Take-Away:  Michigan’s common law was silent on how to fill a trustee vacancy. The Michigan Trust Code addresses that ‘gap’ by providing a series of default rules to fill a trustee vacancy. A well drafted trust should address how trustee vacancies should be filled, along with the procedure to follow to fill the vacancy.

Background: The Michigan Trust Code adopts the Uniform Trust Code’s model provision that guides a court in how to fill a trustee vacancy. [MCL 700.7704.]

  • When a Vacancy Occurs: This section identifies six different circumstances in which a trustee vacancy can occur: (i) the designated person rejects the trusteeship; (ii) the person designated as trustee cannot be identified, or does not exist; (iii) a trustee resigns; (iv) a trustee dies; (v) a trustee is disqualified or is removed; and (vi) a guardian or conservator is appointed for an individual who is then serving as trustee. [MCL 700.7704(1).]
  • Cotrustees: If one or more cotrustees remain in the office of trustee, a vacancy in a trusteeship does not need not be filled. [MCL 700.7704(2).] This section was most recently amended in 2019 to clarify that separate trustees, as defined in the divided trustee provision of the Michigan Trust Code [MCL 700.7703(b)] are not to be treated as cotrustees who are subject to this statute. [MCL 700.7704 (2).] Consequently, if a divided trustee dies, there will be a vacancy that needs to be filled.
  • Priority of Appointment: If there is a vacancy in the trusteeship of a noncharitable trust, the vacancy must be filled in the following order of priority: (1st) In a manner that is designated by the terms of the trust instrument; or (2nd) By a person appointed by the court. [MCL 700.7704(3).] Note that this default rule does not authorize the beneficiaries of the trust to fill a vacancy in the trusteeship. In short, if the settlor wants to give the trust beneficiaries the ability to fill a trustee vacancy, then the trust instrument must expressly confer this power on the trust beneficiaries.

With a charitable trust, the priority of appointment is slightly different. (1st) In a manner that is designated by the terms of the trust; (2nd) By a person who is selected by the charitable organizations expressly designated to receive distributions under the terms of the charitable trust if the attorney general concurs in the selection.[MCL 700.7704 (4).] However, this is not one of those Trust Code sections that cannot be altered by the settlor. Accordingly, the settlor of a charitable trust can override in the trust instrument this provision that requires the consent of the Michigan attorney general.

  • Good Cause: Whether or not a vacancy in trusteeship exists or is required to be filled, the court may appoint an additional trustee or special fiduciary upon the showing of good cause. [MCL 700.7704(5).] Good cause is not defined in either the Michigan Trust Code or the Estates and Protected Individuals Code (EPIC.) Good cause was however recently defined to mean a “legally sufficient reason.” In re Conservatorship of Jaye, Nos. 342195, 34197 (Michigan Court of Appeals, January 24, 2019.) This authority reflects the equitable power held by a probate court. This power would be exercised by a probate judge, for example, if cotrustees became deadlocked in the administration of a trust and an additional cotrustee needed to be appointed to cast the tie-breaking vote, or a special fiduciary needed to be appointed by the court to deal with the conflict of interest of an acting trustee.

Judicial Interpretations: What is somewhat surprising is that in the ten years since Michigan adopted its Trust Code, there have been several court decisions that dealt with this trustee vacancy statute. This unusual since many other provisions of the Michigan Trust Code have yet to invite any court interpretation whatsoever. Consider the following:

  • 2018: The incumbent trustee resigned with notice as required under the terms of the trust instrument. Each person nominated in the trust instrument to serve as successor trustee declined to serve. The probate judge permitted the incumbent trustee to resign, and the probate judge then appointed a successor trustee who was not named in the trust instrument. The probate judge’s exercise of authority to appoint a successor trustee not named in the trust instrument was approved by the appellate court. In re Basso, No. 337321 (Michigan Court of Appeals, September 20, 2018.)
  • 2016: A trust instrument required the appointment of an independent trustee and it gave to the withdrawing trustee the authority to appoint his successor. This provision in the trust instrument prohibited the probate judge from relying on MCL 700.7704 to appoint a successor trustee when the departing trustee had not been given the opportunity to exercise the delegated power to appoint his successor. In addition, the judge had appointed a trustee who did not satisfy the requirements of the terms of the trust instrument as an ‘independent’ trustee. In re Rayola A. Banfield Irrevocable Trust, Nos. 325422, 32422 (Michigan Court of Appeals, May 24, 2016.)
  • 2014: The probate judge appointed a successor trustee to fill a vacancy who was then serving as trustee of a related trust. The trust beneficiary objected, claiming that the appointed trustee would have a conflict of interest. The appellate court approved the probate judge’s appointment, reasoning that a common trustee for each trust would facilitate the administration of both trusts inasmuch as the appointed trustee was familiar with the assets and trust issues that required resolution. In re Jeanice L. Spear Revocable Trust, No. 313682 (Michigan Court of Appeals, May 29, 2014.)
  • 2013: The probate judge’s decision was reversed when he appointed a residuary beneficiary as a cotrustee of the trust. The appellate court found that the appointed beneficiary “had a strong incentive to approve only minimum possible distributions’ to the current beneficiary. The appellate court noted that ‘appointing a trustee with this type of conflict of interest is inappropriate.’ In re Benjamin F. Haddad Trust, Nos. 302734, 302813, (Michigan Court of Appeals, August 13, 2013.)
  • 2011: The probate judge found that unanticipated conflict among the settlor’s children constituted a ‘substantial change in circumstances’ that warranted the removal of a child of the settlor who was then serving as trustee. That removal was authorized by MCL 700.7706 (2)(d). This finding, in turn, justified a modification of the terms of the trust, per MCL 700.7412(2), to override the settlor’s nomination of another child as successor trustee, and the exercise of the probate court’s authority under MCL 700.7704(3) to appoint someone else, not a family member,  as successor trustee. In re Mlynarczyk Living Trust, No. 302877 (Michigan Court of Appeals, September 15, 2011.)

Conclusion: As noted earlier, a trust instrument can have its own provisions for how, and with whom, to fill a trustee vacancy. That is, by far, the best practice. If the trust instrument is silent, or the nominated successor trustees are exhausted or they decline to serve, then MCL 700.7404 acts as the default set of rules to fill that vacancy. If the settlor wishes to give voice to the trust beneficiaries in filling a trustee vacancy, then the trust instrument must explicitly give them that voice. If a trust instrument includes divided trustees, the trustee vacancy provision will need to clearly address that it is to be applied to the vacancies in each of the directed trustees respective roles. The same can be said if a trust instrument uses a trust director (formerly called a trust protector) who may need to be replaced at a future date.