IN THE SUPREME COURT OF FLORIDA Case No.: SC09-901 E. MARIE BOTHE, Petitioner, -vs- PAMELA JEAN HANSEN Respondent. ON PETITION FOR DISCRETIONARY REVIEW FROM THE DISTRICT COURT OF APPEAL, SECOND DISTRICT OF FLORIDA AMENDED ANSWER BRIEF ON JURISDICTION STEVEN L. HEARN Florida Bar No. 350801 JEANNE Z. MCLEAN Florida Bar No. 608548 STEVEN L. HEARN, P.A. 625 East Twiggs Street Suite 102 Tampa, FL 33602 Telephone: (813) 222-0003 Telefax: (813) 222-0004 Attorneys for Respondent
TABLE OF CONTENTS I. STATEMENT OF THE CASE AND OF THE FACTS.... 1 II. SUMMARY OF ARGUMENT... 3 III. ARGUMENT.... 4 A. The Appellate Court Decision is Consistent with Kaplus v. First Continental Corp..... 4 B. There Exists No Conflict, Direct or Otherwise, with Axtell v. Coons.... 6 1. The Axtell Decision is Distinguishable..... 6 2. Axtell Has Been Supplanted, in Part, by Subsequent Florida Statutes..... 8 IV. CONCLUSION... 10 ii
TABLE OF AUTHORITIES CASES Axtell v. Coons, 89 So. 419 (Fla. 1921)... 4, 6, 7, 8, 9, 10 Contella v. Contella, 559 So. 2d 1217 (Fla. 5th DCA 1990)... 7 Harvest v. Craft Construction Corp., 187 So. 2d 72 (Fla. 3d DCA 1966)... 7 Kaplus v. First Continental Corp., 711 So. 2d 108 (Fla. 3d DCA 1998)... 3, 4, 5, 6, 10 STATUTES ' 689.075(1)(a)-(f), Fla. Stat.... 8, 9 ' 689.075(1)(g), Fla. Stat..... 8, 9 ' 732.513(1) & (2)(c), Fla. Stat. (2008).... 9 ' 736.0402, Fla. Stat.... 9 ' 736.0402(1)(e), Fla. Stat. (2008)... 3, 10 OTHER AUTHORITIES ' 402 cmt. to the Uniform Trust Code (2005).... 9 iii
I. STATEMENT OF THE CASE AND FACTS The following facts are presented to supplement those not included in the initial brief. These proceedings involve the Estate of Andreas David Bothe, (the "Estate") and the March 13, 1991 "Bothe Family Revocable Trust Agreement," trust created by the decedent and his former wife, Pamela Jean Hansen (the "Trust"). The Trial court entered summary judgement removaling Pamela as personal representative of the Estate and as trustee of the Trust, and determining E. Marie Bothe (the mother of the decedent) the sole intestate heir of the Estate on the basis that the Trust was terminated by divorce. (R. at 1-9). (AR@ refers to the record on appeal). The Trial court ruled the Trust was terminated by operation of law by the final judgment of dissolution of the grantors' marriage. (R. at 856). The ruling precluded the nine remainder beneficiaries designated in the Trust (who were not parties to the action below) from inheriting under the Trust, contrary to the decedent's expressed intent. (See R. at 11-25, 669, 670, 855-57). The decedent, Andreas David Bothe (known as "Dave"), and Pamela Jean Hansen were married for over 38 years. (R. at 666). They did not have children. Id. On August 13, 1991, Dave and Pamela executed their respective Last Wills and their Trust. (R. at 11-25, 638-39, 667). Pursuant to Dave's Will, the assets of 1
his Estate are devised to Pamela if she survives him, and if she predeceases him, the assets pour over to the Trust. (R. at 638-39). The Trust provides that upon the deaths of Dave and Pamela, the Trust residue is distributed to nine remainder beneficiaries. (R. at 13). Dave never named his mother as a beneficiary of his Will or Trust, nor did he intend to leave any part of his Estate to her. (R. at 11-25, 638-39, 666). Dave and Pamela reserved the right to amend or revoke the Trust in writing. (R. at 12). Other than a September 9, 1997 amendment regarding successor trustee nominations (R. at 633), Dave and Pamela never amended or revoked the Trust. (R. at 667). After 38 years of marriage, Dave and Pamela filed for divorce and signed a Marital Settlement Agreement in February 2006. (R. at 31-37, 39-40). Neither Dave nor Pamela were represented by counsel in the divorce proceedings. Id. A Final Judgment of Simplified Dissolution of Marriage was entered on March 15, 2006. (R. at 42). The Marital Settlement Agreement and the Final Judgment will be collectively referenced as the "MSA." In the MSA, Dave and Pamela addressed their rights regarding their assets. (R. at 31-37, 39-40). Among other assets, Pamela waived her rights to a securities account the MSA described as held in the Trust. Id. In their divorce negotiations, Dave and Pamela did not discuss or agree that the MSA would in any way replace 2
