Probate Court Properly Restricted Beneficiary From Accessing Decedent’s Financial Accounts
In this dispute over the division of the decedent’s financial accounts, the probate court properly placed a restriction on the funds that the respondent had received as a designated beneficiary on certain accounts, the Michigan Court of Appeals has ruled.
The respondent in In re Estate of Chapman (Docket No. 373055) argued the probate court wrongly ordered a restraint on the funds he received as a designated beneficiary of his mother’s financial accounts. He claimed the probate court did not have the authority to maintain a constructive trust on the funds because no action was pending regarding 1) ownership of the funds or 2) challenging the underlying beneficiary designation in either the “Chapman Estate” case or the ongoing “Chapman Trust” cases.
The Court of Appeals rejected the respondent’s arguments.
“We disagree that the probate court lacked authority to place a restraint on the funds,” the Court of Appeals said, finding the probate court “was well within its authority” to impose a restriction on the funds while other proceedings were pending.
Judge Michael F. Gadola, Judge Mark T. Boonstra and Judge Sima G. Patel were on the panel that issued the unpublished opinion.
Background
Leonard and Frieda Chapman had three children: 1) the petitioner, Glenn Chapman, 2) the respondent, Christopher Chapman and 3) Kurt Chapman. In 2016, the Chapmans executed a joint trust that created “The Leonard Earl Chapman and Frieda Mae Chapman Revocable Living Trust” (i.e., “The Chapman Trust”). The Chapmans funded the trust with real property in Howell, Michigan. Otherwise, the trust was not funded. The trust agreement named the respondent as the initial trustee and residual beneficiary of the trust and specifically excluded Glenn and Kurt.
Leonard Chapman died on April 23, 2017. At that time, the respondent was given power of attorney (POA) over Frieda Chapman, who allegedly was diagnosed with dementia. Frieda owned four financial accounts that designated the three sons as equal beneficiaries. In 2020, after having allegedly been diagnosed with dementia, Frieda changed the beneficiary designation of the four financial accounts. She designated the respondent as beneficiary of 43 percent of the account funds; Kurt as the beneficiary of 37 percent of the account funds; and the petitioner as the beneficiary of 20 percent of the account funds. Frieda died on November 25, 2021.
The funds from Frieda’s four financial accounts were distributed to the heirs in March 2022. The respondent received $309,631.17 and the petitioner received approximately $152,000. The petitioner then filed the appropriate paperwork with the Livingston County Probate Court to probate Frieda’s estate and he was appointed personal representative of the estate.
In June 2022, the petitioner, as personal representative of the Chapman Estate, petitioned the probate court for quiet title to the real property purportedly held in the Chapman Trust. The petitioner claimed the real property was never transferred to the Chapman Trust during Leonard’s lifetime and, therefore, it was now part of Frieda’s estate. The probate court entered a “status quo” order directing that “no one was to dispose of the real property or any asset of Frieda Chapman until further order of that court.” Thereafter, the parties proceeded with discovery in the Chapman Estate action.
The petitioner, in January 2023, filed an action in the Livingston County Probate Court regarding the Chapman Trust. He asserted the respondent had breached his fiduciary duties regarding the trust. Upon agreement of the parties, the probate court consolidated the Chapman Trust case with the Chapman Estate case. The probate court then ordered the parties to participate in mediation, which was unsuccessful.
The petitioner subsequently filed a motion to impose a constructive trust. He claimed that after obtaining power of attorney in 2017, the respondent “made numerous transfers of funds from Frieda’s financial accounts, … used the transferred funds for his personal use, and … facilitated Frieda’s change of the beneficiary designations of her financial accounts to increase respondent’s share while decreasing petitioner’s share.” The petitioner also filed an amended petition in the Chapman Trust case, alleging breach of fiduciary duty, embezzlement, conversion, undue influence, conspiracy, unjust enrichment and fraud.
In addition, the petitioner filed a motion for an accounting and a constructive trust of the funds the respondent had received from the distribution of the financial account assets. The motion asserted that, “for years before Frieda’s death and immediately after her death,” the respondent “used his power of attorney to transfer funds from Frieda’s financial accounts to the trust account, and then accessed the funds for his personal use.” The petitioner claimed the respondent “used thousands of dollars to pay his own credit cards, purchase vehicles, and purchase items through Amazon” and contended that a constructive trust “was necessary to preserve the assets until respondent could provide the probate court with an accounting.”
The probate court held a hearing and ordered the respondent to provide, within 45 days, an accounting of the funds that belonged to Frieda from the time that he was given power of attorney. The probate court further ordered that a constructive trust be established and funded with the amounts identified in the petition, “unless it was demonstrated by an accounting or otherwise that the funds were properly distributed.”
The respondent filed motions to 1) set aside the order, 2) remove the constructive trust and 3) determine the ownership of the real property. He argued that 1) the probate court did not have the authority to put a restraint on funds in either of the cases, 2) no action was pending in either the trust or estate case regarding the funds and 3) the funds instead were the subject of a civil action filed by the petitioner against the respondent in Shiawassee County. As to the Chapman Trust case, the respondent petitioned for the probate court to determine ownership of the real property ostensibly placed in the trust. The petitioner then filed a motion for the respondent to “show cause why he had not complied with the probate court’s order to provide an accurate accounting and why he had not placed the disputed funds with his attorney to be held in an IOLTA account, as ordered by the probate court.”
