Affirmative Duty of Successor Trustee

Question: Is there an affirmative duty owed by a successor trustee to correct mistakes made by the predecessor trustee in the administration of the trust estate? In the question posed, the predecessor trustee incorrectly calculated the unitrust amount (4%) that was distributed to the lifetime trust beneficiary.

Answer: There is no express affirmative duty to correct the mistake, yet the Michigan Trust Code (MTC) expects a successor trustee to take reasonable steps to enforce a breach of trust claim.

Analysis: I could not find any specific provision in the Michigan Trust Code (MTC) that imposes an affirmative duty on the successor trustee to ‘correct’ the predecessor’s mistakes in the administration of a trust. There are, however, other MTC provisions that indirectly imply that the successor trustee has some duties to ‘correct’ prior mistakes in the trust administration’s, such as miscalculating a unitrust distribution amount. I confess that I am not really sure what the legal difference is between an affirmative duty and a duty to take reasonable steps to enforce a breach of trust.

MTC Provisions:

• Upon acceptance of a trust,  the trustee shall administer the trust in good faith, expeditiously, and in accordance with its terms and purposes. [MCL 700.7801] If the predecessor trustee miscalculated the unitrust amount, then the predecessor trustee breached one of its fiduciary duties. [MCL 700.7901 (1) (a).]
• The MTC contains a fairly exhaustive list of remedies for a violation by a trustee of the duty it owes to a trust beneficiary, including paying money back to the trust as a remedy for its breach of trust. [MCL 700.7901 (2) (a) through (j).]
• The Reporter’s Comments to MCL 700.7901 (2) notes: “Finally, a successor trustee may have the power to enforce claims against a predecessor trustee. See Restatement (Second) of Trusts, Section 200, comment f, and the reports comment to MCL 700.7813, MCL 700.7814.” This Comment addresses the successor trustee possessing legal standing to petition the court to correct a breach of fiduciary duty, as a real party in interest.
• The technical answer to your affirmative duty question is found in the Reporter’s Comment to MCL 700.7813. The Comment is extensively quoted and addresses your technical affirmative duty question: “The Uniform Trust Code [UTC] Section 812 included an affirmative duty on the part of a trustee to redress a breach of trust known to the trustee to have been committed by a predecessor. The UTC provision was derived from the Restatement (Second) of Trusts Section 223, which states a successor trustee is not liable for a breach by a predecessor. However, the section of the Restatement also says a trustee is liable for the breach of a prior trustee if he or she knows or should know (emphasis added) of the breach and fails to redress it. The affirmative duty found in UTC Section 812 to pursue known breaches by a predecessor trustee was not included in the MTC because the definition of knowledge found in MCL 700.7104 includes both actual knowledge and constructive knowledge based on notice or notification as well as information of which a person has reason to know based on all known facts and circumstances. This raised concerns that the UTC language and the definition of knowledge would be combined to impose a duty to engage in a due diligence process to ascertain whether any breach may have been committed by a predecessor. The drafting committee was concerned that this may cause some trustees to refuse to accept appointments without a release, either from this obligation under the instrument or from the beneficiaries, or that such an obligation would cause trustees to incur the expense of an investigation and needlessly consume trust resources. Nevertheless, despite the omission of the language found in UTC section 812, MCL 700.7812 which requires a trustee to take reasonable steps to enforce a claim of the trust, appears to require the trustee to take reasonable steps to enforce a breach of which the trustee has actual knowledge, and it should be read accordingly.”
• In sum, the MTC was drafted to consciously avoid giving a successor trustee an affirmative duty to correct a mistake made by a predecessor trustee. But there remains the fiduciary obligation imposed on the successor trustee to take reasonable steps to enforce a breach once that breach comes to the success trustee’s attention.
• On the facts that you presented, if the unitrust beneficiary was overpaid, then one of the remedies available to correct a breach of trust is to compel the beneficiary to return the overpayment to the trust. This remedy is authorized in MCL 700.813 (3) which provides, in part: Unless the distribution or payment can no longer be questioned because of adjudication, estoppel or other limitation, a distributee or claimant that receives property that is improperly distributed or paid from the trust shall return the property and any income and gain from the property (or pay the value thereof as of the date of distribution.)
• In In re Stout Trust Agreements, No 323535 (Mich Ct. App December 15, 2015) (unpublished) the Court of Appeals found that the decision of the probate judge to allow certain beneficiaries to receive and retain more than their share of the trust’s assets, even when the over-distribution was due to a breach of trust by the trustee, was improper.
• If the predecessor trustee’s calculation of the unitrust amount resulted in an underpayment for several years to the trust beneficiary, then the trust beneficiary should receive a ‘make-up’ distribution from the trust, along with a calculation spreadsheet to reflect that shortfall.

To conclude, there is no affirmative duty to take action as a successor trustee, but once you become aware of the breach of trust in the calculation of the unitrust amount, you now have an obligation to take reasonable steps to rectify that breach of trust. Admittedly, this is probably not the answer you were looking for.