Probate Litigation - Patrick & Associates, PLLC

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.

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 You Challenge or Remove a Personal Representative in Michigan?

Patrick & Associates, PLLC — Wed, 10 Feb 2021 05:21:52 GMT

When someone passes away, their assets must be collected and distributed and their estate must be guided through Michigan’s probate courts. The personal representative is the person tasked with this important responsibility, which typically includes:

Marshalling the assets of the estate and determining their value
Paying charges from the estate (including the decedent’s debts and final expenses, including taxes and amounts owed to creditors)
Distributing the remaining assets to the appropriate estate beneficiaries, in line with the decedent’s wishes and all relevant local laws

As they discharge their duties, a personal representative is held to a very high standard of conduct. They are expected to be impartial and fair, executing a number of tasks at a very high level while putting the needs of the estate above their own.

With all this being said, it can be frustrating and frightening to watch as an appointed personal representative fails to execute their duties properly and efficiently.

What options are available to an heir, devisee, child, or creditor when they notice a personal representative delaying the estate administration process, mismanaging estate assets, committing an act of self-dealing, or, worst of all, taking an action that actively goes against the best interests of the estate?

Michigan law offers several avenues for recourse – from restraining the personal representative from taking a specific action, to having their appointment terminated by the court.

If you are in a position where you are considering challenging or removing a personal representative, one of the most important steps you can take is to consult with an experienced probate and estates attorney. If you suspect wrongdoing or need to act quickly, do not hesitate to contact our office at (248) 663-2566 to discuss your circumstances in more detail.

Let’s explore three avenues that an “interested person” may use to challenge or remove a personal representative in Michigan:

Demanding a Bond

One step that a person with a significant financial interest in the estate may take is to make a written demand that a personal representative give bond.

The demand must be filed with the register, and a copy must be sent to the personal representative if they have already been appointed. Bond is required when such a demand is filed, but the requirement ceases if the person demanding bond ceases to be interested in the estate, or if the bond can be excused for another valid reason.

After receipt of notice and until the filing of the bond or cessation of the requirement of bond, the personal representative must refrain from exercising any powers of their fiduciary office, except as necessary to preserve the estate. If the personal representative fails to meet a requirement of their bond, this is cause for removal and a successor personal representative may be appointed.

Petitioning for an Order Restraining Personal Representative

An interested person may petition the court to file a temporary order restraining a personal representative from performing a specified act of administration, disbursement, or distribution, or from exercising a power or discharging a duty of their office. An interested person may also ask the court to make another order to secure proper performance of the personal representative’s duty. In either situation, it must appear to the court that the personal representative otherwise may take some action that would unreasonably jeopardize the interests of the petitioner, or of another person interested in the estate.

For any petition for an order restraining a personal representative, the court shall set a hearing date no more than 14 days after the date of the issuance of the temporary order, unless the parties agree otherwise. Notice shall be given as the court directs to the personal representative, to the personal representative’s attorney of record, and to any parties named defendant in the petition.

Petitioning for Termination of Appointment

An interested person may petition for the removal of a personal representative for cause at any time. When such a petition is filed, the court will fix a time and place for a hearing, and notice must be given to the personal representative and any other parties as ordered by the court.

Broadly speaking, the court may choose to remove a personal representative under any of the following circumstances:

Removal will be in the best interests of the estate
It is shown that the personal representative or the person who sought the personal representative’s appointment intentionally misrepresented material facts in a proceeding leading to the appointment
The personal representative disregarded a court order; became incapable of discharging the duties of office; mismanaged the estate; or failed to perform a duty pertaining to the office

Upon receipt of notice of removal proceedings, the personal representative cannot act except to account, to correct maladministration, or preserve the estate. If removal is ultimately ordered, the court shall also direct by order the disposition of the property remaining in the name of, or under the control of, the personal representative being removed.

If the exercise or failure to exercise a power concerning the estate is deemed improper, the personal representative may be liable to interested persons for damage or loss resulting from breach of fiduciary duty.

Importantly, however, if a personal representative defends or prosecutes a proceeding in good faith, whether successful or not, the personal representative is entitled to receive from the estate necessary expenses and disbursements including reasonable attorney fees incurred.

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.

Whether you are a personal representative, an heir, a creditor, a named beneficiary, an omitted child, or a widow/widower, 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 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 probate-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.