On December 13, 2023, the Chapman Estate and the Chapman Trust cases were transferred by a change of venue order from the Livingston County Probate Court to the Shiawassee County Probate Court. This apparently occurred because the separate civil action of Glenn E. Chapman v Christopher L. Chapman (Docket No. 23-24040842-CZ) was pending in that court. After a hearing, the Shiawassee Probate Court denied the respondent’s motion to remove the restraint on Frieda’s assets. The probate court held 1) the motion was essentially a motion for reconsideration of the earlier order issued by Livingston County, 2) the respondent did not demonstrate the circumstances had changed since the previous order and 3) the consolidated cases were “sufficiently intertwined with the civil case to warrant restraint on the funds at issue.”
The respondent appealed the probate court order under MCR 5.801(A)(2)(v). That court rule allows an appeal as of right of an order “determining or denying a constructive trust.”
‘Well Within Its Authority’
On appeal, the Court of Appeals affirmed the probate court’s authority to place a restraint on the funds.
In its analysis, the Court of Appeals first examined the scope of the probate court’s jurisdiction under MCL 700.1302. That statute provides, in relevant part, that the probate court has jurisdiction of:
“(a) A matter that relates to the settlement of a deceased individual’s estate, whether testate or intestate, who was at the time of death domiciled in the county … , including, but not limited to all of the following proceedings:
(i) The internal affairs of the estate.
(ii) Estate administration, settlement, and distribution.
(iii) Declaration of rights that involve an estate, devisee, heir, or fiduciary.
…
(b) A proceeding that concerns the validity, internal affairs, or settlement of a trust; the administration, distribution, modification, reformation, or termination of a trust; or the declaration of rights that involve a trust, trustee, or trust beneficiary.
…
(d) A proceeding to require, hear, or settle the accounts of a fiduciary and to order, upon request of an interested person, instruction or direction to a fiduciary that concerns an estate within the court’s jurisdiction.”
Meanwhile, the Court of Appeals noted that MCL 700.1303 provides, in relevant part:
“(1) In addition to the jurisdiction conferred by section 1302 and other laws, the court has concurrent legal and equitable jurisdiction to do all of the following in regard to an estate of a decedent, protected individual, ward, or trust:
(a) Determine a property right or interest.
…
(g) Impose a constructive trust.
…
(j) Require, hear, or settle an accounting of an agent under a power of attorney.
…
(3) The underlying purpose and policy of this section is to simplify the disposition of an action or proceeding involving a decedent’s, a protected individual’s, a ward’s, or a trust estate by consolidating the probate and other related actions or proceedings in the probate court.”
The Court of Appeals pointed out that a constructive trust is an “equitable remedy created by operation of law” that can be imposed when necessary “to do equity or to prevent unjust enrichment. … We also note that equity ‘is a matter of grace and discretion applied to the particular circumstances of each particular case.’ … In the probate context, MCL 700.1308(1) authorizes the probate court to impose a constructive trust on property, subject to certain limitations, to ‘remedy a breach of [fiduciary]duty that has occurred or may occur.’”
In this case, at the time the Livingston County Probate Court imposed the restraint on the funds, “allegations were pending that the Chapmans’ real estate had not been properly placed within the Chapman Trust and that the real estate therefore was part of Frieda Chapman’s estate,” the Court of Appeals observed, “and also that [the] respondent was in possession of assets of Frieda Chapman and that certain irregularities had occurred that placed into question whether the assets were properly in respondent’s possession.”
Further, “it was also in question whether, if the funds were dissipated, [the] respondent had the financial ability to make whole the other beneficiaries if called upon to do so,” the Court of Appeals said. “The probate court therefore instituted the restraint on the funds as a measure to preserve the funds until respondent could provide an accounting of the funds he had received and the merits of the allegations otherwise could be addressed by the probate court.”
The Court of Appeals noted that, in early 2024, the consolidated cases were transferred to the Shiawassee County Probate Court, where an action was already pending involving the petitioner’s claims that the respondent had fraudulently diverted Frieda’s assets to himself. “The probate court viewed [the] respondent’s motion in the consolidated cases to lift the restraint on the funds as a motion for reconsideration, and understandably denied the motion, continuing the restraint on the funds while discovery proceeded in the three cases.”
Based on the foregoing, “[w]e find no error in the probate court’s reluctance to permit the potential dissipation of the funds at that point in the proceedings,” the Court of Appeal held. “The probate court was well within its authority to impose a restraint on the funds in question while the proceedings were pending to determine the assets of the estate, which depended upon whether the real estate was in fact placed in the Chapman Trust and whether respondent had breached his fiduciary duty when exercising power of attorney over Frieda Chapman’s financial accounts, which presumably would be part of the estate if the beneficiary designations were determined to be fraudulent. … Affirmed.”
