of claims, taxes, debts, and expenses of administration.

While the decedent was alive, his car and keys were kept at his daughter’s home, and his daughter occasionally used the decedent’s car with his permission. About a month after the decedent’s death and four days prior to the step-son filing the open the estate, the decedent’s daughter caused an accident and injured the plaintiff, Samuel Depriest, while driving the decedent’s car. Depriest, relying on Florida’s common law “dangerous instrumentality doctrine” sued the decedent’s estate alleging that the estate was vicariously liable for the damages. Depriest alleged that the personal representative had impliedly consented to the daughter’s use of the car by failing to take affirmative action to prevent her from using it. Discovery revealed that while the step-son had taken the title to his attorney after the decedent’s death, he did not make any effort to take possession of the car or the keys.  

On appeal, the First District Court of Appeals held that the decedent’s step-son as nominated but not yet appointed personal representative had no legal duty to prevent the decedent’s daughter from using the car. Only upon appointment by the court, the step-son would have the duty to control and protect the decedent’s assets. The court cited to the “relation back” doctrine codified in Fla. Stat. 733.601, which states that acts “occurring before appointment and beneficial to the estate” have the same effect as those acts taken after appointment. However, as shown in Richard v. Richard, 193 So.3d 964 (Fla. 3d DCA 2016), this authority to act prior to appointment does not impose a duty upon the nominated personal representative. Ultimately, the First District Court of Appeals held that the motorist could not show that there was implied consent for the decedent’s daughter to drive the car, which was essential to prove vicarious liability under the dangerous instrumentality doctrine.

The Takeaway?

This case reaffirms that a personal representative does not have a duty or obligation to take control of a decedent’s assets prior to appointment by the court. However, the personal representative was very lucky based on the timeline in this case. Had the personal representative been appointed at the time of the accident, he would have had a duty to take control of the decedent’s car and prevent anyone from using it. If such preventative steps are not taken, implied consent more than likely could be found and the estate could be liable for damages.

 

Can a lender foreclose on an equitable lien on a homestead property to prevent unjust enrichment? 

The case of Flinn v. Doty, 214 So.3d 683 (Fla. 4th DCA March 8, 2017) involves a family dispute over real property. The Fourth District Court of Appeals, relying on an argument of “unjust enrichment,” allowed an equitable lien on the decedent’s daughter’s homestead property to the extent that the proceeds from the sale of the decedent’s real property were used to pay expenses related to the daughter’s homestead property. Notably, the court held that it is not necessary to show fraud or egregious conduct in order to foreclose on an equitable lien. 

The decedent and his wife deeded several properties to their daughter, Gail Flinn.  Thereafter, the decedent’s wife died and the decedent became incapacitated. The decedent’s other daughter was appointed as guardian of the decedent, and filed suit against Flinn alleging that the decedent lacked the capacity to sign the deeds and that Flinn exercised undue influence over the decedent. The trial court placed two equitable liens on Flinn’s home: (1) a lien of $206,000, representing the amount which Flinn used to pay off the mortgage on her own property using the proceeds of the sale of the decedent’s property; and (2) a lien of $185,000 for the additional proceeds from the sale of the decedent’s property. The decedent died during the proceedings, and the personal representative sought to foreclose on the liens on behalf of the estate. The trial court ordered the foreclosure of the equitable liens, and Flinn appealed, claiming that the court erred by imposing the equitable liens on her homestead.  

The Fourth District Court of Appeals relied on a Florida Supreme Court decision, Palm Beach Savings & Loan Ass’n v. Fishbein, 619 So.2d 267 (Fla. 1993), to uphold the trial court’s enforcement of the first lien of $206,000. In Fishbein, a divorcing husband forged his wife’s signature to obtain a mortgage on their homestead property, which he used to pay off existing mortgages on the property. The Court relied on an “unjust enrichment” argument and allowed the lien on the homestead to the extent that the mortgage proceeds were used to pay the pre-existing mortgages. Notably, the Court held that it is not necessary to show fraud or egregious conduct in order to establish and foreclose on the lien.

Ultimately, in Flinn, the Fourth District Court upheld the first lien of $206,000 was proper on the basis of unjust enrichment. However, the court rejected the second lien of $185,000, as it did not satisfy any pre-existing obligations on Flinn’s home and was entirely unrelated to Flinn’s home.

