MSC Fixes Brody Trust

As previously discussed on this blogsite, the problem with this Rhea Brody Trust case is that the Court of Appeals misconstrued the standing provisions of the Michigan Trust Code in concluding that a child/beneficiary of the settlor has standing to initiate a trust proceeding while the parent/settlor is alive. [See Remainder Beneficiary of Revocable Trust has Standing to Sue Trustee for Breach]. Besides being wrong, the COA’s conclusion was unnecessary because under the facts of this case (including the fact that the settlor was incompetent), the offended party had standing under the Michigan Trust Code.

As with the Brody conservatorship case, the COA decision was appealed to the Michigan Supreme Court and an amicus brief was filed by the Probate Section of the State Bar. As with the Brody conservatorship matter, the MSC received the amicus brief, fixed the problem, and then denied leave as no longer necessary.  However, in this matter, the MSC actually ordered part of the COA’s decision vacated and remanded the matter to the COA to correct their analysis.  So presumably there will be another, more enlightened, COA decision forthcoming.

Click here to read the MSC Order.

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Beneficial Interest in Trust Enough for PRE

In this published decision, the Michigan Court of Appeals goes to great lengths to conclude that a person who lives in a house that is owned by an irrevocable trust, which trust provides this person with a right of occupancy, is an “owner” of the house for the purposes of qualifying for the personal residence exclusion with respect to their property taxes.

Click here to read Breakey v Department of Treasury.

 

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COA Sets the Record Straight on Priorities

This new published Court of Appeals opinion shouldn’t surprise anyone. The COA holds that where a professional guardian/conservator resigns, and the only adult child of the ward petitions to be appointed guardian and conservator, the probate court cannot appoint a new professional guardian and conservator unless it makes a finding that the child is unsuitable.  That’s because the child has priority to be appointed.  The fact that the probate judge by-passed the child and appointed a new professional fiduciary without such evidence was reversible error.

Click here to read In Re Guardianship/Conservatorship of Harold William Gerstler.

The facts are kind of fun: a devious Aunt, a lazy guardian ad litem; but in the end the COA simply reads the statutes regarding priority of appointments and applies them to the facts.

The only thing curious about this case is that it is published. But perhaps the timing of this publication tells us something.  Perhaps, just maybe, the COA is trying to clean up the confusion left from the recently published (and revised and republished) Brody case which said that the statutory priorities were “merely a guide for the probate court’s exercise of discretion.”  [Check out the post “Better Than Nothing?” for a discussion of that case.]

Significantly, the Gerstler opinion also adopts the position that the standard of proof necessary to by-pass a person with priority is as stated in the Redd case: a preponderance. [Click here to read “Seeing Redd”.]

So, when the issue of appointment of either a guardian or conservator is in play, a party with priority is entitled to appointment unless it is shown by a preponderance of evidence that they are not suitable. That means a probate court has to have a hearing and consider evidence to make this decision. I, for one, am glad that’s clear.

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Medicaid Planners Get Rare Win from COA

The Michigan Court of Appeals has issued an opinion regarding the appropriateness of using probate court protective orders to obtain spousal support orders in situations where such orders impact the calculation of a nursing home resident’s Medicaid “patient pay amount.” The outcome is 80% good for planners, and as such is a refreshing break from the series of punishing COA opinions that have been issued in recent years with respect to Medicaid planning cases.

The case is published, lengthy and involved. Click here to read the combined cases of In Re Joseph VamSach Jr., and In Re Jerome R. Bockes.

For the uninitiated, a “patient pay amount” is the portion of a person’s income that is required to be paid to toward their care when they are in a nursing home receiving long term care Medicaid benefits. The exact amount is a function of Michigan Department of Health and Human Services (DHHS) policy, which provides a formula for calculating the patient pay amount.  When the nursing home Medicaid beneficiary is married, that formula allows for diversion of income to the “community spouse.” DHHS policy also provides that where a court order directs payment from the nursing home resident to the community spouse, that court order supersedes the formula for determining the amount of income diverted.

