What is the “renunciation rule?”
Clients are often surprised to learn that if they want to challenge a trust document, they will – with limited exceptions – be required to return to the trust any distribution they have received under the challenged document while the litigation is pending. This is called the “renunciation rule.” The Second District Court of Appeals recently released an opinion that discussed at great length the origins and reasons for the renunciation rule. See Fintak v. Fintak, 38 Fla.L.Weekly D1815 (August 30, 2013).
The renunciation rule originated in English ecclesiastical courts and originally provided that a beneficiary who received a bequest from a will must return the bequest before being permitted to contest the will. Hamblett v. Hamblett, 6 N.H. 333 (1833). The American courts interpreted that rule to mean that a beneficiary who receives and keeps a gift under a will or other instrument is estopped (prevented) from challenging the validity of that instrument. Barnett Nat’l Bank of Jacksonville v. Murrey, 49 So.2d 535 (Fla. 1950). In the Barnett case, the Florida Supreme Court adopted the renunciation rule into Florida law as an equitable doctrine and articulated three rationales for the rule:
First, the renunciation rule is designed to protect the trustee in the event the trust is held to be invalid. (A trustee does not want to be liable if he cannot recover money previously distributed to beneficiaries under a document the court later finds to be invalid.)
Second, the renunciation rule is designed to demonstrate the sincerity of the individual contesting the trust. (How can one accept a distribution under a trust document that he believes is invalid?)
Third and finally, the rule is intended to ensure that the trust property is available for distribution at the end of the trust contest. (A trustee does not want to be put in a position of chasing money and seeking the return of improper distributions.)
There are two notable exceptions to the renunciation rule: 1) if the beneficiary would receive the distribution regardless of the outcome of the litigation and 2) if it is the settlor of a trust that was funded with the settlor’s own assets, then he does not need to renounce any benefits. As the Second DCA articulated in Fintak, “it is axiomatic that one who funds a trust with his or her own assets does not have to renounce any benefits received as a condition precedent to instituting a challenge to the validity of the trust.” Id
If you are considering challenging a trust document under which you are a beneficiary, be cautious about accepting any distribution from the trustee until you have consulted with a trust litigation attorney.