Terror Clause Canaries Don’t Fly

In this unpublished decision from the Court of Appeals, a potential litigant filed a “petition for instruction” which asked the trial judge to decide the question of: If a subsequent petition to modify the trust were filed, whether such a petition would be deemed to violate the trust’s terror clause and thereby cause petitioner to forfeit her interest in the trust?

Click here to read: In Re Robert E. Whitton Revocable Trust

Curiously, a trial judge saw fit to issue such an opinion. In this case, the trial court determined that the petition for instruction did not itself violate the terror clause, but that a subsequent petition to modify the trust would violate the clause and that the petitioner had no probable cause to bring that petition.

A terror clause (aka “no contest clause”) is a provision in a will or trust that says a beneficiary will be penalized (typically the penalty is to lose their interest in the estate) if they contest the will or trust at issue.

Michigan law on terror clauses is pretty straightforward and is spelled out in MCL 700.7113 (for trusts) an in MCL 700.2518 and 700.3905 (for wills). (click on the statutes to read them). They are generally enforceable, but will not be enforced in cases where the party had “probable cause” to initiate the proceeding.

Litigants, like the one in this case, have long attempted is to come up with a way of having a court determine whether they will be penalized if they bring an action before actually doing so. They want to know in advance whether they will be deemed to have triggered the terror clause if they file a petition being contemplated.  These efforts don’t work.  Several years ago, the Court of Appeals issued a published decision in a case handled by our firm in which it declared that trial courts lack authority to rule on such speculative matters for the reasons that the issue is non-justiciable (not ripe, as it were).  Click here to read that prior post.  Basically, the appellate courts have said that if you want to contest a document, you have to take your chances.  So, it’s no surprise that the Court of Appeals held that the trial court lacked jurisdiction to decide this case, and vacated that part of the trial court’s decision.  And it’s curious that, in light of the clear law on this point, the trial judge in this matter thought that such an action could be decided.

This case also offers the opportunity to discuss another, perhaps dicier, aspect of our terror clause statutes, which is that the imposition of a penalty is not necessarily limited to proceedings in which the validity of document at issue is being contested. Rather these statutes indicate that a terror clause can be written to impose a penalty for initiating any type of proceeding relating to the trust or will.  So, in this case, the anticipated subsequent petition was being framed as a “petition to modify” a trust to conform with an amendment that the settlor had purportedly had drafted, but never got around to signing.  The appellants in this case were hoping to escape the imposition of the terror clause penalty on the idea that the subsequent petition they were considering wouldn’t actually (per their argument) contest the validity of the trust, but would only inquire as to the validity of an unsigned amendment.  Likewise the respondents in this matter argued that the act of bringing a petition for instruction was itself a violation of the terror clause.  The point of all this is that Michigan law allows for very broad terror clause provisions, including, presumably, a provision that would penalize a litigant for bringing a petition for instruction, or that says a petition seeking to recognize an unsigned amendment is a violation. The opinion in this case indicates only that the terror clause in this trust was “lengthy.”  It is not clear what the scope of this lengthy terror clause is, but it is seems possible at least that a terror clause could have been written which would have been unambiguous on these specific issues.

So, the points here are that (1) There are no terror clause canaries – no free bites at the apple. When a terror clause is in play, you take your chances.  And (2) A terror clause may be written to impose a penalty for initiating any form of proceeding which relates to the will or trust at issue.  The scope of the terror clause itself is significant in deciding how to proceed in cases where these provisions are in play.

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COA on Brody Trust Remand: We Were Both Right

In what should be the last chapter in the Rhea Brody Trust saga, the Court of Appeals has released its decision resulting from a Michigan Supreme Court Order remanding the case to the COA.  As previously discussed here, confusion was created by the first Brody Trust decision (“Brody I”) regarding whether a child/beneficiary has standing to initiate litigation involving a parent’s revocable trust regardless of whether the parent/settlor is still competent.

To read the new Brody case, click here.

To read prior posts on this case, click here and here.

In Brody Trust I, the COA held that a child who is a beneficiary of a revocable trust may have standing to initiate litigation regarding the administration of a revocable trust, regardless of whether the parent/settlor is competent. The COA relied upon the definition of an “interested person” as set forth in MCL 700.1105(c).  That decision shocked the probate community, and caused the probate section of the state bar to file an amicus brief asking the Michigan Supreme Court to reverse that holding.  [The probate section did not ask for a reversal of the outcome of Brody I, because based on the facts of the case, and specifically the fact that the settlor was in fact incompetent, and the trustee was also the settlor’s agent under a power of attorney, standing would exist under MCL 700.7603(2).]  Click on the statute to read those laws.

The MSC accepted briefs on appeal, but rather than hear and decide the case, the MSC simply vacated controversial portions of Brody I and remanded it to the COA for a new and improved opinion.

Now, the new opinion (“Brody II”) has been issued.  In it, the COA acknowledges that the probate section was correct in asserting that MCL 700.7603(2) would apply in this case and that the application of that statute would provide standing to the petitioner/child/beneficiary. But – and it’s kind of a big but – they say that they were not wrong in their application of MCL 700.1105(c).

