FLORIDA COURT HOLDS THAT THE RENUNCIATION RULE DOES NOT APPLY TO SELF-SETTLED TRUSTS

Under Florida law, if a person wishes to contest the validity of a legal instrument, i.e., a will or trust, he or she cannot simultaneously benefit from that instrument.  The “renunciation rule” requires that an individual challenging the validity of a legal instrument return the payments or benefits that he or she received under that instrument.  The renunciation, however, is qualified, not absolute.  In other words, the party challenging the validity of the legal instrument would be entitled to those payments he or she received should the challenge be unsuccessful and the legal instrument declared valid.  The bottom line is that a person cannot unfairly hold inconsistent positions regarding a legal instrument, i.e., a person cannot accept and keep payments from a will or trust while simultaneously challenging the validity of that will or trust.  Like all rules, however, there are exceptions.  One such exception was recently articulated by a Florida district court in Fintak v. Fintak, 120 So. 3d 177 (Fla. 2d DCA 2013).

Edmund Fintak created a trust for his own benefit that was entirely funded by his own assets (a “self-settled” trust).  The self-settled trust was created to provide regular payment to Mr. Fintak for his health, education, and support.  In addition to the regular payments, the self-settled trust included a provision requiring payment from the trust upon Mr. Fintak’s written demand.  The self-settled trust also provided that upon Mr. Fintak’s death, the trust assets were to be divided into equal parts and distributed to his six children.  Two of Mr. Fintak’s children served as co-trustees.

After executing the trust, Mr. Fintak accepted and kept several payments from the self-settled trust.  However, when the co-trustees refused to pay Mr. Fintak the $30,000 that he demanded, Mr. Fintak filed a complaint challenging the validity of the trust.  The co-trustees argued that under the renunciation rule, Mr. Fintak could not challenge the validity of the trust because he accepted and kept trust payments.  The court disagreed.

In Barnett Nat’l Bank v. Murrey, 49 So. 2d 535, 537 (Fla. 1950), the Florida Supreme Court stated three rationales for the renunciation rule: (1) it protects the trustee in the event that the trust is held invalid, (2) it demonstrates sincerity of the person challenging the legal documents and avoid vexatious challenges, and (3) it makes the property readily available for disposition at the outcome of the challenge.

The court in Fintak found that none of the three rationales applied to Mr. Fintak’s case.  First, application of the renunciation rule would not serve to protect the co-trustees if the trust is held invalid because Mr. Fintak was legally entitled to the trust assets regardless of the outcome of the challenge.  Second, the risk that Mr. Fintak’s challenge is insincere or vexatious is mitigated by the fact that Mr. Fintak is challenging the validity of his own prior act rather than the act of another party.  Finally, because Mr. Fintak was lawfully entitled to receive the benefits of the self-settled trust even if the trust never existed, application of the renunciation rule would not work to ensure that the property is available for disposition to the rightful owner at the outcome of the challenge.

Because the rationales behind the renunciation rule did not apply to the case, the court in Fintak refused to mechanically apply the rule, to do so “would be to elevate form over substance.”  Fintak, 120 So. 3d at 184.  Thus, the court held that “the settlor of a self-settled trust funded with his own assets is not required to renounce any benefits received under the trust before he can challenge its validity.”  Fintak, 120 So. 3d at 179.

Florida law will not allow a person to benefit from a trust or will while simultaneously challenging the validity of that trust or will.  The Fintak case demonstrates a small and rarely applicable exception to this rule.  However, if a person wishes to challenge the validity of a trust or will, then that person should keep in mind that he or she must generally renounce any benefit received from that trust or will before raising such a challenge.

Probate attorney Peter T. Mavrick represents clients in probate, trust, and guardianship litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.