Florida Trust Termination

It is not uncommon for people to place real estate in a trust as part of their estate plan. What happens when the person dies and the real estate is unproductive or the value gets reduced?  Recently a client had a one-half interest in a trust that was to last for several years, the primary asset of which was a house.  The owner of the house wanted it to be available for his sibling to use after his death.  Unfortunately, the house had fallen behind in monthly dues with the homeowner’s association and was not used or lived in after the death of the owner.  Of course, expenses (such as property taxes and homeowner’s dues) needed to be paid and the homeowner’s association sued for past due bills.

Fortunately, Florida law permits the Court to modify an irrevocable trust if not inconsistent with the settlor’s (the creator of the trust) purpose and the purposes of the trust have been fulfilled or have become illegal, impossible, wasteful or impractical to fulfill.  The law allows for modification of the trust for other reasons as well.  The law even allows termination of the trust, in whole or in part!

The client feared that the expenses on the real estate would greatly diminish his interest in trust when it ended after the set term of years.  Fortunately, through application of Florida Statute 736.04113, we were able to request the trust be terminated and the real estate sold, with the proceeds distributed in accordance with the terms of the trust.  This use of the probate law in Florida worked to our client’s advantage and allowed the settlor’s intent to be followed.  This is a great example of how circumstances can change after signing estate planning documents, but with the help of an experienced probate attorney everyone was pleased with the outcome.

Florida Trust Decanting:  Phipps v. Palm Beach Trust Co., 196 So. 299 (Fla. 1940) and Florida Statute §736.04117

“Decanting” is the legal term used to describe the distribution of trust property from one trust to another trust pursuant to the trustee’s discretionary authority to make distributions to or for the benefit of one or more beneficiaries.  Common law provides authority for trust decanting, but several states – including Florida – have codified the common law.  Florida Statute §736.04117 became effective on July 1, 2007.

Under common law, a trustee with absolute power to invade principal is the equivalent of a donee of a special power of appointment.  Restatement (Second) of Prop.: Donative Transfers §11.1  Absent a contrary provision in the governing document, a donee of a power of appointment may exercise such power in a manner which is less extensive than authorized by the instrument creating the power.  Thus, “the rationale underlying decanting is that if a trustee has the discretionary power to distribute property to or for the benefit of one or more current beneficiaries, then the trustee, in effect, has a special power of appointment that should enable the trustee to distribute the property to a second trust for the benefit of such beneficiaries.”  William R. Culp, Jr. & Briani Bennett Mellen, Trust Decanting: An Overview and Introduction to Creative Planning Opportunities, Real Property, Trust and Estate Law Journal, Spring 2010, p. 3. The theory is that if there is authority to distribute outright, then there is authority to distribute in further trust. Alan Halperin and Michelle R. Wandler, Decanting Discretionary Trusts:  State Law and Tax Considerations, 29 Tax Management Estates, Gifts & Trusts Journal, 219, 221 (2004).

In 1940, the Supreme Court of Florida considered whether a trustee, who was specifically authorized by the trust document to appoint the trust property among beneficiaries in whatever proportions he desired in his sole discretion, could create a second trust for the benefit of the beneficiaries funded with property distributed from the first trust.  Phipps v. Palm Beach Trust Co., 196 So. 299 (Fla. 1940).  In Phipps, the settlor, Margarita Phipps, created a trusts for the benefit of her four children.  She named Palm Beach Trust Company and her husband as co-trustees.  Her husband was given a personal power of appointment, exercisable during life by written instrument delivered to the corporate trustee or at death in his Last Will & Testament, in favor of the four children and/or their descendants in whatever proportions as he shall determine.  In compliance with the express terms of the trust, Mr. Phipps provided written directions to the corporate trustee to create a second trust for the descendants.  The corporate trustee, in an abundance of caution, brought a suit in equity praying for construction of the original trust. 

