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In re Trust Created By Augustin

Court of Appeals of Nebraska

September 24, 2019

In re Trust Created by Henry F. Augustin, deceased.
v.
Kirtus Augustin, Trustee, appellant, Scott Augustin, appellee, and Rocky Augustin, appellee. In re Trust Created by Norval H. Augustin, deceased. Scott Augustin, appellee,
v.
Rocky Augustin and Kirtus Augustin, individually and as Cotrustees, appellants. In re Trust Created by Henry F. Augustin, deceased. Kirtus Augustin, Trustee, appellant, and Rocky Augustin, appellee,
v.
Scott Augustin, appellee. In re Trusts Created by Elnora Augustin and Norval H. Augustin, deceased. Kirtus Augustin and Rocky Augustin, individually and as Cotrustees, appellants,
v.
Scott Augustin, individually and as Cotrustee, appellee.

         1. 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.

         [27 Neb.App. 594] 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. Appeal and Error. In a review de novo on the record, an appellate court reappraises the evidence as presented by the record and reaches its own independent conclusions concerning the matters at issue.

         4. Wills: Trusts. The interpretation of the words in a will or a trust presents a question of law.

         5. Trusts. Removal of a trustee under the Nebraska Uniform Trust Code is a special proceeding and affects a substantial right.

         6. Parties: Words and Phrases. Necessary parties are parties who have an interest in the controversy, and should ordinarily be joined unless their interests are separable so that the court can, without injustice, proceed in their absence. Indispensable parties are parties whose interest is such that a final decree cannot be entered without affecting them or that termination of controversy in their absence would be inconsistent with equity.

         7. Parties. The inclusion of a necessary party is within the trial court's discretion. However, there is no discretion as to the inclusion of an indispensable party.

         8. Parties: Words and Phrases. All persons interested in the contract or property involved in an action are necessary parties, whereas all persons whose interests therein may be affected by a decree in equity are indispensable parties.

         9. Jurisdiction: Parties: Waiver. The absence of an indispensable party to a controversy deprives the court of subject matter jurisdiction to determine the controversy and cannot be waived.

         10. Trusts: Jurisdiction: Parties. A court does not have subject matter jurisdiction over a request to terminate a trust or remove a trustee in the absence of an indispensable party.

         11. Equity. Under the doctrine of unclean hands, a person who comes into a court of equity to obtain relief cannot do so if he or she has acted inequitably, unfairly, or dishonestly as to the controversy in issue.

         12. Trusts. A trust terminates at the time at which it becomes the duty of the trustee to wind up administration of the trust, and not at the time when that winding up period is actually accomplished.

         13. Trusts: Time. The Nebraska Uniform Trust Code provides statutory options for a trustee to seek relief during the winding up period following the expiration or termination of a trust by its own terms.

         14. Trusts. Regardless of how a trust may terminate, Neb. Rev. Stat. § 30-3 836(b) (Reissue 2016) authorizes a trustee or beneficiary to [27 Neb.App. 595] commence a proceeding to approve or disapprove a proposed modification or termination under Neb. Rev. Stat. §§ 30-3837 to 30-3842 (Reissue 2016).

         15. Trusts: Courts: Equity: Jurisdiction. County courts may apply equitable principles to matters within probate jurisdiction, including trusts, and such courts have full power to make orders, judgments, and decrees and to take all other actions necessary and proper to administer justice in the matters which come before them.

         16. Trusts: Time. The period for winding up the trust is the period after the time for termination of the trust has arrived and before the trust is terminated by the distribution of the trust property.

         17. Trusts: Intent. The objective of the rule allowing judicial modification or deviation and the intended consequences of its application are not to disregard the intention of a settlor. The objective is to give effect to what the settlor's intent probably would have been had the circumstances in question been anticipated.

         18. Trusts: Courts. The Nebraska Uniform Trust Code allows a beneficiary or trustee to petition a county court to consider modification or termination of a trust which has expired or terminated pursuant to its own terms but remains in the winding up period, including the possible modification of or deviation from dispositive terms.

         19. Trusts. When a trustee unduly delays distributions from a trust, the trustee has breached a duty of care owed to a beneficiary, and the violation of that duty is a breach of trust.

         20. Appeal and Error: Words and Phrases. Plain error exists where there is an error, plainly evident from the record but not complained of at trial, which prejudicially affects a substantial right of a litigant and is of such a nature that to leave it uncorrected would cause a miscarriage of justice or result in damage to the integrity, reputation, and fairness of the judicial process.

