Another Brody Bombshell

UPDATE:  This decision was subsequently revised.  Some of the problematic aspects of the COA opinion were corrected.  See Better Than Nothing? for details.

 

This is a published Court of Appeals opinion involving the appointment of a conservator over an adult under EPIC. Click here to read In Re Conservatorship of Rhea Brody.

This case comes out of same family that was involved in the In Re Rhea Brody Living Trust, which case is the topic of the post earlier this month. That prior case dealt with the Rhea Brody Trust, and offered the surprising revelation that a contingent beneficiary of a Trust could contest the actions of the Trustee even while the trust remained revocable.  Click here to read that post.  This second Brody case deals with the appointment of a conservator for Ms. Brody.

The litigants in the case are aligned similarly. In the Trust matter, husband and son were aligned in defending the removal of husband as Trustee, which arose as a result of favorable business dealings between the husband as trustee and the son; which dealings were perceived as being done to the detriment of the daughter, a contingent beneficiary.  In this case, husband and son oppose appointment of a conservator, which appointment is supported by daughter.  The court appointed an attorney who was also acting as Trustee of Rhea’s Trust to serve as her conservator.  The COA affirms.

The husband, as appellant, contests pretty much every aspect of the trial court’s decision, except the finding that Rhea was incompetent. The conclusions of the COA are intriguing.  Look for this case to be cited often by litigators seeking to impose conservators and desiring to by-pass priorities of appointment.  To some extent, perhaps a large extent, this case is the counter balance to In Re Bittner, a relatively recent published opinion addressed in the post “Bittner’s Bite” (click on name to read that post).  In Bittner, the COA chastised a trial judge for imposing a conservator where the requirements of EPIC were not met.  Here, the COA goes to great lengths to justify the appointment over seemingly problematic facts.

One issue relates to whether the evidence supported the finding that appointment of a conservator was necessary to provide for management of assets and avoid waste. In this case the evidence is that husband was agent under a valid POA for Rhea, and further, that all of her assets (except one IRA) were joint with husband.  Further, husband alleges that the IRA was set up to make minimum required distributions annually.  The basis for finding necessity appears to be the conclusion that husband wasn’t really managing these matters, but rather that he had “abdicated” his role to the son, and that son was a potentially devious manipulator of the situation.  The COA goes so far as to suggest that the appointment of a conservator was necessary so that someone independent could review the tax returns.

Which leads to another conclusion of law by the COA in this matter: that the appointment of a conservator does not require a finding that there has been waste of assets, only that such waste could occur in the future. So reasonably founded speculation is enough.

Additionally, and perhaps most concerning, are the findings of the COA with respect to the priority of appointment. The COA cites MCL 700.5409(1)(a)  for the proposition that an independent fiduciary has priority over a spouse and agent under a POA where the POA nominates the agent as conservator. MCL 700.5409(1)(a) says:

(1) The court may appoint an individual, a corporation authorized to exercise fiduciary powers, or a professional conservator described in section 5106 to serve as conservator of a protected individual’s estate. The following are entitled to consideration for appointment in the following order of priority:

(a) A conservator, guardian of property, or similar fiduciary appointed or recognized by the appropriate court of another jurisdiction in which the protected individual resides.

I have always understood this section to mean that a conservator previously appointed by another court would have priority. In this case, the COA seems to say that a professional fiduciary appointed as Trustee over the ward’s Trust by this same Court meets that definition.  The COA states:

Under MCL 700.5409, a protected individual’s spouse is entitled to consideration for appointment as conservator, and is granted priority over all other individuals except “[a] conservator, guardian of property, or similar fiduciary appointed or recognized by the appropriate court of another jurisdiction in which the protected individual resides,” MCL 700.5409(1)(a), and “[a]n individual or corporation nominated by the protected individual if he or she is 14 years of age or older and of sufficient mental capacity to make an intelligent choice, including a nomination made in a durable power of attorney,” MCL 700.5409(1)(b). As Rhea’s husband, Robert was an individual entitled to priority consideration. However, Robert was not entitled to consideration unless the probate court considered an independent fiduciary and found him or her unsuitable. Lyneis, as trustee and independent fiduciary, had statutory priority over Robert, despite Robert’s marriage to Rhea. MCL 700.5409(1).

