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In re Robert L. McDowell Revocable Trust

Supreme Court of Nebraska

May 5, 2017

In re Robert L. McDowell Revocable Trust.
v.
Sandra K. Stockall, Trustee of the Betty Jane McDowell Revocable Trust and individually, Appellant, Jane O. Hornung, Appellee and Cross-Appellee, and Roger R. Stockall, Trustee of the Robert L. McDowell Revocable Trust, Appellee and Cross-Appellant.

         1. Trusts. The interpretation of the words of a trust is a question of law.

         2. Trusts: Equity: Appeal and Error. Absent an equity question, an appellate court reviews trust administration matters for error appearing on the record; but where an equity question is presented, appellate review of that issue is de novo on the record.

         3. Decedents' Estates. In Nebraska, powers of appointment are construed according to the principles of the common law.

         4. Decedents' Estates: Intent. In the construction of powers of appointment, the cardinal principle is that the intention of the donor is controlling.

         5. ___: ___. The donee of a power of appointment must keep within its terms, and where the donor prescribes the method of its execution, that method must be strictly followed, so far at least as may be necessary to give effect to the donor's intent and design.

         6. Decedents' Estates. Where there is a prohibition, limitation, or restriction in a power of appointment, such provision will control and the donee will not be permitted to disregard the same.

         7. ___. A power of appointment is considered special or limited when the donee's appointment is limited to a group which is not unreasonably large and which does not include the donee.

         [296 Neb. 566] 8. Trusts: Intent. Rules of construction for interpreting a trust are applied when the language of the trust is not clear; but if the language clearly expresses the settlor's intent, the rules do not apply.

         9. Appeal and Error. Plain error is error plainly evident from the record and of such a nature that to leave it uncorrected would result in damage to the integrity, reputation, or fairness of the judicial process.

         10. Trusts: Words and Phrases. A breach of trust includes every omission or commission which violates in any manner the obligation of carrying out a trust according to its terms.

         11. Trusts. Every violation by a trustee of a duty required of it by law, whether willful and fraudulent, or done through negligence, or arising through mere oversight or forgetfulness, is a breach of trust.

         12. . According to Neb. Rev. Stat. § 30-3890 (Reissue 2016), a violation by a trustee of a duty the trustee owes to a beneficiary is a breach of trust.

         Appeal from the County Court for Custer County: Tami K. Schendt, Judge. Affirmed as modified.

          John M. Lingelbach, James Tews, and Minja Herian, of Koley Jessen, PC, L.L.O., for appellant.

          Brian S. Koerwitz and Kent E. Endacott, of Endacott, Peetz & Timmer, PC, L.L.O., and Heidi Hornung-Scherr, of Scudder Law Firm, P.C., L.L.O., for appellee Jane O. Hornung.

          Richard A. DeWitt and David J. Skalka, of Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, L.L.C., for appellee Roger R. Stockall.

          Heavican, C.J., Wright, Cassel, Stacy, Kelch, and Funke, JJ.

          STACY, J.

         This is a dispute between the adult children of Robert L. McDowell and Betty Jane McDowell, both deceased. The issue presented is whether Betty validly exercised a limited power of appointment given to her by Robert's trust when she appointed the assets in Robert's trust to her own revocable trust. The [296 Neb. 567] county court found Betty's appointment was ineffective and ordered that the assets be recovered and distributed through Robert's trust. We affirm as modified.

         I. FACTS

         Robert and Betty were the owners of McDowell Cattle Company, which consists of farmland and pasture near Arnold. Nebraska. Robert and Betty each owned 270 shares of the company.

         In 2001, Robert and Betty drafted wills and revocable trusts with nearly identical language. Robert's trust provided in relevant part:

From and after my death all principal of the trust not allocated to the said Trust shall be administered and distributed as Trust "A" as follows:
(d) Upon the death of my wife in the event my wife shall survive me, the then principal of Trust "A" shall be distributed to or held in trust for the benefit of such one or more of my issue, the spouses of any such issue, and tax-exempt charitable organizations, in such shares and proportions and subject to such powers, terms and conditions, as my wife shall appoint by will and any principal of Trust "A" not appointed effectively by my wife shall continue to be administered as Trust "A" pursuant to the following provisions of this instrument.

         Robert died before Betty. After his death, Betty executed a new will. In this will, she provided:

I hereby exercise any power of appointment given to me under the . . . Robert L. McDowell Revocable Trust . . . (including Trust "A" . . .), and direct that all such property over which I have a power of appointment, together with all of my property, whether real or personal, is hereby devised to the Trustee or Trustees of the [Betty Jane McDowell Revocable Trust], to be administered by the Trustee as part of the property of said . . . Trust, [296 Neb. 568] and to be held or distributed according to the terms thereof....

         Robert and Betty had two children who survived them: Jane O. Hornung and Sandra K. Stockall. Pursuant to the terms of Betty's will, both Robert's 270 shares of McDowell Cattle Company-from his "Trust 'A'" (Trust A)-and Betty's 270 shares passed through Betty's trust to Stockall. Hornung received nothing under the terms of Betty's trust, but was a potential beneficiary under Robert's trust.

         After at least some of Robert's assets from Trust A were distributed through Betty's trust, Hornung filed suit in the county court for Custer County requesting instructions and a declaration of rights of the beneficiaries of Robert's trust, pursuant to Neb. Rev. Stat. § 30-3812 (Reissue 2016). Hornung alleged that "[t]he power of appointment exercised under Betty's Will is invalid and ineffective as the Betty Jane McDowell Revocable Trust is not a person or beneficiary to which the assets of Trust A could be transferred." Hornung alleged that the assets of Trust A should instead be distributed pursuant to the terms of Robert's trust, which provided that any residue was to be distributed in equal shares to Hornung and Stockall. Hornung's petition "request[ed] that the Court instruct the Trustee of [Robert's trust] to recover, preserve, and distribute the principal of Trust A accordingly and . . . issue a preliminary order estopping the transfer of any assets of Trust A."

         Stockall, in her capacity as the trustee of Betty's trust and in her individual capacity, counterclaimed in the county court action. Her counterclaim also sought instructions and a declaration of rights of the beneficiaries under Robert's trust. Stockall denied that the power of appointment exercised by Betty was invalid. Stockall's counterclaim requested that the court enter an order (1) finding that Betty's exercise of the power of appointment was valid and enforceable, (2) approving the actions taken by the trustee of Robert's trust in "distributing the remaining principal of [Trust A] to the Trustee of [296 Neb. 569] Betty's Trust in accordance with Betty's exercise of the power of appointment, " and (3) requiring the trustee of Robert's Trust "to promptly distribute the remainder of the principal of [Trust A] in accordance with Betty's exercise of the power of appointment ... to the Trustee of Betty's Trust . . . ." Our record reflects that notice of the action and the counterclaim was provided to the trustees of both Robert's trust and Betty's trust and to all potential beneficiaries of either trust.

         A bench trial was held. Hornung, Stockall, and the trustee of Robert's trust participated. The court determined Betty's exercise of the power of appointment was ineffective because it exceeded the scope of the limited power granted in Robert's trust, in that it commingled the Trust A assets with Betty's trust assets and thus benefited Betty, her estate, and creditors of her estate so that it was not limited to one of the three classes of beneficiaries Robert designated. The court ordered the trustee of Robert's trust to recover all assets of Trust A and to distribute them in accordance with the terms of Robert's trust.

         Stockall appealed, and the trustee of Robert's trust (who is also Stockall's husband) filed a cross-appeal. We granted Stockall's petition to bypass the Nebraska ...


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