Litigation in the trust and estate areas is not slowing down — even in Nebraska. With guidance from some recent decisions, you will hopefully avoid a fight.

1.  Know the Trust Document

The first lesson is a classic: Know the terms of the governing trust document.

In one unpublished case, the Nebraska Court of Appeals found that the corporate trustee acted properly when it refused to approve a certain proposed trust amendment. In re Hunt, Case No. A-22-499, 2023 WL 3185514 (May 2, 2023) (unpublished). The Nebraska Court of Appeals found that the corporate trustee acted properly by rejecting the proposed amendment. The corporate trustee rejected the amendment because it believed the amendment was the product of overreach protected by certain provisions of the Trust agreement itself. Specifically, those provisions provided (1) that co‑trustee consent was required for any amendment by the grantor and (2) that a primary purpose of the trust (and the corporate co-trustee) was to be sure that no family member would obtain assets from the surviving grantor without the consent and oversight of the co-trustee.

In other words, the bank/corporate trustee understood that the grantors were concerned about requests for money by family members and did not want an easy amendment of the trust to allow for the taking of a surviving grantor’s assets.

Lesson: Know the trust language, the purpose of the trust and the power you have (and should exercise) as a trustee.

2. Be Aware of Possible Influence or Capacity Issues

The Hunt case also affirms the good advice to trust your instincts and to question situations that seem strange. In Hunt, the grantor came into the corporate trustee to ask for their approval of a proposed amendment. In re Hunt, Case No. A-22-499, 2023 WL 3185514 (May 2, 2023) (unpublished). Upon reviewing the amendment, the trustee understood that the proposed change benefitted one daughter over the other siblings. The trustee referred the grantor to her attorney at the time. There had been prior amendments to which the trustee had agreed, but the court emphasized that the corporate trustee had not drafted the prior trust amendments. The evidence showed that the daughter was exercising undue influence over her mother. She would not often let her mother meet with her attorney outside of her presence, provided the information that led to the drafting of the proposed amendment that benefitted her, and even submitted audio recordings that contradicted her position and demonstrated that she belittled and upset her mother. The bank/corporate trustee had no specific knowledge of the audio recordings prior to being asked to approve the proposed trust amendment but, due to its thorough review, was able to avoid approving an amendment that the Court found was the result of undue influence. The bank even received an attorneys’ fees award against the daughter and her attorney, given that the accusations against the trustee were found to be frivolous.

The Hunt case is a great reminder to be diligent, meet with individuals in person and refer grantors to counsel if there are questions about capacity, undue influence or otherwise.

Lesson: Question requests if there is a hint of undue influence or capacity issues (Are requested changes benefitting one person? How close is that person to the grantor? Does the grantor have an uninterested third party advising them (i.e., an attorney that is not a beneficiary)?)

3. Settlement Can Be a Good Way To Resolve Issues if the Pertinent Parties Are Included

In an unpublished case from the Nebraska Court of Appeals, the appellate court affirmed the trial court’s finding that parties’ signatures on a family settlement agreement concerning their parents’ trusts was also a resolution regarding amendments made to a sibling’s special needs trust. In re Trust of Wegener, Case. No. A-22-012, 2023 WL 192804 (Jan. 17, 2023) (unpublished). Specifically, the father changed the named trustee for one son’s special needs trust through some amendments, which all of the interested persons (namely, the other siblings who were successor trustees) did not sign. However, those siblings did sign a family settlement agreement approved by the court in 2016, which referenced the amendments previously made to the special needs trust. Ultimately, the court found that these later signatures served to ratify the earlier amendments to the special needs trust. The court rejected the objecting siblings’ arguments that the 2016 family settlement agreement was about their parents’ trust and not their sibling’s special needs trust.

Therefore, a family settlement agreement could be used to resolve possible issues regarding a trust and even other related matters — depending on the terms of that agreement.

