In re Trust Created by McGregor , 308 Neb. 405 ( 2021 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
03/05/2021 09:08 AM CST
- 405 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
In re Trust Created by Clifford Allen
McGregor, deceased.
Allen E. McGregor, appellant, v.
Evelyn L. McGregor, appellee.
___ N.W.2d ___
Filed February 12, 2021. No. S-20-281.
1. Trusts: Equity: Appeal and Error. Trust administration matters are
reviewed for error appearing on the record, absent an equity question.
2. Judgments: Appeal and Error. When reviewing a judgment for errors
appearing on the record, the inquiry is whether the decision conforms
to the law, is supported by competent evidence, and is neither arbitrary,
capricious, nor unreasonable.
3. Wills: Trusts. The interpretation of the words in a will or a trust pre­
sents a question of law.
4. Judgments: Appeal and Error. In instances when an appellate court is
required to review cases for error appearing on the record, questions of
law are nonetheless reviewed de novo on the record.
5. Trusts. A nonjudicial settlement agreement is valid only to the extent it
does not violate a material purpose of the trust.
6. Trusts: Presumptions. A spendthrift provision in the terms of the trust
is presumed to constitute a material purpose of the trust.
7. Trusts: Words and Phrases. “Spendthrift provision” means a term of a
trust which restrains both voluntary and involuntary transfer of a benefi-
ciary’s interest.
8. Trusts. The material purposes of a trust are subject to the settlor’s
discretion, to the extent that its purposes are lawful, are not contrary
to public policy, are possible to achieve, and are for the benefit of its
beneficiaries.
9. Appeal and Error. An appellate court is not obligated to engage in an
analysis that is not necessary to adjudicate the case and controversy
before it.
- 406 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
Appeal from the County Court for Hayes County: Anne M.
Paine, Judge. Affirmed.
Galen E. Stehlik, of Stehlik Law Firm, P.C., L.L.O., for
appellant.
Larry R. Baumann and Christine E. Seck, of Kelley,
Scritsmier & Byrne, P.C., L.L.O., for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Funke, J.
Allen E. McGregor, a beneficiary of a trust created by his
father, Clifford Allen McGregor, now deceased, petitioned
the county court for Hayes County, Nebraska, for approval
of a nonjudicial settlement agreement. After a trial, the court
declined to approve the agreement. Allen appeals. We hold
the nonjudicial settlement agreement violates a material pur-
pose of the trust. Therefore, we affirm the decision of the
county court.
BACKGROUND
Clifford died on October 15, 2009. Evelyn L. McGregor is
Clifford’s surviving spouse. Prior to Clifford’s death, Clifford
and Evelyn created separate trusts and equally divided their
real estate into their respective trusts. Clifford’s trust was titled
the “C.A. McGregor Trust.” The trust states that it “shall be
administered and disposed of in accordance with the provi-
sions of [the] trust instrument.” Clifford reserved the right to
revoke or amend all or any part of the trust during his lifetime.
Clifford and Evelyn were cotrustees.
When Clifford died, the trust became irrevocable and Evelyn
became the sole trustee. After providing for the payment of
funeral expenses and the disposition of certain itemized per-
sonal property, the trust created an irrevocable trust, known as
the C.A. McGregor Family Trust (Family Trust), which held
the remaining assets of the trust estate. Evelyn retained all
- 407 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
net income generated from the real estate owned by the Family
Trust and paid all real estate expenses, such as real estate taxes
and income taxes.
The Family Trust creates separate “carve-out” trusts for
Clifford and Evelyn’s two children, Allen and Debra L. Schardt
(Debra). Upon Evelyn’s death, the rest and residue of the
Family Trust is to be equally distributed to the separate carve-
out trusts, which are named the “Allen Eugene McGregor
Family Trust” and the “Debra Louise Schardt Family Trust.”
The Family Trust states that it is Clifford’s intent, to the extent
possible, to treat the children equally. If the Family Trust
contains sufficient funds, the value of the distributions to the
separate carve-out trusts will be equalized. However, if there
are insufficient funds, the distributions will not be equalized.
Allen and Debra are to become the trustee of his or her
respective trust. The trust instrument states that the assets of the
carve-out trusts “shall remain in trust” and that the trusts “shall
be irrevocable and shall not be revoked or amended in whole
or in part by the trustee, beneficiary or any other person.” In
the event of the death, resignation, or inability of a trustee of a
carve-out trust, the Family Trust contains provisions to select a
successor trustee, which could include a survivor of Allen and
Debra, or a designated corporation or bank.
