The change I want to discuss relates to the rules that allow an applicant to exempt a homestead when they are no longer living in the home. [Footnote: This discussion is not relevant if the Medicaid applicant’s spouse is living in the home, or if a blind or disabled child of the applicant is living in the home. In those cases the homestead is exempt per se.]
Historically, the rule has been that any home that the applicant owns where they formerly lived, could be claimed as a homestead. Currently that exemption is worded as follows:
Exclude a homestead that an owner formerly lived in if any of the following are true:
The owner intends to return to the homestead.
The owner is in an LTC facility, a hospital, an adult foster care (AFC) home or a home for the aged.
A co-owner of the homestead uses the property as his home.
Now let’s go to the policy that takes effect February 1. If you want to follow along, go to the middle of page 36 and look at the topic of “Absent from Homestead.” The introductory paragraph has been reworded to say:
Exclude the homestead (see definition in this item) that an owner lived inprior to the time the indiidual left the property if any of the following are true:
First, it’s hard to ignore that there are two obvious typographical errors in this sentence.
Substantively, we see that the following words are added: “that an owner lived in prior to the time the individual left the property. …”
So, what does that even mean – if it means anything?
If the applicant is now absent from the home (presumably because they are in institutional care), they must have lived in the home prior to the time they left the home. But then, why put those words in there?
My initial concern is that the department intends to use this language to limit the availability of the homestead exclusion to real estate that was occupied immediately prior to entering long term care. But it doesn’t say that, and could easily have said that. So maybe I’m just reading too much into it.
Is there another explanation? I think so. And you don’t have to look far to see it.
Also on page 36, immediately following the cited provision, is a section that talks about when a homestead can be exempt if a relative is occupying the property. The new language says:
Relative Occupied. Exclude a homestead provided both of the following are true:
The owner is in an institution; see BPG Glossary.
The owner’s spouse or relative (see below) lives there.
The current policy reads:
Relative Occupied. Exclude a homestead even if the owner never lived there provided both of the following are true:
The owner is in an institution; see BPG Glossary.
The owner’s spouse or relative (see below) lives there.
Here the difference is clear. To use the relative occupied exclusion, heretofore, it was not required that the owner ever lived in the home. Now the “never lived there” language is gone. So, perhaps all that the department is trying to say is that the applicant-owner had to live in the home at some point in order to obtain the exemption for a relative-occupied house? Although, again, that is not what it says, and it could have easily said that.
In conclusion, I guess we will have to wait to see what these changes are intended to mean. Maybe it just means that the relative occupied exclusion requires that the applicant own and formerly lived in the house. But maybe the department will attempt to place greater restrictions on the homestead exemption, by limiting to only those situations in which the person went directly from the house into long term care.
I realize the trend has been for me to write more frequently about appellate cases as they come out, maybe less ramblings about the law and practice generally. I hope that’s ok. In any event, that seems to be where my interest lies. It could change.
I will remember 2018 as the year we celebrated my mentor’s 80th birthday, and I was able to share publicly the love and appreciation I have for him.
I will remember 2018 as the year I sponsored two incredible young people to be admitted to the legal profession.
I will remember 2018 as the year I met an elderly client who sounded like Gomer Pyle and who was proud of the fact that he had only kissed one woman in his life, the woman he married and had recently nursed through a long final illness. And when I told the young lawyers in my office that the client sounded like Gomer Pyle, they told me they didn’t know who Gomer Pyle was, and upon further inquiry, they didn’t know who Don Knox was either.
I will remember 2018 as the year a client tried to explain to me that in losing her life partner, she had the inexplicable sense that she had lost 80% of what was her life, and yet was left with 80%.
The question is this: When a person who is the subject of a petition for guardianship or conservatorship nominates an individual they want to serve in those capacities, to what extent is the court required to grant the nominated individual a priority of appointment? A new unpublished opinion discusses that question, and while I think the opinion falls short in some respects, the issue comes up routinely in contested guardianship and conservatorship matters and this case offers the opportunity to delve into the law. So here we go:
Let’s start with the law.
