California Court Refuses to Allow Trust No Contest Clause to Disinherit Minor Child Who Challenges Conduct of TrusteesIt is a shame when probate courts apply the law in a manner that hurts children. I applaud a recent decision from California that refused to apply a no-contest provision contained in a trust instrument that could have resulted in a minor child being disinerhited simply by virtue of the child’s guardian asking the court to examine the conduct of the trustees. The case Safai v. Safai, 164 Cal.App.4th 233, 78 Cal.Rptr.3d 759 (2008) is a great example of a court’s careful application of the law in order to protect a child from disinheritance. The facts of the case are as follows:

Mansour Safai and Susanne Gahnstedt were married for approximately eight years and had one child, Nicolai, before their marriage deteriorated into divorce. Pursuant to the marital settlement agreement regarding property and spousal support, Mansour agreed to pay child support for Nicolai. Mansour was diagnosed with a terminal illness in 2004, and on or about January 24, 2006, executed the Trust and a Last Will and Testament. Mansour succumbed to his illness on February 9, 2006, and was survived by his brother, Max Safai; his sister, Massoumeh Safai; and his mother, Parvaneh Assefi. Read the rest of this entry

Can a joint and contractual trust be revoked by sole surviving settlor?

Florida law recognizes that parties may execute joint and mutual testamentary instruments. One Florida court held that a joint and mutual will may be the product of a contract providing that it cannot be revoked except by the mutual consent of the parties and providing that it be binding on the survivor, and where the terms of the will clearly disclose that it is the product of such a contract, the will itself is sufficient evidence to establish the contract. See, In re Estate of Rowland, 504 So.2d 543 (Fla. 4th DCA 1987). Read the rest of this entry

Necessary and Indispensable Parties in Trust Lawsuits:  Second District Clarifies Rule in Trust Probate Dispute

Who is a Necessary Party?

The term “necessary party” has been defined in a variety of ways, but generally most litigators will agree that a “necessary party” is:

(1) as a party whose rights and interests are to be affected by a court order; and (2) whose actions with reference to the subject matter of litigation are to be controlled by the court order; or (3) a person without whose joinder as a party an effective court order or judgment cannot be rendered in the plaintiff’s favor; or (4) A person who is materially interested in the subject matter of a suit and who will be directly affected by an adjudication of the controversy.

Whatever definition one uses, it is undisputed and well-settled law that if a necessary party hasn’t been named in any kind of lawsuit, then court cannot proceed until that person is joined. Read the rest of this entry

Washington joins other states in growing trend

The doctrine of de facto trustee is gaining popularity in its recognition by state court’s and trust and estate jurisprudence. A person is a de facto trustee where the person (1) assumed the office of trustee under a color of right or title and (2) exercised the duties of the office. A person assumes the position of trustee under color of right or title where the person asserts “an authority that was derived from an election or appointment, no matter how irregular the election or appointment might be.” A de facto trustee’s good-faith actions are binding on third persons. Because the purported successor trustee in Allen Trust acted as trustee and assumed its office through an appointment it reasonably believed to be effective, it was a de facto trustee and was entitled to compensation for its services. Washington recently joined the growing number of jurisdictions using the de facto trustee concept (Alabama, New York, Oklahoma, and Oregon all recognize the concept.) Read the rest of this entry

Resulting trusts are a fiction of the law that arises where property is transferred or acquired by one under facts and circumstances which indicate that the beneficial interest is not intended to be enjoyed by the holder of legal title.

A case some readers may have read about in recent newspaper headlines involved a legal theory based on a resulting trust remedy. In City of Boston v. Roxbury Action Program, Inc., 68 Mass. 1101, 865 N.E2d 1140 (2007) the city of Boston became aware that a landowner, which was obligated to convey land to the city due to an inability to obtain a government commitment for housing development on property. The City went to Court claiming that the landowner was holding the property for the City under a resulting trust, since it wasn’t, in the city’s view, the parties’ intention for the landowner to hold the beneficial interest in the property. Unfortunately for the city, the court held that this awareness (of six years) repudiated any resulting trust more than six years before city brought action seeking conveyance of the property such that the statute of limitations barred resulting trust claim; any claim for resulting trust arising through city’s act in providing purchase monies for the property was inseparable from the rest of the dealings between the parties, including landowner’s obligation to re-convey the property on the date specified by agreement, and pursuant to the city’s contract with landowner, the city was to be updated monthly on landowner’s activities related to the development of the property. Read the rest of this entry

Learn the Language: Fifth District Court of Appeals Reverses Probate Judge and Predicates Opinion On its Own Perception of Trust Language and “Settlor’s Intent”In Brown v. Miller, — So.2d —-, 2008 WL 4600940, 33 Fla.L.Weekly D2433c, Fla.App. 5 Dist., October 17, 2008 (NO. 5D07-1356, 5D07-1288) the Fifth District Court of Appeals reversed Orange County Judge Lawrence Kirkwood’s order which had invalidated a seven million dollar transfer from a testamentary trust to its lifetime beneficiary.

