Legacy Cottages: A Family “Horror Story”

I ran across an unpublished Michigan Court of Appeals decision that reaffirmed my fears that adult children often cannot be trusted to carry out their parents’ testamentary wishes when they are named as co-trustees. Trupp v. Naughton, No. 320843, May 26, 2015. [Let me know if you want to read the decision and I will scan it to you.]

The mother owned a lake front cottage on Higgins Lake which held in her trust. There were 5 adult children, but only three children were involved in the trust and its subsequent litigation. The three children were named as the successor co-trustees and as the only beneficiaries of their deceased mother’s trust. After their mother’s death the three children continued to use the Higgins Lake cottage for about two years. The amended trust contained a provision that required the children to make a schedule each year for their use of the cottage and also directed the children to determine an appropriate method to allocate the expenses to maintain the cottage.

Despite the express terms of the trust, the three children failed to create a schedule for the use of the cottage during those initial two years. Moreover, the son paid all of the property taxes, insurance and utilities associated with the cottage without any contribution from his two sisters. Despite their brother’s request for contributions the two sisters refused to reimburse him. Inasmuch as the siblings were unable to resolve this dispute with  regard to the payment of cottage expenses, the frustrated brother finally removed his personal property from the cottage and he quit using the cottage. The two sisters continued to use the cottage for the next couple of years, with one of the sisters paying all of the cottage expenses that her brother had previously paid.

The brother  filed a petition with the probate court. He asked that the probate court supervise the trust.  In his petition the brother claimed that his sisters refused to pay their respective share of the cottage expenses, and that his sisters had ‘locked him out of the cottage.’ Consequently the brother asked the probate court to terminate the trust, to order the sale of the cottage, and to reimburse the brother for the expenses that he had paid that were the contribution obligations of his sisters.

After a trial the probate court found that the three siblings were required by the trust instrument to contribute equally to the cottage’s expenses. The probate court then ordered that the trust was to be terminated, the cottage was to be sold, and the two siblings who had paid the cottage expenses after the death of their mother were to  receive credits from the sales proceeds for the funds that they had advanced on behalf of their sister who had paid nothing toward the cottages expenses, yet who continued to use and enjoy the Higgins Lake cottage for several years.

The appeal taken by the two sisters challenged the probate court’s decision to terminate the trust. The sisters claimed that the probate judge had no basis upon which to terminate their mother’s trust. The sisters further claimed that the judge, instead of terminating the trust ‘could have imposed rules by which the cottage could continue to be held in trust and operated.‘

The trust instrument also provided that the co-trustees could decide to terminate the trust if the co-trustees had concluded that it would not economically sound to continue the trust. Additionally the trust instrument gave to the co-trustees the authority to terminate the trust ‘due to unforeseen circumstances if the termination was in the best interest of the trust beneficiaries.’ The sisters argued that there was no unanimous agreement by all the successor co-trustees to terminate the trust, just a petition by one of the co-trustees. The Court of Appeals adopted the probate judge’s reasoning in response to this last argument. The probate judge noted that “the trust could be terminated under the trust provision when the trustees… determine that discontinuation of the trust is just justified. While only one of the co-trustees explicitly sought termination of the trust, the trustees did not attempt to fulfill the requirements of the trust….The undisputed facts reveal that the co-trustees knew the provisions of the trust because they were present as the trust was amended, and made no attempt to implement the provisions of the trust after Elaine’s death. The beneficiaries continued to use the cottage in total disregard of the requirements of the trust to form a schedule and rules for cottage use.”

The Court concluded: “The trust provisions provided for the termination of the trust in circumstances such as the one before us. MCL 700.7410(1) provides that a trust may be terminated when the purposes of the trust have become impossible to achieve. Here, where the purpose of the trust was to allow the parties to share in the use of the cottage, the probate court reasonably found that the purpose could not be met where none of the parties could follow the terms of the trust.”

Children who fight after their parents’ death is not a surprise. Nor is it a surprise when children refuse to contribute when the ‘hat is passed’ to raise funds to maintain the family cottage held in trust. Sharing the use and the expense of a legacy cottage inevitably adds strain to a sibling relationship. What is sad is that these children, despite being present when their mother’s trust was amended  to add the cottage use and expense provisions, simply ignored those directions as co-trustees. One has to wonder how their mother would react if she knew that the trust that she created to hold the legacy Higgins Lake cottage for the enjoyment of her children was completely ignored by those children, which stubbornness ultimately caused the purpose of the trust to be frustrated and forced the sale of the cottage. While the probate court’s sole objective is to determine and carry out the settlor’s intent, apparently the probate judge concluded that these three siblings would never cooperate with one another, and thus the purpose for the cottage trust was inevitably frustrated by the behavior of the settlor’s own children.

When your clients express great confidence that their children ‘will get along’ with one another to administer their trust, remind them of Trupp case. Trust provisions are directive to the trustees, no aspirational.