SB-0597, As Passed House, November 9, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

HOUSE SUBSTITUTE FOR

 

SENATE BILL NO. 597

 

 

 

 

 

 

 

 

 

 

 

 

 

     A bill relating to certain trusts; to provide for the powers

 

and procedures of the court that has jurisdiction of certain

 

trusts; to provide for the validity and effect of certain transfers

 

and contracts that relate to certain trusts; to provide remedies;

 

and to provide procedures to facilitate enforcement of certain

 

trusts.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

     Sec. 1. This act shall be known and may be cited as the

 

"qualified dispositions in trust act".

 

     Sec. 2. As used in this act:

 

     (a) "Advisor" means a person who is given authority by the

 

terms of a trust instrument to remove, appoint, or both, 1 or more

 

trustees or to direct, consent to, approve, or veto a trustee's


actual or proposed investment or distribution decisions. A person

 

is considered an advisor even if the person is denominated by

 

another title, such as trust protector. Any person may serve as an

 

advisor.

 

     (b) "Ascertainable standard" means that term as defined in

 

section 7103 of the estates and protected individuals code, 1998 PA

 

386, MCL 700.7103.

 

     (c) "Claim" means a right to payment, whether or not the right

 

is reduced to judgment, liquidated, unliquidated, fixed,

 

contingent, matured, unmatured, disputed, undisputed, legal,

 

equitable, secured, or unsecured.

 

     (d) "Creditor" means, with respect to a transferor, a person

 

who has a claim whether directly or indirectly.

 

     (e) "Debt" means liability on a claim.

 

     (f) "Discretionary trust provision" means that term as defined

 

in section 7103 of the estates and protected individuals code, 1998

 

PA 386, MCL 700.7103.

 

     (g) "Disposition" means a transfer of property that either

 

creates a new fiduciary relation between at least 1 trustee and a

 

trust beneficiary or newly subjects property to a preexisting

 

fiduciary relation between at least 1 trustee and a trust

 

beneficiary. The transfer may be by conveyance or assignment, by

 

exercise of a power of appointment, including a power to substitute

 

1 trustee for another or to add 1 or more new trustees, or a power

 

of revocation or amendment or, except as provided in this

 

subdivision, by disclaimer, release, or relinquishment. A

 

disposition, however, does not include a disclaimer, release, or


relinquishment of property that was previously the subject of a

 

qualified disposition. For purposes of this subdivision, as between

 

a given trustee and a given beneficiary, a new fiduciary relation

 

is created whenever the terms of the governing trust instrument are

 

materially altered including alteration by an election described in

 

section 5(6) with respect to the trust beneficiary in question.

 

     (h) "Distribution decision" means a decision regarding the

 

distribution of trust property to or for the benefit of a trust

 

beneficiary. Distribution decision also includes a decision

 

regarding whether to make or guaranty a loan to or for the benefit

 

of a trust beneficiary.

 

     (i) "Fiduciary disposition" means a disposition made by a

 

trustee acting in a fiduciary capacity.

 

     (j) "Fiduciary qualified disposition" means a qualified

 

disposition made by a trustee acting in a fiduciary capacity.

 

     (k) "General power of appointment" means a general power as

 

that term is defined in section 2 of the powers of appointment act

 

of 1967, 1967 PA 224, MCL 556.112. However, a power exercisable in

 

favor of the donee, his or her estate, his or her creditors, or the

 

creditors of his or her estate that is limited by an ascertainable

 

standard is not a general power of appointment.

 

     (l) "Investment decision" means a decision regarding whether

 

or not to purchase, sell, exchange, tender, or pledge any trust

 

property. Investment decision also includes decisions regarding

 

other transactions affecting the ownership of or rights in any

 

trust property, other than distribution decisions. Unless otherwise

 

provided in the trust instrument, investment decision includes a


decision regarding whether to make or guaranty a loan to or on

 

behalf of an entity in which the trust owns an interest, directly

 

or indirectly, in the entity's debt or equity.

 

     (m) "Organization" means that term as defined in section 1106

 

of the estates and protected individuals code, 1998 PA 386, MCL

 

700.1106.

