Court Opinion

ID: 2745366
Source: CourtListenerOpinion
Date Created: 2014-10-24 14:05:12.406407+00
Date Added: 2024-06-11T11:01:07.371809
License: Public Domain

STATE OF MICHIGAN

                             COURT OF APPEALS

In re JOSEPH W. BROOKS III TRUST NUMBER
ONE.

CHARLES FRANKLIN WALKER,                                           UNPUBLISHED
                                                                   October 23, 2014
              Petitioner-Appellant,

v                                                                  No. 314619
                                                                   Ingham Probate Court
JOSEPH W. BROOKS III TRUSTEE,                                      LC No. 10-001791-TV

              Respondent-Appellee.

Before: HOEKSTRA, P.J., and SAWYER and GLEICHER, JJ.

GLEICHER, J. (concurring).

       I concur with the result reached by the majority. I write separately to offer another
reason for reversing the probate court.

       Respondent Joseph W. Brooks III admits that the Joseph W. Brooks III Trust Number
One was created as an estate planning device intended to avoid payment of certain federal estate
taxes. Respondent’s brief on appeal states: “The purpose of the Bypass Trust was to utilize and
preserve Appellee’s federal estate tax exemption amount for the benefit of his surviving spouse.”

        The Trust provision limiting expenditures during Edwina’s lifetime for her “health,
support or maintenance” stems from federal tax law and must be interpreted in that context. In a
discretionary trust such as this one, the Internal Revenue Code (IRC) permits invasion of the
trust corpus only if limited by “an ascertainable standard relating to the health, education,
support, or maintenance” of the decedent. 26 USC 2041(b)(1)(A). The corresponding federal
regulation provides:

       Powers limited by an ascertainable standard. A power to consume, invade, or
       appropriate income or corpus, or both, for the benefit of the decedent which is
       limited by an ascertainable standard relating to the health, education, support, or
       maintenance of the decedent is, by reason of [26 USC 2041(b)(1)(A),] not a
       general power of appointment. A power is limited by such a standard if the extent
       of the holder’s duty to exercise and not to exercise the power is reasonably

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       measurable in terms of his needs for health, education, or support (or any
       combination of them). As used in this subparagraph, the words “support” and
       “maintenance” are synonymous and their meaning is not limited to the bare
       necessities of life. A power to use property for the comfort, welfare, or happiness
       of the holder of the power is not limited by the requisite standard. Examples of
       powers which are limited by the requisite standard are powers exercisable for the
       holder’s “support,” “support in reasonable comfort,” “maintenance in health and
       reasonable comfort,” “support in his accustomed manner of living,” “education,
       including college and professional education,” “health,” and “medical, dental,
       hospital and nursing expenses and expenses of invalidism.” In determining
       whether a power is limited by an ascertainable standard, it is immaterial whether
       the beneficiary is required to exhaust his other income before the power can be
       exercised. [26 CFR 20.2041-1(c)(2) (emphasis added).]

        Respondent’s power to make distributions was limited by the language of the trust and
the underlying tax law requirement of the “ascertainable standard.” The trust’s drafters
recognized that to accomplish the estate planning goal of sheltering income from federal
taxation, the trust had to establish an “ascertainable standard” for the principal distributions.
Respondent was not at liberty to permit expenditures that potentially ran afoul of this carefully
crafted language and, thereby, the IRC. See Hemphill v Shore, 295 Kan 1110, 119-1121; 289
P3d 1173 (2012) (collecting cases); Forsee v United States, 76 F Supp 2d 1135 (D Kansas,
1999). His failure to abide by the trust provisions constituted a breach of his fiduciary duty.

                                                           /s/ Elizabeth L. Gleicher

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