Corporate trustees have to confidently know the answers to many questions, both those uniform to all trusts, and those tailored to the specific assets of a particular trust vehicle: who is a beneficiary? What obligations are owed to those beneficiaries? How can I deal with complicated family dynamics? What can I do if a family business has been operating in a way that would now be inappropriate when thinking about all beneficiaries?

For those banks or entities with trust powers who serve as corporate trustees, the fiduciary role by default raises those important questions, and requires that you have answers readily available. Your obligations and duties as a corporate trustee require you to inherently understand the relevant trust document itself, as well as Nebraska law as reflected in court decisions and the Nebraska Uniform Trust Code. This article will explore some of those nuances, and provide a framework to address the challenges facing corporate trustees.

General Duties

A corporate trustee’s duties have been defined by the Nebraska Supreme Court:

A trustee has the duty to administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries, and in accordance with the Nebraska Uniform Trust Code. The Nebraska Uniform Trust Code states that trustees owe the beneficiaries of a trust duties that include loyalty, impartiality, prudent administration, protection of trust property, proper recordkeeping, and informing and reporting.

In re Conservatorship of Abbott, 295 Neb. 510, 526, 890 N.W.2d 469, 482 (2017). Thus, proper trust administration must always begin with a thorough understanding of the terms of the particular trust document. Those terms provide the necessary guidance and should reflect the testator’s intent, which the corporate trustee must implement in its administration of the trust.

Understand the Mandatory Obligations

Reflecting its central role in trust administration, the trust document itself may modify the otherwise ordinary obligations of the corporate trustee, subject to the mandatory provisions imposed by the Nebraska Uniform Trust Code. Those mandatory terms cannot be varied by the settlor in the trust. They include:

• The duty to act in good faith and in accordance with the terms and purposes of the trust and interests of the beneficiaries (subject to NEB. REV. STAT. §§ 30-4309, 30-4311, 30-4312);
• The requirement that a trust and its terms be for the benefit of its beneficiaries;
• The duty to keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests;
• A trust instrument cannot relieve a trustee of liability for a breach of trust committed in bad faith or with reckless indifference or if such a term of a trust instrument was insert as a result of an abuse of a fiduciary or confidential relationship between the trustee and settlor.

NEB. REV. STAT. §§ 30-3805, 30-3897. Consequently, in addition to having a detailed understanding of the trust document, the corporate trustee’s actions must be guided by the mandatory provisions of Nebraska trust law that are applicable to all trusts, and to all trustees.

Determine the Beneficiaries and the Duties Owed to Each

While determining beneficiaries presents an ordinary and simple task in most instances, certain types of beneficiaries raise special concerns, as illustrated by the analysis regarding contingent beneficiaries. The question of duties owed to a contingent beneficiaries was address last year by the Supreme Court of Nebraska in In re William R. Zutavern Revocable Trust, 309 Neb. 542 (2021) (“Zutavern”). In Zutavern, the Trust at issue limited the distribution of the Trust property (shares in a company) “to those of my children and/or grandchildren who are [at the time of the surviving spouse’s death] actively involved in the operation and management of [the company running the family ranching operation].” Id. at 546. One of the settlor’s children and one of the settlor’s grandchildren, who had been fired from the ranching operation, filed suit. Id. at 547. The surviving spouse, and current trustee, moved to dismiss and argued that, because the two individuals were no longer “actively involved in the operation and management” of the family ranch, they were no longer beneficiaries and, therefore, did not have standing to sue the trustee. Id. at 549-50. The trial court granted the motion to dismiss, finding that the son and grandson were not beneficiaries and, as a result, were owed no duties by the trustee; the Nebraska Supreme Court reversed. Id. at 544.

The Court explained that a beneficiary need only be definite – meaning that such “beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities.” Id. at 554 (citing NEB. REV. STAT. § 30-3828(b)). That the plaintiff son and grandson were not currently working on the ranch was irrelevant, as the timing of the determination focused on the future, upon the surviving spouse’s death. Because the son and grandson were in the class of beneficiaries generally described in the Trust (“those of my children and/or grandchildren …”) subject to the later determination (being “actively involved in the operation and management” of the ranch), they had standing to sue to enforce the trustee’s fiduciary duties. Id. at 555-56. They had a contingent future beneficial interest in the Trust, and that alone was sufficient to prosecute their claims in court. Id.

The decision correlates directly with the Nebraska Uniform Trust Code’s definitional section. The Code defines a “beneficiary” as a person who either (a) has a present or future beneficial interest in a trust, vested or contingent; or (b) in a capacity other than that of trustee, holds a power of appointment over trust property. NEB. REV. STAT. § 30-3803(3). The Zutavern case makes it clear that a definite beneficiary (or member of a definite class of beneficiaries) with a contingent future beneficial interest, even if the contingency is not presently met or even likely to be met in the future, is owed fiduciary duties.

