Michipremes Ponder the Space between Absent and Divorced

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

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

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

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

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

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

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

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

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

XXX TURN BACK NOW XXX

Supplemental Ramblings

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

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

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

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

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

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

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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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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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A Hat Trick and a Bonus Medicaid Update

It’s been awhile since there’s been something to write about.  So when the Court of Appeals came out with three unpublished opinions on probate matters, I figured I would go with it.

 

The Ineffective Beneficiary Designation

Joseph came back from his job in Australia to die in the U.S..  While in Australia he accumulates a retirement account through his employment which has a balance of about $300,000.  He names his father and an aunt as beneficiaries on that account.

In September 2011, he is living with his Dad and creates a will leaving residue to Dad.  In October 2011 he moves to Michigan where his mother lives.  Shortly after the move he signs a new will leaving the residue of his estate to two nieces.

In November 2011 he dies.

By some seemingly unique rules regarding this Australian retirement account, the Trustee of the account is not obligated to follow the beneficiary designation, and decides to make the account balance payable to his estate.

Dad challenges the October will on undue influence and lack of capacity.  The trial court dismisses both challenges on summary disposition.  The record seems to lack any evidence for undue influence, but the lack of capacity issue is more curious.

Among other things, in support of their motion for summary disposition, Appellee filed affidavits from a doctor, a lawyer, and a social worker all indicating that they were prepared to testify that on the date of the will the Decedent had the capacity to understand what he was doing.  Dad/Appellant filed, among other things, the beneficiary designation on the Australian retirement account along with his own affidavit indicating that the Decedent had become increasingly confused about the existence of this asset during his illness.

I find the COA’s analysis of MCL 700.2501 troubling.  In the opinion it says:

It is not clear from the record the extent to which the decedent understood that if the Australian trustee did not comply with his beneficiary nominations, the death benefit arising from his ownership of the Superannuation Fund could become an asset of his probate estate.  However, the inquiry regarding testamentary capacity is only concerned with whether the testator “has the ability to understand” the general nature of the act of signing a will. MCL 700.2501(2)(d) (emphasis added).

And also:

Under the circumstances, the trial court did not err by concluding that appellant failed to establish a genuine issue of material fact regarding whether the decedent had “the ability to understand in a reasonable manner the general nature and effect of his or her act in signing the will.” MCL 700.2501(2)(d).

It seems to me there is at least a triable issue here as to whether in fact the Decedent understood the nature of his estate, and more importantly, the effect of his will.  Clearly, it would not be unreasonable for a fact-finder to conclude that he died believing that the beneficiary designation directed his retirement account to his aunt and father, and that the will only controlled the disposition of his non-probate assets. Help me out:  Isn’t that the “general effect” of his will?

Luckily this is an unpublished decision.  I also note that the father did not plead constructive trust, which might have been a valuable alternative cause of action on these facts.

Click here to read the In Re Williams Estate

 

Creditors, Pension Plans, and Sheep

This case presents another retirement account issue.

Prior to the death of Ed Sr., one of his children, “Respondent” had stolen money from his estate while serving as conservator, and there was a judgment against that child for $225,000.   When Dad died, Respondent was the beneficiary of an annuity.  The issue in this case was whether MCL 600.6023 prevented the estate from recovering the judgment against bad child’s interest in the annuity.

The analysis is complex, but ultimately, and not surprisingly, the trial court found that the annuity funds were subject to collection, and the Court of Appeals affirmed. If you have retirement accounts payable to creditors of an estate, the opinion is worth reading.  MCL 600.6023 is an important statute in the context of creditor protections.

And the real test of a probate practitioner: Do you know what farm animals are exempt under MCL 600.6023?  The answer is found in subsection (d), which says:

(d) To each householder, 10 sheep, 2 cows, 5 swine, 100 hens, 5 roosters, and a sufficient quantity of hay and grain, growing or otherwise, for properly keeping the animals and poultry for 6 months.

Click here to read In Re Estate of Coats.

 

Convenience Accounts and Convenient Testimony

The record of this case suggests a lack of sophisticated lawyering.  This is another joint accounts case.  In this case, Dad makes Child A joint on accounts.  The rest of the kids claim convenience account.  The trial court finds it is a convenience account and COA upholds trial court’s decision.

Non-joint owning children and a family friend testify that Dad says he set up a “convenience account” with Child A, but checks box that says she gets it if she survives.  This bothers the judge who senses that if Dad was so sophisticated that he used a legal term – “convenience account” – to explain what he intended, why would he then check a box that says otherwise?

In the end however, the trial court finds that the challengers met their burden of presenting clear and convincing evidence that this was a convenience account, and the COA affirms.

