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.
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.
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.
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.
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.
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.
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.
The crux of this unpublished opinion is whether the cost of litigation initiated by a conservator that turns out to be a big waste of money, should be paid out of the estate.
In In Re Conservatorship of Marilyn Burhop the probate court appointed a local lawyer (“Jones”) as conservator over a vulnerable adult (click on the name to read the case). Jones learned that prior to her appointment, the ward, Marilyn, transferred nearly $500,000 to certain acquaintances (the “Sirchias”). In addition, Marilyn changed her estate plan to benefit the Sirchias exclusively.
After some preliminary investigation, Jones decided to sue the Sirchias to recover the funds and to initiate litigation to set aside the estate planning changes. After incurring about $175,000 in legal and fiduciary fees, Jones settles. Curiously, perhaps conveniently, the COA fails to share the details of the settlement – such as whether the conservator recovered anything. But reading between the lines, it seems that Jones simply dropped the case. The issue then became whether the massive fees that Jones and her attorneys charged to pursue this litigation should be allowed as expenses of the estate, when, in the end, the estate received no benefit. The trial court allowed the fees in their entirety, and the order allowing those fees is what was appealed and affirmed.
Here’s what I think:
The way this case begins is all too common. These days, conservators are often appointed to protect a vulnerable adult from financial exploitation, which exploitation may have already begun. Accordingly the question of whether the conservator should simply protect what’s left or pursue recovery of what may have been improperly removed is typical. In this case, Jones apparently did some preliminary investigation before initiating litigation, but what Jones did not do, and what I think was her initial mistake, was to ask the probate court for instruction.
In our firm, when handling these matters, we commonly to seek court instruction at the outset. We ask the court to authorize the conservator to pursue litigation and also to enter into an engagement with our firm. In that process we present the court with the proposed engagement letter. We don’t do this in every case, but I am thinking we will start doing it more often.
Certainly, it seems to me that, before Jones was $175,000 into the litigation, she should have gone before the court and asked whether this matter should continue to be pursued and at what cost. Perhaps the court would have told her not to pursue the litigation at all, perhaps the court would have found that a contingency fee arrangement would have been more appropriate, or perhaps the decision to drop the matter would have been made at an earlier date? We won’t know, because court instruction was apparently never requested.
Asset Recovery v Estate Plan Changes
In this opinion, the COA fails to address what I think is a critical distinction. The appropriateness of a conservator seeking to recover misappropriated funds is one thing, challenging estate planning documents is quite another.
With respect to misappropriated funds, such funds would become property of the conservator, would provide additional resources to benefit the ward during her remaining life, and failure to pursue recovery in a timely manner would present the possibility that a statute of limitations would be missed or that the funds would be dissipated and become unrecoverable.
Challenging the estate planning documents is different. Assuming the changes are strictly with respect to testamentary disposition, setting them aside would not increase the resources available to provide for the ward’s needs, and in most cases there would be no statute of limitations to worry about. In fact, our laws are structured so that such changes are disclosed to the real parties in interest upon death (or in the case of a trust, upon incapacity) and the real parties in interest are empowered to protect their own interests at their own cost. If there is any argument that a conservator would have a reason to engage in litigation over the validity of estate planning documents, it would be with respect to MCL 700.5428 which imposes duties on the conservator to manage resources in manner that does not disrupt the known estate plan. Accordingly, for instance, if there are specific gifts, beneficiary designations or joint accounts, in deciding what resources to dissipate on the needs of the ward, the conservator must take into account the impact of those decisions on the overall estate plan of the ward. But this issue was not raised in this case, and if it were, the appropriate approach would seemingly be to seek court instruction regarding the use of resources.
To my thinking, the decision of this conservator to spend money litigating the validity of the estate planning documents in this case is highly questionable.
