By: Angela C. Wetherby

In Michigan, grantor trusts are governed by the Michigan Trust Code (MTC), which is part of the Estates and Protected Individuals Code (EPIC).  One of the advantages of a funded grantor trust is that it may provide a means of avoiding formal guardianship and/or conservatorship proceedings in the event that the grantor becomes incapacitated.  If the grantor becomes disabled, then a grantor trust allows the trustee or the successor trustee to step in and manage the grantor’s assets pursuant to the desires memorialized by the grantor when he or she was of sound mind.

In drafting a trust agreement, it is very important that the document not only meets the grantor’s specific needs and expectations, but it should also address a variety of scenarios that may not seem important to the grantor at the time that the trust is created.  For example, every trust agreement should contain a provision that clearly outlines what the grantor would like to happen in the event that the trustee is no longer able to serve as the trustee.  But what happens when the trust agreement is silent with respect to an important issue like this one?

When a trust agreement is silent, then the MTC becomes the controlling factor.  MCL 700.7705(1) states that a trustee may resign “[u]pon at least 28 days’ notice to the qualified trust beneficiaries, the holders of powers of appointment, and all co-trustees” or “[w]ith the approval of the court.”  The statute goes on to provide that, in the event of a vacancy (and in the event that a co-trustee does not remain in office), then the vacancy must be filled either in the manner “designated by the terms of the trust” or “[b]y a person appointed by the court.”  MCL 700.7704(3).  Therefore, if a trust agreement does not contain language regarding the resignation of a current trustee and the subsequent appointment of a successor trustee, then the statue requires that the resignation and resulting vacancy be addressed by the Probate Court.  This process can be lengthy, complex, and costly.  While grantor trusts can be a very useful and practical tool, it is imperative that the underlying trust agreement be drafted properly at the outset as the failure to do so can create future complications.

This website and the contents thereof is designed for general information only and information should not be considered as formal legal advice nor the formation of an attorney/client relationship. The purpose of this post is to provide a brief and general overview. It is important to consult with an attorney relative to whether a trust is right for you as there may be other estate planning options that are more suitable for your particular situation.

If you have any questions regarding estate planning, please contact Inosencio & Fisk, PLLC, at (517) 796-1444.

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