The Wife Elinor Miller set up a trust naming her husband Bill as the trustee and lifetime beneficiary (the “Elinor Miller Trust”). After her death the assets remaining in the trust (after her charitable bequests and distributions to family members) were divided into three separate sub-trusts, designated as Trust A-1, Trust A-2 and Trust B with each serving a distinct purpose.

The Elinor Miller Trust provided that the Trustee should pay Bill the income from A-1 and A-2, in addition to “such amounts from the principal of Trust A-2 first and then liberally for his maintenance, health, and support in his accustomed manner of living, taking into account all of his other income and means of support known to the Trustee. The Trustee shall also pay [Bill] such additional amounts of principal from Trust A-2 as he may from time to time request.” Further, the Trust provided that upon Bill’s death, the “Trustee shall pay over and distribute the then remaining balance of Trust A-2, if any to such person or persons, and in such manner, as he shall appoint by his Last Will and Testament, which makes reference to said power of appointment, including in him the power to appoint to his estate. Any portion of Trust A-2 not effectively appointed by [Bill] shall continue to be held in trust for the lifetime of my son, [Tom].” Id. Read the rest of this entry

Is Florida legislation needed to address the presence of undue influence in trust revocation situations involving vulnerable elderly adults?

It is no secret that Florida is home to a geriatric population, many of whom are vulnerable to exploitation due to the infirmities of age and diminished mental capacity.  A recent study discovered that the prevalence of dementia is estimated to double every five years in the elderly, growing from a disorder that affects 1 percent of persons 60 years old to a condition afflicting approximately 30 percent to 45 percent of persons 85 years old.[1]

Many Floridians who have revocable trusts as an aspect of their estate planning are susceptible to what I consider to be an area of concern as to the existing status of the law as it stands in Florida.  Specifically, I am concerned that existing decisional case law in Florida allows for persons, whose capacity to make adequately-considered decisions in connection with their revocable trusts is diminished because of dementia, to remain vulnerable to undue influence.

Undue influence has been defined as over persuasion, coercion, or force that destroys or hampers the free agency and will power of the person.  RBC Ministries v. Tompkins, 974 So. 2d 569 (Fla. Dist. Ct. App. 2d Dist. 2008).  My experience as a probate litigator has consistently confirmed that Florida’s elderly, especially those suffering from the effects of dementia, are particularly vulnerable to undue influence when it comes to estate planning matters, including the formation and revocation of wills and trusts.

The Florida legislature evidently shares my concern and has codified the public policy against persons exploiting Florida’s elderly through the use of undue influence in estate planning matters.   This is evident in the Florida Probate Code’s prohibition against undue influence in the preparation of any part of a will:

“A will is void if the execution of procured by fraud, duress, mistake, or undue influence.  Any part of the will is void if so procured, but eh remainder of the will not so procured shall be valid if it is not invalid for other reasons.”  Fla.Stat. § 732.6165.”

This principle is further underscored by the evidentiary presumptions written into law by the Florida legislature’s enactment in 2002 of the evidentiary rule shifting the burden of proof in a will contest involving allegations of undue influence:

“(2) 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.”  Fla.Stat. §733.107.

My growing concerns stems from the clash between the public policy against undue influence and the Florida Supreme Court’s decision in Florida National Bank of Palm Beach County v. Genova, 460 So.2d 895 (Fla., 1984).    Genova involved an elderly woman, Mrs. Genova, who was seventy-six years old when she married Mark Genova, who was thirty-two years old.  Just months after the marriage, Mrs. Genova created a Revocable Trust naming Florida National Bank of Palm Beach and herself as co-trustees.  A year later, the Genoas were divorced and a final judgment regarding property rights was entered by the trial court judge invalidating one transfer of certain of Mrs. Genova’s assets to her husband based upon a finding of undue influence practiced upon Mrs. Genova by her husband.