In its decision, the COA says: “We have been provided with no caselaw suggesting that the self-serving testimony of heirs challenging the ownership of a joint account must be excluded.”  The COA also notes:  “The record evidence is largely self-serving hearsay, admitted without objection.” (OUCH)

Click here to read Estate of Edward Sadorski, Sr.

 

Bonus Post:  Another Change in GA/CA PPA Deduction

DHHS has released a proposed policy change which, assuming it takes effect, will increase the deduction allowed from a Medicaid beneficiary’s patient-pay amount to $95 per month for a guardianship/conservatorship fee.  Starts October 1.  For reference, the deduction was $60 forever, and was increased to $83 earlier this year.  Two bumps in a year – government waste and excess continues unabated (joking).

 

The policy notice says

Issued:    September 1, 2017 (Proposed)

Subject:    Increase to Guardian/Conservator Income Deduction

Effective:    October 1, 2017 (Proposed)

Programs Affected:   Group 2 Under 21, Caretaker Relative, Supplemental Security Income (SSI)-Related Medicaid

Effective October 1, 2017, the Michigan Department of Health and Human Services (MDHHS) may deduct up to $95 per month as an allowable expense against a beneficiary’s income when determining medical services eligibility and patient pay amounts if the beneficiary pays a court- appointed guardian/conservator.

The fee must be verified as paid by a fiscal group member. Guardianship/conservator expenses include:

  • Basic fee
  • Mileage
  • Other costs of performing guardianship/conservator duties

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Uncapping Triggered by Date of Settlor’s Death

Cottage in Grand Traverse County is held in revocable trust. Settlor dies in August 2014.  Township uncaps property taxes for 2015 – which is the calendar year following the year in which ownership changed – so says Township assessor.  Trustee objects claiming uncapping should not have occurred in 2015, because: (1) claims period for creditors had not expired until early 2015, and/or (2) the property was in fact not distributed from trust, and therefore no change of ownership occurred.  COA rejects both arguments.  Taxes go up 65%.  To read Fifarek House Trust v Long Lake Township, click here.

Uncapping issues are always interesting, and the best uncapping cases always seem to involve up north cottages.  This case is unpublished, so consider that.

Bad timing for the Fifarek family. The uncapping would have been avoided entirely had the settlor lived a few more months.  A new statute preventing uncapping for transfers to family became effective December 2014.  Settlor died in August 2014.  To read more about our new-ish uncapping rules, click here.

The case has implications for situations where real property in trust is not residential or trust beneficiaries are not family. The rule of this case is that a change of ownership occurs when the settlor dies, because that causes there to be new trust beneficiaries.  I think the COA gets it right.  Somewhat surprised  that there is a dissent, endorsing the Trustee’s creative but tenuous arguments.  Click here for dissent.

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Show Me the Money

money

There’s a new published probate court case arising out of two matters in Jackson County. The case holds that if you don’t have any money, and even if you are on public benefits, you still have to pay an inventory fee so long as the estate has resources – but maybe not the filing fee. Not that interesting (to me), but it is a published probate opinion, so for what it’s worth, click here to read the case.

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Messy Inheritance Case Makes Fun Reading – but leaves only questions

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It’s 1931 and Tough Guy (“TG”) impregnates Mom then dies shortly thereafter in a street fight over Mom’s affections. TG dies before his baby is born.  TG’s baby grows up and has one child.  That child (TG’s grandchild) dies many years later, leaving no will and no issue, no surviving parents or grandparents, but an estate of about $500,000 (enough to litigate).   Because of a dearth of offspring, the issue is whether TG was a good enough parent to inherit under Michigan’s intestate laws.  If he was good enough, TG’s son by another mother (who is a half uncle to the decedent) would inherit half the estate.  The case is called In re Estate of Kenneth James Koehler. To read the case, click on the name.

Michigan law includes provisions in MCL 700.2114, designed to punish absent and deadbeat parents. Essentially that law says that a sperm donor dad (or egg donor mother) who either doesn’t acknowledge their child or fails to support their child during that child’s minority is not treated as a parent for inheritance purposes.  In this case, the Court says the exception wouldn’t apply to TG because he was never alive when his child was born, and therefore never had a chance to neglect his child financially or emotionally.  So, half-uncle gets a windfall.

This case comes about because of a law that seeks to punish bad parenting through the probate process. As with many well-meaning statutes, the devil is in the details.  It feels right that a bad parent shouldn’t inherit from his/her child’s (or in this case, grandchild’s) estate.  But seriously, if the story was different, say TG had been shipped off to war after impregnating his girlfriend and died a war hero, would anyone really be arguing that his side of the family wouldn’t be entitled to a share?  And maybe more interesting, what if TG had lived for a couple months after his baby was born, and during that short time period ignored the child and provided no financial support, would that be enough to cut him out?  What if TG didn’t die, and acted like a parent for one year but then disappeared for the next 17?