Wait – WHAT? Where is the other jurisdiction?

Further, and maybe even more unsettling, the COA says:

The statute’s priority classifications are merely a guide for the probate court’s exercise of discretion.

Really?  This statement seems to fly in the face of a long line of cases that require a finding of unsuitability – including, perhaps ironically, the case of In re Guardianship of Dorothy Redd, which is the topic of the other post I wrote today, a case issued by a separate panel of the COA on the same date as this matter.

That said, the COA goes on to say that the husband is unsuitable, again, because the son is a manipulative fellow and may use his influence over husband to Rhea’s detriment in the future.

There are other issues addressed in this case, but I think I’ve hit the ones that seem most significant, and that are those most likely to be cited by litigators in the future.

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Seeing Redd

Here’s another important published opinion on the topic of adult guardianships. The case is about the removal of a guardian of an adult ward appointed under EPIC.

The case deals with the very common, and therefore very important, situation in which a guardian is using its position to undermine healthy family relations. In this case, the facts relied upon by the trial court and the COA are that the existing guardian was actively interfering with visitations, and taking steps to cause the ward to be distrustful of other family members.  These alienation cases go on all the time.  It is helpful to have an opinion that clarifies that such behavior is a basis for removal of a fiduciary.  It is likely that this case will be cited frequently where such facts arise, and I suspect that the finding that such behavior disqualifies a guardian will be offered by extension to cases involving conservators and other fiduciaries.  And that’s good.  We need this law.

So basically the trial court removed a guardian for the reason that he was undermining family relations, and the COA affirms. Click here to read In re Guardianship of Dorothy Redd.

In reaching its decision, the COA holds that the standard for removal is “suitable and willing to serve.” This finding is an important clarification of MCL 700.5310 which is silent on the requirement for removal.

The COA also finds that the standard of proof for removing a guardian for unsuitability is not clear and convincing evidence, but rather a preponderance. Interestingly, in reaching this conclusion the COA indicates that the standard for proving unsuitability in the initial appointment hearing is clear and convincing evidence.  This reading of the priorities in a guardianship proceedings seems inconsistent with the conclusions regarding priorities and unsuitability reached by a separate panel discussing these issues in the context of a conservatorship, as addressed in my other post of today’s date regarding In Re Conservatorship of Rhea Brody.

So, it’s a big day in the world of litigating guardianships and conservatorships. These two published cases (Brody II and Redd) will be cited in the future, each for their own important conclusions of law.  Probate litigation in the age of living to be 100, where the fun never ends.

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Writing is not about perfect

I write a lot and enjoy it. I have thoughts about the topic of writing, which, for what they’re worth, I offer here:

Writing is a habit.

I started writing at an early age, and spent a decade as a journalist before becoming a lawyer. I often think that if there was one thing I was given that I would love to have given to my daughters, it would be those ten years of sitting at a typewriter (yes, this was before desktop computers took over).  It was work then, but as I moved into the practice of law, I found that I missed that regular time at the keyboard.  So now writing is a habit for me and, like many habits, it is comforting to do it.

Writing is lonely

I have this idea about all undertakings, that the more you talk about it, the less likely it is to come to fruition. It’s like spoken words are the steam that once escaped from the engine, leave inadequate energy to make the grade.  In writing, more than anything else, I find that to be true.  If I talk about a topic I have on my mind, it becomes harder to write about it.  The ideas become fuzzy and my motivation to get it out dissipates. So, for me at least, I keep my ideas to myself until I can organize them and capture them on paper.  I don’t think I’m unique in that – but maybe.

With repetition comes your voice

I believe writing is difficult for people who have not done much of it because they haven’t developed their written voice. It took me many years of writing to get to the point where I could write quickly and clearly; and years more before I felt that I could write quickly, clearly and that the words could convey nuance and suggestion. Now writing is not effortless, but it is not difficult.  It is more like speaking.

