Just finished the brief for leave to appeal in the Miller-Orborne Perry file, or as we call it in our office, the "MOP" matter.
MOP is a case in which our office represents the Trustee of a Trust that contains a terror clause. The Settlor is deceased. A beneficiary filed a Petition to Determine Probable Cause in the trial court, asking the Court to determine whether he had probable cause to initiate a trust contest based on an undue influence theory. The idea of filing a Petition to Determine Probable Cause arises out of section 7113 of the Michigan Trust Code. As you may recall, the MTC provides that a terror clause will not be imposed on a beneficiary who contests the validity of a trust if the court finds that they had probable cause to initiate the contest, even though they are ultimately unsuccessful in setting aside the document.
The MOP case raises the issue of whether this approach works. That is, whether a party can force the Trustee to reply to a Petition that is clearly the opening salvo in a trust contest, without being subject to the risk of losing their interest pursuant to the terror clause.
In response to the Petition, our client requested the Court find that the Petition was a challenge to the trust and accordingly that the terror clause was triggered and that the beneficiary forfeited his interest in the Trust.
After an evidentiary hearing the trial court found that the beneficiary had no probable cause to contest the Trust but also refused to allow the Trustee to impose the terror clause penalty on the beneficiary who filed to the Petition.
Our client appealed the trial court’s decision that the filing of the Petition did not invoke the terror clause. In a published decision, the Court of Appeals confirmed the trial court, finding that the terror clause as written did not cover the activity engaged in by this beneficiary, and further holding that terror clauses as "strictly construed."
Our client has now sought leave to the Michigan Supreme Court. Our position is that the Court of Appeals is wrong on both counts: (1) that this terror clause did not encompass this activity, and (2) that terror clauses are strictly construed. We also argue that the Supreme Court needs to address this issue so that the intent of the MTC is not undermined by a published decision of the Court of Appeals.
Planners should be worried, particularly with the Court of Appeals holding that terror clauses are strictly construed. The terror clause in this case is both broad and typical. It penalizes any beneficiary if they "challenge or contest any provision of this trust." If the action of this beneficiary is not a challenge to a trust provision, then, I would suggest, in every case in which a trustee seeks to impose the penalties of a terror clause, litigation will include a defense against imposition of the penalty based on a parsing of the terror clause language to find that the action is not within the scope of the activities penalized by the terror clause.
We will see what our Supreme Court decides to do, if anything.