Source: https://www.flprobatelitigation.com/2013/10/articles/new-probate-cases/spousal-elective-share-claims/5th-dca-when-are-penalty-clauses-enforceable-in-florida-wills-and-trusts/
Timestamp: 2018-09-21 23:20:26
Document Index: 263709549

Matched Legal Cases: ['§ 8', '§ 1396', '§ 10', '§ 4', '§ 732', '§ 732']

5th DCA: Can $5 million gift to surviving spouse be conditioned on a prior waiver of her elective-share rights? | Florida Probate & Trust Litigation Blog
Home » 5th DCA: Can $5 million gift to surviving spouse be conditioned on a prior waiver of her elective-share rights?
By Juan C. Antúnez on October 29, 2013
Posted in Marital Agreements and Spousal Rights, Spousal Elective Share Claims, Will and Trust Contests
Dinkins v. Dinkins, — So.3d —-, 2013 WL 3834371 (Fla. 5th DCA July 26, 2013)
In the right circumstances, no-contest or in terrorem clauses can be effective tools to ward off wasteful inheritance litigation. Here’s the problem: these clauses are unenforceable in Florida for public policy reasons, as explained by the 5th DCA in the linked-to case above:
Under a no contest clause, in order to receive the devise, the beneficiary must forfeit the right to contest the instrument. But that right is essential to the integrity of the estate disposition process, because beneficiaries must be able to obtain, and courts must be able to provide, a determination of the instrument’s validity. Cf. Restatement (Third) of Prop.: Wills & Don. Trans. § 8.5 cmt. b, para. 2 (2003). Thus, a beneficiary cannot be forced to choose between the right to contest an instrument and the right to take under it, and this public policy is codified in section 736.1108(1) and its probate analogue, section 732.517.
Give heirs a choice: Rewards vs. Penalties:
Even though no-contest clauses are unenforceable, if the risk of litigation is high, a smart client working with thoughtful lawyers may be able to achieve much of the same result by employing a reverse approach; flipping this penalty-based forfeiture clause into a rewards-based conditional gift. For example, the client could include a will provision providing that, “If my heir does not contest this will for at least two years and a day following admission of this will to probate she receives an additional [$____].” This clause doesn’t take something away if a contest occurs (a penalty), but instead gives something extra if the heir doesn’t contest the will (a reward). That is, instead of imposing a condition subsequent (taking away something already given if a condition is subsequently breached), this type of clause imposes a condition precedent (giving something extra if a condition is previously satisfied).
As discussed in an article by Prof. Gerry Beyer entitled Manipulating the Conduct of Beneficiaries with Conditional Gifts (which I previously wrote about here), courts are much more likely to enforce conditional gifts subject to conditions precedent (a reward) vs. conditions subsequent (a penalty). And in fact this was the approach used — successfully — in the linked-to case above.
According to the 5th DCA, this case involved an estate with with a value “estimated at $24–55 million.” In order to incentivize his surviving spouse NOT to file an elective-share claim, the decedent included the following $5 million conditional-gift clause in his trust:
Conditional Specific Bequest of Cash. If my spouse, JEANETTE M. DINKINS, survives me, and if she or her legal representative makes a valid disclaimer of all of her interest in the QTIP Trust created under Article VII of this Trust Agreement, and also makes a valid waiver of her right … to elect the elective share in my estate, then the Trustee shall distribute five million dollars ($5,000,000.00) to JEANETTE M. DINKINS, outright and free of trust…. My objective is to provide five million dollars ($5,000,000.00) of assets to JEANETTE M. DINKINS, in addition to … any … property to which JEANETTE M. DINKINS is entitled as a result of my death, except for the Elective Share.
This clause doesn’t take something away from surviving spouse she’s already received if she subsequently makes an elective-share claim, but instead rewards her with an extra $5 million gift for not previously making this claim. In other words, this is a gift subject to a condition precedent, not a condition subsequent. Another important fact: according to the 5th DCA this clause provided surviving spouse with “the ability to choose an option at least as valuable as the statutory minimum.” So at least facially there’s economic parity here. Both points are important: the form of the clause (a reward vs. a penalty) and its economic substance bode well for enforcement.
Surviving spouse was unconvinced, and argued that the provision was unlawful because it penalized her for taking her elective share by causing her to forfeit the $5 million conditional gift. At trial the reward-based clause worked; the trial court rejected spouse’s argument, concluding that the provision did not penalize her for taking her elective share. Good call says the 5th DCA, here’s why:
[U]nder a clause providing an alternative to a statutory minimum benefit, to receive the alternative devise, the beneficiary must forfeit the right to receive the statutory benefit. The purpose of statutory minimum benefits is generally to ensure that surviving family members are provided for and do not become dependent on the public treasury, regardless of the decedent’s intent.[FN1] Cf. Via v. Putnam, 656 So.2d 460, 462 (Fla.1995); In re Estate of Reed, 354 So.2d 864, 865 (Fla.1978); In re Estate of Magee, 988 So.2d 1, 5–6 & n. 3 (Fla. 2d DCA 2007); 80 Am.Jur.2d Wills § 1396 (2013). This purpose is not thwarted by providing an optional alternative devise, because the beneficiary is free to reject it for any reason, including that it is less valuable than the statutory benefit. The purpose of the statutory benefit is satisfied, because the beneficiary has the ability to choose an option at least as valuable as the statutory minimum. Therefore, unlike a no contest clause, an alternative devise clause does not undermine the purpose of the legal right forfeited, and thus does not penalize the beneficiary for purposes of section 736.1108(1). Cf. Restatement (Second) of Prop.: Don. Trans. § 10.2 (1983).
[FN1.] Statutory minimum benefits include such items as homestead, Art. X, § 4(c), Fla. Const.; elective share, §§ 732.201–.2155, Fla. Stat.; and family allowance, § 732.403.
Lesson learned? Thoughtful, creative drafting saves the day.
4th DCA: When does a surviving spouse's "elective share" take an estate-tax hit?
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