Taxation & Estate Planning

FL SCT: Florida's land-trust law survives bankruptcy challenge

By Juan C. Antúnez

Raborn v. Menotte, --- So.2d ----, 2008 WL 90037 (Fla. Jan 10, 2008)

The linked-to Florida Supreme Court opinion is the latest chapter in a bankruptcy proceeding that's been ongoing since 2001, has been the subject of numerous appeals in the federal-court system, and single-handedly resulted in a 2004 amendment to F.S. 689.07(1), which governs conveyances of real property to trusts.  I previously wrote about this case here.

For the family involved in this case, the question was whether the family horse farm, which was deeded to one of the children as trustee of a trust benefiting him and his two siblings, would be exposed to the trustee's personal creditor's in the context of his personal bankruptcy.  For lawyers, the question is: "How can I draft a deed-to-trust that ensures none of my clients ever get sucked into this kind of nightmare?"  For those looking for sample forms, an excellent starting point are documents provided by the ABA, which I discuss and link to in a blog post entitled The ABA Promotes Land Trusts.

In order to understand the issues shaping the form text contained in the ABA documents, the Florida Supreme Court provides the following concrete guidance in the linked-to opinion explaining when a deed conveying title to a trustee conveys fee-simple title (thus exposing the trust assets to the trustee's personal creditors) or mere legal title (which does NOT expose the trust assets to the trustee's personal creditors):

    Though inartfully drafted, section 689.07(1) is unambiguous. A “deed or conveyance of real estate” that simply adds the words “trustee” or “as trustee” to the grantee's name is “declared to have granted a fee simple estate,” unless a declaration of trust is of record when the deed is recorded, or the deed itself either names any beneficiaries or the nature and purpose of the trust, if any, or facially expresses a contrary intention. See One Harbor Fin. Ltd. v. Hynes Props., LLC, 884 So.2d 1039, 1043 (Fla. 5th DCA 2004). In other words, a deed that simply refers to the grantee as “trustee” conveys a fee simple estate in Florida with three exceptions. These three exceptions are: (1) the deed names the beneficiaries or states the nature and purpose of the trust; (2) the deed expresses a contrary intention; or (3) a declaration of trust is of record. See id.

    In this case, the deed itself clearly expresses that the grantors, Robert and Lenore Raborn, intended to deed the Raborn family farm to Douglas Raborn in trust. Thus, the deed falls under the “contrary intention” exception in section 689.07(1). This “contrary intention” is expressed in the deed in multiple ways. First, the deed is entitled “Conveyance Deed to Trustee Under Trust Agreement.” In re Raborn, 470 F.3d at 1321. It then identifies Robert and Lenore Raborn as “Settlors under the Raborn Farm Trust Agreement dated January 25, 1991” and conveys the farm to Douglas Raborn, not simply as “trustee” or “as trustee,” but “as Trustee under the Raborn Farm Trust Agreement dated January 25, 1991.” Id. The deed then amplifies the limited nature of the conveyance by stating that the trustee is “to have and to hold the said estate with the appurtenances upon the trust and for the uses and purposes herein and in said Trust Agreement set forth.” Id. Moreover, the deed repeatedly refers to the Trust Agreement and acknowledges the Trustee's broad power to deal with the property. Id. Finally, the grantors/settlors signed the deed and swore before a notary public that they “executed said instrument for the purposes therein expressed.” Id. In light of these facts, though no beneficiaries are named and the nature and purpose of the trust is not stated, this deed expresses the grantor's clear intent to deed the Raborn family farm to Douglas Raborn to be held in trust in accordance with the Raborn Farm Trust Agreement dated January 25, 1991.

    Accordingly, section 689.07(1) does not operate to declare that this deed conveyed a fee simple estate to the grantee.FN2 Instead, Douglas Raborn holds mere legal title as trustee.

FN2. As noted by the amicus curiae and undisputed by the appellant, this result is consistent with the standard practice in Florida. Florida lawyers and their clients have long understood and relied on the fact that specifically identifying the trust by its name or date in a deed is sufficient to indicate the grantor's intention to convey real property in trust and thus avoid any contrary dictate of section 689.07(1). See Administration of Trusts in Florida, 14.11 (Fla. Bar Cont'ng Legal Educ. 3rd ed.2001).

Full post as published by Florida Probate Litigation Blog on January 21, 2008 (boomark / email).