Smith v. Stephenson (In re Estate of Stephenson)

1

In re ESTATE OF VERNON LEROY STEPHENSON.

CHRISTINA SMITH, G. SCOTT SMITH, and STEPHEN SMITH, Appellees/Cross-Appellants, v. RANDAL STEPHENSON, Personal Representative of the ESTATE OF VERNON LEROY STEPHENSON, Appellant/Cross-Appellee.

In re STEPHENSON FAMILY TRUST.

CHRISTINA SMITH, G. SCOTT SMITH, and STEPHEN SMITH, Appellees/Cross-Appellants, v. RANDAL STEPHENSON, Successor Trustee of the STEPHENSON FAMILY TRUST, Appellant/Cross-Appellee.

Nos. 360453, 360513

Court of Appeals of Michigan

May 18, 2023

UNPUBLISHED

Genesee Probate Court LC Nos. 15-202160-DA, 17-208550-TV.

Before: Jane E. Markey, P.J., and Christopher M. Murray and Kathleen A. Feeney, JJ.

PER CURIAM.

Appellant Randal Stephenson (Stephenson), as Personal Representative of the Estate of Vernon Leroy Stephenson (the Estate), appeals by right in Docket No. 360453. And Stephenson, as Successor Trustee of the Stephenson Family Trust (the Trust), also appeals by right in Docket No. 360513. In a single appellate brief covering both docket numbers, Stephenson challenges the probate court's opinion and judgment and its order on reconsideration and clarification that were entered following a bench trial. Appellees, Christina Smith, G. Scott Smith and Stephen Smith (collectively the Smiths), cross-appeal one aspect of the probate court's rulings. This Court consolidated the two appeals. In re Stephenson Estate; In re Stephenson Family Trust, unpublished order of the Court of Appeals, entered March 8, 2022 (Docket Nos. 360453 and 360513). We affirm in part and reverse and remand in part.

I. EARLIER PROCEEDINGS AND OPINION BY THIS COURT

In earlier proceedings, the probate court granted partial summary disposition in favor of the Smiths, and Stephenson and the Smiths appealed the ruling to this Court. This Court affirmed in part and reversed and remanded in part. In re Vernon Stephenson Estate, unpublished per curiam opinion of the Court of Appeals, issued July 20, 2020 (Docket Nos. 348207 and 348210); unpub op at 9. We incorporate by reference this Court's previous opinion, which set forth the basic facts and procedural history of the litigation up to and including summary disposition. We will not repeat those facts and that history here. This Court concluded that Stephenson's durable power of attorney (DPOA) and the Trust gave Stephenson the authority "to make limited gifts to himself and to third parties." Id. The panel further ruled that the probate court erred by determining that Stephenson's "power to make distributions was limited by the gift-giving provision of the Trust[.]" Id. The Court explained that in addition to authorizing Stephenson "to make gifts, the Trust gave [Stephenson] discretion to distribute the Trust's assets for the benefit of the beneficiaries." Id. But the discretion was not unlimited, and the Court noted that there remained "factual questions about whether the distributions and gifts [Stephenson] made under the terms of the Trust violated Michigan law." Id. This Court also held that the probate court did not err by finding that a promissory note pursuant to which Stephenson and his wife agreed to repay the decedents^[1]$120,000 plus interest was not discharged or forgiven and was subject to collection by the Estate. Id. at 2, 9.

II. REMAND PROCEEDINGS

On remand, a stipulated order was entered on November 17, 2020, in which the parties identified 15 issues to be resolved at trial. A two-day bench trial was conducted on August 19 and 20, 2021. Numerous documents were admitted into evidence, and testimony was provided by Stephenson, Christina Smith (Christina), and L. David Lawson, who was an attorney who drafted a 2014 amendment to the Trust. 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. In February 2022, the probate court also issued an order on motions filed by Stephenson and the Smiths seeking clarification and reconsideration. We shall discuss the testimony and documentary evidence presented at trial and the probate court's reasoning and rulings in the context of our analysis where pertinent to the issues raised on appeal. As a cursory summarization, the probate court ruled that Stephenson violated the Trust with respect to distributions made to himself and his children following Vernon's death, that those invalid distributions constituted statutory conversion justifying treble damages, that a $10,000 loan to Stephenson had not been discharged or forgiven, that Stephenson was to be removed as personal representative and trustee and replaced by Christina in those roles, that the Smiths were entitled to attorney fees and costs paid from Trust assets, and that the 2014 amendment to the Trust was valid and enforceable.

