Clients desiring to make gifts often ask about the conditions that they can place upon the gift thereby requiring or forbidding some act prior to receipt. Requests run the gamut from prohibition on tattoos to no children outside of wedlock to divorce of a spouse. If the condition goes against public policy, for example, requiring divorce or a criminal act, or is otherwise impossible to meet, for example, transmuting into an inanimate object, then it will be ignored. Recently, a Michigan case, Marine-Adams v. Tenerowicz (In re Boutet), (2024 Mich. App. LEXIS 643), examined what happens when the intended donee decided against meeting the prerequisite conditions for receipt of the gift.
In 2005, Bernard Boutet created a revocable trust naming himself and his wife, Marilyn, as co-Trustees which they amended later that year. Upon the death of Marilyn and Bernard, the trust was to benefit their three children, Darrell, Dale, and Diane. Marilyn died in 2009. Their son, Dale, died in 2014. Bernard amended the trust twice in 2019, both on the same day. One amendment named the attorney who drafted the trust as successor Trustee of the trust. The other amendment inserted language that conditioned Diane’s receipt of a portion of the trust upon her disclosing her son’s father to her son and providing scientific evidence of the same within 60 days of Bernard’s death. Bernard died about six months after executing the 2019 amendments. After Bernard’s death, Diane met with the drafting attorney to discuss the last amendment. The case indicates that Diane understood that she would forfeit her inheritance if she failed to meet the conditions imposed upon the gift, that she was not certain which of two men was the biological father, and that she was estranged from her son at that time. The case further indicates that Diane failed to take any action because she thought that the terms of the conditions were unenforceable, although she took no steps to have the conditions declared unenforceable.
In 2021, the successor Trustee petitioned the court to modify the trust and for instructions regarding what to do with Diane’s share. The successor Trustee failed to notice the other trust beneficiaries and the probate court denied the petition. Shortly thereafter, the other beneficiaries filed a petition to remove the successor Trustee. In their petition to the court, they argued that the successor Trustee breached his duties by failing to follow the terms of the trust by doing what was necessary to forfeit Diane’s share of the trust based upon her failure to fulfill the conditions placed on her gift by her father. The court removed the successor Trustee and granted the beneficiaries’ request for forfeiture of Diane’s share. Diane appealed and lost. The appellate court found that the Trust had clearly defined the acts that Diane needed to take to receive her share of the Trust and that she failed to provide any information to her son and failed to undertake any steps to comply with the conditions or have them declared invalid. Dicta in the concurring opinion seemed to indicate that if Diane had raised the issue of the conditions being invalid as against public policy, she may have prevailed. Of course, because Diane failed to raise the issue in the lower court, she was precluded from raising it on appeal.
While it’s unclear whether Diane would have prevailed in having the condition set aside were she to have objected earlier in the proceedings, it’s important to take the lesson of being proactive when faced with seemingly unreasonable conditions. Had Diane sought court intervention earlier in the process instead of doing nothing, she may have walked away with something, even if only through settlement. Instead, her inactivity caused her to lose out on her inheritance. If you are thinking about imposing conditions on a gift, make sure to reach out to a qualified Trusts and Estate Practitioner for help in crafting the provisions in a way that will withstand judicial scrutiny. Likewise, if you are a beneficiary receiving a gift subject to a condition, make sure that you abide by that condition or speak with a qualified Estate Planning attorney regarding having it set aside.
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