In both of the cases before the COA, the local probate court ordered that 100% of the income of the nursing home resident would be paid to the community spouse for their support. These two decisions were appealed by DHHS, represented by the Michigan Attorney General, and the two cases were combined by the Court of Appeals.

The main argument of DHHS was that the probate court lacked jurisdiction to hear these cases. That argument was made on several grounds, all of which failed.  In this decision, the COA holds that probate courts have the authority to grant these orders and that in doing so those courts are not engaged in making DHHS eligibility determinations even though the clear purpose of obtaining such orders may be for that reason.  That’s a big win for the planners.

The COA also holds that the fact that these individuals may have had power of attorneys in place at the time of the petition does not preclude the probate court from getting involved. The COA reasons that the specific form of relief desired (a court order of support) would not be something that an agent acting under a POA could provide, and therefore the court does have jurisdiction to hear these matters.  This holding has potential applications beyond Medicaid planning matters.

After dismissing the primary jurisdictional challenge, the COA ventures into a discussion about how a probate court should decide these cases. The COA holds that in the two cases giving rise to the appeal, the probate courts erred in awarding 100% of the nursing home resident’s income to the community spouse, and vacates both orders and remands the cases.

The COA instructs Michigan’s probate courts that the burden is on the party seeking the order of support to show, by clear and convincing evidence, that the community spouse “needs” the additional income, that it is more than a “want,” and that in deciding whether or how much to award, the probate judge must consider the interests of the institutionalized Medicaid beneficiary and their obligation to contribute toward the costs of their own care. The discussion of this process goes on for several paragraphs, and includes several lengthy footnotes, using, at times, vague and clouded statements to explain how this balance should be struck.  In the end, the opinion seems to intentionally avoid the obvious conclusion that the institutionalized spouse has no real interest in paying anything more than they have to toward their care, as their care remains the same notwithstanding, and that in almost every case the interest of institutionalized spouse would be to divert as much income to support their spouse as possible.  The COA seems to want to direct the probate judge to consider public policy and the interest of the DHHS in making its decision – but they never say that – presumably because there would be not legal basis for doing so.

Importantly, the COA rejects the standard requested by DHHS of “exceptional circumstances resulting in significant financial duress.” But in the same footnote discussion, the COA goes on to say:

… as a matter of common sense, when an incapacitated person needs to be institutionalized to receive full-time medical care, it would be an unusual case for a community spouse’s circumstances to trump the institutionalized spouse’s need for use of his income to pay his medical expenses, particularly when the community spouse has the benefit of the CSMIA. In other words, an institutionalized spouse’s receipt of Medicaid, and a community spouse’s protection under the spousal impoverishment provisions, generally weighs against the entry of a support order.

The result of this case will require more effort in bringing these matters to probate courts in the future. Practitioners will want to establish a record that the probate judge can rely upon to conclude that the burden has been met.  As evidenced by the orders vacated in this appeal, a judge simply concluding that the request was “reasonable” is not good enough.

We should also recognize that while this case is about protective orders used to establish income diversion orders to benefit the community spouse, many of the same rules and standards would presumably apply to the other common use of protective orders in Medicaid planning: orders to establish a protected spousal amount.

In the end, these important planning tools (probate court protective orders) survived the COA and planners should celebrate this decision. It isn’t perfect, but in light of the COA’s prior decisions in this arena, it’s a lot more than might have been expected.

Representing the interests of the elder law bar (as appellees) in these two matters were two renowned elder law practitioners: CT’s own David Shaltz, and my friend and colleague Don Rosenberg.

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Better Than Nothing?

The Michigan Supreme Court has issued an Order denying leave in In Re Conservatorship of Rhea Brody.  However, this same Order “further notes” that the Opinion of the Court of Appeals which was the subject of the request for leave was reformed after the briefs in the case were filed.

Click here to read the Supreme Court Order.

So, a published COA decision is issued. Leave to the MSC is sought.  Briefs are filed, and then the COA revises its opinion so that MSC is satisfied that there is no reason to hear the case. How about that?

