By Roberta M. Gubbins
Legal News
With the passage of the Michigan Trust Code in April, changes from previous trust documents were necessary, according to attorney Christine Savage who spoke before a recent meeting of the Ingham County Bar Association Probate Section.
“The new code has both mandatory provisions and default provisions,” said Savage, co-author of the Michigan Grantor Trust book published by the Institute for Continuing Legal Education.
The mandatory provisions required by the new law are in the revised document but, she said, there are “some default positions in the statute that we have chosen to draft around.”
Savage said some of the mandatory provisions are:
• The document cannot change the way the trust is created. The methods by which trusts are created are listed in the Michigan Trust Code
• The trustee must administer the trust in good faith, expeditiously, in accordance with the trusts’ terms and conditions for the benefit of the beneficiaries.
• The trust must have a lawful purpose.
• The court now has the ability to modify or terminate a trust “when it is determined the trust has an unlawful purpose, it would be wasteful to continue administration, there is a change in circumstances that were not anticipated by the settler, or the tax code has changed and the trust is no longer practical.”
• The court can modify a trust if it is shown by clear and convincing evidence that the settlor’s purpose is not being fulfilled. The court also has the power to modify or terminate a bond, or adjust a trustee’s compensation.
• There is a mandatory provision that appointed trust protectors, usually independent third parties, have a wide range of authority, are required to act in good faith, and are fiduciaries.
• The statute of limitations is set by the code
Provisions that can be drafted around are, according to Savage:
• In marital trusts, where there is distribution to the surviving spouse, a support trust protects the beneficiaries from creditors; there is also a provision that gives the trustee the ability to amend the trust back and forth between a support and discretionary trust that gives the trustee full discretion on whether to make distributions and the amount.
• Class A creditors are individuals entitled to alimony, child support, attorneys and trust officers, and taxing authorities; all others are class B.
Discretionary trusts are protected from both classes of creditors because the trustee doesn’t have to make a distribution, however, a support trust has a protection only against class B
creditors.
• Removal of a trustee provision is different. “We gave the ability to remove a trustee only to the grantor during their lifetime,” Savage said. “At their death, then either the spouse or the surviving children or the court can remove a trustee. This makes it more restrictive.”
• The default rule regarding the court’s power to appoint was modified, she said, adding that the court can only appoint a successor trustee or a fiduciary under extraordinary circumstances upon a showing of clear and convincing evidence.
• The principle place of administration provision was altlered to the county where the grantor resided at the time of his death if no one lives in Michigan, she said.
“If more than one trustee and only one lives in Michigan, the administration is in the county where the Michigan trustee resides,” Savage said. “If both live in Michigan they can decide and if they can’t, then it reverts back to the county where the grantor resided.
• The minimum trust value is set at $100,000 or less “at which point the trustees may terminate the trust and distribute the property to the persons name in the trust,” she said.
• The terms of the trust shall govern over the non-mandatory provisi, she said, and language was added protecting trustees and trust protectors from liability.
The Michigan Grantor trust book, updated by Richard Lowe and Christine Savage, was published by the Institute of Continuing Legal Education after the new trust code was passed last April .
The provisions Savage mentioned are more fully explained in the narrative of the book.
Savage earned her JD from Michigan State University School of Law, and she had an LLM from Wayne State University.
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