Background
Jennifer Fowler killed her 79-year-old mother, Helen Fowler, and then herself in 2018. Helen’s estate obtained a wrongful-death judgment against Jennifer’s estate, but Jennifer’s estate lacked sufficient assets to satisfy it. Jennifer had also established a revocable living trust that was the named beneficiary of her 401(k) account and life insurance policy.
Jennifer’s trustee sought a declaration that the 401(k) and life insurance proceeds could not be used to satisfy the judgment. The probate court held that the life insurance proceeds were reachable but that the 401(k) proceeds were exempt. The Court of Appeals held that both sets of proceeds were available to satisfy the judgment. Jennifer’s trust sought review in the Michigan Supreme Court.
The Court’s Holding
In a unanimous opinion, the Supreme Court held that property held or received by a trust is generally subject to creditor claims under MCL 700.7506(1)(b) and MCL 700.7605(1) when the trust was revocable at the settlor’s death, even though the settlor’s death rendered the trust irrevocable. That rule extends to assets paid into the trust after death, subject to the statutory exceptions in MCL 700.7605(2) through (4).
The Court nevertheless held that both disputed assets were exempt. The 401(k) proceeds qualified as payments from a retirement plan protected by MCL 700.7605(2). The life insurance proceeds were protected by MCL 700.7605(4) and MCL 500.2207(2) because they would not have been subject to the insured’s creditors if paid to a beneficiary other than the insured’s estate. A trustee is not an “executor or administrator” for purposes of the life insurance statute. The Court reversed the Court of Appeals and remanded to the probate court.
Key Takeaways
- A trust that was revocable at the settlor’s death is generally liable for unsatisfied claims against the settlor’s estate, even though death makes the trust irrevocable.
- Payments from a qualifying 401(k) plan are exempt from creditor claims under MCL 700.7605(2), including when paid to the settlor’s trust.
- Life insurance proceeds paid to a trust are not treated as proceeds paid to the insured’s estate, and a trustee is not an “executor or administrator” under MCL 500.2207(2).
Why It Matters
The decision clarifies that Michigan settlors generally cannot avoid estate creditors merely by using a revocable trust as a will substitute. Courts look to whether the trust was revocable at the settlor’s death, not simply to its irrevocable status afterward.
At the same time, the ruling preserves specific statutory protections for qualifying retirement-plan payments and life insurance proceeds. Estate planners, fiduciaries, and creditors must therefore distinguish between the trust’s general exposure to claims and exemptions attached to particular assets.