In re Robert L. McDowell Revocable Trust
296 Neb. 565
| Neb. | 2017Background
- Robert and Betty McDowell executed nearly identical revocable trusts; Robert's trust (Trust A) gave Betty a limited power to appoint Trust A assets by will to: Robert's issue, spouses of his issue, or tax‑exempt charities.
- Robert died first; Betty later executed a will that exercised any power of appointment by devising all appointive property "together with all of my property" to the trustee of her revocable trust to be administered as part of her trust.
- After transfers, Betty’s trust (whose beneficiaries included Sandra Stockall and Robert’s grandchildren) received Robert’s Trust A assets; Jane Hornung (Robert’s other child and a potential Trust A beneficiary) received nothing.
- Hornung sued for a declaratory judgment, alleging Betty’s appointment was invalid because devising Trust A assets to Betty’s trust (not a permissible appointee) exceeded the limited power. Stockall (as Betty’s trustee) counterclaimed, asserting the appointment was valid.
- The county court held Betty’s appointment ineffective because it commingled Trust A assets with Betty’s assets, potentially benefiting Betty, her estate, or creditors; it ordered recovery and distribution under Robert’s trust. The Nebraska Supreme Court affirmed, but modified the judgment to find the trustee of Robert’s trust breached his duties by making the transfer.
Issues
| Issue | Hornung's Argument (Plaintiff) | Stockall's Argument (Defendant) | Held |
|---|---|---|---|
| Whether Betty validly exercised Robert's limited power of appointment by devising Trust A assets to her revocable trust | Invalid — appointment to Betty's trust is outside the limited class and commingles assets so it benefits impermissible persons (Betty, her estate, creditors) | Valid — ultimate distributions reached permissible beneficiaries; the trust administration effectively carried out Robert's intent | Held: Invalid. Devise to Betty's trust was ineffective because it was not to a permissible appointee and permitted commingling that could benefit impermissible parties. |
| Whether doctrines of selective allocation or substantial compliance save the appointment | N/A (Hornung opposed) | These doctrines should be applied to allocate liabilities to Betty’s own assets or deem substantial compliance with Robert's intent, making the appointment effective | Held: Rejected. Nebraska courts declined to adopt selective allocation (a rule of construction) and substantial compliance is inapplicable because the failure was substantive (benefitting an impermissible appointee). |
| Whether the trustee of Robert's trust breached duties by transferring Trust A assets pursuant to Betty’s ineffective appointment | Trustee should be required to recover assets and distribute per Robert's trust | Trustee argued he acted in good faith and did not breach, so remedies to void transfers were improper | Held: Court modified judgment to find the trustee breached the trust by transferring assets pursuant to an invalid appointment; equitable remedies (recovery, restoration, distribution under Robert's trust) were permitted under Neb. Rev. Stat. § 30-3890. |
| Whether assets distributed through Betty's trust became reachable by Betty’s creditors or taxable in her estate (economic consequences relied on to invalidate) | This risk supports invalidity because commingling could expose appointive assets to impermissible claims | Argued actual distributions ultimately went to permissible beneficiaries and no impermissible benefit occurred | Held: Risk of benefit/exposure (commingling) was sufficient to render the appointment ineffective; court need not wait for actual creditor claims. |
Key Cases Cited
- Applegate v. Brown, 168 Neb. 190, 95 N.W.2d 341 (Neb. 1959) (power of appointment must be exercised within its terms; donor's method must be followed)
- 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 standards for trust 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)
- BMO Harris Bank N.A. v. Towers, 43 N.E.3d 1131 (Ill. App. Ct. 2015) (appointment to a donee’s own trust that permits commingling can be ineffective where it benefits the donee or creditors)
- In re Estate of Reisman, 266 Mich. App. 522, 702 N.W.2d 658 (Mich. Ct. App. 2005) (appointment to a donee’s trust may be effective only if the trust expressly segregates appointed property from estate/creditor reach)