An unpublished opinion today that looks at the question of when expert opinions are sufficient to create a question of fact, versus when they remain mere speculation; in the context of a motion for summary disposition.
In In Re Jeannine A. Palazzo Irrevocable Trust (click on the name to read the case), the attorney/trustee failed to inform beneficiaries of his activities in relation to an irrevocable life insurance trust (an “ILIT”) established for their benefit by an aunt. During the years leading up to the aunt/settlor’s death, the liquidity in the ILIT was depleted to the point of near insolvency. This prompted the attorney/trustee to liquidate the policy for $36,000 and by doing so give up the $500,000 death benefit. As it turns out, he did this just days before the death of the aunt/settlor.
The successor trustee sued attorney/trustee for breach, and presented testimony of an expert estate planning lawyer and an accountant, both of whom opined that had the attorney/trustee performed his fiduciary duties with respect to informing the beneficiaries, the beneficiaries could have taken steps to protect their interests and potentially preserved the policy so as to receive some or all of the death benefit.
An Interesting Question
The trustee/attorney moved for summary disposition in the trial court and prevailed on the argument that merely speculating that the beneficiaries could have or might have taken steps to alter the outcome is insufficient, if you don’t explain what they would have done and when.
The Court of Appeals affirmed the trial court, adopting the proposition that merely speculating that something could have been done is insufficient to create a question of fact sufficient to survive summary disposition.
An Uncomfortable Result
A central premise to trust law is that beneficiaries are empowered to protect their interests by being provided information. A trustee protects itself by providing that information. When a trustee fails to provide the required information, the law holds the trustee liable for the resulting damages and does not allow the trustee the protection of time barriers to claims that would otherwise arise.
For a court to conclude that although a trustee breached its duties by failing to provide the required information, but that the trustee is nonetheless absolved of liability on summary disposition even where experts have opined that something could have been done had the information been provided, just feels wrong.
Bottom line is the beneficiaries lost on summary because they did not specifically state what could have been done to alter the outcome had the missing information been provided. While that seems like a fine line to draw; that is the line that worked in this case, and a line litigators will want to remember when they need to make the same distinction in future matters.
They say it is an ill-wind that blows no one good, and no doubt there is one trustee/attorney who will be full of Thanksgiving today.
Here’s another important published opinion on the topic of adult guardianships. The case is about the removal of a guardian of an adult ward appointed under EPIC.
The case deals with the very common, and therefore very important, situation in which a guardian is using its position to undermine healthy family relations. In this case, the facts relied upon by the trial court and the COA are that the existing guardian was actively interfering with visitations, and taking steps to cause the ward to be distrustful of other family members. These alienation cases go on all the time. It is helpful to have an opinion that clarifies that such behavior is a basis for removal of a fiduciary. It is likely that this case will be cited frequently where such facts arise, and I suspect that the finding that such behavior disqualifies a guardian will be offered by extension to cases involving conservators and other fiduciaries. And that’s good. We need this law.
In reaching its decision, the COA holds that the standard for removal is “suitable and willing to serve.” This finding is an important clarification of MCL 700.5310 which is silent on the requirement for removal.
The COA also finds that the standard of proof for removing a guardian for unsuitability is not clear and convincing evidence, but rather a preponderance. Interestingly, in reaching this conclusion the COA indicates that the standard for proving unsuitability in the initial appointment hearing is clear and convincing evidence. This reading of the priorities in a guardianship proceedings seems inconsistent with the conclusions regarding priorities and unsuitability reached by a separate panel discussing these issues in the context of a conservatorship, as addressed in my other post of today’s date regarding In Re Conservatorship of Rhea Brody.
So, it’s a big day in the world of litigating guardianships and conservatorships. These two published cases (Brody II and Redd) will be cited in the future, each for their own important conclusions of law. Probate litigation in the age of living to be 100, where the fun never ends.
UPDATE: On June 8, 2018, the Michigan Supreme Court vacated those portions of this decision that incorrectly construed the Michigan Trust Code provisions related to standing to initiate a trust proceeding. The MSC also remanded the case to the Court of Appeals to be corrected and reissued. Click here to read the MSC Order. When a new COA opinion is issued, it will be added to this post.
