Trustee Duties and Liabilities (Chapter 2 of Trust Administration Under the Michigan Trust Code)
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Chapter 2: Trustee Duties and Liabilities
Shaheen I. Imami, Prince Law Firm; Patricia Gormely Prince, Prince Law Firm

The Trustee’s Powers
The Trustee’s Duties
The Trustee’s Liabilities

I.   Overview

§2.1   On June 18, 2009, the Michigan Legislature signed into law a comprehensive amendment to the Estates and Protected Individuals Code (EPIC). Officially denoted 2009 PA 46 (and contained in Article VII of EPIC), this amendment is known as the Michigan Trust Code (MTC) and took effect April 1, 2010. Since then, there have been a few technical amendments to the MTC and the formal introduction of the concept of decanting.

The MTC contains substantial additions and modifications to EPIC regarding the duties and liabilities of trustees. While many of the additions simply codify existing Michigan common law, a number of provisions are entirely new or represent changes to Michigan common law. It should be noted that the MTC expressly provides that, except in limited instances, a trust instrument may override provisions of the MTC. However, to the extent that common law has not been codified or modified by the MTC, such common law will govern the interpretation and application of the trust instrument. MCL 700.7105. The MTC also contains some changes in terminology (e.g., current trust beneficiary has been discarded in favor of qualified trust beneficiary, with the definition modified as well). As a result, a prudent attorney representing a fiduciary or beneficiary must be aware of the effective date and repealer provisions contained in MCL 700.8101 et seq. For purposes of this chapter, the most relevant provisions of the MTC are MCL 700.1212, MCL 700.7801 et seq., and MCL 700.7901 et seq.

II.   Basics About Trustees

§2.2   A trustee is “‘a person in whom some estate, interest, or power in or affecting property is vested for the benefit of another.’” Bankers’ Trust Co v Russell, 263 Mich 677, 682, 249 NW 27 (1933) (quoting Taylor v Davis’ Adm’x, 110 US 330 (1884)). As used in EPIC, a trustee includes an original, additional, or successor trustee, whether or not appointed or confirmed by the court. MCL 700.1107(o). The MTC does not distinguish between testamentary and inter vivos trustees. Specifically, the definition of fiduciary includes all trustees. MCL 700.1104(e).

Before the effective date of the MTC, neither EPIC nor the previous Revised Probate Code (RPC) contained any provision regarding the moment at which an individual actually becomes a trustee. However, under the MTC, an individual is deemed to have accepted his or her trusteeship by

  • substantially complying with a method of acceptance provided by the trust instrument; or
  • accepting delivery of trust property, exercising powers or performing duties as trustee, or otherwise indicating an acceptance of the trusteeship, if the trust instrument fails to provide a method of acceptance or such methods are not expressly made exclusive.

MCL 700.7701(1).

Likewise, the MTC also permits an individual to expressly reject a trusteeship, or, alternatively, for the designation to lapse. MCL 700.7701(2). The lapse provision indicates that an individual is deemed to have rejected a trusteeship if he or she fails to accept it within a reasonable period of time after knowing of the designation. Id. Perhaps more interesting is the recognition by the MTC that an individual might need to perform some due diligence or even take a “wait-and-see” approach before accepting trusteeship. MCL 700.7701(3). Once an individual becomes a trustee, he or she must “discharge all of the duties and obligations of a confidential and fiduciary relationship” and will be subject to the following general duties, among others, as defined by the MTC:

  • the duties of undivided loyalty, impartiality between beneficiaries, care and prudence in actions, and segregation of assets held in the fiduciary capacity, MCL 700.1212(1)
  • the duty to expeditiously administer the trust for the trust beneficiaries’ benefit, MCL 700.7801
  • except in limited circumstances where duties to and the powers of a settlor are retained, the duty to administer the trust solely in the interests of the trust beneficiaries, MCL 700.7802(1)
  • the duty to exercise care when dealing with the trust, specifically, except as otherwise provided by the trust terms, to observe the standards in dealing with the trust assets that a prudent person would observe in dealing with the property of another and, if the trustee has special skills or is named trustee on the representation of special skills or expertise, to use those skills, MCL 700.7803
  • the duty to keep the trust beneficiaries reasonably informed via trustee reports and other documents (the amount of information required to be provided will depend on the status of the particular beneficiary and the composition of the trust’s assets at any particular time), MCL 700.7814; In re Estate of Butterfield, 418 Mich 241, 341 NW2d 453 (1983); In re Childress Trust, 194 Mich App 319, 486 NW2d 141 (1992)

In addition, common-law duties imposed on all trustees include duties of loyalty, see MCL 700.7802, ordinary skill, and prudence as well as prohibitions against self-dealing, see MCL 700.1214, malfeasance, misfeasance, and nonfeasance. See Butterfield; Hertz v Miklowski, 326 Mich 697, 40 NW2d 452 (1950); In re Green Charitable Trust, 172 Mich App 298, 431 NW2d 492 (1988); Sloan v Silberstein, 2 Mich App 660, 141 NW2d 332 (1966).

The probate court has exclusive jurisdiction to adjudicate matters relating to trustees and trusts, including matters relating to a trustee’s powers and duties. MCL 700.1302(b), .7203. See §10.18 for further discussion of the probate court’s power to determine a trustee’s powers and duties and §§10.22–10.33 for the applicable procedures.