MCL 700.5313(2) provides the order of appointment for a guardianship. Its relevant provisions say:
(2) In appointing a guardian under this section, the court shall appoint a person, if suitable and willing to serve, in the following order of priority:
(a) A person previously appointed, qualified, and serving in good standing as guardian for the legally incapacitated individual in another state.
(b) A person the individual subject to the petition chooses to serve as guardian.
(c) A person nominated as guardian in a durable power of attorney or other writing by the individual subject to the petition.
(d) A person named by the individual as a patient advocate or attorney in fact in a durable power of attorney.
(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.
(b) An 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.
These provisions are similar, but importantly different:
While both statutes provide that, unless someone has already been appointed to serve as guardian or conservator by another state, the highest priority goes the person nominated by the proposed ward. But in the guardianship context, the law provides that the court “shall appoint” the person with priority if they are suitable and willing to serve. In a conservatorship proceeding, the court “may appoint” and having a priority merely provides that such persons “are entitled to consideration.”
Interestingly, the conservatorship statute says that before considering a person nominated by the proposed ward, the court must find that the proposed ward “is of sufficient mental capacity to make an intelligent choice.” In the guardianship context there is no requirement that the proposed ward be capable of making a good choice.
The guardianship law also elevates the person nominated by the proposed ward at the hearing above a person previously nominated in a power of attorney or patient advocate designation. In the conservatorship context, those two forms of priority are equal.
For the record, both statutes are further buttressed by MCL 700.5106 which more specifically addresses the limitations placed on a court with respect to the appointment of a public fiduciary.
All three cited statutes are linked to the law, which can be read in their entirety by clicking on the statute.
In this case, the proposed ward (“David”) nominated June to be his guardian and conservator. He did so both in his power of attorney and patient advocate designation, and he did so when he was questioned by the court-appointed guardian ad litem. But the trial court bypassed June by finding that the David was not competent to execute the patient advocate designation and power of attorney when they were executed, and further, the court says “He was similarly incompetent to informally select his fiduciary.”
So my complaint with this holding is that while I think the court was certainly within its power to invalidate a power of attorney and patient advocate designation based on a finding of lack of capacity at the time of execution; and to bypass June as conservator by finding, in accordance with MCL 700.5409, that David lacked the ability to “make an intelligent choice” at the time of his verbal nomination; because MCL 700.5313 (the guardianship law) does not include a provision that allows the court to make a verbal nomination contingent on the existing mental capacity of the proposed ward, to my thinking, June should have been given the priority in the guardianship matter.
In conclusion, although I think this court provided an imperfect analysis, I appreciate the opportunity to review the law as it relates to this important question.
Party A argued that because a person executed a financial power of attorney and patient advocate designation in June of 2013, the trial court should have found that said person must have been competent to execute a shareholder’s proxy signed in December of that same year. But the trial court found otherwise.
In affirming the trial court, the Court of Appeals says: Not only is it reasonable for the trial court to have concluded that the person’s capacity diminished in the intervening months, but – wait for it – – – it is also true that a proxy is a different thing than a power of attorney and therefore the test for capacity is not the same.
That, my friends, is a proposition that is commonly argued, but heretofore not so clearly stated in Michigan law. The proposition that the test of capacity is a function of the complexity of the decision being challenged comes up in litigation all the time. And this is a published decision. (emphasis added)
Menhennick Family Trust v Timothy Menhennick (click on the name to read the case) purports to be about the meaning of a statute in the Business Corporation Act, but the holding primarily turns on the issue of capacity. Several large chunks of this relatively short opinion clearly state the rules relating to a finding of capacity and how that test can vary with the decision at issue. Well worth the read.
This is an important decision for probate litigators. I know I will be citing this decision in cases to come, and I am sure others will as well.