 

     (n) "Person" means that term as defined in section 1106 of the

 

estates and protected individuals code, 1998 PA 386, MCL 700.1106.

 

     (o) "Property" means that term as defined in section 1106 of

 

the estates and protected individuals code, 1998 PA 386, MCL

 

700.1106.

 

     (p) "Qualified disposition" means, subject to subparagraphs

 

(iii) and (iv), a disposition after which both subparagraphs (i)

 

and (ii) apply to the subject property:

 

     (i) The subject property is owned by 1 or more trustees at

 

least 1 of whom is a qualified trustee.

 

     (ii) The subject property is governed by a trust instrument

 

including, but not limited to, a trust instrument as modified by an

 

election described in section 5(6), under which the transferor only

 

has rights, powers, and interests that are permitted by section

 

4(2).

 

     (iii) A disposition is not a qualified disposition to the

 

extent that, at the time of the disposition, the transferor is in

 

arrears on a child support obligation by more than 30 days.

 

     (iv) A disposition is not a qualified disposition if a

 

transferor or any person that is related or subordinate to the

 

transferor within the meaning of section 672(c) of the internal


revenue code of 1986, 26 USC 672(c), may act as an advisor. For the

 

purposes of this subparagraph, act as an advisor does not include

 

the power to direct the investment decisions of the trust, the

 

power to veto a distribution from the trust, or the right to remove

 

a trustee or advisor and to appoint a new trustee or advisor.

 

     (q) "Qualified trust beneficiary" means that term as defined

 

in section 7103 of the estates and protected individuals code, 1998

 

PA 386, MCL 700.7103.

 

     (r) "Qualified trustee" means a person, other than the

 

transferor, who meets all of the following conditions:

 

     (i) For an individual, the individual is a resident of this

 

state or, in all other cases, is authorized by the law of this

 

state to act as a trustee and whose activities are subject to

 

supervision by the department of insurance and financial services,

 

the Federal Deposit Insurance Corporation, the Comptroller of the

 

Currency, or the Office of Thrift Supervision.

 

     (ii) The person maintains or arranges for custody in this

 

state of some or all of the property that is the subject of the

 

qualified disposition and administers all or part of the trust in

 

this state.

 

     (iii) The person's usual place of business where some of the

 

records pertaining to the trust are kept is located in this state

 

or, if the person does not have such a place of business, the

 

person's residence is in this state. For a corporate trustee, the

 

usual place of business is the business location of the primary

 

trust officer.

 

     (s) "Retirement benefit" means an interest in 1 of the


following types of assets if payable to a trust as a beneficiary or

 

owned by the trust: a qualified or nonqualified annuity; a benefit

 

under a qualified or nonqualified plan of deferred compensation;

 

any account in, or benefit payable under, any pension, profit-

 

sharing, stock bonus, or other qualified retirement plan; any

 

individual retirement account or trust; and all benefits under a

 

plan or arrangement that is established under section 401, 403,

 

408, 408A, or 457 or a similar provision of the internal revenue

 

code of 1986, 26 USC 401, 403, 408, 408A, and 457.

 

     (t) "Settlor" means that term as defined in section 7103 of

 

the estates and protected individuals code, 1998 PA 386, MCL

 

700.7103.

 

     (u) "Special power of appointment" means a special power as

 

defined in section 2 of the powers of appointment act of 1967, 1967

 

PA 224, MCL 556.112.

 

     (v) "Spendthrift provision" means that term as defined in

 

section 7103 of the estates and protected individuals code, 1998 PA

 

386, MCL 700.7103.

 

     (w) "Spouse" and "former spouse" mean only an individual to

 

whom the transferor was married at, or before, the time the

 

qualified disposition is made.

 

     (x) "Support provision" means that term as defined in section

 

7103 of the estates and protected individuals code, 1998 PA 386,

 

MCL 700.7103.

 

     (y) "Transferor" means any of the following, as applicable:

 

     (i) A person and, for more than 1 owner of undivided

 

interests, each of several persons, who, as a beneficial owner of


certain property, or as the holder of a general power of

 

appointment over certain property, directly or indirectly, makes a

 

disposition of the property or causes a disposition to be made.