         21. Trusts. A trust which is revocable when made remains revocable during the settlor's lifetime; however, a revocable trust necessarily becomes irrevocable upon the settlor's death.

         22. Trusts: Courts. Neb. Rev. Stat. § 30-3837 (Reissue 2016) authorizes a court to modify a trust without the consent of all beneficiaries, but it can only do so if the modification is not inconsistent with a material purpose of the trust and any nonconsenting beneficiary would be adequately protected.

         23. Trusts: Courts: Equity. Neb. Rev. Stat. § 30-3838 (Reissue 2016) broadens the court's ability to apply equitable deviation to modify a trust.

         24. Trusts: Courts: Equity: Intent. The application of equitable deviation allows a court to modify the dispositive provisions of a trust as well [27 Neb.App. 596] as its administrative terms. The purpose of equitable deviation is not to disregard the settlor's intent but to modify inopportune details to effectuate better the settlor's broader purpose.

         25. Trusts: Intent. Under the equitable deviation doctrine, the objective is not to disregard the intention of the settlor, but to give effect to what the settlor's intent probably would have been had the circumstances in question been anticipated.

          Appeals from the County Court for Polk County: Stephen R.W. Twiss, Judge. Affirmed in part, vacated in part, and in part reversed and remanded for further proceedings.

          Richard A. DeWitt and David J. Skalka, of Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, L.L.C., for appellants.

          Jacqueline M. Tessendorf and Ryan G. Tessendorf, of Tessendorf and Tessendorf, P.C., for appellee Scott Augustin.

          Riedmann and Bishop, Judges.

          Bishop, Judge.

         I. INTRODUCTION

         Brothers Kirtus Augustin and Rocky Augustin were opposing parties to their younger brother, Scott Augustin, in five separate lawsuits filed in the county court for Polk County. Scott was the initiator of two actions in which he sought to terminate family trusts, remove the trustees, order an accounting, and have certain farmland distributed in accordance with specific language in the trusts and their father's will. Kirtus and Rocky were the initiators of two actions in which they sought to modify the trusts based on an alleged agreement between the brothers to preserve the farmland in the trusts or in a business entity for another 10 years so they could continue their joint farming operation or, alternatively, to distribute the farmland in separate parcels in fee simple title rather than as tenants in common. They filed a separate action seeking amounts due from Scott for his share of costs associated with the joint farming operation.

         [27 Neb.App. 597] Kirtus and Rocky appeal from the county court's decision as to four of those actions, in which the county court concluded in each case that (1) the trusts had terminated by their own terms upon the death of the brothers' father; (2) there was insufficient evidence to modify the trusts, and further, the brothers' sister, Pamela Shorney (Pamela), was a necessary party for any modification action; (3) Scott did not file his actions with unclean hands; (4) there was no agreement to continue the farming operation another 10 years; (5) there was a breach of trust by the trustees; (6) it was necessary to remove the trustees, order an accounting, and appoint a successor trustee; and (7) statutory language permitted the trustees to allocate the property other than as tenants in common, but there was insufficient evidence to approve the division of the disputed farmland as proposed by Kirtus and Rocky.

         The five lawsuits were consolidated for trial, and the four appeals have been consolidated for disposition in this court. We affirm in part, vacate in part, and in part reverse and remand for further proceedings.

         II. BACKGROUND

         Kirtus, Rocky, and Scott farmed with their father, Norval H. Augustin, until his death in April 2010, and they maintained a joint farming operation for a period of time thereafter. Norval's father, Henry F. Augustin, died in 1989, and Norval's wife, Elnora Augustin, died in 2001. In addition to their own separate properties, the brothers jointly farmed over 500 acres of land held in the trusts established by their grandfather and their parents. Scott, the youngest of the brothers, wanted to farm independently of his brothers following their father's death; he wanted the farmland that had been held in trust for the three brothers to be distributed so that he could do that. However, Kirtus and Rocky wanted to continue the joint farming operation and leave the real property at issue in the trusts or hold it in a separate business entity for another 10 years. Alternatively, rather than distribute the farmland to the [27 Neb.App. 598] brothers as tenants in common as indicated in the trusts and by appointment in their father's will, they wanted to distribute the disputed farmland in separate parcels titled in fee simple and equitably allocate those parcels between them. In July 2015. after further problems developed between the brothers, the underlying lawsuits were filed. Their sister, Pamela, was not named as a party in any of the litigation, nor did she participate in the consolidated trial. Kirtus, Rocky, Scott, and Pamela will be collectively referred to as "the siblings.''

