CREATION OF THE COMMON LAW OR EXPRESS TRUST
By Florida Statute 689.05 all declarations and creations of trust must be in writing, signed by the person authorized by law to declare or create the trust or by the last will and testament. This instrument must be executed with the formalities of a will. By F. S. 689.06 all grants and conveyances into the trust must be by deed signed and delivered in the presence of two subscribing witnesses by the party granting or conveying or by his attorney or agent therein though lawfully authorized, or by the last will and testament duly made executed.
Can the person in title who wants to create a trust convey to himself as trustee under the provisions of an inter vivos trust where the deed would be executed with proper formalities? Answer yes.
Similar to the McGill case discussed elsewhere, the Florida Supreme Court in the case of Smehyl v. Hammond, 44 So.2d 678 (1950) was asked to determine the effect of a conveyance from X to Y, as Trustee for A, B and C. There apparently was no written or oral trust agreement. There was some conflict of testimony as to whether or not Y had agreed to acquire the property in trust for A, B and C. If there were such an agreement it would be evidence, in view of the statute of frauds, tending to prove the entering into a trust arrangement between Y, A, B, and C. As there was no written agreement, the case was sent back to the trial court to determine whether there was any evidence to allow for the creation of a trust. Otherwise title would end up in A, B, and C.
As we will see when dealing with the express trust (other than the Statutory Trust) the title examiner will always undertake its review as part of the process of examining title.
REVOCABLE OR IRREVOCABLE
Trust agreements may be revoked by the party creating the trust if the trust agreement contains provisions allowing this to occur. Our concern of course would be whether that party would have revoked the trust prior to the conveyance, mortgage or lease being made.
TAKING TITLE UNDER AN EXPRESS TRUST - RECORDED TRUST POWERS
There must be an appropriate conveyance of the real property to the trustee. This is either by a deed to the trustee, or by testamentary disposition. In either case sufficient powers and terms of the trust agreement must be made available to us to review and to be filed of record so that the public records will disclose the powers of the trustee, the duration of the trust, and any other pertinent information which may be required by the transaction we are asked to insure.
The deed can either confer the statutory powers under Florida Statute 689.071, or language indicating the power of the trustee or we can record the trust agreement in its entirety or we would be willing to accept an affidavit from the trustee and from the trustee's attorney certifying certain provisions as set forth above. The affidavit would have attached to it true and correct copies of those pertinent provisions from the trust agreement which after our review we would want to have placed of record. The affidavit would have to contain provisions setting forth the powers of the trustee, the term of the trust, whether the trust was revocable or not and if revocable, whether there had been revocation prior to the date of the affidavit and any other pertinent provisions which may limit the authority of the trustee regarding the present transaction, including but not limited to the appointment of the additional or successor trustees.
Another way that title to the property may be placed in a trust is by the owner ONLY IF the Declaration of Trust is executed with all the formalities of a deed, contains granting language in addition to words of creation of the trust and describes the trustees of the trust as being the grantees of the transfer. See the case of Flinn v. Van Devere below as an example for why this is a burdensome procedure to follow.
Florida Statute 732.513 provides that a valid devise may be made to the trustee of a trust that is evidenced by a written instrument in existence at the time of making the will, or by a written instrument subscribed concurrently with making of the will, if the written instrument is identified in the will.
INTER VIVOS TRUST AGREEMENT CONTAINING LANGUAGE INDICATING
THAT THE SETTLORS REAL ESTATE BECAME AN ASSET OF THE TRUST
DID NOT CONSTITUTE A CONVEYANCE OF THE REAL ESTATE
TO THE TRUSTEE WITHOUT A DEED OF CONVEYANCE
The appellate court held that a deed was necessary to convey real estate from the settlor to the trustee under the provisions of an inter vivos trust agreement in the case of Flinn v. Van Devere, 502 So.2d 454 (1986). The court held that the trust documents themselves plainly cannot be regarded as such a deed for the obvious reason that, although they comply with the necessary formalities of two witnesses and adequate legal description, they contain no provision which purports to convey, grant or transfer real estate.
The court did not say that a different result would occur if the trust agreement had been recorded with appropriate documentary stamp tax and had contained words granting the title to the real property described therein to the trustee under the provisions of the inter vivos trust agreement.
