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Published Opinion Clarifies Joint Account Rights

This case was handled by our firm:  Chalgian and Tripp.  We represented the Appellant at trial an in the Court of Appeals.

This case clarifies a heretofore confusing issue involving joint accounts and the rights of joint account owners pre-death.

Most importantly, this case is published.

While many cases address the issue of survivorship rights in joint accounts, this case deals with the question of what happens when one joint account owner removes assets from a joint account before the other account owner dies.

Our client made his accounts joint with a person with whom he had a long relationship, but to whom he was not married. He got sick.  When it was evident that his condition was rapidly depleting his savings, the non-client co-owner went to the bank and removed essentially all the money she could get.

At trial, the non-client co-owner argued that she had the same rights to the money as our client, and therefore that she did nothing wrong by defunding these accounts.  This was her position even though evidence at trial showed that she contributed nothing to the accounts, and that any significant withdrawals from the account had to be made with the approval of our client.

The trial judge accepted their argument, and ruled in favor of the non-client owner largely based on the application of cases related to survivorship rights in joint accounts. We appealed.

The appellate court reverses and remands to the trial court, holding that our client’s claims of conversion were wrongly dismissed, and also that our client’s claims of breach of fiduciary duty and constructive trust may likewise be revived. On remand, the trial court is tasked with determining damages for the conversion.

Click here to read: In Re Estate of Robert G. Lewis.

Thanks to Phil Harter of our office for his excellent research on the issue, and for taking the lead with the appellate brief.

Expressions of Intent: Admissible but Insufficient

Dad holds family meeting before he dies, and says he wants everything to go equally to his six children. He specifically indicates that this includes all assets controlled by beneficiary designation.  His will likewise provides for equal division.  But when he dies, the beneficiary on one IRA is to one of his children, individually.

The other children go to great lengths to show that there were defects in the way the financial institution tracked the paperwork associated with the beneficiary designation on this IRA, which defects, they claim, opens to the door to extrinsic evidence and ambiguity. But their case falls short, particularly because the financial advisor who managed the accounts testified that he had a conversation with the decedent when the account needed to be updated, and the decedent reaffirmed that he wanted to retain the single child as beneficiary.

The case, In re Estate of William Patrick McNeight (click on the name to read the case), offers a good discussion of admissible evidence of intent [hearsay exception 803(3)]; as well as the difference between a contest over a joint account (in which there is merely a presumption of ownership in the survivor) versus a beneficiary designation (which is conclusive subject to being set aside by evidence sufficient to invoke a legal or equitable theory for relief). The case is unpublished.

The trial court decided the case on summary disposition, which was affirmed by a majority of the COA panel. The dissenting COA judge writes that, in light of the amount of paperwork, the number of accounts held by the institution, and the institution’s seemingly imperfect ability to track their own forms, the case should not have been disposed of on summary disposition.  To read the dissent, click here.

A lot of potential litigation matters start with the proposition that: “Our parents always said everything would be divided equally.”  The Appellants in this case did a good job trying to make something of these statements.  But in the end, as with most such matters, that expression simply isn’t enough to overcome a written testamentary document that indicates otherwise.

Judge Jails Trustee/P.R.

A new unpublished case offers a helpful refresher on contempt proceedings in the context of trust and estate administration.

“Vera” was removed as co-trustee and co-personal representative of her mother’s trust and estate. After her removal, the probate Court determined that Vera had deeded herself real property that she was not entitled to receive.  The Court ordered Vera to sign a deed conveying the property back to the trust and threatened incarceration if she did not comply.  In open court, Vera refused to sign the deed as ordered.   But the trial judge did not immediately send Vera to jail for her contempt.   Rather, the Court  issued an order which allowed her time to consider her situation and to “purge the contempt” by signing the deed at a later time.  The Court explained that if she failed to do so, she would be jailed for her contempt at some later date. When that time passed and Vera still refused to comply, the Court issued a recordable order correcting title to the disputed real estate and sent Vera to jail for seven days for contempt.

The Court then ordered Vera to account for her actions as Trustee and P.R. for the period of time prior to her removal. When Vera refused to provide what the Court considered adequate accountings, she was again sent to jail for contempt, this time until she decided to cooperate.

Vera appealed both orders pursuant to which she was jailed.

In this opinion, the COA explains that there are two kinds of contempt. Criminal contempt is imposed for actions which are an affront to the Court, and which occur in the immediate presence of the Court.  The purpose of criminal contempt action is to punish the wrongdoer for disrespecting the Court’s authority.  Civil contempt is imposed for violating a Court’s order and continues until the contemptuous party complies.  The purpose of a civil contempt action is to coerce a person to comply with an order of the Court.