Thus, any trustee should be careful when reviewing a Trust, and determine who the beneficiaries are, under the Trust itself and Nebraska law. Generally, fiduciary duties are owed to all beneficiaries, with some limited exceptions. To this end, only if a trust is revocable by the settlor can the trustee follow the settlor’s directions that are “contrary to the terms of the trust.” NEB. REV. STAT. § 30-3855(a). And, indeed, “[w]hile a trust is revocable, rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor.” NEB. REV. STAT. § 30-3855(b). Understanding the nature of the trust, the beneficiaries, and the duties owed to those beneficiaries will set up a trustee for success.

Change Existing Business Operations if Needed

Upon assuming his or her role, a trustee may realize that the persons associated with the trust property have become accustomed to operating in a particular way, irrespective of the terms of the governing trust document. As uncomfortable as it may be for the beneficiaries or others who operated the business, a trustee could be in breach of their fiduciary duties if they fail to change the operations to ensure the interests of all beneficiaries are considered. This exact issue arose recently in In re Estate of Forgey, wherein the Nebraska Supreme Court assessed a penalty against a trustee who failed to collect rent, 298 Neb. 865, 906 N.W.2d 618 (2018). In that case, there was a family-operated cattle operation in which the profits were shared, but no rent was paid by the participants. Id. at 888. After the grantor passed away, the trustee (one of the individuals operating the cattle business) continued in the cattle business without collecting rent. Id. The Nebraska Supreme Court found that the continued commitment to the status quo was a breach of fiduciary duty. Id. at 889. The Court assessed a penalty against the trustee of the amount of rent he failed to collect against the remaining operators of the cattle operation (the trustee himself and another beneficiary). Id. at 890.

Therefore, a trustee must be cautious about following the prior business operations or patterns, if not consistent with the trust documents or the best interests of the beneficiaries. The beneficiaries may push or try to pressure a trustee to follow those business practices, but the trustee should be guided by the trust document and Nebraska law.

Use Experts When Needed

Equally important to the trustee’s sound administration is the consultation of experts. To illustrate, in the Forgery case discussed above, the Nebraska Supreme Court also penalized the trustee for losses associated with the failure to file the trust’s federal estate tax return, which resulted in penalties and interest of approximately $2,200,000. In re Est. of Forgey, 298 Neb. 865, 872–73, 906 N.W.2d 618, 626–27 (2018). The trustee had hired a CPA who prepared the tax return, but then nevertheless failed to sign and mail it on time. Id. at 872.

Although a trustee’s hiring of experts was not specifically addressed in the court’s opinion, this serves as a lesson to employ necessary experts to assist with trust administration – and then follow their advice and instructions. Many complicated issues arise in a trust administration, for which third party experts (accountants, attorneys, etc.) can provide advice. Of course, the next step after receiving such advice is to follow that advice when appropriate.

Leave Your Emotions at the Door

Above all, when there are two or more beneficiaries, the trustee must act impartial between them. In re Est. of Stuchlik, 289 Neb. 673, 688 – 90, 857 N.W.2d 57, 69 – 71 (2014), opinion modified on denial of reh’g, 290 Neb. 392, 861 N.W.2d 682 (2015). This includes impartiality in investing, managing, and distributing trust property, while also giving due regard to the beneficiaries’ respective interests. Id. at 70. This impartiality is not just an objective standard of equality, but must be determined from the settlor’s intent, as reflected in the terms, purposes, and circumstances of the trust. Id. at 70. Nebraska courts, which have cited to the comments to the Restatement (Third) of Trusts, have explained that this, unfortunately, can be complicated by the difficulty of determining the relevant aspects of the settlor’s intent. Id. In general, impartiality means that a trustee’s treatment or conduct in administering a trust should not be “influenced by the trustee’s personal favoritism or animosity toward individual beneficiaries.” Id.

While a corporate trustee may feel immune from the difficulties that a family member trustee might experience regarding impartiality, a corporate trustee (or, at least a trust officer or advisor) is human. If one beneficiary is more difficult or abrasive than another, even the most professional trustee could find themselves feeling animosity toward that beneficiary. The best course is to go back to the trust document and remain as impartial as possible – documenting decisions as necessary. And difficulties are not unheard of with trusts, especially family disputes. See, e.g., In re William R. Zutavern Revocable Trust, 309 Neb. 542 (2021).

Therefore, here are some tips for corporate trustees:

• Review the Trust Code every so often;
• Keep updated on recent legal developments;
• Review each trust document for the trusts you are handling, and familiarize yourself with the trust terms, trust property, the beneficiaries, and family dynamics;
• Document your conversations with beneficiaries, when possible and as necessary;
• Utilize experts as needed, including tax experts, legal counsel, or others.