In this comment, Richard Ehrlich, Esq.
addresses the problem of having an out-of-estate attorney prepare
estate-related documents; state requirements may differ and cause issues
subsequently
In the first article of his series of Instructional Articles, Florida
Attorney Richard Ehrlich comments on the issue of having a local attorney
prepare a will and other probate-related documents. In the case that Mr.
Ehrlich reviews, Kelly v. Lindenau, 223
So. 3d 1074 (Fla. Dist. Ct. App., 2nd
District 2017), an Illinois resident moved to Florida yet had an
Illinois attorney prepare amend his trust twice. Here, the second amendment was
signed by only one of the two witnesses.
While the amendments met the requirements of Illinois law, it failed to
comply with Florida requirements.
Mr. Ehrlich notes that a recent decision coming out of the Second
District Court of Appeal of Florida serves as a cautionary tale for all Florida
residents to review their estate planning documents with a competent licensed
Florida attorney.
Ralph Falkenthal created a revocable trust, also commonly
known as living trust, while he was still a resident of Illinois with the aid
of an Illinois attorney. Mr.
Falkenthal’s wife passed away and he moved to Florida after her death. In Florida, Mr. Falkenthal met Donna Lindenau
and moved in together at a new residence purchased by Mr. Falkenthal in
Bradenton.
After moving to Florida, Mr. Falkenthal employed his Illinois attorney
to amend his trust twice. The second
amendment in 2014 specifically provided that the residence in Bradenton should pass
to Ms. Lindenau upon Mr. Falkenthal’s death.
There was no dispute that the second amendment met the signing
requirements of Illinois law, but Mr. Falkenthal was a Florida resident at the
time.
Mr. Falkenthal passed away on February 7, 2015 and his daughter Judy
took over the administration of the trust as a successor trustee. Judy, as a trustee, filed a lawsuit in
Florida court, seeking to have the court determine the validity of the second
amendment that left the Bradenton residence to Ms. Lindenau. Under Florida law, portions of a revocable
trust dealing with disposition of property upon the trustor’s death must meet
the same formality as a will, which must be signed in front of two witnesses
and those witnesses must also sign the document in front of each other. Here, the second amendment was signed by only
one of the two witnesses. While no one
disputed whether that met the requirements of Illinois law, everyone agreed
that it fell short of Florida’s requirements.
Seeking to save the second amendment from being invalidated, Ms.
Lindenau sought reformation of the trust under Florida law. Ms. Lindenau argued that because Mr.
Falkenthal’s intent was clear and it was only a mere mistake of law that prevented
his intent from being carried out, the trust should be reformed. Trial court agreed and granted the remedy of
reformation and the children appealed.
Second District Court of Appeal of Florida reversed, noting the
important distinction between terms of a trust and the execution of a
trust. The appeals court noted that
“[s]ection 736.0415 provides in relevant part that the terms of a trust can be
reformed ‘to conform ... to the settlor's intent 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 of fact or law, whether in
expression or inducement.’” The appeals
court went on to explain that the problem with the second amendment was that
the execution failed to meet Florida’s requirement, not that the terms failed
to reflect Mr. Falkenthal’s intent.
Therefore, appeals court concluded that the remedy of reformation was
not available. The appeals court also
rejected Ms. Lindenau’s alternative request for a constructive trust, because
using a constructive trust to validate an invalid execution would be
inappropriate.
The Court explains at the end of its opinion: “… while the imposition of a constructive trust might be appropriate where
a will (and thus a trust) has been validly executed, that remedy is not
appropriate where there is an error in the execution of the document. We
conclude that 1079* that
distinction should be extended to cases such as this one where an amendment to
a trust was not validly executed. Because there was no valid, enforceable
amendment, the imposition of a constructive trust on the Bradenton house
"would only serve to validate an invalid" amendment. Allen, 826 So.2d at 248.
Accordingly, we hold that the trial court erred by denying the petition for
declaratory judgment, by applying section 736.0415 to reform the second
amendment, and by requiring the transfer of the Bradenton house to Lindenau.
Our reversal makes it unnecessary to decide a second issue raised solely by
Judy in her capacity as successor trustee.”
“The case highlights the potential pitfalls that may arise as
individuals move to Florida from other states”, cautions Mr. Ehrlich. “Different states may have differing
requirements when it comes to estate planning documents and plans. Therefore, individuals who become Florida
residents would be well served to review their estate planning documents and
plans with a competent Florida attorney to ensure that their wishes will be
respected and carried out upon their death.”
