An important part of any estate administration is distribution of assets. The Estate and Protected Individuals Code (EPIC) places the rules dealing with distribution in Article III, Part 9. The major exception to this are the rules governing distribution in supervised administration. This note will discuss the special rules concerning distributions during supervised administration and then the rules concerning distribution in the administration of all other estates.
Pursuant to MCL 700.3504 unless restricted by the court, a supervised personal representative has, without an interim order approving exercise of a power, all the powers of a personal representative, but shall not exercise the power to make distribution of the estate without prior court order. This restriction would even prevent a partial distribution to beneficiaries without court order. Pursuant to MCL 700.3505 the court may issue an interim order approving or directing a partial distribution or granting other relief at any time during the pendency of a supervised administration on the petition of the personal representative or an interested person. This would allow for partial distributions to beneficiaries upon petition, notice to the personal representative and other persons who will be affected by the adjudication, and court order approving the distribution. Any final distribution would be made by a petition for an order of complete settlement pursuant to MCL 700.3952 which is the only method for closing an estate in supervised administration. The order of complete estate settlement would authorize the final distributions of the estate. This procedure and the forms used are explained in greater detail in a subsequent note on closing estates.
General Rules for Distribution
The following rules apply to all estate administration. The only distinction is that the property can be distributed by the personal representative according to these rules in all but supervised administration. In supervised administration, distribution must follow the rules but it must be done by court order. All rules concerning distribution found in Article III, Part 9 will not be discussed. The focus will be on those which are most important and most used.
Order in which Assets Appropriated - Abatement
MCL 700.3902 describes the order in which assets are appropriated or abate. This essentially gives the order in which assets may be used to satisfy charges against the estate. This become important in estates where the estate is insufficient to pay all charges and devisees. Except as provided in connection with the share of the surviving spouse who elects to take an elective share, distributees' shares abate, without a preference or priority between real and personal property, in the following order
- Property not disposed of by the will.
- Residuary devises.
- General devises.
- Specific devises
For the purposes of abatement, a general devise charged on specific property is a specific devise to the extent of the value of that specific property and, upon the failure or insufficiency of the property on which the devise is charged, a general devise to the extent of the failure or insufficiency. Abatement within each classification is in proportion to the amount of property each beneficiary would have received if full distribution of the property had been made in accordance with the terms of the will. Abatement within each classification is in proportion to the amount of property each beneficiary would have received if full distribution of the property had been made in accordance with the terms of the will.
Pursuant to MCL 700.3902(3) if the will expresses a different order of abatement, the will controls. If the testamentary plan or the devise's express or implied purpose would be defeated by the order of abatement , the distributees' share abate as found necessary to give effect to the testator's intention. Thus, the court is authorized to direct a different scheme of abatement to avoid frustration of the decedent's intent.
Retainer or Setoff
Pursuant to MCL 700.3903 the amount of a successor's non contingent indebtedness to the estate if due, or its present value if not due, shall be offset against the successor's interest. However, the successor has the benefit of a defense that would be available to the successor in a direct proceeding for recovery of the debt.
Interest on General Pecuniary Devise
Pursuant to MCL 700.3904 unless a contrary intent is indicated by the will, a general pecuniary devise bears interest at the legal rate beginning 1 year after the first appointment of a personal representative until payment.
EPIC favors distribution in-kind. However, this preference should give way to an exercise of fiduciary discretion to make sales of assets during the course of administration that are reasonable and prudent under the circumstances. The personal representative is given authority in MCL 700.3906(1)(c) to allocate assets in the residuary estate on a non-pro rata basis so long as the allocation is fair and equitable. Distributions in-kind, in other than supervised administration, will normally be accomplished without a court order with an appropriate transfer document such as a deed or assignment.
Pursuant to MCL 700.3906 and subject to the above paragraph unless the will indicates a contrary intention, the distributable property of a decedent's estate must be distributed in kind to the extent possible through application of the following provisions:
- A specific devisee is entitled to the property devised to him or her.
- A spouse or child who selects particular estate property as part of exempt property is entitled to that property.
- A homestead or family allowance, or devise of a stated sum of money, may be satisfied in-kind if all of the following are true:
- The person entitled to payment does not demand cash.
- The property distributed in-kind is valued at its fair
market value as of its distribution date.
- Publicly traded securities are valued at the last sale on the business day preceding distribution, or if there was no sale, at the median between the amounts bid and offered at the close of that day.
- An account receivable (assuming a solvent debtor and no defense or dispute) is valued at the amount due with accrued interest or discounted to the distribution date.
- Property that does not have a readily ascertainable value (e.g., real estate) is valued as of a date not more than 28 days before the distribution date.
- A residuary devisee does not request that the property remain a part of the estate residue.
Pursuant to MCL 700.3908 after the probable charges against the estate are known, the personal representative may mail or deliver a proposal for distribution to all persons who have a right to object to the proposed distribution. The right of a distributee to object to the proposed distribution on the basis of the kind or value of property the distributee is to receive, if not waived earlier in writing, terminates if the distributee fails to object in a writing received by the personal representative within 28 days after mailing or delivery of the proposal.
Pursuant to MCL 700.3914(1), subject to the rights of creditors and taxing authorities, competent successors (a person, other than a creditor, who is entitled to property of a decedent under the decedent's will or this act) may agree to alter the interests, shares, or amounts to which they are entitled under the will or under intestate laws, in any manner that they provide in a written agreement executed by all who are affected by its provisions. No order approving the agreement is necessary, but one may be requested.