Several issues are addressed in this published opinion regarding a family trust contest that occurs while Mom, settlor, is living. Mom’s trust is revocable and Dad is Trustee. Mom may or may not be competent at the time of the litigation, hence the Trust may or may not have become irrevocable.
The most interesting issue addressed in the opinion is whether Daughter, a residual beneficiary of a trust that remains revocable, has standing to contest the administrative actions of the Trustee. Mom’s Trust provides for both son and daughter to receive equal shares upon the death of survivor of herself and Dad. Daughter says the sale, by Dad/Trustee, of certain business interests to Son and his children is a breach of his fiduciary duty to her and violates the requirement that he appoint an independent co-Trustee to engage in any action that alters the interests of beneficiaries. The COA says Daughter, as reidual beneficiary, has standing as an “interested person” under EPIC pursuant to MCL 7.7201 to contest Trustee/Dad’s actions as Trustee which would ultimately affect her interest if the Trust if it is not subsequently amended to remove her. It rejects the contention that standing is controlled by the “real party in interest” rule set forth in MCR 2.201(c). The COA holds that this would be true regardless of whether Mom is or isn’t competent (that is, regardless of whether trust has or has not become irrevocable). This is an important clarification of the law, and would presumably mean that Daughter could have sued Mom/Settlor for doing the same thing if Mom were acting as her own Trustee. (Of course, if that were the case, Mom could simply amend the Trust and make the issue moot.)
Further complicating the analysis is the fact that the Trust provides that if Dad survives Mom, Dad as Trustee may make unequal distributions to the two children. Accordingly Dad and Son argue that this means no harm was done to Daughter even if the sale reduced her expectancy interest in the Trust. The COA however notes that Dad has not survived Mom and therefore those provisions are not in play. The COA goes further (perhaps dicta), to conclude that notwithstanding the unequal distribution provisions, the overall intent of the Trust is equal division between children and therefore the actions of Trustee/Dad could be a breach. The trial court in fact found his actions to be a breach and ruled in favor of daughter on summary disposition.
The COA also provides an interesting analysis of the remedies directed by the trial court regarding two sales that were the basis of the litigation. The trial court ordered reformation of the contract on one sale and rescinded the other. The COA found that while rescission was an appropriate remedy, reformation was not. In remanding the reformation portion of the trial court’s order, the COA offers an important explanation of the limitations of a court’s equitable powers.
Finally, and least importantly (although this is the first issue addressed in the opinion), this case looks at subject matter jurisdiction of business courts in relation to probate courts. Dad/Trustee argued that the litigation discussed above was improperly filed in probate court because all business litigation is required to be brought in the “business court.” The COA finds that there is a conflict between the statutes controlling business court and probate court subject matter jurisdiction, but concludes that the probate court does not lose subject matter jurisdiction over trust cases simply because the litigation involves issues related to business interests. The COA notes that this confusion is temporary for the reason that the business court jurisdiction statute was recently amended to further limit the jurisdiction of business courts to cases in which a business entity is a party. That change becomes effective October 11 2017.
When starting a new litigation matter in probate court, a threshold issue is to determine whether the matter should be characterized as a probate “proceeding” or a “civil action.” There are significant differences between the two, including what court or courts it can be filed in; and what type of pleading, a petition or a summons and complaint, must be prepared.
Generally, a claim against a third party filed by a Trustee or Conservator would be a civil action; whereas things like surcharging a fiduciary, construing or modifying a trust, or seeking to invalidate a will or trust, would be a proceeding. The primary source distinguishing between the two is MCR 5.101.
This distinction is the issue in a newly released unpublished case from the Court of Appeals. In this case, a seasoned Oakland County public fiduciary, John Yun, was appointed conservator over the estate of a demented person who had apparently been exploited by a Mr. Hartman. The conservator filed a petition for surcharge seeking recovery of assets that Hartman allegedly converted to himself before the conservatorship was created. Mr. Yun followed the requirements of notice for a proceeding by mailing a copy of the petition and notice of hearing to Hartman. Hartman did not show up for the hearing, and the trial court entered an order finding that he was liable for nearly $200,000. Mr. Yun then brought a motion to have the order converted to a judgment. Hartman objected, claiming that the process by which the order against him had been entered was defective as it should have been filed as a civil action and not a proceeding; and accordingly that he should have been served with a summons and complaint and not a petition.
