Take-Away: After two trips to the Michigan Court of Appeals and one to the Michigan Supreme Court, we now have some guidance (I hope!) on a child or trust beneficiary’s legal standing to initiate litigation with regard to their parent’s revocable trust, whether or not the parent is then competent. This ‘clarification’ of the law could crowd probate courts if named trust beneficiaries have legal standing to challenge the administration of the settlor’s trust while the settlor is alive and arguably content with the trustee’s trust administration of their trust.

Case: In re Rhea Brody Trust, Michigan Court of Appeals, No.  August 7,  2018.

Background:  This decision is, one would presume, the ‘last word’ in a case that has bounced around Michigan Courts for a couple of years now. It received a considerable amount of attention (dare I say ‘hand-wringing’) from the Michigan Bar’s Probate and Estate Planning Council. A short summary of the Brody Trust history follows.

  • Court of Appeals in Brody Trust I: The confusion arose primarily in the breadth of  the first Brody Trust opinion from the Michigan Court of Appeals. That case dealt with whether a child/trust beneficiary had legal standing to initiate litigation that involves her mother’s revocable trust, whether or not her mother was then competent, i.e. the trust remained revocable at the time litigation was filed.
  • The daughter, Cathy, filed a petition to remove her father as trustee of her mother’s revocable trust. Cathy also asked the probate court to set aside actions taken by her father while acting as trustee of that revocable trust. For purposes of the petition it was conceded that Rhea, the settlor-mother, was mentally incapacitated at the time of Cathy’s Petition to Remove Trustee was filed.
  • Cathy asserted that the probate court had jurisdiction over her petition because a ‘court of this state may intervene in the administration of a trust to the extent its jurisdiction is invoked by an interested person or as provided by law. [MCL 700.7201(3).]
  • Cathy claimed that she was an interested person as defined in the Michigan Estates and Protected Individuals Code (EPIC) which provides in part: “Interested person” or ‘person interested in an estate’ includes, but is not limited to, the incumbent fiduciary; an heir, devisee, child, spouse, creditor, and beneficiary and any other person that has a property right in or claim against a trust estate of a decedent…. Identification of interested persons may vary from time to time and shall be determined according to the particular purposes of, and matter involved in, a proceeding and by the supreme court rules. [MCL 700.1105(c).] Cathy was a named beneficiary of her mother’s revocable trust.
  • The Court of Appeals held that Cathy, a child/beneficiary had legal standing to bring litigation against the trustee (her father) with regard to the trust’s administration, and for breach of trust, whether or not the settlor (Rhea) was still competent, and even if Cathy was only a contingent beneficiary of the trust, relying on the EPIC’s definition of trust beneficiary as a person with a present or future beneficial interest in a trust, vested or contingent. [MCL. 700.1103(d).] The Court found that Cathy met the definition of interested person, and while her future interest in the trust was contingent (assuming no revocation or amendment to the trust by Rhea prior to her death) she nonetheless had legal standing to initiate the litigation while her mother was still alive (even when competent.)
  • Probate Section’s Response: The Probate and Estate Planning Section (the Section) filed an amicus brief in an appeal of Brody Trust I to the Michigan Supreme Court asking that Court to reverse the part of the Court of Appeals ‘standing’ decision as too broad- giving a large group of interested persons the ability to file probate litigation even while the trust settlor was alive, well, and could modify the terms of the trust or terminate the trust, and thus eliminate the interest of the interested person. The Section did not ask for a reversal of the Brody I ultimate decision because based on the facts of the case, i.e. Rhea’s mental incapacity was acknowledged,  and that the trustee (husband) was also the settlor’s agent under her durable power of attorney, standing would exist under MCL 700.7603(2) where  the successor trustee has the obligation to keep the named trust beneficiaries reasonably informed of the trust’s administration when the settlor is incapacitated. In other words, the Court of Appeals in Brody I could have simply provided the right analysis under MCL 700.7603(2) without getting into the unnecessary question of who has legal standing to bring trust litigation even if the settlor still retains the authority to modify or revoke the trust (and thus their interests in the trust are somewhat illusory.)
