I get calls from people who, for various reasons, are not interested in serving as a personal representative in Florida probate, but who are very interested in knowing if someone else plans to serve in that capacity.

Say, for example, a deceased person owed you money.  You might not want to undertake the burden of Florida probate yourself, but you would want to know if someone else is probating the estate so that you can submit a claim if the estate is opened in a Florida probate court.

Or suppose that you are concerned that a sneaky family member will attempt to probate an estate and make misrepresentations to the court.  While you don’t want to serve as personal representative yourself, you do want to know if anything is filed with the Florida probate court so that you can be sure that everything is on the up-and-up.

How would you go about protecting yourself in these situations?  The answer involves a process known as caveat.  A caveat is a written notice that can be filed with a Florida probate court that requires the person filing the caveat, known as the caveator, to be notified if anything is filed in that case.

The Florida caveat procedure is found in Florida Statutes Section 731.10, which provides

Any interested person who is apprehensive that an estate, either testate or intestate, will be administered or that a will may be admitted to probate without that person’s knowledge may file a caveat with the court.

The timing of the caveat depends on who is filing it.  If a creditor is filing a caveat, it can only be filed after the decedent’s death. But anyone else can file a caveat at any time, either before or after a person’s death.  But a caveat that is filed before a person’s death will expire in two years after the filing.

For example, a relative of a sick family member could file a caveat in the appropriate Florida probate court while the sick family member is still alive.  If the sick family member dies within two years, the relative/caveator would be notified of any probate proceedings.  But if more than two years pass after the filing of the caveat and the family member is still alive, the caveat would expire at the end of the two years.

If someone other than a creditor files the caveat, the court cannot admit the will to probate or appoint a personal representative without serving that person with notice.  But if the caveator is a creditor, the clerk only needs to notify the creditor of the date that letters of administration are issued and the contact information of the personal representative.

If an out-of-state party wants to file a caveat, he must either (a) be represented by a Florida probate attorney who signs the caveat or (b) designate a Florida resident who lives in the county where the caveat is filed to serve as agent.

Florida residents, like those of other states, often set up trusts as part of their estate planning.  If the trust is intended to be operative during the person’s lifetime, the person will typically transfer some or all of his or her assets into the trust.  But what if the property transferred into the trust constitutes a homestead under Florida law (more on that here)?  Should the personal representative seek to set aside the conveyance and bring the homestead back into the probate estate?

Like many Florida questions, the answer is: it depends.  If the person has a spouse or minor child, there are restrictions on the person’s ability to transfer homestead property.  Article X, Section 4(c) of the Florida Constitution provides:

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 owner of homestead real estate, joined by the spouse if married, may alienate the homestead by mortgage, sale or gift and, if married, may by deed transfer the title to an estate by the entirety with the spouse. If the owner or spouse is incompetent, the method of alienation or encumbrance shall be as provided by law.

This would prevent, for example, a married man from validly conveying homestead property to a trust during his lifetime without his wife’s consent.  If the man had attempted to do so prior to his death, his personal representative should petition the court to set aside the transfer and treat the homestead as part of the Florida probate estate.

If, on the other hand, the man was unmarried and had no minor children, the restrictions on transfer would not apply.  This was the holding of In re Estate of Morrow, which involved a personal representative’s attempt to set aside a decedent’s prior conveyance of homestead property to a trust.  In that case, the decedent was unmarried and had no minor children.  The court held that, in those circumstances, the personal representative didn’t have a basis for challenging the transfer to the trust.  The home was an asset of the trust and not an asset of the probate estate.

Practice Note: This discussion is not just academic.  A Florida personal representative could have an affirmative duty to protect the assets of the probate estate by setting aside invalid transfers, and failure to do so could open the personal representative up to liability.  Personal representatives and their attorneys should be aware of the restrictions on lifetime transfers of Florida homestead property and how they apply to a given estate.

Recent Delaware Opinion Draws Distinction Between Legal Authority and Equitable Duties

A recent Delaware trust case held that reliance on a legal opinion does not necessarily exculpate a trustee from breach of fiduciary duty.  The opinion is also notable in that it found a family member liable for breach of fiduciary duty even though she wasn’t serving as trustee at the time of the breach.

The trust involved was straightforward.  Charles created an irrevocable life insurance trust (ILIT) for the benefit of his grandson, Trey.  Sterling was named as trustee.  The trust was funded with cash, which was used to purchase a second-to-die life insurance policy on Charles and his wife, Eleanor.

