This recent Fifth District Court of Appeal opinion reversed the trial court’s decision to impose a constructive trust over assets that were appropriately part of the Decedent’s estate.

In 2011, during the course of Decedent’s marriage to her daughter Lauren, Arlene Schwartz (the appellee, hereafter, “Schwartz”) loaned the Decedent and Lauren $260,000 for the purchase of a condominium.  The Decedent formed an LLC to own and manage the condominium, ultimately purchased the condominium in his name and then transferred it to the LLC.

In 2014, the Decedent and Lauren divorced, and per their marital settlement agreement her one half interest in the property was relinquished to the Decedent in exchange for repayment to Schwartz.  Under the martial settlement, he was to execute a note and quitclaim deed, to be held in escrow, and to pay Schwartz $2,500.00 per month until the loan was repaid.  Further, if the Decedent sold the condominium, he would pay off the loan at closing. However, the Decedent never executed a note, and no mortgage on the property was ever recorded.

In 2016, the Decedent sold the property for approximately $400,000, and deposited the sale proceeds in the LLC’s bank account.  Neither Lauren nor Schwartz knew.

Two months later, the Decedent contracted to buy another condominium, using $110,000 of those sale proceeds as a down payment.  In the meantime, he continued to make the monthly payments to Schwartz.

On September 3, 2016, before closing on the new condominium, the Decedent passed away.

After Decedent’s death, Lauren, still unaware of the property sale, emailed the Decedent’s estate planning lawyer, Appellant Lefkowitz (“Lefkowitz”) to ask about the future payments.  He told Lauren that he would look into the amount due and make a lump sum payment.  But on September 15, 2016, Lauren, on her own, discovered that the Decedent had sold the condominium.

Lefkowitz was appointed as personal representative of the Decedent’s estate.  Schwartz filed a claim in the estate, and through the claims procedures set forth in Florida’s Probate Code, ultimately filed an independent action based on the 2011 loan, claiming in relevant part that she was the beneficial owner of the proceeds from the condominium sale.  She requested that the proceeds be put into a constructive trust.

The trial court found that the elements of constructive trust were met, stating, “The Decedent’s act of secretly selling the […] Condominium and not repaying the loan from Arlene Schwartz constituted fraud, a violation of a marital settlement agreement, or a clear mistake, any of which warrant the remedy of constructive trust in this case.”  The trial court also found that Lefkowitz, the estate, and subsequently the law firm representing Lefkowitz received funds and took payments with knowledge of the facts and therefore were not bona fide purchasers, and knew or should have known about the possible return of the funds.

On appeal, the Fifth District looked to prior decisions of the Second District for guidance, particularly on the unfulfilled obligations of a Decedent from his lifetime and on the claims process set forth in the Florida Probate Code.  The appellate court stated, “It was not until her Amended Complaint in the independent action that she requested the imposition of a constructive trust. In other words, Schwartz claimed that Decedent promised to pay her a set amount of money and did not. As such, […] Schwartz was just another creditor of the Decedent’s estate. Consequently, Schwartz cannot subvert a legislatively-imposed distribution scheme by recasting her probate claim for a debt owed as a dispute over ownership. The trial court here erred in holding otherwise.”

The other issue that the appellate court addressed is the applicability of Florida Statute 733.705 from the claims procedures of the Probate Code.  The appellate court explained that “By imposing a constructive trust in a post-petition action, based on conduct that occurred during Decedent’s lifetime, the court removed assets from the estate, gave Schwartz’s claim priority over all other creditors of the estate, and entered a final judgment authorizing levy against estate property.”  The appellate court determined that the trial court “exceeded its statutory mandate” and was in error by imposing the constructive trust.

The lesson learned is that if you are owed money from a Decedent, it would be prudent to have your estate and trust litigator examine the issue carefully, file an appropriate claim in the Decedent’s estate, and pursue the matter through the claims procedures of the Probate Code, in order to protect your rights.