Florida Probate, Trust & Estate Blog : Florida Probate Lawyers & Attorneys : Clark Skatoff Law Firm : FL Wills, Trusts & Inheritance : Palm Beach, Broward County, Boca Raton

In MacIntyre v. Wedell, 12 So.3d 273 (4th DCA 2009), the Court dismissed a challenge to the settlor's removal of funds from her revocable trust on the grounds of undue influence.  Twenty five years ago, the Florida Supreme Court, in Genova v. Florida National Bank of Palm Beach County, 460 So.2d 895 (Fla. 1984), barred an undue influence challenge to a settlor's removal of funds from her revocable trust.  The litigation in that case occured while the settlor was still alive.  In MacIntyre, the settlor had died before the litigation commenced.  The MacIntyre Court relied on the reasoning from Genova in dismissing the trust complaint.

The courts have no place in trying to save persons such
as Mrs. Genova, the otherwise competent settlor of a
revocable trust, from what may or may not b e her own
imprudence with her own assets. When she created this
trust, she provided a means to save herself from her own
incompetence, and th e 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.

This opinion has received adverse commentary from several sources, including here.  As the prevailing attorney in the case, I believe the decision is defensible, due to the unique nature of revocable trusts.  A challenge to a competent settlor withdrawing money out of a revocable trust should fail in the same way that a competent person withdrawing money out of his or her bank account should fail.  The reported case does not address what happened to the funds after they were withdrawn.  Had the plaintiff attacked the destination of the funds, rather than the removal of the funds from the revocable trust, the case may have withstood dismissal.

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A will can be challenged in a Florida probate proceeding on a number of grounds.

• Lack of Proper Formalities. Proper execution of a will requires that the will be signed by the testator and witnessed by two witnesses, who also sign the will. A will can be contested on the grounds that it was not properly drafted, signed, or witnessed in accordance with the applicable requirements.
• Lack of Capacity. Under Florida law, a testator is required to have mental competency to make a will and to understand the nature of his or her assets and the people to whom the assets are going to be distributed. A will can be declared void if lack of capacity can be proven. Typically, incompetence is established through a prior medical diagnosis of dementia, Alzheimer’s, or psychosis, or through the testimony of witnesses as to the irrational conduct of the deceased around the time the will was executed.  Miami Rescue Mission vs. Roberts is a recent case that describes the current state of the law for proving lack of capacity and insane delusion. 
• Undue Influence. Undue influence occurs when the testator is compelled or coerced to execute a will as a result of improper pressure exerted on him or her, typically by a relative, friend, trusted advisor, or health care worker. In many cases, the undue influencer will upset a long established estate plan where the bulk of the estate was to pass to the direct descendants or other close relatives of the decedent. Some undue influencers are new friends or acquaintances of the decedent who “befriend” the decedent in the last months or years of life, typically after the decedent has suffered some decline in mental ability. In other situations, one child of the decedent, often a caregiver, will coerce the decedent to write the other children out of the will. Undue influencers can also be health care workers or live in aides who implicitly or explicitly threaten to withhold care unless the estate plan is changed in favor of the health care worker. The Estate of Carpenter is the seminal undue influence case for Florida will contest litigation.

The time for making a will contest in Florida is short, typically 90 days after the Notice of Administration has been provided by the Personal Representative, or 20 days in the event that Formal Notice of the probate proceeding is received before the will has been admitted to probate. Therefore, prompt action is required to bring your lost inheritance back to life.

Not just a will can be challenged under these grounds. A trust can be challenged under the same grounds, as well as a real estate deed or a beneficiary designation on a financial account. There are many situations where the undue influencer will trick or persuade a weakened person to sign over valuable real estate, a bank account, or other property directly to the influencer, in the hope that they will have left the scene before the wrongdoing can be discovered. Sometimes, the undue influencer will be added as a beneficiary on bank accounts in place of the heirs to whom the decedent intended the account to pass.

If the wrongdoing is discovered prior to the victim's passing, a common way for a loved one to start to clean up the situation will be to create a guardianship, which will allow the guardian to use the court's jurisdiction to reclaim assets that were fraudulently removed. If an estate plan was also changed because of undue influence, the guardianship will also allow evidence to be collected for use at a subsequent will contest proceeding.
 

