Plan To Be 100

This case involves the reasonableness of the legal fees incurred by a bank trustee in managing a special needs trust.  The case offers food for discussion on several topics, including the question of whether, and if so when, legal fees incurred by a trustee can serve as a basis for their removal.

The case is called: In Re Logan Benjamin Garner Special Needs Trust and is (fortunately) unpublished

In Logan, the majority of the panel goes along with the trial court’s suspect reasoning for removing of a trustee, but a dissenting judge calls them out – and does a better job (I think) of analyzing the facts and law.

Click here to read the majority decision

Click here to read the dissent.

An Unaffordable Fee

The removal of the bank trustee arises in the context of hearings on two annual accountings, the 11^th and 12^th.  All prior accountings had been allowed without issue.

The 11^th account revealed legal fees incurred of $1,117 and fiduciary fees of $15,511 with a remaining balance of $810,995.

The 12^th account revealed legal fees of $6,354 and fiduciary fees of $14,955, with a year-end balance of $768,570.

Although not clearly spelled out, it appears that during those two years, just over $100,000 was distributed for the benefit of Logan.

Logan’s family was reportedly happy with bank and wanted to keep them in place.

The Court appointed a GAL to review the fees.  The GAL reported that the bank’s fiduciary rate of 1.55% was on the high side, but reasonable.  However, the GAL took issue with the bank having included the real estate (Logan’s home) in the value of the trust when calculating their fee.

The GAL noted that the legal fees included one lawyer who charged $275 and hour, and another lawyer who charged $395.  Without offering any insight into the relative experience or skills of either lawyer, the GAL decided that $275 is reasonable and $395 is “excessive.”  Also excessive, says the GAL, is the $190 per hour for the paralegal.

Ultimately the trial judge approved both accountings without modification, but removed the trustee on the proposition that this Trust simply can’t afford such a high-end Trustee and high-end lawyers.  The trial judge explains: “The cost that they charge I have no reason to find that they’re not reasonable. But I find they’re not affordable.”

There is, of course, no obvious legal rationale for the proposition that a reasonable fee can be grounds for removal, because it is nonetheless “unaffordable.”  But in their effort to justify the trial judge’s outcome, the COA majority finds cover in MCL 700.7706(c):

(c) Because of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the purposes of the trust.

The dissenting COA judge says the trial judge failed to state any statutory basis for the removal of the trustee, and that the majority’s reliance on 700.7706(c) is misplaced.  The dissent says that the trial judge’s decision should be reversed and remanded for further explanation.  The dissenting judge says “I am also far from certain that the trial court’s concerns about affordability satisfy the statutory requirement, at least at this time.”

The COA decisions don’t touch on the fact that we already have a great deal of law on the meaning of a “reasonable” legal fee, which to my thinking is inconsistent with this idea of unaffordability. Presumably, the whole reason we have factors to consider when assessing reasonableness of fees is because, while some lawyers charge more, they may well provide more bang for their buck.  You can pay a $400 an hour lawyer who knows what they are doing, or you can pay a less experienced and less focused lawyer $200.  It might take the $200 per hour lawyer 4 hours to handle something that would take an expert thirty minutes.  And not only would you save money by paying the higher priced lawyer, but the outcome would likely be better.  If a trial judge can remove a trustee (or reduce fees) based on the idea that the fees may be reasonable but nonetheless unaffordable, we’ve got problems.

A Trust for Life

Another troubling point in this case is the trial judge announcing, apparently repeatedly, that his objective is to make sure that the trust accomplishes its purpose of providing Logan with benefits for his life.  He uses this line as support for his elevated concern for the fees, and therefore as grounds for his decision to remove the trustee.

This case involves a typical birth trauma SNT, which, in theory, supplements the quality of life of the beneficiary who was injured, and provides them a higher quality of life for so long as they live.

But let’s be real.  The amount that was received at settlement, may or may not be sufficient to give Logan everything he needs for as long as he lives.  And the trustee didn’t create that issue.

While the trustee of an SNT needs to consider the future needs of the beneficiary in making decisions about current distributions, it’s a balancing act.  Without looking into the details, this trial judge seems to fall back on the simple proposition that the res of the trust should never dwindle.  Depending on the facts (including the life expectancy of the beneficiary, which does not seem to have been a consideration in this case) aggressively spending money from an SNT may be the right way to go.  While spending money too fast could be a problem, spending it too slowly can be just as (or more) inconsistent with the purposes of the trust.

The perfect SNT trustee will exhaust the trust in the year the beneficiary dies.

I don’t think most judge’s get that.

Appointing His People

There was a second issue on appeal.

The trust agreement says that if the bank is removed, the family-member trust protector gets to pick the successor.

The trial judge ignored that provision of the trust and appointed a local attorney with whom he was familiar.

All three COA judges agreed that this was an error and the trial judge was reversed on this point.

Conclusion

I see the dissent as more correct than the majority here.

Finally, it’s worth noting that this is the same trial judge that was the topic of a recent post about another case in which he went off on a local trustee and their lawyers on surprisingly similar grounds.  Click here to read Judge Rips Lawyers and Gets Reversed (but not removed).

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