In a recently released unpublished opinion, a panel of the Michigan Court of Appeals has held that a trust can own real property as a joint tenant with rights of survivorship. Only two members of the panel signed on to the decision, a third dissented.
In the case of Schaaf v Forbes (click on the name to read the case), a deed was created whereby the trustee of a trust was made a joint tenant with other individuals, with rights of survivorship. The trial court concluded that the deed was invalid because a trust cannot be made a party to such a deed, for the reason that a trust has no measuring life.
On appeal, the COA goes to great lengths to find statutory authority to reverse the trial court’s finding and to conclude that a trust can in fact be a joint tenant on such a deed. They do not explain how such a deed would operate.
The dissenting judge (very politely) points out that the outcome offered by the majority of the panel is not only a stretch with respect to the statutes they rely upon, but provides a ridiculous outcome. Click here to read the dissent.
Chalgian and Tripp will be putting on a series of conversations about recent changes to Medicaid planning rules, including the impact of the Hegadorn decision, the status of SBO Trusts, and the latest considerations regarding homestead treatment and protective orders.
There will be a program in Saginaw (August 20), with the discussion led by David Shaltz and Joe Weiler; and a program in Southfield (August 29), with the discussion led by David Shaltz and Sara Schimke. A third program is being planned for Jackson, although the date has not been confirmed. The plan is for David Shaltz and Amy Tripp to lead the conversation in Jackson.
The Michigan Trust Code provides for a fairly strict statute of limitations to contest the validity of a trust agreement that “was revocable at the settlor’s death.” Most estate planning lawyers presumably operate on the assumption that this protection applies to the revocable trust agreements they routinely draft for their clients. But as this (unfortunately) unpublished Court of Appeals decision explains, whether or not a trust was revocable at the settlor’s death may depend on what the trust says about the incapacity of the settlor while alive.
MCL 700.7604 says that a trust contest must be started within two years from the date of the death of the settlor, if the trust was revocable when they died. The statute also provides a six month statute of limitations if the trustee provides sufficient notice, the requirements of which notice are defined in the law. Click here to read MCL 700.7604.
In Linda Dice v Esther G. Bennett Revocable Trust (click on the name to read the case) a trust was contested two years and nine months after the death of the settlor. The trustee moved for summary disposition based on the statute of limitations for such contests as provided for in MCL 700.7604. The trial court granted that motion. But the litigants appealed and the COA reversed. The decision of the COA exposes a litigation opportunity that I expect few trust drafters or probate litigators have considered.
The Esther G. Bennett Revocable trust agreement included a settlor incapacity provision that said:
In the event two registered physicians, one of whom should be the Grantor’s personal physician, deliver an instrument to the Successor Trustee certifying that the Grantor during her lifetime has become incapable of managing her own affairs, the Grantor shall cease to be the Trustee, and the successor trustee shall, upon giving its acceptance of trust, become sole Trustee without requiring action or permission of any nature or kind whatsoever from the Grantor, and shall possess and be subject to those rights, duties and obligations which it would assume if it had been named as the initial trustee hereunder. Until two registered physicians shall certify that Grantor has again become capable of managing Grantor’s own affairs, any attempt by Grantor to exercise any reserved rights and powers under this Trust, including but not by way of limitation, the right of modification, revocation, amendment, withdrawal or principal and/or receipt or direction of income, or the sale of principles of this trust estate, or change of beneficiary of any insurance policy subject to this Trust, shall be void and during such period of time this Trust shall be irrevocable and not amendable.
In analyzing this case, he COA notes that the definition of revocability in the MTC is a default definition, and can be overridden by the terms of the trust itself. Here the Court concluded that the facts of this case, and the language of this trust agreement, caused this trust to have become irrevocable upon the settlor’s incapacity and, accordingly, the statute of limitations set forth in MCL 700.7604 did not apply.
Interestingly, in this case, a fact issue remains as to whether the medical reports obtained through discovery were sufficient to meet the requirement that two doctors certified the settlor’s incapacity. But that’s an issue for another day. For the purposes of this blog post, it is enough to say to our readers who draft trust agreements: It’s probably a good idea to look at the language you include in your settlor incapacity provisions and consider whether a modification may be warranted. And to the litigators who handled this case: Bravo. I doubt that many of your colleagues would have recognized this opportunity or pursued it was well.
