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When the Michigan Trust Code (MTC) was adopted in 2010, it provided the citizens of Michigan with a comprehensive, modern body of law governing how trusts are created and administered.

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In the nine years since I chaired the committee that wrote the Michigan Trust Code, relatively few changes have been made to the laws governing trusts. The two most noteworthy additions were to add decanting provisions in 2012 and to authorize Domestic Asset Protection Trusts (DAPTs) in 2017. (Read our article on DAPTs <a href="https://www.wnj.com/Publications/Domestic-Asset-Protection-Trusts-Come-to-Michigan">here.</a>) At the end of March, two more important changes to the Michigan Trust Code will take effect and create new options for designing the trustee provisions of trust agreements.

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For years, many lawyers and their clients have desired to authorize certain individuals to give binding directions to trustees, commonly referring to these individuals as trust protectors. In addition, lawyers and clients have looked for ways to divide trustee responsibilities among multiple trustees, so that one trustee could be assigned the duty to handle investments, for example, while another trustee would have responsibility for distribution or other decisions.   As enacted in 2010, the Michigan Trust Code recognized and provided for “trust protectors,” but was silent about dividing trustee duties among trustees. This left many important questions unanswered or the answers unclear.   In December, the Governor signed legislation to incorporate the Uniform Directed Trust Act (UDTA) into the Michigan Trust Code and also expressly allow so-called “divided trusteeships.”  These new laws will take effect on March 29, 2019.

Most of Michigan’s new directed trust provisions are default rules, which the settlor of the trust is free to vary or depart from. However, there are “non-modifiable provisions” to ensure some minimum fiduciary obligation always exists.    The purpose of the UDTA is to bring some order and certainty to the law governing what are commonly known as trust protectors, trust advisors or trust directors—roles which exist because the terms of a trust give someone the power to direct a trustee with respect to some aspect of the administration of the trust. For example, an individual might be given the power to approve or veto a distribution to a beneficiary, to consent to the sale of stock in a family business, to direct trust investments more generally, or even to amend the terms of the trust.   The new law enables a “trust director” (a person with the power to direct) to give instructions to the trustee. The trustee, unless it determines that the direction was outside the scope of the trust director’s power of direction, is required to abide by the direction and has no liability for doing so (at least in the absence of trustee fraud or collusion in a fraudulent activity).    Other provisions of this statute ensure that a trust director has an obligation to act in the interests of the beneficiaries of the trust and ensure that both the trustee and trust director have access to the information required in order to carry out their respective roles.   The new law also addresses important issues such as:

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The new law will apply to all trusts that incorporate arrangements in which a person is given the power to give binding direction to trustees.    With the enactment of the UDTA, the existing trust protector provision in the Michigan Trust Code was repealed.

Enactment of the new provision authorizing divided trusteeships resolves a previously unanswered question: Through careful drafting, could a settlor effectively bifurcate responsibilities among multiple trustees? At least with respect to the investment function and the distribution function, the answer is now unequivocally “yes.” This new law is a uniquely Michigan statute with no comparable uniform law or statute in any other jurisdiction.   Conceptually, the new provision creates a regime of trustees who operate in silos separate from one another—each with a different area of powers, duties and potential liability. The statute allows a settlor to designate:

Again, like most of the Michigan Trust Code, these are default rules. The powers, duties and potential liability of divided trusteeships can be altered by the settlor through the terms of the trust in the same manner that conventional trustee arrangements can be altered.      Importantly, by creating “separate trustees” rather than co-trustees, the new law separates liability for each of the trustees, which was not possible before. Previously, all co-trustees were responsible for the acts of the other trustees—if one trustee breached a fiduciary duty, all trustees were liable. The old rules discouraged people or institutions from serving in trusteeships that sought to divide trustee responsibilities. The new rules will increase the likelihood that these people will be willing to serve as trustee in a more limited, narrowly-defined role.   The statute contemplates up to three types of “separate trustees”:

Settlors are free to incorporate either or both investment trustees and distribution trustees.

This new law also makes it clear that under a divided trusteeship, a separate trustee:

This change will make trust design easier and more flexible for families who would like to have the investment and/or distribution functions provided by a particular trustee, while keeping other trustee functions with another trustee. For example, the trust instrument could appoint certain family members to make distribution decisions, appoint a different group of family members as investment trustees with respect to the family’s operating company, and appoint an institutional trustee as investment and administrative trustee for investment and record keeping purposes.   By clearly spelling out the divided trustees’ respective liabilities, rights to information and other aspects of the arrangement, the new law will make these arrangements more feasible.

Applying Michigan’s New Trust Laws to Your Circumstances

If you would like further information or are interested in learning more about creating or using a directed trust or divided trustees in your family’s circumstances, contact Mark Harder at <a href="mailto:mharder@wnj.com">mharder@wnj.com</a> or at 616.396.3225 or your Warner attorney.

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Mark K. Harder

Trusts and Estates

Changes Are Coming to Michigan’s Trust Laws in March

The Warner Norcross + Judd LLP lawyer responsible for the contents of our advertising and this website is managing partner <a href="/people/mark-j-wassink/" aria-label="Mark Wassink">Mark Wassink</a> who can be reached at <a href="mailto:mwassink@wnj.com" aria-label="email Mark Wassink">mwassink@wnj.com</a> or 616.752.2189. Please read our full <a href="/privacy-policy/" aria-label="see privacy policy">privacy policy</a> available on our website.

Changes Are Coming to Michigan’s Trust Laws in March

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