I first wrote about this Brody case (there were two of them, a trust case and this conservatorship matter) in the post: Another Brody Bombshell (click on name to visit that post). As discussed at that time, the opinion was riddled with bad law.  As mentioned in another post (Storm Clouds), our firm was hired by the Probate Section of the State Bar to prepare the amicus brief in this matter, which we did.*

The Probate Section wanted only two issues raised:

  1. The finding that the priority given to a “conservator, guardian, or similar fiduciary recognized by the appropriate court of another jurisdiction” could mean an independent trustee over a trust agreement of which the ward was settlor, which trustee was appointed by the same court hearing the conservatorship matter; and
  2. The statement of the Court of Appeals that the statutory priorities for appointment of a conservator “are merely a guide for the probate court’s exercise of discretion.”

I personally also found the case to be worthy of reversal or remand on a third point, which was that the Court appointed a conservator even where a power of attorney was in place and appeared to be effectively handling the affairs of the ward.

The Order of the MSC informs us that the COA has remedied issue number 1 above by issuing a revised opinion.

The second issue is not addressed, and therefore remains problematic language in this published opinion. Presumably we can now argue that appointment of conservators are not controlled by statutory priorities, but are rather left to the discretion of the trial court.

The third issue likewise remains unresolved, and therefore this case seems to stand in opposition to other cases, such as In Re Bittner.

Click here to read the COA Brody opinion as revised.

Better than nothing, I suppose.

*[Much thanks to CT Attorney Drummond Black for his excellent work on the amicus brief.]

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The Fix Is In

In the process of probate administration, there are certain “allowances” that are paid “off the top” before creditors and beneficiaries get what they have coming.   Among those is the exempt property allowance.  The exempt property allowance is currently $15,000.  It goes to the surviving spouse, but if there is no spouse surviving, it is divided among the surviving children.  Since 2000, it has gone to adult surviving children as well as minor children.

In 2015, the Michigan Court of Appeals issued a published opinion in the case of In Re Estate of Shelby Jean Jajuga (click on the name to read the case). Ms. Jajuga died leaving a will and one surviving child.  The will did not leave anything to the child, and expressly stated that the child should “inherit nothing.”  Notwithstanding this expression, the child made a claim for the exempt property allowance and it was granted.  The Court of Appeals concluded that this was ok, and affirmed what I think most practicing probate lawyers believed the law to be, which is that the child gets the allowance regardless of what the will says.

That result did not sit well with some people, and so legislation was introduced to change the outcome. That legislation recently became law.  Specifically, the change is in the language of MCL 700.2404(4).  Click on the statute to read it.

Because the outcome of Jajuga neither surprised nor offended me, I am not a fan of the fix. But as far as fixes go, I think this one is better than it might have been.  Notably, the way the change is written, it does not eliminate the exemption for children, nor limit it to minor children; but rather the exemption remains as it existed, but can be barred by language in a will expressly cutting out the child or children or by simply eliminating their right to an allowance.

Two observations:

When planning for small estates, lawyers may want to disable the exemption so that the exempt property allowance to a child or children does not significantly alter the resulting distribution where non-children (including descendants of deceased children) are takers. Of course this can perhaps be better addressed by simply defining beneficial interests to include an offset for any allowance received.  The risk of routinely disabling this allowance in wills is that in very small or insolvent estates, doing so would elevate creditors above children.

My second point relates to Medicaid estate recovery. In cases where assets mistakenly end up in probate for a decedent who received long term care Medicaid benefits, the exempt property allowance comes before the State of Michigan gets repaid for their estate recovery claim.  The way the fix is written, this remains true.  This will allow children in these cases to continue to have good reason to open the estate, and place them in a better bargaining position with the State with respect to settling estate recovery claims.

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The Imperfect Bandage of Undue Influence

A rant this morning. Something to think about over your Sunday morning coffee (or tea).

Our firm starts lawsuits involving vulnerable adult exploitation as much as anyone I suppose. And we almost always plead two things: incapacity and undue influence.  While in some cases the evidence may support the proposition that the person really was so cognitively impaired that they didn’t know what they were doing, most often that is not the case.  Most often we plead incapacity in order to introduce the idea that this person’s capacity was impaired to the point that it reduced the level of persuasion that would be necessary to overcome their volition = undue influence.