If you like statistics, you might find this interesting.
With the assistance of a law clerk, we cataloged every case appealed from a probate court between June 1, 2016 and May 30, 2019 (three years), to see what we could find out.
We came up with 144 cases. For the purposes of this blog post, I decided to ignore 26 of those cases. I ignored some cases because, although they arose from a probate court decision, the issues involved were not traditional probate questions. That is, they were only tangentially probate cases. I also decided to disregard the mental health commitment cases. Although these are probate matters, the issues they raise on appeal are so distinct from the other types of probate cases, that it just seemed helpful to leave them out.
As to the remaining cases, here’s what we found:
90% of probate cases are unpublished (just 12 published out of 118 cases in three years)
Nature of Dispute
58.4% of the cases appealed involved issues related the administration of a trust or decedent’s estate. This category includes a variety of issues that come up in the context of administration, including, for example: efforts to remove or surcharge a fiduciary, fee disputes, and litigation involving property rights or values.
20.3% involved the validity of a will, trust or other testamentary document.
12.7% were guardianship or conservatorship matters that related to the need for, or the appointment of, a fiduciary.
The remaining 8.5% dealt with administrative issues in guardianship or conservatorship matters.
Most cases are affirmed. Of course, just because a trial court decision was not affirmed doesn’t mean the trial court was reversed. A case that was not affirmed may have been reversed, remanded, vacated, affirmed in part and reversed in part, etc.. But rather than try to slice things too finely, I simply calculated the likelihood of complete affirmation.
72% of all cases are affirmed in full on appeal.
The likelihood of affirmation seems to vary somewhat with the type of matter. Among trust and estate administrative matters, the likelihood of affirmation is slightly higher than average: 76%. For cases involving the validity of a testamentary document, affirmation occurs only about 62.5% of the time. For guardianship and conservatorship cases, the Court of Appeals affirmed 68% of the cases decided during the three years reviewed.
Only a small percentage of probate cases are published: 10%.
A significant majority of the time, the trial court’s decision is affirmed in whole: 76%.
This post deals only with cases in the Court of Appeals. While a few of these cases were taken up by the Michigan Supreme Court, I did not track those.
Thanks to our awesome clerk, Asma Ali, for her excellent work in compiling information and assisting me with this project.
This case was handled by our firm: Chalgian and Tripp. We represented the Appellant at trial an in the Court of Appeals.
This case clarifies a heretofore confusing issue involving joint accounts and the rights of joint account owners pre-death.
Most importantly, this case is published.
While many cases address the issue of survivorship rights in joint accounts, this case deals with the question of what happens when one joint account owner removes assets from a joint account before the other account owner dies.
Our client made his accounts joint with a person with whom he had a long relationship, but to whom he was not married. He got sick. When it was evident that his condition was rapidly depleting his savings, the non-client co-owner went to the bank and removed essentially all the money she could get.
At trial, the non-client co-owner argued that she had the same rights to the money as our client, and therefore that she did nothing wrong by defunding these accounts. This was her position even though evidence at trial showed that she contributed nothing to the accounts, and that any significant withdrawals from the account had to be made with the approval of our client.
The trial judge accepted their argument, and ruled in favor of the non-client owner largely based on the application of cases related to survivorship rights in joint accounts. We appealed.
The appellate court reverses and remands to the trial court, holding that our client’s claims of conversion were wrongly dismissed, and also that our client’s claims of breach of fiduciary duty and constructive trust may likewise be revived. On remand, the trial court is tasked with determining damages for the conversion.
Dad holds family meeting before he dies, and says he wants everything to go equally to his six children. He specifically indicates that this includes all assets controlled by beneficiary designation. His will likewise provides for equal division. But when he dies, the beneficiary on one IRA is to one of his children, individually.
