The success or failure of a business corporation often depends on how smoothly the ownership and administration of the business is passed from the deceased founder to the heirs. Merely focusing on proper estate planning and ignoring estate administration can lead to prolonged litigation, which may affect the overall stability and growth prospects of the inherited businesses.

Proper distribution of assets, clear demarcation of the rights and responsibilities of the heirs and prompt action towards settlement of legal issues will, as was seen in a recent case before the Oakland County Probate Court, help in quick and amicable resolution of estate-related disputes.

In 2008, two co-beneficiaries of a trust accused their brother, the trustee in charge of administering assets worth approximately $24.6 million in a broadcasting company, of violating his fiduciary responsibilities.

The co-beneficiaries, who receive an annual payment of $800,000 each, raised issues of mismanagement of funds and withdrawal of excess compensation by the trustee for the performance of his duties. The trustee was suspended after an investigation by the court-appointed special fiduciary found instances of violation of fiduciary responsibilities. The trustee was then ordered to return $1.8 million that he received in 2008 and 2009 from the companies held by the trust.

The trustee filed a suit in Macomb County claiming the co-beneficiaries interfered in contracts and business relationships. The suit was dismissed for lack of jurisdiction of the Macomb court and the frivolous nature of the trustee’s complaint.

Upon an appeal, the Michigan Court of Appeals upheld the lower court’s decision but noted that the trustee’s right to due process and the right to argue against a court order had been violated.

Further litigation ceased after the trustee and the co-beneficiaries mutually agreed to dissolve the trust and dismiss all cases. The trustee agreed to make a combined payment of $3.25 million to the co-beneficiaries and, in return, gained control of all assets under the trust.

Administering an estate is a complicated process, and clear knowledge of the nuances of the law will help protect trust beneficiaries’ rights. Beneficiaries must also consider the possible financial ramifications of litigating trust-related matters.

Source: Crain’s Detroit Business, “Adell Family Trust,” Chad Halcom, Feb 27, 2013

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