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October 31

Florida Will Contest | Elective Share Rights: Penalty Clause v. Optional Alternative Devise

Written by Thomas Upchurch , ,

Florida Will Contest – Elective Share Rights | Attorney Thomas Upchurch – Daytona Beach. Is it possible to leave a surviving spouse the option to choose between an optional alternative devise and a statutory minimum benefit?  

Yes. According to the Florida appellate court, the choice is acceptable.  See Dinkins v. Dinkins, 2013 Fla. App. LEXIS 11732 (Fla. Dist. Ct. App. 5th Dist. July 26, 2013).

THE FACTS

Toni L. Dinkins’ provision in his trust provides an opportunity to address this very issue. The decedent’s estate plan provided for his surviving spouse a lifetime interest in a trust, more commonly known as a Qualified Terminable Interest Property (QTIP) Trust. In the trust there was a provision that provided the surviving spouse an optional alternative choice to receive an immediate cash distribution of $5 million if she disclaimed her interest in the QTIP Trust and waived her right to the elective share.  The decedent’s living trust agreement stated as follows:

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.

Jeanette M. Dinkins (surviving spouse) argued that the provision was an unlawful penalty clausebecause it would penalize her for taking her rightfully allowed elective share. She appeals the trial court’s order which determined that a provision in her late husband’s trust is not an invalid penalty clause and that a separate trust created for her can be used to satisfy her elective share.

CASE STUDY

Under section 732.2065, Florida Statute (2010), a surviving spouse is entitled to an elective share of 30% of the estate of the decedent. The statutory minimum for beneficiaries include homestead Article X, section 4(c), Florida Constitution; elective share sections 732.201-2155, Florida Statutes; and family allowance, section 732.403, Florida Statutes.

Section 736.1108(1), Florida Statutes (2010) states that “A provision in a trust instrument purporting to penalize any interested person for contesting the trust instrument or instituting other proceedings relating to a trust estate or trust assets is unenforceable.”

At the decedent’s death, his property was estimated to be worth around $24-55 million, including certain assets held in trust.  Therefore, the surviving spouse’s elective share would be between $8-18 million.

Would it be more beneficial to the surviving spouse to elect to take her elective share instead of the $5 million cash distribution? Yes, it would be more beneficial to the surviving spouse to take her elective share.

If the elective share is more than the cash distribution, then why argue the case?

The surviving spouse understood that she was entitled to her elective share and she understood that the elective share was more than the cash distribution. She argued the issue because she felt she was entitled to the interest in the trust, her elective share, AND the $5 million cash distribution.

RATIONALE

The trial court rejected her argument, and the Florida appellate court agrees. Both courts agree that the provision does not penalize the surviving spouse for taking her elective share. She had a choice to elect the cash distribution or take the elective share. The result was not a penalty. It was simply an option available to her. The court explained as follows:

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 . . . 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.

In this matter, the optional alternate devise provision provided:

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 . . . 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). 

WHAT DOES THIS DECISION MEAN FOR ESTATE PLANNING ATTORNEYS?

It means that optional alternative devise provisions can be included in a trust or will as long as the clause does not undermine the purpose of the legal right to forfeit, and thereby penalizing the beneficiary pursuant to section 736.1108(1), Florida Statutes (2013).

The optional alternative devise provision can be used to safeguard a surviving spouse from investment fluctuations that may occur prior to death. In the above case, if the value of the husband’s property deflated to around $10 million, then the $5 million cash distribution may have been to his widow’s benefit compared to exercising her elective share.

If you need an experienced Florida Probate litigation lawyer in Volusia County,Flagler County, Sumter County, Putnam County, Hillsborough County, Miami-Dade County, Broward County, or Palm Beach County contact Attorney Thomas Upchurch at (386) 320-6169 or you may contact Upchurch Law using the contact page.

FULL DISCLOSURE

This blog post only reflects my personal views in my individual capacity. It does not necessarily represent the views of my law firm or my past clients, and is not sponsored or endorsed by them. The case-specific information contained in this blog post is based solely on opinion, and is provided only for educational purposes and is not intended to provide specific legal advice. No representation is made about the accuracy of the information posted on this blog site. Blog topics may or may not be updated and entries may be out-of-date at the time you view them.