Michigan Court of Appeals rules Trustee-Bank needed Settlor’s children’s consent to sell

State Bar of Michigan E-Journal #57861

In re Maloney Trust; In re Kostin; In re Allen Estate (Unpublished)

“The court held that the trial court erred in concluding that the trustee-bank could entertain an unsolicited offer to purchase the property at issue (lake cottages) without the consent of the settlor’s children. Thus, it reversed the trial court’s order granting the bank’s motion for reconsideration and ruling that the bank did not need the children’s consent to dispose of the real estate assets held in the trust. At issue was the interpretation of a provision contained in § 4.7(b) of article IV of the trust, which addressed the sale of the cottages. The court noted that its “primary concern in interpreting a trust is to determine and give effect to the settlor’s intent.” Reading the trust in its entirety, the court found that “it is clear that it was the settlor’s intent to keep the cottages in the family.” The settlor gave the trustee authority to use other trust assets to maintain the cottages. He also authorized the trustee to use principal from the trust to pay for the maintenance expenses if the trust income was insufficient, making it clear that even if the trust income was insufficient to pay for the maintenance, he still did not want the cottages sold. Section 4.7(b) of the trust discussed the “Sale of Cottages.” The court concluded that by “the plain language of its title, this section clearly addresses the ‘sale of cottages’ generally, and not just the ‘sale of the cottages at the direction of the settlor’s children.’ This section allows the settlor’s children to direct the trustee ‘to sell one or both Cottages if they decide that the Cottages no longer serve the purposes envisioned by Settlor.’ Given that article V states that the cottages are ‘held for the benefit of Settlor’s descendants’ and that the settlor wanted the trustee to ‘maintain and administer the trust assets for the benefit of Settlor’s wife and all of Settlor’s descendents who shall from time to time wish to use the cottages,’ it is clear that the settlor envisioned the cottages to be used for enjoyment of his descendants. Thus, if the settlor’s children determine that his purposes are not being served – i.e., his descendants are no longer wishing to use the cottages – then they may direct the trustee to sell the cottages.” The court noted that the next sentence of § 4.7(b) stated, “Settlor’s children must approve the sale of the Cottages unanimously or unanimously less one vote.” If it were intended “for this clause to apply only to situations where the children directed the sale, as the trial court held, the settlor could have provided so. However, given that it is a condition under the general heading of ‘Sale of Cottages,’ it is clear that settlor’s children must approve the sale of the cottages under all circumstances.”

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