Common use of Beneficiary Under Disability Clause in Contracts

Beneficiary Under Disability. If a beneficiary is under the age of 21, or legally disabled, or, in Trustee’s opinion incapable of managing a trust distribution, Trustee either may expend directly any income or principal which it is authorized to use for any beneficiary, or may pay it over to or for use of the beneficiary, or to the beneficiary’s conservator, if any, or any adult with whom the beneficiary is residing, without responsibility for its expenditure. If Trustee is directed to distribute any portion of the trust principal to that beneficiary, the trust principal shall vest in interest in the beneficiary indefeasibly, but Trustee, in its discretion, may distribute the portion to a custodian under an[sic] Uniform Gifts to Minors Act or Uniform Transfer to Minors Act or hold the portion as a separate trust for the period of time Trustee deems advisable but not after the time (a) the beneficiary reaches the age of 30 years, or (b) after the removal of the legal disability, or (c) after the time Trustee deems the beneficiary is capable of managing a final trust distribution, whichever is latest. If Trustee holds the portion as a separate trust, Trustee may pay to or use for the beneficiary so much of the income and principal as Trustee determines to be required for the reasonable support, comfort and education of the beneficiary and the beneficiary’s spouse and descendants. Appellee argued that, under the above provision, because Xxxxxxx XX was under a disability and incapable of managing a trust distribution, his share could be split off into a separate trust to be held for the benefit of Xxxxxxx XX and his daughter, Xxxxxxx. Appellant Department of Treasury, in response, noted that it had filed an action in Houghton Circuit Court under the SCFRA seeking reimbursement for the costs of Xxxxxxx XX’s care due to his incarceration. The Houghton Circuit Court issued orders freezing Xxxxxxx XX’s portion of the trust. Appellant contended that the trusts were reachable because they were not “discretionary trusts” since the beneficiary ultimately would be entitled to a part of the trusts’ corpora. A hearing was held on the trustee’s petitions. In its written opinion, the probate court found as follows: The trust in this case clearly gives the trustee the discretion not to make any distribution at all to Xxxxxxx Xxxxxx Xxxxxx, XX during his lifetime. For that reason, it is a discretionary trust and its assets are beyond the reach of the State Treasurer and the SCFRA. The trustee is free to disregard [Xxxxxxx XX] under several scenarios. Under section 5.2, if the trustee is of the opinion that a beneficiary is incapable of managing a trust distribution, the trustee may distribute the entire portion that would have gone to the beneficiary to a minor under the Uniform Gifts to Minors Act or Uniform Transfer to Minors Act. If this option were exercised, there is no part of the corpus of the trust that would be distributed to Xxxxxxx Xxxxxx Xxxxxx,

Beneficiary Under Disability. If a beneficiary is under the age of 21, or legally disabled, or, in Trustee’s opinion incapable of managing a trust distribution, Trustee either may expend directly any income or principal which it is authorized to use for any beneficiary, or may pay it over to or for use of the beneficiary, or to the beneficiary’s conservator, if any, or any adult with whom the beneficiary is residing, without responsibility for its expenditure. If Trustee is directed to distribute any portion of the trust principal to that beneficiary, the trust principal shall vest in interest in the beneficiary indefeasibly, but Trustee, in its discretion, may distribute the portion to a custodian under an[sican [sic] Uniform Gifts to Minors Act or Uniform Transfer to Minors Act or hold the portion as a separate 2 Section 3.5(c) provides, “At my spouse’s death, Trustee shall divide the remaining trust property whether real, personal, or mixed, into four (4) equal shares and distribute it [with equal shares going to the four children of Xxxxxxx X. and Xxxxxxx].” trust for the period of time Trustee deems advisable but not after the time (a) the beneficiary reaches the age of 30 years, or (b) after the removal of the legal disability, or (c) after the time Trustee deems the beneficiary is capable of managing a final trust distribution, whichever is latest. If Trustee holds the portion as a separate trust, Trustee may pay to or use for the beneficiary so much of the income and principal as Trustee determines to be required for the reasonable support, comfort and education of the beneficiary and the beneficiary’s spouse and descendants. Breaking this section down, it is clear that there are two main conditions: but Trustee, in its discretion, may [1] distribute the portion to a custodian under an [sic] Uniform Gifts to Minors Act or Uniform Transfer to Minors Act or [2] hold the portion as a separate trust for the period of time Trustee deems advisable but not after the time (a) the beneficiary reaches the age of 30 years, or (b) after the removal of the legal disability, or (c) after the time Trustee deems the beneficiary is capable of managing a final trust distribution, whichever is latest. If Trustee holds the portion as a separate trust, Trustee may pay to or use for the beneficiary so much of the income and principal as Trustee determines to be required for the reasonable