III. PERTINENT TRUST PROVISIONS

The focus of this litigation was on Article Four, Sections D and G of the 2010 Trust, which provided as follows:

D. INCAPACITY OF THE SURVIVING TRUSTMAKER OR BOTH TRUSTMAKER(S):

If the surviving Trustmaker or both of us are replaced as trustee(s) of this trust as provided above, the successor trustee(s) shall use the trust estate for our benefit and for the benefit of anyone else authorized by Article One or Two of this living trust. Any income not paid to or for our benefit or to or for the benefit of other authorized beneficiaries shall be added to the principal.

The foregoing shall also apply to distributions by the trustee(s) whenever the surviving Trustmaker or both of us who are not serving as trustee(s) become incapacitated.....

G. GIFTING AND LOANS:

If the surviving Trustmaker or both of us are replaced as trustee(s) of this trust as provided above, the successor trustee(s) shall be fully authorized to make gifts from this trust to third parties or to the successor trustee(s) as individual(s) as determined in the sole discretion of the successor trustee(s), provided said gifts qualify for the annual exclusion under Sections 2503(b), 2503(c) and 2503(e) of the Internal Revenue Code [IRC] of 1986, as subsequently amended.^[2] Additionally, if the Trustmakers keep a record of specific loans to beneficiaries made during the Trustmakers' lifetimes, and desire that said loans be considered advances against inheritance, the Trustmakers will attach a list so stating, and hereby direct the successor trustee(s) to deduct the loan amounts from each respective share that the named beneficiary would have received. Further, Trustmakers hereby forgive any loans that exceed any beneficiary's share of trust proceeds.

Also critical to this case is Article One, Section J of the Trust, which stated, in part, that "[u]pon the death of the survivor of us, our successor trustee(s) shall take charge of the assets then remaining in this trust and distribute them according to the plan of distribution in Article Two of this Declaration of Trust document."^[3] Article Two, Section A, Subsection 2.d. provided for the distribution of the net proceeds of the Trust in accordance with Attachment A.^[4] And Attachment A awarded 50% of the Trust estate to Stephenson, 25% of the Trust estate to Christina, and 25% of the Trust estate to the four grandchildren, divided into equal shares. Under a February 2014 amendment to the Trust drafted by attorney Lawson and executed by Kathleen Stephenson, the distribution of the net proceeds of the Trust "after the death of the surviving trustmaker" was modified.^[5] Now, Stephenson was awarded 50% and Christina was awarded 50% of "[a]n undivided one-half of the Trust assets," and, with respect to the other undivided one-half of the Trust assets, Stephenson was awarded 50%, Christina was awarded 25%, and the four grandchildren were awarded 25% in equal shares. The net effect still awarded Stephenson 50% of the total Trust estate, but Christina's share of the total Trust estate was increased to 37.5%. The changes were made directly to Attachment A. The probate court's ruling that the amendment was valid is one of the issues raised on appeal.

IV. ANALYSIS

A. STANDARDS OF REVIEW AND GOVERNING PRINCIPLES

We review for an abuse of discretion a probate court's dispositional rulings following an evidentiary hearing or trial. In re Portus, 325 Mich.App. 374, 381; 926 N.W.2d 33 (2018). A probate court abuses its discretion when it makes a decision that falls outside the range of reasonable and principled outcomes. Id. An abuse of discretion necessarily occurs when the probate court makes an error of law. Id. This Court reviews for clear error the factual findings underlying the probate court's ruling. Id. A factual finding is clearly erroneous when this Court is left with a definite and firm conviction that a mistake was made, even when there is evidence to support the court's finding. Id." 'The reviewing court will defer to the probate court on matters of credibility, and will give broad deference to findings made by the probate court because of its unique vantage point regarding witnesses, their testimony, and other influencing factors not readily available to the reviewing court.'" In re Conservatorship of Brody, 321 Mich.App. 332, 336; 909 N.W.2d 849 (2017), quoting In re Erickson Estate, 202 Mich.App. 329, 331; 508 N.W.2d 181 (1993). "We review de novo a probate court's construction and interpretation of the language used in a will or a trust." In re Stillwell Trust, 299 Mich.App. 289, 294; 829 N.W.2d 353 (2012).^[6]

A court's lone objective when construing the language of a trust is to ascertain and give effect to the settlor's intent. Id. Absent an ambiguity, the words contained in a trust document serve as the best indicators when attempting to discern the meaning of the trust and its intended operation. Id. The intent of the settlor is...