The Probate Code has a similar provision regarding court approval of compromises in estate disputes. The Nebraska Supreme Court decided in April 2023 that the trial court improperly approved a compromise between all siblings, except one. In re Estate of Ryan, 313 Neb. 970 (2023). The court explained that, even after taking evidence and presumably considering the objections of the sibling, the objecting sibling was “not protected” in the proceeding and so the dismissal based upon the compromise between the other siblings was improper. Id. This was even though the objecting sibling was not a beneficiary of the will initially sought to be probated.

Although the forgoing case concerns the probate code, and not the trust code, the lessons still apply — namely, to ensure that all parties’ interests are protected and that all agree to the resolution reached.

Lesson: Settlement can be an excellent way to resolve matters (even without significant litigation), but be sure that all parties are represented and the language of the proposed agreement is clear.

4. Corporations and Farms/Ranches Can Be Complicated

In August 2023, the Nebraska Court of Appeals (in an unpublished case) addressed a trial court decision addressing years of litigation between family members concerning both a trust and a corporation that handled a farming operation. Hohenstein v. Hohenstein, Case No. A-22-108, 2023 WL 5217713 (Neb. Ct. App. Aug. 15, 2023) (unpublished). The case is a cautionary tale for those involved in matters concerning the ownership of shares within a trust. The court affirmed the trial court’s decision that the surviving spouse (although subject to undue influence by her son) and trustee of the relevant trust breached her fiduciary duties as trustee in multiple ways, including (1) failing to inform beneficiaries of the establishment of the trust and funding of the trust with the corporation stock; (2) failing to provide beneficiaries with a copy of the trust and reports or accountings of the trust; (3) failing to inform beneficiaries of agreements relating to the trust; (4) distributing assets of the trust to one son with necessity for health, education, support or maintenance (per the trust terms); (5) prematurely distributing son’s remainder interest in the trust; (6) selling assets of the trust for significantly less than fair market value and failing to inform beneficiaries of the sale; (7) failing to administer the trust in good faith, in accordance with its terms; and (8) failing to keep beneficiaries reasonably informed about the administration of the trust. The interplay of the corporation farm and the trust added to the issues the trustee faced.

Lesson: Understand the interplay of the Trust Code and the corporation-related statutes in Nebraska, and be mindful of the fiduciary duties owed to trust beneficiaries and those duties owed to shareholders in a corporation. Those fiduciary duties include providing information, staying true to the terms of a trust, keeping beneficiaries reasonably informed and more.

5. Co-trustees and Caution

Setting up a trust with co-trustees or serving on a trust as a co-trustee can be a good check on the actions of the other trustee and to be sure actions comply with the terms of the trust and the grantor’s intent. See In re Hunt, Case No. A-22-499, 2023 WL 3185514 (May 2, 2023) (unpublished). In some instances, though, courts recognize that co-trustees can be detrimental. In a Feb. 2, 2024, decision, the Nebraska Supreme Court recognized a complicated dynamic between the siblings in the case, describing that the siblings “are incompatible as co-trustees, and the record shows that administration of the trusts was chaotic and contentious.” The appellate court ultimately affirmed the trial court’s decision of removing both co-trustees for violating their fiduciary duties but found that the “hostile relations” with the beneficiaries and “lack of cooperation” between the two would be sufficient to remove the trustees even without breach of any fiduciary duties. This dynamic would hopefully not be the case with a corporate trustee, but those family dynamics can affect even a neutral corporate trustee. Staying neutral (while true to the trust terms) but empathetic can help the corporate trustee diffuse a tense family dynamic.

Lesson: Be aware of the dynamics with any co-trustees and beneficiaries, but use the role as co-trustee to protect the grantor’s intent and ensure compliance with the trust terms. There is often a reason that a corporate co‑trustee would be named (to protect assets, to provide a back‑stop against undue influence, to provide a business perspective, etc.), which should help guide the trustee.

More guidance will surely be coming from Nebraska courts in the coming months, but the latest decisions emphasize the importance of understanding the trust and acting with common sense while always keeping the fiduciary duties in mind. These recent cases also emphasize that corporate trustees can be a valuable addition to a trust and in the trust administration process.