Until the death of Allen or Debra, the trustee of his or her
respective trust shall from time to time, in his or her discretion,
pay for the health, education, support, or maintenance of his or
her children or grandchildren. In distributing trust income, the
trustee must give first priority to Allen or Debra and second-
ary priority to Allen’s or Debra’s respective children. The trust
instrument states that it is Clifford’s intent that each carve-out
trust be construed as “a non-support discretionary spendthrift
trust that may not be reached by the beneficiaries[’] creditors
for any reason.” Upon the death of Allen or Debra, pursuant to
a limited power of appointment, the trustee of the deceased’s
carve-out trust may transfer the remainder of the separate trust
for the benefit of a person, corporation, or other entity, but
- 408 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
it shall not be exercised in favor of Allen or Debra, his or her
estate, or creditors of his or her estate.
In May 2011, Evelyn, Allen, and Debra entered into a trust
settlement agreement, which, upon Evelyn’s death, provides
for the distribution of the Family Trust’s assets directly to
Allen and Debra, free of trust. Per the agreement, Allen would
receive an additional tract of real estate not distributed under
the Family Trust. Further, the agreement requires an equaliza-
tion payment between Allen and Debra. In May 2017, Evelyn
emailed Allen, purporting to revoke the agreement.
On July 25, 2018, pursuant to Neb. Rev. Stat. § 30-3811
(Reissue 2016), Allen filed this action in the county court for
Hayes County seeking approval of the agreement and an order
requiring compliance with the terms of the agreement. Evelyn
filed an answer requesting that the court find the agreement
to be nonbinding and alleging that the agreement violates
a material purpose of the trust; did not include all potential
beneficiaries, such as the issue of Allen or Debra; and lacked
consideration.
Allen moved for summary judgment in June 2019. Following
a hearing, the court issued a written order overruling Allen’s
motion. The court found that according to the terms of the
Family Trust, upon the death of Evelyn, four specific tracts
of real estate would be transferred to Allen in trust and one
specific tract of real estate would be transferred to Debra in
trust. Debra would also receive, in trust, a Ford Model T. The
remaining trust estate at the time of Evelyn’s death was to be
equally distributed to the two carve-out trusts. However, equal-
ization would depend on the availability of liquid assets. The
court further found that the trust settlement agreement modi-
fied the Family Trust “in several ways.”
The matter then proceeded to a bench trial. After trial, the
court issued an order rejecting the agreement and finding that
the agreement was nonbinding under § 30-3811.
The court first analyzed the issue of “interested persons.”
Section 30-3811(a) states that “‘interested persons’ means
- 409 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
persons whose consent would be required in order to achieve
a binding settlement were the settlement to be approved by the
court.” The court found that § 30-3811 required that all inter-
ested persons consent to the agreement, but noted that there
are no published Nebraska cases addressing the issue of “inter-
ested persons” in the context of nonjudicial settlement agree-
ments. As an aside, the court noted that the Nebraska Court of
Appeals considered the issue of indispensable parties in a case
involving parties seeking to modify a trust. 1
Regarding the case at hand, the court found that upon the
death of Allen or Debra, the assets of the carve-out trusts
would be distributed pursuant to a limited power of appoint-
ment or, in the event of a default, the assets would be dis-
tributed to the issue of Allen or Debra per stirpes. The court
further found that although yet unknown and undetermined,
the beneficiaries of the carve-out trusts are a specific class
of beneficiaries whose rights are affected by the agreement,
and that thus the beneficiaries qualify as “interested persons.”
Because the unknown and undetermined beneficiaries had not
consented to the agreement, the court determined that Allen
failed to establish under § 30-3811 an enforceable nonjudicial
settlement agreement.
The court then analyzed the requirements of § 30-3811(c),
while assuming that all interested persons had consented to the
agreement. Section 30-3811(c) states in part that “[a] nonjudi-
cial settlement agreement is valid only to the extent it does not
violate a material purpose of the trust . . . .” The court found
that the agreement violates a material purpose of the Family
Trust, because the agreement sought to change specific terms
of the irrevocable trust in at least three respects. First, Allen
would receive an additional tract of land which he would not
receive under the Family Trust. Second, upon Evelyn’s death,
Allen and Debra would receive the assets of the carve-out
1
See In re Trust Created by Augustin, 27 Neb. Ct. App. 593, 935 N.W.2d 493
(2019).
- 410 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
trusts outright rather than in trust. Third, Allen and Debra
would be required to equalize their distributions, either through
an allocation of debt or cash settlement. The court found that
none of these issues came within the categories of matters
which may be resolved through nonjudicial settlement agree-
ments under § 30-3811(d). The court found the changes made
by the agreement were substantial and constituted a violation
of a material purpose of the trust, which was to leave the real
estate in trust for the benefit of Allen and Debra during their
lives and then pass on to their issue upon their deaths.