The Takeaway?

Florida has a longstanding public policy of protecting homestead property from a homeowner’s creditors to “promote the stability and welfare of the state.” See McKean v. Warburton, 919 So.2d 341 (Fla. 2005). Notwithstanding this strong public policy, a claim of unjust enrichment can trump the homestead protection, even where there is no proof of fraud or egregious conduct. 

 

Does a contingent beneficiary of a discretionary trust have a right to receive notice of an adoption proceeding?

In Edwards v. Maxwell, 215 So.3d 616 (Fla. 1st DCA March 31, 2017), a beneficiary of three irrevocable trusts moved to set aside his father’s adoption of a child, who became a qualified beneficiary of the trust as a result of the adoption. The First District Court of Appeals held that the original beneficiary was not entitled to notice of the adoption and did not have standing to set aside the adoption because the trusts were to be distributed in the complete discretion of the trustees, and therefore he did not have a direct, financial, and immediate interest in the trusts. 

Ryan Maxwell, the biological son of John Adam Edwards, was the beneficiary of three irrevocable trusts created by his grandparents for their descendants. The trusts provide that the trustees have complete discretion to determine how and to whom distributions can be made. In 2004, Edwards adopted Brindley Kuiper, adding him as a qualified beneficiary of the trusts. Over the next years, Kuiper received thousands of dollars in distributions from the trusts. Maxwell, who claimed he was unaware of the adoption, filed a motion in 2014 to set aside the final judgement of adoption, alleging that it was fraudulent and should be vacated. Further, he argued that the adoption should be vacated because he did not receive notice of the adoption, which he claims he was entitled to as a qualified beneficiary of the trusts. The trial court vacated the judgement of adoption, and Edwards and Kuiper appealed.

The First District Court of Appeals relied upon the Florida Supreme Court’s decision in Stefanos v. Rivera-Berrios, 673 So.2d 12 (Fla. 1996), which was later codified in 2006 under Fla. Stat. 63.182(2)(a) under the Florida Adoption Act. Under Stefanos and the Florida Adoption Act, a third party must show “a direct, financial, and immediate interest in an adoption to be entitled to notice, or to have legal standing to vacate an adoption order.” Edwards, 215 So.3d at 618.  The Court in Stefanos held that such interest shall be more than a mere contingent or indirect interest.

In this case, the First District Court of Appeals held that Maxwell did not possess a direct, financial, and immediate interest in the trusts because he had no direct or immediate right to the trust funds. The trustees had complete discretion over how and to whom distributions were made, making Maxwell’s interest as a beneficiary contingent.  Unlike in Rickard v. McKesson, 774 So.2d 838 (Fla. 4th DCA 2000), where a contingent beneficiary was completely divested of her interest in a trust and was entitled to notice of an adoption proceeding, Maxwell retained his contingent interest. As such, the court reversed the trial court’s decision and held that Maxwell did not have a right to receive notice of the adoption and did not have standing to vacate the final judgement of adoption.

The Takeaway?

The Edwards case makes clear that a contingent beneficiary of a completely discretionary trust does not have the right to be notified of a fellow qualified beneficiary’s adoption and does not have standing to challenge the adoption because there is no direct, financial, or immediate interest at stake. However, it is important to keep in mind that this case could have had a very different outcome with a non-discretionary trust, as shown by the Rickard case.

Can a writ of garnishment be enforced on an account owned by the debtor and a third party, where a majority of the funds in the account were contributed by the third party?

In Stanbro v. McCormick 105 LLC, 213 So.3d 925 (Florida 4th DCA March 8, 2017), a bank account held in the name of the debtor and her boyfriend’s joint revocable trust was not subject to garnishment because the boyfriend was the primary contributor to the account, and the creditor could not meet its burden to show that the debtor was the exclusive owner of the account funds.  

A final judgement of foreclosure was entered against Carol Perfect, and the creditor obtained a deficiency judgement. The creditor moved to garnish Perfect’s bank account, which was held in the name of a revocable trust held jointly by Perfect and her boyfriend, Donald Stanbro. The name on the account was “Donald Standbro and Carol Perfect Revocable Trust, Donald L. Stanbro & Carol R. Perfect, Trustee.” The trust identified Standbro as the initial trustee and Perfect as the successor trustee. At trial, Standbro produced evidence showing that he was the sole owner of the funds and had transferred a majority of the funds (with the exception of $8.90) to the account. Notwithstanding the evidence, the trial court enforced the writ of garnishment.

