Trusts - Patrick & Associates, PLLC

Important Considerations for Funding a Living Trust

Patrick & Associates, PLLC — Mon, 29 Mar 2021 04:41:17 GMT

A revocable living trust — also known as an inter-vivos trust — is a useful estate planning mechanism for many reasons. Living trusts can be used to help assets avoid probate, protecting your family’s privacy while helping them to avoid court fees and oversight. Living trusts also afford you a significant level of control, even after you become incapacitated or pass away.

With that being said, there are several common errors that can prevent your trust from reaching its full efficacy. One of the most common trust errors is to leave the trust as an “empty vessel” by not properly re-titling assets into it when you have the chance. Let’s explore some of the important considerations for funding a living trust to know during Michigan estate planning:

What Is a Living Trust? A Brief Overview

A trust is a written agreement created by the settlor or grantor, which names an individual who is responsible for managing trust property, as directed by the trust agreement. This person is known as the trustee. A revocable living trust allows the settlor to maintain control of their assets during their lifetime, and modify or revoke the trust at any time.

The revocable living trust is one of the most popular types of trusts in the United States, because it offers many benefits appealing to a range of individual circumstances.

For instance, placing assets into a living trust can allow them to pass to your beneficiaries without having to go through the oversight of the probate courts. This can save time, money, and stress for your loved ones during the estate administration process, and can help protect your family’s privacy. Crucially, establishing a trust can also offer you a great deal of control over your assets, both while you are living and after you have passed. A trust can be a straightforward way to set aside assets in order to care for a minor, or a dependent with special needs. Trusts can also enable you to set down rules, requirements, and restrictions for your beneficiaries, controlling conditions for if, how, and when they may receive their inheritance.

The creation of a trust can also help protect your estate from certain taxes and fees, which might ultimately allow you to provide more for your beneficiaries.

There are many important considerations to be addressed in the creation of a trust, so that it is designed to your specifications and in line with all necessary legal formalities. One of the practicalities involved in creating a trust, for example, is appointing the trustee, along with one or more successor trustees, who will take on the responsibilities of managing the trust if the primary trustee is unable to do so. Typically, the settlor will act as the trustee for as long as they are living, with a designated successor trustee stepping in after their death.

Another crucial yet frequently overlooked consideration is taking care to properly fund the trust with the assets that you choose; otherwise, it will remain an empty vessel, and may not provide any of the advantages or opportunities that we discussed above.

Don’t Leave an Empty Vessel: What Goes Into Funding a Trust?

Once the trust is created, it is essential to re-title your selected assets into the trust.

As you consider the ins and outs of properly funding a living trust, there are a few important considerations to discuss with your estate planning attorney — an important partner who can help ensure that your trust is complete, and designed to ensure that your wishes will be executed as you see fit.

One of the most important things to discuss with your estate planning attorney is which of your assets should be used to fund the living trust, and which should not.

Broadly speaking, many important assets can be transferred into a trust, including but not limited to:

Real estate (including property that is mortgaged)
Business interests
Investments and securities
Valuable personal property (such as artwork, antique furniture, precious metals and jewelry, or private collections)
Bank accounts and holdings

An attorney can help you assess and understand your unique circumstances, and take appropriate actions based on the specific variables of your situation.

For instance, if you have real estate that should be transferred into a trust, your attorney can help you execute the proper paperwork to ensure that you successfully transfer the property into the name of the trust. An attorney can help you understand which methods to use for your situation, and take steps to ensure that all paperwork is filed properly. An attorney can also offer keen insight into variables you might overlook on your own; for instance, if you own real property in multiple states, an attorney can help you take steps to prepare for the possibility of ancillary probate. An attorney can also offer their experienced perspective on next steps when it comes to taxes, title insurance, mortgages, and other important practicalities that go hand-in-hand with owning or transferring real estate in Michigan.

For property that may not be titled — such as valuable family heirlooms or an antiques collection — an attorney can help you draft documents that properly transfer the assets into your trust. An attorney may also help you consider whether to take advantage of a pour-over will, a mechanism that helps to “pour” all of the estate assets that pass through your will directly into a previously created trust at your death.

An attorney can also help you understand alternative mechanisms for transferring assets such as motor vehicles and financial accounts, such as naming a transfer on death or payable on death beneficiary for bank accounts and mutual funds, or utilizing joint tenancy with rights of survivorship for titled property — both of which can enable assets to be transferred outside of probate.

It is also important to understand the difference between transferring assets into a trust, and naming the trust as a beneficiary. A knowledgeable and savvy estates and probate attorney can help you consider the best course of action for your unique situation, based on your assets, your goals, and any specific individual challenges that you may be facing.

Looking for Assistance with Trust Creation, Administration, or Issues?

Trusts are a popular estate planning tool, but it is often essential to receive guidance from an experienced, skillful, and knowledgeable attorney in order to ensure that they are properly established and maintained.