THE STATUTE OF USES
A passive trust is created when title is conveyed to one person for the use of another, the latter person being for all practical purposes the actual owner of the property though not the legal owner. Here the "beneficiary" has absolute control over the use and disposition of the property. This is the so called "dry trust".
A statute known as the Statute of Uses, was passed in England to terminate trusts of this nature. In Florida we have a modified version of this statute which is found at Florida Statute 689.09. The statute operates to vest both legal and equitable title in the beneficiary when a conveyance of land to a trustee creates a passive trust, with no active duties being imposed on the trustee.
ACTIVE OR PASSIVE
Trusts at common law must be active, that is active duties are imposed upon the trustee. If they are not, then a so called "passive" or "dry" trust is created in which the beneficiary has control over both the equitable and legal ownership of the trust; and the trust fails.
The Florida Supreme Court case of McGriff v. McGill, 62 So.2d 28 (1952) involved a deed where title to property was taken in the name of:
"S.D. McGill, as Trustee for S.D. McGill II".
After the deed was recorded the name of the grantee was modified at the request of S.D. McGill and the deed was rerecorded reading:
"S.D. McGill, as Trustee for S.D. McGill II with full power to sell or mortgage".
The rerecorded deed contained a recitation that it was being rerecorded for the purpose of showing the power of the trustee.
Thereafter S.D. McGill, as Trustee for S.D. McGill, II conveyed the property to a third party. Objecting, S.D. McGill II filed a suit to quiet title claiming that he was the fee simple owner of the land and that the deed from McGill as Trustee was a cloud on title and void because S.D. McGill held only the naked legal title to the property in trust for the plaintiff.
The Florida Supreme Court reviewed the deed as it was originally recorded recognizing that at that time it contained no recitation of any powers or duties to the named trustee and held that by operation of law the deed conveyed both the legal and equitable title to the property therein to S.D. McGill II who thereby became and still was the absolute owner of the property.
Without stating it specifically in its decision the Court determined that the attempt to put trust powers in the deed after it was recorded without the consent of the beneficiary was a nullity. Probably even with the consent of the beneficiary it would be a nullity because at that time title was in S.D. McGill II.
To have properly corrected this situation a deed would have to have been obtained from the beneficiary back to S.D. McGill, as Trustee reciting proper words of conveyance and trust powers.
Accordingly this case tells us two rules:
1) A deed to a named trustee without reciting in or on its face or containing otherwise the powers of the trustee and where the beneficiary is named constitutes a dry or passive trust and title can only be insured when the beneficiary executes a deed joined by the trustee.
What if the deed to the trustee merely ran to S.D. McGill, as Trustee, and no trust powers were set forth in the deed? See the discussion below.
What if the deed ran to S.D. McGill, as Trustee under an unrecorded Trust Agreement? See the discussion below regarding Common Law Trusts.
2) While this is not the appropriate area of the Underwriting Guide to set forth this rule, it is noted that an attempt to correct recorded instruments which do not have the proper consent or joinder of the appropriate parties is subject to attack both from a marketability standpoint as well as from the standpoint of the parties involved in the transaction. In the case set forth above, the purchaser had to pay twice. He of course had an action to recover monies paid to McGill, as Trustee if he could recover same. Please review those situations where you deem it necessary to attempt to correct instruments by rerecording without re-execution and re-acknowledgment of all appropriate parties with the underwriting office for your area of the State.
The Florida Legislature has enacted two statutes which deal with trusts or trustees; they are:
FLORIDA STATUTE 689.07
If a conveyance is made to a named person "Trustee" or "as Trustee" without naming the beneficiaries, the named person obtains the fee simple title, individually. This assumes no trust is of record.
In the event the public records discloses the identity of any or all of the beneficiaries of the "trust" then the examiner must call for the production and recordation of the trust agreement and if not an active trust require conveyance from all beneficiaries and show all judgments and other liens against the beneficiaries. If the trust is an active one, then conveyances from the beneficiaries would not be necessary. We would deal with a recorded express trust as discussed later.
If the property is of a homestead nature, we would require that the spouse of the party holding title "as trustee" also join in the execution of the deed.
