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This recent case from the Third District Court of Appeal involved a husband, a wife, and the husband’s longtime girlfriend.
In 2010, the wife, Patricia, asked her attorney to draft an irrevocable trust agreement for both her and the husband, Milton. Unfortunately, at the time, Milton was suffering with a degenerative neurological condition, and Patricia expressed that she wanted to protect the couple’s marital assets from any potential “undue influence” upon her husband.
Subsequently, Milton and Patricia executed the irrevocable trust, which named their son, Mark, as trustee. Section 2 of the Irrevocable Trust stated:
We intend to enter into a marital agreement after the execution of this trust agreement. Our marital agreement will provide that upon the death of the first one of us to die, all assets of any nature (including our residence) owned by us as tenants by the entirety or as joint tenants with right of survivorship, wherever located, will be conveyed by the survivor of us to the trustee of the trust created by this trust agreement. We are executing this agreement to set forth the terms of the trust upon which those jointly owned assets will be held when conveyed by the survivor of us to the Trustee.
Milton and Patricia also signed a separate Marital Agreement, to fund the trust using their marital property. Specifically, the Marital Agreement in sections 2 and 3 stated that (1) neither spouse would transfer any marital asset during their lifetimes without the other person’s consent, and (2) upon the death of one spouse, the surviving spouse became obligated to convey all remaining joint marital assets to the trustee within 60 days. Moreover, Section 1 of the Marital Agreement stated:
to allow the successor trustees and beneficiaries under the Trust Agreement to be able to bring whatever legal proceedings may be necessary to require the survivor of us to convey all of our jointly owned assets to the then serving trustee or trustees under the Trust Agreement, and to rescind any transfers of assets that might be made by the survivor of us contrary to the requirements of this Marital Agreement.
Furthermore, section 5 of the Marital Agreement authorized their son Mark, his brother Hardy Wallace, and his sister Rebecca Spinale, among others, to take “all actions to rescind transfers in violation of the provisions of the Marital Agreement” and to pursue all “actions for damages, attorney’s fees, and costs.”
Patricia died in 2016. Milton then informed the son, Mark, who was now serving both as trustee and personal representative of his mother’s estate, that he had been involved in a 14-year extramarital affair. During the course of this relationship, Milton said he “paid for sex” and given millions of dollars to his girlfriend, from marital assets, in the form of cash, real estate, and other assets. The 2 cash transfers, consisting of $1 million in 2012 and $1 million in 2015, were documented in 2 U.S. Gift Tax Returns; Milton admitted he gave his girlfriend the money and she admitted to receiving it.
Prior to his mother’s death, Mark had no knowledge that his father had given away his parents’ joint marital assets to the girlfriend.
One function of the personal representative of a probate estate or a trustee for a trust is taking legal action to recover property that was wrongfully taken from either. A trustee, for example, has a fiduciary duty to the beneficiaries of the trust to ensure that trust assets have not been misappropriated. This may include suing a party who is wrongfully in possession of the trust’s property.
The son subsequently sued the girlfriend, seeking recovery of these assets on behalf of the trust. Following a 2-day bench trial in September of 2020, a judge held that Milton’s transfers to the girlfriend violated the agreement he signed with Patricia, as well as Florida law governing property held by married couples as tenants by the entirety. The judge rejected the girlfriend’s testimony that Patricia had known about these millions of dollars in gifts and consented to them.
The trial court did, however, permit the girlfriend to keep some of the assets she received from Milton, on the grounds that she had relied upon his financial support and thus “refrained from finding whatever employment she would otherwise have been obliged to find.”
On appeal, the Florida Third District Court of Appeal was less sympathetic. It held that the girlfriend had to return all of the property to the trust. The appellate court noted that the girlfriend never had the legal right to receive Milton’s marital property without Patricia’s consent. The girlfriend knew she was receiving marital property, she kept inquiring about whether Milton was filing gift tax returns with the IRS, but she never determined if Patricia had actually consented to the transfer of the assets. The appellate court concluded that, under these facts, imposing a constructive trust was the proper remedy to recover tenancy by the entireties assets which were wrongfully transferred by Milton to his girlfriend during his marriage and without Patricia’s consent.
If faced with a trust and a marital agreement, particularly ones that are to be read together, it is wise to consult with your trusted probate and trust lawyer to advise you about the requirements set forth in these documents.