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George F. Bearup, J.D. Senior Legal Trust Advisor

Trustee has Standing to Enforce Charitable Trust

Take-Away: As a broad generalization, when a charitable trust is created, the belief is that only the Attorney General can bring a lawsuit to enforce that charitable trust. The Michigan Court of Appeals just held that the trustee of the decedent’s trust who distributed the assets to the university for charitable purposes could sue the university for not adhering to the terms of that charitable gift.

Reported Decision: Glassic, as Trustee for the James Bellamy Trust v University of Michigan Regents, No. 344971 (November 19, 2019)

Facts: Professor Bellamy (Bellamy) was a full professor of classic Arabic literature at the UofM. His revocable trust (amended several times) directed the trustee of his trust on his death to distribute to the UofM an amount “necessary to endow a full professorship’ named after him in the field of medieval classical Arabic literature. A Gift Agreement with the UofM was signed outlining this intent. That Agreement included provisions that if no one was qualified at the UofM, the university was required to hire an outside applicant. The Agreement provided that the University’s LS&A Dean “shall be responsible for carrying out the intended purpose of the Fund and excess amount” and the UofM was required to loyally honor Bellamy’s wishes. Another professor and longtime friend of Bellamy (Glassic) was named as co-trustee with Bellamy and ultimately the Personal Representative of his probate estate.

Bellamy died in 2015 at age 89. About eight months later, Glassic distributed $2.5 million to the UofM pursuant to the Gift Agreement; this amount was used to endow a “full professorship in the field of medieval classical Arabic literature.”  Four months after that first distribution, another $1.0 million was distributed to the UofM to fund graduate student fellowship support of the holder of the full professorship. About 18 months later, in late 2017, UofM named an individual to the professorship, which caused the lawsuit to be filed.

Trustee’s Claims: Glassic filed the lawsuit in which many factual claims were made, including: (i) the individual appointed to the position was not qualified to teach classic Arabic literature; (ii) he was not a full professor; (iii) the motive behind that appointment was to alleviate the Department’s budget issued by having the Bellamy Trust pay the professor’s salary. The legal claims Glassic filed included: (a) breach of contract, i.e. the Gift Agreement; (b) breach of fiduciary duty by the trustee of the charitable trust, i.e. the Dean put in charge of the gifted amount; (c) violation of the Uniform Prudent Management of Institutional Funds Act [MCL 451.921]; and (d) injunction against UofM from distributing the funds contrary to the Gift Agreement.

University’s Response: The UofM sought to dismiss the lawsuit because once the funds had been distributed from Bellamy’s Trust, a separate $3.5 million charitable trust had been created over which Glassic was not the trustee. More to the point, MCL 700.7405(3) applied where only a person with a special interest in the charitable trust, other than the Attorney General, has standing to enforce a charitable trust and that Glassic did not possess a special interest.

Probate Judge: The probate judge held that the right of a settlor to enforce the terms of a charitable trust is personal to the settlor and cannot be exercised by the settlor’s fiduciary, citing MCL 700.7405(3). Therefore, Glassic did not have any special interest in the charitable trust maintained by the UofM.

Court of Appeals: The Court of Appeals found that Glassic did possess a special interest sufficient to possess legal standing to follow through on his lawsuit to enforce the terms of the Gift Agreement. The Court spent a considerable amount of analysis, citing several provisions of the Trust Code, including the Reporter’s Commentary to MCL 700.7405(3) to reach its conclusion. Some points that the Court made include:

