Trial Court Correctly Granted Summary Disposition in Inter Vivos Trust Matter
Unpublished Opinion: March 7, 2023 (M.J. Kelly, Markey, and Cameron)
Approved for Publication: April 4, 2024
Docket No. 362112
Muskegon Probate Court
Holding: Relying on Soltis v First of America Bank-Muskegon, 203 Mich App 435 (1994) for its reasoning, where the Court concluded that, if there is no indication of intent to defraud the other spouse of his or her marital rights, a spouse may use an inter vivos trust to effectively disinherit the other spouse, the Court of Appeals held that there was no indication that Husband intended to defraud Wife of her marital rights. The Court of Appeals also held Wife did not demonstrate that Husband owed her a fiduciary duty because she was only a beneficiary to his revocable inter vivos trust, not a settlor. Thus, the Court held that there was no violation of public policy, and the trial court did not err by granting Husband’s motion for summary disposition.
Judge Markey’s Partial Concurrence: Judge Markey wrote separately and concluded that unilaterally disinheriting a spouse is contrary to Michigan public policy that favors the protection of a surviving spouse as evidenced by MCL 700.2202(2), which allows a surviving spouse to take an elective share of the decedent spouse’s estate despite the existence of a will disinheriting the spouse.
Facts: The E. Earl Lyden Trust was revocable inter vivos trust created by Husband in 2001. Husband was the Trust’s sole settlor and its trustee, and he retained the power to revoke or amend the Trust either partially or completely. In order to fund the Trust, Wife signed consent forms relinquishing her spousal-survival interests in Husband's retirement plans, and the Trust was subsequently amended.
Wife was named as the beneficiary of all income generated by the Trust for her lifetime and up to 3% of the principal if needed for her medical expenses. If Wife remarried, she would no longer be entitled to the Trust income, but she would receive a $200,000 payout. Upon her death, the principal would pass to Husband’s son from a prior marriage.
In 2019, Wife filed a complaint for divorce. While the divorce was pending, Husband removed Wife as a beneficiary under the Trust and designate his son as its sole beneficiary and successor trustee. Husband later informed Wife that he had amended his trust to remove her as a successor trustee and beneficiary. Husband was hospitalized in 2020 and died before the divorce proceedings could be finalized.
Wife received approximately $400,000 from her elective share as surviving spouse, the sale of the marital home, and other property. The assets subject to the Trust that would have been divided nearly equally in the divorce were passed solely to Husband’s son.
Wife filed a claim in the probate case and argued the Trust was contrary to public policy because it disinherited her and caused the near total divestment of marital property. She further argued she was entitled to the creation of a constructive trust in her favor because it was inequitable for a large portion of the assets accumulated during the marriage to pass to Husband’s son without any provision for her. She finally argued the Trust should be reformed under MCL 700.7415.
Husband’s son filed a motion for summary disposition, asserting that Michigan public policy allows a spouse to be disinherited under the other spouse’s trust. He added that a constructive trust was not warranted because he had not acquired Husband’s estate or the Trust assets by improper means. He also argued reformation under MCL 700.7415 was not warranted because Wife had acknowledged she was unaware of any mistake of fact or law that affected Husband’s intent and the terms of the trust.
The Trial Court granted Husband’s son’s motion for summary disposition.
Key Appellate Rulings:
If there is no indication of intent to defraud the other spouse of his or her marital rights, a spouse may use an inter vivos trust to effectively disinherit the other spouse.
Before amending his trust, Husband asked his attorney whether such an action was legal in Michigan, and he was expressly advised the modification would only trigger if he died, and it would not preclude the court from dividing the assets held by the trust as part of the property settlement in the divorce proceedings. The evidence showed Husband negotiated the property settlement terms in good faith, offered Wife a near-equal split of the marital assets, informed Wife he had modified the trust agreement to disinherit her, and informed Wife when he was diagnosed with terminal lung cancer. Wife possessed sufficient knowledge to anticipate Husband might die before the divorce was finalized, and she would be disinherited under the terms of the amended Trust. Thus, Wife did not make the requisite showing that the amended Trust violated public policy because she did not show that Husband committed fraud on her marital assets.
A spouse does not owe a fiduciary duty to the other spouse if the other spouse is only a beneficiary to a revocable inter vivos trust and not a settlor.
Wife was not a settlor of the Trust; she was a beneficiary. The only fiduciary duty Husband owned, as trustee, was to himself as settlor. Assuming arguendo that a fiduciary relationship existed between Husband and Wife during the marriage, that relationship no longer existed due to the divorce proceedings, which is when the alleged breach of Husband’s fiduciary duties occurred.
