Court of Appeals Reinstates Daughters’ Challenge to Validity of Trust
A probate court erroneously applied the statute of limitations in the Michigan Trust Code to bar the plaintiffs’ challenge to the validity of their mother’s trust, the Michigan Court of Appeals has ruled.
The plaintiffs in Dice v Zimmerman (Docket No. 342608) are the daughters of Esther G. Bennett. They filed this lawsuit in Midland County Probate Court, requesting a declaration that all amendments to the Esther G. Bennett Revocable Trust (the Trust) executed after April 2007 were void because their mother: 1) did not have the mental capacity to execute the amendments and 2) was unduly influenced by Todd Bennett (Esther’s son) and Michael Zimmerman. In their complaint, the plaintiffs alleged fraud and misrepresentation, breach of fiduciary duty and conversion, and sought to remove Zimmerman as trustee.
The probate court dismissed the plaintiffs’ claims for declaratory relief, finding that the statute of limitations in the Michigan Trust Code, MCL 700.7604, barred their action. The probate court also held that the plaintiffs lacked standing to bring a conversion claim because such claims were the trustee’s responsibility.
The Court of Appeals reversed the probate court’s decision.
“The language of the Trust plainly indicates that, so long as Esther remained incapable of managing her affairs, the Trust remained irrevocable, and notably, there have been no allegations that Esther’s condition improved after 2008 such that she again became capable of managing her affairs, let alone allegations that two doctors certified that improvement,” the Court of Appeals said. “Because the language of the Trust prevails over the statutory definition of revocable, a certified inability on the part of Esther to manage her own affairs would have rendered the Trust irrevocable. The probate court therefore erred in applying MCL 700.7604 to bar plaintiffs’ challenges to the Trust.”
Judges Colleen A. O’Brien, Karen M. Fort Hood and Thomas C. Cameron were on the panel that issued the per curiam decision.
Trust Amendments
The Esther G. Bennett Revocable Trust consisted mostly of Esther’s interest in real property and a closely held business, Earl D. Bennett Construction, Inc. The Trust generally provided that the assets would be equally distributed to Esther’s children upon her death. Esther was the trustee and reserved the right to amend, modify or revoke the Trust, and to designate different trustees or co-trustees to act on her behalf. The Trust provided that, if Esther became incapacitated and her incapacity was certified by two doctors, any further actions she took with respect to the Trust would be void “and during such period of time th[e] Trust shall be irrevocable and not amendable.” The Trust listed Gordon C. Birkmeier as Esther’s successor trustee and provided that, if Birkmeier died or resigned, Chemical Bank and Trust and the plaintiff, Carol Harrington, would be nominated as successor co-trustees.
In 2002, Esther executed an amendment to the Trust that removed the nomination of Harrington and indicated that, in the event of Birkmeier’s death or resignation, only Chemical Bank would serve as successor trustee. In 2003, Esther executed a second amendment, indicating that while her children would each receive equal shares of Bennett Construction, Todd would receive all the voting shares and the plaintiffs would receive non-voting shares, meaning that Todd would control the company. In 2006, Esther executed another amendment to the Trust (also referred to as a second amendment) that revoked the 2003 amendment and provided that any gifts or loans from Esther to her children would be considered advances on their interests in the Trust.
In 2007, Dr. Christopher Hough examined Esther and, in a letter, informed her primary care physician, Dr. Michael Miller, that she was experiencing memory loss and needed “help[] with her finances and medications.” Two months later, Esther appointed the accounting firm of Yeo & Yeo to act as her co-trustee, with the condition that Yeo would only serve as trustee for as long as Birkmeier was associated with the firm. Shortly after appointing Yeo, Esther executed a third amendment to the Trust. The amendment indicated that Yeo would be nominated to act as sole trustee upon Esther’s death or resignation, as long as Birkmeier was associated with the firm, and at such time that Birkmeier was no longer associated with the firm, Chemical Bank would serve as Yeo’s successor.
