Did you know that a person can create a valid trust without putting it on paper? It seems unlikely in a modern world driven by formality and paper documents that such a thing is possible, but Michigan does recognize oral trusts as valid. However, the challenge to the trustee or the trust beneficiary may be proving that the trust exists in a court of law.
In Michigan, a trust is created if ALL of the following apply:
- The settlor has capacity to create a trust. MCL 700.7402(1)(a).
- The settlor indicates an intention to create a trust. MCL 700.7402(1)(b).
- The trust has a definite beneficiary OR is either a charitable trust or a non-charitable trust set up to care for an animal. MCL 700.7402(1)(c).
- The trustee has duties to perform. MCL 700.7402(1)(d).
- The same person is NOT the sole trustee and sole beneficiary. MCL 700.7402(1)(e).
There is no requirement that the trust must be in writing, and Michigan law specifically states that it does not have to be. “[A] trust need not be evidenced by a trust instrument, but the creation of an oral trust and its terms may be established only by clear and convincing evidence.” MCL 700.7407. What is “clear and convincing evidence”? It is the standard of proof that is in between the preponderance of the evidence standard required for civil cases and the beyond reasonable doubt standard required for criminal cases. It is defined as evidence being highly and substantially more likely to be true than untrue, and that the court must be convinced that the contention is highly probable. Colorado v. New Mexico, 467 U.S. 310 (1984). To meet this standard of evidence, a proponent of the oral trust will likely have to produce eyewitnesses that can establish that the settlor/grantor specified his intent and purpose to create a trust according to MCL 700.7402(1). Eyewitnesses will likely have to testify that the settlor/grantor was of sound mind, that a trustee and beneficiaries were identified, that the property to be held in trust was identified, and that the trustee was given guidelines as to managing or distributing the property to the beneficiaries.
In Osius v Dingell, 375 Mich 605; 134 NW2d 657 (1965), Mrs. Osius, a 90-year old widow, wished to provide for a young man, David Dingell, that she used to “babysit”. She purchased 200 shares of Toledo Edison stock and registered it in her name and in the names of Mr. and Mrs. Dingell, the parents of David, as joint tenants. There was no consideration paid by Mr. and Mrs. Dingell to be added as owners. Mrs. Osius claims that she created an oral trust when “she gave the defendants Mr. and Mrs. Dingell the specific and undisputed instructions concerning a corpus of the trust, namely, use it for David’s education at her death, retaining for herself the dividends during her lifetime.” The parties don’t dispute that part of the arrangement was that Mrs. Osius would receive all dividends and has had exclusive use of same. However, at a later point, Mrs. Osius desired to sell the stock and purchase different stock with the proceeds with higher yield so she can pay for medical expense. Since it was a revocable oral trust, she maintained, then she had the right to demand the return of the property at any time during her life. The Dingells refused, stating that the stocks were given as a gift, not held in trust, so the ability to recall and revoke the gift is gone. Mr. Osius filed suit to the probate court demanding the return of the stock certificates. The probate court agreed that the transaction was an oral trust and Mr. Osius had the right to revoke it and demand the return of the stock certificates. The Dingells appealed.
The question for the Michigan Court of Appeals is whether this transaction was a gift or an oral trust? The primary issue revolves around what Mr. Osius intended to do with the stock certificates. The Court found that the evidence supported the probate judge’s conclusion in this matter:
- “The trial court found that a trust was intended and not a gift inter vivos. We do not reverse because justice does not require it, nor does the evidence clearly preponderate in the opposite direction. If anything, the evidence amply sustains the trial court’s finding and also, concordantly, justice requires affirmance. The evidence sustains the finding that, among other things, Mrs. Osius lacked the donative intent sufficient to support a valid gift inter vivos. On this point, the objective facts support the subjective testimony of Mrs. Osius. She testified that she clearly explained to Mr. Dingell as she handed over the certificates her intent to reclaim or revoke if the need should arise. Supporting this testimony are the objective facts that she registered the stock not in the name of David or of his parents, as she might have done, but in the names of herself and the parents as joint tenants. Also, plaintiff Osius arranged to receive all dividends. Defendants dispute the tenor of the conversation and also point to the fact that plaintiff turned over the stock certificates to Mr. Dingell. The handing over of stock certificates to Mr. Dingell by Mrs. Osius is not decisive of the gift issue, in view of other relevant facts such as the legal estate created and the announced purpose of the transaction, including the right of revocation retained by Mrs. Osius. Viewing all the evidence, we conclude that the trial court’s finding should not be disturbed because we cannot say that the evidence clearly preponderates in favor of defendants’ claim of gift, proof of donative intent being especially lacking.” Osius, 375 Mich at 612.
