In re Robert L. McDowell Revocable Trust
894 N.W.2d 810
| Neb. | 2017Background
- Robert and Betty McDowell created nearly identical revocable trusts; Robert's trust (Trust A) gave Betty a limited power to appoint Trust A assets "by will" only to Robert's issue, spouses of issue, or tax-exempt charities.
- Robert died first; Betty subsequently executed a will that stated she exercised any power of appointment and devised all property over which she had such powers, together with all of her own property, to the trustee of her revocable trust to be administered as part of that trust.
- Betty’s revocable trust named primarily Sandra K. Stockall (one child) and several grandchildren as beneficiaries; Jane O. Hornung (the other child) received nothing under Betty’s trust but was a permissible appointee under Robert’s trust.
- Trustee of Robert’s trust transferred Trust A assets to Betty’s trust after Betty’s will; some Trust A assets (including company shares) were distributed via Betty’s trust to Stockall.
- Hornung sued for a declaration that Betty’s attempted exercise of the limited power of appointment was invalid and sought recovery and distribution under Robert’s trust; the county court ruled Betty’s appointment ineffective and ordered recovery and distribution under Robert’s trust.
- The Nebraska Supreme Court affirmed the county court’s decision (with a modification finding the trustee of Robert’s trust had breached the trust by making the transfers) and rejected doctrines urged by Stockall to save the appointment.
Issues
| Issue | Hornung's Argument | Stockall's Argument | Held |
|---|---|---|---|
| Was Betty’s appointment of Trust A assets to her own revocable trust an effective exercise of the limited power of appointment? | The appointment was invalid because Betty’s trust (the appointee) was not among the permissible classes and the appointment commingled assets, potentially benefiting Betty, her estate, or creditors. | The appointment was effective because Trust A assets ultimately passed to permissible appointees (Robert’s issue) via Betty’s trust. | Held invalid: appointing to Betty’s trust improperly commingled assets and permitted benefit to nonpermissible persons, so the limited power was not effectively exercised. |
| Should the doctrines of selective allocation or substantial compliance validate the appointment? | N/A (Hornung opposed application). | Selective allocation or substantial compliance should be applied to treat the dispositive documents as effectuating intent and to allocate liabilities so Trust A assets were not available to Betty/creditors. | Rejected both doctrines: selective allocation not adopted in Nebraska and unnecessary where instrument language is clear; substantial compliance inapplicable because the failure was substantive (appointed to an impermissible appointee), not merely formal. |
| Did the trustee of Robert’s trust breach fiduciary duties by transferring Trust A assets to Betty’s trust? | Argued transfers were improper and trustee breached duties. | Trustee contended he acted appropriately and in good faith and therefore did not breach. | Court modified judgment to find trustee did breach by transferring assets pursuant to an ineffective appointment and ordered recovery and distribution under Robert’s trust. |
| Were remedies available to recover Trust A assets after an ineffective appointment? | Sought recovery and distribution under Robert’s trust. | Argued court lacked authority to void trustee’s acts because trustee acted in good faith. | Remedies under Neb. Rev. Stat. § 30-3890 (remedies for breach of trust) are available; court may compel restoration, void acts, impose constructive trust, and order other appropriate relief. |
Key Cases Cited
- Applegate v. Brown, 168 Neb. 190, 95 N.W.2d 341 (Neb. 1959) (principles for construction of powers of appointment and donor’s intent control)
- In re Family Trust Created Under Akerlund Trust, 280 Neb. 89, 784 N.W.2d 110 (Neb. 2010) (trust interpretation is a question of law)
- In re Margaret Mastny Revocable Trust, 281 Neb. 188, 794 N.W.2d 700 (Neb. 2011) (appellate review standard for equity and trust administration matters)
- Massey v. Guaranty Trust Co., 142 Neb. 237, 5 N.W.2d 279 (Neb. 1942) (method of executing a power must be strictly followed to effect donor’s intent)
- In re Estate of Muchemore, 252 Neb. 119, 560 N.W.2d 477 (Neb. 1997) (definition and limits of special or limited powers of appointment)
- BMO Harris Bank N.A. v. Towers, 43 N.E.3d 1131 (Ill. App. Ct. 2015) (commingling appointive assets into the donee’s trust can render a limited appointment ineffective when assets are not segregated and may benefit the donee or creditors)
- In re Estate of Reisman, 266 Mich. App. 522, 702 N.W.2d 658 (Mich. Ct. App. 2005) (appointment to donee’s trust can be effective only if trust language segregates appointed assets from the donee’s own assets)