In the June 23, 2021 opinion of Ellerson v. Moriarty, the Florida Second District Court of Appeals considered whether the failure to fund a trust can be a ground for estate planning malpractice in Florida.
Funding a Revocable Trust
Estate planning clients often use revocable trusts as part of their estate plan. In general, the revocable trust dictates the majority or the entirety of the disposition plan for the estate. Some clients fund their revocable trusts before death with all of the their assets. Some clients will partially fund their revocable trusts, and still others may not fund their revocable trusts at all.
So why would a client not fully fund their revocable trust before death? Any asset that is placed in the revocable trust before death will avoid probate. Avoiding probate can reduce the overall cost of dealing with the affairs of a deceased person. Assets in the revocable trust will normally not appear in any document within the probate docket, so the general public will have no way to determine what assets were placed within the revocable trust. Because the trust document will normally not be part of the probate court docket, the general public will not learn of the disposition plan for the estate.
Given these benefits, why do the vast majority of estate plans end up with revocable trusts that are partially funded or not funded at all? Moving assets into the revocable trust can be complicated, confusing, cost some money, and take some time. For example, the only way in which to move real estate into a revocable trust before death is with a deed. For a brokerage account, in order to move the account into a trust, normally a new account owned by the trust must first be established, and then the assets moved from the account in the name of the client into the account owned by the trust. So many clients will quite willingly create a revocable trust given the benefits of a trust, but then fail to actually fund the trust. To move a checking account into a revocable trust will almost always require that a new checking account be opened, titled in the name of the trust. The money in the existing checking account will need to be moved into the new checking account owned and titled in the name of the trust. When clients figure out, for example, that all of their online bill payment information will have to be re-entered and re-done for a new checking account, many clients simply do not do so and leave their primary checking account in their own name.
In order to account for the fact that the majority of estate plans do not involved a fully funded revocable trust, the standard of care for an estate planning lawyer requires that the lawyer also draft what is known as a “pour over” will. This type of will simply bequeaths all of the assets in the probate estate into the trust, for further disposition by and through the terms of the trust.
What Is The Standard Of Care For Funding a Revocable Trust?
But what is the standard of care for funding the revocable trust? Is the estate planning lawyer obligated to fund the revocable trust? Given that only the client has the authority to move financial accounts into the trust, an estate planning lawyer would clearly have no obligation to move financial assets into the trust. But does the estate planning lawyer have the obligation to explain the necessity of moving those assets into the trust? And is their an obligation to follow up with the funding process to ensure that the funding has taken place? And how is real estate handled, given that the real estate would have to be moved through a newly drafted deed, presumably drafted by the estate planning lawyer?
Is It Estate Planning Malpractice In Florida For an Attorney Not To Make Sure the Trust Gets Funded?
The case of Ellerson v. Moriarty, 2D20-2653 (2nd DCA 2021), explains some of these issues in the context of an estate planning malpractice case. The facts as explained by the Court are simple.
Ellerson’s grandmother retained Moriarty in January 2018 to assist her with portions of her estate planning. Moriarty drafted an amendment to Ellerson’s grandmother’s trust, and in that amendment, it provided that Ellerson would take ownership of an undivided interest in real property located at 17th Street West in Palmetto, Florida (the 17th Street Property). Ellerson’s grandmother passed away in August 2018. However, because no deed had ever been prepared to transfer the 17th Street Property into the trust, it was an unfunded devise and, therefore, Ellerson did not receive her undivided interest in the property.
Ellerson then filed suit, alleging that she was an intended third-party beneficiary of the attorney-client relationship between Moriarty and her grandmother. She alleged that Moriarty never limited the scope of his duty to her grandmother to exclude advice or services to fund the trust and, in fact, had had conversations with Ellerson and her grandmother about drafting and recording deeds transferring the real property into the trust. Ellerson further contended that Moriarty failed to draft and record the deed transferring the 17th Street Property, failed to confirm the existence of a pour-over will drafted by other counsel and failed to draft a new pour-over will, and otherwise failed to properly ensure that the trust was funded to fully effectuate Ellerson’s grandmother’s intent as expressed in the trust amendment.
