Plan To Be 100

The Michigan Trust Code allows a Trustee to protect itself by providing reports (aka accountings) that adequately notify the beneficiaries of any potential breaches.  When such a report is issued in accordance with the statute, any claim for breach by a beneficiary is barred after one year.

Specifically, MCL 700.7905(1)(a) says:

 (a) A trust beneficiary shall not commence a proceeding against a trustee for breach of trust more than 1 year after the date the trust beneficiary or a representative of the trust beneficiary was sent a report that adequately disclosed the existence of a potential claim for breach of trust and informed the trust beneficiary of the time allowed for commencing a proceeding.

This published case addresses two aspects of this statute, and concludes, under questionable circumstances, that the information provided by the Bank/Trustee at issue was sufficient to allow the Trustee to avail itself of the statutory protection.

Part I: One Year

The most troubling part of this case is that while this Trustee sent out annual reports to the beneficiaries, the cover letter with the reports merely stated: “please review this statement carefully and notify us as soon as possible if there are any discrepancies, questions or concerns.”

As the statute above says, to get the protection, the Trustee has to inform “the trust beneficiary of the time allowed for commencing a proceeding,”

This case holds that the Trustee didn’t have to say “you have one year to object.”  Rather this case holds that language about letting them know “as soon as possible” if they have any “questions or concerns” is sufficient.

Really?  That’s what “informing the trust beneficiaries of the time allowed…” means?  Yikes!

Part Two: Adequately Disclosed

The second issue relates to the same statute, and to what it means to “adequately disclose the existence of a potential claim.”

In this case the Trust owned a resort (leased cabins it seems) that fell into disrepair during the trustee’s tenure.  Appellants complained that the annual reports didn’t flag them to the fact that the Trustee was allowing the property to be mismanaged. Among other things, they point the fact that for several years running, the Trustee reported the value of the real property as unchanged. The appellants argue that the Trustee’s failure to have the property periodically appraised lulled them to complacency when in fact the property was going to seed, and during which time the notes in the Trustee’s files indicate that the Trustee was aware that things were going south.

In an extensive discussion the COA upholds the trial court’s finding that, nonetheless, the information provided gave the beneficiaries sufficient information to alert them to the situation.

Conclusion

It’s a good case for Trustees.

Click here to read Kilian v TCF National Bank.

358761