The COA says that the trial Court was wrong when it jailed Vera for not signing the deed. Although the trial Court could have done so as an exercise of its criminal contempt powers when Vera first refused in open court to comply with the Court’s order, by delaying the punishment and giving her the opportunity to remedy the wrong, this became an exercise of civil contempt powers.  That is, the purpose of the order was not to punish Vera for disrespecting the Court’s authority, but rather to coerce her into signing the deed.  However, when the trial Court finally sent Vera to jail for refusing to sign the deed, the Court had already issued its own order invalidating Vera’s wrongful deed, and therefore there was no longer any coercive purpose to the Court’s sentence, the matter having been remedied by alternate means.  As such, this jailing failed to meet the requirements of either a civil or criminal contempt proceeding.

As to jailing Vera for refusing to provide appropriate accountings, the COA says that this was a proper exercise of the trial Court’s civil contempt power.  That jail sentence was designed to coerce Vera to provide information known to her, which she was ordered to produce, and which she had a legal obligation to provide.

So, clients who don’t follow Court orders can go to jail for contempt. Courts must be careful about how these contempt powers are exercised, and must make appropriate distinctions between civil and criminal contempt powers.

The case is called: In Re Estate of Lois C. Washington.  Click on the name to read the opinion.

 

New Medicaid Case Revisits Spousal Income Diversion

A newly released unpublished opinion of the Court of Appeals looks again at the authority of the probate court to issue a protective order in the context of a married person in a nursing home who is receiving Medicaid benefits, when that order impacts how much of the income of the nursing home resident can be diverted to support their spouse in the community. The case is called In Re Michael DeClerck.  Click on the name to read the case.

This case follows the Vansach decision which was published in May 2018, and which I blogged about at that time.  That post was called Medicaid Planners Get Rare Win from COA Click on the name to read that post.

As would be expected, this panel of the COA remands the case to be decided in the context of Vansach, which basically requires the probate court to make certain findings about the needs of the parties in order to support the diversion of income granted.  What is interesting, and perhaps helpful, about this opinion, is that it also directly addresses the argument of the appellant (the Michigan Department of Health and Human Services), that the probate court lacks jurisdiction to issue these orders unless and until the appellee exhausts their administrative remedies.  The COA rejects this argument, which is good news for Medicaid planners.

The issue is important to planners and to the State for the reason that the more income that is diverted to the community spouse, the less that is paid to the nursing home by the Medicaid beneficiary as their “patient pay amount,” and the more the State has to pay for the nursing home resident’s care.

DHHS policy provides a formula for determining how much of the income received by a married Medicaid beneficiary in a nursing home is contributed toward their own care (the “patient pay amount”), and how much, if any, can be diverted to support their spouse in the community (the “community spouse income allowance”). DHHS policy offers two alternate processes for obtaining an exception to the default formula.  One way is to file an administrative appeal, the other is to obtain a court order.   Medicaid planners almost always take the probate court route, because the administrative route is perceived to be bias against them to the point of futility.

In this case, the COA rejects the DHHS argument that the Medicaid recipient must first go through the administrative process, and lose, before they can petition a probate court for relief.  The COA holds that, pursuant to Medicaid policy, a court order and an administrative appeal are simply alternative options, and that there is no requirement to go through the administrative process before petitioning a probate court.  This result is certainly implicit, if not express, in the Vansach opinion.  Arguably, in Vansach, the DHHS argument focused only on the proposition that the probate court simply lacked jurisdiction and that the administrative process was the exclusive process.  In this case, the issue is framed slightly differently, but the result is the same. Probate Courts may issue these orders, and DHHS must accept the probate court’s decisions.  Per Vansach, the probate courts must base their orders on certain findings regarding the needs of the parties involved.

Thanks to our friends at the Mannor Law Group for their work on this matter.

COA Gives Special Needs Community Big Win in Placement Case

This is a published decision about a guardianship over a person with a developmental disability (a “DD guardian”), and more specifically, the powers of a DD guardian versus Community Mental Health (“CMH”) with respect to the transfer of the protected person from one CMH facility to another. As probate lawyers understand, DD guardianships are not controlled by the probate code (“EPIC”) but rather by the mental health code.

The case is called: In Re Guardianship of Lisa Brosamer.  Click on the name to read the case.

In this case, Lisa, the protected person, had lived in a CMH home called “College Avenue” for 10 years. When CMH notified the guardian that it intended to move Lisa to another CMH home, the guardian filed a petition in the local probate court seeking to enjoin the move.