There is an old rule that says a fiduciary is entitled to fees when what they have done has benefitted the estate. The 1983 Michigan Court of Appeals case In Re Valentino Estate, 128 Mich App 87 (1983) is often cited for this rule. This opinion holds that Valentino was superseded by EPIC. Well, that’s news to me. First, I would be interested in knowing whether there is any published authority for that conclusion, I know of none and they cite none. Further, it is worth noting that as recently as 2010, with the adoption of the Michigan Trust Code, the concept of a benefit to the estate being a basis for allowing fees was seemingly recognized in MCL 700.7904. While that law relates to a non-fiduciary’s claim for recovery of fees from a trust, the commentary cites cases much older than Valentino for this rule.
A common litigation strategy is to simply outspend your opponent until they wilt. In this case, the COA asserts that the Sirchias did just that. The COA says the Sirchias engaged in a “scorched earth” litigation strategy, noting that no less than sixteen motions for summary disposition were filed (and denied). The suggestion is that Jones may have had a case, but only relented because she was running out of money to spend on the litigation. Seems plausible. But where in the law does it say that in deciding whether to initiate litigation the conservator should assume that the opposing party will play nice? Rather, I think, this is all the more reason that Jones should have sought court instruction before starting this fight, should have limited the scope of litigation to asset recovery, or retained counsel on a contingency basis.
A Duty to Litigate
In passing the COA in this opinion says that Jones would have been negligent “under the circumstances” not to have pursued this litigation. Um. Not a published decision so I guess I will leave that conclusion alone.
The Specter of Bleak House
Let’s step outside our bubble for a minute and look at this from the perspective of the Sirchias. The estate of someone they apparently had a close relationship with is diminished by $175,000. Their inheritance is diminished by $175,000. They presumably had to spend a similar amount defending themselves against claims that, in the end, were dropped.
Many people (who are not probate lawyers) perceive the probate court as a place where the property of the dead and dying is consumed by a hungry pack of lawyers and court officials. It’s an unflattering image that dates back centuries. Without passing judgment on anyone involved in this sordid affair, you can’t help but acknowledge, I think, that this case sort of feeds into that perception.
I’ve gone on long enough.
Many many conservatorship cases arise where something is amiss and prior conduct may give rise to the possibility of financial exploitation of the ward. Whether the conservator tries to remedy those wrongs and recover the missing assets, or to simply move forward and do their best with what they have control over, is often a decision they need to make.
I don’t mean to beat up on the conservator in this case, or to suggest that she didn’t act in good faith. Jones may well have been justifiably outraged by the actions of the Sirchias in the period prior to her appointment as conservator. But even giving this conservator the benefit of every doubt, in the end, it is hard to say that the ridiculously unfavorable outcome of this case could not have been ameliorated, perhaps avoided, had other reasonable decisions been made along the way.
I was reading an unpublished court of appeals opinion the other day. It was six pages long and pretty much every part of it could be summarized as: “and therefore the Appellant loses.”
I read most every probate case that comes out, published and unpublished, and I write about a few of them, but I ignore most of them. The ones I ignore are ignored because they don’t say anything important. Someone lost at the trial level and decided to appeal. A lot of times the case they had in the trial court was lame. But, other times it seems like their case may have had merit, but because of the way the matter was handled during trial, at the appellate level, their case stinks.
The morning after I finished the first day of a trial, I was reading a case which was typical of the type of cases that I ignore. And it occurred to me that all these years of reading about all these bad appeals has changed the way I practice, the way I try a case.
I’ve become “that guy.”
In court the prior day, I was annoying; putting opposing counsel (a nice person) through their paces as they tried to admit records and examine witnesses; objecting to foundation; objecting to relevance; objecting to hearsay; arguing that a question was outside the scope of cross exam.
I used to hate lawyers like that. But now I am that. Not always, but if the case is the type of case that if I lose I might want to appeal, I do those things.
What I understand now, that I didn’t fully appreciate when I was less experienced, is that when a case is appealed, the Court of Appeals will go out of its way to affirm the trial court. And if they can affirm the trial court because an objection wasn’t made or an issue wasn’t preserved, they will. Affirming the trial court on technical grounds is easier than getting into the more challenging questions of law and fact that were the focus of the case when the appellant hired a lawyer and went to trial in the first place.
