Taxation & Estate Planning

2d DCA explains Florida's trust-merger doctrine

By Juan C. Antúnez

Hansen v. Bothe, --- So.3d ----, 2009 WL 1066296 (Fla. 2d DCA Apr 22, 2009)

In the linked-to opinion the decedent's sole "intestate" heir, his mother, was pitted against her son's ex-wife and the 9 remainder beneficiaries of his revocable trust. Two key questions were litigated/ appealed in this case:

First, did the trust's remainder beneficiaries even have standing to participate in the case? Probate judge said "no," 2d DCA said "yes." [Click here to see why].

Second, did the decedent's divorce cause his trust to collapse in on itself and thus cease to exist under Florida's merger doctrine? No trust =  mom gets everything as son's sole intestate heir. Probate judge said "yes," and was again reversed by the 2d DCA.

Florida's Merger Doctrine:

The argument for intestacy was made in two steps. Step one, argue the decedent's divorce divested his ex-wife of any interest in the trust by operation of F.S. 736.1105. Mom was right on this point. So far so good. Step two, argue that because son became the sole owner of the trust's assets upon his divorce, the trust effectively ceased to exist at that point under Florida's merger doctrine. Here's where things took a wrong turn. As explained by the 2d DCA, just because a person retains complete control over the assets of his own revocable trust, serves as his own trustee, and retains the power to divest any beneficiary at any time, doesn't mean his revocable trust isn't a valid trust (it it did, no revocable trust would ever be valid under Florida law!). Here's how the 2d DCA explained Florida's merger doctrine and why it didn't apply in this case:

The circuit court relied on the merger doctrine to conclude that the trust ceased to exist. The merger doctrine terminates the trust if the legal and equitable interests in the trust are held by one person. Mary F. Radford, George Gleason Bogert & George Taylor Bogert, The Law of Trusts & Trustees, § 1003 (3d ed.2006). Courts hesitate to employ the doctrine where injustice or frustration of the settlors' intent would result. Id. Upon the establishment of a trust, the legal title is held by the trustee, but equitable title rests with the beneficiary. In re Wells, 259 B.R. 776, 779 (Bankr.M.D.Fla.2001).

The rationale behind the merger doctrine holds that '[w]hen the trustee is the only beneficiary, the trust is no longer needed to carry out the intention of the settlor.' The merger doctrine is applicable where either the entire beneficial interest passes to the trustee or where the legal title passes to a sole beneficiary. Upon merger of the legal and equitable titles, the holder of both interests possesses fee simple ownership of the property.

Id. (citations and footnote omitted).

Merger is inapplicable here. To the extent that Andreas Bothe became the sole grantor/trustee upon divorce, he held sole legal title; his intended remainder beneficiaries, however, retained an equitable interest. See Wells, 259 B.R. at 779; see also Denver Found. v. Wells Fargo Bank, N.A., 163 P.3d 1116, 1125 (Colo .2007) (emphasizing that for the doctrine of merger to apply, the legal and beneficial interests must be completely coextensive; if other equitable interests remain, the trust will not terminate).

Full post as published by Florida Probate Litigation Blog on April 28, 2009 (boomark / email).