 

     (ii) For a fiduciary disposition, the person or persons who,

 

as of the time of the fiduciary disposition, most recently fit the

 

description in subparagraph (i) with respect to the property

 

subject to the fiduciary disposition.

 

     (z) "Trust beneficiary" means that term as defined in section

 

7103 of the estates and protected individuals code, 1998 PA 386,

 

MCL 700.7103.

 

     (aa) "Trust instrument" means an instrument appointing a

 

qualified trustee or qualified trustees for the property that is

 

the subject of a disposition to which all of the following apply:

 

     (i) The instrument expressly incorporates the law of this

 

state to govern the validity, construction, and administration of

 

the trust.

 

     (ii) The instrument is irrevocable.

 

     (iii) The instrument provides that the interest of the

 

transferor or other trust beneficiary in trust property may not be

 

transferred, assigned, pledged, or mortgaged, whether voluntarily

 

or involuntarily, before the qualified trustee or qualified

 

trustees actually distribute trust property to the trust

 

beneficiary, and that provision of the trust instrument is

 

considered a restriction on the transfer of the transferor's

 

beneficial interest in the trust that is enforceable under

 

applicable nonbankruptcy law within the meaning of section

 

541(c)(2) of the bankruptcy code 11 USC 541(c)(2).


     Sec. 3. (1) The probate court has exclusive jurisdiction over

 

an action that addresses either of the following questions:

 

     (a) Whether a transfer is a qualified disposition.

 

     (b) The extent of the transferor's interest in, or the income

 

from, a qualified disposition.

 

     (2) The probate court has concurrent jurisdiction over an

 

action brought under section 5(2).

 

     (3) Venue for a proceeding under subsection (1) or (2) is as

 

follows:

 

     (a) For a trust registered under section 7209 of the estates

 

and protected individuals code, 1998 PA 386, MCL 700.7209, the

 

place of registration.

 

     (b) For a trust that is not registered, in any place where the

 

trust properly could be registered.

 

     (4) If a trust has no qualified trustee and has not been

 

registered, and there is no place in this state where the trust

 

properly could be registered, venue for a proceeding under

 

subsection (1) or (2) is in the following order of priority, except

 

to the extent otherwise provided by court rule:

 

     (a) In a county in this state in which the immediately

 

preceding qualified trustee had its usual place of business or

 

residence.

 

     (b) In a county in this state in which a trust beneficiary

 

resides.

 

     (c) In a county in this state in which any trust property is

 

located.

 

     (d) In any county in this state.


     Sec. 4. (1) A transferor has only the powers and rights that

 

are conferred by the trust instrument. Except as otherwise provided

 

in subsection (2), a transferor does not have powers or rights with

 

respect to the property that is the subject of a qualified

 

disposition or the income from the property, and any agreement or

 

understanding that purports to grant or permit the retention of any

 

greater powers or rights is void.

 

     (2) A trust instrument may provide for 1 or more of the

 

following rights, powers, or interests, none of which grants or is

 

considered, either alone or in any combination, a power to revoke a

 

trust:

 

     (a) The transferor's power to direct the investment decisions

 

of the trust.

 

     (b) The transferor's power to veto a distribution from the

 

trust.

 

     (c) A special power of appointment exercisable by will or

 

other written instrument of the transferor effective only on the

 

transferor's death.

 

     (d) The transferor's potential or actual receipt of income,

 

including rights to the income retained in the trust instrument.

 

     (e) The transferor's potential or actual receipt of income or

 

principal from a charitable remainder unitrust or charitable

 

remainder annuity trust as those terms are defined in section 664

 

of the internal revenue code of 1986, 26 USC 664; and the

 

transferor's right, at any time by written instrument delivered to

 

the trustee, to release the transferor's interest in the trust, in

 

whole or in part, in favor of a charitable organization that has or


charitable organizations that have a succeeding beneficial interest

 

in the trust.

 

     (f) The transferor's potential or actual receipt of income or

 

principal from a grantor retained annuity trust or grantor retained

 

unitrust as those terms are described in section 2702 of the

 

internal revenue code of 1986, 26 USC 2702, or the transferor's

 

receipt each year of a percentage, not to exceed 5%, as provided in

 

the governing instrument of the initial value of the trust property

 

which value may be described either as a percentage or a fixed

 

amount or determined from time to time under the governing

 

instrument.