So, my thinking is: Don’t make it easy for the COA. When you try a case, in addition to doing what needs to be done to persuade the fact finder to rule in your favor, make sure you create a record that would force the COA to look at the substance of the case if your lose at trial. Keep bad stuff out if you can. Get in all the evidence that supports your position, even if it seems like overkill at times. And most of all: make objections and preserve issues.
Someday I might take the time to count, but, just guessing, I bet 90% of probate cases that get appealed, get affirmed. And that isn’t because all of those cases couldn’t or shouldn’t have been won.
Bottom line: Being “that guy” or “that gal” may be uncomfortable at times, but if you want to avoid having to explain six pages of “you lose” to your client, it’s just the way it has to be.
Point of Clarification: This post is about trial practice in cases that would justify an appeal if you lose. Being “that guy” or “that gal” in depositions, or in hearings on matters that no one is ever going to appeal, remains just plain obnoxious.
Aurelia lived alone on Grosse Ile. She apparently had no spouse or children. But she had a friend who lived nearby until 1994 when this friend moved to Portland, Oregon. In 1976 Aurelia prepared a will leaving everything to this Portland friend.
In 2008, when Aurelia was 86, she developed a new friendship with a person in Michigan. This Michigan friend helped Aurelia with her shopping and housework. In 2010, this Michigan friend began helping Aurelia with her bill payment and finances.
Aurelia also had a neighbor (“Neighbor Bill”) with whom she had a good relationship until mid-2010. Before their friendship broke off, Neighbor Bill observed that Aurelia suffered from significant confusion, that she was unable, for instance, to operate her television, and that she repeated herself frequently. Their relationship ended, Neighbor Bill claimed, because Aurelia became paranoid. At one point in late 2010, Neighbor Bill called the local police department because he was afraid that Aurelia was not safe living alone, but the police found her home and living situation to be in reasonable order.
On January 24, 2011, Aurelia saw a lawyer and had a will prepared leaving everything to the Michigan friend. The lawyer testified that she was clear and coherent at their meeting, and that she had testamentary capacity.
That same day, when Aurelia arrived home, she called Neighbor Bill several times, each time in an agitated state, and each time explaining that she had arranged for her estate to pass to the Michigan neighbor at her death.
A few days later, Neighbor Bill and others who knew Aurelia became concerned that they had not heard from or seen Aurelia. The police were called. Aurelia was found in her home in her bathtub fully clothed. It is unclear how long she had been in the tub, and she was taken to a hospital where a doctor evaluated her cognition and deemed her to be “profoundly confused.”
Aurelia was discharged from the hospital to a long term care facility where she lived the remainder of her life and died in August, 2013.
Also, it is important to note that in September 2011, Aurelia met with a second lawyer and executed a ladybird deed leaving her home to Michigan friend at her death. That deed was deemed invalid, and that decision was not appealed. But the second lawyer also testified that as of September 2011, when Aurelia met with him, she had testamentary capacity.
And finally, the Portland friend, in contesting the validity of the will, employed an expert witness, a geriatric psychiatrist, who reviewed the Aurelia’s medical records and opined that Aurelia lacked testamentary capacity on January 24, 2011 (the date of the will) and for every day thereafter.
After receiving all of this testimony, the trial court admitted the 2011 as valid on summary disposition, and the Portland friend appealed.
So, to sum it up, besides the presumably self-serving testimony of the parties themselves:
There are two lawyers who met with Aurelia and who testified that Aurelia had testamentary capacity in January 2011 and in September 2011.
There is a police report that indicates that Aurelia’s home was reasonably maintained in mid-2010.
There is an uninterested fact witness, Neighbor Bill, who testified as to Aurelia having clear signs of cognitive impairment before the 2011 will was executed, and that Aurelia became severely agitated and confused on the very date she signed the will, leading to hospitalization a few days later.