In Re Margaret Krum Trust is an unpublished decision of the Court of Appeals dealing with undue influence. [Click on the name to read the case.] This is a case that was handled by our firm. We represented the appellee.
Two sisters were cut out of their mother’s trust, and contested the validity of the document when their mother died. They originally pled undue influence and lack of capacity, but withdrew the incapacity claim after discovery was complete. Our client, the Trustee, brought a motion for summary disposition on the remaining claim of undue influence, and prevailed. The appeal was from that order.
In affirming the trial court, the COA addresses two points worth noting:
First, the COA says that the existence of a financial power of attorney nominating the alleged undue influencer as agent is sufficient to establish the element of a fiduciary relationship for the purpose of giving rise to the presumption of undue influence, even when there is no evidence that the nominated agent ever exercised any authority under the document.
Second, the COA holds that summary disposition can be granted in an undue influence case even when the presumption of undue influence has been established. This appears to be an accurate statement of the law, even though other panels of the COA have, at times, held otherwise.
If you read the case you will note that the COA deals with the issue of after discovered evidence in the context of a motion for reconsideration. Kind of an interesting twist in this case, if you’re looking for more.
And if you read the case you also learn that the scrivener of the contested document was our friend and colleague Danielle Streed. Thanks for your help in this matter Danielle.
Finally, our own Drummond Black did all the heavy lifting on the MSD and COA briefs. Thanks D. You’re the best!
An unpublished opinion today that looks at the question of when expert opinions are sufficient to create a question of fact, versus when they remain mere speculation; in the context of a motion for summary disposition.
In In Re Jeannine A. Palazzo Irrevocable Trust (click on the name to read the case), the attorney/trustee failed to inform beneficiaries of his activities in relation to an irrevocable life insurance trust (an “ILIT”) established for their benefit by an aunt. During the years leading up to the aunt/settlor’s death, the liquidity in the ILIT was depleted to the point of near insolvency. This prompted the attorney/trustee to liquidate the policy for $36,000 and by doing so give up the $500,000 death benefit. As it turns out, he did this just days before the death of the aunt/settlor.
The successor trustee sued attorney/trustee for breach, and presented testimony of an expert estate planning lawyer and an accountant, both of whom opined that had the attorney/trustee performed his fiduciary duties with respect to informing the beneficiaries, the beneficiaries could have taken steps to protect their interests and potentially preserved the policy so as to receive some or all of the death benefit.
An Interesting Question
The trustee/attorney moved for summary disposition in the trial court and prevailed on the argument that merely speculating that the beneficiaries could have or might have taken steps to alter the outcome is insufficient, if you don’t explain what they would have done and when.
The Court of Appeals affirmed the trial court, adopting the proposition that merely speculating that something could have been done is insufficient to create a question of fact sufficient to survive summary disposition.
An Uncomfortable Result
A central premise to trust law is that beneficiaries are empowered to protect their interests by being provided information. A trustee protects itself by providing that information. When a trustee fails to provide the required information, the law holds the trustee liable for the resulting damages and does not allow the trustee the protection of time barriers to claims that would otherwise arise.
For a court to conclude that although a trustee breached its duties by failing to provide the required information, but that the trustee is nonetheless absolved of liability on summary disposition even where experts have opined that something could have been done had the information been provided, just feels wrong.
Bottom line is the beneficiaries lost on summary because they did not specifically state what could have been done to alter the outcome had the missing information been provided. While that seems like a fine line to draw; that is the line that worked in this case, and a line litigators will want to remember when they need to make the same distinction in future matters.
They say it is an ill-wind that blows no one good, and no doubt there is one trustee/attorney who will be full of Thanksgiving today.
Legislation currently moving through Michigan’s House and Senate will, if passed, dramatically impact the world of trust law in Michigan, and especially the drafting of discretionary trusts. Indications are that there is a good chance this legislation will become law before the year end. And so …. it’s probably time to start thinking about it.
