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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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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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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Decanting Made Easy

decanting 2

It’s been four years since Michigan’s decanting laws took effect. Those of us at CT have found ourselves decanting more and more lately. It has provided magnificent results in several cases.  I think the reason it took us so long to get on the bandwagon is that the whole concept seemed complicated and intimidating.  But as we’ve worked through these cases, we’ve kept coming to the same conclusion: It works and it’s way easier than we imagined it could be.

Decanting is taking a beneficiary’s interest in an irrevocable trust and creating a new trust for that beneficiary, with, in most cases, new terms. The term “decanting” comes from the concept of taking a bottle of old wine and pouring it into a new bottle or skin.

Now Michigan’s decanting laws (written and advanced by our good friend and that outstanding leader in probate law, Jim Spica) come in a variety of flavors (and you should definitely look up Jim’s writings and speaking materials for a more sophisticated understanding of this topic). Decanting can be accomplished, for instance, where a Trustee has been granted a sufficiently broad power of appointment to accomplish the task.  These decanting rules are set out in Michigan’s Power of Appointment Act.  MCL 556.115(a).  And while I am sure there are situations where this is the appropriate tool to accomplish the task, what we’ve found is that, for our purposes, the most fruitful application of Michigan’s decanting laws are those provisions for decanting set forth in Michigan Trust Code, and specifically MCL 700.7820a.

We’ve used decanting for two primary purposes: (1) To fix problem trusts, and (2) To delay a beneficiary from obtaining unfettered access to an interest in trust.

The key to an MTC decanting is discretion. Basically, to the extent a beneficiary’s interest in trust is a discretionary interest, it can be decanted.  For that reason, decanting comes up as an option in a lot of special needs planning cases, where discretion is always in play.  But decanting options have arisen in other types of cases as well.

So first you need to understand what discretion is. And in Michigan, a discretionary interest in Michigan is defined very broadly. See MCL 700.7103(d).  Even the ability to determine when a distribution will be made is sufficient to create a discretionary interest.  What’s more, where the language defining the beneficial interest is confused between discretion and support, our law defaults to discretion. MCL 700.7103(k) (and this type of confusing language appears in a lot of instruments, particularly older special needs trusts).  So this means, to the extent the Trustee exercises any judgment regarding distributions to the beneficiary, that interest is almost always going to be defined by Michigan law as a “discretionary interest” thereby triggering the ability to decant.

[To read more on Michigan’s liberal law on discretion, click here for an article I wrote several years ago on the topic.] https://mielderlaw.com/wp-content/uploads/2013/05/Pages_from_winter2009-2-MPEPJournal-The-power-of-discretion.pdf

Now here’s another point (a real gem) that you need to understand when the objective of decanting is continuing property in trust that the trustee would otherwise be required to be distribute at a date/age certain. While the law says that you cannot use decanting to materially change the terms of the trust, it also says: “An increase in the maximum period during which the vesting of a future interest may be suspended or postponed under applicable law does not constitute a material change in the interest of a beneficiary.” Voila!

So the point of all this is that, the proposition that you can rewrite a trust to get rid of problems in the way it was written, and even rewrite the trust so that a trust beneficiary’s distributions will be put on hold, is not just doable, but relatively easy to accomplish in those cases where you can define the beneficial interest as a discretionary interest.

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Lame Duck Legislature Lays Golden Egg – BIG TIME

Golden Egg

DAPT – learn it and love it. Soon it will be all the talk.  Domestic asset protection trusts.  The news is that the Michigan legislature has approved a pair of bills that would make Michigan one of fifteen states with such laws, and of those states, one of the most attractive for persons seeking this type of protection.

Specifically, there are two bills awaiting the Governor’s signature which is expected before year end. The meatier of the two, the “qualified disposition in trust act” can be read by clicking here.  A second bill modifies Michigan’s fraudulent conveyance laws so as to accommodate these trusts, to read that bill click here.

In summary, a DAPT allows people to create trusts funded with their own resources, have the resources in those trusts used for their own benefit, and yet have those trust resources unavailable to their own creditors. Nifty trick.  A complete reversal of prior law and common law.  That is, in states without these laws, and in Michigan historically, a person could not put their own assets in trust and then tell their creditors to take a hike.  In the future, they can.

There are limits. One limit is that the conveyance must be done in a manner that is not a fraud on creditors.  Specifically, the standard imposed by the new law is that the trust may not be funded with “actual intent to hinder, delay or defraud any creditor.”  Another limit is that the interest the settlor reserves is a discretionary or support interest.

Specifically the law defines this relationship as follows:

The potential or actual receipt or use of principal if the potential or actual receipt or use of principal is the result of (i) a trustee’s discretion, (ii) a trustee acting in accordance with a support provision, or a (iii) trustee acting at the direction of a trust protector who is acting in its discretion or in accordance with a support provision.