  • Michigan Supreme Court: On June 8, rather than hear arguments, the Michigan Supreme Court summarily vacated the troubling breadth of the Court of Appeals decision with a of remand the case to the Court of Appeals for a ‘clearer’ opinion. The Supreme Court directed that the Court of Appeals, on remand, to consider whether the terms child and beneficiary as used in MCL 700.1105 are modified by the phrase any other person that has a property right in or claim against a trust estate. It also directed, on that remand, the Court of Appeals to find if Cathy had standing in light of MCL 700.7603(2) if she is a present (not merely contingent) beneficiary of Rhea’s trust.
  • Court of Appeals in Brody Trust II: The Court of Appeals provided a decision which  concluded ‘we [the Court and Probate Council] were both right’ in our respective interpretations of the Michigan Trust Code. Unfortunately, ‘win-win’ this will still cause confusion and possibly encourage more litigation over revocable trusts in Michigan.
  • Probate Council Was Correct:  After remand, the Court of Appeals  provided a somewhat helpful new-and-improved published decision that is now binding on all Michigan courts. The Court acknowledges that MCL 700.7603(2) applied to Cathy and thus giving legal standing to Cathy,  the petitioner/child/named beneficiary to question the administration of her mother’s revocable trust. In short, the Court confirmed the position taken by the Probate Council that MCL 700.7603(2) was applicable to the Rhea’s situation. Again, that is the provision in the Michigan Trust Code that provides that when the settlor is incapacitated, and the successor trustee and the settlor’s durable power of attorney agent are one and the same, the successor trustee then has an obligation to advise the named trust beneficiaries of the existence of the trust, and to keep them reasonably informed as to its administration [but the Trust Code does not say provide to all interested persons trust inventories or accountings, just the need to keep them reasonably informed of the trust’s administration.] But that section of the Michigan Trust Code was sufficient to give Cathy standing to challenge the actions of her father who was the successor trustee of his wife’s trust.
  • Court of Appeals was Correct: The Court of Appeals went on to also conclude that it was not wrong in its application of MCL 700.1105(c) and its expansive scope of the definition interested person. Under MCL 700.1105(c)’s broadened definition of interested person in a trust, apparently a probate court could find, based on the facts and circumstances of a particular case, that the settlor’s child or a named beneficiary of the settlor’s revocable trust might have standing to initiate litigation with regard to the administration of that revocable trust even if the settlor is competent and could amend his/her trust to eliminate the challenging child/beneficiary’s interest in the revocable trust.

Conclusion: One would assume that if a settlor is still competent that she could still speak for herself. And it is probable if the settlor is unhappy that one of the named trust beneficiaries or an interested person took it upon themselves to bring litigation against the trustee for its administration of the settlor’s trust, the settlor can always exercise her retained power to amend the trust and remove the named trust beneficiaries or interested person, and as a result deprive them of any legal standing if they no longer meet the definition of interested persons in the trust. So perhaps the Court’s conclusion in Brody Trust II is not as troubling as I make it out to be. But the Court’s expansive interpretation of who might be an interested person in the trust leaves the door open to where litigation could be filed by a trust beneficiary with no present interest in the trust,  who could also someday in the future no longer even be a trust beneficiary- which is not a particularly comfortable result for successor trustees to defend against. Another possible implication of  Brody Trust  II may also be that keeping the trust beneficiaries reasonably informed of the trust’s administration is now meant to give to all interested persons in a trust estate a formal inventory of all trust assets and periodic trust accountings, even if the settlor may wanted to have avoided sharing that information with beneficiaries while still competent or before her death. The upshot of the Brody Trust II decision is that a lot more folks are now in a position, as interested persons, to question the trustee’s administration of a revocable trust.