Several cases starting with Arundel Debenture Corp. v. LeBlond 190 So. 765 (1939) hold that where title to the property is in the name of a person "as trustee" and no instrument appears of record disclosing the beneficiary or any terms of any trusts, a judgment creditor of the party holding title "as trustee" while having a general judgment lien, does not have a prior lien on the property as a matter of law, unless creditor shows that he in some way relied on the record in extending credit or in reduction of the debt to judgment against the party as trustee. We will however show all judgments in our title commitments.
FLORIDA STATUTE 689.071 - LAND TRUSTS
This section gives statutory recognition to the "Illinois form land trust". It is the exception to the rule on passive or dry trusts. The trustee holds the legal title to the property and acts only under the direction of the person who is either the beneficiary or the party designated with the power of direction.
There are basically two forms of deeds that would create a land trust in Florida. Some land trustees have adopted the form of land trust deed utilized in Illinois which contains specific grants of trust powers and runs for several paragraphs.
Any other deed or mortgage to the Land Trustee would have to contain the provision in the statute after the granting clause, which would read as follows:
granting to the trustee power and authority either to protect, conserve and to sell, or to lease, or to encumber, or otherwise to manage and dispose of the real property described in the said recorded instrument.
If your examination discloses a deed to a trustee of a land trust setting forth these trust powers, no inquiry need to be made as to the trustees authority to sell or mortgage the real estate. Occasionally the question arises as to whether or not the land trust would be destroyed, if the identity of a beneficiary or the trust instrument, is recorded or came in to the possession of the title insurance agent or the proposed insured after the deed to the trustee is recorded containing trust powers. The statute does not specifically state that if the trust agreement is recorded or the names of the beneficiaries are so recorded, a third party must deal with the beneficiaries instead of the trustee. Would the answer be different if we had a 689.07 situation? Yes.
The case of Home Federal Savings v. Emile, 216 So.2d 443 (Fla. 1968) tells us that the statute applies to deeds and mortgages.
The case of Goldman v. Mandel, Fla.App. 403 So.2d 511 (1981) tells us that both the legal and equitable title are vested in the trustee. The beneficiary has no interest in either.
For a trust to be properly created under a Will, the Will must be valid. It must be properly admitted to probate and the party acting as trustee must accept the terms of the trust once the trust has been "funded" by the personal representative in accordance with either the provisions of the Will or order of court. The Will will have the necessary provisions for which the trustee will look to after the estate is closed to perform the provision of the trust.
WHO CAN BE THE TRUSTEE?
Can anyone be a trustee? Generally any competent person may act as trustee. The person must be capable of holding real property. Therefore an individual or a corporation or a partnership could qualify. However, issues are raised as to whether an artificial entity would have the ability to act as a trustee if its documents of creation do not allow same.
It has been said that for a trust to be valid, the trust agreement must make provision for a trustee. The reason for this is that under the Florida Statutes and General Trust Law, the absence of a trustee for any reason will not cause the trust to fail. The Circuit Court will upon petition of interested parties appoint a new trustee.
It is the better thinking that for a corporation to act as trustee it must have what are called "trust powers" in its articles of incorporation and must be licensed to act as a trust company in Florida. Florida Statute 660.41 sets forth those situations where Florida does not allow a foreign trust company to exercise trust powers in this State.
FLORIDA STATUTE 660.41 - THE FOREIGN TRUSTEE
This section of the statute prohibits certain types of corporations qualified under the laws of other jurisdictions from coming into the State of Florida and acting as a trustee without the foreign corporate trustee first qualifying under the provisions of the Florida Statutes.
The statute relates only to corporations and exempts banks or associations or trust companies incorporated under the laws of this State and having trust powers and also national banking associations or federal associations located in this State and having trust powers. The prohibited acts are:
1. Acting as personal representative of an estate with certain exceptions.
Prior to July 3, 1992, the statute also included the below provisions which were repealed by law 92-303. As to paragraph 5 if a deed to the foreign trustee was recorded prior to July 3, 1992 the Company will insure title based upon conveyances out by the foreign trustee dated and recorded after July 3, 1992.
2. As guardian of a person.
3. As testamentary trustee except that if it is authorized under the laws of its principal place of business it may receive. . . devises of real property located in this State and may sell, transfer and convey the property. We must satisfy ourselves accordingly that the corporation is authorized under the laws of its domicile to so do.
4. As trustee of any real estate in this State or any interest therein under an agreement whereby the beneficial interest in such property is vested in others.