The new law alters the way that trusts agreements can be crafted with respect to the roles of trustees and other fiduciary and non-fiduciary parties involved in the administration of a trust. While the proposed law is Michigan’s adoption of the Uniform Directed Trust Act, it goes well beyond the Uniform Act, particularly with respect to the provisions related to separate trustees. In fact, it is probably best to understand this new development as two distinct changes to the law: (1) Rules relating to use of separate trustees when drafting discretionary trusts, and (2) the elimination of the Trust Protector, and replacement of that office with the Trust Director.
The new law defines several new types of roles and relationships that can be used in drafting trusts.
The law uses the term “Separate Trustee” to identify one of three types of separate trustees that have discrete powers and duties. They are:
* Investment Trustee. A Trustee exclusively responsible for investing the trust assets.
* Distributions Trustee. A Trustee exclusively responsible for making discretionary distributions of trust assets. Note: There is no provision for a distributions trustee with respect to non-discretionary interests.
* Resultant Trustee. The Trustee responsible for all actions not otherwise allocated to an investment or distribution trustee.
So Long Trust Protectors
In addition to the creating laws to support the use of separate trustees (discussed above), the new law introduces the term “Trust Director” which equates roughly to what many would have heretofore defined as a Trust Protector. The scope of powers that can be given to a Trust Director are broad and it is not necessary for the trust agreement to have appointed separate trustees for the agreement to implement the use of a Trust Director. The MTC defined the term “Trust Protectors” when it came into being in 2010, which was an important development associated with that legislation. But with these changes, that term is removed and no longer defined. [It is unclear (to me) how Courts will construe this term going forward, and what rules will apply to trust protectors appointed in documents. In many instances, the powers typically allocated to a trust protector would seemingly result in those persons falling within the scope of what is now defined as a “Trust Director.”]
The law also then introduces the term “directed trustee” to refer to a trustee who takes direction from a trust director.
It’s All About Liability
With respect to the separate trustee provisions of the law, the idea is that without collusion, a separate trustee is not responsible for the acts of another separate trustee. And this is really the central legal development that makes this aspect of the new law click. Heretofore, you could draft trusts with co-trustees and give them each a discrete role in the administration of a trust – but you could not, thereby, allow one trustee to be non-liable for the breach of their fellow co-trustee. Now, by using this approach, you can.
In the simplest example, what that means is that you can appoint a bank as the investment trustee, and appoint the trust beneficiary’s sibling as the distributions trustee, and neither will be responsible for the other’s foibles. That is true even if the bank knew or should have known that the sibling was engaged in a breach, and vice versa. Again, the exception would be if the separate trustees were colluding with each other with respect to the inappropriate conduct. This development will make it much easier to have professional investment companies assume trusteeships over the investments, where others are making decisions about discretionary distributions.
When a power is exercised in a fiduciary capacity and when it is not; when a trustee or trust director is subject to liability and when they are not; are all addressed in detail in the legislation.
Special Needs Planning and Discretionary Trusts
In no area of trust planning will these changes be more relevant than in the drafting of discretionary trusts. And while there are many discretionary trusts that are not special needs trusts, all special needs trusts are discretionary trusts. The complexity of discretionary trust drafting will increase significantly with the passage of these laws, as will the opportunities to be more creative in the drafting of such trusts.
“Keep it simple” has long been the mantra of drafting SNTs. It is well recognized that the more detailed an SNT, the more likely the document is to be reviewed and perhaps challenged by the government entities which provide benefits to the SNT beneficiary. For “high end” SNT planners, this opportunity might be an exception to that rule. The ability to work with institutional investors may mandate the adoption of separate trustee provisions.
