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432 Mich 426; 442 NW2d 617 (1989); Treasury Dep’t v Turner, 110 Mich App 228 (1981); and, In re Wright Trust, an unpublished opinion of the Michigan Court of Appeals, 2015 Mich App LEXIS 543, at 12 (Ct App, Mar. 17, 2015).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


Chains of Blood; Bars of Steel

Parents and other relatives of prison inmates are confronted an estate-planning problem: Is the imprisoned relative to be included in the will or trust?  A person who is planning his or her estate first must decide whether to include an imprisoned relative as a beneficiary.  If there is no will or trust, an incarcerated relative will receive a distribution equal to others who are similarly related.  A person who is not mentioned may take under a will or trust, under certain conditions.  Survivors often do not want an incarcerated relative to receive an inheritance, but a prison sentence does not break the chain of blood relationship.  If the decedent did not want the inmate to share in the estate, the estate plan should have reflected that determination.

Families often stand by their imprisoned relatives.  After all, many state and federal prisoners are innocent of the crimes for which they were sent to prison.  Even if guilty, blood is not only thicker than water, a blood relationship can be impervious to an order of conviction.  If it is decided to include a prisoner in the estate plan, the next question is how to ensure that he or she does not waste the money or have it taken by the state department of corrections.

It can be difficult to transmit money to prisoners and they are not allowed to receive most mail-order goods.  The UPS carrier will not be allowed to deliver that nice Christmas sweater from Land’s End to Aunt Betty’s nephew Duke, who is in doing 20 to life for robbing a bell-ringer in front of Wal*Mart.  To benefit a prisoner, it is better to appoint a trustee who can make sure that the prisoner will be able to get the benefit of any funds or goods intended for him or her.

A trust can also protect an inheritance from an imprudent beneficiary, whether incarcerated or not.  The trustee can be instructed to distribute the trust gradually to ensure that a large inheritance is not wasted.

A few states, including Michigan but not Pennsylvania, will file a claim for incarceration costs against a prisoner who receives an inheritance or other windfall.  The personal representative or trustee does not have an obligation to report an inheritance to correctional authorities, but a Michigan prisoner does.  The State Correctional Facility Reimbursement Act (SCFRA), Michigan Compiled Laws Annotated (MCLA) 800.401, et seq., requires a state prisoner to report his or her income and assets and imposes a reimbursement scheme that allows the Department of Corrections to assert a claim on most financial resources.  MCLA 800.401a(a).

There are two specified exemptions in the law.  The prisoner’s homestead “up to $50,000 value,” MCLA 800.401a(a)(I), and money saved from the prisoner’s “wages and bonuses” while incarcerated are protected.  MCLA 800.401a(a)(ii).  The state will assert a claim if the prisoner’s assets exceed 10% of the estimated cost of care for up to two years,  MCLA 800.403(2), although the state is not barred from proceeding when the possible recovery would be less than that threshold.  The claim is capped at 90% of the prisoner’s assets.  MCLA 800.403(3).

Prisoners may not disclaim benefits to avoid SCFRA.  Although SCFRA does not impose any reporting requirement on a personal representative or trustee holding assets that are distributable to a state prisoner, helping a prisoner to avoid the reporting requirement and the state’s claim would be hazardous.

Federal inmates whose assets exceed the federal poverty level are liable, up to the amount of the excess, for an incarceration fee based on the average cost of confinement for one year.  28 CFR § 505.4(b). The amount is prorated if the total time in custody, including pre-sentence custody, is less than 334 days.  28 CFR § 505.4(c).  However, a federal prisoner’s incarceration fee is based only on the pre-sentence report and the sentencing judge’s findings, so a later inheritance or trust distribution to a prisoner may not affect the calculation of the fee.  28 CFR § 505.4(a).

Michigan counties and municipalities may also recover costs of incarceration, up to $60.00 per day, plus health-care costs.  MCLA 801.313.

Whether to exclude a son or daughter who has been convicted of a crime from the estate plan can be a difficult decision.  Once the decision is made, it is important to consult an experienced estate-planning attorney to ensure that the choice is effective and that any benefits intended for the beneficiary are received properly and are not seized by the government nor imprudently wasted.


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2013 John B. Payne, Attorney