Michigan Court of Appeals Holds Will, Trust Challenges Fail

On January 29th, 2015, the Michigan Court of Appeals held in a probate case that a variety of challenges from decedent's children - including arguments concerning the statute of limitations, undue influence, mistake, standing, and summary disposition - failed under the terms of decedent's will, trust, and Michigan probate law.

In In re Gerald L. Pollack Trust, Docket No. 309796, the Michigan Court of Appeals addressed several challenges to the trial court's grant of summary disposition to respondents in a case revolving around a dispute over the terms and proceeds of decedent's will and trust between children from decedent's first and second marriages.

The Court first recited the facts of the case.

These cases involve extremely contentious probate court litigation arising out of the death of Gerald L. Pollack (“Gerald”) on June 27, 2009, following a protracted battle with brain cancer. Gerald was the owner and director of Gerald L. Pollack & Associates, Inc. (“GLP”), GLP Investment Services (“Investment Services”) and GLP Specialty Services (“Specialty Services”). GLP and Investment Services are investment firms that specialize in selling annuities, insurance products, and securities to public schools and school systems in Michigan. GLP and Investment Services are the primary assets of Gerald’s estate. Gerald was survived by his second wife, Cheryl. Justin Pollack is the child of Gerald and Cheryl. Loren, Leslie, Lisa Chaben, and Lori Pollack are Gerald’s children from his first marriage. Barron has served as general legal counsel to GLP and Investment Services since the 1980s and was a personal friend of Gerald’s. Barron and J.P. Morgan Chase (“JPMC”) are co-trustees of the trust at issue in this case and co-personal representatives of Gerald’s estate. According to Loren, Loren and a GLP employee named Alex Kocoves were part of Gerald’s succession plan for his businesses; Loren and Kocoves were each sold GLP stock by Gerald.

Gerald was diagnosed with brain cancer in the summer of 2008. Following this diagnosis, Barron wrote an August 5, 2008 letter to Gerald recognizing that Loren and Kocoves would continue to co-manage GLP after Gerald’s death, that Cheryl and each of Gerald’s children would share in the profitability of the businesses, and that Cheryl and each of Gerald’s children would receive a portion of the ownership and income from the businesses. In September 2008, Gerald executed a will (“the September Will”) and a trust (“the September Trust”). Barron drafted both of these documents at Gerald’s direction and with input from Gerald. According to Loren, the September Will and the September Trust were the culmination of a lengthy and detailed process of preparation by Gerald for the continued wellbeing of his family and businesses following his death, and both September documents carried out Gerald’s intent as set forth in numerous other documents prepared as part of his estate plan. According to Barron, however, the August 5, 2008 letter was merely a temporary “band aid” until formal estate planning documents could be prepared; likewise, the September estate planning documents were merely interim documents prepared until proper and permanent documents could be put in place.

In October 2008, attorney Charles Nida was hired to prepare a second will and trust for Gerald. According to Loren, it was Barron who recruited Nida, and Gerald had no contact with Nida until the October Will and the October Trust were executed on October 30, 2008. Loren alleged that Nida took direction from Barron or other attorneys at Barron’s law firm. Barron denied Loren’s allegations, and asserted that Nida had been in contact with Gerald before the execution of the October estate planning documents. Nida had conversations not only with Barron but also with Gerald’s former estate planning attorney, Don L. Rosenberg, and Gerald’s personal banker and former co-trustee, David Clark. On October 30, 2008, Nida visited with Gerald at Gerald’s home. The estate documents were already finalized at that point, and Nida reviewed a written summary of the documents with Gerald. Gerald executed the October Will and the October Trust on that date.

Loren alleges that the October Trust differs significantly from the September Trust; in particular, Gerald’s children do not receive any immediate benefit from the October Trust until Cheryl’s death; Cheryl’s life expectancy is 20 years. Also, Loren contends, the October Trust does not provide for the succession planning desired by Gerald in that it does not distribute shares of GLP to Loren or provide for the continued operation of GLP by Loren and Kocoves. Rather, the October Trust directs Gerald’s assets to a marital share for Cheryl’s benefit up to $10 million; until this marital share is completely funded, or Cheryl dies, Gerald’s children may receive nothing. Even after Cheryl dies, Loren would receive only a beneficial share of the trust corpus rather than stock in GLP.

