In 1978, the Michigan Revised Probate Code became effective. 10 years later, the then Probate and Trust Law Section Council of the State Bar of Michigan began work on a successor. Their work seems to have proceeded unnoticed, if not unhearalded or unrevealed, until this year.

Beginning in the Spring of 1995, the Michigan Bar began to hear of seminars and other media events being offered in introduction of a proposed new probate statute. Normal efforts by my office to obtain copies of this work were unavailing.

More recently, the now Michigan Probate and Estate Planning Journal, the official publication arm of the now Michigan Probate and Estate Planning Section, devoted an entire issue to the project. Still, no bills, much less acts, had come to my attention.

Finally, when Secretary Rebecca Sanford, Secretary of the Berrien County Bar Association, asked me to talk on the subject to you tonight, I asked my legal assistant, Sue Rothrock, to obtain a copy of the bill for me, from one of the drafting group. She met with resistance from that attorney's office, and I took the call. I requested a copy of the bill that was the subject of the Section's Journal issue, and was informed that the Legislative Service Bureau had requested that the Council not disseminate copies of the proposal, for fear of circulation of confusingly different drafts.

I said that I would report to you tonight with or without the proposal, and if without, that my address would be limited to a narrative of the refusal to furnish the statute revision proposal.

1. Some Historical Notes

I obtained the draft, as requested, on computer disk. It is over 200 pages in length. I have been asked by the drafters to state that further dissemination is discouraged by the Legislative Service Bureau, that it is preliminary work of committee members only, and that it is subject to change.

The question, of course, arises in my mind as to why we are trying to replace the Revised Probate Code. It seems to me that though the bar and the bench have pretty well figured out the 1978 version, though the Supreme Court and Court of Appeals have not. My clients are not clamoring for reform. I am not clamoring for reform. I heard none of you clamoring for reform. But unless someone does something, we will have reform.

One of the problems with a compulsory (they call it "integrated") bar such as that in Michigan is that a Bar Section Council may have considerable input with the judiciary, legislature and administrative bodies, without meaningful input from the Bar itself.

Let's take a look at the draft. I read it, and found it interesting, voluminous, prolix, elaborate, micromanagerial, verbose, turgid, complex, and frustrating. Those of us who specialize in the area have a large task ahead, if it passes. I would have thought, and hoped that the Council would think, that keeping up with the absurd volume of income and transfer tax legislation and cases would be enough for most.

And those of the Bar who think that anyone can write a will as a matter of God-given grace, had better have their professional liability insurance paid up. Because it is also counter-intuitive. And drafting-resistant.

2. Some Surprising Examples

By counter-intuitive and drafting-resistant I mean that saying what you want to have happen in a document will not have that effect.

Example: "I direct that life insurance death benefit be paid by XYZ Insurance Company to my descendants, by representation." (This may not be great drafting, but it illustrates my point.)

Facts: Decedent left 1 child and two predeceased children, one with two and one with three children.

Expectation: The policy is paid in thirds, with one child, 2 grandchildren and 3 grandchildren each taking 1/3.

Surprise: The policy is paid in thirds, with one child taking 1/3 and the 5 grandchildren sharing 2/3 equally. The statutory provisions are at the end of this paper.

Example: "I give my house to my daughter if she survives me. I give my residuary estate to my son."

Facts: Decedent left 1 house, a deceased daughter with 3 children (why, you ask, is this relevant?), and a son.

Expectation: The son gets everything.

Surprise: The daughter's children get the house. The statutory provisions are at the end of this paper.

Example: "This trust shall be exempt from registration."

Expectation: It is exempt from registration.

Surprise: The trust must be registered.

3. Some Additional Features

Self-Proving Wills, which are common in most states, are provided for in the new statute. Of course, Michigan has had self-proving wills, as a practical matter, for sometime.

The Michigan Statutory Will, for better of for worse, lingers on, and has persisting trust powers as well.

The statute engrafts the concept of an enhanced probate estate, both for drafting and construction purposes, and for the purposes of electing against the will.

Elaborate, formula-based and graduated widow's election rights, and intestate widow's shares, are provided for.

If you thought that two kinds of probate, supervised and independent, were enough, the new draft proposes four: formal, informal, independent, and supervised. Knowing the propensity of the Michigan Supreme Court to second guess such decisions and elections, I am sure that you will all look forward to their handling of these multiple alternatives.

Oddly, the Statute contains some of its own notice provisions, areas which the Supreme Court generally acts instead.