There is the evidence that the Michigan friend, a fact witness who seeks to have the will upheld, cannot dispute, which is that she was helping Aurelia with her daily activities, including her finances, before the will was signed.
There is a medical opinion from four days after the will was signed, when Aurelia was in the hospital, that she was demented and severely confused.
There is an expert opinion that she lacked testamentary capacity on the date the will was signed.
Indeed it is difficult to understand how a trial judge would think that, with all this evidence, this case could be decided on summary disposition. And you will not be surprised to learn that the Court of Appeals reversed that order and remanded the case for trial. But this case illustrates some important points about how these cases can be viewed at the trial court level, and what witnesses carry the most weight, including:
(1) Trial judges often place great weight on the testimony of the lawyers they know. Capacity is, after all, a legal question and lawyers who regularly prepare estate plans are considered experts in evaluating whether their clients meet the standards of testamentary capacity.
(2) Capacity is presumed. The burden is on the contestant to overcome the presumption of capacity. In any case where there is a lawyer who prepared the document, this presumption and the testimony of an experienced estate planning attorney, carries great weight.
(3) Testamentary capacity is a low standard.
(4) The “lucid moment” concept is far from dead. Even though Aurelia was deemed incompetent only a few days after the execution of the will, and even though she spent those few intervening days in a confused and agitated state, and even though there is ample evidence of age-related cognitive decline even before the will was signed, the trial judge presumably had no problem concluding that she was clear and coherent at the moment she signed the will, as her attorney testified.
These are the types of witnesses that often exist in lack of capacity/undue influence cases. What we can take away from this example, I think, is that challenging documents prepared by an experienced lawyer is tough sledding, but can be accomplished. As in this case, expert opinions have become standard practice, and are often critical to surviving summary disposition. Solid testimony from an uninterested fact witness can also be very valuable. And, as I have suggested before, surviving summary disposition is often the first objective. When a case is heading to a jury, the parties each face significant risk and the possibility of settlement increases accordingly.
This occurred some years ago, when I had more time, the firm was so much smaller, and the types of cases I handled and clients I saw were more diverse. I miss those days, but life goes on and we can’t have everything. What I have now is good too.
I don’t remember her name, or where she lived, but I do recall visiting her in her home in a trailer park.
She was old and she was dying.
She said she needed a will. So we talked.
I don’t like the word passion. I think it’s overused. To my way of thinking, the popular notion that everyone has a passion and they just need to find it, is unhelpful. Rather, I’ve come to believe that there are passionate people, and there are people who lack that quality; and then there are people who have a lot of issues or insecurities that prompts behavior which can be mistaken for passion. Not a judgment, just an observation.
So, this woman had a thing, call it a passion if you must, but her thing was collecting marbles.
She said she had a million marbles. Her home was full of them, stored in any variety of containers, and incredibly, she explained, if we pulled up the floor boards to her trailer, we would find marbles stashed underneath. She said that they had to reinforce the foundation of her trailer to support the weight of all the marbles.
We talked about her family, her estate planning objectives, and she educated me about marbles, almost all of which knowledge I have since forgotten.
I don’t recall if I went to her home a second time for the signing. But I know that at some subsequent time, an assortment of marbles arranged in a mushroom shaped jar (pictured above) was delivered to me. I was told that these marbles had been especially selected for me by the woman. Perhaps she liked my company, or perhaps I didn’t charge her for the will and she considered this my payment. That fact, I also do not recall.
I’ve kept this jar in my private work area, and have noted it many times over the years. I don’t take the marbles out and I don’t play with them, but at times just seeing the jar causes me to remember the woman in her trailer surrounded by all her marbles, and also to remember how my practice used to be, what I’ve lost and what I’ve gained.
So, Dear Ms. Marble Lady: Thanks for the marbles – and the memories that I’ve stored with them in your mushroom shaped jar.
Mom made the house joint with son, rights of survivorship. Now Mom, in her demented state, tells the court that, when she did it, she thought her son would share the house with his siblings after she died. The court uses that testimony to void the deed, citing the equitable remedy of constructive trust. The Court of Appeals upholds that decision.