Allen filed an appeal. We moved the case to our docket on
our own motion.
ASSIGNMENTS OF ERROR
Allen assigns, restated, that the court erred in (1) finding a
lack of consent by all interested persons and (2) finding that
the agreement altered a material purpose of the trust.
STANDARD OF REVIEW
[1,2] Trust administration matters are reviewed for error
appearing on the record, absent an equity question. 2 When
reviewing a judgment for errors appearing on the record, the
inquiry is whether the decision conforms to the law, is sup-
ported by competent evidence, and is neither arbitrary, capri-
cious, nor unreasonable. 3
[3,4] The interpretation of the words in a will or a trust
presents a question of law. 4 In instances when an appellate
court is required to review cases for error appearing on the
record, questions of law are nonetheless reviewed de novo on
the record. 5
2
See, In re Henry B. Wilson, Jr., Revocable Trust, 300 Neb. 455, 915
N.W.2d 50 (2018); In re Trust of Shire, 299 Neb. 25, 907 N.W.2d 263
(2018); In re Estate of Radford, 297 Neb. 748, 901 N.W.2d 261 (2017).
3
In re Trust Created by Isvik, 274 Neb. 525, 741 N.W.2d 638 (2007); In re
Trust Created by Inman, 269 Neb. 376, 693 N.W.2d 514 (2005).
4
In re Estate of Barger, 303 Neb. 817, 931 N.W.2d 660 (2019).
5
In re Trust Created by Nabity, 289 Neb. 164, 854 N.W.2d 551 (2014).
- 411 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
ANALYSIS
Material Purpose of Trust
We begin our analysis by considering Allen’s second assign-
ment of error, because its resolution is dispositive of his
appeal. Allen argues that the county court erred in finding that
the trust settlement agreement violates a material purpose of
the Family Trust. Allen contends that Evelyn wanted to modify
the trust in order to carry out Clifford’s intentions. Allen relies
upon a recital in the agreement in which “Evelyn asserts the
provisions for distribution of the trust estate in the [C.A.
McGregor Trust] do not represent the intentions of [Clifford].”
Specifically, Allen contends that modifying the terms of the
trust to require equalization of the distributions to the carve-out
trusts rather than making equalization dependent on the avail-
ability of liquid assets better serves Clifford’s intent to treat his
children equally.
Although disputes involving the administration of trusts
are encouraged to be resolved through nonjudicial means, 6
§ 30-3811 of the Nebraska Uniform Trust Code, see Neb. Rev.
Stat. §§ 30-3801 to 30-38,110 (Reissue 2016, Cum. Supp. 2018
& Supp. 2019), authorizes the court to determine the validity of
a nonjudicial settlement agreement according to the provisions
of the code or other applicable laws.
[5-8] In declining to approve the agreement, the court relied
upon § 30-3811(c), which provides: “A nonjudicial ­settlement
agreement is valid only to the extent it does not violate a
material purpose of the trust . . . . A spendthrift provision in
the terms of the trust is presumed to constitute a material pur-
pose of the trust.” “Spendthrift provision” means “a term of
6
See Unif. Trust Code § 111, comment, 7D U.L.A. 101 (2018). See, also,
In re Trust Created by Fenske, 303 Neb. 430, 930 N.W.2d 43 (2019)
(comments to Uniform Trust Code provide guidance as to Nebraska
Uniform Trust Code), citing In re Trust of Shire, supra note 2; In re
Trust Created by Isvik, supra note 3; John M. Gradwohl & William H.
Lyons, Constitutional and Other Issues in the Application of the Nebraska
Uniform Trust Code to Preexisting Trusts, 82 Neb. L. Rev. 312 (2003).
- 412 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
a trust which restrains both voluntary and involuntary transfer
of a beneficiary’s interest.” 7 “‘[T]he very nature or design of
a trust suggests its protective nature or some other material
purpose.’” 8 The material purposes of a trust are subject to the
settlor’s discretion, to the extent that its purposes are lawful,
are not contrary to public policy, are possible to achieve, and
are for the benefit of its beneficiaries. 9
The Restatement (Second) of Trusts § 337(2) (1959) adopts
the “material purpose” rule, which states: “If the continuance
of the trust is necessary to carry out a material purpose of the
trust, the beneficiaries cannot compel its termination.” 10 In In
re Estate of Somers, 11 the Kansas Supreme Court considered
the issue of whether a court can terminate a spendthrift trust
at the request of the beneficiaries, if the settlor is not avail-
able to consent to the termination. The court relied upon the
Restatement (Second) of Trusts § 337, comment l., which pro-
scribes the termination of spendthrift trusts, stating: “If by the
terms of the trust . . . the interest of one or more of the benefi-
ciaries is made inalienable . . . , the trust will not be terminated
while such inalienable interest still exists, although all of the
beneficiaries desire to terminate it . . . .” The court held that
because the beneficiaries offered no evidence to rebut the pre-
sumption that the spendthrift provision was a material purpose
of the trust, termination of the trust would frustrate a material
purpose of the trust. 12
7
§ 30-3803(17).
