The Michigan Trust Code provides for a fairly strict statute of limitations to contest the validity of a trust agreement that “was revocable at the settlor’s death.” Most estate planning lawyers presumably operate on the assumption that this protection applies to the revocable trust agreements they routinely draft for their clients. But as this (unfortunately) unpublished Court of Appeals decision explains, whether or not a trust was revocable at the settlor’s death may depend on what the trust says about the incapacity of the settlor while alive.
MCL 700.7604 says that a trust contest must be started within two years from the date of the death of the settlor, if the trust was revocable when they died. The statute also provides a six month statute of limitations if the trustee provides sufficient notice, the requirements of which notice are defined in the law. Click here to read MCL 700.7604.
In Linda Dice v Esther G. Bennett Revocable Trust (click on the name to read the case) a trust was contested two years and nine months after the death of the settlor. The trustee moved for summary disposition based on the statute of limitations for such contests as provided for in MCL 700.7604. The trial court granted that motion. But the litigants appealed and the COA reversed. The decision of the COA exposes a litigation opportunity that I expect few trust drafters or probate litigators have considered.
The Esther G. Bennett Revocable trust agreement included a settlor incapacity provision that said:
In the event two registered physicians, one of whom should be the Grantor’s personal physician, deliver an instrument to the Successor Trustee certifying that the Grantor during her lifetime has become incapable of managing her own affairs, the Grantor shall cease to be the Trustee, and the successor trustee shall, upon giving its acceptance of trust, become sole Trustee without requiring action or permission of any nature or kind whatsoever from the Grantor, and shall possess and be subject to those rights, duties and obligations which it would assume if it had been named as the initial trustee hereunder. Until two registered physicians shall certify that Grantor has again become capable of managing Grantor’s own affairs, any attempt by Grantor to exercise any reserved rights and powers under this Trust, including but not by way of limitation, the right of modification, revocation, amendment, withdrawal or principal and/or receipt or direction of income, or the sale of principles of this trust estate, or change of beneficiary of any insurance policy subject to this Trust, shall be void and during such period of time this Trust shall be irrevocable and not amendable.
In analyzing this case, he COA notes that the definition of revocability in the MTC is a default definition, and can be overridden by the terms of the trust itself. Here the Court concluded that the facts of this case, and the language of this trust agreement, caused this trust to have become irrevocable upon the settlor’s incapacity and, accordingly, the statute of limitations set forth in MCL 700.7604 did not apply.
Interestingly, in this case, a fact issue remains as to whether the medical reports obtained through discovery were sufficient to meet the requirement that two doctors certified the settlor’s incapacity. But that’s an issue for another day. For the purposes of this blog post, it is enough to say to our readers who draft trust agreements: It’s probably a good idea to look at the language you include in your settlor incapacity provisions and consider whether a modification may be warranted. And to the litigators who handled this case: Bravo. I doubt that many of your colleagues would have recognized this opportunity or pursued it was well.