August 1999
Dear Friends
In an effort to keep our clients and friends apprised of recent legal developments which may affect them in their personal, financial and legal planning, we periodically notify them by a letter or memorandum summarizing areas that we think will be of interest. In this brief memo we focus on:
MICHIGAN ADOPTS THE ESTATES AND PROTECTED INDIVIDUALS CODE
On April 1, 2000, the Estates and Protected Individuals Code ("EPIC") will become effective. EPIC will be applicable to all pending probate proceedings and those commenced in probated court after April 1, 2000. The rules of document construction contained in EPIC will apply to documents drafted before April 1, 2000, unless the documents clearly evidence a contrary intent.
A brief description of several highlights of EPIC follows:
1. EPIC enacts the Michigan prudent investor rule which is derived from the Uniform Prudent Investor Act. This new rule is based on modern portfolio theory and eliminates categorical restrictions on the types of investments that may be made by a fiduciary. In fact, § 1503(4) provides that "A particular investment is not inherently prudent or imprudent." However, diversification of investments is required by EPIC. According to §1502, "A fiduciary shall invest and manage assets held in a fiduciary capacity as a prudent investor would, taking into account the purposes, terms, distribution requirements expressed in the governing instrument, and other circumstances of the fiduciary estate." Furthermore, according to § 1503 "A fiduciary's investment and management decisions with respect to individual assets shall be evaluated not in isolation, but rather in the context of the fiduciary estate portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the fiduciary estate."
2. The rules concerning intestate succession (what happens when a person dies without a Will) have been changed. For example the intestate share of a decedent's surviving spouse, in the case where there are surviving descendants of the marriage, will be "The first $150,000.00 plus 1/2 of any balance of the intestate estate, if all of the decedent's surviving descendants are also descendants of the surviving spouse and there is no other descendant of the surviving spouse who survives the decedent." The $150,000.00 amount will be adjusted for inflation. Under current law and with the same facts, the surviving spouse's share would have been $60,000.00 plus 1/2 of the balance of the intestate estate.
3. Distribution according to the term "right of representation" has been changed. This concept is easier to illustrate than to define. The following example was given by John Martin, an attorney who some have described as the father of EPIC: A single mother dies survived by one son, one grandchild of a deceased son, and five grandchildren of a deceased daughter. Under the current law, the son takes 1/3, the one grandchild of the deceased son takes 1/3 and the five grandchildren of the deceased daughter each take 1/15. Under EPIC, the surviving son will take 1/3, and the six grandchildren will take 1/9 each. According to Mr. Martin, the change is based on overwhelming empirical evidence that a grandparent would treat all grandchildren equally in these circumstances. Of course, if this is not the result that a client wants to achieve, a Will and/or Trust can be drafted to obtain the desired result.
4. Instead of having two probate procedures, one being independent probate and the other being supervised probate, there are now three different types of probate proceedings:
A. Informal proceedings defined as "proceedings for a probate of a will or appointment of a personal representative conducted by the probate register without notice to interested parties" prior to the granting of the initiating application. This type of proceeding is similar to the current independent probate proceeding.
B. Formal proceedings "means proceedings conducted before a judge with notice to interested persons." This type of "proceeding is litigation to determine whether a decedent left a valid will."
c. Supervised Administration is defined as a "proceeding to secure complete administration and settlement of a decedent's estate under the court's continuing authority that extends until entry of an order approving estate distribution and discharging the personal representative or other order terminating the proceeding."
5. A trustee may follow the notice procedure used in probate
proceeding to shorten the statute of limitations on claims against the trust,
each trustee and a trust beneficiary to four months. Please call if you would
like further information about EPIC. Also, if you know anyone else who would
like a copy of this Memorandum, please let us know. This Memorandum is intended
to provide general information concerning legal developments. It is not intended
to be and should not be regarded as a legal opinion or legal advice on which
you should rely without seeking legal counsel