 

     (g) The transferor's potential or actual receipt or use of

 

principal if the potential or actual receipt or use of principal

 

would be the result of a trustee's acting under any of the

 

following:

 

     (i) A discretionary trust provision.

 

     (ii) A support provision.

 

     (iii) The direction of an advisor acting under a discretionary

 

trust provision or support provision.

 

     (h) The transferor's right to remove a trustee or advisor and

 

to appoint a new trustee or advisor.

 

     (i) The transferor's potential or actual use of real property

 

held under a qualified personal residence trust within the meaning

 

of that term as described in section 2702(c) of the internal

 

revenue code of 1986, 26 USC 2702(c), or the transferor's

 

possession and enjoyment of a qualified annuity interest within the

 

meaning of that term as described in 26 CFR 25.2702-5(c)(8).


     (j) The transferor's potential or actual receipt of income or

 

principal to pay, in whole or in part, income taxes due on income

 

of the trust if the potential or actual receipt of income or

 

principal is under a provision in the trust instrument that

 

expressly provides for the payment of those taxes and if the

 

potential or actual receipt of income or principal would be the

 

result of a qualified trustee's or qualified trustees' acting in

 

any of the following ways:

 

     (i) In the qualified trustee's or qualified trustees'

 

discretion or under a mandatory direction in the trust instrument.

 

     (ii) At the direction of an advisor who is acting in the

 

advisor's discretion.

 

     (k) After the transferor's death, the power of a qualified

 

trustee to pay the transferor's debts, the expenses of

 

administering the transferor's estate, or any estate or inheritance

 

tax imposed on or with respect to the transferor's estate, without

 

regard to the source of the payment.

 

     (l) The transferor's actual or potential receipt of a minimum

 

required distribution as defined in 26 USC 4974(b) with respect to

 

a retirement benefit.

 

     Sec. 5. (1) Notwithstanding any other provision of this act,

 

with respect to any qualified disposition, a creditor has only the

 

rights provided in this section and section 7.

 

     (2) For an action brought by a creditor for an attachment or

 

other provisional remedy against property that is the subject of a

 

qualified disposition or for avoidance of a qualified disposition,

 

all of the following apply:


     (a) Except for the limitation period provided under subsection

 

(3), the action may only be brought under sections 4 and 5 of the

 

uniform fraudulent transfer act, 1998 PA 434, MCL 566.34 and

 

566.35.

 

     (b) For a creditor whose claim arose after a qualified

 

disposition, the action must involve a qualified disposition that

 

was made with actual intent to defraud the creditor.

 

     (c) The allegations in the action must be proved by clear and

 

convincing evidence.

 

     (3) A person shall not bring or maintain an action under

 

subsection (2) unless the action is commenced within either of the

 

following periods:

 

     (a) If the claim arose before the qualified disposition was

 

made, on the later of the following:

 

     (i) Two years after the qualified disposition was made or the

 

obligation was incurred.

 

     (ii) One year after the qualified disposition or obligation

 

was or could reasonably have been discovered by the claimant, if

 

the person who is or may be liable for any claim fraudulently

 

concealed the existence of the claim or the identity of any person

 

who is liable for the claim from the knowledge of the person

 

entitled to sue on the claim.

 

     (b) If the claim arose concurrent with or after the qualified

 

disposition, 2 years after the qualified disposition was made.

 

     (4) If a trust beneficiary who has an interest in a qualified

 

disposition or in property that is subject to a qualified

 

disposition is a party to an action for annulment of a marriage,


divorce, or separate maintenance, all of the following apply:

 

     (a) If the trust beneficiary is not the transferor of the

 

qualified disposition, the trust beneficiary's interest in the

 

qualified disposition or in property that is the subject of the

 

qualified disposition is not considered marital property, is not

 

considered, directly or indirectly, part of the trust beneficiary's

 

real or personal estate, and shall not be awarded to the trust

 

beneficiary's spouse in a judgment for annulment of a marriage,

 

divorce, or separate maintenance.