The other children go to great lengths to show that there were defects in the way the financial institution tracked the paperwork associated with the beneficiary designation on this IRA, which defects, they claim, opens to the door to extrinsic evidence and ambiguity. But their case falls short, particularly because the financial advisor who managed the accounts testified that he had a conversation with the decedent when the account needed to be updated, and the decedent reaffirmed that he wanted to retain the single child as beneficiary.
The case, In re Estate of William Patrick McNeight (click on the name to read the case), offers a good discussion of admissible evidence of intent [hearsay exception 803(3)]; as well as the difference between a contest over a joint account (in which there is merely a presumption of ownership in the survivor) versus a beneficiary designation (which is conclusive subject to being set aside by evidence sufficient to invoke a legal or equitable theory for relief). The case is unpublished.
The trial court decided the case on summary disposition, which was affirmed by a majority of the COA panel. The dissenting COA judge writes that, in light of the amount of paperwork, the number of accounts held by the institution, and the institution’s seemingly imperfect ability to track their own forms, the case should not have been disposed of on summary disposition. To read the dissent, click here.
A lot of potential litigation matters start with the proposition that: “Our parents always said everything would be divided equally.” The Appellants in this case did a good job trying to make something of these statements. But in the end, as with most such matters, that expression simply isn’t enough to overcome a written testamentary document that indicates otherwise.
A new unpublished case offers a helpful refresher on contempt proceedings in the context of trust and estate administration.
“Vera” was removed as co-trustee and co-personal representative of her mother’s trust and estate. After her removal, the probate Court determined that Vera had deeded herself real property that she was not entitled to receive. The Court ordered Vera to sign a deed conveying the property back to the trust and threatened incarceration if she did not comply. In open court, Vera refused to sign the deed as ordered. But the trial judge did not immediately send Vera to jail for her contempt. Rather, the Court issued an order which allowed her time to consider her situation and to “purge the contempt” by signing the deed at a later time. The Court explained that if she failed to do so, she would be jailed for her contempt at some later date. When that time passed and Vera still refused to comply, the Court issued a recordable order correcting title to the disputed real estate and sent Vera to jail for seven days for contempt.
The Court then ordered Vera to account for her actions as Trustee and P.R. for the period of time prior to her removal. When Vera refused to provide what the Court considered adequate accountings, she was again sent to jail for contempt, this time until she decided to cooperate.
Vera appealed both orders pursuant to which she was jailed.
In this opinion, the COA explains that there are two kinds of contempt. Criminal contempt is imposed for actions which are an affront to the Court, and which occur in the immediate presence of the Court. The purpose of criminal contempt action is to punish the wrongdoer for disrespecting the Court’s authority. Civil contempt is imposed for violating a Court’s order and continues until the contemptuous party complies. The purpose of a civil contempt action is to coerce a person to comply with an order of the Court.
The COA says that the trial Court was wrong when it jailed Vera for not signing the deed. Although the trial Court could have done so as an exercise of its criminal contempt powers when Vera first refused in open court to comply with the Court’s order, by delaying the punishment and giving her the opportunity to remedy the wrong, this became an exercise of civil contempt powers. That is, the purpose of the order was not to punish Vera for disrespecting the Court’s authority, but rather to coerce her into signing the deed. However, when the trial Court finally sent Vera to jail for refusing to sign the deed, the Court had already issued its own order invalidating Vera’s wrongful deed, and therefore there was no longer any coercive purpose to the Court’s sentence, the matter having been remedied by alternate means. As such, this jailing failed to meet the requirements of either a civil or criminal contempt proceeding.
As to jailing Vera for refusing to provide appropriate accountings, the COA says that this was a proper exercise of the trial Court’s civil contempt power. That jail sentence was designed to coerce Vera to provide information known to her, which she was ordered to produce, and which she had a legal obligation to provide.
So, clients who don’t follow Court orders can go to jail for contempt. Courts must be careful about how these contempt powers are exercised, and must make appropriate distinctions between civil and criminal contempt powers.
A newly released unpublished opinion of the Court of Appeals looks again at the authority of the probate court to issue a protective order in the context of a married person in a nursing home who is receiving Medicaid benefits, when that order impacts how much of the income of the nursing home resident can be diverted to support their spouse in the community. The case is called In Re Michael DeClerck. Click on the name to read the case.