For those who practice in this area, they know how difficult it is to win a case on undue influence. You have to show that the victim was essentially a conduit through which the bad actor achieved their objective – that the free will of the victim was completely overwhelmed by the power of the undue influencer.  The so-called “presumption of undue influence” can be a help, but most court cases hold that the presumption, even where it is established, can be rebutted with nominal evidence.  In any event, the presumption is not the topic today.

My point (or argument) today is that we rely on undue influence because we don’t have anything better. We don’t have law that reflects the reality of the aging process today.

I have discussed the research of Dr. Lichtenberg before (see Peter’s Principles and Our Evolving Understanding of Exploitation). His work, and the experience of those of us who handle these cases, informs us that older people can be exploited because of circumstances that have nothing to do with cognitive impairment – that exploitation can occur simply because an older person loses their sense of control, dignity and/or empowerment.

These cases don’t fit well into any current legal theory. But the best we have is undue influence. Other legal theories like unconscionability, mistake, fraud  and constructive trust are available, but like undue influence, these theories are imperfect for our purposes.

The most promising development is the concept of a “vulnerable adult,” which recently entered the legal lexicon. It now appears in the criminal code and in policy for adult protective services workers.  But it has yet to find its place in the civil and probate world. Perhaps the concept of vulnerable adult exploitation will lead to new civil theories and remedies.  But we have to be mindful of what that would mean.

If we move the goalpost, as it were, from incapacity to vulnerable adult, are we going too far? There are good reasons that incapacity has served as the bright line for (1) court jurisdiction to invade the rights of an individual through a guardianship or conservatorship, and (2) as grounds for setting aside estate planning documents, deeds, beneficiary designations and contracts entered into by adults who are presumed to have the ability to understand what they are giving up and what they are getting in return.  Is it a good idea to reduce the proofs necessary for either or both of these outcomes?

Societal changes triggered by modern medicine and the resulting explosion of people living to an advanced age have come upon us quickly. The law evolves slowly, but evolve it must.  Elder law attorneys and probate litigators are struggling to find legal theories to adequately address the civil injuries impacting our clients and their family members.  Undue influence is an imperfect bandage, but for now, it’s the best we’ve got.

 

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Practice Alert: Homeowner’s Coverage Doesn’t Extend to Trust

Floyd lived in a house owned by Floyd’s revocable trust. But the homeowner’s insurance policy was issued to Floyd individually.  After Floyd died, a family member was in the house removing personal property and was injured.  That injured person sued the Trust and was awarded $100,000.  Trustee submitted the award to the insurance company for payment, and the insurance company denied coverage, saying that no one told them that Floyd had died, and their policy was with Floyd, not the Trust.

The trial court noted that the insurance company had collected premiums for the period at issue, and said they were estopped from denying coverage. The Court of Appeals reversed, arriving at the conclusion:

The Trust was not an insured under a policy issued by Fremont. Fremont therefore was not obligated to provide coverage to the Trust for plaintiffs’ judgment and Fremont was entitled to summary disposition of plaintiffs’ claims.

With respect to the insurance premiums which were collected for the period after Floyd’s death, the COA seems to say that to the extent the acceptance of premiums created any contractual obligations, it would have been a contract with the estate, but the estate is not the trust.

To read Thompson v Fremont Insurance Co., click on the name. The case is unpublished.

The result seems harsh, but assuming it accurately states the law, this case serves as a warning that clients (and perhaps lawyers) need to let the homeowner’s insurance company know when they have placed their house in trust. Something to add to the checklist perhaps.

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Fighting Over Rosa Parks’ Coat

The Michigan Court of Appeals released what will presumably be the final statement on litigation involving the estate of Rosa Parks, the deceased civil rights icon who died a resident of Wayne County in 2005. Click here to read the unpublished opinion.

The case is lengthy, and details much of the history of the litigation. In the end, it came down to a battle over her coat.  Not just any coat, but the coat she wore on the day she made history by refusing to give up her seat on a bus to a white person in Montgomery, Alabama.

