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WILLS AND TRUST 8: A SUCCESSOR TRUSTEE WAS ABLE TO MAKE DISTRIBUTIONS TO HIMSELF UNDER BOTH A POWER OF ATTORNEY AND UNDER THE TERMS OF A TRUST

PERTINENT FACTS

In 2010, the decedents created the Trust and dual durable powers of attorney in which each spouse nominated the other to serve as primary attorney-in-fact with respondent to serve as the first alternate. The Trust designated the decedents to be primary trustees and beneficiaries, with respondent to serve as successor trustee upon the decedents’ incapacitation or death. Respondent, his children, and petitioners were other named beneficiaries. After one of the Settlors died and the other one was declared incapacitated, Respondent accordingly assumed his role as both successor trustee and the holder of the power of attorney. After the Settlor was declared incapacitated, respondent made substantial distributions from the Trust and  estate amounting to approximately $147,000 to pay his children’s educational expenses and $56,000 to himself.   Petitioners brought this action alleging that respondent violated his fiduciary duties and the Trust’s terms by improperly self-dealing and exhausting the Trust’s assets to their detriment as beneficiaries. Respondent defended his actions under the Trust’s and power of attorney’s terms, maintaining that he was given unbridled discretion to distribute the Trust’s assets. The probate court held that respondent was authorized under the power of attorney and the Trust to make distributions to himself and his children, but his authority to do so was limited to gifts “that will qualify for exclusion under the Internal Revenue Code.”

STANDARDS OF REVIEW

This Court reviews de novo both the probate court’s interpretation of a trust and its interpretation of a contract.

POWER TO MAKE GIFTS

We reject petitioners’ argument that respondent was prohibited from making gifts to himself or his children under the power of attorney or the Trust. First addressing respondent’s authority under the power of attorney, it is well established that a power of attorney provides the agent with all the rights and responsibilities of the principal as outlined in the agreement.  The power of attorney in the present case explicitly empowered respondent to self-deal in the gift-giving provision. This provision must be strictly construed and cannot be expanded or limited. Turning to the Trust, we conclude that the terms of the Trust also gave respondent the authority to make disbursements and limited gifts to himself and his children.

DISCRETIONARY TRUST

Turning to respondent’s appeal, we agree that the probate court erred by determining that his power to make distributions under Article Four, Section D was limited by his ability to make gifts under Article Four, Section G. However, we do not agree that respondent’s discretion was unfettered—Michigan law places limitations and safeguards on a trustee-beneficiary’s handling of a trust. Michigan law clearly places restrictions upon a trustee exercising his or her judgment under a discretionary trust, especially in circumstances in which the trustee is also a beneficiary.

CONCLUSION

The probate court correctly concluded that both the power of attorney and the Trust gave respondent power to make limited gifts to himself and to third parties. The probate court erred, however, by determining that respondent’s power to make distributions was limited by the gift-giving provision of the Trust; in addition to authorizing respondent to make gifts, the Trust gave respondent discretion to distribute the Trust’s assets for the benefit of the beneficiaries. Yet, contrary to respondent’s argument, this discretion was not unlimited, and there remain factual questions about whether the distributions and gifts he made under the terms of the Trust violated Michigan law.

ASSISTANCE WITH WILLS AND TRUST ISSUES

If you have lost a loved one, the last thing you should have to deal with at this time is the confusing and often frustrating process of probate.

Aldrich Legal Services offers comprehensive guidance throughout the probate process. We offer probate services for clients whose loved ones died with or without a will and trust.

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