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In re Monier Khalil Living Trust

Court of Appeals of Michigan

May 14, 2019


          Wayne Probate Court LC No. 2016-823742-TV

          Before: Gleicher, P.J., and K. F. Kelly and Letica, JJ.


         The Court orders that the motion for reconsideration is GRANTED, and this Court's opinion issued March 12, 2019 is hereby VACATED. A new opinion is attached to this order.

          Per Curiam.

         In this trust action, two of the trustee's children contended that a sibling unduly influenced their mother to allot him a disproportionate share of the trust's assets. The probate court dismissed the action without a hearing and despite that none of the parties filed a dispositive motion. The court inexplicably discounted the evidence presented by petitioners and failed to create an adequate record for this Court's review. We vacate the probate court's order summarily dismissing petitioners' undue influence claim and remand for further proceedings, which must be conducted on the record.

         I. BACKGROUND

         This case involves a trust created by Monier Khalil in 1992. Monier died in 1994, leaving behind his wife, Evelyn, and their four children: Mikhail, Thomas, Sandra, and Melanie. After his death, Monier's assets (mostly Corktown real estate) flowed into two sub-trusts: the marital trust and the residuary trust. Both were intended to provide for Evelyn for the remainder of her life. Evelyn and Melanie were designated as co-trustees for the sub-trusts. When Evelyn passes away, any remaining assets will flow into the children's trust to be divided equally between Monier's children.

         The marital and residuary trusts grant Evelyn prodigious power and authority to use and disburse of trust assets. Evelyn may request distributions without limitation and for any reason and may exhaust the trust principals to provide for her needs. Evelyn may disburse of trust assets during her lifetime, favoring one child over another in doing so. The trust also shelters Evelyn from "accountab[ility] or liab[ility] to" any of her children "for the manner in which [s]he, in good faith, exercises [her] powers and discretions; [her] judgment with respect to all matters shall be binding and conclusive upon all" her children.

         Evelyn, Melanie, and Mikhail (respondents) contend that in 2007, Evelyn distributed certain trust properties to her children. Melanie, Thomas, and Mikhail received properties in Corktown, but Evelyn purchased a home for Sandra. Evelyn claims that the trust continues to make the mortgage, insurance, and tax payments for the home. Respondents further allege that Thomas sold his properties to Mikhail, but now regrets his decision.

         In 2016, Sandra and Thomas (petitioners) launched this probate case by filing a "verified petition for accounting, surcharge of the trustee; return of property to Hotch Potch; transferred as a result of undue influence and removal of trustees."[1] They later filed an amended petition. In these pleadings, petitioners sought an accounting, claiming that respondents had denied previous requests for information. Petitioners asserted that Evelyn and Melanie breached their duty of loyalty by giving Mikhail an unequal share of property from the trust and by depleting the trust for purposes other than Evelyn's care. Petitioners further contended that Mikhail had unduly influenced Evelyn into giving him control over the trust, which he used as his personal piggy bank. They alleged that Mikhail had "usurped" the role of trustee by listing himself on the trust's bank accounts. Petitioners presented evidence that Mikhail managed the daily business of the trust properties and used trust funds to manage his separately owned properties. Petitioners raised three counts: "breach of duty of loyalty by the trustee['s] depletion of the trust assets", undue influence, and for an accounting, surcharge, and return of improperly transferred properties to the trust.

         Respondents retorted that the language of the trust gave Evelyn great discretion to disburse property as she saw fit and even to designate Mikhail as a business representative. Respondents further contended that the property distributions challenged by petitioners were made in 2007 with petitioners' full knowledge and consent.

         The probate court conducted virtually all of the proceedings that followed off the record, hampering our review. The court's notes indicate that at an in-chambers conference, the court verbally directed the parties to file "briefs in support" by May 19, 2017. Petitioners' brief contended that over a 10-year period, the trust transferred to Mikhail and his companies 11 of the trust properties. These transfers were a breach of Evelyn's fiduciary duty and her duty of loyalty to the trust beneficiaries and were accomplished as a result of Mikhail's undue influence, petitioners asserted. Petitioners also believed that Mikhail benefitted from improper cash transfers that were not accounted for in the public record, and denied that they ever consented to them. And petitioners contested that the trust gave Evelyn broad power to make whatever transfers she wished. Such unfettered authority, petitioners argued, would defeat the purpose of the trust, i.e., to ensure that Evelyn was financially provided for.

         Petitioners further asserted that they "ha[d] twice addressed this Court and pleaded to take the deposition of Evelyn . . . to show to the Court that she is, in fact, under undue influence of Mikhail . . . ." Petitioners did not indicate on what date these pleas were made and the court failed to conduct any phase of this proceeding in the courtroom or on the record; everything was discussed in chambers. Petitioners again asked to depose their mother "to establish whether such acts are of her own free will or as they appear to be the unvarnished undue influence of Mikhail." And petitioners asserted that they established a presumption of undue influence as Evelyn appeared on case-related matters only in the company of Mikhail, she shared joint representation with Mikhail, and Evelyn directed her other children to talk to Mikhail whenever they asked trust or property-related questions.

         Respondents filed their brief on May 19, asserting that the transfers made by Evelyn were authorized by the trust itself and by applicable law. Although any remainder will flow into the children's trust, "while Evelyn is living, none of the children[] has any right to any distributions of trust assets or any right to an accounting of such assets." Evelyn's decisions in this regard were "binding and conclusive," precluding any liability to her children. Respondents contended that the petition was "a half-baked attempt to gain leverage in a sibling rivalry." Specifically, respondents insisted that petitioners wanted "to undo certain transfers of property from their mother's trust that were made ten years ago, with Petitioners' full consent and knowledge, and to their benefit, because they believe they can profit from it."

         During another in-chambers, off-the-record "hearing," the court ordered respondents to present an accounting within 30 days, including the trust's assets as of January 1, 2007, all property and cash disbursements made to Evelyn's children since 2007, and a list of income generated by the trust since 2007 along with "a yearly disclosure of those monies paid to Evelyn . . . from said income." Petitioners were given two weeks to respond. The court scheduled a hearing on the "petition to allow account(s)" for September 13, 2017. However, respondents never filed a petition or motion to allow the accounts. Moreover, no hearing was ever held. The court adjourned the hearing to October 17, and then to October 31. As will be discussed later, the court rendered its final decision before the hearing was conducted.

         Petitioners were not satisfied with the proffered accounting, contending that respondents engaged in creative accounting by claiming money was paid to children when it was not, and citing a number of cash transfers with no stated purpose. After a telephone conference with the attorneys, the court ordered a forensic review and accounting of the trust by an independent accountant, which was completed and filed on October 26, 2017. In the meantime, respondents filed supplemental remarks to the initial accounting. Respondents noted that petitioners had recently presented additional information, including a "Quick Book Ledger for a certain bank account." Those checks improperly identified Mikhail as a trustee. After reviewing several check copies, petitioners accused Mikhail of writing checks funded by the trust to make repairs on his personal properties and for services on Sandra's house that were actually funded by an insurance payout.

         Following the presentation of the forensic accounting, and before the October 31 date of the rescheduled hearing, the probate court "denied" petitioners' first amended verified petition. The court noted that it had held "various hearings" and ultimately "took the matter under advisement." None of those "hearings" were conducted ...

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