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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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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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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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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Lost Wills – A Tough Row to Hoe

This juicy little soap opera out of Battle Creek starts where so many of such tales begin:  Dad is married but his children are from a prior relationship.  Then Dad dies.

Daughter Brooke actually goes through the pockets of the dead man looking for the keys to the gun safe where he kept his will – but too late!

The Court of Appeals describes the scene as follows:

Brooke Barksdale noted that when she arrived at the decedent’s home at approximately 11 a.m. on the day of the decedent’s death, petitioner’s son, Shawn, tried to stop her as Brooke Barksdale went to see the decedent’s body, and when she looked in the decedent’s pants pocket for his car keys, which also contained the keys to the gun safe, she could not find them.

And, upon further investigation, she sees that the door to the gun safe (which he always kept locked) stands open.  Before she can further investigate, Wife tells her to leave. Classic!

Wife petitions to open an estate intestate.  Kids counter with petition to admit a lost will.  Wife brings motion for summary disposition.  Kids submit affidavits of themselves and others that aver that Dad had a will he kept in the gun safe.  It named Brooke as Personal Representative.  The house went to Brian and the rest was distributed among his kids and grandkids in unknown proportions.  They aver that Dad discussed the will with them on numerous occasions, that he kept it locked in his gun safe, and that he had it out when he had Brooke sign various other legal documents related to his affairs.  They further aver that Wife was present during some of these conversations and that she verbally acknowledged the will’s existence on at least one occasion.

Trial Court grants summary disposition to Wife, saying that the proffered testimony is insufficient to withstand summary disposition because there is no evidence that the will was executed in conformity with the requirements of a valid will or holographic will under MCL 700.2502, or that it could be admitted as document intended to be a will under MCL 700.2503; and further that the terms remain too sketchy even with the recitations of the kids to meet their burden.  MCL 700.3402, MCL 700.3407.  Court of Appeals affirms.

The case is unpublished, so take it for what it’s worth.  And I think that what it is worth is that it sheds light on the challenges of probating a lost will when no copy can be found.

Takeaways from this case:

1.    Admitting a lost will when there is no draft or copy to be found is a tough row to hoe.

2.    It’s a good idea to keep your will someplace where people who might want to destroy it can’t do so after you die or become incompetent.

Read In Re Estate of Stuart Alister Warner by clicking on the name.  

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Lay Witness Testimony Regarding Cognitive Impairment

In the recently unpublished Court of Appeals case of Rebecca L. Clemence Revocable Trust (click on name to read the case), the trial judge essentially granted summary disposition in a trust contest case, without summary disposition even having been requested. In doing so, the trial judge expressed frustration that the matter had continued for so long and that, in the judge’s opinion, inadequate evidence of wrongdoing had been discovered.

The Court of Appeals reversed and remanded.

What I find helpful about the case is the COA’s discussion of lay witness testimony as evidence regarding incapacity. We have discussed before the growing inclination of court’s to look for medical evidence as the last word on incapacity and vulnerability.  One of the challenges of handling capacity and undue influence cases is that very few people happened to have medical evaluations done contemporaneously with the event in question.

The portion of this case which I will keep in my notes, provides authority for the proposition that the observations of lay witnesses are admissible evidence of incapacity and, if sufficient, can preclude summary disposition. Specifically, this portion of the opinion is on point:

Certainly it would be easier to prove whether Rebecca possessed testamentary capacity or was vulnerable to undue influence if the probate court could review medical records contemporaneous with her estate plan amendment. But such records are not the only method of proof. A lay witness may place his or her opinions into evidence as long as they “are (a) rationally based on the perception of the witness and (b) helpful to a clear understanding of the witness’ testimony or the determination of a fact in issue.” MRE 701. And our Supreme Court has specifically found lay opinion testimony admissible to establish a decedent’s testamentary capacity. See In re Moxon’s Estate, 234 Mich 170, 173-173; 207 NW 924 (1926) (holding that a lay witness “who [has] had the opportunity to observe and talk to [the decedent]” may form “impressions” of the decedent’s testamentary capacity and may cite examples for the factfinder’s consideration);

Proving that an older person suffered from cognitive impairments at that time they executed a document being contested is central to nearly every will and trust contest or case of financial exploitation. Lack of Capacity and Undue Influence remain the most common theories of probate and elder law litigation.  These are often fact-rich cases and discovery is frequently extensive.  Trial judges may have limited patience and are under pressure to close cases expeditiously.  Many trial judges also have a strong inclination to require medical evidence in cases where cognitive impairment is a factor, but such evidence is not always available.  As a result, introducing lay testimony to establish cognitive decline is necessary, and often the best evidence available.  In those cases, it is not unusual when presenting such lay witnesses, for the opposing counsel to assert that the lay witness has no medical training and therefore their testimony should not be allowed.  This case supports the proposition that such objections should not prevail.  Lay people can observe behavior in older adults that suggests impairment, and those observations can be admitted and relied upon by a fact-finder.

 

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Share and Share Alike

This is an unpublished will construction case. To read In Re Estate of Eugenie Dietrich, click on the name.

In other posts (see for instance Who Gets the Grow Lamps?) we’ve seen the problems that arise when attorneys fail to use the precise legal terms of art. In this case, we see the problems that arise when lawyers toss in archaic legal language.

The will says: “To Peter Dietrich and Johann Dietrich, my sons, to be divided between them in equal shares, share and share alike.”

Turns out Johann predeceased Eugenie. So Peter says: “it’s all mine.”  Johann’s issue took exception.  The trial court agreed with Johann’s children, and ordered that they would take their deceased father’s share.  The Court of Appeals affirmed.

Michigan law strongly favors construction of estate planning instruments that vests the interests of predeceasing family members in their descendants. That’s what our “anti-lapse” rules are for.  See MCL 700.2603.  Those anti-lapse rules however can be rebutted with sufficient evidence of a contrary intent.  This case offers a discussion of class gifts versus individual gifts and the rules of construction that apply, with specific focus on the meaning of the term “share and share alike.”  A good read perhaps for younger lawyers developing their drafting style.

As for the phrase “share and share alike,” I think the lesson is: don’t use it. I’ve seen it many times but have never understood why it would be used when there are better ways of expressing a client’s intentions regarding what is to be done with property if a devisee predeceases.

Perhaps the attraction is that it sounds so fine – so high minded – “share and share alike.” Almost like a blessing- “go forth and prosper,” “live and let live,” “do unto others.” It has that kind of musical or poetic quality.  But our goal in drafting estate planning documents is not to be poetic, rather to be clear.

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