This case follows the Vansach decision which was published in May 2018, and which I blogged about at that time. That post was called Medicaid Planners Get Rare Win from COA. Click on the name to read that post.
As would be expected, this panel of the COA remands the case to be decided in the context of Vansach, which basically requires the probate court to make certain findings about the needs of the parties in order to support the diversion of income granted. What is interesting, and perhaps helpful, about this opinion, is that it also directly addresses the argument of the appellant (the Michigan Department of Health and Human Services), that the probate court lacks jurisdiction to issue these orders unless and until the appellee exhausts their administrative remedies. The COA rejects this argument, which is good news for Medicaid planners.
The issue is important to planners and to the State for the reason that the more income that is diverted to the community spouse, the less that is paid to the nursing home by the Medicaid beneficiary as their “patient pay amount,” and the more the State has to pay for the nursing home resident’s care.
DHHS policy provides a formula for determining how much of the income received by a married Medicaid beneficiary in a nursing home is contributed toward their own care (the “patient pay amount”), and how much, if any, can be diverted to support their spouse in the community (the “community spouse income allowance”). DHHS policy offers two alternate processes for obtaining an exception to the default formula. One way is to file an administrative appeal, the other is to obtain a court order. Medicaid planners almost always take the probate court route, because the administrative route is perceived to be bias against them to the point of futility.
In this case, the COA rejects the DHHS argument that the Medicaid recipient must first go through the administrative process, and lose, before they can petition a probate court for relief. The COA holds that, pursuant to Medicaid policy, a court order and an administrative appeal are simply alternative options, and that there is no requirement to go through the administrative process before petitioning a probate court. This result is certainly implicit, if not express, in the Vansach opinion. Arguably, in Vansach, the DHHS argument focused only on the proposition that the probate court simply lacked jurisdiction and that the administrative process was the exclusive process. In this case, the issue is framed slightly differently, but the result is the same. Probate Courts may issue these orders, and DHHS must accept the probate court’s decisions. Per Vansach, the probate courts must base their orders on certain findings regarding the needs of the parties involved.
Thanks to our friends at the Mannor Law Group for their work on this matter.
This is a published decision about a guardianship over a person with a developmental disability (a “DD guardian”), and more specifically, the powers of a DD guardian versus Community Mental Health (“CMH”) with respect to the transfer of the protected person from one CMH facility to another. As probate lawyers understand, DD guardianships are not controlled by the probate code (“EPIC”) but rather by the mental health code.
In this case, Lisa, the protected person, had lived in a CMH home called “College Avenue” for 10 years. When CMH notified the guardian that it intended to move Lisa to another CMH home, the guardian filed a petition in the local probate court seeking to enjoin the move.
The controlling law, MCL 330.1536 says:
(1) A resident in a facility may be transferred to any other facility, or to a hospital operated by the department, if the transfer would not be detrimental to the resident and the responsible community mental health services program approves the transfer.
(2) The resident and his or her nearest relative or guardian shall be notified at least 7 days before any transfer, except that a transfer may be effected earlier if necessitated by an emergency. In addition, the resident may designate 2 other persons to receive the notice. If the resident, his or her nearest relative, or guardian objects to the transfer, the department shall provide an opportunity to appeal the transfer.
(3) If a transfer is effected due to an emergency, the required notices shall be given as soon as possible, but not later than 24 hours after the transfer.
At the hearing, CMH relied on affidavits supporting the proposition that this move would not be detrimental to Lisa. The guardian presented testimony from several witnesses, including Lisa’s doctor, who said that the change would be harmful to Lisa. The probate court granted the injunction, and this appeal followed. The COA affirmed the trial court.
The decision of the COA is stunning, and the fact that this is a published opinion, even more so. Clearly the statute allows CMH to make this decision and provides that the remedy for an objecting party, such as a guardian, is an administrative appeal.
