Judgment In Creditor’s Independent Action Cannot Impose Constructive Trust Over Florida Probate Assets

Florida creditor claims spur plenty of litigation in Florida probate courts centered around untimely filing and failure to follow the procedures and deadlines set forth in the Florida Probate Code.  In Lefkowitz v. Schwartz, Florida’s Fifth District Court of Appeals reversed a judgment imposing a constructive trust in an independent action that had the effect of removing assets from the probate estate and giving one creditor priority over all other claims in the probate estate.  Read the Complete Guide To Creditor Claims in Florida Probate to learn all of the different ways that creditor claims can be a trap for the unwary.

The Facts of Lefkowitz v. Schwartz

Decedent Usher Brown was married to Lauren, Arlene Schwartz’s daughter.  Schwartz loaned the couple money to buy a condo in Utah.  When the couple divorced, the marital settlement agreement (“MSA”) provided that Lauren would relinquish her interest in the condo, and Decedent would execute a note and quitclaim deed to be held in escrow while paying Schwartz back the loan.  The MSA also provided that if Decedent sold the condo, he would pay the loan off at closing.

Decedent sold the property and did not tell Lauren or Schwartz.  Decedent then died.

After Decedent’s death, Lauren, unaware Decedent had sold the property, emailed Lefkowitz, an attorney and Decedent’s estate planner, to ask about Schwartz’s future payments. Lefkowitz told her he would determine the exact amount Decedent owed Schwartz and make a lump-sum payment. On September 15, 2016, Lauren, on her own, discovered Decedent had sold the property.

Lefkowitz became personal representative of Decedent’s estate a few days later.

Schwartz filed a creditor claim in Decedent’s Florida estate based on the “unfulfilled obligations of Usher L. Brown to the Claimant based upon loans made in 2011 to the Decedent,” seeking almost $200,000.  Lefkowitz objected to the claim.

Schwartz brought an independent action in circuit court pursuant to section 733.705, Florida Statutes.  Schwartz filed an amended complaint alleging breach of contract, claiming she was the beneficial owner of the condo sale proceeds, and asked form the sale proceeds to be placed in a constructive trust.

The Florida circuit court entered final judgment on the breach of contract claim and imposed a constructive trust, stating that the probate estate, Lefkowitz, and SUFL (Lefkowitz’s law firm) received the funds “subject to a constructive trust for the benefit of Arlene Schwartz” and with full awareness of the risk they might have to return the money.

The estate appealed, arguing that the trial court erred by imposing a constructive trust over Florida probate assets that were appropriately part of Decedent’s estate.

Florida’s Probate Code Sets Forth Comprehensive Requirements For Creditor Claims

The Florida Probate code constitutes “a unified statutory scheme intended to govern all probate matters.”  The Florida Probate Code has comprehensive requirements for the pursuit of creditor claims against an estate.

In sum, a claimant must file a timely creditor claim in the estate.  If the claim is objected to, then the claimant has 30 days to file an independent action on the claim.  Section 733.702, Fla. Stat., specifically notes that actions founded upon “fraud or other wrongful act or omission” are subject to the section’s requirements.

What Is Florida’s Trust Exception?

Before the Florida Probate Code was enacted, Florida common law recognized an exception, known as the “trust exception, to the rule that creditors have to file a claim in a decedent’s probate proceeding.  The trust exception was applied where claimants asserted an equitable basis for ownership, including claims seeking to impose constructive trusts.

Since the adoption of the Florida Probate Code, the vitality of the trust exception has been called into question.  Most recently, in Johnson v. Townsend, which we wrote about here, the Fourth District Court of Appeal explained that “the trust exception is now limited ‘to those situations where the decedent clearly held the property on behalf of the actual owner either by way of an express trust or some other clearly defined means.’”

Were The Condo Sale Proceeds Properly Property of Decedent’s Florida Probate Estate?

Schwartz argued that the condo sale proceeds should never have become part of the Florida estate, and that the only dispute was over the ownership of the accounts.

The appellate court determined that Schwartz could not evade the requirements of the Florida probate code by presenting a creditor’s claim as a request to have the probate court determine ownership of the accounts.  Relying on Scott v. Reyes, 913 So. 2d 13 (Fla. 2d DCA 2005), which determined that a claimant was required to file a claim in the estate unless the decedent held the accounts on the claimant’s behalf, the court stated:

There is no question that Schwartz is pursuing a liability of Decedent that arose during his lifetime, as contemplated by section 731.201. Schwartz’s claim is for a debt owed. Indeed, Schwartz’s actions in this case reflect that reality. Her statement of claim requested payment of “unfulfilled obligations of Usher L. Brown to the Claimant.” And, it was not until her Amended Complaint in the independent action that she requested the imposition of a constructive trust. In other words, Schwartz claimed that Decedent promised to pay her a set amount of money and did not. As such, and like Scott, Schwartz was just another creditor of Decedent’s estate. Consequently, Schwartz cannot subvert a legislatively-imposed distribution scheme by recasting her probate claim for a debt owed as a dispute over ownership. The trial court here erred in holding otherwise.

Can A Judgment In An Independent Action Impose A Constructive Trust Over Florida Probate Assets?

No, imposing a constructive trust and entering an executable final judgment over Florida probate assets gives the creditor’s claim priority over all other creditors of the estate and authorizes a levy against estate property, exceeding the court’s statutory mandate and usurping the authority of the probate court.  The Florida appeals court noted the limitations of the relief available in independent actions on creditor claims, stating:

While section 733.705, Florida Statutes, specifically contemplates that objections to claims against the estate will be resolved by way of “independent action upon the claim, or a declaratory action to establish the validity,” the reach of the court adjudicating the independent action is limited. See, e.g., Poncier v. State Dep’t of Health and Rehabilitative Servs., Div. of Fam. Servs., 284 So. 2d 463 (Fla. 3d DCA 1973) (holding that power to extend time for filing of suits following service of administratrix’s objection to claim against estate rests in judge of probate cause and not in trial judge). For example, section 733.705(5) provides, “a judgment establishing the claim shall give it no priority over claims of the same class to which it belongs.” In addition, section 733.706, Florida Statutes (2017), expressly provides that only in the “estate administration proceeding” may a court enter an order “approving execution or other process to be levied against property of the estate.”

Here, by imposing a constructive trust on assets in the Florida probate estate, based on actions that occurred during decedent’s lifetime, the circuit court elevated Schwartz’s claim above all other creditors.  The judgment should not have been given priority over other creditors.  Schwartz was required to pursue her creditor claim within the constraints of the Florida Probate Code.  The court reversed the judgment.

Orange County (Orlando)

Philip W. Gunthert

Broward County (Ft. Lauderdale)

Natasha M. Dalton

Hillsborough County (Tampa)

R. Todd Burbine

Sarasota County

Dawn Bates-Buchanan

Lee County (Ft. Myers)

Scott Kuhn

Duval County (Jacksonville)

Long H. Duong

Complete Guide to Florida Probate

Opening the Probate Estate / Initial Steps
Payment of Creditors, Expenses And Beneficiaries
Florida Spousal and Family Rights
Closing the Probate Estate
Probate Litigation and Will Contests
Florida Probate Quick Guides

Complete Guide to Florida Probate

Opening the Probate Estate - Initial Steps
Payment of Creditors, Expenses And Beneficiaries
Florida Spousal and Family Rights