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The Congressional Budget Office has just released an Issue Brief on Federal Estate and Gift Taxes, setting forth the revenue that the estate and gift tax raises, how such revenue is affected by the various proposals for estate and gift tax reform, and a detailed explanation of the various reform proposals.  

Among the highlights:

• Estate and gift tax receipts have averaged about 1.5% of federal tax revenue over the last few years
• Larger estates pay a significant portion of the estate tax.  In 2007, taxes on gross estates valued at more that $20 million were 36% of total estate tax revenue, and taxes on estates valued at more than $10 million accounted for 55% of total estate taxes.
• A permanent repeal of the estate tax would cause a revenue loss of approximately $500 billion between 2010 and 2019.
• Under current law, the 55% rate with a $1 million exemption is set to be reinstated in 2011 without a new law being put in place.  This is the rate structure that was in place in 2001.  If the federal government puts the 2009 rate structure in place for 2010 and beyond (45% rate with $3.5 million exemption), the loss in revenue as compared to doing nothing would be approximately $233 billion. 

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When a Florida resident dies without a will (known as intestacy), Florida inheritance laws provide who in the family is entitled to inherit from the estate.   If there is a surviving spouse, the surviving spouse takes the following portion of an estate (Florida Statute Section 732.102):

Spouse's share of intestate estate.--The intestate share of the surviving spouse is:

(1) If there is no surviving descendant of the decedent, the entire intestate estate.

(2) If there are surviving descendants of the decedent, all of whom are also lineal descendants of the surviving spouse, the first $60,000 of the intestate estate, plus one-half of the balance of the intestate estate. Property allocated to the surviving spouse to satisfy the $60,000 shall be valued at the fair market value on the date of distribution.

(3) If there are surviving descendants, one or more of whom are not lineal descendants of the surviving spouse, one-half of the intestate estate.

If there are heirs in addition to (or instead of) of a surviving spouse, those other heirs take as follows (Florida Statute Section 732.103):

The part of the intestate estate not passing to the surviving spouse under s. 732.102, or the entire intestate estate if there is no surviving spouse, descends as follows:

(1) To the descendants of the decedent.

(2) If there is no descendant, to the decedent's father and mother equally, or to the survivor of them.

(3) If there is none of the foregoing, to the decedent's brothers and sisters and the descendants of deceased brothers and sisters.

(4) If there is none of the foregoing, the estate shall be divided, one-half of which shall go to the decedent's paternal, and the other half to the decedent's maternal, kindred in the following order:

(a) To the grandfather and grandmother equally, or to the survivor of them.

(b) If there is no grandfather or grandmother, to uncles and aunts and descendants of deceased uncles and aunts of the decedent.

(c) If there is either no paternal kindred or no maternal kindred, the estate shall go to the other kindred who survive, in the order stated above.

(5) If there is no kindred of either part, the whole of the property shall go to the kindred of the last deceased spouse of the decedent as if the deceased spouse had survived the decedent and then died intestate entitled to the estate.

For the non-spouse heirs, the first three provisions are easy:  "down" (to children); if no children, then "up" (to parents); and if no parents, then "sideways" and "diagonally" (to siblings and the children of deceased siblings, who would be nieces and nephews). After, that, the estate would go to grandparents, if alive.  If there are no living grandparents, then the estate goes to the aunts and uncles of the deceased and their descendants. Finally, the estate passes to the family of the last deceased spouse of the decedent.

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We are often asked whether Florida imposes an inheritance tax or estate tax on the estates of deceased persons.  Thankfully, there is no Florida inheritance or estate tax.  There are estate taxes that Florida residents need to be aware of:  the Federal estate tax, and the estate taxes that other states might impose.

The Federal estate tax, through the end of 2009, is imposed at a rate of 45%, after taking into account a $3.5 million exemption.  As of the writing of this entry, the estate tax is scheduled to be eliminated for 2010, only to be reinstated in 2011 at a rate of 55% and an exemption level of $1 million.  Please read about the estate tax fix.

