Elder Law Alert: An expensive error

By Alan Polack

In a published opinion, Independent Bank v Hammel Associates, LLC, Estate of James D. Lee and Norbert A. Boes and James D. Lee Revocable Living Trust, the Court of Appeals took up the issue of whether a trustee served a proper Notice of Disallowance of Claim upon a claimant.

The court reversed a decision by the Oakland County Circuit Court determining that the trustee had issued a proper Notice of Disallowance.

The case arose out of a commercial loan issued by Independent Bank to Hammel Associates, LLC for $199,547.87 on March 16, 2009. 

The note was signed by the principal members of Hammel Associates.  In addition, the principals and the trustee of the James D. Lee Revocable Living Trust signed commercial guaranty documents which guaranteed repayment of the debt. 

Hammel defaulted on the loan and James D. Lee died on May 25, 2009. 

On May 31, 2009, the Livingston County Daily Press published a Notice to Creditors drafted by the successor trustee which stated that Mr. Lee had died and that there was no probate estate. 

It further notified creditors that all claims against the trust should present those claims to the trustee. 

In addition, the trustee sent a Notice to Known Creditors to a vice president of Independent Bank in Troy and to Independent Bank’s general counsel in Ionia.

On August 18, 2009, Independent’s counsel submitted a Statement and Proof of Claim based on the commercial guaranties of James D. Lee and the James D. Lee Revocable Trust. 

On January 15, 2009, the trustee mailed a Notice of Disallowance of Claim to Independent Bank.

The top of the page of the Notice of Disallowance referred only to the estate of James Davis Lee, deceased, and did not identify or otherwise indicate that it was by or from the trust. 

On September 1, 2010, Independent filed a complaint against Hammel, the estate of James D. Lee and the James D. Lee Revocable Living Trust to collect the commercial debt secured by the commercial guaranties. 

On October 12, 2010, the estate and trust filed a motion for summary disposition arguing that Independent’s claims against both the estate and trust were barred by the statute of limitations. 

The trustee argued that the Notice of Disallowance barred Independent’s claim against the trust for untimely filing, which exceeded the time limit of 63 days after the disallowance was mailed and delivered.

Independent argued that although it had been advised that no probate estate was open for Mr. Lee, that an estate could be opened at some time in the future. 

They also argued that the statute of limitations did not run on its claim because the trust failed to file a disallowance as to the trust. 

The trial court entered summary disposition against Independent in favor of the trust.  The parties agreed that the Michigan Trust Code (MTC) enacted on April 1, 2010 and incorporated into the Estate and Protected Individual’s Code (EPIC) applied in the instant case. 

The MTC provision, MCL 600.7611(a) provides that “a claim that is disallowed in whole or in part by the trustee is barred to the extent not allowed unless the claimant commences a proceeding against the trustee not later than 63 days after the mailing of the Notice of Disallowance or partial allowance if the notice warns the claimant of the impending bar.” 

This procedure is the same as that for disallowing a claim against an estate. 

The court noted that Independent’s claim specifically preserved its right to file claims against both the estate and the trust which is permitted under MCL 700.7609(2) and that it would not be out of the ordinary for an estate to be opened any time after the initial publication and notices were sent. 

The court also noted that the disallowance by a trust and by an estate are distinct procedures.  Because “… while MCL 700.7609(2) states that a claim presented against a decedent’s estate is sufficient to also assert liability against a trust without an additional, separate presentation of claim against the trustee, the EPIC and the MTC do not contain a mirror provision stating that a disallowance of claim by an estate is sufficient to disallow a claim against a trust.” 

Based on this, the court stated that “… a logical reading of the statutes suggests that the legislature intended to require a separate and distinct disallowance of claim by the trust, whether or not an estate existed.” 

The court opined that it was the trustee’s error sending out a disallowance which referred to an estate that was never opened. 

Since the disallowance on its face did not specifically refer to the trust, it did not trigger a 63 day filing deadline. 

The trust lost its limitations defense because of what was probably an oversight and because the Court of Appeals strictly construed the statutes applicable to the claims procedure.


Alan F. Polack specializes in elder and probate law and practices out of Shelby Township. He is a former president of the Macomb County Probate Bar Association.