In re Robert L. McDowell Revocable Trust
296 Neb. 565
| Neb. | 2017Background
- Robert and Betty McDowell executed nearly identical revocable trusts; Robert's trust gave Betty a limited power to "appoint by will" Trust A assets to his issue, spouses of issue, or tax-exempt charities.
- Robert died first; Betty thereafter executed a will purporting to exercise the power by devising all property over which she had a power of appointment, together with all her property, to the trustee of her revocable trust "to be administered as part of" that trust.
- Betty’s revocable trust named Stockall (one daughter) and several grandchildren as beneficiaries; Hornung (the other daughter) was a permissible appointee under Robert’s trust but received nothing under Betty’s trust.
- After trustee transfers, Trust A assets (including Robert’s 270 shares in McDowell Cattle Company) passed through Betty’s trust to Stockall; Hornung sued for a declaration that Betty’s appointment was invalid and for recovery/distribution under Robert’s trust.
- The county court held Betty’s appointment ineffective because devising Trust A to her personal trust commingled assets and potentially benefited Betty, her estate, and creditors (nonpermissible appointees); it ordered recovery and distribution under Robert’s trust.
- The Nebraska Supreme Court affirmed the invalidity of the appointment, rejected doctrines urged by Stockall (selective allocation and substantial compliance), and modified the judgment to state the trustee breached the trust by making the transfers.
Issues
| Issue | Hornung's Argument | Stockall's Argument | Held |
|---|---|---|---|
| Was Betty’s appointment by will of Trust A assets to her revocable trust an effective exercise of the limited power of appointment? | The appointment was invalid because Betty’s trust is not among the permissible appointees and the will commingled Trust A assets with her own, potentially benefiting nonpermissible persons (Betty, her estate, creditors). | The appointment was effective because Trust A assets ultimately passed to Robert’s issue (permissible), and beneficiaries were not actually harmed. | Held invalid: devising to Betty’s trust without segregation improperly benefited nonpermissible classes and violated the special power. |
| Should courts apply the doctrine of selective allocation to treat the disposition as limited to permissible appointees? | N/A (Hornung opposed use) | Selective allocation should apply so owned and appointive property are allocated to carry out Betty’s intent, preserving the appointment. | Rejected: Nebraska has not adopted the doctrine and the trusts’ language was clear; court will not judicially adopt selective allocation. |
| Should the doctrine of substantial compliance validate the appointment despite nonconforming form? | N/A | Substantial compliance should salvage the appointment because Betty intended to benefit Robert’s issue, satisfying donor’s purpose. | Rejected: Substantial compliance addresses formal defects, not substantive violations (here appointment favored an impermissible appointee); Nebraska requires strict adherence to donor’s method. |
| Did the trustee of Robert’s trust breach duties by transferring Trust A assets pursuant to Betty’s invalid appointment, and may the court order recovery/remedies? | Trustee breached by transferring assets under an invalid appointment; court may compel recovery and redress under Neb. Rev. Stat. § 30-3890. | Trustee acted in good faith and did not breach; court lacked authority to void transfers or require recovery. | Modified held: Trustee did breach by transferring pursuant to an ineffective appointment; remedies (recovery, distribution under Robert’s trust) were proper. |
Key Cases Cited
- Applegate v. Brown, 168 Neb. 190, 95 N.W.2d 341 (Neb. 1959) (principles for construing powers of appointment; donor’s intent controls)
- In re Family Trust Created Under Akerlund Trust, 280 Neb. 89, 784 N.W.2d 110 (Neb. 2010) (trust interpretation is question of law)
- In re Margaret Mastny Revocable Trust, 281 Neb. 188, 794 N.W.2d 700 (Neb. 2011) (appellate review standards for trusts and equity questions)
- In re Estate of Muchemore, 252 Neb. 119, 560 N.W.2d 477 (Neb. 1997) (definition of special/limited power of appointment)
- Massey v. Guaranty Trust Co., 142 Neb. 237, 5 N.W.2d 279 (Neb. 1942) (method of executing a power must be strictly followed)
- BMO Harris Bank N.A. v. Towers, 43 N.E.3d 1131 (Ill. App. Ct. 2015) (appointment to decedent’s own trust ineffective where assets commingled and impermissible appointee could benefit)
- In re Estate of Reisman, 266 Mich. App. 522, 702 N.W.2d 658 (Mich. Ct. App. 2005) (appointment to donee’s trust effective only when trust expressly segregates appointed assets from other trust property)