8
See In re Trust Created by Fenske, supra note 6, 303 Neb. at 439, 930
N.W.2d at 49, quoting Restatement (Third) of Trusts § 65, comment d.
(2003).
9
See § 30-3830.
10
See Gradwohl & Lyons, supra note 6.
11
In re Estate of Somers, 277 Kan. 761, 89 P.3d 898 (2004).
12
Id. See, also, Neeley v. Neeley, 26 Kan. App. 2d 924, 996 P.2d 346 (2000);
Germann v. New York Life Ins. Co., 286 S.C. 34, 331 S.E.2d 385 (S.C.
App. 1985).
- 413 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
Here, we find that the trust instrument contains spend-
thrift provisions. During his life, Clifford reserved the right to
revoke or amend all or any part of the trust. Upon his death,
Clifford’s trust became irrevocable and created the irrevocable
Family Trust. The trust instrument specifically states that it
“shall be administered and disposed of in accordance with the
provisions of [the] trust instrument.” The Family Trust states
that the estate assets provided for in the carve-out trusts “shall
remain in trust” and that the carve-out trusts “shall be irrev­
ocable and shall not be revoked or amended in whole or in
part by the trustee, beneficiary or any other person.” Clifford
specifically stated in his trust that his intent was to have each
carve-out trust be construed as “a non-support discretionary
spendthrift trust that may not be reached by the beneficiaries[’]
creditors for any reason.” The record thus makes clear that the
overriding intent and design of the Family Trust is to hold the
beneficiaries’ interests in trust and restrain the transfer of such
interests. The trust settlement agreement violates this funda-
mental and material purpose of the trust, because the agree-
ment distributes estate assets to the beneficiaries outright rather
than in trust. This provision of the agreement would allow the
assets to “be reached by the beneficiaries[’] creditors” and
would allow Allen and Debra to transfer the assets during their
lifetimes, which directly conflicts with the limited power of
appointment provided by the carve-out trusts.
We find no evidence offered by Allen to rebut the presump-
tion that the spendthrift provisions constitute a material pur-
pose of the trust. Allen argues that the court should give weight
to the fact Evelyn supported the agreement and asserts that
Clifford’s trust and Evelyn’s trust were intended to be joint and
reciprocal. However, this assertion is defeated by a detailed
provision in Clifford’s trust which sets forth his intention to
have his trust operate independently of Evelyn’s trust.
We conclude that the spendthrift provisions of the Family
Trust establish a material purpose of the trust, which the set-
tlement agreement violates by transferring the trust assets to
- 414 -
Nebraska Supreme Court Advance Sheets
308 Nebraska Reports
IN RE TRUST CREATED BY McGREGOR
Cite as 308 Neb. 405
Allen and Debra outright rather than in trust. Because the
agreement violates a material purpose of the trust, under the
requirements of § 30-3811(c), the agreement is invalid. The
probate court did not err in declining to approve the agreement.
Interested Persons
[9] Because the probate court correctly determined that the
settlement agreement violates a material purpose of the Family
Trust, we need not consider Allen’s assignment of error that the
court erred in finding that an unknown and undetermined class
of beneficiaries was required to consent to the trust settlement
agreement. An appellate court is not obligated to engage in an
analysis that is not necessary to adjudicate the case and contro-
versy before it. 13
For completeness, we note that the concept of “interested
persons” under § 30-3811 is legally distinct from “indispen­
sable parties” in the context of Neb. Rev. Stat. § 25-323
(Reissue 2016). 14 The county court referred to indispensable
parties only in passing while remarking on the lack of Nebraska
precedent on the subject of “interested persons.” The court did
not dismiss Allen’s petition based on a lack of jurisdiction due
to the absence of an indispensable party in the case. Debra
appeared with counsel at trial and did not appeal.
CONCLUSION
For the foregoing reason, we affirm the order of the county
court which denied Allen’s request for approval of a nonjudi-
cial settlement agreement.
Affirmed.
13
Benjamin M. v. Jeri S., 307 Neb. 733, 950 N.W.2d 381 (2020).
14
See In re Trust Created by Augustin, supra note 1, citing Midwest
Renewable Energy v. American Engr. Testing, 296 Neb. 73, 894 N.W.2d
221 (2017).