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 A gave Betty a limited power to appoint Trust A principal by will to Robert’s issue, spouses of issue, or tax-exempt charities only.
- Robert predeceased Betty; Betty’s will purported to exercise the power by devising all appointive property (plus her own property) to the trustee of her own revocable trust to be administered as part of that trust.
- After transfers, Trust A assets (including 270 shares in McDowell Cattle Company) passed through Betty’s trust to Stockall (Betty’s daughter); Hornung (Robert’s other daughter and a permissible appointee under Robert’s trust) received nothing.
- Hornung sued for a declaratory judgment and recovery, arguing Betty’s appointment was invalid because appointing to Betty’s trust was not within the limited class and commingled assets to Betty’s benefit.
- The county court held Betty’s appointment ineffective, ordered recovery and distribution under Robert’s trust; it also stated (erroneously, per the Supreme Court) that Robert’s trustee had not breached trust.
Issues
| Issue | Plaintiff's Argument (Hornung) | Defendant's Argument (Stockall/Trustee) | Held |
|---|---|---|---|
| Whether Betty validly exercised the limited power of appointment by devising Trust A assets to her own revocable trust | The appointment was invalid because Betty’s trust is not among the permissible appointees and the devise commingled assets, potentially benefiting Betty, her estate, and creditors | The appointment was effective because assets ultimately flowed to Robert’s issue (permissible beneficiaries) and the trustee’s distributions should stand | Held: Invalid — devising to Betty’s trust was outside the limited class and the absence of segregation made the exercise ineffective because it benefited impermissible persons |
| Whether doctrines of selective allocation or substantial compliance cure the defective appointment | N/A for Hornung; she opposed application of those doctrines | Stockall: selective allocation or substantial compliance should apply so appointment is treated as effectuating disposition to permissible beneficiaries | Held: Rejected — Nebraska has not adopted selective allocation and the trusts’ language was clear; substantial compliance inapplicable because defect was substantive (appointed to impermissible appointee), not merely formal |
| Whether the trustee of Robert’s trust breached duties by transferring Trust A assets pursuant to Betty’s ineffective appointment | Hornung: trustee breached by transferring assets per an invalid appointment and should recover assets | Trustee: acted in good faith and did not breach; court lacked authority to void transfers or compel recovery | Held: Court modified — trustee did breach; remedies under Neb. Rev. Stat. § 30-3890 available and recovery/distribution under Robert’s trust was proper |
| Whether the county court had jurisdiction and power to order recovery/distribution and other remedies | Hornung: court may grant declaratory relief and remedy breaches to protect beneficiaries | Trustee: argued lack of jurisdiction to invalidate transfers or to order recovery | Held: Court had authority; remedies for breach of trust (compel performance, restore property, void acts, impose constructive trust) were available and properly applied |
Key Cases Cited
- In re Family Trust Created Under Akerlund Trust, 280 Neb. 89 (Neb. 2010) (trust interpretation is a question of law)
- In re Margaret Mastny Revocable Trust, 281 Neb. 188 (Neb. 2011) (appellate review standards for trust matters)
- Applegate v. Brown, 168 Neb. 190 (Neb. 1959) (donee of a power must keep within its terms; method of execution must be followed)
- In re Estate of Muchemore, 252 Neb. 119 (Neb. 1997) (definition of a special/limited power of appointment)
- In re Estate of Reisman, 266 Mich. App. 522 (Mich. Ct. App. 2005) (upholding an appointment to a donee’s trust where the trust expressly segregated appointive property from other trust assets)
- Massey v. Guaranty Trust Co., 142 Neb. 237 (Neb. 1942) (creator-defined execution methods of a power must be strictly followed)