Residents of Florida who own real estate in states that impose a state estate tax could be subject to such taxes in the absence of good planning.  Those states with a state estate tax include many of the states where Florida residents have migrated from, including Connecticut, Delaware, Illinois, Maryland, Massachusetts, New Jersey, New York, Ohio, and Rhode Island.   

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Creditor claims in probate are subject to two statutes of limitation within which a creditor claim must be filed with the probate court.  

The first creditor claim limitation period is the 30 day / three month rule, which requires that a claim be filed within the later of (i) 3 months after the first publication of the notice to creditors (which is filed in the local business newspaper or the paper of general circulation), or (ii) 30 days after the creditor is served with a copy of the notice to creditors.  

For creditors not directly receiving a copy of the notice to creditors, the 3 month rule is subject to a number of extensions that the probate court may grant, the primary one being that the creditor did not have sufficient notice of the claims period.  ("Reasonably ascertainable" creditors are supposed to be served with a copy of the notice to creditors.  Those that are not served and who were unaware of the running of the claims period will routinely petition the probate court for an extension.)

The second creditor claim period of limitation is the two year rule, which requires creditor claims to be brought within two years of death of the deceased.  This limitation period is not subject to extensions or exceptions. 

In Mack v. Perri (1st DCA 2009), the Court addressed these claim limitation periods as follows.  The Deceased died November 18, 2004.  The first notice to creditors was published May 14, 2005.  The creditor filed its claim on October 31, 2005.  

The Court held that the claim was barred by the three month rule, because the claim was not filed within three months of the publication of the notice to creditors.  The Court also held that the claim was barred by the two year rule, because, although the three month limitation has provisions for extensions, the claim and motion for an extension must be filed before the expiration of the two year limitation period.  

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When large taxable estates are involved in litigation, estate tax issues can be tricky. This problem is most pronounced where one outcome of the litigation would result in less estate tax being paid. For example, if an adult child is the beneficiary of the last will, but a charity is the beneficiary of a prior will, and the child and the charity are litigating over which is the valid will, how much estate tax will ultimately be owed is unknown.  

If the charity prevails, because bequests to a charity are free of estate tax, the estate owes nothing. If the child prevails, the estate might owe estate tax on the bequest.  Estate taxes are due and payable nine months from the date of death, or interest and possibly penalties could apply. Most complex estate litigation would still be pending nine months after death.

If the maximum amount of estate tax is paid to the Internal Revenue Service, the estate may have some difficulty getting the money back if the charity prevails. If the estate pays less than what it would owe if the child prevails, interest and penalties may apply.  

In order to stop the possible imposition of interest and penalties, yet still allow for an easy return of funds should the estate not owe the tax, the Internal Revenue Code, Section 6603, allows a taxpayer to submit a deposit. The estate tax return would be filed as if the charity were to prevail, showing no tax owing, with adequate disclosure of the litigation.  Simultaneously, the estate would place on deposit with the IRS an amount that would equal the tax were the child to prevail.  

Under Revenue Procedure 2005-18, a deposit is automatically returned upon request, normally with interest.  A payment is not returned so easily, and the IRS could refuse to make the payment refund or could delay the return of the payment for an extended period of time, complicating the closure of the estate. 

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Probate and trust litigators in Florida deal with allegations of undue influence in the creation of a will or trust more than any other issue.  Florida law makes use of a series of presumptions in controlling the outcome of undue influence cases.  

In Estate of Madrigal v. Madrigal (3rd DCA 2009), the appellate court affirmed the trial court's revocation of a will as a result of undue influence, basing its holding on the presumptions that apply in undue influence cases:  

[W]here the proponent of a will satisfies, prima facie, the will is facially proper, and the contestant thereafter satisfies, prima facie, a presumption of undue influence in the making of the will, the proponent of the will has the burden of proving the will was not the product of undue influence. That burden must be met by a preponderance of the evidence as determined by the trier of fact.

The presumption of undue influence arises under Florida law where "a substantial beneficiary under a will occupies a confidential relationship with the testator and is active in procuring the contested will."  In re Estate of Carpenter, 253 So.2d 697 (Fla. 1971).  