The controlling law, MCL 330.1536 says:

(1) A resident in a facility may be transferred to any other facility, or to a hospital operated by the department, if the transfer would not be detrimental to the resident and the responsible community mental health services program approves the transfer.

(2) The resident and his or her nearest relative or guardian shall be notified at least 7 days before any transfer, except that a transfer may be effected earlier if necessitated by an emergency. In addition, the resident may designate 2 other persons to receive the notice. If the resident, his or her nearest relative, or guardian objects to the transfer, the department shall provide an opportunity to appeal the transfer.

(3) If a transfer is effected due to an emergency, the required notices shall be given as soon as possible, but not later than 24 hours after the transfer.

At the hearing, CMH relied on affidavits supporting the proposition that this move would not be detrimental to Lisa. The guardian presented testimony from several witnesses, including Lisa’s doctor, who said that the change would be harmful to Lisa.  The probate court granted the injunction, and this appeal followed.  The COA affirmed the trial court.

The decision of the COA is stunning, and the fact that this is a published opinion, even more so. Clearly the statute allows CMH to make this decision and provides that the remedy for an objecting party, such as a guardian, is an administrative appeal.

The opinion would be more sensible if the COA was taking the position that the probate court order only maintained the status quo until the administrative appeal process played out. But that is not what they say.  Rather the COA says: “For purposes of this appeal, we will assume that the order serves as a permanent injunction from transferring Lisa to any facility at any time without court approval.”  Clearly, therefore, the COA has given the probate court the power to circumvent the nearly unfettered authority of CMH over the placement of its residents granted to it by MCL 330.1536.

This case represents a huge win for the special needs community. But I believe the decision stands on shaky ground, and I would be surprised if the State does not seek leave to appeal this decision to the Michigan Supreme Court.  We’ll see.

Cautious Optimism Greets MSC Decision on SBO Trusts

The SBO Trust is back – or is it?

Yesterday the Michigan Supreme Court released its long awaited decision in the case of Hegadorn v The Department of Human Services.  [Click on the name to read the opinion.]

To summarize, for twenty years the “Solely for the Benefit Trust” (“SBO Trust”) was the primary Medicaid planning tool for married couples in Michigan. In August 2014 that reign ended when the Michigan Department of Human Services (now the Michigan Department of Health and Human Services aka “DHHS”) reinterpreted their rules and started treating assets held in SBO Trust as available resources.  That change led to litigation challenging the DHHS interpretation, which litigation was unsuccessful in the Court of Appeals.  The case was then taken up to the Michigan Supreme Court.

The majority opinion in this case holds that DHHS was wrong when it determined that assets in an SBO Trust can be considered available resources. They say:

The SBO trusts  at  issue  all  contain  language stating  that distributions or payments from the trust may only be made to or for the benefit of the respective community spouse and that the  trust resources may be used only for the community spouse’s benefit.   The ALJs and the Court of Appeals recognized this but erred by concluding that payments to or for the benefit of the community spouses were available  to  the  institutionalized spouses.   Because the  community spouses  are  not themselves applying for or receiving Medicaid benefits, they are not “the individual” referred to in 42 USC 1396p(d)(3)(B). Thus, the Court of Appeals erred by holding that the  possibility of  a  distribution  from  each  SBO  trust  to  each  community spouse automatically made the assets held by each SBO trust countable assets for the purposes of the respective institutionalized spouses’ initial eligibility determination. Accordingly, we reverse the Court of Appeals judgment because it was premised on an incorrect reading of the controlling statutes and thus was contrary to law.  It follows that the ALJs’ decisions are also contrary to law and cannot stand, given that they all suffer from the same faulty reasoning employed by the Court of Appeals.

And yet, the majority does not simply order DHHS to approve the applications at issue. Rather it offers the following cryptic explanation of their remedy:

The question now becomes what relief should be granted. … The sheer complexity of the Medicaid program and the Department’s legitimate concerns about potential abuse are paramount considerations in determining what relief is warranted. We further note that, given the reasoning employed in resolving the administrative appeals, the ALJs may have forgone consideration of alternative avenues of legal analysis.  In light of these concerns, we decline to order that the Department approve plaintiffs’ Medicaid applications at this time.  Instead, we vacate the final administrative hearing decision in each case and remand each case to the appropriate administrative tribunal for the proper application of the any-circumstances test.  If the ALJs determine that circumstances exist under which  payments  from  the  trusts  could  be made  to or for  the  benefit  of  the institutionalized spouse,  then  the  ALJs  should  explain  this  rationale  and  affirm  the Department’s decision. However, if no such circumstances exist, the ALJs should reverse the Department’s decisions and order that the Medicaid applications be approved.