 

     (b) If the trust beneficiary is the transferor of the

 

qualified disposition, the trust beneficiary's interest in the

 

qualified disposition or in property that is the subject of the

 

qualified disposition is not considered marital property, is not

 

considered, directly or indirectly, part of the trust beneficiary's

 

real or personal estate, and shall not be awarded to the trust

 

beneficiary's spouse in a judgment for annulment of a marriage,

 

divorce, or separate maintenance if either of the following apply:

 

     (i) The trust beneficiary transferred the property that is the

 

subject of the qualified disposition more than 30 days before the

 

trust beneficiary's marriage that is the subject of the action.

 

     (ii) The parties to the marriage agree that this subdivision

 

applies to the qualified disposition.

 

     (c) If subdivisions (a) and (b) do not apply, subsections (2)

 

and (3) do not limit the transferor's spouse's property division

 

claims.

 

     (5) Except as otherwise provided in subdivision (a), a

 

fiduciary qualified disposition is considered made as of the time


the property that is subject to the disposition was first

 

transferred to the trustee who is making the fiduciary qualified

 

disposition, or any predecessor of that trustee in an unbroken

 

succession of fiduciary ownership of the property, in a form that

 

meets either of the following requirements:

 

     (a) The requirements of a qualified disposition. If the

 

property that is subject to the qualified disposition was first

 

transferred to the trustee making the disposition or the

 

predecessor trustee before the effective date of this act in a form

 

that would otherwise meet the requirements of a qualified

 

disposition, the qualified disposition is considered to have been

 

made as of the effective date of this act.

 

     (b) Both of the following requirements:

 

     (i) The requirements of section 2(p)(ii).

 

     (ii) The requirements to be considered a qualified disposition

 

or its equivalent under the laws of another state.

 

     (6) If a trustee of an existing trust proposes to make a

 

disposition that, but for the exercise of authority granted in this

 

subsection, would not be a qualified disposition because of a

 

nonconforming power of appointment of the transferor, the trustee

 

may modify the trust instrument by delivering to the qualified

 

trustee an irrevocable written election to modify the nonconforming

 

power of appointment to conform to the requirements of section

 

4(2)(c) or section 4(2)(k). An irrevocable written election

 

described in this section must include both of the following:

 

     (a) A description of the modified power of appointment.

 

     (b) The transferor's written consent to the modification.


The transferor's consent is not a disposition.

 

     (7) With respect to a qualified disposition, a creditor does

 

not have a claim or cause of action against any of the following:

 

     (a) The trustee of a trust that is the subject of a qualified

 

disposition.

 

     (b) An advisor of a trust that is the subject of a qualified

 

disposition.

 

     (c) A person involved in the counseling, drafting,

 

preparation, execution, or funding of a trust that is the subject

 

of a qualified disposition.

 

     (8) If more than 1 qualified disposition is made by means of

 

the same trust instrument, all of the following apply:

 

     (a) With respect to a prior qualified disposition, both of the

 

following apply:

 

     (i) The making of a subsequent qualified disposition is

 

disregarded in determining whether a creditor's claim is

 

extinguished as provided in subsection (3).

 

     (ii) The making of a subsequent qualified disposition is

 

disregarded in determining, as provided in subsection (4), whether

 

a trust beneficiary's interest in a qualified disposition or in

 

property that is the subject of a qualified disposition is

 

considered marital property, is considered part of a trust

 

beneficiary's real or personal estate, or may be awarded to the

 

trust beneficiary's spouse in a judgment for annulment of a

 

marriage, divorce, or separate maintenance.

 

     (b) A distribution to a trust beneficiary is considered to

 

have been made from the most recent qualified disposition.