This sounds so great that the initial reaction is that everyone will want one – and expect the chicken dinner seminar crowd to echo that sentiment. In reality though, these trusts make sense for people who (1) have significant wealth, and (2) have significant risks of creditors.  Otherwise, why would anyone put their money in an irrevocable trust and limit their access to those assets to support or discretion?

This will bring trust work to Michigan. Michigan has become a favorable jurisdiction for trust planning, and now, self-settled asset protection trust planning. Michigan laid the groundwork for being a leader in this arena with the exceptional protections afforded beneficiaries of discretionary trusts when it adopted the Michigan Trust Code in 2010.  This legislation gives that work a whole new application.  Look for wealthy people in other states, both states that do not have these laws, and some states that have these laws but less favorable provisions, to look to Michigan as a place to locate their trusts.  To cloak oneself in these protections, it will be necessary to have a Michigan trustee.  Good news for the trust departments of Michigan’s banks, as well as Michigan’s estate planners.

Note, don’t confuse this change with self-settled asset protection trusts now used in the context of planning for government benefits – special needs trusts. Those rules are federal and this will not impact those rules.

These laws are a product of the Probate and Estate Planning Section of the State Bar. A committee of that group’s members has been working on this project for years, and deserves great credit for bringing this about. For ICLE partners, a good summary of the law provided was by Rob Tiplady at the May 2015 Probate Institute.  I suggest you look up his materials.

This is my first pass at discussing this important development. Expect more down the road.  This matters.

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Section 2503 Grows Up

Kids in suits

This just in – pretty big news – and pretty interesting – the Michigan Court of Appeals holds, in a published opinion, that a draft of a will, prepared by a lawyer, but never signed by her client, could be a valid will. Click on the name to read In re Estate of Attia.

EPIC (the current probate code) was adopted in 2000. It was a big deal in the probate world.  And while most of it was simply clean up, update and clarification work, there were a few new twists that came in with the new code – a few hot topics at the seminars – new concepts that had everyone wondering: Where is this was coming from? – and Where is it going to go?  One of the hottest topics of the day was section 2503.  Section 2503 says, essentially, that even if a document fails to meet the technical requirements for execution of will, and even if it is not a holographic will, it may be treated as a valid will if it can be shown by clear and convincing evidence that the testator intended it to be his/her will.  Before section 2503, a will either met the statutory signature and witnessing requirements of the probate code, met the requirements of a holographic will, or it was out.  Click here to read MCL 700.2503.

The argument for 2503 was that where you have a document that was clearly intended to be a person’s will, and they simply failed to meet a technicality, that document should be given effect – it’s only fair. The argument against the change was that this is the exception that will swallow the rule – someday this will be used to offer any sort of document as a person’s will – and the litigation will be endless.  Did I hear a gulp?

So in Attia, it appears that lawyer met with client, prepared a draft, and scheduled a date for signing. But client died before the document was signed.  Child A submits the draft as the last will under 2503.  Trial court dismisses on summary disposition, says 2503 can’t possibly be construed to mean that an unsigned document can come in as a valid will – certainly the testator’s signature is not one of the technicalities that can be disregarded.  Court of Appeals says, 2503 says what it says, and that means that if it can be shown by clear and convincing evidence that this document was intended to be a will, the lack of a signature from the testator is not controlling, the matter cannot be dismissed as a matter of law, and the proponent gets a chance to try and prove intent.

Fascinatingly, Michigan appears to be the first state to address this issue head on. The opinion cites a New Jersey case, but even there the testator had made some handwritten notes.  In Attia it isn’t even clear, nor does it appear to be relevant, whether the testator ever even saw this document.

So, it took us 16+ years to get here, but it seems that section 2503 is feeling all growed up – and asking for the keys to the car.

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Who Gets the Grow Lamps?

pot leaf

Thoughts on Plain English and Terms of Art

In recent years, lawyers – or at least legal academics – have pushed the concept that lawyers need to write using “plain English.” The movement is presumably designed to make the legal world more accessible to laypersons. Like many concepts that seem admirable on their face, I have often been troubled by a sense that this movement fails to acknowledge that what we do requires precise language that simply can’t be “dumbed down” for the sake of making our profession seem friendlier.

This recent unpublished Court of Appeals opinion (click here) arises out of a will that leaves the “residence” and “property” to A and the residue divided equally between A and B. The problem is that the decedent owned a house, connected to a farm.  And the decedent had an entrepreneurial bent.  Specifically, he had a business that made trailers, he had a business that did landscaping, and on that farm he had some weed (E I E I O) – that is, a business that grew medical marijuana.  Each of these businesses had assets related to those businesses, all located on the property at issue.

