Understanding the Trust Exception in Florida Probate
Guest post from our friends at PTM Trust and Estate Law
When a person passes away, their estate usually goes through a legal process called probate. During this process, assets are identified, debts are paid, and the remaining property is distributed to the estate’s beneficiaries. However, some assets may not be included in this process. In fact, Florida law provides for a trust exception that allows certain trust properties to be excluded from the decedent's estate during probate. How does this exception work? Let’s break it down in simple terms.
What is the Trust Exception?
The trust exception is based on the principle that trust property is not considered part of the decedent’s estate. See Lefkowitz v. Schwartz, 299 So. 3d 549 (Fla. 5th DCA 2020). This means that if someone passed away and certain assets were held in a trust, those assets are not part of their estate, and creditors cannot make claims against them during the probate process.
This exception is important because when someone dies, their creditors can typically try to claim money from the estate to settle outstanding debts. The more assets that are accessible by creditors, the less assets get distributed to the estate’s beneficiaries. However, if the assets of the estate are held in trust, depending on how that trust is structured, those assets may be protected from creditors. This exception is designed to ensure that trust assets go directly to the intended beneficiaries, without being delayed or diminished by the probate process.
How Does the Trust Exception Work in Florida?
Historically, the trust exception in Florida was based on a long-standing legal principle: property held in trust isn't considered part of the decedent's personal estate. This idea was in place via Florida common law long before the Florida Probate Code, which governs the legal process for administering estates, was fully established.
Over time, courts in Florida have applied the trust exception in cases involving different types of trusts, such as resulting trusts and constructive trusts. See Scott v. Reyes, 913 So. 2d 13 (Fla. 2d DCA, 2005). The exception has also been upheld in cases where the decedent held certain cash funds as a trustee, and these funds were sufficiently identifiable to be excluded from the estate.
How Can the Trust Exception Be Applied?
Florida’s trust exception can be creatively applied in several different scenarios. The following is a scenario where the trust exception might apply, and how it can prove beneficial.
Robert is the sole trustee of the Smith Trust, an irrevocable trust created by Sue Smith. Aimee is the only beneficiary of that trust. Robert dies, leaving Aimee as the new trustee of the Smith Trust. Robert had on his person $100,000 (“100k”) in cash when he passed away. Ralph, Robert’s only heir, waits for two years before opening a probate. When Ralph finally does open the probate, the $100k is included in Robert’s probate as an asset belonging to Robert.
Several months later, Aimee sued the estate. She claimed that the $100k in cash was a trust asset, not an estate asset. Ralph replied by asserting that under Fla. Stat. §733.702, no lawsuit can proceed against the estate because the creditor period has passed already.
Aimee argues that Robert withdrew the money from the trust bank account only hours before he died, and that Robert never asserted it was his own money. Further, the trust exception applies when an "assertion of ownership [is] made by the personal representative or heirs for the first time after the decedent's death...." Velzy v. Estate of Miller, 502 So.2d 1297 (Fla. 2d DCA 1987). Thus, even though the statute of nonclaim has passed, Aimee may be allowed to proceed with her lawsuit under the trust exception.
Normally, Aimee’s claim would have been barred because of the amount of time that had passed before she had brought her claim against the estate. However, under the trust exception, Aimee may still have a viable case. This means that, in specific scenarios like the one detailed above, the trust exception provides the trustee with a potential loophole to Section 733.702, Florida Statutes, thereby allowing a trustee to act as a creditor of an estate even after the limitation period has elapsed.
Limitations on the Trust Exception
In recent years, Florida has introduced limitations to the trust exception. Specifically, the exception now only applies in situations where the decedent clearly held property in trust for someone else (i.e., the beneficiaries of the trust). This means that if a person’s property was held under a formal, legally recognized trust (an “express trust”), that property could be excluded from the probate process. However, if the property was held under a more informal or implied arrangement (such as a “constructive trust”), it would no longer qualify for this exception. See Johnson v. Townsend, 259 So. 3d 851 (Fla. 4th DCA 2018).
In short, for the trust exception to apply, there must be a clear and formal agreement showing that the decedent held property for someone else. Without this, the property may become part of the estate and be subject to probate.
Key Takeaways
What is the Trust Exception? The trust exception allows certain trust properties to be excluded from a decedent’s estate in Florida’s probate process.
How is it applied? Assets held in trust are not considered part of the decedent’s estate, making them exempt from creditor claims during probate.
What are its limitations? Since the adoption of the Florida Probate Code, the trust exception only applies to formal trusts (express trusts), not informal or implied ones (like constructive trusts).
Why does this matter? The trust exception ensures that assets in a trust go directly to the beneficiaries without being delayed or reduced by creditors during the probate process. It also provides a potential loophole for trustees seeking to bring a claim against an estate regarding trust assets.
Conclusion
The trust exception is a significant part of Florida’s probate law, as it helps protect certain assets from the probate process. While it was once a broader concept, recent changes have narrowed its application to only those trusts that are clearly defined and legally recognized. For estate planning purposes, this is a notable caveat. Even with its limitations, utilizing the trust exception when creating an estate plan could make a significant difference for a decedent’s loved ones.
Whether you are seeking to set up a trust for your heirs or need assistance with managing an estate, retaining an attorney experienced with the nuances and changes of the Florida Probate Code can help ensure that your intentions are honored after your death, and that your assets are protected for future generations.
Attorney Bio:
Kaytlin M. Keen (formerly Kaytlin M. O’Sullivan) is a Managing Partner of PTM Trust and Estate Law. She is a former trial attorney who now devotes her practice to helping people protect their loved ones and themselves with creative estate plans, and helping fiduciaries administer trusts and probate estates. Kaytlin also handles various litigation matters, guardianships, and premarital agreements (also known as “prenups”).