     (9) In an action against a trustee that received property in a

 

qualified disposition, if a court takes any action declining to

 

apply the law of this state in determining the validity,

 

construction, or administration of the trust, or the effect of a

 

spendthrift provision in the trust instrument, the trustee shall

 

immediately on the court's action, and without the further order of

 

any court, cease in all respects to be trustee of the trust. The

 

former trustee does not have any power described in section 4(2)

 

except to convey the trust property to the successor trustee and,

 

at the former trustee's election, to petition the court for

 

appointment of a successor trustee and collect its attorney fees,

 

costs, and expenses. If the trust instrument does not provide for a

 

successor trustee and the trust would otherwise be without a

 

trustee, all of the following apply:

 

     (a) The probate court, on the request of a qualified trust

 

beneficiary of the trust, shall appoint a successor trustee on the

 

terms and conditions it determines to be consistent with the

 

purposes of the trust and this act.

 

     (b) A former trustee may, but has no duty to, petition the

 

probate court to appoint a successor trustee if a petition for

 

appointment of a successor trustee is not brought by a qualified

 

trust beneficiary within 30 days after the date on which the former

 

trustee ceases to be a trustee of the trust. If the former trustee

 

elects to petition for the appointment of a successor trustee, the

 

former trustee is entitled to reimbursement for all attorney fees,

 

costs, and expenses associated with the petition, and the amount of

 

the attorney fees, costs, and expenses is a lien against the


trust's property.

 

     (10) A valid lien attaching to property before a qualified

 

disposition of the property survives the disposition, and the

 

trustee takes title to the property subject to the valid lien and

 

the trustee is subject to any agreements that created or perfected

 

the valid lien.

 

     (11) A written agreement between a transferor and a creditor

 

may provide for any of the following:

 

     (a) The transferor will have a continuing or periodic

 

obligation to disclose any qualified dispositions to the creditor.

 

     (b) A qualified disposition will require the prior written

 

approval of the creditor.

 

     (c) That the transferor is under those other obligations as

 

the creditor may require with respect to qualified dispositions.

 

     (12) If a transfer that would otherwise be a qualified

 

disposition violates an agreement with a creditor described in

 

subsection (11), with respect to the creditor only, the transfer is

 

not a qualified disposition and this act does not affect the rights

 

of the creditor.

 

     Sec. 6. (1) Except as provided in subsection (6), for purposes

 

of this section, a "qualified affidavit" means an affidavit in

 

which the transferor states that at the time of the transfer of the

 

property to the trust all of the following apply:

 

     (a) The transferor has full right, title, and authority to

 

transfer the property to the trust.

 

     (b) The transfer of the property to the trust will not render

 

the transferor insolvent.


     (c) The transferor does not intend to defraud a creditor by

 

transferring the property to the trust.

 

     (d) The transferor does not know of or have reason to know of

 

any pending or threatened court actions against the transferor,

 

except for those court actions identified by the transferor on an

 

attachment to the affidavit.

 

     (e) The transferor is not involved in any administrative

 

proceedings, except for those administrative proceedings identified

 

on an attachment to the affidavit.

 

     (f) The transferor is not currently in arrears on a child

 

support obligation by more than 30 days.

 

     (g) The transferor does not contemplate filing for relief

 

under the bankruptcy code, 11 USC 101 to 1532.

 

     (h) The property being transferred to the trust was not

 

derived from unlawful activities.

 

     (2) The transferor shall sign a qualified affidavit before a

 

qualified disposition is made.

 

     (3) A qualified affidavit is defective if it materially fails

 

to meet the criteria set forth in subsection (1), except that a

 

qualified affidavit is not defective because of any of the

 

following:

 

     (a) Nonsubstantive variances from the language set forth in

 

subsection (1).

 

     (b) Statements or representations in addition to those set

 

forth in subsection (1) if the statements or representations do not

 

contradict those required by subsection (1).

 

     (c) Technical errors in administering an oath if the errors


were not the fault of the transferor and the transferor reasonably

 

relied on another person to prepare or administer the oath.

 

     (4) A qualified affidavit is not required in any of the

 

following circumstances:

 

     (a) From the settlor for a fiduciary qualified disposition.

 

     (b) From a transferor who is not the settlor of the qualified

 

disposition, except to the extent the transferor is a beneficiary

 

of the qualified disposition and the property subject to the

 

qualified disposition was not previously subject to a qualified

 

disposition with respect to which the transferor signed a qualified

 

affidavit.