The Phipps court held that the creation of the second trust was permissible because the trustee had both a lifetime and a specific testamentary power to direct distributions to trust beneficiaries.  Ergo, the trustee’s power was a power of appointment instead of a discretionary power to distribute trust property.  The Phipps holding does not provide authority for the position that a trustee with a purely discretionary power held in a fiduciary capacity can transfer assets to a new trust.  Florida Statute §736.04117 codifies the principal holding in Phipps. 12 Fla.Prac., Estate Planning §6:41 (2010-2011 ed.).  In summary, the statute provides that a trustee who has absolute power under the terms of the trust to invade principal may make distributions to a second trust if those beneficiaries include only those beneficiaries of the first trust without reducing any fixed income interest.  The exercise of the decanting power is to be done by an instrument in writing, signed and acknowledged by the trustee and filed with the records of the first trust.  Additionally, the trustee shall notify all qualified beneficiaries of the first trust, in writing, at least 60 days prior to the effective date of the trustee’s exercise of the power to invade the principal and must set forth the manner in which the trustee is planning to exercise the power.  The trustee’s notice under this section shall not limit the right of any beneficiary to object to the exercise of the trustee’s power to invade the principal.  Fla.Stat. §736.04117.

Procedurally, the documents employed for a trust decanting should be similar to those used with respect to a resolution to distribute property.  A written document providing the terms of the trustee’s discretionary exercise of the power to decant should set forth the terms of the exercise of the power to appoint trust property further in trust.  It should set forth background information or recitals identifying (1) the current trustees of the original trust and the trustees that are exercising the decanting power (2) when the original trust was formed and by whom (3) the relevant terms of the original trust (4) the trustee’s authority for the decanting, whether pursuant to statute or the trust instrument, and (5) the appointee trust that will receive trust property from the original trust.  The decanting document should also include trustee resolutions designating and appointing assets of the original trust to the appointee trust and directing the appointed assets be held in accordance with the appointee trust.  William R. Culp, Jr. & Briani Bennett Mellen, Trust Decanting: An Overview and Introduction to Creative Planning Opportunities, Real Property, Trust and Estate Law Journal, Spring 2010, p. 43.

Recognition of a German Will in the USA (formal validity)

by Jan-Hendrick Frank, Esq.

This article provides an introduction to the recognition of German Wills in Florida.

German Wills:  Formal requirement under German law

Under the German Civil Code (“BGB”), the testator can choose between two forms of traditional wills (§2231 BGB): 1) The public or notarized will (§2232 BGB), and 2) the holographic or handwritten will (§2247 BGB). Witnesses are not required for the validity of a holographic or notarized will under German law. Unlike the U.S., witnessed wills are uncommon in Germany.  

State of Florida

According to 732.502 (2), Fla.Stat., a will must be in writing, signed by the testator and authenticated by two witnesses. A holographic will is without force or effect under Florida law. There is no regulation with regards to foreign wills. However, if the decedent died domiciled in Germany, it may be valid under the applicable terms of the German civil code. Additionally, from the perspective of a German court it may be valid (see decision of the German supreme court, BGH IV ZR 135/03) and, thus, it may be advisable to sue in Germany.

Recognition of a German hand-written will (holographic will): A German hand-written will not authenticated by two witnesses is therefore to be considered formally invalid in the state of Florida (Schuler v. Salathe, 703 So.2d 1167 (1997)) as far as Florida law applies.

Recognition of a German notarial will (notarized will):  A German notarized will not authenticated by two witnesses is therefore to be considered formally valid in the state of Florida as far as Florida law applies.

Here are some tips to locate a good probate lawyer in Florida:

Look at the experience level of the attorney. Does the lawyer focus their area of legal practice to probate, trusts and estates?

Review the information on the firm’s Web site.  Does the information look relevant and focused?

Ask for referrals…especially former clients.

Contact The Florida Bar to confirm the lawyer is in good standing.

Investigate whether the law firm has good infrastructure.  Ask about support staff, technology, billing practices and procedures for attorney/client communication.

Often with estates, a conflict develops between beneficiaries and the Personal Representative that leads to litigation.  This litigation can be the result of a delay in administration of the estate, distribution of assets, or differences in personality.  Recently a client hired our law firm to seek to remove a Personal Representative who had incurred very substantial fees for travelling around the country to repeatedly check on the decedent’s assets, which was an expense the client felt was unjustified.

Florida Statutes list causes for which a Personal Representative may be removed.  One of these causes include “holding or acquiring conflicting or adverse interest against the estate that will or may interfere with the administration of the estate as a whole.”  However, a dispute between the beneficiaries of an estate by itself in insufficient grounds to refuse to appoint a personal representative if otherwise qualified.  That holding, however, came in a case where two sisters filed competing petitions for administration of their mother’s estate.  One of the sisters had been appointed Personal Representative by will; the two sisters had a very adversarial relationship.  The Appellate Court reversed the trial court’s appointment of a neutral third party, preferring to give the testator’s selection deference in the absence of exceptional circumstances.     