their Wills or the Trust. Id. Pamela=s uncontroverted testimony establishes ADave was keeping the trust and I was going to have my own trust...@ Depo P. 221 L. 14 1 at R. 512. Dave wanted to make sure the Bothe Trust would still be effective and he could keep his assets in that trust. Depo P. 148 L. 21-24 at R. 439. The assets Dave retained in his trust were listed as individual (versus trust) assets in the MSA for ease of identification. Depo P. 212, L. 25 to P. 213, L. 11 at R. 503-504. Pamela testified in detail regarding which assets listed on the MSA were titled in the trust as of the March 2006 final judgment. See Depo P. 130, L. 19-25 at R. 421. The assets not placed in Dave=s individual name Aremained in trust for him.@ Depo P. 131, L. 3 at R. 422. II. SUMMARY OF THE ARGUMENT There exists no conflict between the principles applied in this proceeding and in Kaplus v. First Continental Corp. 711 So.2d 108 (Fla. 3d DCA 1998). Kaplus does not address the principal of merger of legal and equitable interests by operation of law, which formed the basis of the Second District decision in this appeal, but instead simply addresses transfer of ownership rights by operation of law. In this proceeding, no party has at any time disputed Dave s right to sole ownership or control of trust assets during his lifetime arose other than through the divorce. 1 ADepo.@ refers to the filed deposition of Pamela Hansen. 3
Furthermore, there is no conflict with Axtell v. Coons, 89 So. 419 (Fla. 1921), which is distinguishable from this proceeding. Axtell merged a trust based upon the surviving spouse s power, as successor trustee appointed after death of the grantor, to convey all trust property to himself. In contrast, the trial court in this matter applied merger based instead upon lifetime powers held by Dave, as grantor, to withdraw all property from his Trust. Additionally, in Axtell there existed no potential intervening equitable interests that would prevent merger, in contrast to the nine residuary beneficiaries of Dave s Trust. Subsequent to Axtell, the Florida Legislature validated revocable living trusts in Florida, even if the grantor retains broad and absolute power over disposition of trust assets, either as grantor or as trustee. The Florida Statutes permit a grantor to retain complete control over all property in a trust yet still create a valid trust, even if the grantor also is the sole trustee. The appellate court in this proceeding properly recognized the effect of those statutes, and their decision accordingly does not conflict with any remaining valid principles of the Axtell decision. III. ARGUMENT A. The Appellate Court Decision is Consistent with Kaplus v. First Continental Corp. There exists no conflict between the principles applied in this proceeding 4
and in Kaplus v. First Continental Corp. 711 So.2d 108 (Fla. 3d DCA 1998). The Kaplus decision addressed the Plaintiff s standing to bring a shareholder derivative suit. The Plaintiff had received her shares of stock via a marital settlement agreement, but had not received a record transfer of stock ownership. The Third District Court held that despite the absence of any separate documents transferring ownership to the Plaintiff, the terms of the marital settlement agreement were sufficient to transfer ownership of the stock shares to the her by operation of law, and she therefore had standing to bring the action. Kaplus only discusses the transfer of ownership rights by operation of law; contrary to Appellant s assertion, Kaplus does not address or control the principal of merger of legal and equitable interests by operation of law, which formed the basis of the Second District decision which is the subject of this appeal. There exists no conflict between the principles applied in this proceeding and the Kaplus decision. In fact, the District Court decision in this matter implicitly recognizes and applies the principles utilized in Kaplus, specifically noting that, as a result of the divorce: [the decedent] alone, could amend or terminate the trust, claim legal ownership to the remaining assets, or claim any rights as a [trust] beneficiary Slip Op. at 3 (emphasis added). In this proceeding, no party has at any time disputed Dave=s right to ownership or control of assets during his lifetime arose other than through the 5
