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Qualified Renunciation Does Not Apply to Self Settled Trust

In Fintak v. Fintak (2013 Fla. App. Lexis 13472), the Florida appellate court ruled that the settlor of a self settled trust need not renounce benefits under the trust to challenge the validity of the trust.  In Florida, this renunciation of benefits is often referred to as a qualified renunciation, in that the renunciation of benefits is only applicable in the event that the litigant is unsuccessful in setting aside the instrument. 

Mr. Fintak created an irrevocable trust and contributed most of his assets to the trust.  Mr. Fintak was the lifetime beneficiary of the trust, and was also permitted to make written principal demands from the trust.  The trust named two of Mr. Fintak’s children from a prior marriage as the trustees of the trust. Upon death, the trust was to be divided into equal shares for each of Mr. Fintak’s children.  Mr. Fintak’s current wife was not provided for.

Mr. Fintak’s children became concerned about the control and influence excercised by Fintak’s current wife and they initiated guardianship proceedings against him. Those proceedings were dismissed in favor of Mr. Fintak. 

Mr. Fintak the made a demand for a significant principal distribution from the trust, which was rejected by the trustees.  Mr. Fintak then filed a trust complaint to set aside the trust on the basis of undue influence and lack of capacity.  Mr. Fintak alleged that his sons enouraged him to drink alcohol to the point of incapacity when he executed the trust.  Mr. Fintak also alleged that his sons coerced him to execute the trust.  

During the pendency of the trust litigation, Mr. Fintak passed away, leaving his wife Shirley as the personal representative to continue the litigation.

The trial court dismissed the trust complaint because Mr. Fintak had not renounced his benefits under the trust, i.e, he had not made a qualified renunciation of his interest in the trust. 

The “renunciation rule,” established by the English ecclesiastical courts, originally provided that “a legatee, who has received a legacy by virtue of a will, must [return] the legacy before being permitted to contest the will.” Hamblett v. Hamblett, 6 N.H. 333, 337 (1833). The rule was interpreted by American courts to require that “one who receives and retains a gift under a . . . will or other instrument is estopped to contest the validity of the instrument under which he derives his interest.” Barnett Nat’l Bank of Jacksonville v. Murrey, 49 So. 2d 535, 536 (Fla. 1950). In Barnett National Bank, the Florida Supreme Court articulated three rationales for the renunciation rule: (1) to protect the trustee in the event the trust is held invalid; (2) to demonstrate the sincerity of the contestant and to demonstrate that the suit is not merely vexatious; and (3) to have the property readily available for disposition at the outcome of the challenge. See id. at 537. In reaching its decision the court also reasoned that “before the plaintiff will be permitted to contest the trust agreement through which he has derived [his] interest he must do equity.” Id. (emphasis added). Clearly, the renunciation rule as adopted into Florida law is an equitable doctrine.

In reversing the trial court, the appellate court rejected the application of the qualified renunciation rule.

We believe no legal precedent exists for this proposition because it is axiomatic that one who funds a trust with his or her own assets does not have to renounce any benefits received as a condition precedent to instituting a challenge to the validity of the trust. The renunciation rule is inapplicable in this scenario 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. This is especially true when the settlor has simply transferred what he or she already legally owns into a trust in which he or she is the sole beneficiary during his or her life.

Unlike the cases wherein a beneficiary’s interest derives solely from an instrument executed by another party, in this case, Edmund was legally entitled to receive the benefits of the Trust even if the Trust never existed. In the event the Trust is declared invalid, no other party besides Edmund (and now Shirley on his behalf) would have an interest or claim in the assets held under the Trust. Under Barnett National Bank, one reason articulated for the renunciation rule was to protect the assets of the trust or other instrument to ensure the assets would be free from adverse claims and available for distribution to the rightful owner or beneficiary. 49 So. 2d at 537. However, such a concern does not exist in this case; there are no claimants who could be adversely or injuriously affected by Edmund’s receipt of his own assets from the Trust. Thus, the third rationale for the renunciation rule as articulated in Barnett National Bank is inapplicable to this situation.

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