While the Court in most circumstances will appoint the Personal Representative selected in the last will and testament, the court does not make the protesting beneficiary wait until a detriment is suffered if he can make his showing prior to the appointment.  Ironically, my client did not object to the appointment of the Personal Representative, however he did not anticipate the Personal Representative being so wasteful of the estate assets.

If you are the beneficiary of an estate and object to the appointment of the named Personal Representative, or to the conduct of the Personal Representative after appointment, it is imperative to consult a Florida probate litigation attorney to ensure your interests are not potentially diminished or squandered.

A potential client said, “you’re the lawyer who busts trusts.”  Busting a Florida trust was her non-lawyer way of describing trust termination/modification.  Florida law has three major trust code sections that allow a person to “bust a trust” (trust modification is the term lawyers use) in the event certain events or conditions occur.

For example, 736.04113 of the Florida Trust Code provides for judicial modification of irrevocable trusts when modification is not inconsistent with settlor’s purpose.

Some of the grounds that will allow judicial modification of an irrevocable trust include:

(1) Upon the application of a trustee of the trust or any qualified beneficiary, a court at any time may modify the terms of a trust that is not then revocable in the manner provided in subsection (2), if:

(a) The purposes of the trust have been fulfilled or have become illegal, impossible, wasteful, or impracticable to fulfill;

(b) Because of circumstances not anticipated by the settlor, compliance with the terms of the trust would defeat or substantially impair the accomplishment of a material purpose of the trust; or

(c) A material purpose of the trust no longer exists.

(2) In modifying a trust under this section, a court may:

(a) Amend or change the terms of the trust, including terms governing distribution of the trust income or principal or terms governing administration of the trust;

(b) Terminate the trust in whole or in part;

(c) Direct or permit the trustee to do acts that are not authorized or that are prohibited by the terms of the trust; or

(d) Prohibit the trustee from performing acts that are permitted or required by the terms of the trust.

As you can see, the bolded section above allows for a trust to be terminated in whole or in part.  So can Florida lawyers bust a trust?  The answer is clearly yes.

Florida Court Suggests Withdrawals from Revocable Trust Principal During Settlor’s Live Can Be Viewed as Revocation of Trust and Subject to Challenge After Death by Remainder Beneficiaries

”When things change very rapidly, we have a fiduciary responsibility to review what are the circumstances.”

–Jozef Strauss

Florida is home to many elderly persons with dementia who are vulnerable to financial exploitation by others.  Unfortunately, the elderly who are susceptible to undue influence are often victimized by their own family members.   All too often, the safeguards that were presumably put in place through estate planning documents are thwarted by unbridled greed.  Sometimes, even the placement of trust by the elderly in a national financial institution will not immunize the elderly from abuses.

A recent Florida appellate opinion details a family scenario frequently encountered by Florida probate lawyers who practice in the field of inheritance disputes involving wills, guardianships, estates and trusts.  Siegel v. Novak –So.3d–, 36 Fla.L.Weekly D2329 (Fla. 4^th DCA October 19, 2011) involves a dispute between the children of Dorothy H. Rautbord (“Mrs. Rautbord”).   Several years ago, Mrs. Rautbord created a will and trust that generally provided that she could use her assets during her life as needed and upon her death, the assets were to be shared among her children and grandchildren.   Specifically, the trust contained a provision that during Mrs. Rautbord’s life, the trustee (a corporate trustee) should manage the trust property for the benefit of Mrs. Rautbord, and “at any time…apply so much or all of the net income and principal [of the Trust property] as the Trustee, in its sole discretion, shall deem appropriate or advisable for the support, maintenance, health, comfort or general welfare of [Mrs. Rautbord].

Several years later, Ms. Rautbord developed severe dementia.  A power of attorney was signed by Mrs. Rautbord in favor of one of her children.  Using the power of attorney, Ms. Rautbord’s child then made withdraws of over $3.3 million from the Trust during Mrs. Rautbord’s life.  The corporate trustee approved all of the withdraws, even though it recognized that “Mrs. Rautbord [was] in her nineties [and] quite frail [.]”  The corporate trustee concluded that the withdrawals and distributions of trust principal were “questionable” but decided to “ratify” the principal distributions.  These approvals were contrary to the practice of the predecessor trustee, who refused to make distributions as gifts because Mrs. Rautbord had been taken advantage of because of her generosity.

