Beneficiaries in Orange

On a “listserv” we both read, a colleague, Nathan Piwowarski, posted a helpful explanation about litigating SCRA cases. He also provides tips on how a trust should be drawn up to avoid claim of the Michigan Department of Corrections for reimbursement for the costs of imprisonment. His remarks build on my post, “Chains of Blood; Bars of Steel.”  He has kindly allowed me to quote him here:

I recently litigated a matter concerning the State Correctional Facility Reimbursement Act (SCFRA), MCL 800.401 et seq. These matters are prosecuted by a small group of Assistant AGs in the Detroit office.

Procedurally, here is how these cases work: the inmate is supposed to disclose the asset in a questionnaire that is put before them while incarcerated. Oftentimes, however, the state discovers an asset when a trustee sends an accounting or notice of trust administration to an inmate. Upon receiving the disclosure, the State Treasurer will sue the trustee and inmate/beneficiary to freeze the assets. The SCFRA proceeding will be in the circuit court that sentenced the inmate. If you know that this is inevitable, I strongly suggest that you proactively petition the probate court for instructions regarding the trust estate’s vulnerability to the SCFRA claim. This may afford you the ability to shop your forum a bit, too. If you do not file the petition for instructions first, you will have to respond to the SCFRA complaint and deal with the coordination of the probate and circuit court proceedings, or simply raise your defenses in circuit court (unless I know that the circuit judge is familiar with these types of issues, I tend to prefer having a probate judge hear these arguments).

Substantively, the case law you’ll want to start with is: Miller v Dep’t of Mental Health, 432 Mich 426; 442 NW2d 617 (1989); Treasury Dep’t v Turner, 110 Mich App 228 (1981); and, In re Wright Trust, an unpublished opinion of the Michigan Court of Appeals, 2015 Mich App LEXIS 543, at 12 (Ct App, Mar. 17, 2015). My quick take is that these assets are vulnerable to a SCFRA claim because the trust instrument just provides for delayed distribution of assets. To have an ironclad SCFRA defense, the assets would have to be held in a pure discretionary trust, and there would have to be at least a possibility that neither the income beneficiary nor his estate would ever receive distributions.

Nathan Piwowarski
McCurdy Wotila & Porteous, PC
120 West Harris Street
Cadillac, Michigan 49601
direct phone line: (231) 577-5246
general office line: (231) 775-1391
fax: (231) 577-1488