Four actions in relation to Gerald’s Will and Trust were filed in the trial court and form the basis of this appeal. The trial court ultimately granted summary disposition in each case, and dismissed the actions.

Petitioners now appeal.

The Court consolidated several appeals into a single written opinion. The Court then addressed each of petitioner's arguments in turn. The Court began its analysis with the issue of whether the statute of limitations had run on Loren's petition to set aside the October Trust.

In docket number 309796, Loren argues that the trial court erred in granting Barron’s motion for summary disposition based on the expiration of the statute of limitations. We disagree . . .

The trial court properly granted Barron’s motion for summary disposition because Loren’s petition to set aside the October Trust was barred by the statute of limitations in the Michigan Trust Code (“MTC”) . . .

[U]nder the MTC, a challenge to the validity of a trust must be brought within two years after the settlor’s death or six months after the provision of a notice containing statutorily prescribed information, whichever is earlier . . .

Loren contends that he had an accrued right to challenge the October Trust before the MTC became effective, so the MTC statute of limitations cannot be applied to impair that right. However, Loren did not have a right to challenge the Trust that was so fixed that it could not be changed by a future act or contingency. Smith, 252 Mich App at 127-129. Loren’s right to challenge the Trust could be changed or forfeited in various ways. For example, if Loren accepted a partial distribution under the Trust, he would be estopped from challenging the Trust under the doctrine of election. See In re Beglinger Trust, 221 Mich App 273, 276-277; 561 NW2d 130 (1997). Other contingencies such as the application of the doctrine of laches, a waiver, or a release could also have changed or taken away Loren’s right to challenge the Trust. To the extent that Loren’s interest as a Trust beneficiary, as opposed to his right to challenge the Trust, is at issue, that interest also is not so fixed or immutable that it excludes all other interests. Cheryl is the only current beneficiary because the Trust corpus is insufficient to fund the entire marital trust at this time, and Cheryl could deplete the corpus in her lifetime. Accordingly, Loren’s interest is not so fixed or immutable that it constitutes an accrued right . . .

Loren has no rights that were acquired, extinguished, or barred upon the expiration of a prescribed period that began to run before the MTC’s effective date. Loren asserts that before the adoption of the MTC, the general six-year statute of limitations set forth in MCL 600.5813 applied to a trust challenge, and that this period began to run before the effective date of the MTC. But Loren fails to explain what rights he had that were acquired, extinguished, or barred upon the expiration of that limitations period. Loren fails to explain how his proposed interpretation takes account of the statutory phrase “upon the expiration of” and to address the fact that the supposedly applicable six-year limitations period would not have expired as of the effective date of the MTC. “Effect must be given to every word, phrase, and clause in a statute, and the court must avoid a construction that would render part of the statute surplusage or nugatory.” Book-Gilbert v Greenleaf, 302 Mich App 538, 541; 840 NW2d 743 (2013). Giving effect to the entire second sentence of MCL 700.8206(2) makes clear that it applies when a right is acquired, extinguished, or barred upon the expiration of a prescribed period under another statute. In other words, if a right was acquired or extinguished when a prior limitations period expired, that right has not been respectively lost or revived by the enactment of the MTC. Loren’s right to bring this action was not acquired or extinguished by the expiration of a prior limitations period, rendering his argument premised on the second sentence of MCL 700.8206(2) devoid of merit.