After Mrs. Rautbord died and her other children (“the brothers”) discovered the $3.3 million dollars in withdrawals of trust principal, the corporate trustee sought court approval of its conduct in approving the principal distributions.  Two of Mrs. Rautbord’s children (“the brothers”) claimed that the corporate trustee’s and the other child’s (who had the power of attorney) conduct was inappropriate and inconsistent with the terms of the trust.  According to the brothers challenging the conduct, the language of Mrs. Rautbord’s trust instrument did not permit the large withdrawals, which were equivalent to a revocation of trust, which was permitted only upon the existence of certain circumstances.  The trial court told the brothers that they did not have standing to contest any distributions made prior to their mother’s death.  The court reasoned that before Mrs. Rautbord’s death, the trust was revocable, so that the brothers had “no present interest in the trust during the time that the decedent was alive.”  The decision was appealed and the Fourth District Court of Appeals reversed and remanded the case holding that the brothers were entitled to their day in court.  Siegel v. Novak (“Siegel I”) 920 So.2d 89 (Fla. 4^th DCA 2006).

After the appellate court’s decision, the corporate trustee again requested the trial court’s judicial endorsement of its decision to ratify the $3.3 million of “questionable” withdrawals and principal distributions from the trust.  Once again, the trial court found that the brothers did not have standing the challenge certain distributions made prior to Mrs. Rautbord’s death.  However, on appeal, the Fourth District said that

“the trial court and parties did not interpret Siegel I  correctly.  Our opinion in Siegel I determined that the Siegels did have standing to challenge the trustee’s actions, because they had a direct interest in the corpus of the trust after their mother’s death.”

The Court stated that “the trial court incorrectly treated the question of whether the withdrawals were appropriate and authorized as a question of standing.”  The Court of appeals examined the trust language and emphasized the fact that Mrs. Rautbord reserved to herself the power to revoke the trust.  The brothers argued that the withdrawals of principal were in fact revocations of the trust, and that the trial court’s ruling on standing prevented the issue from being litigated.

The appellate court agreed with the brother’s argument.  In its analysis the Fourth District Court of Appeals looked at the language of the trust and analogized the facts of the Siegel case to another case where it was held:

“In creating a trust, the settlor was not merely designating trustees as conduits through whom a gift could be made to the daughter whenever it would be to her advantage.  The trust represented a plan of the settlor that included not only the beneficiary Margaret, but also remaindermen.  In adding a flexible provision for the invasion of principal for the “best interest” of the beneficiary, the settlor was not injecting a facile means for destroying the trust. “

* * *

By limiting the invasion of principal to those instances where it will be for the “best interest” of the beneficiary, the settlor was, in effect, restricting the power of the trustees, and imposing duty on them to limit such invasion for such objects and purposes as, in their judgment, would be beneficial to the cestui que trust.”

Important also in the Fourth District’s analysis was their holding that the withdrawals of trust principal were the equivalent of a partial revocation of the trust.  The Court turned to the Commonwealth of Pennsylvania and adopted that court’s reasoning:

“We are not prepared to recognize a distinction between settlor’s right to withdraw principal from the trust and his right to revoke the trust in whole or in part.  Both cause an amendment or partial revocation, and with the same legal effect.   For example:  If  settlor placed $100,000 in an inter vivos trust, with all the reservations hereinbefore discussed, and subsequently concluded to reduce the trust to $50,000, there would seem to be no difference in principle if settlor by written instrument revoked or modified the trust by reducing it by one-half, or exercised his right to withdraw one half from the operation of the trust.”  A determination of whether these withdrawals of principal constitute partial revocations of the trust should await the full development of the evidentiary record on each transaction.”

Unfortunately, the court did not discuss the application of Fla.Stat. §736.0603, which provides that while a trust is revocable, the duties of the trustee are owed exclusively to the settlor.   However, the Court did remand the case to the trial court again with directions to hold an evidentiary hearing and the brothers must be given the opportunity to present evidence to support their claims of breach of fiduciary duty by both the corporate trustee and their sister.