Similarly, if you are a trustee, personal representative, or otherwise involved in the administration of an estate, last will, or trust, you probably have questions. An experienced probate and trust attorney can provide informed professional advice to guide you through the legal process, explain your legal obligations as a fiduciary, and help you discharge your duties in an efficient and expedient manner to avoid personal liability.

Our probate and trusts attorney Dean E. Patrick has years of valuable experience helping those in the Metro-Detroit area establish, administer, and litigate trust estates. If you have questions on trusts or other estate planning matters, contact Dean E. Patrick at his Southfield, Michigan office at (248) 663-2566 or click here to arrange your initial consultation.

Mr. Patrick is a licensed Michigan lawyer with a focus in probate law. He has the legal counseling skills, experience, and dedication that your legal matter deserves. Whether you are looking for a probate attorney, an estate planning attorney, or need legal advice when dealing with these emotional issues, you can trust our office to guide you through the process and deliver results.

This post has been prepared for general information purposes only. The information you obtain here is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and electronic mail. Accessing the content of this site does not create an attorney-client relationship. Nor, does contacting us create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.

Can a Trustee Be Challenged or Removed?

Patrick & Associates, PLLC — Wed, 03 Mar 2021 05:37:08 GMT

A trustee has many important responsibilities and duties, including managing, controlling, and distributing trust property, while keeping beneficiaries and other relevant parties informed about the administration of the trust.

A trustee is a fiduciary, meaning that they are held to a very high standard for conduct. In executing his or her duties, a trustee is expected to put the needs of the trust and the trust beneficiaries above their own. Among other things, acting as a fiduciary means serving with “undivided loyalty,” remaining impartial, being careful and prudent in all actions, and keeping trust assets separate from your own.

Nominating a trustworthy and capable trustee or successor trustee is an important part of creating an estate plan. Unfortunately, it is not uncommon for issues with trustees to arise – such as conflicts between cotrustees, failure to meet important deadlines, self-dealing, or even trustees failing to distribute assets in compliance with the terms of the trust.

What are your options for challenging or removing a trustee who is not performing their responsibilities, hindering the administration of the trust, or actively working against the terms of the trust agreement?

One recourse is to petition the probate court for the removal of a trustee, particularly due to breach of trust. If you believe you have cause to petition for the removal of a trustee, it is extremely important that you consult with a knowledgeable trusts attorney as soon as possible to explore your options.

Petition for Removal of a Trustee

Under the Michigan Trust Code, certain parties – including the settlor (i.e., the creator of the trust), a cotrustee, or a qualified trust beneficiary – may request the court to remove a trustee. The court may also act to remove a trustee on its own initiative.

The court may remove a trustee in situations where one or more of the following occur:

The trustee commits a serious breach of trust (that is, a significant violation by a trustee of a duty the trustee owes to a trust beneficiary)
Lack of cooperation between cotrustees is substantially impairing the administration of the trustee
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
There has been a substantial change of circumstances, and the court finds that removal of the trustee best serves the interests of the trust beneficiaries and is not inconsistent with a material purpose of the trust, and a suitable cotrustee or successor trustee is available

Remedies for Breach of Trust

In lieu of or in addition to removing a trustee, the court may also order other relief it deems necessary to protect trust property or the interests of trust beneficiaries. Broadly speaking, the court may do any of the following to remedy a breach of trust that has occurred or may occur:

Compel the trustee to perform their duties
Enjoin the trustee from committing a breach of trust
Compel the trustee to redress a breach of trust by paying money, restoring property, or other means
Order a trustee to account
Appoint a special fiduciary to take possession of the trust property and administer the trust
Suspend the trustee
Remove the trustee
Reduce or deny compensation to the trustee
Void an act of the trustee, impose a lien or a constructive trust on trust property, or trace trust property wrongfully disposed of and recover the property or its proceeds
Order any other appropriate relief

When Can You Commence Proceedings?

The Michigan Trust Code also sets down some notable limitations on commencing proceedings against a trustee:

A trust beneficiary cannot commence a proceeding against a trustee for breach of trust more than one 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
A trust beneficiary who has waived their right to receive reports cannot commence a proceeding for a breach of trust more than one year after the end of the calendar year in which the alleged breach occurred.
In other situations, a judicial proceeding by a trust beneficiary against a trustee for breach of trust must be commenced within five years after the first of the following to occur: the removal, resignation, or death of the trustee, the termination of the trust beneficiary’s interest in the trust, or the termination of the trust

Understanding a Trustee’s Rights and Liabilities

There are also some specific circumstances and conditions to keep in mind when it comes to a trustee’s liability – and the rights of other individuals who may be dealing with the trustee.

For instance, the Michigan Trust Code makes clear that a trustee who acts “in reasonable reliance” on the terms of the trust as expressed in the trust instrument “is not liable to a trust beneficiary for a breach of trust to the extent the breach resulted from the reliance.”