Writing has weight

Growing up my Dad would say that people who write have more influence. He was not a writer.  I think he said it out of frustration.  Someone else’s ideas may not be any better than his, but because they had published their ideas somewhere, they just seemed smarter and more insightful.  For a long time I never thought much about his observation.  Now I get what he meant.  For whatever reason, people give more weight to written words than they do to spoken words.  Permanence perhaps.  Things said vanish.  Things written remain.

Writing is not about perfect

Every time I write something I rework it many times before I feel it is ready to go. But I know that if I looked at it again, I would change it again.  Yet there comes a point when the project needs to be done – and I need to be done with it.  It is never perfect, but maybe good enough.  I think people who are inhibited to write feel that what they write has to be perfect. Writing is not about perfect, it’s about done.

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Remainder Beneficiary of Revocable Trust has Standing to Sue Trustee for Breach

UPDATE: On June 8, 2018, the Michigan Supreme Court vacated those portions of this decision that incorrectly construed the Michigan Trust Code provisions related to standing to initiate a trust proceeding.  The MSC also remanded the case to the Court of Appeals to be corrected and reissued.  Click here to read the MSC Order.  When a new COA opinion is issued, it will be added to this post.

 

Several issues are addressed in this published opinion regarding a family trust contest that occurs while Mom, settlor, is living. Mom’s trust is revocable and Dad is Trustee.  Mom may or may not be competent at the time of the litigation, hence the Trust may or may not have become irrevocable.

To read In Re Rhea Brody Living Trust click here.

The most interesting issue addressed in the opinion is whether Daughter, a residual beneficiary of a trust that remains revocable, has standing to contest the administrative actions of the Trustee. Mom’s Trust provides for both son and daughter to receive equal shares upon the death of survivor of herself and Dad.  Daughter says the sale, by Dad/Trustee, of certain business interests to Son and his children is a breach of his fiduciary duty to her and violates the requirement that he appoint an independent co-Trustee to engage in any action that alters the interests of beneficiaries.  The COA says Daughter, as reidual beneficiary, has standing as an “interested person” under EPIC pursuant to MCL 7.7201 to contest Trustee/Dad’s actions as Trustee which would ultimately affect her interest if the Trust if it is not subsequently amended to remove her.  It rejects the contention that standing is controlled by the “real party in interest” rule set forth in MCR 2.201(c). The COA holds that this would be true regardless of whether Mom is or isn’t competent (that is, regardless of whether trust has or has not become irrevocable).  This is an important clarification of the law, and would presumably mean that Daughter could have sued Mom/Settlor for doing the same thing if Mom were acting as her own Trustee.  (Of course, if that were the case, Mom could simply amend the Trust and make the issue moot.)

Further complicating the analysis is the fact that the Trust provides that if Dad survives Mom, Dad as Trustee may make unequal distributions to the two children. Accordingly Dad and Son argue that this means no harm was done to Daughter even if the sale reduced her expectancy interest in the Trust.  The COA however notes that Dad has not survived Mom and therefore those provisions are not in play.  The COA goes further (perhaps dicta), to conclude that notwithstanding the unequal distribution provisions, the overall intent of the Trust is equal division between children and therefore the actions of Trustee/Dad could be a breach.  The trial court in fact found his actions to be a breach and ruled in favor of daughter on summary disposition.

The COA also provides an interesting analysis of the remedies directed by the trial court regarding two sales that were the basis of the litigation. The trial court ordered reformation of the contract on one sale and rescinded the other.  The COA found that while rescission was an appropriate remedy, reformation was not.  In remanding the reformation portion of the trial court’s order, the COA offers an important explanation of the limitations of a court’s equitable powers.

Finally, and least importantly (although this is the first issue addressed in the opinion), this case looks at subject matter jurisdiction of business courts in relation to probate courts. Dad/Trustee argued that the litigation discussed above was improperly filed in probate court because all business litigation is required to be brought in the “business court.” The COA finds that there is a conflict between the statutes controlling business court and probate court subject matter jurisdiction, but concludes that the probate court does not lose subject matter jurisdiction over trust cases simply because the litigation involves issues related to business interests.  The COA notes that this confusion is temporary for the reason that the business court jurisdiction statute was recently amended to further limit the jurisdiction of business courts to cases in which a business entity is a party.  That change becomes effective October 11 2017.

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