PR Appointment for Estate with No Assets

Here’s a case that’s worth filing away for those who do probate litigation and estate administration. It’s unpublished, but addresses an issue that comes up not infrequently.  The holding is that a probate court cannot deny a petition to appoint a personal representative on the grounds that the estate has no assets.

In In Re Estate of Janet Kapp (click on name to read case), the trial court denied a petition to appoint a personal representative on the grounds that there were no known assets to be administered. The COA reversed and remanded, holding that there is no basis in EPIC to support the trial court’s decision.  The COA says:

Instead, the court concluded that the appointment of a personal representative was unnecessary because there were no assets in the estate to probate.  In doing so, however, the probate court did not cite statutory authority that allows a court to deny the appointment of a nominated personal representative on those grounds.  To the contrary, a court rule provides that personal representatives do not need to provide notice to creditors when “[t]he estate has no assets[.]” MCR 5.208(D)(3)(a). It follows that personal representatives can be appointed even when the estate has no assets.

There are many reasons to open an estate which have nothing to do with distribution of assets. This is a good decision, and although unpublished, should provide an outline for the argument when attorneys are faced with this misunderstanding in their cases.

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Unpublished Decision Demonstrates Difficulties Inherent in Setting Aside Settlements

The process by which this issue arises is somewhat confusing, but basically the facts are that:

Parent has two children. Original trust leaves residue to his children 50-50; and if either child predeceases, the share of predeceased child goes to the descendants of the deceased child.

One child dies and then the parent becomes demented, subject to guardianship and conservatorship. Conservator petitions the trial court for instruction on the validity of a trust amendment which may or may not have been signed. No signed copy is found. The purported amendment was made after the death of the child, and if valid, would leave the entire residue to the surviving child and nothing to the descendants of the deceased child.

Matter is mediated and the surviving child and descendants of the deceased child reach an agreement regarding the division of the residue, which agreement is approved by the trial court.

Subsequently, the child who would have received everything under the purported trust amendment announces that he has found the signed amendment, and seeks to set aside the order approving the settlement pursuant to MCR 2.612(C)(1).

The trial court denies the motion to set aside the order, and the Court of Appeals affirms.

In Re Frank M. Lambrecht, Jr. Trust (click on name to read the case) is unpublished, but I think it does a reasonably good job looking at what it takes to set aside a settlement agreement, and probably gets the right result in what is no doubt a very close case.

There are several grounds on which the agreement (or more accurately, the court order adopting the agreement) is challenged, all of which come under MCR 2.612(C)(1).

MCR 2.612(C)(1)(a) – Mutual Mistake.  Court of Appeals holds that while it may well have been a mutual mistake of a material fact that no signed amendment existed, the parties all knew that it was possible that one might subsequently be found, and that possibility was presumably factored into the value they placed on the case when they settled.  So, unlike some other types of orders, an order approving a settlement agreement has already factored in the possibility of this type of mistake = no relief here.

MCR 2.612(C)(1)(b) – After Discovered Material Evidence.  The Court of Appeals says that the child challenging the settlement agreement is correct that the discovery of the signed amendment would meet most of the requirements necessary to obtain relief under MCR 2.612(C)(1)(b), but on these facts this contesting child fails to meet the burden of showing that it could not have been found with “reasonable diligence.”   The child seeking relief says the signed amendment was found in his parent’s desk drawer, but that he chose not to look there while his parent was alive, out of respect for that parent’s privacy.  Basically, his deference on this point may have been admirable but does not obviate his obligation to use due diligence.  There is no question he had access, and presumably the desk drawer would have been an obvious place to look.  So that won’t work.

MCR 2.612(C)(1)(e) and (f) – No Longer Equitable and Other Grounds for Relief.  The Court of Appeals notes that the settlement was not solely based on the fact that a signed amendment was missing. Rather, the settlement negotiations included other issues, including whether, even if the signed amendment were found, the amendment would be set aside for lack of capacity or undue influence.  In light of the other variables in play during the settlement process, it could not be said that the resulting agreement is no longer fair.

Conclusion. This case neatly presents the issue of how and why an order approving a settlement agreement is different from other types of court orders when it comes to seeking relief under MCR 2.612(C)(1); and neatly applies the law to facts that make the decision a close call on several grounds.

 

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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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Phone App “document” is a Valid Will in Michigan

It happened and it’s published.