  • Settlor’s Intent: “The Michigan Trust Code was created to foster certainty that settlors of trusts will have confidence that their instructions will be carried out as expressed in the terms of the trust. [MCL 700.8201(2) (c).]”
  • Interpreting a Trust: When interpreting trust language, the court’s goal is to determine and give effect to the trustor/settlor’s intent. Interpretation begins with an examination of the trust language, and if there is no ambiguity, the trust terms are interpreted according to plain and ordinary meaning. Hegadorn v Department of Human Services Director, 503 Mich 231 (2019).
  • Charitable Pledges: In addition to the general powers given to a trustee [MCL 700.7816] a trustee also has a specific power- “To satisfy a settlor’s written charitable pledge irrespective of whether the pledge constitutes a binding obligation of the settlor or was properly presented as a claim, if in the trustee’s judgment the settlor would have wanted the pledge completed under the circumstances.” [MCL 700.7817(e).]
  • Trustee’s Authority to Sue: A trustee also possesses the power to prosecute an action or claim in court. “The trustee may act under this subdivision for the trustee’s protection in the performance of the trustee’s duties.” [MCL 700.7817(x).]
  • Trustee’s Obligation to Bring the Lawsuit: As trustee of Bellamy’s Trust, Glassic had to administer the trust in good faith in accordance with its terms and purposes. [MCL 700.7801] Accordingly, Glassic had to satisfy any charitable pledges and he had the obligation to prosecute claims in the performance of his trustee duties. “[As] the trustee and personal representative of the Bellamy Trust and Estate [Glassic] had obligations to address in good faith, and upon learning the distribution terms of the Gift Agreement did not execute Professor Bellamy’s intent, he had the right and obligation to file suit, MCL 700.7817(x), to ensure that the settlor’s instructions pertaining to the trust were followed, MCL 700.8201(2). Thus, the trustee learned of an injury and the trust distribution ‘detrimentally affected’ the trust and its beneficiaries in a manner different from the citizenry at large. In Re Pollack Trust, 309 Mich App at 155. In addition to statutory trust law, the trial court improperly granted summary disposition in favor of defendants in light of general standing principles.”
  • Trustee’s Standing to Bring the Lawsuit: As noted above, once the funds were distributed to the UofM and a separate charitable trust was created, UofM claimed that Glassic no longer had legal standing to enforce the charitable trust by filing a lawsuit. Thus, the focus was on the Michigan Trust Code and its provision that governs the enforcement of charitable trusts.
  • The key statutory language is: The settlor, a named beneficiary, or the attorney general of this state, among others, may maintain a proceeding to enforce a charitable trust. The right of the settlor of a charitable trust is personal to the settlor and many not be exercised by any of the following:… (b) the settlor’s fiduciary. [MCL 700.7405(3) (b).]
  • In Pollack the Court stated that trustees have a special right or substantial interest that will be detrimentally affected in a manner different from the citizenry at large.
  • The Court concluded that Glassic was within the category of among others due to the powers of the trustee and the trustee’s obligation to facilitate the intention of the original settlor, and principally because as trustee and personal representative, Glassic had to ensure that the distribution to the UofM met the terms of the Gift Agreement.
  • “In light of the extraordinary amount of the trust, the allocation that the settlor [UofM] of the charitable trust made little to no effort to ensure compliance with Professor Bellamy’s wishes, and the Arabic studies field that was deprived of the benefit, an action may be maintained against the charitable trust by plaintiff [Glassic.] Indeed, a settlor would have little incentive to create and distribute to a charitable trust with specific instructions where no enforcement mechanism was available to protect the settlor’s intent.”

Observations: This is a published Court of Appeals case, which carries with it, precedential weight, which means other courts must follow it. However, the decision does leave a few lingering questions:

  • (i) No explanation was provided by the Court if the Attorney General had been requested by Glassic, but declined, to bring the lawsuit against UofM to enforce the terms of Professor Bellamy’s Gift Agreement.
  • (ii) I support the Court’s finding that the Trustee possessed the right to file a lawsuit to enforce the terms of Professor Bellamy’s charitable gift. However, I still find it confusing that the express language of the Trust Code, which provides that the settlor’s fiduciary may not exercise the settlor’s right to enforce the charitable trust was apparently trumped by the trustee’s duties to carry out the settlor’s intentions (which always would seem to be the case) and the Pollack case result that trustees always have a special right under the standing statute.
  • (iii) Initially I thought that the Court’s decision was based on an interpretation that the prohibited fiduciary was UofM, which was charged to apply Professor Bellamy’s bequest for the specified purpose by creating a charitable trust to carry out that purpose, and thus UofM was the trustee prohibited from standing to enforce the terms under MCL 700.7405(3). However, the intent of the Legislature seems to be that the settlor intended in the statute, in this situation, was not UofM but Professor Bellamy, such that Glassic. Bellamy’s fiduciary, was intended by the Legislature to not have standing and that legal standing, by default under the statute, was solely with the Attorney General.

Conclusion: I am probably wrong in this interpretation, but it seems to me that the Pollack trustee-has-special-interest, as interpreted by the Court in Bellamy, is sufficient to claim legal standing to enforce a charitable trust, and in effect judicially re-writes MCL 700.7405(3)(b) that states that the settlor’s fiduciary-trustee does not have legal standing to enforce the charitable trust.

George Bearup
Senior Trust Advisor