So problems arose in interpreting the document. Residence is a clear term of art, meaning the place one resided.  But did it include the barn and outhouses as well?  How many acres went with the house?  And property is an even more comprehensive term of art.  Did the gift of property mean the personal property in the house? The farmland? The business assets?

Residence and Property are important legal terms of art. They are used here as if the drafting attorney is unaware of their precise legal meaning – that is, they are used as if the common meaning would have legal effect.

While most of us can probably agree that archaic legal words like “whereby” and “heretofore” may be unnecessary, the precise use of language, and an awareness of the legal meaning of legal terms remains critical to good legal work.

The Court of Appeals correctly holds that the will is ambiguous, and hence a trial is needed to introduce extrinsic evidence so that the trial court can try and determine what the decedent thought those words meant when the will was prepared; causing litigation wholly unnecessary had the drafting attorney simply been more precise.

The case is a good reminder that “plain English” is often a recipe for disaster in legal documents, and a good read for attorneys – particularly younger lawyers – who are looking to develop their skills in drafting estate planning documents – and any legal documents for that matter.

 

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The Always Interesting Holographic Wil

A holographic will is a will that a person writes out in their own hand – and signs and dates.  If this is done, the usual requirements that the will be witnessed do not apply.    People like to talk about these cases because they tend to come up in unusual matters.  In reality they are seldom seen.

In any event, the Michigan Court of Appeals recently issued an opinion in a holographic will case.  In this case a woman wrote out what appears to be just such a document, but the trial court said the document was not her will because evidence suggested it was not her intent for this to be a will – but rather only notes about what she might put in her will.  To read the case click here.

I have a problem with this result.  The document at issue starts with the following: “Last Will and Testament.  Being of Sound Mind” At this bottom of the page is the testator’s signature and date.  It is all written in her handwriting. To see the document, click here.

Notwithstanding, the trial court determined that this was not a valid holographic will.  The Court or Appeals upheld this result.  The case is not reported, meaning it has no precedential value.  Nonetheless, in my opinion, the reasoning undermines the statutory basis of holographic wills and creates problems for people seeking to uphold these documents in the future.

Legal Issues:  Michigan law recognizes two types of documents that can be admitted to probate: wills and documents intended to be wills.  Essentially the law says that if a document is a will, it will be admitted.  This can be accomplished in one of two ways: by having the document witnessed in accordance with the law (typically what is done when someone works with a lawyer to prepare their will) or if it meets the requirements of being a holographic will (being written in the testator’s own hand, signed and dated).  If these requirements are not met, the document can still be admitted to probate if it is shown that the person who prepared it intended it to be their will even though the document fails to meet the requirements of either a lawyer-prepared will or holographic will.  This case seems to blur the line between a valid holographic will and a document intended to be a will.  It seems to place the higher standard of proof on a document which, on its face, meets the statutory requirements to be admitted as a will.  To get there the Court looked at “intent.”  The Court determined that for any document to be admitted it must be shown that the testator intended it to be a will.  This intent requirement would presumably be met in almost any case in which the person went to a lawyer to have their will prepared and witnessed.  My concern with this case is twofold:  First, if you have to prove “intent” to admit a holographic will you have essentially demoted every holographic will to the same standard as a document intended to be a will but not meeting the statutory requirements.  This, in my estimation, changes the law as it is written and as it has been interpreted historically.  Second, in this case in particular, where the document states at the outset “Last Will and Testament” and “Being of Sound Mind” – how on earth can the Court conclude that this document was not intended to be a will?  Why would anyone put that on the top of the page if they were not intending to create a will?

In the end, it is only an unreported opinion from the Court of Appeals.  However, the reasoning opens the door to more litigation in cases involving holographic wills.

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General Perry’s Terror Clause: Final Chapter (I think)

Within a couple weeks of oral arguments, we received a published opinion in the General Perry terror clause case that has been discussed in this blog before (really fast opinion).   To read the case, click here.

The result was not favorable to my client, but nonetheless appears to provide planners with the result advocated by our appeal – that is, there is no “safe harbor” tool with which to contest a terror clause.

To review, Beneficiary filed Motion to Determine Probable Cause.  Trial Court found no probable cause to contest the Trust, but refused to find that the act of bringing the motion was itself an attack on the Trust so as to invoke the terror clause penalty.

The Court of Appeals said that the trial court never should have accepted the motion to determine probable cause because it did not meet the jurisdictional requirements for the relief requested.  Because that issue was not raised at the trial level it was not preserved on appeal.  But the COA said that in this case the motion itself does not violate the terms of the terror clause of this trust.  Where that leaves us is – in our case the Beneficiary who brought the motion gets to keep his share of the trust – BUT in the future anyone who brings this type of motion should expect to have the motion dismissed without a hearing.  So the result is there is no safe harbor way to challenge a terror clause – but that doesn’t help my client.

