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 personal representative reported that the estate’s assets had been exhausted by funeral expenses and the defense of the wrongful-death action.
Jennifer had established a revocable living trust and named it as beneficiary of her 401(k) account and life-insurance policy. The trustee sought a declaration that those proceeds could not be used to satisfy the judgment. The probate court held that the 401(k) proceeds were exempt but the life-insurance proceeds were available to creditors. The Court of Appeals held that both sets of proceeds were reachable.
The Court’s Holding
In a unanimous opinion, the Michigan Supreme Court held that property held or received by a trust that was revocable at the settlor’s death is generally subject to creditor claims when the probate estate is insufficient, even though the trust becomes irrevocable upon the settlor’s death. Under MCL 700.7506(1)(b) and MCL 700.7605(1), the relevant inquiry is whether the settlor possessed the power to revoke the trust at death.
The Court nevertheless held that both disputed assets fell within statutory exemptions. The 401(k) distribution was exempt under MCL 700.7605(2) as a payment from a qualifying retirement plan. The life-insurance proceeds were exempt under MCL 700.7605(4) and MCL 500.2207(2) because proceeds paid to the trust, rather than to Jennifer’s estate, would not have been subject to her creditors. A trustee is not an “executor or administrator” for purposes of the Insurance Code exception.
The Court reversed the Court of Appeals and remanded the case to the probate court for further proceedings consistent with its opinion.
Key Takeaways
- A trust that was revocable at the settlor’s death is generally liable for unsatisfied claims against the settlor’s estate, including as to assets received after death.
- Payments from a qualifying 401(k) plan are excluded from the trust property available to the deceased settlor’s creditors under MCL 700.7605(2).
- Life-insurance proceeds paid to a trust are protected when they would have been exempt had they been paid to a beneficiary other than the insured’s estate; a trustee is not equivalent to an executor or administrator.
Why It Matters
The decision clarifies that death does not prevent a formerly revocable trust from being treated as a will substitute subject to the settlor’s unpaid obligations. The rule extends generally to property received by the trust after the settlor dies, subject to EPIC’s specific exemptions.
For estate planners and fiduciaries, the ruling also confirms that naming a revocable trust as beneficiary does not eliminate the statutory protections afforded to qualifying retirement-plan payments and life-insurance proceeds. Those exemptions controlled here despite the otherwise applicable creditor-liability provisions.