Constructive Trust is a remedy, which also can be pled as a cause of action. I plead it all the time. To me, constructive trust is the Hail Mary of probate court litigation. In the grey world of family exploitation cases, if all else fails, ask the court “to do the right thing.” Who knows, it might just work? It worked in this case.
When Mom was competent, she deeded the house to herself and her son as joint tenants with rights of survivorship. Now she says that at the time, her express intent was that when her son received the property at her death, that he would share the proceeds with his other siblings. There is apparently no, or insufficient, evidence to attack the deed for lack of capacity, undue influence or duress. And there is apparently also no, or insufficient, evidence to impose an oral trust on the property (that is, no evidence that son made representations to mom that caused her to believe he was accepting the deed based on the agreement that he would share the proceeds with his siblings).
But the court decided that it simply wouldn’t be fair for son to keep the house, and voided the deed by exercising its equitable powers of constructive trust.
The Outer Bounds of Equity
Even in the wide-open range of equity, constructive trust is an anomaly, seemingly untethered by any evidentiary requirement.
It’s one thing to invoke equity by saying: “I took care of the old geezer for twenty years based on the promise that I would get compensated from his estate, and I wouldn’t have continued to do the work if I had known that he was leaving me nothing.” In those cases, the fact that the contract wasn’t in writing, or the terms were uncertain, can be remedied through equity (quantum meruit or unjust enrichment). That’s equity, but at least there are some rules. In those cases, the claimant has to prove that they would not have provided the care ‘but for’ the promise of compensation.
Constructive Trust doesn’t require anything so firm. It simply requires convincing the trial court that the outcome isn’t fair. The leading case on constructive trust is the 1958 case of Kent v Klein, 352 Mich 652, 656; 91 NW2d 11. Kent is cited extensively in this Redd case, and those quotes demonstrate just how loose the parameters are:
A constructive trust may be imposed whenever “the circumstances under which property was acquired make it inequitable that it should be retained by him who holds the legal title. Constructive trusts have been said to arise through the application of the doctrine of equitable estoppel, or under the broad doctrine that equity regards and treats as done what in good conscience ought to be done.”
As Spiderman’s uncle once said: “With great power comes great responsibility.” So, for argument’s sake, let’s read between the lines of this decision.
In the first Redd case, this same son was removed as guardian because the trial court found that he was actively undermining the relationships between his demented mother and her other children, his siblings. So, he was already the bad guy in this court when the questions at issue in this appeal arose. In this appeal, his accountings are disallowed, he is removed as beneficiary of a life insurance policy his mother established on her life, and the deed leaving him her home is voided.
One explanation is that he really is the bad guy and had a hand in the getting mom to execute the deed. But if those were the facts, as discussed above, the contestants would have had legal grounds to attack the deed: duress and undue influence. That evidence, presumably, didn’t exist.
Remember also that the testimony about what mom believed or intended at the time she created the deed, comes from a demented woman who is no doubt being influenced by the people around her; and since her son’s removal as guardian, should we assume those people are the other siblings? How much weight should be given to her current memories of what she did some years earlier? Also, the COA opinion mentions only in an off-handed way that, in explaining her decision to execute the deed, mom states that at least part of her motivation was that her son had made improvements to the house.
So, the other possible perspective is that maybe son is the good kid. Maybe his siblings didn’t have a lot to do with mom, but lawyered up when they realized they were getting cut out. Maybe he had reasons for his keeping the other kids away from mom, although perhaps he was too strident in how he did it. Maybe he is the only one who cared. I don’t know. But I suspect the story is richer than this opinion reveals.
I’m not saying this case is wrongly decided, I’m just saying it’s grey – it’s always grey; and unleashing unfettered equitable powers in these cases is dicey.
Speaking of which, I have an article coming out on this very topic. It will be in the February edition of the Michigan Bar Journal. It’s called: Best Practices for Family Exploitation Cases. If you are so inclined, give it a read, and I hope you find it worthwhile.