In its opinion, the COA reviews the distinctions between a proceeding and civil action and concludes that the probate court was correct in allowing the order to enter through the proceedings process. In reaching this conclusion the COA relies on the proposition that Hartman was a “fiduciary.” In fact, the protected person had created a power of attorney appointing Hartman as her agent, and a revocable trust nominating Hartman as successor Trustee. These documents were all set aside by the probate court in its initial hearing. But what troubles me about the case is that the COA holds that a person nominated as a successor trustee is a fiduciary for purposes of MCR 5.101. It says:
Further, Hartman meets the definition of a fiduciary. First, the March 14, 2014, revocable trust named Hartman a successor trustee.
That seems like a stretch. And while I appreciate expediency, I worry that such rationale could be applied in similar and dissimilar situations with unanticipated outcomes. While in this case, Hartman no doubt was aware of his nomination as a successor Trustee, apparently having had a large role in obtaining the estate planning documents, people are frequently nominated to such roles without ever being advised. It seems potentially problematic to me to have a case that holds that a person who never accepted or acted in a nominated fiduciary role is a fiduciary for the purposes of being subject to a probate proceeding.
I am certainly not challenging Mr. Yun’s approach. He is highly experienced in this type of work, and he got the job done and did so very efficiently. However, another approach to this case could have been to have the probate court order Hartman to account, and/or to simply have sued Hartman for conversion, fraud and other civil causes of action by filing a summons and complaint.
In any event this case highlights an issue that comes up regularly in probate litigation matters. For those interested in the topic, it’s worth a read.
If someone wanted to capture the essence of elder law litigation in a nutshell, they might be inclined to echo the words of the poet: “Oh what tangled webs we weave, when first we practice to deceive.”
While the cases that come into our office are varied in many respects, they almost all share in the proposition that the situation is not simple, and that the complexity arose out of someone’s (or some group’s) initial efforts to be sneaky and devious. Once that dynamic is in play, all the rest follows, and by the time the situation comes to light (comes into my office), the whole thing is a tangled web of deception and missteps that is so contorted as to be almost unfathomable.
At initial consults, I listen, and listen and listen (or read and read and read, since many times I ask for their summaries in writing) – trying to glean the relevant legal facts, but at the same time trying to understand the personalities, motivations and relationships that in the long run will become the meat of the story – and every case is a story. Law is always about two things – the law and the facts. The law is the skeleton, but the facts are the meat. One critical role of the litigator is to take the facts and apply them to the bones of the law so that they become something the decision-maker (judge or jury) can visualize, understand and rule on.
The thing that focused my attention on this particular topic was a recently unpublished Court of Appeals opinion. It’s called: In Re Beverly LaForest Living Trust (click on the name to read the case). It’s a short case, and in the long run, of little significance, being unpublished and not announcing anything new about the law. But I think there are pieces of this case that are illustrative of the point I’m trying to make.
In LaForest, daughter (“Patricia”) is power of attorney for her mother (“Beverly”), the vulnerable adult. Patricia is also Trustee of Beverly’s Trust. Patricia engages an attorney to assist with “Medicaid planning”. That is, obtaining advice designed to allow Beverly to qualify for Medicaid assistance, while at the same time “protecting” her assets for the family. In that context, a house, an annuity and a vehicle were transferred to Patricia. When Beverly died, Patricia claimed the assets transferred were hers to keep. Her siblings challenged this assertion, saying that while the intention may have been to place the assets in Patricia’s name, the objective was to do so to obtain Medicaid benefits and not as a gift to her, but rather so that she would hold those assets in trust for the benefit of all the siblings and divide them up when Beverly died, as would have occurred had Medicaid not been an issue. The trial court agreed with the siblings – which is that Patricia could not keep those assets as her own but rather that they were divided among her and her siblings following Beverly’s death. The Court of Appeals affirmed the decision of the trial court.