On appeal, the Fourth District Court of Appeals rejected the trial court’s holding and dissolved the writ of garnishment. For garnishment purposes, the funds in an account are presumed to belong to the person whose name is on the account. However, when an account also reflects the name of a third party (who is not involved with the garnishment), the creditor has the burden prove that the funds belong exclusively to the debtor. In this case, the creditor failed to meet its burden to show that Perfect was the exclusive owner of the account funds, and the writ of garnishment on the account was dissolved.

The Takeaway?

A joint account held by a debtor and a third party can only be accessed by creditors to the extent the debtor contributed funds to the account. This case highlights the importance of obtaining the advice of a competent Florida attorney with regards to the funding of a revocable trust, especially if there are potential creditor issues.

Can a health care proxy make non-healthcare related decisions for a principal without having additional authority?

In Moen v. Bradenton Council on Aging, LLC, 210 So.3d 213 (Fla. 2nd DCA January 27, 2017), the Second District Court of Appeals held that a daughter did not have the authority as a health care proxy to waive the right to a jury trial and submit to binding arbitration on behalf of her mother because this was not a health care decision. 

Norma Silverthorne was admitted to Riverfront Nursing and Rehabilitation Center in 2013. Just after Silverthorne was admitted, she executed a health care proxy designation, nominating her daughter Susan Moen as her health care surrogate. However, Silverthorne never executed a durable power of attorney in favor of Moen. Using the health care proxy, Moen executed the admission agreement and a “Voluntary Arbitration Agreement and Acknowledgement,” on behalf of her mother as her mother’s “legal representative”. Upon Silverthorne’s death, Moen filed a wrongful death action against the Riverfront due to injuries sustained at the facility resulting in Silverthorne’s death. The trial court held that Silverthorne was considered a third-party beneficiary of the Agreement and compelled arbitration pursuant to the “Voluntary Arbitration Agreement and Acknowledgement,” and Moen appealed.

On appeal, the Second District Court of Appeals held that Moen did not have the authority as a health care proxy to waive the right to a jury trial and submit to binding arbitration on behalf of Silverthorne because this was not a health care decision. Further, the court rejected Riverfront’s argument that Silverthorne was a third-party beneficiary based upon the ruling in Mendez v. Hampton Court Nursing Center, LLC, 203 So.3d 146 (Fla. 2016), which was issued by the Florida Supreme Court during the pendency of this matter.       

The Takeaway?

A designation of health care proxy does not allow an agent to make non-health care related decisions on behalf of the principal. Where there is no guardianship in place, a durable power of attorney is the appropriate document to use to make financial and other non-health care related decisions on behalf of a principal. [BKD – NOT SURE WHAT ELSE TO ADD HERE…]

 

Is a “reputed spouse” treated as a surviving spouse under Florida law? 

In Cohen v. Shushan, 212 So.3d 1113 (Fla. 2nd DCA March 15, 2017), the Second District Court of Appeals held that a reputed spouse (ie. a common law spouse) of an Israeli decedent was not deemed to be a surviving spouse entitled to rights in the decedent’s Florida estate because their relationship in Israel, although having a legally recognized status, was not considered to be a legally recognized marriage in Israel.  

Yehezkel Cohen died residing in Israel and was survived by two adult children from a prior marriage and four adult children from his relationship with his partner, Mali Ben Shushan. Although Cohen and Shushan held themselves out as a married couple and lived with each other in Israel for many years up until his passing, they never participated in a religious marital ceremony, as required by Israeli law, nor did they ever participate in any other type of marital ceremony. Upon Cohen’s death, Diana Cohen, a child from his prior marriage, filed a petition for intestate administration claiming that the decedent’s six children were the rightful heirs of the decedent’s estate. Shushan countered by arguing that she was considered to be a “common law spouse” or a “reputed spouse,” which entitled her to all of the benefits of a spouse under Israeli law. At trial, the probate court held that her status in Israel was the equivalent as a surviving spouse, and therefore she was entitled to a surviving spouse’s share of the estate.