The opinion would be more sensible if the COA was taking the position that the probate court order only maintained the status quo until the administrative appeal process played out. But that is not what they say. Rather the COA says: “For purposes of this appeal, we will assume that the order serves as a permanent injunction from transferring Lisa to any facility at any time without court approval.” Clearly, therefore, the COA has given the probate court the power to circumvent the nearly unfettered authority of CMH over the placement of its residents granted to it by MCL 330.1536.
This case represents a huge win for the special needs community. But I believe the decision stands on shaky ground, and I would be surprised if the State does not seek leave to appeal this decision to the Michigan Supreme Court. We’ll see.
To summarize, for twenty years the “Solely for the Benefit Trust” (“SBO Trust”) was the primary Medicaid planning tool for married couples in Michigan. In August 2014 that reign ended when the Michigan Department of Human Services (now the Michigan Department of Health and Human Services aka “DHHS”) reinterpreted their rules and started treating assets held in SBO Trust as available resources. That change led to litigation challenging the DHHS interpretation, which litigation was unsuccessful in the Court of Appeals. The case was then taken up to the Michigan Supreme Court.
The majority opinion in this case holds that DHHS was wrong when it determined that assets in an SBO Trust can be considered available resources. They say:
The SBO trusts at issue all contain language stating that distributions or payments from the trust may only be made to or for the benefit of the respective community spouse and that the trust resources may be used only for the community spouse’s benefit. The ALJs and the Court of Appeals recognized this but erred by concluding that payments to or for the benefit of the community spouses were available to the institutionalized spouses. Because the community spouses are not themselves applying for or receiving Medicaid benefits, they are not “the individual” referred to in 42 USC 1396p(d)(3)(B). Thus, the Court of Appeals erred by holding that the possibility of a distribution from each SBO trust to each community spouse automatically made the assets held by each SBO trust countable assets for the purposes of the respective institutionalized spouses’ initial eligibility determination. Accordingly, we reverse the Court of Appeals judgment because it was premised on an incorrect reading of the controlling statutes and thus was contrary to law. It follows that the ALJs’ decisions are also contrary to law and cannot stand, given that they all suffer from the same faulty reasoning employed by the Court of Appeals.
And yet, the majority does not simply order DHHS to approve the applications at issue. Rather it offers the following cryptic explanation of their remedy:
The question now becomes what relief should be granted. … The sheer complexity of the Medicaid program and the Department’s legitimate concerns about potential abuse are paramount considerations in determining what relief is warranted. We further note that, given the reasoning employed in resolving the administrative appeals, the ALJs may have forgone consideration of alternative avenues of legal analysis. In light of these concerns, we decline to order that the Department approve plaintiffs’ Medicaid applications at this time. Instead, we vacate the final administrative hearing decision in each case and remand each case to the appropriate administrative tribunal for the proper application of the any-circumstances test. If the ALJs determine that circumstances exist under which payments from the trusts could be made to or for the benefit of the institutionalized spouse, then the ALJs should explain this rationale and affirm the Department’s decision. However, if no such circumstances exist, the ALJs should reverse the Department’s decisions and order that the Medicaid applications be approved.
One has to wonder, if, as the opinion says, DHHS was wrong in concluding that assets in an SBO are available resources to the institutionalized spouse, what “alternative avenues of legal analysis” or “circumstances” test are they expecting the ALJ to apply?
The McCormack Concurrence
In a lengthy concurring decision, Justice Bridget McCormack, the Chief Justice on the MSC, argues that while the assets in an SBO may not be available resources, the funding of an SBO within five years of application would result in a divestment, and accordingly the decision of the MSC will provide no benefit to the elder law bar or their clients. While her reasoning seems strained, she has clearly offered the DHHS an avenue to continue to fight the use of SBO trusts in Medicaid planning. And, as Justice McCormack correctly notes, the majority expressly avoided the question of a divestment analysis in their opinion.
The immediate impulse to rejoice at this important decision needs to be tempered. The MSC could have given the elder law bar a clear victory and reinstated the SBO trust without qualification, and nearly all of their opinion seems to be consistent with that result. And yet, they chose to pull their punches and leave open the possibility that, in the end, this may prove to be a Pyrrhic victory. Time will tell.