The Statute states that it abolishes dower. That, however, may be more difficult than the drafters think, because dower is a constitutional right.

It is not yet clear to me whether the fraud exception for independent probate is better or worse under the new statute, but it is still present and will impair the finality of such proceedings.

Ancillary administration is, at long last, provided for.

The Durable Power of Attorney now has a provision which would make it persistent notwithstanding "the lapse of time". There are some of us who thought that Durable Powers of Attorney were not revoked by the lapse of time, under current law.

A whole set of provisions dealing with the ownership and signatory authority, pre- and post- death, of non-probate assets, has been added, and will probably create confusion in the hands of the unrepresented, though some of the provisions will be useful to attorneys.

Finally, and by no means least important, a whole new standard for fiduciary responsibility is expressly set forth in the "Prudent Investor Rule", also appended at the end of these notes. You may recall the Uniform Management of Institutional Funds Act first engrafted the concept of total return requirements upon investment policy in the state of Michigan. If you didn't think that it was already, at least by analogy, part of a Michigan fiduciary's responsibility, the new statute will make it abundantly clear. A brief perusal of those provisions indicates that individuals should think at least twice before undertaking such responsibilities.

4. Some Conclusions

I had heard no urgent cry that we need a new Probate Code. I had thought that the one we had worked reasonably well. If there are some specific changes that cry out for attention, perhaps they could be addressed.

But we may not have a choice in the matter.

I suggest we do our homework and tell our representatives what we think. If this new provision, or something like it, passes, we will have plenty of homework then.

I will be happy to provide a copy of the statute in WordPerfect 5.X format or other reasonable alternative on disk or via email to whoever wants it, with the understanding that the Legislative Service Bureau frowns upon my actions.

Vance A. Fisher

November 15, 1995

Copyright 1995,1996 Vance A. Fisher

All rights reserved

Appendix

The following provisions are from the March 15, 1995 draft, as furnished. The provisions are subject to change.

Section 2103. Share of Heirs Other Than Surviving Spouse.

Any part of the intestate estate not passing to the decedent's surviving spouse under Section 2102, or the entire intestate estate if there is no surviving spouse, passes in the following order to the individuals designated below who survive the decedent:

(1) To the decedent's descendants by representation;

(2) If there is no surviving descendant, to the decedent's parents equally if both survive, or to the surviving parent;

(3) If there is no surviving descendant or parent, to the descendants of the decedent's parents or either of them by representation;

(4) If there is no surviving descendant, parent, or descendant of a parent, but the decedent is survived by one or more grandparents or descendants of grandparents, half of the estate passes to the decedent's paternal grandparents equally if both survive, or to the surviving paternal grandparent, or to the descendants of the decedent's paternal grandparents or either of them if both are deceased, the descendants taking by representation; and the other half passes to the decedent's maternal relatives in the same manner; but if there is no surviving grandparent or descendant of a grandparent on either the paternal or the maternal side, the entire estate passes to the decedent's relatives on the other side in the same manner as the half.

Drafting Notes

UPC 2103 is very similar to RPC §106. Almost all of the changes are stylistic and clarifying and are not substantive. If the decedent dies with issue, the portion not going to the surviving spouse goes to the issue by right of representation (as defined in Section 2106). Some language at RPC §106(a) regarding per stirpes distribution is removed and replaced by the clause "by representation." If there are not surviving issue, the share goes to the decedent's parents equally, or to the surviving parent. If there are not surviving issue or parents, the present statute at RPC §106(c) provides that the amount will go in equal shares to the living brothers and sisters of a decedent and the children of deceased brothers and sisters by representation. The new UPC section does not "cut off" descendants who are issue of predeceased children of deceased brothers and sisters. UPC 2103(3) provides that the share will go to the descendants of a decedent's parents or either of them by the concept of representation described in Section 2106. The provision for the non-spousal share when there is no surviving issue, parent or descendants of parents is fundamentally the same. The word "descendants" is now used instead of "issue" because the term "issue" is considered as having a biological connotation. Since inheritance rights in our state are extended to include adopted children, the term "descendants" appears more appropriate. RPC §106(e), regarding escheat, is addressed at UPC 2105.

Section 2106. Representation.

(a) Definitions in this section:

(1) "Deceased descendant," "deceased parent," or "deceased grandparent" means a descendant, parent, or grandparent who either predeceased the decedent or is deemed to have predeceased the decedent under Section 2104.

(2) "Surviving descendant" means a descendant who neither predeceased the decedent nor is deemed to have predeceased the decedent under Section 2104.

