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Family Law: Legal Protection for Cohabiting Couples: The Law and Living Together
The Florida Bar Family Law Section Commentator: Summer 2010, Pg 35
Recently, In Florida Courts…
Estate Planning: Avoiding Costly Litigation from a Creditor Attack on a Spendthrift Trust
June 22, 2010
A spendthrift trust is one that is created for the purpose of providing a fund for the maintenance of a beneficiary, while at the same time protecting the trust’s assets, and/or the beneficiary’s interest in those assets, from the beneficiary’s creditors. A significant factor in these trusts is that the beneficiary has no control over the trust or trust property. The 4th District Court of Appeals recently overturned a decision which had allowed a creditor to gain access to the assets of a spendthrift trust over which the beneficiary appeared to have significant control. In doing so, the Court stretched the use of spendthrift clauses for asset protection planning to its furthest possible limit.
In Miller v. Kresser, a judgment creditor of the beneficiary of a spendthrift trust sought to receive payment of his debts from the trust. The facts showed that while the trustee was technically given complete control over the trust property, the beneficiary was in reality exercising a considerable amount of control over the property himself. The trial court initially concluded that this exercise of control terminated the trust's spendthrift provision. However, the Court of Appeals reversed this decision holding that it was not their role to evaluate how well the trustee was performing his duties. Instead, the Court limited its evaluation to the express language of the trust to determine the extent of the beneficiary's control and the extent to which a creditor could reach the trust assets. Because the language of the trust had never given the beneficiary any authority to manage or distribute trust property, the creditor could not pierce the spendthrift provision.
The Catch . . . This could be seen as a decision in which the Court reaffirmed the strength of spendthrift provisions placed in a trust. However, while the beneficiary won his appeal, significant legal fees could have been avoided if the trust had been managed by a true, independent trustee. When planning ahead for asset protection, this should be an important consideration. Choosing a trustee who is independent and will strictly follow the express language of the trust can help avoid costly litigation down the road.
Miller v. Kresser, 2010 WL 1779899 (Fla. 4th DCA 2010)
Real Estate: Sorry, We No Longer Have Your Deposit
March 12, 2010
Developers generally require a deposit when contracting to build and sell a residential home. The state of Florida has required that developers hold these deposits in escrow so that the you can be reimbursed the full amount if the contract is terminated by no fault of your own.
Florida's 4th District Court of Appeals recently limited the escrow requirement for these deposits in JPG Enterprises, Inc. v. McLellan. JPG had been contracted to build a residential home on land owned by McLellan. After the contract was cancelled due to a delay that was neither party's fault, McLellan sought the return of his deposit which had been used to begin the contract rather than placed in escrow. The court held that the escrow requirement was only applicable to contracts in which the developer was selling the unit and the underlying land. It did not apply to the construction of a residence on property already owned by the buyer. Therefore, McLellan was only able to receive the remaining amount of his deposit.
The Catch . . . What you need to know is that your deposit will not be protected by law if you are contracting to build a residential home on property that you already own. The developer will not have to pay back any part of the deposit already used to begin the work. Therefore, your contract with the developer will be the only way to make sure you will get back your full deposit if the agreement is properly terminated.
JPG Enterprises, Inc. v. McLellan, 2010 WL 445394 (Fla.App. 4 Dist.)
Trust Drafting: Restriction of Class Gifts to "Descendants by Blood" May Not Accomplish Such a Result
October 12, 2009
A trust will often include specific language limiting its beneficiaries to particular classes. One common example of such language is a limitation to "only children and descendants by blood." This expression and others like it began long before genetic testing became available. The Florida Second District Court of Appeals recently held in Doe v. Doe that in the modern era this expression should not be read so strictly as to require genetic testing to determine membership in the class.
In 1988, Chester Jr. and Eleanor, his wife, executed mutual revocable trust agreements containing language restricting the class gifts to "only children and descendants by blood." Catherine Doe was born in wedlock to the settlors' son Chester III. Chester III later acknowledged his paternity of Catherine and agreed to pay support for her in a marital settlement agreement. At the age of 32, Catherine received DNA test results which excluded Chester III as her biological father.
The Court held that the settlors intended to include Catherine as a beneficiary. Furthermore, it concluded that a proper interpretation of this language would include Catherine as a beneficiary because she was the legitimate daughter of Chester III by operation of law. To reach this conclusion, the Court closely examined the meaning of the term "descendants by blood" as it has been historically used in wills and trusts. Generally such expressions were used as a term of art to exclude adopted persons as beneficiaries. Because the blood restriction came to be used long before genetic testing became available, the Court did not want to extend its meaning "to disqualify descendants who were not adopted and who would otherwise qualify as a beneficiary." Therefore, "[A]s a legitimate child of one of the settlors' sons, Catherine qualifies as one of the settlors' descendants by blood."
The Court's decision was intended to provide a clear result for possible situations that may arise in the future. With the scientific advances in today's world, "to look no further than biological fatherhood to interpret the restriction of the trust's class gifts to blood decedents would lead to difficulties in other analogous factual situations." Issues may arise where a child has been conceived by artificial insemination from sperm donated by a third party. However, so long as the mother and father have consented in writing to the artificial insemination, there will be an irrebuttable presumption that the child belongs to the father. "The phrase "descendants by blood" is a legal term of art, not a scientific one."
Doe v. Doe, 2009 WL 2841190 (Fla.App. 2 Dist.)
Cases from Around the Country…
Trust Drafting: Public Policy May be Against Your Policy
June 30, 2008
Courts generally frown against any kind of restraint on marriage. Recently, an Illinois court struck down a provision in a trust document which stated, “A descendant of mine other than a child of mine who marries outside the Jewish faith (unless the spouse of such descendant has converted or converts within one year of the marriage to the Jewish faith) and his or her descendants shall be deemed to be deceased for all purposes of this instrument as of the date of such marriage.”
The Illinois Court of Appeals voided the “Jewish Clause” because it was against public policy. The dissent in this case argued that the creators of the trust sought to preserve “their 4,000-year-old heritage by providing that upon their death, a grandchild who married outside the Jewish faith shall be deemed to have predeceased the testators, but if they have complied with the restrictions, are to immediately receive their legacy.” While this may seem like a noble goal, the concurrence to the opinion specifically critiques this by saying; if the trust creator had wanted to preserve his heritage he would have made the clause applicable to his children and not just his grandchildren.
Taylor v. Feinberg (In re Estate of Feinberg), 900 N.E.2d 1118 (Ill. 2008)
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