Litigators Rejoice?

Brody II is published, so it is the law. What this means, it seems, is that under MCL 700.1105(c), depending on the facts and circumstances of the case, a probate court could find that a child or beneficiary of a revocable trust might have standing to initiate litigation regarding the administration of a revocable trust even where the settlor remains competent and could amend the trust and cut out complaining child/beneficiary.  Is this a boon for litigators?  Possibly, but I think probably not.  Probate courts have discretion under the second sentence of 700.1105(c) to determine who would be an interested person in any particular proceeding, and that decision is based on the “particular purposes of, and matter involved in” the litigation.  Presumably, it would be a rare set of circumstances where a trial court would want to exercise their discretion to allow litigation by an aggrieved child or beneficiary in cases where the settlor can speak for themselves.  Presumably also, competent settlors who are offended by having their children and/or other beneficiaries initiate litigation, will in fact amend their documents and resolve the issue that way.

Conclusion

So, the COA missed the obvious way to resolve this case in Brody I, and they acknowledge that Brody II. But they don’t just leave it at that.  By taking the “we were both right” approach, they allow for the possibility of future litigation initiated by children or beneficiaries of revocable trusts while the settlor is competent.

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Michipremes Ponder the Space between Absent and Divorced

The Michigan Supreme Court has ventured back into probate law, this time to explain the rules for determining what it takes to prove that one spouse was “willfully absent” from the other pursuant to MCL 700.2801(2)(e)(i). It’s another lengthy opinion, and again there is significant division among the Justices.

In Michigan, if a married person dies, their surviving spouse has certain statutory financial rights in the probate estate of the deceased spouse. That is, unless the surviving spouse was “willfully absent” from the deceased spouse for a year or more before the death.

The facts of this case are that James married Maggie in 1968. They had four children together.  In 1976, Maggie packed up the kids, moved out and successfully sued James for support.  The two lived apart, although both in the same town (Saginaw), up until James died in 2012.  The trial court found that Maggie was still adequately connected to James throughout their 36 year separation so that it could not be said she was willfully absent.  The Court of Appeals affirmed.  The Supreme Court affirmed in a 4-3 decision.

Much of the majority opinion focuses on facts of this particular case, which the majority weaves to construct a story whereby the 36 year absence is portrayed as something short of a willful absence.  [I love it that the majority counts it as evidence of their continued emotional connection that James consented to the support order – rather than have a trial and possibly face a higher amount.  Or that he joined Maggie in a suit to allow her to continue to receive healthcare benefits through his employer – when presumably his support payments would have increased had she been cut off.]

The dissent, joined by three justices, argues that the majority has stretched the meaning of the word “absent” beyond reason.

Ultimately however, the case of In Re Estate of James Erwin Sr. will stand for the proposition that:

Absence in this context presents a factual inquiry based on the totality of the circumstances, and courts should evaluate whether complete physical and emotional absence existed, resulting in an end to the marriage for practical purposes. The burden is on the party challenging an individual’s status as a surviving spouse to show that he or she was “willfully absent,” physically and emotionally, from the decedent spouse.

To read In Re Estate of James Erwin,, Sr. click here.

Congrats to friend and colleague Valerie Kutz-Otway for prevailing despite some clearly difficult facts.

XXX TURN BACK NOW XXX

Supplemental Ramblings

Ok, these cases are kind of interesting in a sociological sort of way, right? And the courts didn’t create this problem. The legislature made this an issue by deciding that divorce isn’t the only line that matters; and by giving it a name (“willfully absent”) that suggests ill will or selfishness. So there’s a country music quality to the whole thing that invites gender stereotypes and morality judgments.

Remember Arbutus and Lyle? (click here for a refresher)

Maggie is different than Arbutus but the same. Both are seemingly good women who did what they had to do to get by. Arbutus was a good hearted woman lovin’ a good timin’ man (she loved him in spite of his wicked ways that she don’t understand). Maggie’s story is less developed, but the suggestion is that she did what she had to do for herself and their children and that she would have stood by her man, if he had only been a better husband.

So maybe this is really a gender stereotype thing. Would James have been treated as surviving spouse as to Maggie’s estate?  Would the Court have gone to such lengths to find a sufficiently adequate emotional connection to give him a bite out of her life savings?  Seems unlikely to me. His wife left him and took the kids, then had to sue him for support.

Or maybe this is just about sex. What if Arbutus or Maggie had gone off and shacked up with some other guys?  Would the court feel so warm and fuzzy towards these women, or would their sexual liberation be a bar to their rights?

So when this issue arises, we face something like a common law divorce trial, one where fault is a relevant inquiry. Is this helpful or necessary where we already have a clear line of married or divorced?  But, as I say, the legislature created this situation, not the courts.  In fact, by maximizing the circumstances in which someone can be found to not be willfully absent, that is, by minimizing the space between willful absence and divorce, the MSC has probably done all it can to discourage litigation in this arena.

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