The idea that you will soon have new tools to allow financial institutions to manage the money in the SNT, while having the family members (or family lawyer) make the decisions about how resources are used to improve the quality of life of the beneficiary is huge, and a big reason SNT planners will need to carefully consider how this legislation will change their practices. As everyone in the SNT world knows, banks and other financial institutions have attempted to gain entry into the world of special needs planning, but they are inevitably ill-suited to mange the distribution decisions associated with taking on the role of trustee. This legislation provides a safe harbor approach which allows them to manage the money while taking them off the hook of doing the dirty work of special needs trust administration.
These new laws offer SNT planners an opportunity that in many instances will be too hard to pass up, but they come with requirement that special needs trust drafters elevate their games. Dabblers in SNT drafting beware.
IF You Decide To Go There
The good news for some no doubt, is you don’t have to use separate trustees or trust directors or otherwise incorporate these options into your trust agreements. And in fact, most simple “will substitute” trusts wouldn’t need or benefit from such provisions.
But if you draft inter vivos irrevocable trusts, or draft any trusts that continue after death, you will want to consider the possible benefits of these new tools. If you do, you need to read the statute carefully, because there are a whole host of requirements that spell out what has to be express in the trust agreement, and a handful of rules that cannot be altered or negated by your drafting.
If you have used Trust Protectors in your documents in the past, or want to use the concept in the future, you will need to understand the term Trust Director, how it differs from a Trust Protector and what the rules are in terms of appointment, exculpation and scope of authority.
So for many, keeping it simple may be best. For others, the possibilities will be too intriguing. At times, perhaps, the objectives of the client may demand separate trustee provisions, and it may be malpractice to draft agreements that are not sufficiently attentive to these new rules.
It’s been a wild ride since Michigan adopted the Michigan Trust Code in 2010. In the eight years since, we’ve seen dramatic additional developments to Michigan trust law, including domestic self-settled asset protection trusts and liberalized decanting rules. This is the next big thing.
Michigan’s own Jim Spica is a member of the Uniform Directed Trust Act Committee, and the primary author of Michigan’s proposed law. As with everything Jim touches, this legislation is thorough and thoughtful. To read the legislation in its present form click on the following House Bill links:
Henry Ford Village is a large senior housing provider in the metro Detroit area. At least some of their residents enter into continuing care contracts that require an up front entrance fee, some or all of which fee can later be refunded in accordance with the terms of the admissions contract.
In the case of Reginald Smith, he paid $152,000 when he entered. When he died, the trustee of his trust and the personal representative of his estate recovered only about $127,000. The Trustee/P.R. did not dispute that the refund would appropriately be reduced by about $10,000, but did contest the reduction of the other approximately $15,000. That difference arose because of a provision in the contract that said that the refund would be contingent on the admission of a new replacement resident, and the payment by the new resident of a new entrance fee. After Mr. Smith died and some time passed during which no new resident was found who was willing to pay the full entrance fee, the Trustee/P.R. entered into a modification of the contract to allow the space to be filled by a new resident who paid a reduced entrance fee – reduced by the disputed $15,000.
The Trustee/P.R. sued Henry Ford Village and various related entities for the $15,000 difference, and lost in the trial court level on summary disposition. The appeal followed from that decision.
In the second paragraph of the COA opinion, the panel notes that: “At oral argument, plaintiff conceded that HFV violated none of the terms of its contract with the decedent or agreement with plaintiff, as those documents are actually written.”
And, for Plaintiff/Appellant, it goes downhill from there. Downhill even to the point of the COA becoming insulting toward the work of Appellant’s legal counsel. Among other things, the COA characterizes the Appellant’s brief as “exceedingly loquacious and difficult to comprehend.” Loquacious means wordy. The COA affirmed the trial court’s dismissal of the lawsuit.
I report on the opinion because it is published (although I don’t know why), and many people who practice in this area of law no doubt intersect with Henry Ford Village and advise clients about continuing care community contracts. If there’s a lesson here (and I’m not sure that there is), I believe the lesson might be that continuing care community contracts are complicated and are likely drafted in a way that favors the financial interests of the people managing the facility.