Jill KELLY; Jeff Falkenthal; and Judy L. Mors-Kotrba, as
successor trustee, Appellants,
v.
Donna LINDENAU, Appellee.
District Court of Appeal of Florida, Second
District.
Opinion filed May 17, 2017.
Rehearing Denied July 17, 2017.
[ …]
MORRIS, Judge.
The
appellants, Jill Kelly (Jill), Jeff Falkenthal (Jeff), and Judy L. Mors-Kotrba
(Judy), as successor trustee, appeal a final judgment reforming a trust and
requiring Judy to transfer title to real property to a trust beneficiary, the
appellee, Donna Lindenau. Below, Judy petitioned for a declaratory judgment in
her capacity as successor trustee of a trust created by the decedent, Ralph
Falkenthal (Ralph).[1] Judy
alleged that two amendments to the trust were not signed by two witnesses as
required by Florida law. Lindenau then filed a counterclaim seeking reformation
of the trust in relation to the second amendment. Following a bench trial, the trial
court denied the petition for a declaratory judgment, granted Lindenau's
counterclaim, and ordered Judy to transfer the subject real property to
Lindenau. Because we conclude that the amendments to the trust were not validly
executed and, as a result, that reformation of the trust could not occur, we
reverse the final judgment.[2]
I. BACKGROUND
Ralph
created his revocable trust in December 2006 while he still resided in
Illinois. The trust was validly executed pursuant to Illinois law. The trust
provided that upon his death, the trust assets would be distributed to his
wife. In the event that she predeceased him, they would be evenly distributed
to his three children, Jill, Jeff, and Judy. Ralph's wife predeceased him, and
Ralph subsequently moved to Florida.
In
2009, Ralph met Lindenau. In 2010, Ralph purchased a house located in
Bradenton, and he resided there with Lindenau. Subsequently, Ralph executed a
first amendment to the trust on October 25, 2012, the testamentary aspects of
which are irrelevant to this appeal.[3] On
December 18, 2014, Ralph executed a second amendment that modified the trust to
provide for a specific devise to Jeff of a Sarasota residence. The second
amendment also provided for a specific devise of the Bradenton residence to
Lindenau. No other changes were made to the remaining trust residue. At the
time of execution of both the first and second amendments, Ralph resided in
Florida. Yet, both amendments were prepared by Ralph's Illinois attorney, and
the parties have not disputed Lindenau's assertion that the amendments were
prepared in accordance with Illinois law. Even though the amendments were
executed in the presence of two witnesses, they were only signed by one of the
witnesses.[4]
1076*1076 Ralph
died on February 7, 2015, whereupon the trust became irrevocable. Judy, in her
capacity as successor trustee, then filed a petition for declaratory judgment to
determine the validity of the first and second amendments. Lindenau filed her
counterclaim, which she later amended, seeking a reformation of the trust in
relation to the second amendment. Lindenau argued that the error in failing to
have two witnesses sign the second amendment was a mistake of law. In the
alternative, Lindenau argued for the imposition of a constructive trust in her
favor regarding the Bradenton house.
Jill
and Jeff filed a motion for summary judgment, arguing that the amendments were
invalid because they were not executed in accordance with Florida law. They
also argued that reformation was not appropriate because Lindenau was not
seeking to reform trust provisions already contained within the trust but was
instead seeking to validate the otherwise invalid amendment. The trial court
denied the motion for summary judgment. The case proceeded to a bench trial
with the trial court ultimately granting Lindenau's reformation request
pursuant to section 736.0415, Florida Statutes (2016), and ordering Judy, as
successor trustee, to transfer the Bradenton house to Lindenau within ten days
of the final judgment. This appeal followed, and the trial court granted a stay
of the transfer of the Bradenton house pending the outcome of this appeal.
II. ANALYSIS
There
is no dispute that Ralph's intent was to leave the Bradenton house to Lindenau.
There is also no dispute that the second amendment was only signed by one of
the witnesses. Rather, the dispute focuses on whether an improperly executed
trust amendment can be validated through reformation pursuant to section
736.0415. The trial court concluded that section 736.0415 permitted reformation
in this case because Lindenau met her burden of proving that "the
accomplishment of the settlor's intent was affected by a mistake in law."