Palm Beach County Probate Attorney

The lawyers of Adrian Philip Thomas, P.A. represent clients throughout the State of Florida, including Palm Beach County, Florida.  Palm Beach County, Florida is the largest county in the state of Florida in total area and third in population. As of 2010, the county’s estimated population was 1,320,134.  Palm Beach County is one of three counties comprising the South Florida metropolitan area. Its largest city and county seat is West Palm Beach.  Boca Raton is the second largest, having a population approaching 90,000 and Boynton Beach is the third largest city, with a population nearing 70,000 residents.

With a large retirement population and wealthy coastal towns such as Palm Beach, Jupiter, Manalapan, and Boca Raton all within the Palm Beach County limits, it is Florida’s wealthiest county which makes it a haven for exploitation of the elderly, undue influence and fraudulent last will and testament cases.

If you are looking for a Palm Beach County, Florida probate litigation attorney, call Adrian Philip Thomas, P.A. at 1-800-249-8125

Marriage and Homestead in the Florida Probate Process

What if my deceased spouse and I were not living together at the time he or she passed away?  Do I still have Florida homestead protection from creditors?

I recently had a case where this issue arose.  Although these questions may appear to be ripe for further problems and complex factual disputes regarding the quality and status of the marriage, Florida statutes and courts have made this issue fairly clear.  If you are married at the time of your spouse’s death, you may invoke your surviving spousal rights for homestead protection on your deceased spouse’s home.  Florida does not recognize separations or any other problems that may have existed during the marriage in making a determination of homestead status.  In Florida, you are either married, or you are not.  As they say, “you cannot be a little bit pregnant.”

A surviving spouse’s homestead rights stem from the Florida Constitution, specifically, Article X, section 4, which states in relevant part:

(a)    There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty, the following property owned by a natural person:

(1) a homestead, … if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or the owner’s family;

(b) These exemptions shall inure to the surviving spouse or heirs of the owner.

(c) The homestead shall not be subject to devise if the owner is survived by spouse or minor child, except the homestead may be devised to the owner’s spouse if there be no minor child….

The court in In re Colwell, 196 F.3d 1225 (Fla. 4^th DCA, 2009) addressed the homestead statute.  In this case, the spouses had been separated for over three years and had even gone to the point of acquiring separate residences.  Nevertheless, the court held that each spouse could claim separate homestead exemptions even though they were separated and lived in separate homes.  As a result, the creditors of the deceased spouse that had filed claims against the estate could not seek relief against the homestead real property.

Florida courts go to great lengths to protect the surviving spouse, specifically during probate and estate proceedings. The loss of a loved-one can be an extremely difficult process; it will be in your best interest to consult with an attorney (for legal and streamlining purposes) to unclutter the details of the Florida Probate code.

Florida Trust Litigation

Personal Jurisdiction

It is not uncommon in South Florida for individuals to be beneficiaries of Florida trusts that have a trustee located in a state other than Florida.  There is no rule that the trustee of a Florida trust must be a Florida resident, or even have a presence in Florida.  However, prior to the enactment of the Florida Trust Code there was no specific provision of the Florida Statutes which conferred personal jurisdiction over parties who were not within the geographical boundaries of Florida.  Instead jurisdiction was obtained on out of state trustees and beneficiaries under the general long-arm statutes found in chapter 48.  This lead to substantial litigation in the form of Motions to Dismiss for Lack of Personal Jurisdiction.

In trust litigation (as in all lawsuits), it is necessary for the Court to have personal jurisdiction over the trustee(s) and beneficiaries.  Otherwise, the Court is unable to hear and remedy wrongs that have been committed.  By enacting the Florida Trust Code (and specifically section 736.0202), the legislature included a long-arm statute specifically tailored to trust litigation matters.  Under Florida Statute 736.0202, with respect to a trust having its principal place of administration in Florida, a trustee submits to the jurisdiction of Florida courts either by accepting the trusteeship or by moving the principal place of administration to this state; the beneficiaries are subject to the jurisdiction of Florida courts with respect to any matter involving the trust; and recipients who accept a distribution from a trust submit personally to the jurisdiction of Florida courts regarding any matter involving the distribution.

This addition to Florida law is very important in trust litigation as it expressly confers jurisdiction upon out of state trustees of Florida trusts.  This helps protect both the grantor’s intent and the rights of a beneficiary, and allows a court to hear and adjudicate controversies regarding trusts.