Trusts can be terminated in a variety of ways. Trusts may be terminated because, over time, the goals of the trust become impossible to achieve. Last month, the Michigan Court of Appeals heard a case, Trupp v. Naughton, presenting such a scenario.[1] The case was based a trust created for three of the settlor’s children: Donna, Brian, and Deborah. The trust contained a lakefront house and directed the adult children to work out a yearly schedule for using the house and paying the maintenance costs. Pursuant to the terms of the trust, the beneficiaries were allowed to terminate the trust and sell the lake house if they determined continuing the trust no longer made sense.
Following the death of their mother, Donna, Brian, and Deborah failed to agree on how the trust should operate. They did not make a lake house visitation schedule or share expenses. Brian paid the expenses for several years until he grew tired of paying more than his fair share. He subsequently removed all of his personal property and did not return to the lake house. At that point, Deborah took over payment of the lake house expenses. Donna never contributed money towards the expenses of the lake house.
Eventually, Brian petitioned the probate court to terminate the trust, sell the lake house, and force Donna and Deborah to reimburse him for their share of the expenses. The probate court granted his requests, and Donna and Deborah appealed, arguing that the discontinuation of the trust was unjustified because the court could have easily imposed rules allowing the trust to continue to operate.
Like North Carolina law,[2] Michigan law provides for the termination of a trust when its purposes have become impossible to achieve.[3] In the Trupp case, the appellate court found the co-trustees, Donna, Brian, and Deborah, determined that termination of the trust was justified by their actions; namely, the inability or refusal to create a schedule for visitation of the lake house or equitable payment of expenses. The court upheld the probate court’s decision to terminate the trust, determining none of the beneficiaries demonstrated the willingness or capability of following the terms of the trust, thus the goals of the trust were impossible to achieve.
In this case, the actions of the trustees and beneficiaries rendered the purposes of the trust impossible to achieve, but trusts can also have impossible goals due to unforeseen outside forces such as acts of God or the government. For example, imagine a die-hard fan of a popular rock band set up a trust for his grandchildren solely for the purpose of providing funds for them to attend an annual concert of that band. Then, in a fatal plane crash, all members of the band perish. The trust may be terminated because the purpose of the trust has been rendered impossible, i.e. the grandchildren can no longer attend a yearly concert because the band no longer exists. Taking another example, suppose a woman set up a trust for her children to pay for construction of a house on a particular piece of long-held family property, but the city subsequently condemns the property and acquires it through eminent domain. Again, the goals of the trust become impossible to achieve and the probate court may terminate the trust.
The number of ways a trust’s goals can be rendered impossible are nearly limitless because trusts are designed with the flexibility to provide for any number of situations and fact patterns. When a trust’s goals have become impossible to achieve, a party must file a petition in probate court to have the issue heard. The court will then examine the facts specific to the case and determine if there is a way the trust can continue or if it should be terminated. Since there are an endless number of scenarios that can exist surrounding a trust, it is prudent to consult with an attorney experienced in fiduciary litigation to explore your legal options. Please visit us at www.lindleylaw.com for more information.
[1] Trupp v. Naughton, No. 320843, 2015 Mich. App. LEXIS 1114 (Ct. App. May 26, 2015).
[2] N.C. Gen. Stat. § 36C-4-410.
[3] MCL Chapter 700.7410(1) (1998).