Because the trial court's conclusion rests on a question of law, we review the
final judgment de novo. See Gessa v. Manor Care of Fla., Inc., 86 So.3d 484, 491
(Fla. 2011); Megiel-Rollo v. Megiel, 162 So.3d 1088, 1094 (Fla. 2d DCA
2015).
In
Florida, the testamentary aspects of a revocable trust[5] are
invalid unless the trust document is executed by the settlor of the trust with
the same formalities as are required for the execution of a will. §
736.0403(2)(b), Fla. Stat. (2014).[6] In
turn, the portion of the Florida Probate Code that addresses the execution of
wills requires that wills must be signed in the presence of two attesting
witnesses and that those attesting witnesses must themselves sign the will in
the presence of the testator and of each other. § 732.502(1)(b)-(c), Fla. Stat.
(2014). Consequently, a trust — or an amendment thereto — must be signed by the
settlor in the presence of two attesting witnesses and those witnesses must
also sign the trust or any amendments in the presence of the settlor and of
each other. These requirements are 1077*1077 strictly
construed. Cf. Allen v. Dalk, 826 So.2d 245, 247 (Fla. 2002) (explaining
that strict compliance with statutory requirements for execution of a will is
mandated in order to create a valid will and recognizing that absent the
requisite formalities, a will "will not be admitted to probate").
The
Florida Supreme Court has affirmed a circuit court's refusal to admit a will to
probate where one of the two witnesses refused to sign it. Crawford v. Watkins, 75 So.2d 194, 195, 197-98 (Fla.
1954). The court in Crawford explained that the signature of an
attesting witness serves "as testimony of the fact that all legal steps
necessary to make the will a legal instrument have been taken by the
testator." Id. at 197-98 (emphasis added). Thus, where a testator, or a settlor
in the case of a trust, fails to strictly comply with the statutory
requirements for valid execution of the relevant document, the document remains
invalid and unenforceable. Id.; see also Aldrich v. Basile, 136 So.3d 530, 533 (Fla. 2014) (explaining
that codicil that was only signed by one witness "was not an enforceable
testamentary instrument under the Florida Probate Code"); Allen, 826 So.2d at 248 (expressly
refusing to impose a constructive trust over estate assets — despite the
testator's clear intent as stated within the will — where the testator failed
to sign the will, a "major requirement for a validly executed will").
Lindenau
concedes that the second amendment was invalid under Florida law, but she
argues that the failure to obtain the second witness's signature was a mistake
of law affecting the accomplishment of Ralph's intent and that the appropriate
remedy is reformation. We disagree. Although Lindenau asks this court to
distinguish Allen, Crawford, and Aldrich on the basis that they either predated
the enactment of section 736.0415 or failed to address it, we are not persuaded
that any distinction is dispositive in this case due to the language of the
statute itself.
Section
736.0415 provides in relevant part that the terms of a trust can be reformed
"to conform ... to the settlor's intent 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 of fact or law, whether in
expression or inducement." Aside from the issue of the settlor's intent,
the statute thus focuses on the terms of the trust, not the execution of it.
See also Megiel-Rollo, 162 So.3d at 1094 (quoting Morey v. Everbank, 93 So.3d 482, 489 (Fla. 1st DCA 2012), for
the proposition that reformation is used to correct a "mistake in the form
of expression or articulation" such as where a trust includes a term that
"misstates the donor's intention[,] fails to include a term that was
intended to be included[,] or includes a term that was not intended to be
included"). Indeed, in discussing Florida's liberal policy regarding
reformation, this court has acknowledged that the remedy is used "to cause
the instrument to reflect the true agreement of the parties when the terms of
the agreement have not been clearly expressed in the instrument because of [a]
mutual mistake or inadvertence." Id. at 1097 (emphasis added) (quoting
Tri-Cty. Prod. Distrs., Inc. v. Ne. Prod. Credit Ass'n, 160 So.2d
46, 49 (Fla. 1st DCA 1963)). But here, the terms of the second
amendment are clear that Ralph intended to leave the Bradenton house to Lindenau.
Thus there were no terms of the trust that needed reformation. Rather, Lindenau
sought reformation to remedy an error in the execution of the second amendment.
But by the statute's terms, reformation is only available to remedy mistakes
that affect "both the accomplishment of the settlor's intent and the terms
of the trust." § 736.0415.