On May 6, 2008, Dr. Miller noted on a prescription pad that Esther was “not capable of participating in business affairs[.]” Shortly after (and presumably acting according to the Trust provision regarding Esther’s incapacity), defendant Michael Zimmerman sent a letter to Esther on behalf of Yeo, which said: “Please accept this letter as our acceptance to act as Trustee of the Esther G. Bennett Revocable Trust with Gordon C. Birkmeier representing the firm as Trustee.”
Despite Esther’s incapacity and the letter of acceptance, and without any medical certifications indicating that Esther had regained the capability to manage her affairs, in October 2008 Esther signed a document that reinstated the previously revoked 2003 amendment, again providing that only Todd would control Bennett Construction. Under her signature, Esther indicated that she was a co-trustee. Birkmeier signed the document as a witness.
In 2011, Esther executed a fourth amendment to the Trust, indicating that Yeo would serve as sole trustee upon Esther’s death or resignation and removing the condition that Yeo would only serve if Birkmeier was associated with the firm. On the same day that Esther executed the fourth amendment, she appointed Zimmerman “and/or a qualified person of Yeo & Yeo CPA PC” to serve as her co-trustee.
In 2012, Esther executed a fifth and final amendment to the Trust that: 1) revoked all previous amendments, 2) provided that Zimmerman “and/or a qualified person of Yeo & Yeo PC CPA” would become sole trustee upon Esther’s death or incapacity and 3) reaffirmed that Todd would receive the voting shares of Bennett Construction and control the company. The amendment did not provide for the distribution of any non-voting shares to the plaintiffs. The day before executing this 2012 amendment, Esther settled a second trust, the Esther G. Bennett Irrevocable Trust (the Irrevocable Trust), which she funded with the non-voting shares of Bennett Construction for the purpose of distributing them to the plaintiffs upon her death.
When Esther died on May 14, 2014, Zimmerman was nominated to serve as her personal representative. He sent a letter to the plaintiffs indicating that Esther appointed him trustee of the “Bennett Family Trust Established on May 12, 2014” and that he was settling Esther’s estate. Zimmerman indicated in the letter that “Linda, Marcia, and Carol now each own 25% of Earl D. Bennett Construction according to the terms of ‘The Esther G. Bennett Irrevocable Trust dated December 19, 2014[.]’ These shares of the Company are non-voting. The voting share of the Company stock are currently held by the Trust and will be distributed to Todd per your mother’s instructions. I am enclosing copies of the final will and trust for you to have.” Enclosed with the letter were copies of Esther’s will and the Irrevocable Trust, but not a copy of the original Trust or any of its amendments. The plaintiff, Linda Dice, asserted that she met with Zimmerman shortly after Esther’s death, but that he never gave her or the other plaintiffs any reason to know that the original Trust or any of its amendments existed. In September 2016, Zimmerman gave the plaintiffs copies of the Trust.
The plaintiffs later filed the complaint in this case, requesting a declaration that all amendments to the Trust executed after April 2007 were void because Esther did not have the capacity to execute them and because she was unduly influenced by Todd and Zimmerman. Todd moved for summary disposition, arguing that the plaintiffs 1) were barred by the statute of limitations in MCL 700.7604 from challenging the validity of the Trust and 2) lacked standing to bring a conversion claim on behalf of the Trust. The plaintiffs, however, argued the Trust became irrevocable after Esther was deemed incapacitated in 2008 and the statute of limitations did not apply to irrevocable trusts. Alternatively, the plaintiffs asserted the statute of limitations had been tolled pursuant to the fraudulent concealment statute, MCL 600.5855. The plaintiffs further contended they had standing to bring their conversion claim because Yeo could not have properly served as a trustee pursuant to MCL 487.11105 and, accordingly, there had been no valid trustee because Yeo was appointed in 2008. The plaintiffs contended that, without a proper trustee, they had standing to pursue their conversion claim on behalf of the Trust.
