Trust Declaration Is Not a Contract

Elder Law Answers case summary.A declaration of trust ownership stating that all property would go to a trust was not a contract. The co-trustee did not breach her fiduciary duty when she refused to transfer the contents of an account to which she was the sole beneficiary to the trust she shared with her brother. In Schaddelee v. DeLeon (Mich. Ct. App. No. 362521, June 22, 2023).

A father, Ronald Schaddelee, Sr., named his daughter, Maria DeLeon, as the sole beneficiary of an investment account. Several years later, he created an irrevocable trust, making a trust agreement and a declaration of trust ownership. He designated his children, Maria DeLeon and Ronald Schaddelee, Jr., as co-trustees. The declaration of trust ownership stated that the trust would include all his property, including his accounts.

Following their father’s death, the son petitioned to remove the daughter as co-trustee because she had not transferred the investment account proceeds to the trust. He claimed she broke the trust ownership declaration and fiduciary duties as co-trustee. She argued that because the investment account had a separate beneficiary designation, it flowed directly to her, not the trust.

The probate court issued a partial summary disposition in favor of the daughter. The court noted that the declaration of trust ownership is not a contract. The grantor had to update the beneficiary designations on all accounts to list the trust as the beneficiary to fund the trust. As the account beneficiary, Ms. DeLeon owned the account upon her father’s death. Her brother appealed.

The declaration is not a contract. It states the grantor’s intent, but he needed to make arrangements, such as updating the beneficiary on his investment account, to carry out his plans. The trust agreement was a contract, but the declaration was a separate document, not part of the agreement.

Since the brother did not further challenge whether the investment flowed to his sister or the trust after their father’s death, the appellate court affirms the lower court’s judgment.

Ms. DeLeon did not breach her duty or violate the trust agreement when she declined to transfer the account’s contents to the trust. As the declaration was not a contract, it did not oblige her to make the transfer. 

Read the full opinion.