         1. Trusts

         The trusts involved in the present appeals are (1) the grandfather's trust, titled the "Henry F. Augustin Revocable Trust (Amended and Restated), " executed on January 7, 1980, and amended on December 30, 1981, and June 7, 1987 (Henry Trust); (2) the father's trust, titled the "Norval H. Augustin Amended and Restated Revocable Trust, " executed on January 27, 1993, and amended on March 8, 1995, and August 25, 1999 (Norval Trust); and the mother's trust, titled the "Elnora Augustin Amended and Restated Revocable Trust, " dated January 27, 1993 (Elnora Trust).

         (a) Henry Trust

         Kirtus is the sole trustee of the Henry Trust; the siblings are beneficiaries of this trust. The real estate in the Henry Trust relevant here includes an 80-acre parcel (Henry 80) and a 160-acre parcel. The Henry Trust authorized Norval to exercise a limited power of appointment with regard to these properties, which Norval did through his "Last Will and Testament of Norval H. Augustin" and his "First Codicil to Will of Norval H. Augustin" (First Codicil). In the First Codicil, Norval "appoint[ed] the entire interest ... in the real property legally described as [the Henry 80] in equal shares, outright and free of trust, to my three sons, KIRTUS, ROCKY and SCOTT . . ., or their issue per stirpes." Norval then appointed the 160-acre parcel to Kirtus and Pamela as trustees, with the property to be held for Pamela's benefit during her [27 Neb.App. 599] lifetime, and upon her death, the land would be transferred in equal shares to her then-living issue. Norval further authorized Kirtus and Pamela to distribute the 160-acre property outright and free of trust to Pamela if they, as trustees of that parcel, determined the trust was no longer necessary, appropriate, or in Pamela's best interests, and "the trust shall thereupon terminate." The 160-acre parcel was not at issue in the underlying proceedings, and only the Henry 80 in which the brothers were given equal shares, "outright and free of trust, " was at issue. The Henry 80 is immediately south and adjacent to another 80-acre parcel contained in the Norval Trust and the Elnora Trust. The parties referred to the Henry 80 and the 80 acres immediately north of it as the "Homeplace"; however, our reference to the Homeplace will mean the 80 acres contained only in the Norval Trust and the Elnora Trust.

         (b) Norval Trust and Elnora Trust

         The Norval Trust and the Elnora Trust were mirror trusts, meaning the language in the trusts was identical except for one referencing Norval and the other referencing Elnora. Each trust contained an undivided one-half interest in the real property at issue here, separate from the Henry 80. Upon the death of the first spouse (in this case, Elnora), two trusts were created for the surviving spouse (Norval): "The Marital Trust" and "The Family Trust." The Marital Trust was to be composed of cash, securities, and other property having a value equal to the maximum marital deduction, but adjustable for other tax purposes. The Family Trust was to consist of the balance of the trust estate after assets were selected for The Marital Trust. The surviving spouse was to receive all the net income from The Marital Trust. The surviving spouse also had the authority to reach the principal in the trust, as well as withdraw all or part of the principal in The Marital Trust. Upon the surviving spouse's death, the entire remaining principal of The Marital Trust was to be paid over, conveyed, and distributed [27 Neb.App. 600] in the manner the surviving spouse may have appointed in his or her will. If the power of appointment was not exercised, then the entire remaining principal of The Marital Trust was to be used to first pay taxes from the increased value resulting from the inclusion of The Marital Estate assets in the surviving spouse's estate, and the balance was to be added to and become part of The Family Trust; it was to be administered as if it had been an original part of The Family Trust. The Family Trust was to be held for the benefit of the surviving spouse and the children primarily for medical care, education, support, and maintenance. Upon the surviving spouse's death, the entire remaining principal of The Family Trust was to be paid over, conveyed, and distributed in accordance with the surviving spouse's power of appointment in his or her will, and any remaining property was to be distributed as set forth thereafter, which we address below. The three brothers were named cotrustees of the trusts; and according to the trusts, "the vote of the Trustees for any action . . . must be by majority action of the Trustees." The siblings are all remainder beneficiaries under the trusts, but only the brothers are beneficiaries of the farmland at issue.

