Trust Beneficiary’s Failure to Repay Trust Distributions did not Prevent from Challenging the Validity of the Trust where he was Entitled to more than Distributed Amount

In Gossett v. Gossett, 2015 Fla. App. LEXIS 18803 (Fla. 4th DCA 2015) the Fourth DCA held 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. In the subject case, the settlor’s son (“Appellant”), and a beneficiary under all versions of the Trust, appealed an order dismissing five of six counts of his second amended complaint which sought to invalidate the Fourth and Fifth Amended Trusts, and enforce the Third Amended Trust. He 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. The Fourth DCA agreed and reversed the trial court on this issue.

In 2004, the settlor executed his last will and testament and Trust. The will poured over into the Trust. Within the next few years, the settlor executed five trust amendments which all included provisions for the surviving spouse, except for the Third Amended Trust. The father/settlor filed for divorce after executing the Third Amended Trust, but was still married to the wife (“Appellee”) when he died.  The settlor died from a stroke he suffered on the day he attended a divorce meeting with his wife/Appellee.  The son/Appellant filed a second amended complaint seeking to invalidate the Fourth and Fifth Amended Trusts. The complaint requested: the removal of the surviving spouse as trustee and appointment of a successor trustee; to set aside the Fourth and Fifth Amended Trusts for improper execution, invalidity under Sections 736.0601 and 736.0402(1)(a), Fla. Stat., undue influence, duress, and tortious interference; and an accounting.

The Appellant alleged that the Appellee, as trustee, was sending him distributions under the Fifth Amended Trust, but failing to provide him with Trust documents which he had requested. The distributions were sent to the son when he was in financial need, and the surviving spouse intended that he accept them to prohibit him from challenging the validity of the Fourth and Fifth Amended Trusts. The son renounced any interest he may have had in the Fourth and Fifth Amended Trusts. He alleged that Florida law did not require him to return the money he already received because he was entitled to an equal or greater amount under each of the Amended Trusts. The surviving spouse/Appellee moved to dismiss the second amended complaint with prejudice, arguing the son refused to do equity by not returning the distributions before seeking to challenge the Fourth and Fifth Amended Trusts. The trial court dismissed counts one through five with prejudice. The trial court found the son was required to return all prior distributions before he could challenge the Fourth and Fifth Amended Trusts. The trial court also found the son was entitled to a limited accounting of a subtrust created for his benefit. The son appealed the trial court’s order.

Appellant argued that the trial court erred in granting the motion to dismiss based on an affirmative defense. Alternatively, he argued that if an affirmative defense is found, he properly alleged equitable estoppel to avoid it. The Appellee responded by asserting that the return of the distribution is a condition precedent to attacking the validity of the Fourth and Fifth Amended Trusts. Appellant countered by stating that renunciation only applies when a party’s inconsistent positions result in prejudice to another party. The parties disputed whether the renunciation rule is an affirmative defense or a condition precedent. However, the Fourth DCA observed that the real issue on appeal is whether the renunciation rule applies to the son/appellant under the circumstances of this case. The renunciation rule is derived from English ecclesiastical courts and has been interpreted to mean that before the plaintiff will be permitted to contest the trust agreement through which he has derived his interest he must do equity by renouncing his interest by some method or means sufficient in law to operate as a divestiture. Barnett National Bank of Jacksonville v. Murrey, 49 So. 2d 535, 536-37 (Fla. 1950).

The Fourth DCA cited Fintak v. Fintak, 120 So. 3d 177 (Fla. 2d DCA 2013), in arriving at their answer. In Fintak, 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 DCA 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.

The Trust in the subject case was not a self-settled trust, but the Fourth DCA found the Appellant was in a similar situation as the settlor in Fintak. He would receive more than the distributed amounts under any version of the Trust. Applying the three rationales underlying the renunciation rule, the Court found that the son prevailed. First, the trustee is protected because Appellant is entitled to more than the distributions received under any of the versions of the Amended Trusts. Second, the risk of vexatious and insincere claims is present in any case, but no more in the subject case. Third, the distribution to the son/Appellant was free from third-party claims as he is entitled to more than the amount distributed. 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. Thus, even though Appellant did not restore the money received, the renunciation rule was held to be inapplicable where none of the three rationales underlying the renunciation rule support its application.

If you or anyone you know is in need of representation in actions involving Guardianship, Probate and/or Trust Disputes, or questions pertaining to such proceedings, please contact The Law Offices of Glenn M. Mednick, P.L., at (954) 315-1154 or gmednick@mednicklawgroup.com.