5. As trustee under any deed of trust of other instrument (mortgage) unless a trust company or bank having trust powers and located in this State or an individual residing in this State shall be named as co-trustee.
What about a Florida corporation? The Florida Corporation Statute which sets forth the general powers of a corporation in this State does not contain a provision that allows all corporations to act as trustees for the benefit of others. See Florida Statute 607.011. Accordingly the articles of incorporation must specifically have trust powers. Also a similar prohibition would arise involving partnerships. We know of no authority for a partnership to act in a trust capacity.
WHO MAY BE THE BENEFICIARY?
The sole beneficiary of a trust cannot be the sole trustee of it because there is no separation of interest. The trust would then terminate and title would vest in the beneficiary. See the case of Ware v. Busch, 146 So. 197 (1933). The sole beneficiary of a trust may be one of several co-trustees, and one of several beneficiaries of a trust may be a co-trustee of a trust or even the sole trustee of it. Remember, however that where this occurs we will require a conveyance from that party individually and as trustee.
WHAT IF THE TRUSTEE IS ALSO A BENEFICIARY
If we are dealing with any form of trust where the trust agreement discloses that the trustee(s) is also the beneficiary, title would be vested in the name of the beneficiary because of merger. Any conveyance or mortgage which the company would be asked to insure should be executed by the person both individually and as trustee under the trust agreement. Questions of Homestead should be addressed. Questions of liens against the trustee as the owner of the property must also be addressed.
MERGER OF LEGAL AND EQUITABLE OWNERSHIP
There can be no trust where both the legal title and the beneficial interest is vested in the same person. See Axtell v. Koons, 89 So. 419 (1921). A merger occurs and the fee title vests in the beneficiary.
Where the beneficiary is also a trustee, but there are others involved so the trust continues, then that person is required to convey out individually and as trustee.
DESIGNATION OF OR APPOINTMENT OF TRUSTEES
A trustee can be appointed in the same way in which a trust is created, for example as a part of the creation of the trust. He may be designated in the deed in trust or in another trust instrument so long as it is of record or in the case of a testamentary trust by provision in the Will. Remember that even if the trust instrument fails to identify or name the trustee, courts of equity shall appoint a trustee if necessary. See Braswell v. Downs, 11 FLA. 62 (1865). Also Florida Statute 732.201.
We must require some form of evidence of acceptance of the trust by the trustee. Otherwise it would be difficult to rely upon conveyances or mortgage from said party. Recordation of a deed in trust to the named trustee would be sufficient. Issues are raised however where the named trustee ceases to act for any reason and a successor is appointed by the court or by the beneficiaries in accordance with the trust agreement. A separate document in recordable form must be obtained evidencing the acceptance of the trust by the trustee.
What if the Sole Trustee Dies or Resigns?
The trust does not terminate. A successor trustee would have to be appointed. We will look to the instrument creating the trust of record. Does it appoint successor trustees on its face? If it does, then the Company is willing to rely upon the following to insure title coming through a successor trustee:
(a) Certified copy of the Death Certificate of the original trustee to be recorded.
(b) Acceptance in recordable form by the successor trustee of the trusteeship.
(c) Proof that at the time of the trustee's death the trustee did not hold any interest in the property other than as trustee. If the trustee's estate is in probate require an order so affirming.
If the Deed in trust or other document of record does not authorize and set forth who would be the successor trustee, then we need to look to the Trust Agreement itself for this purpose. Does it name a successor trustee or trustees? If it does then upon the recordation of the Trust Agreement if it had not earlier been recorded and the acceptance by the designated trustees as well as the recording of the death certificate of the original trustee, title may be insured coming out of the successor trustees under the Trust Agreement.
If the Trust Agreement allows the beneficiaries to appoint a successor trustee without having named who that party would be, the Company would require in addition to the death certificate of the original trustee and probate as discussed above, an appointment in recordable form by all beneficiaries of the trust. The Trust Agreement would have to be recorded in its entirety.
If the beneficiaries do not have the authority or are unable to appoint a successor trustee, then a court order under Florida Statute 737.201 appointing a successor trustee needs to be obtained for the purpose of insuring title coming through a successor trustee. This would be in addition to dealing with the death certificate and probate matters regarding the original trustee.