Similarly, if an event occurs that affects the administration or distribution of a trust – including, but not limited to, marriage, divorce, performance of educational requirements, attainment of a specific age, or death – a trustee “who has exercised reasonable care to ascertain the happening of the event” is not liable for a loss resulting from their lack of knowledge or lack of notice.

In some trusts, you may find exculpatory language, relieving a trustee of liability for breach of trust. Such terms are unenforceable when the term “relieves the trustee of liability for breach of trust committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the trust beneficiaries,” or if the term was inserted as the result of an abuse by the trustee. However, the terms of a trust relieving a trustee of liability for breach of trust for the acquisition or retention of a particular asset or asset class or failure to diversify investments are enforceable.

A trustee is generally not liable to a trust beneficiary for breach of trust if the trust beneficiary consented to the conduct constituting the breach, released the trustee from liability for the breach, or ratified the transaction constituting the breach – unless the consent or ratification was induced by improper conduct, or the trust beneficiary did not know of one or more material facts relating to the breach.

Finally, it is important to keep in mind that a person who assists or deals with a trustee in good faith without knowledge that the trustee is exceeding or improperly exercising their powers is protected from liability.

Potential Outcomes and Next Steps

The Michigan Trust Code states that a trustee who commits a breach of trust is liable to the trust beneficiaries affected for whichever of the following is larger:

The amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred, or
The profit the trustee made by reason of the breach

Even absent a breach, a trustee may be accountable to an affected trust beneficiary for any profit made arising from the administration of the trust. However, absent a breach of trust, a trustee is not liable to a trust beneficiary for a loss or depreciation in the value of trust property, for failure to generate income, or for not having made a profit.

In a proceeding involving the administration of a trust, the court may award costs and expenses, including reasonable attorney’s fees, to any party who enhances, preserves, or protects trust property, to be paid from the trust that is the subject of the proceeding.

If a trustee participates in a civil action or proceeding in good faith, whether successful or not, the trustee is entitled to receive from the trust property all expenses and disbursements including reasonable attorney fees that are incurred. With that said, a court may reduce or deny a trustee’s claim for compensation, expenses, or disbursements with respect to a breach of trust.

What happens if a vacancy in trusteeship occurs due to disqualification or removal? If one or more cotrustees remains in office, a vacancy in a trusteeship does need not to be filled. A vacancy in a trusteeship must be filled if the vacancy leaves either:

a trust that is not subject to a separate trustees provision as of the time of the vacancy without any remaining trustee
any of the several separate trusteeships governed by an operative separate trustees provision without any remaining trustee

If a vacancy in a trusteeship of a noncharitable trust is to be filled, the following order of priority is used:

In the manner designated by the terms of the trust
By a person appointed by the court

If a vacancy in a trusteeship of a charitable trust is to be filled, the vacancy must be filled in the following order of priority:

In the manner designated by the terms of the trust.
By a person selected by the charitable organizations expressly designated to receive distributions under the terms of the trust
By a person appointed by the court

Whether or not a vacancy in a trusteeship exists or is required to be filled, the court may appoint an additional trustee or special fiduciary upon the showing of good cause.

A trustee who has resigned or been removed must proceed “expeditiously” to deliver the trust property in their possession to the cotrustee, successor trustee, or another person entitled to it.

Probate Litigation Is Complex. You Don’t Have to Go Through It Alone

Coming to terms with a loved one’s passing is a difficult and emotional process – and one that is only made more fraught when you need to deal with intricate legal matters at the same time. Probate litigation can cause emotions to run high, and lead to intense family arguments. Litigation will also require an understanding of extremely complex legal matters, as well as the specific laws for your state and county, and how they may apply based on your unique situation.

Throughout this trying time, it’s important to have an experienced and professional advocate on your side, one who can patiently help you understand the ins and outs of the probate process in your area.

Whether you are a settlor, a trustee, or a named beneficiary, a probate litigation attorney in your area can help address your questions and navigate the entire process, so that you can secure the best possible outcome for your situation.

If you’re based in Michigan, Attorney Dean E. Patrick can help. Mr. Patrick is knowledgeable on all aspects of estate planning, trusts, and probate, with years of experience as a practicing attorney. Whenever you’re ready to get started, Dean is here to listen and learn more about your circumstances, and start finding a solution to your desired outcome.

If you have any trust-related issue that has interrupted your life, you can count on our firm to work hard to accomplish your goals — with the expertise, empathy, intellect, and professionalism your matter deserves at every step of the way.

Ready to keep the conversation going? The Patrick & Associates, PLLC.. is conveniently located in Southfield, Michigan, close to both Wayne and Oakland Counties. Contact Dean E. Patrick at his Southfield, Michigan office at (248) 663-2566 or click here to arrange your initial consultation.