 

     (c) In connection with dispositions that are part of, required

 

by, or the direct result of a prior qualified disposition supported

 

by a qualified affidavit that otherwise complies with the

 

requirements of subsection (1).

 

     (5) If a qualified affidavit is required by this section, and

 

a transferor fails to timely sign a qualified affidavit or signs a

 

defective affidavit, the failure or defect may be considered as

 

evidence in an action described in section 5(2) to the extent

 

permitted by the Michigan rules of evidence, but the validity of

 

the qualified disposition is not affected in any other way because

 

of the failure or defect.

 

     (6) If subsection (4)(b) applies, the required affidavit must

 

omit the statements described subsection (1)(a) and (c), and

 

include a statement that the qualified disposition is not intended

 

to defraud any creditor.

 

     Sec. 7. (1) A qualified disposition may be avoided only to the


extent necessary to satisfy or provide for the present value,

 

taking into consideration any uncertainty of the transferor's debt

 

to the creditor at whose instance the disposition had been avoided.

 

     (2) If all or any portion of a qualified disposition is

 

avoided as provided in subsection (1), all of the following apply:

 

     (a) If the court is satisfied that a trustee has not acted in

 

bad faith in accepting or administering the property that is the

 

subject of the qualified disposition, both of the following apply:

 

     (i) The trustee has a lien against the property that is the

 

subject of the qualified disposition in an amount equal to the

 

entire cost, including attorney fees, incurred by the trustee in

 

the defense of an action to avoid the qualified disposition. The

 

lien has priority over all other liens against the property,

 

whether or not the other liens accrued or were recorded before the

 

accrual of the lien created by this act.

 

     (ii) The qualified disposition is avoided subject to the fees,

 

costs, preexisting rights, claims, and interests of the trustee and

 

of any predecessor trustee that has not acted in bad faith.

 

     (b) If the court is satisfied that a trust beneficiary has not

 

acted in bad faith, the avoidance of the qualified disposition is

 

subject to the right of the trust beneficiary to retain any

 

distribution received before the creditor's commencement of an

 

action to avoid the qualified disposition. It is presumed that the

 

trust beneficiary, including a trust beneficiary who is also a

 

transferor of the trust, did not act in bad faith merely by

 

creating the trust or by accepting a distribution made under the

 

terms of the trust.


     (c) For purposes of this subsection, it is presumed that a

 

trustee did not act in bad faith merely by accepting the property,

 

with or without a qualified affidavit, or by making any

 

distribution under the terms of the trust.

 

     (3) A creditor has the burden of proving by clear and

 

convincing evidence that a trustee or trust beneficiary acted in

 

bad faith as required under subsection (2), except that, for a

 

trust beneficiary who is also the transferor, the burden on the

 

creditor is to prove that the transferor-beneficiary acted in bad

 

faith by a preponderance of the evidence. This subsection provides

 

substantive not procedural rights.

 

     (4) With respect to a qualified disposition, a levy,

 

attachment, garnishment, notice of lien, sequestration, or other

 

legal or equitable process is permitted only in those circumstances

 

permitted by this act.

 

     (5) Notwithstanding any other provision of this act or section

 

13 of the powers of appointment act of 1967, 1967 PA 224, MCL

 

556.123, a creditor does not have a right against the interest of a

 

trust beneficiary in a trust or portion of a trust that was a

 

qualified disposition solely because the trust beneficiary has the

 

right to authorize or direct the trustee to pay all or part of the

 

trust property in satisfaction of estate or inheritance taxes

 

imposed on or with respect to the trust beneficiary's postdeath

 

estate, or the debts of the trust beneficiary's postdeath estate,

 

or the expenses of administering the trust beneficiary's postdeath

 

estate, unless the trust beneficiary actually directs the payment

 

of the taxes, debts, or expenses, and then only to the extent of


the direction.

