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A Better Partnership
December 07, 2012

COA Opinion: Court examines judicial and non-judicial settlement agreements involving trusts

In In re Robert H. Draves Trust, the Michigan Court of Appeals clarified the limitations on probate-court intervention into settlement agreements involving trusts under MCL 700.7111. That statute governs non-judicial settlement agreements that resolve issues relating to trusts. The court of appeals determined that a settlement agreement involving trusts made in response to litigation and presented to the court for approval was a judicial settlement. Therefore, MCL 700.7111 did not apply, and the probate court erred when it set aside the earlier settlement agreement.

In this case, the trusts owned real property containing rental cabins on Lake Charlevoix. The trusts were set up to benefit the surviving spouse of the original owner and charged the couple's eldest son with management of the resort. Familial discord eventually caused a rift between mother and son. Various lawsuits were filed, alleging that the son was mismanaging the property to the detriment of his mother's support. The parties eventually entered into a settlement agreement that resolved all of the litigation between them, providing among other things that the property would not be sold except upon agreement of three of the four interested parties.

In May 2011, the mother sought an injunction allowing the sale of the property. The mother acknowledged that the settlement agreement precluded such a sale, but argued that the settlement was non-judicial under MCL 700.7111 and contravened the purpose of the trust ' to provide for the mother's support. The probate court agreed and set aside the parties' settlement as invalid under section 7111. The appellate court reversed in a per curiam opinion, concluding that section 7111 was inapplicable because the prior settlement was a judicial settlement, and MCL 700.7111 only applies to non-judicial settlements.

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