Even if Mrs. Osius’s intentions were to create an oral trust, the Dingells contested that the arrangement was purely testamentary. They alleged that Mrs. Osius transferred the property with the intention that David would receive the property upon her death, and that title was vested into the Dingells to make sure that would happen. As a result, Mr. Osius lost her right to recall the stock certificates and it was not a trust. The Court of Appeals disagreed and found that the Mr. Osius’s intention was not to make a testamentary disposition:
- “Here, Mrs. Osius had the corpus (shares) registered in her name and that of Mr. and Mrs. Dingell as trustees for the beneficial enjoyment of David. Legal title was taken by the trustees and equitable title vested immediately in David subject to divestment on occurrence of the condition subsequent: revocation by the settlor during her lifetime. That she retained the right or power to revoke during her lifetime did not make this a testamentary disposition… [W]e think it significant that Mrs. Osius chose the type of transaction as appears here. She did not constitute of herself a trustee alone, as appears in many purely testamentary dispositions, but in effect appointed herself trustee along with the parents of David. It is also important to analyze the testimony of Mrs. Osius in light of other circumstances. It is true that she expressed the intent and purpose of providing for David’s education after her death. But in view of her advancing years plus the understanding of the parties that she was providing not for David’s present education but his college education in the future, her death was referable to her right to revoke rather than to the time when David’s interest might become vested. David would have had the same interest if Mrs. Osius had died without exercising her right to revoke as he did when Mrs. Osius had the trust created in 1956, namely, a vested interest. Therefore, reservation of the right to revoke did not make the disposition testamentary. This is the legal effect of what transpired.” Osius, 375 Mich at 614-615.
In this instance, the Michigan Court of Appeals was satisfied that Mrs. Osius created a valid oral trust.
In Estate of Collier, unpublished per curiam opinion of the Court of Appeals decided February 11, 2020 (Docket No. 347621), the Michigan Court of Appeals declined to find an oral trust existed. The decedent, Barbara Ann Ahrens, left a daughter and a son (whom she nominated as personal representative). She also left a last will and testament staring that she left $1.00 to the daughter and the balance of the estate to her son. The daughter objected to the admission of the will, stating that her mother made statements on the record during a 2016 conservatorship hearing that constituted an oral trust. The decedent said the following:
- “And when I’m gone, I would like for them to have equal parts from my inheritance, if there’s anything left.
- “If it’s her thinking she’s not going to get as much money as he gets, tell her don’t worry about that. It will come out that she gets her even share.”
The probate court granted the personal representative’s motion for summary disposition and denied the oral trust claim. The Michigan Court of Appeals agreed with the result, finding that there was neither an intention to create a trust or that the requirements for a valid trust were met.
- “We conclude that decedent’s statements were precatory and unclear, and that they did not convey the intent necessary to create a trust. Specifically, in both the first and second statement, decedent failed to identify to whom she was referring when she used the words “them,” “he,” and “she.” Decedent indicated that she would “like” for “them” to have “equal parts” “if” there was “anything left” at the time of her death. Decedent then noted that she “may” be “fortunate enough to use up” the remainder of her assets before she died, thereby indicating that the receipt of funds would be contingent upon how long decedent lived and how much money she spent during the remainder of her life. Thus, the statements appear to reflect decedent’s understanding of how a will operates and essentially amount to casual remarks concerning the disbursement of property, as opposed to “an explicit declaration of trust accompanied by a transfer of property to one for the benefit of another.”
- “Furthermore, considering the context in which the statements were made, we conclude that decedent did not intend to create a trust. Her statements were made in response to questions during the conservatorship hearing, the purpose of which was to determine whether decedent required a conservator to handle her finances. Moreover, the questions asked did not concern how decedent wanted to dispose of her estate and decedent did not clearly direct how she wanted her property disposed of during the 2016 proceeding. In contrast, decedent clearly dictated in her final will that Ahrens only receive one dollar from decedent’s estate. Although the probate court concluded that decedent was mentally competent during the hearing, Robert testified that she displayed early signs of dementia arsut.nd Alzheimer’s disease. Decedent’s medical diagnosis, which formed the basis for decedent needing a conservator given her ailing health, raises further doubt as to decedent’s intention.”
- “Given the circumstances and the unclear, precatory language used by decedent, we conclude that the probate court did not err by determining that a genuine issue of material fact did not exist as to whether decedent intended to create an oral trust.” Opinion at p. 3-4.
The daughter’s intention was to have the decedent’s property declared to be part of an oral trust so it would not be considered estate property and subject to division by the last will and testament. However, the Michigan Court of Appeals found that the statements made in a court hearing did not constitute a valid trust. Therefore, the last will and testament would control and the daughter was only to receive $1.00 from the estate.
In conclusion, oral trusts are completely valid in Michigan, but may require the right proof and advocacy to advance them in a court of law. A proponent of an oral trust would benefit from the services of a skilled probate lawyer to achieve the desired result. If you or a loved one have any questions about trusts or need legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.