Co-trustees: The power to decant

Take-Away: Generally, the Michigan Trust Code requires two co-trustees to act in unanimity. What happens when one co-trustee delegates his/her authority to the other co-trustee?

Reported Decision: In the Matter of the Fund for the Encouragement of Self Reliance, An Irrevocable Trust, 135 Nev. Adv. Opinion (March 21, 2019)

Facts: The Nevada Supreme Court was asked to review a lower court order that granted one co-trustee’s motion to decant 50% of trust assets from a charitable trust to a new charitable trust. There were only two co-trustees. The trust instrument required the unanimous vote of both co-trustees to make a distribution from the trust. One co-trustee wanted to decant 50% of the trust’s assets into new trust “with the same purpose of the original trust” but with just one trustee acting under the new decanted trust. With the decanted assets from the original trust, the other trustee would become the sole trustee of the original trust holding the remaining assets not decanted.

Question: Could one co-trustee, acting independently of the other co-trustee, exercise the power to decant the trust’s assets, even though the trust instrument expressly required the two co-trustees act unanimously?

Trial Court: The District Court held that only one of the co-trustees was required in order to exercise a statutory decanting power, i.e. the consent of the other co-trustee was not required.

Supreme Court Decision: The Nevada Supreme Court reversed the decision of the District Court.

• The Court looked to Nevada’s decanting statute which provides, in part: except as otherwise provided in this section, unless the terms of the irrevocable trust provide otherwise, a trustee with discretion or authority to distribute trust income or principal to or for a beneficiary of the trust may exercise such discretion or authority by appointing the property subject to such discretion or authority in favor of a second trust as provided in this section.   [Nevada Revised Statutes 166.556(1).]
• The Nevada Supreme Court noted that the statute’s plain language provides that a trustee is statutorily defined for trusts generally and charitable trusts specifically. For charitable trusts, trustee is not limited to a singular person, but includes “a trustee, trustees, person or persons possession a power or powers referred to in the Charitable Trust Act.”
• The Court found that the word trustee carries a meaning that is based on the context of the role. In this case, it took both co-trustees to make a distribution decision, therefore it requires both co-trustees to exercise a statutory decanting power, which is premised on a trustee’s discretion to make distributions.

Michigan Law: The Michigan Trust Code provides that co-trustees must act by majority decision. [MCL 700.7703(1).] But by agreement between the co-trustees, a co-trustee may delegate to another co-trustee “any power that can only be performed by a trustee, if notice of the delegation is provided to the qualified trust beneficiaries within 28 days.” [MCL 700.7703(5)(b).]

Rhetorical Questions:

• Does this power to delegate powers to another co-trustee mean that under a trust instrument, which is silent on the issue of the intra-co-trustee delegation of powers,  one co-trustee could delegate the power to make discretionary distributions to the other co-trustee, and thus indirectly confer on that delegated co-trustee the sole power to decant the trust’s assets, since it is only that one co-trustee who possesses the power to make discretionary distributions,  which is the linchpin to the statutory power given to trustees to decant trust assets?
• Does the trustee’s statutory power to decant trust assets indirectly extend to a trust director? Assume that a trust director controls trust investments. The trust director wants to have the trust assets decanted to a new trust which contains a new administrative provision that gives the trust director the authority to purchase investments on margin (authority not contained in the original trust instrument.) The trust director directs the directed trustee to decant the trust assets to the new trust where the authority to purchase investments on margin is expressly authorized. Must the directed trustee decant the trust’s assets to the new trust to accommodate the trust director who is charged with making all investments on behalf of the trust? Is the power to compel a decanting by the trustee an incidental power that the Michigan Directed and Divided Trust Act confers on a trust director who is charged with making trust investments?

As we move into the new world of trust directors with incidental powers to those expressly given to the trust director under the trust instrument, we are going to find a lot of interesting questions with regard to just how far those necessary and appropriate incidental powers extend when it comes to directing the directed trustee.