(b) Decedent's Descendants. If, under Section 2103(1), a decedent's intestate estate or a part thereof passes "by representation" to the decedent's descendants, the estate or part thereof is divided into as many equal shares as there are (i) surviving descendants in the generation nearest to the decedent which contains one or more surviving descendants and (ii) deceased descendants in the same generation who left surviving descendants, if any. Each surviving descendant in the nearest generation is allocated one share. The remaining shares, if any, are combined and then divided in the same manner among the surviving descendants of the deceased descendants as if the surviving descendants who were allocated a share and their surviving descendants had predeceased the decedent.

(c) Descendants of Parents or Grandparents. If, under Section 2103(3) or (4), a decedent's intestate estate or a part thereof passes "by representation" to the descendants of the decedent's deceased parents or either of them or to the descendants of the decedent's deceased paternal or maternal grandparents or either of them, the estate or part thereof is divided into as many equal shares as there are (i) surviving descendants in the generation nearest the deceased parents or either of them, or the deceased grandparents or either of them, that contains one or more surviving descendants and (ii) deceased descendants in the same generation who left surviving descendants, if any. Each surviving descendant in the nearest generation is allocated one share. The remaining shares, if any, are combined and then divided in the same manner among the surviving descendants of the deceased descendants as if the surviving descendants who were allocated a share and their surviving descendants had predeceased the decedent.

Drafting Notes

UPC 2106 is a departure from RPC §108. Both sections seek to define the term "representation" used elsewhere in the Act. RPC §108 contemplates per stirpes distribution when representation is used. UPC 2106 contemplates a "per capita at each generation" distribution. The new distribution contemplated by the UPC is a departure from present RPC and prior UPC provisions. An example will be illustrative. Assume X dies and had three children: A, B and C. A survives, B predeceased with two children, and C predeceased leaving three children. Under present per stirpes distribution, A would receive 1/3, B's 1/3 would be distributed equally between his two children, and C's 1/3 would be distributed among his three children equally. Under UPC 2106, the distribution is different. One share is created for each surviving descendant in the nearest generation to the decedent and one share is created for each predeceased descendant in the same generation who left surviving descendants. The descendant in the nearest generation receives the one share but the descendants in the next lower generation receive an amount equal to the combined shares divided by the number of descendants in that next generation. In our example, A would still receive 1/3, but the other two shares (comprising 2/3 of the estate) would be divided equally among the five children of B and C.

There are two reasons why the new UPC has included this "per capita at each generation" system. The first is to always provide equal shares to those equally related to the decedent, resulting in perceived equal treatment. The second reason is that a recent survey by the American College of Trust and Estate Counsel of client preferences suggested that the "per capita at each generation" system of representation is preferred by most clients.

Part 5 PRUDENT INVESTOR RULE

Section 1501. Short Title.

This Part 5 of Article I may be cited as the "Michigan Prudent Investor Rule".

Section 1502. Prudent Investor Rule.

(a) 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. In satisfying this standard, the fiduciary shall exercise reasonable care, skill and caution.

(b) The prudent investor rule is a default rule which may be expanded, restricted, eliminated, or otherwise altered by the provisions of the governing instrument. A fiduciary is not liable to a beneficiary to the extent that the fiduciary acted in reasonable reliance on the provisions of the governing instrument.

Section 1503. Portfolio Strategy; Risk and Return Objectives.

(a) A fiduciary's investment and management decisions respecting individual assets must 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.

(b) Among circumstances that a fiduciary shall consider in investing and managing fiduciary assets are such of the following as are relevant to the fiduciary estate or its beneficiaries:

(1) general economic conditions;

(2) the possible effect of inflation or deflation;

(3) the expected tax consequences of investment decisions or strategies;

(4) the role that each investment or course of action plays within the overall portfolio, which may include financial assets, interests in closely-held enterprises, tangible and intangible personal property, and real property;

(5) the expected total return from income and the appreciation of capital;

(6) other resources of the beneficiaries;

(7) needs for liquidity, regularity of income, and preservation or appreciation of capital; and

(8) an asset's special relationship or special value, if any, to the purposes of the fiduciary estate or to one or more of the beneficiaries.

(c) A fiduciary shall make a reasonable effort to verify facts relevant to the investment and management of fiduciary assets.

(d) A fiduciary may invest in any kind of property or type of investment consistent with the standards of this Prudent Investor Rule. No particular investment is inherently prudent or imprudent.

