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PROBATE 10: Probate court orders Trust’s real estate be sold.

In May 2006, the Trust was executed by the settlor. The Trust held title to five parcels of real estate in Michigan, as well as a bank account, farm equipment, and accounts receivable. According to the terms of the Trust, the principal would be equally distributed to the beneficiaries over a 20-year period following the settlor’s death, with the first principal distribution to occur five years after the settlor’s death. The record reflects that the trust beneficiaries were the settlor’s children, two daughters and one son.  The settlor died in 2011, and his son was named as the successor trustee.

In April 2013, the daughters petitioned to remove the son as successor trustee, alleging that he had failed to provide accountings and distribute assets. When he provided an accounting, they alleged that it contained irregularities. The beneficiaries also continued to disagree about routine matters involving the trust assets. In order to resolve the issues, the beneficiaries stipulated to place the Trust’s real estate into a limited liability company (LLC) for management. As part of the agreement placing assets into an LLC, the beneficiaries agreed that the LLC would make “everyday” management decisions, but that liquidating the property would require a unanimous decision of the siblings and would not take place unless there was an extraordinary circumstance. Consistent with the agreement, the probate court ordered the Trust’s real estate transferred to an LLC.

The son, however, refused to sign a proposed operating agreement or to transfer the Trust’s property, so the probate court ordered that the LLC be run in accordance with an operating agreement that reflected the parties’ agreements on the record. The probate court later determined that the son had breached his fiduciary duties, removed him as trustee, and appointed a successor trustee.  In June 2015, the court appointed trustee petitioned the probate court to partition the Trust’s real estate. Following a hearing, the probate court found that the LLC could not carry on its business because there were continuing disagreements over its management. Therefore, the court ordered that the LLC be dissolved and wind up its affairs. Two rounds of bidding on each of the five parcels was conducted, and the probate court ultimately approved the sale of each of the parcels.

The son argued that the probate court lacked the authority to order the sale of the parcels of property because it did not have subject-matter jurisdiction to decide issues regarding winding up an LLC. Because the Trust continued to exist, the LLC was merely the mechanism under which the trust assets were to be administered, the probate court’s decisions regarding the LLC directly concerned the administration of a trust and fell within the probate court’s subject-matter jurisdiction under MCL 700.1302(b).  The probate court’s decision to order the property sold and the proceeds distributed equally among the beneficiaries is consistent with the settlor’s stated intent to distribute the value of the trust assets to the beneficiaries. As a result, the court did not err by ordering the property sold.

Aldrich Legal Services represents clients in a wide range of probate litigation matters. In addition to representing local clients, we have assisted many out-of-state clients who have required legal representation to resolve probate disputes here in Michigan. To schedule a free consultation with an experienced probate litigation lawyer at our firm, contact our law office in Plymouth, Michigan.

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