Eleanor wanted to revoke the ILIT and access the cash value of the policy.  She tried to do so for several years, but each time was told that the trust couldn’t be revoked.  So she consulted with an attorney and came up with a different plan.  Instead of revoking the trust, she would access the cash value by having the trust loan her the equivalent of the cash value.  The trustee would fund this loan by taking out an equivalent loan on the cash value of the policy.

The trustee’s attorney wrote him a letter advising him that the trust instrument did permit the trustee to make loans with adequate security under commercially reasonable circumstances. Sterling decided to make the loan, albeit without security and with favorable terms.

When Trey reached age 30, he had the right to serve as the successor trustee of the trust.  But Eleanor didn’t tell him about this.  Instead, she appointed herself as trustee after Sterling died.  When she quit paying interest on the loan, the policy lapsed.  And, in the meantime, the trust didn’t take advantage of an opportunity to acquire more shares when the policy insurer demutualized.  Eleanor eventually resigned as trustee and appointed her handyman as her successor.

Trey found out about the trust and, understandably, wasn’t happy.  He promptly exercised his right to become trustee and demanded payment of the trust loan.  He then sued Eleanor and the handyman over their mishandling of the trust.

The Court found that Sterling breached his duty of loyalty by acting in the best interests of the Charles and Eleanor instead of acting on behalf of the Trust.  The fact that Sterling obtained a letter from his attorney was not determinative.  The court drew a very important distinction between what the trustee could do (as a matter of legal authority) and what the trustee should do (as a matter of fiduciary duty).  While Sterling was legally permitted to make the loan, he was equitably prohibited from doing so because it wasn’t in the best interest of the beneficiary.

The Court found Eleanor was jointly liable for Sterling’s breach of fiduciary duty even though she wasn’t serving as Trustee at the time.  This has far-reaching implications for parties that pressure the trustee to breach a fiduciary duty even if they themselves are not the fiduciary.

This case illustrates the need to resist attempts by the grantor and his family to sway the trustee to make questionable decisions.  This admittedly puts trustees in a tight spot.  On the one hand, trustees often have established relationships with clients who establish irrevocable trusts.  These relationships could include other trusts (since ILITs are not often used alone) and accounts under management.  In these circumstances, the trustee must place the duty to the beneficiary above these relationships.

But perhaps of more importance is the distinction between legal authority and fiduciary duty.  The trustee could still be held liable for breach of fiduciary duty even if the trustee was legally authorized to engage in a transaction.  The inquiry is two-fold:  Does the trust instrument give the trustee legal authority to engage in this transaction? and Why is the trustee engaging in this transaction? If the trustee is acting for a reason other than the benefit of the beneficiary in accordance with the terms of the trust, the trustee could be liable for breach even though the trust instrument gives legal authority to go through the mechanics of the transaction.

Paradee v. Paradee, C.A. No. 4988-VCL (Del. Ch. October 5, 2010)

A recent Miami-Date County probate dispute dealt with the application of the doctrine of lapse and the anti-lapse statute to the Last Will and Testament of a Hialeah resident.

Cecelia Lorenzo (Testator) died on October 20, 2008. Her Last Will and Testament left her entire estate to her brother and brother-in-law, as follows:

[T]o my brother, JOSE R. MEDINA, and to my brother in law, JESUS LORENZO, in equal shares.  If either of them do not survive me, the share of the deceased shall be given to their surviving spouse, JUANA R. MEDINA or MARIA LORENZO respectively.

The Testator’s brother (Jose) and his wife (Juana) each died before the Testator.  The Miami Dade County probate court had to decide who was entitled to the one-half share that the Testator intended to leave to Jose or Juana.  Not surprisingly, the brother-in-law (Jesus Lorenzo) argued that the bequest to both Jose and Juana had lapsed and, consequently, he should inherit the entire estate.

The children of Jose and Juana argued that the Florida anti-lapse statute should apply to give them a one-half interest in the property.  The Florida anti-lapse statute provides that, when a predeceased beneficiary is a descendant of the testator’s grandparents, the predeceased beneficiary’s share will pass to the predeceased beneficiary’s descendants instead of “lapsing” into the testator’s residuary estate.  The Miami-Dade County Circuit Court agreed that the anti-lapse statute applied and awarded half of the estate to the Medina children.  The brother-in-law appealed.

