Trusts Blog
Kalamazoo Estate Planning - Trusts Blog

One of the least understood areas of estate planning is Medicaid planning. In Michigan, there are tremendous advantages to the community spouse of a nursing home resident if the couple's home was placed in a revocable living trust prior to the date that the nursing home resident entered the hospital or nursing home.

 

Duty of Loyalty

Posted January 10, 2017

Pursuant to MCL 700.7802, A trustee shall administer the trust solely in the interests of the trust beneficiaries. Subject to the rights of persons dealing with or assisting the trustee as provided in section 7912, a sale, encumbrance, or other transaction involving the investment or management of trust property entered into by the trustee for the trustee's own personal account or which is otherwise affected by a substantial conflict between the trustee's fiduciary and personal interests is voidable by a trust beneficiary affected by the transaction unless 1 or more of the following apply:

  • The transaction was authorized by the terms of the trust.
  • The transaction was approved by the court after notice to the interested persons.
  • The trust beneficiary did not commence a judicial proceeding within the time allowed by section 7905.
  • The trust beneficiary consented to the trustee's conduct, ratified the transaction, or released the trustee in compliance with section 7909.
  • The transaction involves a contract entered into or claim acquired by the trustee before the person became or contemplated becoming trustee.
  • The transaction is otherwise permitted by statute.

A Trustee shall avoid any conflict of interest between personal and fiduciary interests, A sale, encumbrance, or other transaction involving the investment or management of trust property is presumed to be affected by a conflict between personal and fiduciary interests if it is entered into by the trustee with any of the following:

  • The trustee's spouse.
  • The trustee's descendant, sibling, or parent or the spouse of a descendant, sibling, or parent.
  • An agent or attorney of the trustee.
  • A corporation or other person or enterprise in which the trustee, or a person that owns a significant interest in the trustee, has an interest that might affect the trustee's best judgment.

A transaction that does not concern trust property in which the trustee engages in the trustee's individual capacity involves a conflict between personal and fiduciary interests if the transaction concerns an opportunity properly belonging to the trust. An investment by a trustee in securities of an investment company or investment trust to which the trustee, or its affiliate, provides services in a capacity other than as trustee is not presumed to be affected by a conflict between personal and fiduciary interests if the investment otherwise complies with the Michigan prudent investor rule. In addition to its compensation for acting as trustee, the trustee may be compensated by the investment company or investment trust for providing those services out of fees charged to the trust. If the trustee receives compensation from the investment company or investment trust for providing investment advisory or investment management services, the trustee shall at least annually notify the persons entitled under section 7814 to receive a copy of the trustee's annual report of the rate and method by which that compensation was determined.

In voting shares of stock or in exercising powers of control over similar interests in other forms of enterprise, the trustee shall act in the best interests of the trust beneficiaries. If the trust is the sole owner of a corporation or other form of enterprise, the trustee shall elect or appoint directors or other managers to manage the corporation or enterprise in the best interests of the trust beneficiaries. However, this section does not preclude the following transactions, if fair to the trust beneficiaries:

  • An agreement between a trustee and a trust beneficiary relating to the appointment or compensation of the trustee.
  • Payment of reasonable compensation to the trustee.
  • A transaction between a trust and another trust, decedent's estate, or conservatorship of which the trustee is a fiduciary or in which a trust beneficiary has an interest.
  • A deposit of trust money in a financial institution operated by or affiliated with the trustee.
  • An advance by the trustee of money for the protection of the trust.

MCL 700.7802

 

Issues with a Trustee:

Posted December 3, 2016

The trustee of a trust is generally designated in the trust instrument. The trustee accepts the trusteeship by substantially complying with a method of acceptance set forth in the terms of the trust. If the trust does not provide a method, the trustee accepts the office by accepting delivery of the trust property, exercising powers, performing duties, or otherwise indicating acceptance. A trustee who has not accepted the trusteeship may reject the office, and a trustee who does not accept the office within a reasonable time is deemed to have rejected the trusteeship. If, for whatever reason, a trustee is not designated in the trust instrument or the designated trustee declines to accept or resigns as trustee and no successor is named in the trust instrument, the probate court has jurisdiction to appoint a successor trustee.