Finally, Loren contends that the application of the MTC statute of limitations violates constitutional due process principles by impairing Loren’s vested right to bring his Trust challenge. We disagree. Generally, “[t]he legislature may pass statutes of limitation and give them retroactive effect.” Evans Prod Co, 307 Mich at 546. Nonetheless, the retroactive application of a statute of limitations may offend due process if a claimant is not afforded a reasonable time to file suit. See Price, 13 Mich at 324-325 (“It is of the essence of a law of limitation that it shall afford a reasonable time within which suit may be brought and a statute that fails to do this cannot possibly be sustained as a law of limitations, but would be a palpable violation of the constitutional provision that no person shall be deprived of property without due process of law.”) (citations omitted); see also O’Brien v Hazelet & Erdal, 410 Mich 1, 15 n 18; 299 NW2d 336 (1980) (citing Price for the proposition that a statute may deny due process if it fails to afford a reasonable time to bring suit). Loren received the full six-month statutory period to bring his claim after receiving the requisite notice from the trustees, and an additional 60 days pursuant to the parties’ tolling agreements. The notice that triggered the six-month period was provided after the effective date of the MTC, and Loren concedes that the notice contained all of the statutorily prescribed information, including the time allowed for commencing the proceeding. Loren was thereby afforded the same notice and the same time in which to file suit as all other beneficiaries under the MTC. Because the application of the MTC statute of limitations afforded Loren a reasonable time to file suit, his due process claim lacks merit.

In sum, the trial court properly granted Barron’s motion for summary disposition because Loren’s petition to set aside the October Trust was barred by the statute of limitations in the MTC.

The Court next addressed whether the trial court erred in granting summary disposition to respondents on the grounds that petitioners offered insufficient evidence in the trial court to set aside the October Will for undue influence.

In docket number 310844, petitioners first argue that trial court erred in finding that there was insufficient evidence of benefit to Barron to support the petition to set aside the October Will on grounds of undue influence. We disagree . . .

The trial court properly granted Cheryl’s motion for summary disposition on the petition to set aside the October Will because there was no evidence to establish the benefit element of a presumption of undue influence . . .

On appeal, petitioners do not assert that there was direct evidence of undue influence but contend that there was evidence establishing the elements giving rise to a presumption of undue influence. The primary element in dispute concerns whether Barron benefited from the transaction . . .

In this case, there was insufficient evidence of personal substantial benefit to Barron to give rise to a presumption of undue influence. Although Barron serves as a co-trustee of the Trust along with JPMC, this fact alone does not comprise a sufficient benefit to give rise to the presumption. Id. at 436. Further, Barron must make all decisions as co-trustee in conjunction with the other co-trustee, JPMC, and petitioners have not alleged that JPMC has exerted undue influence or acted improperly in connection with this matter.

In addition, Barron received no substantial benefit from the October Will that he did not already receive under the September Will, which petitioners conceded reflected Gerald’s intent. Although petitioners at one point assert on appeal that there are “substantial differences” between the September Will and the October Will, petitioners do not explicate any significant differences with respect to the benefits conferred on Barron by the two wills, and petitioners later admit that the October Will reflects little if any change from the September Will in respect to the benefits conferred on Barron. Indeed, petitioners state that the terms of the September Will benefitting Barron were “mostly carried over into the October Will.” Although petitioners assert on appeal that the September Will was also the product of undue influence, petitioners made no such claim in the trial court. Failure to timely raise an issue in the trial court generally waives review of that issue on appeal. Napier v Jacobs, 429 Mich 222, 227-228; 414 NW2d 862 (1987).

Further, petitioners expressly alleged in the trial court that the September Will and the September Trust carried out Gerald’s intent as set forth in a letter by Gerald and in voluminous documents prepared by Gerald in respect to his estate planning. “A party may not take a position in the trial court and subsequently seek redress in an appellate court that is based on a position contrary to that taken in the trial court.” Holmes v Holmes, 281 Mich App 575, 587-588; 760 NW2d 300 (2008) (citation omitted). Because petitioners conceded in the trial court that the September Will and the September Trust reflected Gerald’s intent as demonstrated in numerous earlier estate planning documents, and because Barron did not receive a substantial benefit from the October Will that differed from that afforded under the September Will, petitioners have not established that Barron received a benefit from the October Will sufficient to give rise to a presumption of undue influence.

Given that petitioners have not established the benefit prong required to give rise to a presumption of undue influence, it is unnecessary to address the other two prongs.

The Court then addressed petitioner's claim that the trial court erred in granting respondent's motion for summary disposition on the grounds that petitioner's failed to present sufficient evidence of mistake to set aside the October Will.