1078*1078 We
reject Lindenau's argument that Megiel-Rollo can be read to mean that
reformation is available even where a trust was invalidly executed. In that
case, although the circuit court ruled that no valid trust had ever been
created, that finding was predicated on the fact that the attorney who drafted
the trust failed to prepare a Schedule of Beneficial Interests that was
expressly referenced in the trust document. 162 So.3d at 1092. In turn, the circuit court
found that the trust was void ab initio because it failed to name any
beneficiaries. Id. at 1094. However, on appeal, we concluded that reformation
was available because the attorney committed a drafting error by failing to
prepare and incorporate the Schedule of Beneficial Interests into the trust,
which expressly referenced the Schedule. Id. at 1097. Thus we construed the
error as one affecting the settlor's intent and the terms of the trust, not the
execution of it. Indeed, the opinion makes clear that the settlor
"executed the Trust with the requisite formalities for the execution of a
will." Id. at 1091. Consequently, Megiel-Rollo does not mandate an
affirmance here.
As
an alternative basis for affirmance, Lindenau asks this court to apply the
"tipsy coachman" doctrine[7] and
to hold that a constructive trust should be imposed on the Bradenton house. She
acknowledges that the circuit court never ruled on this issue below due to its
finding that reformation was appropriate, but she contends that a constructive
trust is a valid remedial option here because the parties all agree that Ralph
intended to leave the Bradenton house to her. In making this argument, Lindenau
relies on In re Estate of Tolin, 622 So.2d 988, 990-91 (Fla. 1993), wherein
the Florida Supreme Court held that a constructive trust should be imposed
where the testator failed to validly revoke a codicil to a will, but where it
was clear that his intention had been to revoke the codicil and that that
intention was frustrated by his mistake in destroying a copy rather than the
original.
We
decline to hold that a constructive trust should be imposed in this case. We
acknowledge that the court in Tolin used the constructive trust remedy to work
around the invalid revocation of a codicil because the testator's intent was
clear and because a third party would otherwise benefit from the testator's
mistake at the expense of the intended beneficiary. Further, we are mindful of
the facts that, as in Tolin, Ralph's intent is clear in this case and a
reversal of the final judgment will result in a benefit to Ralph's estate
(i.e., to Jill, Jeff, and Judy) at the expense of Lindenau. However, there was
no dispute in Tolin about the validity of the original will or codicil. And in
Allen, the court expressly distinguished Tolin and declined to extend it beyond
its facts. Allen, 826 So.2d at 248. Instead, the court in
Allen refused to impose a constructive trust because the testator had failed to
comply with a "major requirement for a validly executed will" (i.e.,
the testator's signing of it) and thus "[a]n order imposing a constructive
trust under these facts would only serve to validate an invalid will." Id.
Read
in conjunction, Tolin and Allen make it clear that while the imposition of a
constructive trust might be appropriate where a will (and thus a trust) has
been validly executed, that remedy is not appropriate where there is an error
in the execution of the document. We conclude that 1079*1079 that
distinction should be extended to cases such as this one where an amendment to
a trust was not validly executed. Because there was no valid, enforceable
amendment, the imposition of a constructive trust on the Bradenton house
"would only serve to validate an invalid" amendment. Allen, 826 So.2d at 248. Accordingly, we hold
that the trial court erred by denying the petition for declaratory judgment, by
applying section 736.0415 to reform the second amendment, and by requiring the
transfer of the Bradenton house to Lindenau. Our reversal makes it unnecessary
to decide a second issue raised solely by Judy in her capacity as successor
trustee.[8]
Reversed
and remanded.
**** Mr. Richard Ehrlich is an Attorney in Florida, specializing in Corporate, Estate and Personal Financial Planning in Florida. In the course of his career, he has prepared hundreds of estate plans and helped hundreds of small businesses navigate the various issues involving insurance, retirement and employee retention. He has helped numerous families deal with the difficulties of taking care of elderly relatives and assisted with all of their long-term planning and long-term care needs. Finally, he has helped investors with their losses in unsuitable investments. LinkedIn Profile: https://www.linkedin.com/in/richard-ehrlich-777b513/; Attorney Profile: http://www.eldercounsel.com/profile/richard-ehrlich-ehrlich-law-center-pa/; Attorney Profile: https://solomonlawguild.com/richard-ehrlich%2C-esq; Attorney News: https://attorneygazette.com/richard-ehrlich%2C-esq#c35a1098-f039-43ab-b0dc-06cff6dabf61