Less than six months later, the Genovas remarried.  Five days after their remarriage, Mrs. Genova wrote a letter to a trust office of Florida National, requesting that her trust be revoked.  She wrote this letter in the presence of her husband, Mr. Genova, at his restaurant, the Alibi Bar, on the Alibi’s stationary.  The following day Mrs. Genova signed a power of attorney prepared by an attorney introduced to her by her husband, directing the transfer of the trust assets to a different account.  The following day the attorney presented the power of attorney to a different trust officer at Florida National who refused to accept it because of reservations caused by the officer’s knowledge of the undue influence findings in the divorce proceedings and the subsequent remarriage to Mr. Genova.   A lawsuit was filed and after trial in the probate court, final judgment was entered invalidating the attempt by Mrs. Genova to revoke the trust since they were effect through the use of undue influence practiced intentionally by Mr. Genova upon Mrs. Genova.

The case worked its way through the appellate process, eventually arriving at the Florida Supreme Court.  The Florida Supreme Court reversed the trial court and held that the principle of undue influence has no place in determining whether a revocation of a trust is valid!  The language of the opinion suggests that the Supreme Court blamed Mrs. Genova for allowing herself to be victimized:

“The courts have no place in trying to save persons such as Mrs. Genova, the otherwise competent settler of  a revocable trust, from what may or may not be her own imprudence with her own assets.  When she created this trust, she provided a means to save herself from her own incompetence, and the courts can and should zealously protect her from her own mental incapacity.  However, when she created this trust, she also reserved the absolute right to revoke if she were not incompetent.  In order for this to remain a desirable feature of a trust instrument, the right to revoke should also be absolute.”  Genova, 460 So.2d at 898.

I tend to agree with Supreme Court Judges Overton and McDonald, who dissented:

“The trial judge found that the settler had been unduly influenced causing her to revoke her trust.  Her act, therefore, was not the exercise of her right to revoke, but rather was the will of another foisted on her.  Under these circumstances the revocation should be voided.”  Genova at 898.

The Genova decision sets a dangerous precedent, in my view, for legal justification of elder abuse in Florida.  For example, the Fifth District Court of Appeals relied on Genova to validate a trust revocation involving facts even more egregious than those found in Genova in its opinion rendered in Freeman v. Lane, 504 So.2d 1297 (Fla. 5^th DCA 1987).  Freeman involved Mrs. Lane, an elderly Florida woman who created a revocable trust which provided that upon her death, each of her six children would share her estate evenly.  The trust was originally funded with stock, which over time, multiplied several times over and became worth over $1,000,000.  Mrs. Freeman named herself and James Lane as co-trustees.

The trial court heard evidence that Mrs. Lane was being unduly influenced by two of the children and that she suffered from cerebrovascular disease (hardening of the brain arteries) and was “confused and disoriented” according to a nurse’s notes at the time of her last hospital discharge.  Further, the Court heard evidence concerning Mrs. Lane’s memory lapses and general poor health.  After hearing all of the evidence, the trial court noted that Mrs. Lane was “an old 69 year old” woman who slept through most of the testimony at the trial and was obviously “confused”:

“She said she guessed she was just confused at least once. Several times she said, “I can’t remember,” on the redirect and, “I don’t know what I mean by that,” and “I just don’t remember.” And several times in answer to questions, she first said, “No,” then said, “Maybe,” and then said, “Well, yes.”

I really feel that the Court does need to protect people from their mental incompetence and that this is such a case and that Mrs. Freeman unfortunately does not have the mental capacity to handle her own affairs at this time.

Therefore, the Court is going to find that the trust has not been validly revoked. I really think that probably when a new trustee is appointed-and maybe if one thing is to be faulted, it’s that this trust grew very rapidly in recent years and all the eggs are in one basket.”  Freeman v. Lane, 504 So.2d 1297, 1299.

On appeal, the Fifth District Court of Appeals, relying on Genova held that the principal of undue influence has no place in determining whether a trust has been properly revoked.  The court even went so far to say that in order to revoke a trust, the elderly adult doesn’t need to have the capacity and aptitude to deal in financial matters:

“It is apparent from the comments by the trial judge, quoted above, that he erroneously concluded that the mental capacity to revoke a trust is equated with the capacity to handle financial matters. This is not the law. In order to revoke a trust, one merely needs to have the capacity to understand the nature of the transaction, not necessarily an aptitude in dealing with financial matters. If the position of the trial court and the appellee were correct, then the standard applicable to invalidate a revocation would be similar to that required for an adjudication of incompetency.”  Freeman at 1300.