On appeal, the Second District Court of Appeals, based on testimony from several experts, noted that there was a clear legal distinction under Israeli law between a reputed spouse and a spouse by marriage. The former status is not recognized as an actual legal marriage between a husband and wife because a religious marital ceremony was not performed. As such, relying on this critical dichotomy under Israeli law, the District Court reversed the probate court’s ruling and held that Shushan was not considered to be a surviving spouse under Florida law.

The Takeaway?

The court did not base its decision upon our country’s definition of marriage, but rather focused upon the two distinct legal statuses created under Israeli law. [BKD – NOT SURE WHAT ELSE TO ADD HERE…]

 

Can an “estate” be named as a party to a litigation?

In Spradley v. Spradley, 42 Fla. L. Weekly D549 (Fla. 2nd DCA March 8, 2017), a pro se prisoner filed a claim against his mother’s “estate,” claiming that his brothers had converted his property. The Second District Court confirmed that the personal representative, rather than the estate should have been named as the defendant. However, the trial court, rather than dismissing the claim entirely, should have allowed the plaintiff to amend his claim.

 

Glenn Spradley, a prisoner, brought a pro se action against his mother’s “estate” for conversion of his property. At trial, Glenn alleged that upon his mother’s death his brothers were left in possession of their mother’s home, which contained certain legal documents belonging to Glenn. After requests by Glenn, the brothers did not return the legal documents and Glenn filed an action against the estate for conversion of his property. The trial court dismissed the complaint for failure to state a claim a claim of conversion and also dismissed based upon Glenn naming the “estate,” rather than the Personal Representative as the defendant.

On appeal, the Second District Court of Appeals held that Glenn had, in fact, adequately stated a claim for conversion. He pled sufficient facts to show that he had ownership and possession of the documents and that his brothers had failed to return them upon his request.  Further, the court confirmed the well-settled notion that an “estate” is not an entity that can be a party to a litigation, and held that the trial court should have allowed Glenn to amend his complaint to name the Personal Representative as the correct party, rather than dismissing the complaint entirely.

The Take Away?

The Spradley case confirms what is second nature to any trusts and estates practitioner; a personal representative, rather than an estate, must be named as the proper party of an action. However, the Spradley case indicates that if a plaintiff mistakenly names an “estate” as a party to a litigation, the plaintiff may get another bite out of the apple.

 

Does a petition filed under Fla. Stat. 736.1005 require notice to all qualified beneficiaries?

In re Guardianship of Bloom, No. 2D16-2985, 2017 WL 2270124 (Fla. 2nd DCA May 24, 2017), after a lengthy period of litigation involving the guardianship, the estate, and the trust of the decedent, the decedent’s nephew filed for recovery of his attorney’s fees pursuant to Fla. 736.1005. The Second District Court of Appeals noted the ambiguities regarding the notice requirements under the fee recovery statute and clarified that all interested parties must be served with notice of the fee request simultaneously with the filing of the request with the court.

Leon Bloom executed a trust in 1988 naming his wife, Dorothy Bloom, as a secondary beneficiary and appointing Robert Johnson as the trustee. In 2015, Leon’s nephew, Marshall Bloom, was appointed as a temporary guardian. Leon passed later in 2015 while his guardianship proceeding was still pending. At the time of Leon’s death, Dorothy had an unresolved claim in the guardianship proceeding requesting reimbursement from Leon’s funds for payments she personally expended to care for Leon. After Leon’s death, Marshall, as Personal Representative substituted the guardianship proceeding to continue challenging Dorothy’s claim. The successor Trustee of Leon’s trust unsuccessfully moved to have the motion for substitution quashed. Thereafter, Marshall had the successor Trustee removed and replaced with an independent Trustee.

Marshall, as an interested party, then filed a request for payment of his attorney’s fees from the Trust for the successful removal of the successor Trustee. The trial court rejected his request.

On objection, the Second District Court of Appeals remanded the case to the trial court to determine if Marshall had “rendered services to a trust” as required under Fla. Stat. 736.1005. Marshall, however had not served the petition for fees upon the qualified trust beneficiaries. The Second District focused on the ambiguity of Fla. Stat. 736.1005 with respect to notice, and held that notice of a petition for fees must be provided to the parties simultaneously with the filing of the petition with the court.

The Takeaway?

The Second District made clear potential ambiguities in Fla. Stat. 736.1005, which requires that notice of a petition for fees be provided to all parties and qualified trust beneficiaries. 





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