divorce. The Kaplus court recognized the Plaintiff spouse was entitled to claim ownership of the stock by virtue of equitable distribution via divorce, and the appellate court in this proceeding similarly recognized Dave=s right to Aclaim legal ownership to the remaining assets@ simply as a result of the divorce. See Slip Op. at 3. The principles applied by the appellate court in this proceeding are consistent those applied in Kaplus, not conflicting. B. There Exists No Conflict, Direct or Otherwise, with Axtell v. Coons 1. The Axtell Decision is Distinguishable The court in Axtell v. Coons applied the doctrine of merger to terminate a testamentary trust naming the deceased grantor=s surviving spouse as successor trustee and giving that surviving spouse Aabsolute and unrestrained power@ to dispose of trust property. Axtell v. Coons, 89 So. 419, 419-20 (Fla. 1921). This Court ruled that this broad power caused a merger between the spouse=s interest as successor trustee and the spouse=s interests as sole beneficiary, thus subjecting the trust asset to a lien for a judgment against the surviving spouse (not a judgment or claim in the decedent=s estate). Axtell 89 So. 419 at 420. The Axtell decision was based upon the power of the surviving spouse, in his capacity as successor trustee appointed after death of the grantor, to convey all trust property to himself. Id. In contrast, the trial court in this matter applied merger based not upon the powers of the trustee appointed after the grantor=s death, 6
but instead upon the determination that during his lifetime Dave, as grantor, could fully withdraw all property from the Trust and that the MSA transferred title of the trust assets back to Dave, individually. Additionally, in Axtell there existed no potential intervening equitable interests that would prevent merger. See Axtell at 420. In this matter, the future interests of the nine testamentary beneficiaries prevent application of merger. Florida appellate decisions subsequent to Axtell have refused to apply merger if there are intervening beneficial interests. See Contella v. Contella, 559 So. 2d 1217, 1218(Fla. 5th DCA 1990) (merger does not apply to a spendthrift trust because of intervening beneficial interests). Harvest v. Craft Construction Corp., 187 So. 2d 72 (Fla. 3d DCA 1966) (Trust assets held for benefit of trustee=s children). In reaching its decision in this matter, the Second District Court of Appeal recognized the interests of the decedent=s nine designated testamentary beneficiaries and correctly ruled those interests prevent application of the merger doctrine to destroy the decedent=s estate plan. The appellate court=s refusal to apply merger in light of those intervening equitable interests recognizes a critical distinction from the Axtell decision, avoids any possible interpretation that this decision conflicts in any fashion with that in Axtell, and is consistent with the Florida appellate decisions entered subsequent to Axtell. 7
2. Axtell Has Been Supplanted, in Part, by Subsequent Florida Statutes To the extent the Axtell decision may be expanded to apply to self-declared grantor revocable trusts such as the Trust established by Dave and Pamela (often referred to as Arevocable living trusts@), the Florida Legislature has clearly and unambiguously indicated that revocable living trusts are valid under Florida law even if the grantor retains broad and absolute power over disposition of trust assets, either as grantor or as trustee. The Florida Statutes enacted long after the Axtell decision effectively preclude application of the merger doctrine to trusts such as the Trust involved in this proceeding. Under Florida Statutes enacted subsequent to Axtell, a grantor may retain complete control over all property in a trust yet still create a valid trust (see ''689.075(1)(a)-(f), Fla. Stat.), even if the grantor also is the sole trustee (see ' 689.075(1)(g), Fla. Stat.). Florida law recognizes the validity of a trust despite expansive reserved powers, including powers to Arevoke, amend, alter, or modify the trust in whole or in part;@ Ato add to, or withdraw from, the trust all or any part of the principal or income at one time or at different times;@ Ato remove the trustee or trustees and appoint a successor trustee or trustees;@ or Ato receive all or part of the income of the trust during her or his life or for any part thereof.