support, comfort and education of the beneficiary and the beneficiary’s spouse and descendants. Appellee argued thatHere, under both conditions are satisfied because the above provisiontrustee has determined, because in his opinion, that Xxxxxxx XX was under a disability and incapable of managing a trust distribution, his share could be split off into a separate trust to be held for the benefit of Xxxxxxx XX and his daughter, Xxxxxxx. Appellant Department of Treasury, in response, noted that it had filed an action in Houghton Circuit Court under the SCFRA seeking reimbursement for the costs of Xxxxxxx XX’s care due to his incarceration. The Houghton Circuit Court issued orders freezing Xxxxxxx XX’s portion of the trust. Appellant contended that the trusts were reachable because they were not “discretionary trusts” since the beneficiary ultimately would be entitled to a part of the trusts’ corpora. A hearing was held on the trustee’s petitions. In its written opinion, the probate court found as follows: The trust in this case clearly gives the trustee the discretion not to make any distribution at all to Xxxxxxx Xxxxxx Xxxxxx, XX during his lifetime. For that reason, it is a discretionary trust and its assets are beyond the reach of the State Treasurer and the SCFRA. The trustee is free to disregard [Xxxxxxx XX] under several scenarios. Under section 5.2, if the trustee is of the opinion that a beneficiary is incapable of managing a trust distributiondistribution and because § 3.5(c) of the trusts is directing the trustee to make a distribution to Xxxxxxx XX. And the fulfillment of both of these conditions then triggers the following: “the trust principal shall vest in interest in the beneficiary indefeasibly.” (Emphasis added.) Furthermore, the trustee may may, in his discretion, either (1) distribute the entire portion that would have gone to the beneficiary amount to a minor custodian under the Uniform Gifts to Minors Act or Uniform Transfer to Minors ActAct or (2) hold the amount in a separate trust. If this the trustee elects to hold the money in a separate trust, the trustee “may pay to or use for the beneficiary so much of the income and principal as the trustee determines to be required for the reasonable support, comfort, and education of the beneficiary and the beneficiary’s spouse and descendants.” (Emphasis added.) Contrary to the probate court’s ruling, nowhere in § 5.2 does it allow a trustee to “disregard” or bypass a named beneficiary. At best, § 5.2 allows a trustee discretion in how the payment is made, but the beneficiary nevertheless has an indefeasible interest in the corpus. Appellee’s reliance on the term “may” in “may pay to or use for the beneficiary” is misplaced. The use of “may” here does not give the trustee discretion to withhold payment; instead, the use of the term simply indicates that the trustee has the option were exercisedto either “pay to” the beneficiary or to “use for” the beneficiary. This use of “may” is distinguishable from the use of “may” earlier, where it states that the “Trustee, in its discretion, may” either distribute the funds to a custodian or hold the funds as a separate trust. The earlier use denotes a truly discretionary choice, while the latter use denotes a mandatory action with the trustee having the option of how to accomplish it. See DeBeaussaert v Shelby Twp, 122 Mich App 128, 131-132; 333 NW2d 22 (1982) (noting that term “may” does not always denote discretion and can, in fact, denote mandatory action). Furthermore, the amount set aside in a separate trust is to be used “for the reasonable support, comfort and education of the beneficiary and the beneficiary’s spouse and descendants.” (Emphasis added.) The probate court erroneously interpreted the term “and” as meaning the same thing as the term “or” when it concluded that the trustee could simply provide support for Xxxxxxx XX’s daughter and ignore Xxxxxxx XX’s support, comfort, and education. See Niles Twp v Berrien Co Bd of Comm’rs, 261 Mich App 308, 319; 683 NW2d 148 (2004) (stating that “and” and “or” should be given their strict meaning when their accurate reading does not give the text a dubious meaning). We also note that the probate court erred when it surmised that § 5.2 allowed a trustee to simply hand an incapable beneficiary’s disbursements to any minor. The intent of the settlors’ reference to the Uniform Gifts to Minors Act and the Uniform Transfer to Minors Act clearly is in the context of the beneficiary being the minor.3 It would be absurd that a settlor would intend a disbursement to any random, unrelated minor in lieu of the money going for the benefit of the named beneficiary.4 Moreover, even if the resulting trust could be viewed as a discretionary trust, the state still could reach it for reimbursement. That is because even if the trustee had the discretion to withhold disbursing payments to Xxxxxxx XX, there is no part of question that Xxxxxxx XX nonetheless possessed an “indefeasible” vested interest in the funds.5 Thus, upon Xxxxxxx XX’s death, that interest would go to his estate. This ownership aspect makes this distinguishable from other typical discretionary trusts. See Coverston v Xxxxxxx, 136 Mich App 504, 510; 357 NW2d 705 (1984) (noting that the trust was not a discretionary trust because, in part, the beneficiary “or his estate” ultimately was entitled to the corpus of the trust that would be distributed to Xxxxxxx Xxxxxx Xxxxxx,trust).