On April 1, 2010, the Michigan Trust Code was enacted into law. The new Trust Code provided guidance, authority and powers to trustees and beneficiaries alike in the administration of trusts. One of the new statutes contained in the Michigan Trust Code deals with settlement agreements, which do not have to be approved by the Probate Court, also known as non-judicial settlement agreements. MCL Section 700.7111 allows parties to a trust administration to sign such agreements, outside of Court supervision or approval, to memorialize meetings of the mind with regard to accountings, trustee actions, and interpretations of trust provisions. These non-judicial settlement agreements have proven over the past year to be powerful tools to enable beneficiaries and trustees to quickly and cost effectively reach agreements which would typically otherwise require Probate Court approval.

It is important to note, however, that non-judicial settlement agreements may not be used to terminate or modify a trust. Agreements to modify or terminate trusts can only be accomplished through Probate Court orders. However, the statutes permit these types of agreements for trust reformations. Parties who enter into non-judicial agreements to reform trusts are not changing the terms of the trust. Rather, they are attempting to construe and define the intent of the settlor which has been made unclear by ambiguous trust provisions. If the trust is clear and accurately reflects the settlor's intention, any change would be considered a modification that would require court approval and non-judicial agreements may not be used. Any change to a trust which clarifies a trust document or brings the document in line with the settlor's known intent is considered a reformation and may be achieved outside of the Probate Court.

It is also important to note that, while the Michigan Trust Code provides statutes as they relate to modifications, terminations and revocations of trust, existing common law (which is not inconsistent with these statutes) remains valid. Therefore, as clients are looking for ways to appropriately and cost effectively administer trusts, they should consider not only Michigan's Trust Code and the opportunity to reach agreements through non-judicial settlement agreements, but they should also be careful not to ignore applicable common law.

For more information regarding this topic, please e-mail your requests to Thomas P. Cavanaugh, or call Tom at (248) 457-7218.

Married couples with non-taxable estates will still need revocable living trusts to avoid the costs, delays and publicity associated with probate in the event of death or incapacity. But, with the new $5 million estate tax exemption per person (at least for 2011 and 2012), and with the new portability rules (where the surviving spouse can use the deceased spouse's unused estate tax exemption), married couples will be able to have simpler and more understandable estate plans.

For couples with non-taxable estates, it may no longer be necessary for each spouse to establish separate living trusts, and then divide their assets between them. Nor will credit shelter trusts need to be established and administered after the first spouse's death (in order to take advantage of both spouses' estate tax exemptions). Instead, a married couple can establish a joint living trust wherein each spouse is a grantor and a co-trustee. All of the couple's assets are then simply transferred to the joint trust. During the joint lifetime of the spouses, either spouse can make investment decisions and distributions (without restrictions) as co-trustee (similar to a joint bank account). Upon the death or incapacity of one spouse, the other spouse continues as the sole trustee with the same powers.

Generally, during the joint lifetime of the spouses, the consent of both spouses is required to amend or revoke the joint trust. But, after the death or incapacity of one spouse, the other spouse can amend or revoke the trust unilaterally. As a result of the control granted each spouse, a joint trust will most likely not work well for blended families.

For more information regarding this topic, please e-mail your requests to Julius Giarmarco, or call Julius at (248) 457-7200.

Roth IRA conversions during this extended period of low income tax rates still make a lot of sense, especially if maximizing the amount that can pass to heirs is a priority. To help you stay on top of all of the issues surrounding this transaction, we have revised and updated last year's checklist. Our 2011 Roth IRA Conversion Checklist can be found here: 2011 Roth IRA Conversion Checklist.

For more information regarding this topic, please e-mail your requests to Salvatore J. LaMendola, or call Sal at (248) 457-7204.