One has to wonder, if, as the opinion says, DHHS was wrong in concluding that assets in an SBO are available resources to the institutionalized spouse, what “alternative avenues of legal analysis” or “circumstances” test are they expecting the ALJ to apply?

The McCormack Concurrence

In a lengthy concurring decision, Justice Bridget McCormack, the Chief Justice on the MSC, argues that while the assets in an SBO may not be available resources, the funding of an SBO within five years of application would result in a divestment, and accordingly the decision of the MSC will provide no benefit to the elder law bar or their clients. While her reasoning seems strained, she has clearly offered the DHHS an avenue to continue to fight the use of SBO trusts in Medicaid planning.  And, as Justice McCormack correctly notes, the majority expressly avoided the question of a divestment analysis in their opinion.

Conclusion

The immediate impulse to rejoice at this important decision needs to be tempered. The MSC could have given the elder law bar a clear victory and reinstated the SBO trust without qualification, and nearly all of their opinion seems to be consistent with that result.  And yet, they chose to pull their punches and leave open the possibility that, in the end, this may prove to be a Pyrrhic victory.  Time will tell.

For my prior posts on this issue see:

SBO Policy Change Update (December 4, 2014)

Bloody Thursday (June 3, 2017)

SBO Believers Hear Heartbeat (March 13, 2018)

Credit again to all who believed and have relentlessly pursued this case, most notably our good friend Jim Steward of Ishpeming.

Another POST Post

It’s been over a year since Michigan adopted a law authorizing the use of a Physician’s Order for Scope of Treatment (POST). The details of that law were discussed in that prior post:  POST set to join Michigan’s Medical Directive Stew.  (Click on the name to read that post.) 

As discussed in that prior post, as a result of the passage of the law, State regulators were tasked with creating a uniform POST form. They have done that.  It has been published, and yesterday was the deadline for comments.  I don’t know if any comments were submitted, or if any changes will be forthcoming.  But for now, I think it is safe to assume that the following document is either exactly what will be used, or very close to what will be used: MI-POST Form (click on name to see the form).  I will post more in the future if significant changes are made as a result of comments.

The same State site also offers an information sheet (click here) and a frequently asked questions sheet (click here), both of which might be helpful to those wanting to better understand the purpose and use of this new planning tool.

Lawyers won’t be preparing MI-POST forms for clients, but estate planning lawyers need to be aware of these forms and understand their place. Clients may have questions about them, and patient advocate designations should probably be updated to include POST powers.

Proposed Policy Promises Problems for Planners

This is a post about Medicaid long term care planning. The topic is a proposed policy change related to the use of promissory notes in Medicaid planning.  If adopted, the new policy would take effect July 1, 2019.

The proposed policy says:

In order for a promissory note to be a bona fide loan:

  • The loan must be enforceable under Michigan law;
  • The note agreement must be in effect at the time of the loan transaction;
  • The borrower must acknowledge the obligation to repay the loan;
  • There must be a plan to repay in the loan document; and
  • The repayment plan must be feasible.

Medicaid planners use private promissory notes in a couple important contexts, both in relation to divestment. [Divestment is the term used by the Michigan Department of Health and Human Services to mean non-exempt asset transfers for less than fair market value that occur during the five year “look back” period. Divestments result in penalties.]

Promissory notes are sometimes used as alternatives to commercial annuities in “half loaf” divestment planning.  And promissory notes are used to “cure” divestments that clients come in the door with (i.e., divestments done before they met with an attorney).

The primary impact of these proposed changes would seem to be the elimination of promissory notes as a tool to cure preexisting divestments. Specifically, the second bullet above which would require that the note be “in effect” when the funds are transferred to the borrower, would be hard to work around in the typical situation in which a client comes to the lawyer having already made penalizing divestments.

The other bullet points in this notice seem to be directed at the integrity of the arrangement. While ominous, these bullets appear to be less clearly impactful on current planning approaches.

Like annuities, promissory notes, have become a target of MDHHS policy writers. Hope that the new administration in Lansing might be less antagonistic toward Medicaid planning concepts may be misplaced.

Free Programs on New Trust Law

We interrupt this blog for a special message.

Chalgian and Tripp Law Offices will be hosting a series of conversations about the new divided and directed trustee laws that take effect this month. I wrote about the importance of these new laws in my prior post:  The Next Big Thing in Michigan Trust Law (click on the name to read the post).