Petitioners next argue that the trial court erred in granting Cheryl’s motion for summary disposition on the petition to set aside the October Will on the grounds of mistake. We disagree. Again, this Court reviews de novo a motion for summary disposition. Hackel, 298 Mich App at 315.

The trial court properly granted Cheryl’s motion for summary disposition on the petition to set aside the October Will because there was no genuine issue of material fact concerning petitioners’ claim of mistake.

The allegation of mistake in the petition was that Nida failed to inform Gerald which trust the October Will would fund. There is no evidence in the record that Gerald was mistaken on this point. Clark testified that the operation of the October Trust and the distribution of assets were discussed with Gerald when the October estate documents were executed, that Gerald asked questions, and that the participants made sure Gerald understood what was happening. Nida testified that he asked Gerald at the time of the execution of the October estate documents if Nida had captured Gerald’s wishes. The evidence does not present a question of fact concerning whether Gerald was mistaken regarding which trust would be funded by the October Will.

On appeal and in response to the summary disposition motion, petitioners changed the factual basis for the allegation of mistake from that set forth in the petition. Petitioners now contend that Gerald was mistaken regarding the value of his estate, believing it to be worth $75 million to $100 million, and that this mistake affected Gerald’s decision to leave the first $10 million to Cheryl under the marital trust. The record fails to support the view that any mistake regarding the value of the estate affected Gerald’s decision. On the contrary, Clark testified that, even after being asked about the possibility that the value of the estate was less than he thought, Gerald adhered to his desire to leave the first $10 million to Cheryl. Thus, there is no genuine issue of material fact concerning whether any mistake regarding the value of the estate affected Gerald’s decision to execute the October Will.

The Court then addressed petitioner's lack-of-standing argument.

In docket number 310846, Loren first argues that Barron and JPMC lack standing to oppose the petition to modify or reform the Trust. We disagree . . .

Loren’s argument that Barron and JPMC lack standing to oppose the petition to modify or reform the Trust is devoid of merit . . .

It should be noted that the trustees have not asserted a cause of action with respect to this issue. After all, it is Loren who commenced this action by filing his petition to modify the Trust. The trustees merely opposed the petition and moved for summary disposition. In any event, it is clear that the trustees have a special right or substantial interest that will be detrimentally affected in a manner different from the citizenry at large. Although Loren contends that his reformation petition does not seek to invalidate the Trust, and that the trustees therefore have no interest in a dispute between beneficiaries concerning the proper distribution of the Trust’s assets, the amended petition itself directly contradicts Loren’s argument. The amended petition to modify or reform the Trust explicitly states that Gerald’s “execution of the October Trust is invalid due to the ‘mistake of fact’ under which [Gerald] was acting when he executed the October Trust.” The amended petition sought modification or reformation of the Trust to change the distribution of assets and to terminate Barron as a co-trustee. In short, the amended petition asserted the Trust was invalid and sought modification of essential provisions of the Trust concerning the distribution of assets and successor trustees.

Claiming that the Trust is the product of a mistake of fact and seeking to significantly change material provisions concerning the distribution of the Trust’s assets and the successor trustees is plainly an attack on the validity of the Trust. The Trust Agreement obligated the trustees to enforce the Trust Agreement in actions challenging the validity of the Trust Agreement. Under the MTC, a trustee is required to administer a trust in accordance with its terms and purposes, MCL 700.7801, and may exercise all of the powers conferred by the terms of the trust, MCL 700.7816(1)(a). See also MCL 700.1105(c) (defining an “[i]nterested person” to include an incumbent fiduciary); MCR 5.125(C)(32)(e) (listing the current trustee as a person interested in the modification or termination of a noncharitable irrevocable trust); MCR 5.125(C)(33)(c) (listing the current trustee as a person interested in a proceeding affecting a trust other than proceedings covered by other subrules).

In In re Temple Marital Trust, 278 Mich App 122, 133-134; 748 NW2d 265 (2008), this Court held that two brothers acting in their capacities as trustees were entitled to recover attorney fees from trust assets for defending against a challenge to the validity of a trust amendment where the outcome of the litigation would determine which brother was the proper successor trustee and the terms of asset distribution. This Court explained:

The issues and result of the litigation directly affected the trustee’s administrative duties because the validity of the amendment determined the proper trust beneficiaries and asset distribution. Distribution of trust property to the proper beneficiary is a primary administrative duty of a trustee. [Id. at 133.]

