The problem, and the rule
A trust says a beneficiary is to receive 1,000 shares of a named company. By the time the settlor dies the company has split its stock twice, been acquired, and the trustee has sold a third of the position. What does the beneficiary get?
The section answers by fixing the gift to what the trust actually holds, and then adding back the changes that were done to the holding rather than by the trustee.
A gift of specific securities, rather than their equivalent value, entitles the beneficiary only to:
(1) As much of the gifted securities of the same issuer held by the trust estate at the time of the occurrence of the event entitling the beneficiary to distribution.
(2) Any additional or other securities of the same issuer held by the trust estate because of action initiated by the issuer, excluding any acquired by exercise of purchase options.
(3) Securities of another issuer held by the trust estate as a result of a merger, consolidation, reorganization, or other similar action initiated by the original issuer.
Section 736.1107, Florida Statutes. Enacted in 2006 and never amended.
The organising idea is who initiated the change. Take a split, a stock dividend, or a merger. The issuer did those, the holding changed shape without anyone choosing, and the gift follows. Take a purchase, or the exercise of an option. The trustee did that, and the new shares are not part of the gift.
Note also the first line. The section applies to a gift of specific securities, rather than their equivalent value. A trust leaving someone the cash value of a holding is a different creature and this section does not govern it.
The case, and the sentence that makes it interesting
In 2008 the Fourth District decided a claim by beneficiaries who wanted the benefit of a 1998 stock split. The trust did not hold the extra shares at the date of death, and the beneficiaries argued the court should consider what the settlor had intended.
The statute, however, does not require or allow for an inquiry into the intent of the testator. It creates a clear rule of ademption where the trust does not hold the securities at the date of death.
Brundage v. Bank of America, 996 So. 2d 877 (Fla. 4th DCA 2008), No. 4D07-1932.
Does not require or allow. That is unusually firm, and it sits awkwardly beside section 736.1101(1), which opens this very Part by saying that the intent of the settlor as expressed in the terms of the trust controls the legal effect of the dispositions made in the trust.
We think both are right, and the reconciliation is in the next subsection of that section. The rules of construction in this Part apply unless a contrary intent is indicated by the terms of the trust. So intent governs, but only intent expressed in the document. What the appellants in that case wanted was an inquiry into intent from outside the terms, and the court refused it.
The practical drafting lesson follows directly. If you want a beneficiary to receive the value of a holding rather than whatever survives in it, or to receive shares acquired later, say so in the trust. Nothing outside the document will be heard.
A useful sentence about where the section came from
The same decision records the section’s lineage, and the wording matters.
this issue is controlled by section 737.622, Florida Statutes (repealed and reenacted verbatim in the Florida Trust Code as section 736.1107, Florida Statutes (2007). See Ch. 2006-217, § 11, Laws of Fla.).
Brundage v. Bank of America, 996 So. 2d 877 (Fla. 4th DCA 2008).
Repealed and reenacted verbatim. That is a licence to use authority decided under the predecessor statute, which is not something you can assume about most of the Trust Code. Where a section was carried over unchanged, the older cases did not stop being relevant on July 1, 2007.
One caution about quoting. The opinion’s rendering of the statute differs slightly from the text published today. The court has shall entitle and gift securities where the current section reads entitles and gifted securities. The history line records no amendment. We noticed the difference, we cannot account for it, and we mention it so that anyone comparing the two is not confused. The substance is identical.
How this fits with the general rule
Florida’s general rule, going back to a 1953 Supreme Court decision, is that where a will bequeaths stock and the stock splits, the beneficiary takes the shares generated by the split, because a split is a change in form and not in substance. And where the specific thing given is no longer there at death, the gift is adeemed, meaning it fails.
This section codifies both halves for trusts and, as the 2008 decision put it, makes the ademption rule a clear one. The general principle and the statute pointed in different directions on the facts of that case, and the statute won.