There is no charge to attend these events, but reservations are required, and seating will be limited.

The events are:

April 16 at 4:00 – 6:00pm in our East Lansing office.

April 23 at 4:00 – 6:00pm in our Southfield office.

April 30 at 4:00 – 6:00pm in our Midland office.

To register, click on the event you would like to attend.

At all three events, the discussion will be led by Attorney Chris Smith. If you don’t know Chris, he is an exceptional special needs and elder law attorney, who is also currently the Chair of the Elder Law and Disability Rights Section of the Michigan State Bar, as well as a member of the Board of Directors of the national Special Needs Alliance.

These are important developments in Michigan trust law. These programs are designed for estate planning attorneys and trust officers. Financial planners who anticipate that they may want to assume fiduciary duties under the new laws should also consider attending.

I hope to see you there.

 

 

A Corktown Hotch Potch

UPDATE:  The case of In Re Monier Khalil Living Trust was first published March 12, 2019.  For reasons I do not fully understand, the Court of Appeals granted a motion for reconsideration, vacated its original opinion and issued a new opinion on May 14, 2019, also published.  Click here to read on the newer and final opinion.  The outcome seems to be the same, and my analysis below is not altered.

 

This is a published Court of Appeals probate case which looks at the limits of a trial court’s authority to dismiss an action on its own initiative.

The case is called In Re Monier Khalil Living Trust (click on the name to read the case).

Spouse died leaving property in trust for the surviving spouse, Evelyn. Evelyn was given the right to all income, an unlimited power to invade principal, and the power to redirect or distribute trust property to others, during her life and upon death.  Further, Evelyn’s decisions with respect to all matters were expressly not subject to review.

Among other things, the trusts contained business and real estate interests in Detroit’s trendy Corktown neighborhood.

Evelyn began exercising her powers to distribute trust property among her children, and did so unequally as the document allowed. After several years, the children who felt they were getting shorted sued, claiming that, among other things, Evelyn was being unduly influenced.

The trial judge held several in-chambers conferences with the lawyers, but did almost nothing on the record in the courtroom, and ultimately dismissed petitioner’s case sua sponte. The petitioners appealed.

Baldwin’s Foil

I think the reason this case was published is because the COA had to rely on an unpublished opinion to get to the result it wanted.

Appellees relied on In Re Baldwin Trust 274 Mich App 387 (2007), a published case in which the COA upheld a trial court after it had dismissed a matter sua sponte when the trial judge had essentially heard enough.  Appellants, however, had to rely on an unpublished decision: In Re Clemence Trust (COA docket 332099, October 31, 2017), in which the trial court was reversed after doing the same thing. Click on those case names if you want to read those cases.

In this matter, the COA spent several pages explaining how the facts between the two cases differed, and how the facts of this case were more like Clemence than Baldwin.  One clear point of irritation to this panel of the COA was that this trial judge did everything, or nearly everything, in chambers, and left the COA with almost no record to review.  As a result of this analysis, the COA reversed the trial court’s decision and remanded the matter for further proceedings “on the record.”

With this decision there is now a published decision to rely upon as a foil for Baldwin.  The law seems to be that while probate trial courts may at times dismiss cases sua sponte, the decision to do so is subject to review.  Among the factors to be considered in deciding whether the trial court acted properly, is the extent to which the trial court allowed the aggrieved party to create a record.

The Whimpiness Factor

Another point made by the COA is that the petitioners never actually formally requested a hearing on the record, and never actually initiated discovery as they are empowered to do. In most cases, the COA would say that they therefore had abandoned their right of appeal on these issues.  But here, the COA allows those issues to serve as the basis for their decision – but not without some heat:

The attorneys also deserve a share of the blame for our inability to properly review this case. It is incumbent on counsel to insist on a record of critically important proceedings, even in the face of judicial disapproval or disagreement. A written motion to create a record might have avoided the need for this appeal.

[I recognize that some litigators who practice regularly in Wayne County (and perhaps other courts) might suggest that this behavior is not whimpiness at all, but rather a matter of survival.]

[When and how to challenge a controlling trial judge is a topic for another day.]

A Hotch Potch B’Gosh

So finally: What is a Hotch Potch?

This case was started with a “Petition for …. return of property to hotch potch…”

This opinion informs us that hotch potch (aka “hotch pot”) is a legal term of art, albeit an “antiquated” one.  Basically, it means: squaring things up before distributing the estate when numerous advancements have been made to the greedy kids.  Nice to have a label for it, or I should say, a label that can be used in polite company.