The Michigan Court of Appeals held, in a published decision, that a paragraph posted by a decedent on his phone is a valid will under Michigan law, and specifically, MCL 700.2503.

We’ve discussed Michigan’s uniquely liberal law regarding instruments intended to be wills before. See, for instance, Section 2503 Grows Up (click on name).

In this case, Duane Horton wrote a note in his journal stating that his testamentary wishes could be found on his phone app. They looked and they found it.  The trial court admitted the electronic expression as the decedent’s will under MCL 700.2503. The Court of Appeals affirmed.

Click here to read In re Estate of Duane Francis Horton, II

It’s an important case as it further fleshes out the impact of Michigan’s cutting edge law.

First, it dismisses the number one misconception about Section 2503, which is that it is intended only to fix “minor, technical deficiencies” in documents that would otherwise be admissible as holographic wills or otherwise. The COA holds that the statute doesn’t say that, and doesn’t mean that.  Rather Section 2503 is a stand alone, separate process for admitting testamentary expressions which does not require any formality, only clear and convincing evidence of intent.

Equally important, the case stands for the proposition that an electronic document is a “document” for the purposes of this statute.

These are powerful developments in probate law, and, for better or worse, Michigan seems to be on the cutting edge. Fun issues, fun times.

 

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State Supremes Issue Split Decision on Mardigian

Relish the moment because this is as exciting as probate law gets.

We’ve written about the case before (See: This is Awkward).  Attorney prepares an estate plan (will and trust) for non-relative, leaving millions to said attorney and attorney’s family.

Trial court says: An attorney can’t do that under the rules of professional conduct, and therefore the estate plan is void – on summary disposition.

Court of Appeals reverses the trial court. COA says: While the lawyer may face discipline for the ethics violation, the validity of the trust is not implicated by the ethics rule.  That decision was 2 to 1.

Now, the Michigan Supreme Court reviews the Court of Appeals, and it’s a 3 to 3 tie [The 7th Justice abstains because he was on the COA panel that decided it – and was one of the two votes on the prevailing side.]  Apparently a tie means the COA decision is affirmed.

So the issue is whether a violation of the MRPC rule 1.8(c) (which precludes an attorney from creating estate plans for non-relatives in which they receive a substantial benefit) has any role in a trial contesting the validity of the estate plan? The answer is “no, it does not.”  While everyone agrees that the attorney is a fiduciary and that, as such, the presumption of undue influence is in play, the prevailing opinion is that the ethics violation, in and of itself, is not a factor in the case.

It’s a Long Decision

As indicated, there are two opinions, each with 3 signatories. In all it’s 53 pages long.  Click here to read the case.

The three who vote to affirm the COA ultimately conclude that it’s not their role to change the law of undue influence to enforce ethical obligations of the bar. The other three see this as an opportunity to do just that.  Their approach would be to treat a violation of the ethics rule as giving rise to an per se finding of undue influence.  They assert that the law needs to catch up with changes that have taken place since the last time the MSC reviewed this question more than 50 years ago, which changes included the adoption of MRPC 1.8(c).

Each opinion includes a lengthy discussion of undue influence and the presumption. It at least attempts to clarify some of the confusion that exists about the presumption and particularly about how it is rebutted.  This case will no doubt be quoted in litigation going forward.  So if you do this kind of work, you need to read this case.

They’re Making My Point

The Supremes don’t know it, and likely won’t revisit this issue in my lifetime, but their decision demonstrates the point I was trying to make in my recent post: The Imperfect Bandage of Undue Influence (click on name to read it).  My point is that:  Undue influence isn’t cutting it.

In both opinions, but especially the opinion of the non-prevailing Justices, the Justices seem uncomfortable with how difficult it is to prove undue influence and how easy it is for the presumption to be rebutted. For me though, their distress is too narrowly focused.  Even the side that would change the law to prevent this result in this case, would only do so in situations where a lawyer is involved.  From my perspective, it is just as suspicious when a benefiting child or housekeeper prepares the will, deed, beneficiary designation, etc..

So, in conclusion, the MSC has spoken. It’s a long opinion and long awaited by many in the probate community.  The facts of the case and the evenly divided court add a dash of drama.  Required reading for probate geeks.

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MSC Fixes Brody Trust

UPDATE:  The Court of Appeals issued a new opinion on August 7, 2018.  The blog post on that opinion can be read by clicking here.

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 VanSach 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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