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In re Estate of Stephenson, Not Reported in N.W. Rptr., 2023 WL 3559578

Facts

The case arose from a dispute over the administration of the Stephenson Family Trust following the death of Vernon Leroy Stephenson. Randal Stephenson, the successor trustee, made several distributions to himself and his children after Vernon's death, which the probate court ruled were unauthorized and in violation of the Trust's terms. The probate court also addressed a $10,000 loan from Vernon and Kathleen Stephenson to Randal, determining it had not been forgiven or discharged.

Following the trial, the probate court issued an extensive 26-page opinion and order in October 2021, which was later amended in February 2022 to correct a nonsubstantive typo.

Issue

Did Randal Stephenson have the authority under the Trust to make distributions to himself and his children after the death of Vernon Leroy Stephenson, and was the $10,000 loan forgiven?

On remand, a stipulated order was entered on November 17, 2020, in which the parties identified 15 issues to be resolved at trial.

Rule

The probate court ruled that the plain and unambiguous language of the Trust required distributions to be made according to the plan outlined in Article Two and Attachment A after the death of the surviving trustmaker, and that any modifications or discharges of loans must be in writing.

A court's lone objective when construing the language of a trust is to ascertain and give effect to the settlor's intent.

Analysis

The court analyzed the Trust's provisions, particularly Article One, Section J and Article Two, Section A, which required the successor trustee to distribute the Trust's assets according to the specified plan after the death of the trustmakers. It concluded that Stephenson's authority to make distributions under Article Four, Sections D and G ceased upon Vernon's death, and thus his actions were unauthorized. The court also found that the lack of a written agreement meant the $10,000 loan remained due.

The probate court found that distributions and gifts Stephenson made before both his parents, Kathleen and Vernon, were deceased, i.e., during either parent's lifetime, 'were done so validly and complied with the unambiguous terms of the Trust, via Article Four, Sections D or G, as limited by Michigan law—specifically, IRC 2503(b), (c), (e).'

Conclusion

The appellate court affirmed the probate court's ruling that Randal Stephenson violated the Trust by making unauthorized distributions and that the $10,000 loan was not forgiven. The court clarified that Stephenson's authority as trustee ended with Vernon's death, requiring adherence to the Trust's distribution plan.

The probate court observed that Stephenson owed monies to the Trust itself for his improper transfers of Trust assets which had to be fully repaid to the Trust and 'not simply offset by his own share.'

Who won?

The Smiths prevailed in the case as the court upheld the probate court's rulings against Randal Stephenson, confirming that he acted outside his authority as trustee.

The Smiths respond that the probate court correctly ruled that the plain and unambiguous language of the Trust, specifically Article One, Section J and Article Two, Section A, including Attachment A (as amended), required Stephenson to make transfers consistent with Attachment A when and after Vernon died.

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