Once the trial court determines that a beneficiary was active in the procurement of a will and had a close, trusting relationship with the testator, that beneficiary bears the burden of proof to show that the will was not the product of undue influence.  

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Recent attempts to fix the impending repeal of the estate tax and subsequent re-enactment at higher rates have been reported by the New York Times, in Carl Hulse's article, Estate Tax Is Expiring, but Death Won’t Last.  

Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRA), the estate tax rates and exemption amounts have been sliding lower, from a top rate of 55% and an exemption amount of $1 million in 2001, down to a top rate of 45% and an exemption of $3.5 million in 2009. This change has reduced the number of taxable estates by 90%, some commentators have estimated.

Under current law, in 2010, the estate tax vanishes. Due to budgeting rules in place in 2001, Congress was required to reinstate the 2001 estate rules for the year 2011 and beyond. So, in 2011, current law would take us back to a 55% estate tax rate and an exemption amount of only $1 million. This change would ensnare hundreds of thousands of estates annually that are currently free of estate tax.

Practitioners in the estate field have been assuming that Congress would at some point during 2009 (and certainly well before the week before Christmas) enact a new statute preserving the estate tax in 2010, and reducing the otherwise draconian rate and exemption structure scheduled to go into effect on January 1, 2011. Professor Edward J. McCaffery's, The Politics of Estate Tax Reform, has an explanation of the politics behind the estate tax.   

What happens to the estates of those who pass away in the first part of 2010, before a new estate tax law is put into place later in 2010? For those of you thinking that such estates will pass without estate tax, such a result is doubtful. This situation has happened before, with a retroactive rate increase that was imposed on persons who passed away prior to the passing of the rate increase.

Provided that the retroactive application of a statute is supported by a legitimate legislative purpose furthered by rational means, judgments about the wisdom of such legislation remain within the exclusive province of the legislative and executive branches . . . .
To be sure, . . . retroactive legislation does have to meet a burden not faced by legislation that has only future effects . . . . “The retroactive aspects of legislation, as well as the prospective aspects, must meet the test of due process, and the justifications for the latter may not suffice for the former” . . . . But that burden is met simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose.

United States v. Carlton, 512 U.S. 26, 30 (1994)

In other words, if Congress wants to raise money by raising taxes retroactively, the Supreme Court is not going to stand in its way.

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Florida’s homestead laws provide a number of ways in which heirs can end up as unwilling co-owners of real estate. A common way is if a parent dies with a primary residence but without a will, and has several adult children. Each of those children will end up as an equal co-owner of the property.

When one heir wants to live in the property and the other wants to sell, Florida law provides a fast and easy remedy to force a sale of the property - the partition action.  

Although the name “partition” implies a split of the property, most residential real estate in Florida cannot be split, because of homeowner association rules and/or local land use ordinances limiting how small a lot can be, to the obvious impracticalities of dividing all but the most palatial of condominiums into multiple units. If the property cannot be subdivided, the property is sold under court order, with the proceeds divided among the heirs.

A partition action has no defenses, other than that the person filing the partition action previously agreed not to partition the property. Even property that was the deceased’s homestead property is subject to partition.

The Court will either order that the property be sold at a public sale, i.e. an auction, or through a private sale. Typically, in a private sale, the Court will appoint a special master (usually an attorney or real estate broker) to list and sell the property similar to any other private sale of real estate.

Partition actions are not available in life estate / remainder situations. When a married deceased person passes away with a primary residence and either has no will or leaves the property to children instead of the spouse, the Florida Constitution and Florida Statutes dictate that the surviving spouse receive a life estate in the property, and the surviving children each receive an equal remainder interest in the property. Neither the surviving spouse nor the children can partition the property with respect to the other. Accordingly, if the surviving spouse wants to sell the property, he or she can only do so as a result of a negotiated settlement with the children.

Spouses who need to downsize in such a situation have no legal recourse presently under Florida law. Although practitioners in the area have been aware of this problem for some time, the Florida legislature has not yet provided a mechanism to allow the surviving spouse to sell the property.

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