@ ''689.075(1)(a)-(f), Fla. Stat. (2008). The trust remains valid even if the settlor is 8
or later becomes sole trustee. '689.075(1)(g), Fla. Stat. (2008). Furthermore, a trust is valid under Florida Law even if it holds no assets and the only "res" is the expectancy to receive a devise. ''732.513(1) & (2)(c), Fla. Stat. (2008). General commentary regarding the doctrine of merger also supports the appellate court=s refusal to apply merger in this situation. The comments to '402 of the Uniform Trust Code (substantially adopted by the Florida legislature in '736.0402, Fla. Stat.), provide further clarification: The doctrine of merger has been inappropriately applied by the courts in some jurisdictions to invalidate self-declarations of trust in which the settlor is the sole life beneficiary but other persons are designated as beneficiaries of the remainder. The doctrine of merger is properly applicable only if all beneficial interests, both life interests and remainders, are vested in the same person, whether in the settlor or someone else. Uniform Trust Code '402 cmt. (2005). The Florida Statutes clearly validate a trust for which the Grantor is the sole trustee and retains complete lifetime powers (including the power to withdraw trust assets) even if the trust holds no assets. In light of those statutory provisions, the only real scenario in which the Axtell merger principles arguably remain applicable to a self-declared revocable grantor trust would be a trust in which the grantor is sole trustee, sole income beneficiary, and sole remainder beneficiary. In that scenario, all potential legal and beneficial interests are held by the initial 9
grantor, there are no other persons with potential intervening equitable interests, and there exists no basis for recognition of the trust. 2 Although the power and control retained by Dave in the Trust arguably could have rendered the Trust invalid when the Axtell decision was issued in 1921, the Florida Statutes in effect at the time Dave created his Trust clearly validate and authorize the Trust. The appellate court in this proceeding properly recognized the effect of those statutes, and their decision accordingly does not conflict with any remaining valid principles of the Axtell decision. 3 IV. CONCLUSION There exist no conflicts between the appellate decision in this matter and any decisions or principles of law in Florida. The decision under appeal is consistent with the approach taken in Kaplus. The Axtell decision is distinguishable based upon its facts and, in light of subsequent Florida Statutes validating revocable living trusts, is not applicable to self-declared grantor trusts naming intervening testamentary beneficiaries. For these reasons, this court should exercise its discretion to decline jurisdiction in this appeal. 2 Under the Florida Trust Code, such an instrument would not be a trust. See '736.0402(1)(e), Fla. Stat. (2008). 3 Interestingly, if this court was to ignore the Florida Statutes and apply Axtell in the fashion argued by Petitioner, the effect would be to destroy the estate plans of all Florida grantors having revocable living trusts with testamentary remainder beneficiaries. 10
CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the above has been served this 8 day of July 2009 by U.S. Mail upon: Carl J. Robie, Esq., P.O. Box 5747 Sarasota, FL 34277 and Charles F. Johnson, III, Esq., 802 11 th Street West, Bradenton, FL 34205-7734. /S/ STEVEN L. HEARN CERTIFICATE OF COMPLIANCE I HEREBY CERTIFY that the foregoing complies with the font requirements of Rule 9.100 (1), Fla. R. App. P. /S/ STEVEN L. HEARN 11