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) granted Betty a limited power to appoint Trust A assets by will to "my issue, the spouses of any such issue, and tax-exempt charitable organizations."
- Robert predeceased Betty; Betty later executed a will purporting to exercise the power by devising all property over which she had a power of appointment (including Trust A assets) to the trustee of her own revocable trust to be administered as part of that trust.
- After distributions, Trust A assets (including Robert’s 270 shares in McDowell Cattle Company) passed through Betty’s trust to Stockall; Hornung, a potential beneficiary under Robert’s trust, received nothing and sued for instructions and a declaration that Betty’s appointment was invalid.
- The county court held Betty’s appointment ineffective because devising Trust A to her personal trust commingled assets and could benefit Betty, her estate, or creditors, and ordered the trustee of Robert’s trust to recover and redistribute Trust A assets under Robert’s trust.
- On appeal, Stockall defended the appointment and urged application of selective allocation and substantial compliance doctrines; the trustee of Robert’s trust cross-appealed, contending the court lacked authority to require recovery because he acted in good faith.
- The Nebraska Supreme Court affirmed (with modification), holding the appointment ineffective and concluding the trustee breached the trust by transferring Trust A assets pursuant to the invalid appointment, permitting equitable recovery remedies.
Issues
| Issue | Hornung's Argument (Plaintiff) | Stockall's Argument (Defendant) | Held |
|---|---|---|---|
| 1) Was Betty’s exercise of the limited power of appointment effective? | Appointment invalid because Betty’s trust is not a permissible appointee and commingling benefited impermissible persons (Betty, estate, creditors). | Appointment valid because assets ultimately went to Robert’s issue (a permitted class) via Betty’s trust. | Held: Ineffective — devising to Betty’s trust commingled assets and could benefit impermissible parties; power was limited and must be strictly followed. |
| 2) Should doctrines of selective allocation or substantial compliance cure the defective appointment? | N/A (Hornung opposed curing) | Apply selective allocation or substantial compliance to allocate appointive property to permissible beneficiaries, making appointment effective. | Held: Rejected — Nebraska has not adopted selective allocation; trusts’ language was clear so construction doctrines unnecessary; substantial compliance inapplicable where substance violated donor’s restriction. |
| 3) Did the trustee of Robert’s trust breach fiduciary duties by transferring Trust A assets to Betty’s trust? | Trustee breached by transferring assets pursuant to an invalid appointment; remedies available. | Trustee acted in good faith and reasonably; court erred to order recovery and remedies. | Held: Trustee did breach; the county court’s contrary finding was plain error; equitable breach remedies (recovery, restore, void acts) were available and properly ordered. |
| 4) Are equitable remedies (recovery, imposition of constructive trust, distribution under Robert’s terms) appropriate? | Yes — statutory remedies under §30-3890 permit compelling performance, restoring property, voiding acts, and other relief. | No — argued court lacked authority given trustee’s asserted good-faith actions. | Held: Yes — court may order recovery and other remedies for breach of trust; ordering restoration and distribution under Robert’s trust was proper. |
Key Cases Cited
- In re Family Trust Created Under Akerlund Trust, 280 Neb. 89, 784 N.W.2d 110 (2010) (trust interpretation is a question of law)
- Applegate v. Brown, 168 Neb. 190, 95 N.W.2d 341 (1959) (donee must follow donor's prescribed method in exercising a power of appointment)
- In re Estate of Muchemore, 252 Neb. 119, 560 N.W.2d 477 (1997) (definition and limits of special/limited powers of appointment)
- BMO Harris Bank N.A. v. Towers, 43 N.E.3d 1131 (Ill. App. 2015) (devise of appointive property to testator’s own trust without segregation was ineffective because commingling exposed assets to creditors)
- In re Estate of Reisman, 266 Mich. App. 522, 702 N.W.2d 658 (2005) (appointment to decedent’s trust was effective where trust expressly segregated appointive assets from trust estate)