The case is published – so it matters.  I had intended to seek leave to the Supreme Court if the Court of Appeals decision was not favorable.  But in light of the ruling, I think such an effort may not be warranted.  I thank Phil Harter (f.k.a. Judge Harter) of our office for his review and conclusions about the opinion.  Finally it should be noted that opposing counsel on this case, Doug Mielock, (a.k.a. my archnemisis) did an excellent job as usual – just hate losing to him.

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Case Trends and Technical Formalities

The topic for this post was triggered by my end of year clean up. During that process, I go through piles of things I think are interesting and have set aside. In doing so I pulled out five unpublished Court of Appeals cases that relate to the issue of the treatment of testamentary documents which fail to meet formalities (some woefully so) normally associated with their execution. This is far from an exhaustive review of the cases, but enough, I thought it was worth a discussion.

Following are the cases from my pile in order of most recent first:

In Re Gwendoline Louis Stillwell Trust. November 2012. Decedent/Settlor created a revocable trust. She also instructed a grandchild to deliver an envelope to the Trustee in the event of her death. In that envelope were several pages of handwritten, dated, but unwitnessed and unsigned instructions altering the disposition of her estate from what was provided in her Trust. The trial court held that the notes were amendments to the trust and that decision was upheld by the Court of Appeals.

The decision of both courts relied heavily on the language of the trust which granted the settlor the ability to modify the trust by written instrument delivered to the trustee. The fact that the document was not signed and not delivered until after death did not prove to be obstacles to the result. This case is a good example of what appears to be the expanding scope of the movement started by MCL 700.2503. It also suggests that trust agreements may be even more vulnerable than wills, notwithstanding the fact that the Michigan Trust Code offers no provision comparable to MCL 700.2503.

In Re Leach. October 2012. The trial court upheld certain documents which purportedly conveyed a remainder in real estate to X as wills. The trial court granted the relief on summary disposition. The Court of Appeals remanded for an evidentiary hearing on the issue of intent, and specifically requiring the Court to make a finding that the evidence could sustain the burden of proof: clear and convincing.

This case is interesting because it seems to suggest that summary disposition is not appropriate to make a finding in favor of a non-complying document under MCL 700.2503, but also because it addresses (briefly) the interplay between capacity and intent.

In Re Estate of Waller. November 2011. This case upholds a handwritten prenuptial agreement which was signed on the date of the marriage, and which included no disclosure of the parties’ respective assets or debts. The surviving spouse contested the validity of the document and lost.

The point here is again, a handwritten document is given full effect. It is also noteworthy in that it suggests that notwithstanding the perception of the family law bar, the formalities generally associated with the execution of a prenuptial agreement in order for it to be upheld are not so firm as they might believe.

In Re Daniel Mannes. October 2011. Decedent died leaving a will. She also had handwritten notes that altered the disposition of a certain investment Account. The handwritten notes were admitted as valid holographic wills but the interests of the beneficiaries of the notes were dismissed due to the timeliness of their action. The Court of Appeals reversed the trial court on the dismissal of the claim of the beneficiaries of the notes, upheld the notes as testamentary documents.

The case is bogged down in side issues about a pending divorce and timeliness of the action, so the Court of Appeals never addressed the factual basis for finding that the notes could be treated as holographic codicils (the party who would have contested that finding apparently dropped the issue on appeal). For the purposes of this post, the point is only that this is another case upholding notes as testamentary instruments.

Estate of Annette K. Boyle. September 2011. Decedent’s will specifically identified the Property in dispute as part of her estate and in fact Decedent held title to the property at the time of her death. The Property was listed on the estate inventory of the estate but with a notation that the decedent “agreed to transfer” this Property to Son. Residuary beneficiaries objected to this notation and to the Petition, filed by Son seeking the Court to order the PR to convey the property to him. Son had some good facts in his favor including testimony that the Decedent referred to the property as Son’s property, that the property tax statements were sent to Son, and that Son paid the taxes. Respondent residual beneficiaries argued that the will was unambiguous.

After a bench trial the property was awarded to Son under a constructive trust theory, and that decision was upheld by the Court of Appeals.

This case speaks to the broad reach of the remedy of “constructive trust” often, I suggest, underutilized in litigation. But the case also offers an example of the clear language of a testamentary document, in this instance a will, to be circumvented by facts that suggest that notwithstanding the plain language of the document, the intent of the Decedent was otherwise.

Conclusion. So what does it mean? As is often the case, bad news for planners is good news for litigators. Because these cases do not necessarily hinge on the statutory language of MCL 700.2503, they appear to merely reflect a trend away from holding fast to enforcement of clear testamentary documents, and allowing parties who believe a decedent intended something else to get a foot in the door. The remedy of constructive trust seems most well suited for these cases, as it is equitable and accordingly allows the party seeking deviation from the documents to avoid the traditional rules of ambiguity and extrinsic evidence.

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