(e) A fiduciary who has special skills or expertise, or is named fiduciary in reliance upon the fiduciary's representation that the fiduciary has special skills or expertise, has a duty to use those special skills or expertise.

Section 1504. Diversification.

A fiduciary shall diversify the investments of a fiduciary estate unless the fiduciary reasonably determines that, because of special circumstances, the purposes of the fiduciary estate are better served without diversifying.

Section 1505. Duties at Inception.

Within a reasonable time after accepting appointment as a fiduciary or receiving fiduciary assets, a fiduciary shall review the assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the fiduciary portfolio into compliance with the purposes, terms, distribution requirements expressed in the governing instrument, and other circumstances of the fiduciary estate, and with the requirements of this Prudent Investor Rule.

Section 1506. Loyalty.

A fiduciary shall invest and manage fiduciary assets solely in the interest of the beneficiaries.

Section 1507. Impartiality.

If a fiduciary estate has two or more beneficiaries, the fiduciary shall act impartially in investing and managing the fiduciary assets, taking into account any differing interests of the beneficiaries.

Section 1508. Investment Costs.

In investing and managing fiduciary assets, a fiduciary may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the fiduciary estate,

and the skills of the fiduciary.

Section 1509. Reviewing Compliance.

Compliance with the Prudent Investor Rule is determined in light of the facts and circumstances existing at the time of a fiduciary's decision or action and not by hindsight. The Prudent Investor Rule requires a standard of conduct, not outcome or performance.

Section 1510. Delegation of Investment and Management Functions.

(a) A fiduciary may delegate investment and management functions provided that the fiduciary exercises reasonable care, skill, and caution in:

(1) selecting an agent;

(2) establishing the scope and terms of the delegation, consistent with the purposes and terms of the governing instrument; and

(3) periodically reviewing the agent's actions in order to monitor the agent's performance and compliance with the terms of the delegation.

(b) A fiduciary who complies with the requirements of subsection (a) is not liable to the beneficiaries or to the fiduciary estate for the decisions or actions of the agent to whom the function was delegated.

(c) In performing a delegated function, the agent owes a duty to the fiduciary estate to exercise reasonable care to comply with the terms of the delegation.

(d) By accepting the delegation of a fiduciary function from a fiduciary that is subject to the law of the state of Michigan, an agent submits to the jurisdiction of the courts of Michigan.

Section 1511. Definitions.

As used in this section:

(a) the term "governing instrument" includes a court order.

(b) the term "portfolio" includes all property of every kind and character held by a fiduciary on behalf of a fiduciary estate.

Section 1512. Language Invoking Standard of Prudent Investor Rule.

The following terms or comparable language in the provisions of a governing instrument, unless otherwise limited or modified, authorizes any investment or strategy permitted under this Prudent Investor Rule: "investments permissible by law for investment of trust funds", "legal investments", "authorized investments," "using the judgment and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital," "prudent man rule," "prudent trustee rule", "prudent person rule," and "prudent investor rule."

Section 1513. Application to Existing Fiduciary Estates.

This Prudent Investor Rule applies to fiduciary estates existing on and created after its effective date. As applied to fiduciary estates existing on its effective date, this Prudent Investor Rule governs only decisions or actions occurring after that date.

Section 2603. Anti-Lapse; Deceased Devisee; Class Gifts.

(a) Definitions. In this section:

(1) "Alternative devise" means a devise that is expressly created by the will and, under the terms of the will, can take effect instead of another devise on the happening of one or more events, including survival of the testator or failure to survive the testator, whether an event is expressed in condition-precedent, condition-subsequent, or any other form. A residuary clause constitutes an alternative devise with respect to a nonresiduary devise only if the will specifically provides that, upon lapse or failure, the nonresiduary devise, or nonresiduary devises in general, pass under the residuary clause.

(2) "Class member" includes an individual who fails to survive the testator but who would have taken under a devise in the form of a class gift had he or she survived the testator.

(3) "Devise" includes an alternative devise, a devise in the form of a class gift, and an exercise of a power of appointment.

(4) "Devisee" includes (i) a class member if the devise is in the form of a class gift, (ii) the beneficiary of a trust but not the trustee, (iii) an individual or class member who was deceased at the time the testator executed his or her will as well as an individual or class member who was then living but who failed to survive the testator, and (iv) an appointee under a power of appointment exercised by the testator's will.

(5) "Stepchild" means a child of the surviving, deceased, or former spouse of the testator or of the donor of a power of appointment, and not of the testator or donor.