The Readers Digest version is that Ms. Parks had no children. A Foundation offered a will which favored the Foundation.  Ms. Parks’ heirs challenged the will, but settled the case by agreeing to a share of the proceeds from the sale of the historically significant items she possessed, as well as the licensing value of Ms. Parks’ likeness.  As part of that agreement, one niece agreed to contribute the coat Ms. Parks wore on that fateful day in 1955 to the items to be sold.  She never produced the coat and later claimed she did not know its whereabouts.  Hence the litigation continued.

So, is there anything to be learned from this case (other than people will fight about pretty much anything)? Maybe:

  1. If you lose in probate court, it’s not cool to reframe the case and file it in circuit court, no matter how much you don’t like the probate judge. The probate judge decided that the Foundation was entitled to an offset for the missing coat, and advised the Foundation to initiate an action to determine the coat’s value. The Foundation went and filed a civil action in circuit court for breach of the settlement agreement. The circuit court bounced it back to probate court. The COA agreed with the circuit and probate court that the gravamen of the case was the administration of the estate and properly in probate court. The Foundation got sanctioned for forum shopping.
  2. There are limits to when you can get a jury in probate court. Sanctions are equitable and damages are legal. The COA agreed that this case was about sanctions, therefore equitable, and therefore the probate court correctly denied the right to a jury.
  3. Some things are really hard to value, and if the party seeking to establish a value fails to do so, they can lose big time. This part of the case is probably the most troubling. The Foundation was essentially instructed to bring an action to establish the value of the missing coat so that the heirs could be appropriately sanctioned. The Foundation produced an 84 page appraisal which offered a variety of methods for valuing the coat, using comparables such as Jesse Owen’s gold medal and the dress Marilyn Monroe wore when she sang the birthday song to President Kennedy. The heirs offered no evidence. The trial court concluded that the appraisal was unconvincing, and that therefore, the Foundation had failed to meet its burden to establish a value, and therefore, that no sanction would be allowed. The COA affirmed that result too.  Seems extreme. Perhaps the Foundation had reason to want to get to circuit court.

And that’s how it ends. Worth a read perhaps only because of who it involves.

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No Love for Contingency Contractor

In the combined cases of In Re Estate of Lujan and In Re Estate of Gulick (click on name to read opinion), the Court of Appeals upholds the trial court’s decision that a third-party contractor, Probate Asset Recovery LLC (“PAR”), is not entitled to a contingency fee for finding abandoned real properties (which have equity value) and for bringing that information to the attention of the Public Administrator. It’s a lengthy decision, and unpublished.

Essentially, PAR claims it is doing a public service by finding homes that need probate administration and notifying the PA before the property goes into foreclosure. PAR argues that a 1/3 contingency of the equity in such properties is fair compensation because their business model requires them to investigate many homes that turn out to be not worth pursuing for every home that they find which justifies opening an estate.  PAR says that if they can’t operate in this manner, they will go out of business and the solvent homes they now find will end up foreclosed, and Michigan families will lose out.

The COA counters that: Only lawyers are authorized to get paid contingency fees, and your business model isn’t our problem. Rather the trial court’s job is to look at what the reasonable value of your services were with respect to the property of this estate.  In these cases, the trial court determined that the reasonable value of your services was $45 per hour, and that decision is affirmed.

This Wayne County case comes in the context of significant bad publicity surrounding public administrators in the Metro Detroit area, and PAR’s role in particular. That context may have something – perhaps a lot – to do with the outcome and tone of this decision.  (To see one such report involving PAR and this issue, click here.)

For our purposes, the case would be helpful in situations in which a beneficiary is challenging the fees paid to a non-lawyer agent. In addition to affirming the rule that such arrangements need to be reasonable, this case provides support for the propositions that: (1) the trial court can directly reform contracts between the PR and the non-lawyer agent; and (2) in determining reasonableness of such arrangements, the trial court only concerns itself with the value provided to the estate and not the agent’s business model or public utility.

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