Generally, a beneficiary is required to adhere to what is called the “qualified renunciation rule” in Florida when challenging a Trust. The Florida qualified renunciation rule requires a person that is contesting a trust through which he has derived a benefit to renounce his interest in the trust that he is challenging. Qualified renunciation does not apply to self-settled trusts, which we’ve written about here.
In Gossett v. Gossett, (4th DCA 2015) the Florida Fourth District Court of Appeal determined that a beneficiary’s failure to repay distributions made to him from trust proceeds did not prevent him from challenging the fourth and fifth amended trusts of his father.
The Florida equitable rule of “renunciation” is the central issue in this appeal. The settlor’s son was a beneficiary under all versions of the settlor’s trust. The son sought to invalidate the fourth and fifth amended trusts, and to enforce the third amended trust. The son argued that his failure to repay distributions made to him from Trust proceeds should not prevent him from challenging the fourth and fifth amended trusts. Although this argument seems contrary to the qualified renunciation rule, the Florida appellate court agreed with the son.
Settlor had a pour over will into a Trust. The trust was amended five times. Each of the amended trusts included provisions for the settlor’s surviving spouse, except for the third amended trust. Settlor’s son filed a complaint seeking to void the fourth and fifth amended trusts on the basis of several theories, including improper execution, undue influence, duress, and lack of capacity.
The son alleged that the surviving spouse had sent him distributions under the fifth amended trust, which he had accepted as he was in financial need. The son argued that the surviving spouse intended that son accept the distributions so as to prohibit him from challenging the validity of the fourth and fifth amended trusts. The son renounced any interest he had under the fourth and fifth amended trusts, but argued that Florida law did not require him to return the money he had received because he was entitled to an equal or greater amount under each of the amended trusts.
The Florida probate court dismissed the son’s complaint, finding that the son was required to return all prior distributions before he could challenge the fourth and fifth amended trusts. The son appealed the Florida probate court’s order.
What Is Florida’s Qualified Renunciation Rule?
The Florida appellate court reversed the Florida probate court’s ruling. The decision turned on Florida’s qualified renunciation rule, which the court summarized as follows:
[B]efore the plaintiff will be permitted to contest the trust agreement through which he has derived this interest he must do equity . . . by renouncing his interest by some method or means sufficient in law to operate as a divestiture. There are three rationales underlying the rule: renunciation 1) protects the trustee if the trust is invalidated, 2) shows that the suit is sincere and not vexatious, and 3) ensures the property is available for disposition and free from third-party claims.
In its decision reversing the probate court’s ruling, the Florida appellate court discussed the case of Fintak v. Fintak from the Second District Court of Appeal, stating:
There, the settlor created and funded a trust for his own benefit. He later filed suit against the trustees to compel payment and set aside the trust based on, among other things, undue influence and lack of testamentary capacity. During the pendency of the action, the settlor died, and his wife was substituted as plaintiff.
The trustees moved for summary judgment, alleging that the settlor failed to renounce the benefits he had received before challenging the trust. The trial court found renunciation was a condition precedent to challenging the trust’s validity and entered summary judgment for the trustees on the undue influence and testamentary capacity counts. The wife appealed and argued that neither the renunciation rule nor estoppel applied.
The Second District agreed with the wife and held the renunciation rule was inapplicable because there can be no gift or devise to a settlor/beneficiary of a self-settled trust because his or her interest does not derive from the trust itself. The settlor was the sole beneficiary, who would receive the benefits even if the trust never existed.
No Qualified Renunciation if Trust and Trustee Are Not Harmed
In this case, the Florida appellate court reasoned that the son was in a similar situation as the settlor in Fintak. The son receives more than the distributed amounts under any version of the trust. Using the three rationales set forth above, the son prevails.
First, the trustee is protected because the son is entitled to more than the distributions made under any of the Amended Trusts.
Second, the risk of vexatious and insincere claims is not any more present in this case than other cases.
Third, the son’s distribution is fee from third party claims because the son is entitled to more than the distributed amount.
In sum, “an individual cannot be estopped from challenging an instrument by accepting that which he or she is legally entitled to receive regardless of whether the instrument is sustained or overthrown.”
Because none of the three rationales underlying the Florida renunciation rule supported the rule’s application, the Florida renunciation rule was inapplicable in this case.