A trustee who is appointed by court order qualifies by executing an acceptance of trust and must serve the acceptance and order on the qualified trust beneficiaries. The court does not issue letters of trusteeship.  The trustee is also a fiduciary and, as such, stands in a position of confidence and trust to the beneficiary. The fiduciary must discharge all duties, including impartiality, care and prudence in actions, and segregation of assets held in the fiduciary capacity.  The fiduciary shall conform to the Michigan prudent investor rule with respect to making investments.

The probate court has authority to remove an unsuitable trustee, including on the court’s own initiative. MCL 700.7201, .7706. A trustee may be removed for breach of fiduciary duty, a substantial change in circumstances, or for any other circumstance that renders the trustee unfit to continue as trustee. MCL 700.7201, .7706(2). A violation by a trustee of a duty the trustee owes to a trust beneficiary is a breach of trust. MCL 700.7901. Breaches can result from nonfeasance, misfeasance, or malfeasance. Examples of breach of duty include the following:

  • failing to perform the trustee’s duties
  • failing to report
  • failing to follow the trust instrument’s instructions
  • failing to make required distributions
  • failing to properly invest

Lack of fitness to continue as trustee can be established in a number of circumstances; however, absent an accompanying breach of fiduciary duty, courts are reluctant to remove the trustee designated in the trust instrument unless it can be shown that failure to remove the trustee will result in serious detriment to the administration of the trust.

MCL 700.7203(1)

 

Charitable Trusts

Posted November 9, 2016

A charitable trust may be created for the relief of poverty, the advancement of education or religion, the promotion of health, scientific, literary, benevolent, governmental, or municipal purposes, any purpose described in section 501(c)(3) of the internal revenue code, 26 USC 501, or other purposes the achievement of which is beneficial to the community.

If the terms of a charitable trust do not identify a particular charitable purpose or beneficiary, the court may select 1 or more charitable purposes or beneficiaries. The selection shall be consistent with the settlor's intention to the extent it can be ascertained.

The settlor, a named beneficiary, or the attorney general of this state, among others, may maintain a proceeding to enforce a charitable trust. The right of the settlor of a charitable trust to enforce the trust is personal to the settlor and may not be exercised by any of the following:

  • The settlor's heirs, assigns, or beneficiaries.
  • The settlor's fiduciary, other than the trustee of the charitable trust the enforcement of which is being sought.
  • An agent of the settlor acting pursuant to a durable power of attorney, unless the right to enforce the trust is expressly conferred on the agent by the power of attorney.

MCL 700.7405

 

Cy Pres

Posted October 21, 2015

Except as otherwise provided in subsections (2) or (3), if a particular charitable purpose becomes unlawful, impracticable, or impossible to achieve, no alternative taker is named or provided for, and the court finds the settlor had a general, rather than a specific, charitable intent, all of the following apply:

  • The trust does not fail, in whole or in part.
  • The trust property does not revert to the settlor or the settlor's successors in interest.

The court may apply cy pres to modify or terminate the trust by directing that the trust property be applied or distributed, in whole or in part, in a manner consistent with the settlor's general charitable intent.

If the terms of a charitable trust confer a power on the trustee, or another person designated in the trust or gift, to modify or terminate either the charitable trust, a charitable gift to the trust, or the charitable purpose of the trust or gift in favor of another charitable trust, gift, or purpose, the terms of the trust prevail over the power of the court to apply cy pres to modify or terminate the trust.

A provision in the terms of a charitable trust that would result in distribution of the trust property to a noncharitable beneficiary prevails over the power of the court to apply cy pres to modify or terminate the trust only if, when the provision takes effect, either of the following applies:

  • The trust property is to revert to the settlor and the settlor is still living.
  • Less than 50 years have elapsed since the date of the trust's creation.

MCL 700.7413

 

 

 

 

 

 

 


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