Revocable Trusts lay the foundation for many an Estate Plan. They serve various functions, like avoiding probate, planning for incapacity, protecting beneficiaries, and providing continuity after death. Revocable Trusts provide the grantor with flexibility by giving the grantor the right to change the trust during their lifetime. Well-written trusts contain explicit instructions regarding the steps that the grantor needs to follow to amend, revoke, or change the trust. If a Revocable Trust lacks those specific instructions that can lead to questions regarding the grantor’s intent and ultimately, litigation, which benefits no one. Let’s look at a recent Michigan case, In re Gregory Hall Trust, No. 361528 (Mich. Ct. App. Mar. 16, 2023), that underscores the importance of clear instructions in the trust agreement.
Gregory Hall created a Revocable Trust that he subsequently amended and restated. The amendment and restatement indicated that his three children, Kenneth, Cheryl, and Michael, would split the residue of the trust after Gregory’s death. The amendment and restatement indicated that Gregory could amend the trust “by an instrument in writing delivered to the Trustee.” The trust provided no instruction regarding whether Gregory needed to sign the instrument or whether any other formalities typically required for trust amendment were necessary. A few years later, Gregory prepared a spreadsheet, the contents of which remain unknown. Several years after the amendment and restatement, but just weeks after preparing the spreadsheet, Gregory conveyed his home worth $500,000 to Kenneth. A few years later, Gregory created another spreadsheet reflecting the value of his overall estate, approximately $6 million, and reflecting conveyance of the home to Kenneth. After Gregory died, Kenneth argued that the house was a gift to him and that entitled him to 1/3 of the residue of the trust. Kenneth’s siblings indicated that the home was an advancement and argued for reduction of Kenneth’s 1/3 share of the residue by the value of the home.
After Gregory’s death, all three children became co-Trustees of the Trust. Cheryl and Michael petitioned the court for limited supervision of the Trust to resolve the advancement issue. Kenneth failed to cooperate during discovery and violated several of the court’s orders relating to discovery during the proceeding. Ultimately, the lower court found in favor of Cheryl and Michael and entered a default judgment against Kenneth as a discovery sanction. Kenneth appealed and the higher court affirmed the lower court’s decision. Kenneth’s egregious behavior concerning the documents and related electronically-stored information requested during discovery despite numerous reprimands from the lower court convinced the higher court of the correctness of the lower court’s decision. For those interested, here’s a link to the case detailing Kenneth’s bad acts: In re Gregory Hall Trust.
For purposes of this article, though, the discovery issue isn’t the most compelling part of this case. It’s that the lower court found that the second spreadsheet created by Gregory met the statutory definition of a contemporaneous writing as applied to trusts. The statute provides that an advancement includes property given by the testator during life if “the testator declared in a contemporaneous writing that the gift is in satisfaction of the devise or that its value is to be deducted from the value of the devise.” Based upon this statute, the court considered the transfer of the home an advancement rather than an intervivos gift. While the court never made an express finding that the spreadsheet was a declaration, their decision permits us to infer that the spreadsheet was a declaration for purposes of application of the statute. The court remained silent regarding the length of time between the amendment and restatement and creation of the second spreadsheet, but perhaps the first spreadsheet prepared just weeks before the transfer convinced the court that the second spreadsheet merely confirmed the contents of the first.
The court never disclosed whether Gregory’s Will or Revocable Trust contained language regarding an advancement but maybe it didn’t matter. Perhaps this case demonstrates the willingness of a court to apply statutes broadly to achieve the desired result in a matter. If nothing else, In re Gregory Hall Trust provides valuable lessons on the importance of clear instructions in the trust agreement regarding what constitutes an amendment, as well as how to effectuate such an amendment. Further, the trust agreement should have clear instructions regarding what constitutes an advancement. As In re Gregory Hall Trust demonstrates, these things are too important to leave to chance.
Tereina Stidd, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
- Understanding and Manipulating Estate and Gift Taxes – Part II - May 30, 2023
- Understanding and Manipulating Estate and Gift Taxes - May 23, 2023
- What It Means to Disclaim - May 16, 2023