In Lorenzo v. Medina, 3D10-1243 (Fla. 3d DCA 2010), the 3^rd District overturned the Miami-Dade County Circuit Court’s decision.  The Court noted that since the anti-lapse statue was a carve-out from well-established common law, it had to be interpreted narrowly.  With this as a starting point, the Court held that the anti-lapse statute did not apply to pass Jose and Juana’s estate to their children.  Instead, the brother-in-law got everything.

To understand how the Court reached this result, one must apply the lapse statute in logical priority.  The Testator’s will left everything to Jose, who predeceased the Testator.  Had this been all that the will had said, it is likely that the Medina children would have taken half the estate.  The anti-lapse statute would have applied to them since Jose was a descendant of the Testator’s grandparents.

But the Testator’s will specifically named Juana—who was not a descendant of the Testator’s grandparents—as an alternate residuary beneficiary.  This took the first lapse (of the bequest to Jose) out of the picture. What the Court was left with was a lapsed bequest to Juana, who was not within the purview of the anti-lapse statute since she was not a descendant of the Testator’s grandparents.  Since the anti-lapse statute did not apply, the one-half gift to Jose and Juana is instead distributed to the residuary beneficiary named in the will.  This means that the brother-in-law takes all.

Planning Tip: Although we can’t be sure from the public record, it does not look like this was what the Testator intended.  Rather, she probably intended to split her estate evenly between her brother’s side of the family and her brother-in-law’s side of the family.  But, as clients often do, she probably assumed that either Jose or Juana would survive her.  A better-drafted will could have provided for a fall-back category of beneficiaries instead of simply naming two individuals for each side of the family.  For example, the simple phrase “or, if she is deceased, to the descendants of Jose R. Medina, per stirpes” would have ensured that Jose and Juana’s one-half of the estate stayed within their family line.

It is often the case that someone named in a will predeceases the testator.  Suppose, for example, that Barack creates a valid Last Will and Testament that leaves his prized basketball to Joe (he knows that Joe thinks that this basketball is a big effing deal) and the rest of his estate to Michelle.  Joe dies three months before Barack.  Who gets the basketball?

This fact pattern brings up the concept of lapse.  Lapse is a common law concept that applies when a person named in a will dies before the person creating the will (the testator).  Stated simply, lapse means that gifts to individuals that die before the testator will pass to the residuary estate of the testator (and not to the estate of the predeceased beneficiary).

As applied to the fact pattern above, the basketball would pass to Barack’s residuary estate.  Since Michelle is the residuary beneficiary (she gets the rest of Barack’s estate), the basketball will pass to her.  Joe’s heirs will not get any interest in the basketball.

What if the residuary beneficiary predeceases the testator?  In the above example, suppose that Michelle also dies before Barack.  Who gets what?  In this case, if there is no alternate residuary beneficiary named, the basketball (along with the rest of the estate) would pass as though Barack had died without a will (intestate).  This rule is called “the doctrine of no residue of a residue,” meaning that any portion of the residuary estate that does not pass under a will is not really part of the residue at all.

The application of the concept of lapse is fairly mechanical: If a person named in a will predeceases the testator, his or her share goes to the residuary estate.  Period.  Because this rule can yield harsh results, most states have passed laws that override the common law rule in specified situations.  These laws, called “anti-lapse statutes,” typically provide that gifts to certain relatives of the testator will not lapse.  Instead, they are distributed to certain descendants of the predeceased beneficiary (not the testator).

Florida law follows these general principles.  The common law lapse rule is well established in Florida: “When a legatee [beneficiary] under a will predeceases the benefactor [testator], the gift lapses.”[1] And the Florida legislature has adopted a complimentary anti-lapse statute, which provides:

Unless a contrary intent appears in the will, if a devisee who is a grandparent, or a descendant of a grandparent, of the testator:

(a)Is dead at the time of the execution of the will;

(b)Fails to survive the testator; or

(c)Is required by the will or by operation of law to be treated as having predeceased the testator,

a substitute gift is created in the devisee’s surviving descendants who take per stirpes the property to which the devisee would have been entitled had the devisee survived the testator.[2]

In other words, when a predeceased beneficiary is a descendant of the testator’s grandparents, the anti-lapse statute will kick in and save the gift from going to the testator’s residuary estate.  Instead, the gift will vest in the predeceased beneficiary’s descendants.

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[1] Tubbs v. Teeple, 388 So.2d 239 (Fla. 2d DCA 1980).

[2] Fla. Stat. Ann. § 732.603(1).