Hats. People think of themselves as children, or parents or whatever with respect to their relation to a vulnerable adult. They come to learn the words “power of attorney” and “trustee” – but they never really understand how their role as power of attorney or trustee is distinct from their role as family member. This case explores the actions that Patricia took as power of attorney and as trustee, and demonstrates that with respect to each hat Patricia wore, certain legal obligations applied, and that her failure to adhere to those obligations was contrary to the law. This is an important, and often misunderstood, lesson for people acting in fiduciary roles with respect to vulnerable adults. It is also important to recognize and distinguish that while a power of attorney or trustee may have the legal ability to retitle assets, doing so may, notwithstanding, be a violation of their duty as a fiduciary.
Medicaid Planning. Medicaid planning has become a popular concept, and because it often involves transferring property of an impaired older adult, and doing so by someone acting as power of attorney or trustee, it is not surprising when, as in this case, Medicaid planning is used as justification for this type of conduct.
Feeling Entitled. Likewise, in these types of cases, it is not uncommon for one of the children to believe that the transfer of a disproportionate share of the estate to them was what the vulnerable adult would have wanted. In this case, the Court acknowledges that Patricia saw her mother nearly every day and regularly assisted her mother with her needs; whereas the now-complaining siblings had almost no contact with Beverly throughout this period. Patricia argues that these facts support the proposition that Beverly intended for her to keep these things and not share them with her siblings.
Magic Words. In the end the trial court decided that even though Patricia may have been the only child that emotionally supported her mother in a material way, the evidence that Beverly wanted her to keep these assets was not adequate to overcome the legal rules that arise when a fiduciary engages in “self-dealing.” The magic words used by the court were: “Constructive Trust.” It said that although Patricia may have had legal authority as power of attorney and trustee to retitle the assets into her own name, the law still looks at those assets as being held by her, in trust, for her siblings. The Court of Appeals, deferring as it does to the trial court’s ability to assess the credibility of the witnesses that appear before it, found insufficient evidence to reverse the conclusions the trial court made with respect to the parties in this case.
In the end, the story of the LaForest family, although unique in details, is not unique in the sense of how it came about or how it ended. Patricia stepped on the slippery slope of self-dealing in the assets of a vulnerable adult and fell into the ditch of deception. When the web of facts was untangled, the law was applied, and she was ordered to reimburse her siblings. [Shout out to my friend and colleague, John Fershee, who represented the siblings.] [Also, just FYI, the spider pictured above is a friendly garden spider I got to know last summer while helping my daughter pick tomatoes.]
To read more on elder law litigation click here and here.
Lawyer prepares an estate plan for client (and purported friend). The estate plan leaves most of the multi-million dollar estate to himself (the lawyer) and the lawyer’s son.
This is against the Michigan Rules of Professional Conduct for lawyers, which rules prohibit lawyers from making themselves beneficiaries of estate plans that they prepare for non-family members.
The trial judge rules in favor of the parties seeking to set aside the document. The trial court says that the violation of the Rules of Professional Conduct makes the estate plan invalid.
The Court of Appeals reverses – meaning that while the Attorney may face disciplinary action by the State Bar for violating the Rules of Professional Conduct, these rules do not control the outcome of litigation over the validity of a document prepared in violation of those rules. Rather, the Court of Appeals says this is a case in which the normal rules of undue influence apply, and because the attorney who prepared the document had a position of trust (fiduciary relationship) with his client, a presumption of undue influence applies.
Suffice to say cases like this make lawyers uncomfortable. These things shouldn’t happen. If this individual really was so friendly with his attorney that he wanted to leave his estate to him, the simple solution would have been to have this client go to another lawyer to have his documents prepared.
It is an important decision, in that it clarifies that the Rules of Professional Conduct which control the way lawyers can act, do not control the outcome of civil actions in which the attorney engaged in professional misconduct.
The issue however may not be settled. There is enough money involved so that it is almost certain that the Michigan Supreme Court will be asked to review the Court of Appeals’ decision. Whether the Supreme Court elects to do so, and what they conclude if they do, will be interesting. Stay tuned.
So we have a new published opinion on a probate court case – something unusual these days. In Re Conservatorship of Shirley Bittner was published September 8, 2015. Click here to read the case.
In Bittner, the probate court imposed a conservatorship over the vulnerable adult, and did so over what the Court of Appeals calls her “strenuous objections.”
