Opinion ID: 1847774
Heading Depth: 1
Heading Rank: 27

Heading: Trust Terminated on Leona's Death

Text: Under the trust, Charles was required to hold and invest all trust property for Leona's benefit, during her lifetime, and to pay its principal or income for her support, needs, and care. Upon Leona's death, he was required to take the following actions: (1) pay Leona's outstanding debts, taxes, and expenses, and trust administration expenses; (2) distribute any specific devises Leona had made; and (3) distribute the trust's real estate to himself and any and all remaining trust property to Dolores. As noted, Charles distributed the real estate to himself in September 2005. We assume that he has yet to wind up the trust pending this appeal. But while the Nebraska UTC permits a trustee to retain a reasonable amount of assets to pay these winding-up costs, it requires a trustee to distribute trust property to the designated beneficiaries upon the termination or partial termination of a trust: Upon the occurrence of an event terminating or partially terminating a trust, the trustee shall proceed expeditiously to distribute the trust property to the persons entitled to it, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, and taxes. [58] The Nebraska UTC also defines the termination of the trust: [A] trust terminates to the extent the trust is revoked or expires pursuant to its terms, no purpose of the trust remains to be achieved, or the purposes of the trust have become unlawful, contrary to public policy, or impossible to achieve. [59] Leona's trust did not contain a termination clause, but a trust's termination date can be implied from its terms. [60] Here, the terms imply that the trust terminated with Leona's death, not the end of the winding-up period, because this is when her beneficial interests in the trust ended. [61] And providing for her care and support was the only purpose for establishing the trust. [62] Obviously, paying the outstanding debts, taxes, and expenses upon her death was not the purpose of her trust. This interpretation is consistent with Restatement provisions [63] and the Nebraska UTC provisions. Instead, a trustee's payments for the settlor's outstanding debts, taxes, and expenses are part of the trustee's winding-up duties after a trust terminates. So after the trust terminated, Charles, as trustee, continued to have a nonbeneficial interest in the trust for timely winding up the trust and distributing its assets. [64] But after a trust terminates, a trustee's property management powers are limited to those that are reasonable and appropriate in preserving the trust property pending the winding up and distribution of assets. [65] The court made no finding that Charles' continued farming operations were necessary to preserve trust property. Also, under the Nebraska UTC, a trustee's duty to pay the settlor's debts, expenses, and taxes does not normally justify a trustee's failure to make distributions. Even assuming continued farming operations were necessary, Charles must also demonstrate that some realistic complication prevented him from determining in a timely manner a reasonable sum to reserve for winding-up costs. [66] If not, then he breached a duty of care when he unduly delayed distributions. [67] Finally, a trustee has a duty of impartiality in administering trust property, [68] which duty plays particular importance in distributing assets. [69] Even if continued farming operations were necessary, the court also made no finding that Charles reasonably paid for farming expenses with only Dolores' trust property without making any adjustments in the assets allocated to himself. [70] Nor did it find that he reasonably held back only the trust property allocated to Dolores to pay debts, expenses, and taxes. Because Charles was both trustee and beneficiary, a breach of his duty of impartiality in making trust expenditures would also be a breach of his duty of loyalty. Without these determinations, we cannot effectively review Charles' post-termination transactions. In sum, the court should permit Charles to charge the trust for farming operations only if two conditions are satisfied: (1) The farming operations were reasonably necessary to preserve the trust property and (2) Charles did not charge the trust for farming operations past the time when he should have reasonably made distributions. If these conditions are met, the court should further determine whether Charles breached his duty of impartiality in making trust expenditures and, if so, the appropriate remedy. Regarding the remaining transactions, the appellants have not argued how they constituted constructive fraud, and we have concluded that the record fails to support such contentions. But because this is the first time that we have pronounced some of the posttermination rules for trustees, we believe the parties should have an opportunity to argue their application on remand. We remand for further proceedings as the district court determines are necessary for that purpose.