(6) "Surviving devisee" or "Surviving descendant" means a devisee or a descendant who neither predeceased the testator nor is deemed to have predeceased the testator under Section 2702.

(7) "Testator" includes the donee of a power of appointment if the power is exercised in the testator's will.

(b) Substitute Gift. If a devisee fails to survive the testator and is a grandparent, a descendant of a grandparent, or a stepchild of either the testator or the donor of a power of appointment exercised by the testator's will, the following apply:

(1) Except as provided in paragraph (4), if the devise is not in the form of a class gift and the deceased devisee leaves surviving descendants, a substitute gift is created in the devisee's surviving descendants. They take by representation the property to which the devisee would have been entitled had the devisee survived the testator.

(2) Except as provided in paragraph (4), if the devise is in the form of a class gift, other than a devise to "issue," "descendants," "heirs of the body," "heirs," "next of kin," "relatives," or "family," or a class described by language of similar import, a substitute gift is created in the surviving descendants of any deceased devisee. The property to which the devisee would have been entitled had all of them survived the testator passes to the surviving devisees and the surviving descendants of the deceased devisees. Each surviving devisee takes the share to which he or she would have been entitled had the deceased devisees survived the testator. Each deceased devisee's surviving descendants who are substituted for the deceased devisee take by representation the share to which the deceased devisee would have been entitled had the deceased devisee survived the testator. For the purposes of this paragraph, "deceased devisee" means a class member who failed to survive the testator and left one or more surviving descendants.

(3) For the purposes of Section 2601, words of survivorship, such as in a devise to an individual "if he survives me," or in a devise to "my surviving children," are not, in the absence of additional evidence, a sufficient indication of an intent contrary to the application of this section.

(4) If the will creates an alternative devise with respect to a devise for which a substitute gift is created by paragraph (1) or (2), the substitute gift is superseded by the alternative devise only if an expressly designated devisee of the alternative devise is entitled to take under the will.

(5) Unless the language creating a power of appointment expressly excludes the substitution of the descendants of an appointee for the appointee, a surviving descendant of a deceased appointee of a power of appointment can be substituted for the appointee under this section, whether or not the descendant is an object of the power.

(c) More Than One Substitute Gift; Which One Takes. If, under subsection (b), substitute gifts are created and not superseded with respect to more than one devise and the devises are alternative devises, one to the other, the determination of which of the substitute gifts take effect is resolved as follows:

(1) Except as provided in paragraph (2), the devised property passes under the primary substitute gift.

(2) If there is a younger-generation devise, the devised property passes under the younger-generation substitute gift and not under the primary substitute gift.

(3) In this subsection:

(i) "Primary devise" means the devise that would have taken effect had all the deceased devisees of the alternative devises who left surviving descendants survived the testator.

(ii) "Primary substitute gift" means the substitute gift created with respect to the primary devise.

(iii) "Younger-generation devise" means a devise that (A) is to a descendant of a devisee of the primary devise, (B) is an alternative devise with respect to the primary devise, (C) is a devise for which a substitute gift is created, and (D) would have taken effect had all the deceased devisees who left surviving descendants survived the testator except the deceased devisee or devisees of the primary devise.

(iv) "Younger-generation substitute gift" means the substitute gift created with respect to the younger-generation devise.

Drafting Notes

This revision is a complete revision of RPC §700.134. This section replaces provisions for the lapsing of gifts which is RPC §134(1). Subparagraph (a) "Definitions," includes seven definitions including that of a "stepchild." "Step-child means a child of the surviving, deceased, or former spouse of the Testator or of the donor of the power of appointment, and not of the Testator or Donor." Subparagraph (b) "Substitute Gift" introduces the new concept that the anti-lapse statute shall also apply to a stepchild of either the Testator or the Donor of a Power of Appointment exercised by the Testator's will.

Subparagraph (1) of (b) creates a Substitute Gift for the devisees surviving descendants.

Subparagraph (2) is the same for a gift to a class.

Subparagraph (3) says, "For the purpose of Section 2601, words of survivorship, such as in a devise to an individual "if he survives me" or in a devise to "my surviving children," are not, in the absence of additional evidence, a sufficient indication of an intent contrary to the application of this section."

Subparagraph (c) of this revision titled "More Than One Substitute Gift" provides the tie-breaking mechanism for situations where subsections (b)(1) or (b)(2) create substitute gifts with respect to two or more alternative devisees of the same property, and those substitute gifts are not superseded under the terms of subsection (b)(4).

It should be noted that this section deals with wills only and Part 7 deals with other governing instruments.