As discussed, the amended petition to modify or reform the Trust was an attack on the validity of the Trust seeking to change the distribution of assets and the co-trustee, and the trustees had an obligation to enforce the Trust Agreement in connection with challenges to the validity of the Trust. It therefore follows that the trustees had a special right or substantial interest different from the citizenry at large in opposing Loren’s amended petition. Accordingly, the trustees possessed standing to seek summary disposition of the amended petition.

In the final part of its opinion denying petitioner's challenges, the Court addresses whether the trial court erred in granting respondent's motion for summary disposition regarding the expiration of the statute of limitations for petitioner's motion to modify or reform the trust.

Loren next argues that the trial court erred in granting Barron’s motion for summary disposition on Loren’s petition to modify or reform the trust based on the expiration of the statute of the limitations. We disagree.

Loren asserts two arguments relating to trial court’s application of the MTC statute of limitations to his petition for reformation of the Trust. As discussed earlier, MCL 700.7604(1) is a provision of the MTC that prescribes limitation periods for bringing a challenge to the validity of a trust. Loren concedes that he filed his petition to modify or reform the Trust more than two years after Gerald’s death and more than six months after the statutorily prescribed notice was sent to Loren. Nonetheless, Loren first contends, the statute of limitations in MCL 700.7604(1) does not apply because his petition to modify or reform the Trust did not commence a judicial proceeding to contest the validity of the Trust. Rather, he argues, his petition was merely seeking to modify or reform the terms of the Trust rather than to invalidate the Trust. We disagree . . .

The procedural label that Loren affixed to his petition is one of modification or reformation. But in reading the petition as a whole, it is evident that the true nature of his claim was to contest the validity of the Trust. Loren alleged essentially the same facts in this petition as those used to support his petition to set aside the Trust. The reformation petition alleged that the October Trust was invalid due to a mistake of fact under which Gerald was acting when he executed the document. It asserted that the Trust failed to provide for a distribution of shares of GLP to Loren, which was in contravention of statements Gerald purportedly made after executing the Trust. The petition further alleged that the evidence showed that the October Trust was the product of a mistake of fact and that it should be reformed to conform to Gerald’s intentions. It therefore requested modification or reformation of the Trust to provide that Loren shall receive 25% shares in the businesses; that Loren would become a member of the Investment Services board of directors; and that Barron would be terminated as a co-trustee.

Although phrased in terms of modification or reformation, the request for relief effectively sought a wholesale rewriting of the Trust to change its essential provisions concerning distribution of assets and the successor co-trustee. This relief was sought in part on the basis of the petition’s allegation that the Trust was invalid as it was a product of Gerald’s mistake of fact when he executed the document. The petition did not seek merely to correct a drafting error or to take account of a change of circumstances that occurred after the Trust was executed. Instead, the petition sought to change the most material provisions on the ground that Gerald’s execution of the document was induced by a mistake of fact; this same underlying theory was asserted in Loren’s petition to set aside the Trust that was dismissed under the statute of limitations. Overall, the true gravamen of the action is that it contests the validity of the Trust. Therefore, the statute of limitations in MCL 700.7604(1) is applicable.

Loren also argues that the statute of limitations in MCL 700.7604(1) does not apply retroactively because he had an accrued or vested right to seek reformation of the October Trust before the MTC became effective. Loren’s arguments on this issue are duplicative of his arguments in docket number 309796, discussed earlier. For the reasons stated above, we hold that the trial court properly dismissed Loren’s reformation petition because it was barred by the statute of limitations in MCL 700.7604(1).

Leslie also raises two arguments related to the statute of limitations issue in her brief on appeal in docket number 310846. Leslie’s arguments were addressed earlier in this opinion, and we adhere to our stated analysis. The trial court properly granted Barron’s motion for summary disposition regarding Leslie’s petition to modify or reform the Trust because the petition was barred by the MTC statute of limitations.