The case is published – so it matters.

Colleague Phil Harter sees this as a case in which bad facts are making bad law. He points out that the case deviates from the prior law with respect to proof issues. A link to Judge Harter’s analysis is click here.

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Oh, By The Way

So five sisters, four surviving. Dad dies, and one daughter, Sandy, announces to her sisters: “and by the way Dad owed me $1.5 million dollars for taking care of him all these years.”

Nice.

The case is called In Re Schwein Estate. Click on the name to read it.

Short story: Sandy also happened to be personal representative of the estate. The law imposes certain requirements on the way a personal representative must assert a claim.  Sandy failed to follow those rules.  The trial court, for whatever reason, went to great lengths to allow Sandy’s claim notwithstanding these procedural defects.  The Court of Appeals reversed.

I bring this case to your attention because (1) it’s a published opinion, (2) it offers a good discussion of the law that applies when a personal representative makes a claim against the estate, and (3) a somewhat less thorough discussion of post-death claims for caregiving services provided to the deceased while he was alive.

It is also worth noting that while Court of Appeals opinions are almost always delivered with no emotion, the panel in this case gets a little snarky in the way it corrects the trial judge. For instance, if you ever happen to find youself in need of legal authority for the proposition that “statutes should be construed to avoid absurd results,” this is your case.

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Ladybird Deeds: Readers Digest Version for Upcoming Program

 

I am presenting on ladybird deeds at the upcoming State Bar Solo and Small Firm Institute, September 19-21.  Still time to sign up.  Following is an abbreviated version of what I will be covering.

Intro

A ladybird deed is an odd duck that serves as a valuable estate planning tool in limited situations, but which plays a much more important role in Medicaid post-eligibility planning.

Basically, a ladybird deed allows the owner(s) of real estate to designate a beneficiary on the property, with all the same characteristics as a beneficiary designation on a life insurance policy or bank account; including the power to encumber or sell the property without the consent or participation of the named beneficiary(ies).

A ladybird deed is sometimes referred to as an “enhanced life estate” deed.  Other states use ladybird deeds or some statutory variance of it sometimes called a “transfer on death” deed or affidavit.

I don’t know where the name came from.  The name is curious, to be sure.  Is it named after Ladybird Johnson or something else?

Source of Law

We recognize ladybird deeds in Michigan primarily because Michigan Land Title Standard 9.3 says this arrangement is valid under Michigan law.

The Land Title Standard is thin on detail, and there some important questions about these deeds remain unclear.  Most notably, the question of grantee vesting is not addressed by the land title standard.

A recent unpublished Michigan Court of Appeals case addressed the best way to subsequently convey land subject to a prior ladybird deed.

In Estate Planning

Ladybird deeds can serve as simple tools in simple estates with simple schemes to provide clients with a clean result.

In Medicaid Planning

Although ladybird deeds have been used by some planners for decades, the explosion of their use is clearly a function of the role they play in post-eligibility Medicaid planning.

After a client (or the spouse of a client) becomes eligible for Medicaid, where there is an exempt homestead, a ladybird deed can be used to avoid probate and therefore the specter of estate recovery (Because estate recovery currently only reaches probate assets).

Further, and of equal importance, because the ladybird deed does not convey anything of value (it is merely a beneficiary designation) the execution of a ladybird deed is not divestment.  Accordingly, the ladybird deed can be created before or after the Medicaid application is filed, and it does not matter that it is done during the look-back period.

Clearly the ability of people to avoid estate recovery simply by executing ladybird deeds is a thorn in the side of those who expect the estate recovery program to generate revenues.  Accordingly, planners must be realistic about the future of this planning tool, and need to advise their clients about the prospects that the law may change in the future.

Legislation currently pending would eliminate the probate only aspect of Michigan’s estate recovery program, and therefore eliminate the benefit of ladybird deeds in Medicaid planning.  But even if this law is not passed, it would not be surprising for the Department of Human Services to implement policy that seeks to reach property passed by ladybird deed.

Creditor Rights

A Michigan probate court opinion out of Wayne County, written by a highly respected Probate Judge, the Hon. Milton Mack, and which is published in the Quinnipiac Probate Journal holds that an unsecured creditor of the state cannot reach the value of property that passed by operation of a ladybird deed, and further, that the execution of a ladybird deed is not subject to the Fraudulent Conveyance Act.  This author knows of know contrary authority.

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