The probate court ruled the plaintiffs’ claim for declaratory relief was time-barred, finding the statute of limitations applied because the Trust was revocable within the meaning of MCL 700.7103(h). The probate court said the plaintiffs could not rely on the fraudulent concealment statute, MCL 600.5855, because it was enacted as part of the Revised Judicature Act (RJA) nearly 40 years before the Michigan Trust Code was enacted. According to the probate court, MCL 700.7604 was an all-encompassing statute of limitations that did not allow exceptions to the general rule that an action to contest the validity of a revocable trust cannot be brought beyond two years from the settlor’s death. The probate court also found that, even assuming that fraudulent concealment applied, the facts did not support a finding that the defendants concealed the Trust.
Accordingly, the probate court dismissed the plaintiffs’ claims for declaratory relief and undue influence. Regarding the conversion claim, the probate court held that the plaintiffs lacked standing, ruling that the claims belonging to the Trust were the responsibility of the trustee.
The plaintiffs filed an interlocutory appeal.
Language Of Trust Prevails
On appeal, the Court of Appeals held that the Michigan Trust Code did not bar the plaintiffs’ claims for declaratory relief and undue influence.
The Court of Appeals pointed out the probate court did not address whether, under the terms of the Trust, the Trust became irrevocable in 2008 and, instead, had ruled that MCL 700.7103(h), which describes the revocability of a trust as “not affected by the settlor’s lack of capacity,” was dispositive. “Because MCL 700.7105 provides that the terms of a trust generally prevail when in conflict with the [Michigan Trust Code], and because no exception to that general rule applies, we disagree with the probate court’s reliance on MCL 700.7103(h).”
In particular, MCL 700.7105(1) says the Michigan Trust Code “governs the duties and powers of a trustee, relations among trustees, and the rights and interests of a trust beneficiary, … [e]xcept as otherwise provided in the terms of the trust,” the Court of Appeals explained. Meanwhile, MCL 700.7105(2) provides that the terms of a trust “prevail over any provision of this article, unless one of the exceptions enumerated in the statute apply.” According to the Court of Appeals, no exemption applied in this case and, therefore, the probate court erred in ignoring the terms of the Trust in favor of the statutory definition of revocable.
This holding, the Court of Appeals said, is in keeping with the primary goal of “carrying out the settlor’s intent to the greatest extent possible.”
Because the language of the Trust prevailed over the statutory definition of revocable, the Court of Appeals said the certified inability of Esther to manage her own affairs would have rendered the Trust irrevocable. “The probate court therefore erred in applying MCL 700.7604 to bar plaintiffs’ challenges to the Trust. In light of our conclusion that the probate court erred in applying MCL 700.7604, we need not address whether fraudulent concealment, MCL 600.5855, is applicable to claims made pursuant to the MTC, nor whether there is any conflict between MCL 600.5855 and MCL 700.7604.”
Other Claims
Regarding the plaintiffs’ argument that Yeo could not serve as a fiduciary, the Court of Appeals
said that whether MCL 487.11105 was implicated “largely depends on the success of plaintiffs’ claim that Esther was properly certified incapable of managing her affairs pursuant to the terms of the Trust.” Accordingly, the Court of Appeals said this issue should be addressed by the probate court on remand.
Further, the Court of Appeals rejected the probate court’s finding that the plaintiffs did not have standing to bring a conversion claim. “First, although not raised by the probate court or any of the parties, MCL 700.7813 is dispositive on this issue. … There is no dispute that plaintiffs were beneficiaries of the Trust; they were entitled to the residue of the Trust estate in equal shares. Accordingly, plaintiffs were statutorily authorized to assert their claim of conversion on behalf of the Trust.”
However, even if MCL 700.7813(4) did not apply, the Court of Appeals noted it has previously held that trust beneficiaries are “interested persons” within the meaning of MCL 700.1105(c). “[A]nd interested persons have standing to invoke the probate court’s jurisdiction over the administration of any trust to which they are a beneficiary. … As trust beneficiaries, plaintiffs asserted a legal cause of action and were the proper parties to request adjudication of the issue.”