Do the trust agreement provisions allow for the surviving co-trustee to act without appointment of successor trustees? Or, are the provisions of the trust such that two or more trustees are necessary? If so we would have to follow the provisions of the trust agreement. Otherwise Florida Statute 737.404 provides:
(1) Any power invested in three or more trustees may be exercised by a majority, but a trustee who has not joined in exercising a power is not liable to the beneficiaries or to others for the consequences of the exercise, and a dissenting trustee is not liable for the consequences of an act in which he joins at the direction of the majority of the trustees if he has expressed his dissent in writing to any of his co-trustees at or before the time of the joinder.
(2) If two or more trustees are appointed to perform a trust and any of them is unable or refuses to accept the appointment or, having accepted, ceases to be a trustee, the surviving or remaining trustees shall perform the trust and succeed to all the powers, duties, and discretionary authority given to the trustees jointly.
From the above statute you can see that unless the trust agreement requires the reappointment of a successor trustee upon the death, designation or disability of one of several trustees, the surviving trustee may continue to perform under section (2) above.
NOTE: The above discussion applies to express or inter vivos trusts and not to a statutory trust as discussed elsewhere.
CAN THE EXISTING TRUSTEE APPOINT A SUCCESSOR TRUSTEE?
Chicago Title will insure title coming through a successor trustee if the terms of the trust give the trustee the power to appoint his successor. In Voorhies v. Blood, 170 So. 658 (1936) the court held that express direction to a trustee will be upheld by the courts. However without such a provision being in the trust agreement (and as we have said preferably in the instrument of record) the trustee has no authority to appoint his successor.
POWERS OF THE TRUSTEE
The general rule in the absence of statute is that unless otherwise provided in the trust agreement, co--trustees must act jointly in the exercise of all powers calling for an exercise of discretion in judgment, although a single co-trustee may perform purely ministerial acts. Florida Statute 737.404(1) provides that any power vested in three or more trustees may be exercised by a majority.
We must make sure that in addition to all other powers of the trustees, the trustees have the authority to buy, sell, mortgage or otherwise deal with the ownership of real property. Florida Statute 737.402(2) give general powers to all trustees unless otherwise provided in the trust agreement to:
(a) Collect, hold and retain assets received from the party creating the trust.
(h) To acquire or dispose of an asset for cash or on credit. . . to manage, develop, improve, exchange, partition and to encumber mortgage or pledge a trust asset for a term within or extending beyond the term of the trust in connection with the exercise of any power vested in the trustee.
(j) To subdivide common develop or dedicate land to public use.
(q) To hold property in the name of a nominee or an other form without disclosure of the trust so that title to the property may pass by delivery.
May a trustee delegate its powers? Can he appoint an agent? Generally the trustee may not delegate those powers involving his discretion and shift his responsibility to others unless he employs another trustee. The rule however does not prohibit the delegation of ministerial duties incidental to the administration of trust. Occasionally we are asked to insure title where it is being conveyed from trustees of a trust but not with their names being signed to the deed but rather pursuant to a power of attorney granted by the trustees to a third party to sign instruments of conveyance. Is this discretionary or ministerial? We must look to the provisions of the trust agreement and to the transaction itself.
Who signed the contract to sell the property? Who signed the application for the mortgage? Was that within the power of the trustees? If it is we must have something to place of record evidencing this.
TERMINATION OF THE TRUST
The trust will terminate when in accordance with the provisions of the trust it has accomplished its purpose e.g. the beneficiaries may have attained the age set forth in the agreement. Once the trust has terminated, the trustee is obligated to distribute the trust assets to the beneficiary. While it has been said that upon termination of a trust, title automatically vests in the beneficiaries, this is an event that may be difficult to ascertain.
Accordingly when we are asked to insure title where it is in a trust and we review the trust agreement and decide that it has or may have terminated, require a conveyance from the trustees to the parties identified in the trust agreement as those who succeed to the ownership of the property.
A constructive trust is a trust created by operation of law as against one who by actual or constructive fraud has acquired the legal right to property he ought not to have. One who acquires property by fraud, misrepresentation or other circumstance rendering it equitable for him to retain it, a court of equity will determine that the party holds same as a constructive trustee for the party against whom the wrong was committed.