The trial court dismissed the complaint after trial, but the appellate court reversed, allowing the case to continue, based on the following analysis.
Here, Ellerson alleged that she was an intended third-party beneficiary of her grandmother’s trust and that her grandmother intended for the 17th Street Property to pass to Ellerson as set forth in the trust. Ellerson also alleged that due to Moriarty’s negligence in failing to draft and record a deed, the trust was not funded with that property and, therefore, that particular devise failed. This was sufficient to allege Ellerson’s standing.
Were we to conclude that an intended third-party beneficiary cannot state a cause of action where he or she relies on the use of extrinsic evidence to prove that the grantor’s intent as provided in the trust document was frustrated due to an attorney’s negligence, we would, in effect, be granting immunity to every attorney who agrees to but fails to fund a trust and/or trust amendment which he or she drafted. The trial court focused on the facial validity of the trust amendment, but that does not answer the question of whether Moriarty was negligent where it is alleged that he did not limit the scope of his services but instead expressly agreed to take further actions in order to effectuate Ellerson’s grandmother’s intent as expressed in the facially valid trust devise.
Ellerson alleges that due to Moriarty’s negligence, her grandmother’s expressed testamentary intent regarding the 17th Street Property was frustrated and that, as a result, Ellerson’s legacy was lost. Nothing more. Allowing the complaint to proceed does not mean that Ellerson will ultimately prevail. She still must prove that Moriarty specifically undertook the duty that forms the basis of her allegations. But her complaint should not have been dismissed based on the conclusion that it failed to state a cause of action.
The Takeaways: A Clear Engagement Agreement and a Pour Over Will
Two things stand out from this opinion.
First, it appears that the obligation of the estate planning attorney to fund the revocable trust was not clear in an engagement agreement. If an attorney is going to fund the trust through a deed, the engagement agreement should so clearly state. If the attorney is going to provide advice and assistance to a client in moving financial assets into a trust, the engagement agreement should so state. Conversely, if the attorney is not going to provide assistance in fund the trust, the engagement agreement must clearly so state (and should probably so state that prominently). The opinion seems to suggest that evidence is necessary to determine whether or not the attorney was obligated to provide these funding services. Any lawyer who drafts an engagement agreement where the scope of the representation is not clear (requiring in-court testimony) is asking for trouble.
Second, although not clearly set forth in the opinion, and not analyzed in any measure by the appellate court, these is clearly something amiss with respect to the pour over will. Although it is not clear as to why the plaintiff in the estate planning malpractice case was not receiving the 17th Street Property, it is likely because the pour over will did not cleanly pour over all assets from the Florida probate estate into the trust. The will may have been a partial pour over will – giving some probate assets to named individuals, and pouring over other assets into the revocable trust. It also appears, at least from the plaintiff’s allegations, that the lawyer did not draft a new pour over will. Had the will been a clean pour over will, it should not have mattered whether or not the 17th Street Property was funded into the revocable trust before death. Had the 17th Street Property ended up in the probate estate, a clean pour over will would have moved the property from the probate estate to the trust, and then to the plaintiff in the case pursuant to the terms of the new trust. Apparently, the pre-existing will might have deeded the 17th Street Property to someone other than the plaintiff. (The lack of clarity in the opinion also leaves open the possibility that there was not a will at all, causing the assets in the probate estate, including the 17th Street Property, to pass by intestacy.)
The plaintiff alleges that the Florida estate planning attorney committed malpractice because he did not confirm the existence of an existing pour over will and did not draft a new pour over will. These allegations are far more damaging than issues about the scope of the representation. That is because any lawyer drafting a new or amended revocable trust must make sure that there is a pour over will, and that the pour over will operates consistently with the revocable trust. A properly functioning pour over will would have mooted the issues around the scope of the representation, because it would not have mattered whether the property was in the trust prior to death had the property been moved by will into the trust after death. So perhaps the more important lesson here is the absolute necessity of any Florida estate planning lawyer to harmonize a revocable trust with the pour over will, or risk exposing himself or herself to an estate planning malpractice claim.