Michigan Trust Code changes discussed at SBM section meeting

By Roberta M. Gubbins

Legal News

With the passage of the Michigan Trust Code in April, "changes from previous trust documents" were necessary, Christine Savage told the Ingham County Bar Association Probate Section members gathered at the State Bar of Michigan recently.

"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. However, there are some default positions in the statute that we have chosen to draft around."

Some of the mandatory provisions:

* The document can not change the way the trust is created. The methods by which trusts are created are listed in the Michigan Trust Code

* The trustee has to administer the trust in good faith, expeditiously, in accordance with the trusts' terms and conditions for the benefit of the beneficiaries.

* The trust has to have a lawful purpose.

* A little different in the new code is that 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 3rd 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

* You can't draft around jurisdiction and venue of the court.

Some of the provisions that can be drafted around:

* In our marital trust where we have a distribution going to the surviving spouse, we have decided to make that a support trust to protect the beneficiaries from creditors; we also added 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.

* Our removal of a trustee provision is different. We gave the ability to remove a trustee only to the grantor during their lifetime; at their death, then either the spouse or the surviving children or the court can remove a trustee. This makes it more restrictive.

* We modified the default rule regarding the court's power to appoint saying that the court can only appoint a successor trustee or a fiduciary under extraordinary circumstances upon a showing of clear and convincing evidence.

* We altered the principle place of administration provision to the county where the grantor resided at the time of his death if no one lives in Michigan; if more than one trustee and only one lives in Michigan, the administration is in the county where the Michigan trustee resides. If both live in Michigan they can decide and if they can't, then it reverts back to the county where the grantor resided.

* We set the minimum trust value 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.

* We provided that the terms of the trust shall govern over the non-mandatory provisions of the Michigan Trust Code.

* We included language protecting our 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 in April of 2010. The provisions Savage mentioned are more fully explained in the narrative of the book.

Christine Savage graduated from Michigan State University with a B.A. in accounting. She earned her JD at Michigan State University School of Law, formerly Detroit College of Law with concentration in tax. She has an LLM from Wayne State University.

She practices in the areas of estate planning, probate, tax, business planning and employee benefits. She is with the Lowe Law firm and can be reached at .

The next Probate Section Meeting will be on December 21st at noon at the State Bar of Michigan. George Strander, Ingham County Court Administrator & Probate Register is the featured speaker.

Published: Thu, Dec 9, 2010


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