A resulting trust arises where a person makes or causes to be made a disposition of property under circumstances that raise an inference that he did not intend the person taking or holding the property to have the beneficial interest therein. It is a trust that arises where the legal estate in property is disposed of, but the intent appears, or is inferred from the terms of the disposition, that the beneficial interest is not to go or to be enjoyed with the legal title. A resulting trust is more kin to an express trust than a constructive trust.
The general rule is that a trustee is an indispensable party in any proceedings affecting the trust estate, unless the trust is a mere passive or inactive trust. There are, situations in which the beneficiaries are necessary parties to a suit by or against a trustee relating to the trust or its property. Where the central issue of the case is the validity of the trust, the beneficiaries are proper and necessary parties. Carter v. Howarth, Fla.App., 285 So.2d 442 (1973).
Where the suit is one to terminate a valid trust, the beneficiaries are also necessary parties. Byers v. Beddow, Fla.App., 142 So. 894 (1932).
If the trust is a dry or naked trust the beneficiaries are necessary parties in any suit concerning the trust property. Further, a beneficiary, as a real party interest should be allowed to appear and defend against the trust where the trustee fails to do so.
What if you are involved in a mortgage foreclosure suit and service is had upon the trustee and the trustee does not appear? We have taken the position that the beneficiaries should be named as defendants if known or ascertainable. If they are not known, they should be made parties as the unknown beneficiaries of the trust if we cannot ascertain their specific names. Should a guardian ad litem be appointed to represent their interest? Did the trust terminate before the foreclosure proceeding is to be started? Was the trust revoked before the foreclosure?
As of the present date, many states including Florida have statutes that either recognize the concept of the business trust or recognize the basis on which a foreign business trust may come into the state to do business. The question is, if the business trust comes into Florida to do business, amongst other things acquiring title to real estate or making mortgages on real estate, how can title be taken or how will the mortgagee be named in the mortgage?
Is a "business trust" an entity, or a trust or some other type of association? The reason why this is important is that, to hold title to real estate, the title holder must be an entity which the law recognizes as being capable of holding title to real estate. Certainly the trustees of a trust may hold title to real estate or the lien of a mortgage on real estate. If that is the manner in which the business trust intends to take title or make its mortgage, title may be insured so long as the powers of the trustees are set forth of public record and it is clear in the powers that taking title and conveying of title or the making of mortgages are proper powers.
The more difficult question is where the "business trust" intends to take title or make the mortgage in the name of the "business trust". Is the "business trust" an entity capable of holding title? Florida courts have recognized that a "business trust" organized in the state of Massachusetts is an entity capable of being sued in its own name in Massachusetts and therefore is treated as a legal entity for this purpose. Cases have recognized that if the trust is the named mortgagee, it may foreclose the mortgage in its name. Boyd v. Boulevard National Bank, Fla.App. 306 So.2d 551 (1975). There have been several cases recognizing that if the trust is the named mortgagee, it may foreclose the mortgage in its name. Brickell Construction Corp. v. Pujol, Fla.App. 329 So.2d 340 (1976) and Corcoran v. Brody, Fla.App. 347 So.2d 689 (1977). Of course a mortgage is not a conveyance of real estate, but a contract for the creation of a lien.
The states of Connecticut, Indiana and Ohio specifically recognize that the business trust may hold title in its business name or in the same manner as a corporation would hold title.
If the "business trust" is domiciled in a state other than Connecticut, Indiana, Ohio, Delaware or Massachusetts, or is domiciled in a foreign country, the title commitment should require that a copy of the applicable laws relating to business trusts in that jurisdiction be obtained and reviewed by the Company prior to the insurance of title and that the title commitment be made subject to such further exceptions as may then be deemed necessary by the Company in its sole discretion. This may include amongst other things an opinion from counsel in the foreign country or other jurisdiction in the United States on case law regarding whether the trust is a legal entity for the purpose of taking title in its own name if that is the manner in which the trust wishes to hold title.
TRUSTS AFTER DEATH
The typical "Grantor Trust", as described in F.S. 733.707, may be relied upon to insure conveyances and mortgages by the trustee, or successor trustee, after death of the settlor/grantor under the following circumstances:
1. Deed into Trust:
The deed into the grantor trust (if there is one) must contain the powers of the trustee to mortgage, sell, encumber, etc. Tracking the language in F.S. 689.071 relating to trust powers is sufficient.