These types of cases cause me grave concern for Florida’s elderly who are susceptible to undue influence.   My practice will continue to litigate these cases to protect the elderly under the new §736.0601 which makes the capacity required to revoke a revocable trust the same as that required to make a will.  It will be interesting to see how courts treat the revocability issue in light of the new section and in light of the existing decisional case law.

Source (the statistics and studies regarding dementia were learned through the American Bar Association’s Commission on Law and Aging: Assessment of Older Adults with Diminshed Capacity-A Handbook for Lawyers, 2005)

[1] University Health Sys. Consortium & U.S. Dep’t of Veterans Affairs, Dementia Identification and Assessment:  Guidelines for Primary Care Practitioners (1997); David S. Geldmacher & Peter J. Whitehouse, Evaluation of Dementia, 335 New Eng.J.Med. 330 (1996); Peter V. Rabins et al., Practical Dementia Care (1999).

FLORIDA UNIFORM TRUST CODE

Is it Time for Trusts to Take a Trip to the Repair Shop?  Florida Court Gives Liberal Application of New Trust Code Provision Allowing for Repair of Mistakes in Trust Language Upon Application of an Interested Person.

The Florida Legislature’s adoption of the Uniform Trust Code fostered a welcome change to the way mistakes in trust documents are now treated. Formerly, beneficiaries were shackled by mistakes made by their relative in drafting provisions of their trust documents, sometimes neglecting gift or similar provisions when there was clear evidence that the relative intended to give someone an inheritance.

The Reformation

Now, the new trust code under section 736.0415, an interested person may ask the Court through probate litigation, to reform the terms of a trust to conform to the settlor’s intentions 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. Under this new section of the Trust Code, reformation is available for both mistakes of law and of fact, whether or not the terms of the trust are ambiguous.

The Enlightenment

After the Florida Real Property, Probate & Trust Law Section of The Florida Bar to file a brief was asked by the Third District Court of Appeals to file an amicus brief on the issue, the court issued its opinion in Reid v. Temple Judea, — So.2d —-, 2008 WL 2356814, (Fla.App. 3 Dist., 2008) addressing the issue of trust reformation. The opinion is instructive guidance for those contemplating trust litigation in order to effectuate necessary changes to a trust in order to achieve the settlor’s true intent.

In Action

In this case, Edgar Sonder executed a trust naming his nurse, Ceclia Reed, as successor trustee. The trust was funded by assets “pouring over” from Sonder’s estate, and provided for a number of gifts following Sonder’s death. Specifically, it provided for gifts totaling $31,000 to ten charities. Another section of the trust provided that after the gifts to the ten charities were satisfied, $125,000 was to be paid to the Hebrew Union College Jewish Institute of Religion. A final provision of the trust provided that after giving effect to the first two categories of gifts listed above, it provided for a number of specific gifts that were to be made to enumerated individuals including a gift of $25,000 and the apartment in which Sonder then resided to his nurse, Cecilia Reid.

Since there were insufficient assets to satisfy the first two categories of gifts in the trust, Nurse Reid, as sole trustee, petitioned to reform the trust claiming that the trust instrument did not evidence the settlor’s intent which was to give his apartment to Reid not subject to abatement. In support of her claim, Reid appended to her petition Sonder’s handwritten instructions, which she maintained supported her position. Clear and Convincing-What Does it Mean?

The appellate court allowed Reid to reform the trust to allow the gift of Sonder’s apartment to his nurse. In my view, the court’s decision rested on the fact that there existed extrinsic evidence that was considered “clear and convincing” evidence of the settlor’s intent—the handwritten notes. I would expect that oral statements, as well as written statements by the settlor would suffice for the evidence necessary to reform a trust to reflect the settlor’s intent.

Can a Trust Exist Where the Beneficiaries’ Interest Are Contingent on Surviving the Settlor or Other Events?

This interesting question was raised not only discussions leading up to the drafting of the Third Restatement of Trusts, but also in recent case law. For example, in Hoggan v. Hoggan, 169 P.3d 750, 588 Utah Adv. Rep. 24, 2007 UT 78 (2007) the Court was presented with the following:

The Eleventh Hour Amendment Shortly before she passed away, Leona Hoggan amended a trust that she had created some fifteen years earlier. The amendment provided that, upon Loena’s death, her son John would be forgiven a loan Leona had made to him, rather than receiving a one-third interest in the trust property. Read the rest of this entry