Michigan Legislative Update

Take-Away: What follows is a brief legislative update from Nathan Piwowarski, who is the chair of ‘Special Projects Committee’ for the Michigan Probate and Estate Planning Council. This is a short ‘follow up’ to previous reports on legislation being considered by our representatives and senators in Lansing.

Delaware Tax Trap ‘Fix’: Testimony on this Bill was taken by the Senate Judiciary committee last week. The way the Michigan Power of Appointment Act is currently written, it is designed to prevent an inadvertent triggering of the Delaware Tax Trap. The Delaware Tax Trap is part of the current Tax Code. The Tax Code is written in such a way as to treat the exercise of a limited power of appointment by the creation of another power of appointment, e.g. stacking one power of appointment on top of another, as the equivalent of a general power of appointment. If the trust beneficiary exercises his/her limited power of appointment by appointing the assets held in trust, subject to a second power of appointment, the first trust beneficiary will be treated as holding a general power of appointment, which will cause the value of all trust assets to be included in the deceased trust beneficiary’s taxable estate. The proposed amendment to the Michigan Power of Appointment Act would be written so that it would be possible to intentionally trigger the ‘tax trap.’ The obvious purpose of this proposed legislation would be to permit a trust beneficiary to intentionally cause assets held in a trust to receive an income tax basis adjustment on the trust beneficiary’s death, while at the same time use the trust beneficiary’s $11.58 million federal estate tax exemption amount to avoid paying any estate tax on the inclusion of the value of the trust’s assets in the deceased trust beneficiary’s taxable estate.

EPIC Omnibus Bill: It is possible that this Bill may move through the ‘lame duck’ legislative session and soon become the law. This multi-faceted Bill would make several changes to EPIC and other statutes to include: (i) raise the ceiling amounts for small estate proceedings, e.g. up to $100,000; (ii) permit transfer-on-death beneficiary designations for motor vehicles and watercraft; (iii) increase the dollar amount to permit the transfer of title to vehicles and watercraft directly through the Secretary of State’s office, i.e. thus avoiding probate, e.g. $100,000 for vehicles, and $250,000 for watercraft; (iv) permit silent trusts of some duration; and (v) recognize intestacy rights for a child who is born post-mortem through artificial reproductive technology (ART.) Due to the limited days that the legislature plans to meet during the ‘lame duck’ session, it is possible that this Bill will not be acted upon, and would yet again have to be re-introduced in next year’s legislative session.

Voidable Transaction Act ‘Fix:’ A couple of years ago Michigan amended its version of the Uniform Fraudulent Transfer Act (formerly Uniform Fraudulent Conveyance Act) by adopting the Uniform Voidable Transactions Act. The ‘problem’ with the Uniform Voidable Transaction Act is not so much with regard to the provisions of the ‘new’ Uniform Act but with the Notes and comments that accompanied that ‘new’ Uniform Act. Specifically, and here I am grossly summarizing, those Notes and comments say that if an individual adopts and funds an asset protection trust, such as one created under the Michigan Qualified Dispositions in Trust Act, then the adoption of such a trust would be a voidable transaction under the Act. The proposed ‘fix’ would be to adopt the Uniform Voidable Transactions Act, but not its accompanying Notes and comments as aides in its interpretation. The obvious concern is that a Michigan judge who is confronted with arguments that the newly amended Act was violated in a transaction, such as creating and funding an asset protection trust, will not be misled with regard to the Legislature’s intent with the adoption of the Qualified Dispositions in Trust Act. In short, the ‘fix’ would protect and preserve an asset protection trust and the settlor’s retained interest in such a trust without it falling prey to an expansive interpretation of the Michigan Voidable Transactions Act.

Electronic and Remote Notarization and Witnessing Act: A Bill was recently created that essentially codified the Governor’s Executive Orders from last spring when the pandemic hit, which authorized remote notarization and execution of legal documents. As we now know, the Michigan Supreme Court found the Governor’s Executive Orders to be unconstitutional. The hope had been that this Bill could be swiftly adopted to replace the now-invalid Executive Orders, especially with new ‘stay-at-home’ concerns ramping up. It is probable that the Legislature, in its lame duck session, will not have enough time to take up this proposed legislation.

Authorization for Electronic Wills: There is a small, albeit vocal, group that is pushing hard for Michigan to become one of the first states to recognize an electronic Will. The Bill is being ‘pushed’ (not sure that is a fair description but I will stick with it) by on-line providers like Legal Zoom. The Probate and Estate Planning Council voted in opposition to the Bill. There is still some possibility that the Bill could become law during the lame duck session given the zeal of its backers.

Mardigian ‘Fix’ Legislation: About 5 years ago the Michigan Supreme Court held in the Mardigian case that it was not void, per se, for a drafting attorney to name himself in a Will or Trust drafted for his client, despite one of the the Rules of Professional Conduct that expressly directs that an attorney shall not name themselves or a member of their family as a beneficiary of a client’s estate plan. The Supreme Court held that the Rule of Professional Conduct only created a presumption of undue influence, but it did not automatically vitiate the beneficial provision the attorney makes for himself or his family member. A Bill was introduced to clarify that an attorney cannot draft a Will or Trust provision for a client that directly benefits the attorney or his family member (other than to serve in a fiduciary role) and any such provision would automatically be void, not to mention continue to be a violation of professional ethics.

If any of these Bills become law in the next few weeks I will try to update this summary.