         The parties referred to the disputed farmland as "Big Jisa, " "Little Jisa, " "Homeplace, " and "Staroscik." These four properties are all located in Polk County, Nebraska, on two sections of land (Section 6 and Section 7). Section 6 is directly north of Section 7. Big Jisa consists of 160 acres in the northwest quarter section of Section 6. Little Jisa consists of 80 acres immediately south of Big Jisa. Staroscik consists of the northwest quarter (160 acres) of Section 7; Kirtus lives in the southwest corner of Staroscik. The Homeplace consists of 80 acres located in the north half of the southeast quarter of Section 7. As previously noted, the Henry 80 is immediately south of the Homeplace. And although not at issue here, there are another 80 acres immediately north of the Homeplace owned by RKS Farms, Inc., a company owned by the brothers for the purpose of running their joint farming operation.

         [27 Neb.App. 601] The Norval Trust and the Elnora Trust provided each of the siblings with specific parcels of real property: Kirtus received a small tract of land on Staroscik, Rocky received a small tract of land on Little Jisa, and Scott received land separate from the trust ground at issue which, according to Scott, was "roughly a mile and a half south of the Homeplace. Pamela was also granted an acre of land. The trusts then directed that "[a]ll other farmland held by the Trust shall be distributed to the three sons of the Grantor in equal shares as tenants in common." Each trust then states, "The remainder of the Trust property shall be distributed in equal shares to the Grantor's children, outright and free of trust." There is nothing in the record to indicate that prior to his death, Norval exercised any power of appointment granted to him with regard to the Elnora Trust. Therefore, the terms of the Elnora Trust and the terms of the Norval Trust control the distribution of the disputed farmland.

         2. July 2011 Meeting

         On June 15, 2011, attorney Richard A. DeWitt sent the brothers a letter regarding "Norval Augustin Trust Administration." The letter described the remaining steps to finalize the inheritance tax process and inquired about the division of personal property. DeWitt indicated that "[u]pon completion of these items, administration of the Trust can be completed and the Trust assets (basically farmland) can be distributed." The letter goes on to state, "As written, the Trust provides for distribution of farmland to each of you in undivided one-third interests." DeWitt recommended either the brothers divide the farmland into separate parcels such that each brother would own 100 percent of his parcel or, alternatively, the brothers could form a limited liability company with equal interests and the farmland could be transferred into that company. DeWitt reminded the brothers that as trustees, they each had an equal say in the administration of the trust, and that decisions could be made by a "two-thirds majority vote."

          [27 Neb.App. 602] The brothers and their wives met at DeWitt's office on July 12, 2011. According to Scott, after some initial small talk about "dishes and stuff, " Scott brought up getting the land out of the trust and splitting it up, and "they immediately got hostile about that and we were arguing about that back and forth." Scott claimed that Rocky "slid . . . over this LLC, which we knew nothing about, " and Rocky told them they had to sign it. Scott said he told them he and his wife would not sign it but would take it home and take it to their lawyer to look over. Meanwhile, they continued to talk about "the LLC" and what they wanted in it. Scott acknowledged that his brothers expressed wanting to continue farming the trust ground for 10 years, but at no time did Scott agree to farm together for another 10 years. Kirtus testified that Scott and Scott's wife said they wanted to farm for 5 more years and then retire; Kirtus told them he wanted to farm for 20 years. Kirtus proposed that they go with a 10-year agreement, and he testified that he believed Scott agreed with farming 10 years before splitting up the trust ground. According to Kirtus, "We was going to continue farming for ten more years and then after the ten years, we was going to divide the ground up and the machinery. That is what I believed when we walked out of that door." Rocky testified that "Kirt[us] stood up and he come up with an idea of wanting to farm for 20 years, but that was too much. So, we come up with a plan of doing it for ten years. And everyone in there did agree to this." Both of the older brothers acknowledged that there was nothing in writing about a 10-year agreement.