2. Execution of Trust
All trusts executed after October 1, 1995 attempting to provide for the disposition of property after the death of the settlor must be executed with the formalities of a will (F.S. 737.111). Presumably those executed prior to October 1, 1995 will remain valid under Zuckermann v. Alter, 615 S2d 661 (Fla. 1993).
The entire trust and all amendments should be recorded to portray the identity of the successor trustee, its powers and duties, and any limitations. If the parties to the transaction insist upon not recording the trust we will accept recordation of an affidavit reciting the relevant excerpts from the trust only if a recordable copy of the trust is retained by our agent with written authority to record if necessary to resolve a future claim.
Distribution of homestead property by trust upon the death of the settlor/grantor is subject to the same constitutional limitations as devise of the homestead by will. The provisions of a trust purporting to dispose of homestead will not be enforced if the settlor/grantor is survived by a spouse or minor child, except a distribution to the spouse if there is no minor child.
An affidavit should be recorded from the trustee, or successor trustee, or other knowledgeable person, asserting that the deceased settlor/grantor was not survived by spouse or minor child.
5. Creditors' Rights
Under F.S. 733.607 and F.S. 737.3054 creditors of the deceased settlor/grantor are entitled to payment out of trust assets if the assets of the estate are insufficient.
Exception must be made for "rights of creditors of the estate of " except under the following circumstances:
a. The settlor/grantor has been dead more than two years and no administration or probate of the estate is pending.
b. If the estate of the settlor/grantor is being administered at the time the trustee proposes to convey or encumber assets of the trust, the probate file must be examined and proof obtained that the assets of the estate will be satisfactory to pay all claims of creditors of the estate. Normally this will require administration of the estate through the barring of all creditors' claims and filing of the affidavit of diligent search and inquiry. In appropriate cases underwriting counsel may waive this requirement upon indemnification from a solvent source satisfactory to the Company.
c. If the settlor/grantor has been dead less than two years and administration of the estate has not been commenced, the estate should be opened and pursued through the point of barring creditors and filing the diligent search affidavit. As above, underwriting counsel may consider appropriate indemnification upon satisfactory proof the assets of the estate will cover all debts.
6. Estate Taxes
Lands conveyed to a revocable trust are still includable in the gross estate of the settlor for estate tax purposes; however, conveyances by the trustee to a bona fide purchaser for full value are protected under 26 USC 6324 in most instances and the potential lien for estate taxes will be transferred to the proceeds. Similar provision is made for transferring the potential lien for Florida Estate Taxes on the estate of a Florida resident decedent under F.S. 198.22. No similar provision exists for nonresidents.
Accordingly, you must provide proof of payment, or exemption, of estate tax liability, or for a Florida resident decedent file an affidavit of bona fide sale. CAUTION: Bona fide sale means a sale for full value to a person unrelated by blood or marriage to the decedent.
Suggested provisions for a trustee's affidavit to be tailored to the particular transaction by counsel are as follows:
The undersigned, after being first duly sworn and placed under oath, deposes and states as follows:
The undersigned is named as (the/one of the) [Trustee(s)/Successor Trustee(s)] of the Trust, dated , a true and correct copy of which, together with all amendments thereto is (attached hereto as Exhibit A)(recorded in OR Book , Page ), which Trust remains in full force and effect.
The settlor/grantor of said Trust was , who died , [and whose estate (is being)(was) administered in probate proceedings styled in (location) .][and whose estate is not the subject of any probate or administration to the knowledge of the undersigned.] The deceased settlor/grantor was not survived by a spouse or minor child.
[The assets of the estate of are sufficient to pay in full all claims that have been made against the estate, and all other claims of creditors not yet filed have been barred by applicable law.][The undersigned has (made)(caused to be made) a thorough investigation and analysis of the assets and financial obligations of the estate of and hereby represents that the assets of the estate exceed the liability of any claims that may be filed against the estate.]
The undersigned proposes to sell certain assets of the Trust described as follows:. .
pursuant to a contract of purchase and sale dated with as Buyer.
The undersigned hereby represents that the proposed sale is a bona fide sale, for full value, and the Buyer is not related to the undersigned or the deceased settlor/grantor by blood or marriage. [All proceeds of the sale exceeding costs and obligations of the Seller under the contract will be retained in the Trust and not distributed until all liability of the Trust for contribution to the estate has been extinguished.]