The subject of the petition was Shirley Bittner. The petition was brought by her daughter Suzanne. Shirley was a 74 year-old widow.
Suzanne had been granted power of attorney over Shirley by Shirley, and had been made co-trustee of Shirley’s trust; that is until Shirley concluded that Suzanne had misused those powers for her own benefit. At that time Shirley petitioned the Court to recover the property she believed had been misappropriated by Suzanne. Suzanne countered with a Petition to have a third party (public fiduciary) appointed as Shirley’s conservator. Meanwhile Shirley appointed a second daughter, Stacey, as her agent under a new power of attorney.
The probate court took evidence and appointed Stacey (the new agent under power of attorney) as conservator.
Appointment of a conservator is a two-prong test.
1. Is the person unable to make their own decisions (are they sufficiently impaired to invoke the Court’s jurisdiction to take away their rights)?; and
2. If the Court does not act, will this person’s resources be mismanaged?
Both prongs must be met to impose a conservatorship over an adult.
The Court of Appeals reviewed the decision of the trial court and reversed.
As to the first prong, the Court of Appeals found that the evidence was marginal. Shirley clearly had some impairments, but it was not so clear that those impairments rose to the level necessary to impose a conservatorship over her.
As to the second prong, the Court of Appeals found no evidence that anything was being mismanaged, at least now that Stacey was acting has power of attorney.
The case is important, as it fires a shot across the bow of the trial courts that are routinely imposing conservatorships over older adults. And importantly, by analogy, the case will serve the same purpose with respect to the imposition of guardianships.
But nothing is simple in terms of this area of the law. As to the law, there is no question that the Court of Appeals is right on. No doubt courts are way too quick to impose guardianships and conservatorships without sufficient legal basis. That said, it is also true that there is a great deal of mischief in the world of vulnerable adults. Once one child is taking advantage of mom, one wonders whether the next child is likely to do so and/or whether in time mom will be persuaded to create yet another power of attorney appointing the daughter who allegedly misappropriated assets, or yet another child who may or may not be acting in mom’s best interests. Mom is vulnerable – that’s the point. So, left unchecked, these cases can go on and on. Where there is money and family dysfunction, there is a high likelihood of further issues. I would suggests that there is something to be said for probate judges who have seen enough of these cases to want to simply grab control, create a conservatorship, and thereby put themselves in the position of monitoring what goes on in the future; and by doing so, shut the door to future mischief.
Accordingly, I appreciate the Court of Appeals upholding the rules. I greatly respect my many colleagues who recognize that taking away the rights of an adult should only be done as a last resort. But I worry about law that makes trial judges less willing to step in and grab control when it is clear that the mayhem has begun.
Frances and Elizabeth Stafford were sisters in the Bay City area. When Elizabeth died, her trust continued for the benefit of Frances. Frances was a vulnerable adult, physically and cognitively impaired. Her trusted financial advisor of many years was Trustee over Elizabeth’s Trust.
We were hired by the beneficiaries when, after Frances died, evidence of misappropriation came to light. We first acted to remove the Trustee and appoint a CPA as successor Trustee, who conducted a forensic review of the accounts and came to the conclusion that the prior Trustee had misappropriated over $500,000 for his personal benefit.
The case was assigned to Judge Sheeran in Bay County Circuit Court (although originally a probate file, due to various procedural issues and the retirement of Judge Tighe, Judge Sheeran took the case).
The case was interesting in several respects, including the assertion by the defendant Trustee of his 5th amendment right not to make self-incriminating statements.
On February 4, 2015, the Court conducted a hearing on our motion for summary disposition. In addition to seeking recovery of the misappropriated $500,000, we requested treble damages pursuant to MCL 600.2919a. This was granted and the final verdict was for $1,539,634.71, plus interest.
Thanks to Judge Sheeran for his handling of this matter. Thanks to the successor Trustee, Michael Zimmerman, C.P.A. of Yeo and Yeo. Thanks to our fantastic litigation team, including, but not limited to: Nancy Theis, Joe Weiler, Drummond Black, Dan Hilker, Phil Harter, Julianne MacDonald, Rita Athanasion and Romani Schrems.