         According to DeWitt, there were two areas of discussion at the July 2011 meeting in his office: finalizing the division of tangible personal property and "what [were] we going to do with the land going forward." DeWitt recalled that Scott expressed a desire to farm independently and farm with his son. Scott wanted to have "individual ownership of his share of the farmland." Kirtus and Rocky were concerned that doing that would "force them out of farming, because there wouldn't [27 Neb.App. 603] be economical units left if there was a forced breakup at that time." There was then discussion of "when would they be ready to retire." Kirtus said in maybe 20 years, and "Scott said that's too long. And then ten years was suggested." DeWitt recalled that Scott said "he could live with ten" and that "Rocky and Kirtus said they could live with ten." DeWitt believed the three brothers had reached an agreement to continue farming for 10 years and then divide it up. DeWitt stated he had not yet prepared a limited liability company operating agreement for that meeting; his letter to the brothers, which enclosed a draft operating agreement, was dated December 7, 2011. That letter referred to special provisions they had discussed, including a commitment to retain ownership of the farmland for 10 years and a commitment at the end of 10 years to sell the farmland. DeWitt thought that Kirtus and Rocky had signed the operating agreement, but that Scott had not.

         Following the July 2011 meeting at DeWitt's office, Scott and his wife talked about buying their own farm equipment, and later "that fall, " Scott spent approximately $900, 000 for his own farm equipment. Scott started farming with his son in 2012. With the exception of 1 year, Scott continued to pay his one-third share of input expenses for farming the trust property, and he received his one-third share of the grain harvested. Scott, however, discontinued paying his one-third share of the annual personal property and real estate taxes for the trust property after 2011.

         3. Lawsuits

         As conflict between the brothers escalated, Scott filed a petition pursuant to the Nebraska Uniform Trust Code (NUTC), Neb. Rev. Stat. §§ 30-3801 to 30-38, 110 (Reissue 2016 & Cum. Supp. 2018), in July 2015 to terminate the Henry Trust (cases Nos. PR15-18 in county court and A-16-1182 on appeal). He claimed that he had made repeated demands to terminate the trust, to distribute trust assets, and for a full accounting. He alleged the trust had not been administered [27 Neb.App. 604] effectively, including the failure to distribute the Henry 80 to the beneficiaries. Scott requested that "the Co-Trustees" be removed (only Kirtus was trustee) and that a successor trustee be appointed. He asked for the distribution of all trust assets, a full accounting, the termination of the trust, and for attorney fees and costs.

         Scott also filed a petition to terminate the Norval Trust (cases Nos. PR15-19 in county court and A-16-1183 on appeal), which was subsequently amended to include the Elnora Trust. His allegations and requests for relief were similar to those claimed in the Henry Trust action.

         In October 2015, Kirtus and Rocky filed a petition to modify the Henry Trust (cases Nos. PR15-25 in county court and A-16-1184 on appeal). The petition acknowledged that Norval appointed the entire interest in the Henry 80 in equal shares, outright and free of trust, to the brothers. However, the petition requested that the court enforce an "agreement and partnership" between the brothers related to this property, and to modify the trust to continue to own and administer the property until December 31, 2021, or to transfer ownership of the property "to the parties' partnership to be held and not further transferred until December 31, 2021." Alternatively, the petition sought the court's authorization to allow Kirtus, as trustee, to distribute to Scott "sole fee simple title to a portion of the [Henry 80] having a value equal to approximately one-third of the value of the entirety ... in full satisfaction of his beneficial interest in the Trust's real estate."

         Kirtus and Rocky also filed a petition to modify or declare rights to the Norval Trust and the Elnora Trust (cases Nos. PR15-26 in county court and A-16-1185 on appeal). This petition contained allegations similar to those contained in their Henry Trust action, and also sought modification of the trusts to hold the properties in these trusts or transfer ownership to "the parties' partnership" until December 31, 2021. Alternatively, it sought an order declaring that the terms of the trusts authorized the trustees to distribute sole fee simple [27 Neb.App. 605] title of the real estate to individual beneficiaries, as well as an order permitting the trustees to do so.

         Also in October 2015, Kirtus, Rocky, and RKS Farms filed a complaint in the county court against Scott (case No. CI 15-156) alleging that the brothers were "parties to an oral cash-rent year-to-year farm lease" with the Norval Trust and the Elnora Trust, which requires the brothers to annually pay the trusts "an amount equal to the real estate taxes and expenses" related to the trusts. At the time of the complaint, it was alleged that Scott had failed to pay to the trusts $31, 895.30, which was his one-third share of the real estate taxes owed to the trusts that he stopped paying in 2011. The complaint further requested that the court declare void a notice to terminate that Scott had delivered to Kirtus, Rocky, and RKS Farms. The notice was given "for the purpose of ...


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