 

     (6) Except as otherwise provided in the trust instrument, if a

 

married couple make a qualified disposition of property and,

 

immediately before the qualified disposition, the property, any

 

part of the property, or any accumulation to the property was,

 

under applicable law, owned by the married couple as tenants by the

 

entireties, then notwithstanding the qualified disposition, the

 

property, any part of the property, or any accumulation to the

 

property is, while held in trust during the lifetime of both

 

spouses, treated as though it were tenancy by the entireties

 

property. In an action concerning whether a creditor of either or

 

both spouses may recover the debt from the trust, on avoidance of

 

the qualified disposition, the sole remedy available to the

 

creditor with respect to trust property treated as though it were

 

tenancy by the entireties property is an order directing the

 

trustee to transfer the property to both spouses as tenants by the

 

entireties.

 

     (7) Except as otherwise provided in subsection (6), on

 

avoidance of a qualified disposition to the extent permitted under

 

subsection (1), the sole remedy available to the creditor is an

 

order directing the trustee to transfer to the transferor the

 

amount necessary to satisfy the transferor's debt to the creditor

 

at whose instance the disposition has been avoided.

 

     Sec. 8. (1) If a person serving as qualified trustee ceases to

 

meet the requirements of a qualified trustee and there remains no

 

trustee that meets the requirements of a qualified trustee, the

 

person serving as qualified trustee is considered to have resigned


as of the time of the cessation, and the successor qualified

 

trustee provided for in the trust instrument becomes a qualified

 

trustee of the trust on the successor qualified trustee's

 

acceptance of trusteeship, or in the absence of a successor

 

qualified trustee provided for in the trust instrument, the probate

 

court shall, on petition of a qualified trust beneficiary, appoint

 

a successor qualified trustee.

 

     (2) A disposition that was a qualified disposition does not

 

cease to be considered a qualified disposition as a result of a

 

subsequent vacancy in the position of qualified trustee if a

 

successor qualified trustee is appointed or a proceeding for the

 

appointment of a successor qualified trustee is commenced within a

 

reasonable time after a person with authority to appoint a

 

qualified trustee or commence a proceeding to appoint a qualified

 

trustee knows of the vacancy.

 

     Sec. 9. (1) A trust beneficiary does not have the power or

 

capacity to transfer any of the income from a trust or portion of a

 

trust that is a qualified disposition by his or her order,

 

voluntary or involuntary, or by an order or direction of a court.

 

     (2) Except as otherwise provided in this act, the interest of

 

a beneficiary in a trust or portion of a trust that is a qualified

 

disposition is not subject to a process of attachment issued

 

against the beneficiary, and may not be taken in execution under

 

any form of legal process directed against the beneficiary,

 

trustee, trust estate, or any part of the income of the trust

 

estate, but the whole of the trust estate and the income of the

 

trust estate must go to and be applied by the trustee solely for


Senate Bill No. 597 as amended September 21, 2016

the benefit of the beneficiary, free, clear, and discharged of and

 

from all obligations of the beneficiary.

 

     (3) The trustee of a qualified disposition shall disregard and

 

oppose an assignment or other act, voluntary or involuntary, that

 

is attempted contrary to this section. The trustee is entitled to

 

reimbursement for all attorney fees, costs, and expenses associated

 

with carrying out this duty, and the amount of the attorney fees,

 

costs, and expenses is a lien against the property that is the

 

subject of the qualified disposition. A trustee is not liable, and

 

a trust beneficiary or any successor trust beneficiary does not

 

have a claim or cause of action against a trustee, for a breach of

 

this duty unless the trustee's breach was in bad faith or the

 

result of reckless indifference to the purposes of the trust or the

 

interests of the trust beneficiaries.

 

     (4) This section does not prohibit a beneficiary from

 

disclaiming an interest in a trust or portion of a trust that is a

 

qualified disposition or from exercising a power of appointment.

 

     Sec. 10. (1) Subject to section 5(5), this act applies to

 

qualified dispositions made on or after the effective date of this

 

act.

 

     (2) If any provision of this act conflicts with any provision

 

of chapter 63 of 1846 RS 63, MCL 555.1 to 555.28, or the estates

 

and protected individuals code, 1998 PA 386, MCL 700.1101 to

 

700.8206, the provision of this act prevails.

[Enacting section 1. This act takes effect 90 days after the date it is enacted into law.]

     Enacting section [2]. This act does not take effect unless House

 

Bill No. 5504 of the 98th Legislature is enacted into law.