In Re Trust Created by Inman
269 Neb. 376, 693 N.W.2d 514, 2005 Neb. LEXIS 48 (2005)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A trustee cannot sell trust property to themselves over the objections of beneficiaries unless it is clearly demonstrated that the transaction is solely consistent with and for the best interests of the beneficiaries, even if the trust instrument grants broad powers of sale and the trustee argues for diversification.
Facts:
- Harold Inman, as settlor, created a revocable trust dated March 9, 1994, naming his grandson, Robert H. Brackett, as successor trustee.
- The trust beneficiaries included Inman's two daughters and seven grandchildren, including Brackett.
- Upon Inman’s death, Brackett became the trustee, and the trust's assets included approximately 189 acres of farmland located in Washington County, Nebraska.
- The trust instrument directed that Elizabeth Peters, one of Inman's daughters, was to receive rental income from 55 acres of this land during her lifetime, and Brackett was to receive income from the remainder and, upon Peters' death, from the 55 acres as well.
- Brackett executed a real estate purchase agreement dated September 30, 2002, agreeing to purchase 42 acres of the trust’s farmland from himself as trustee for $84,000.
- Brackett purchased an old farmhouse at auction and moved it onto the 42-acre parcel in June 2002, prior to seeking court approval of the proposed sale.
- Five of the beneficiaries filed a written objection to the proposed sale, alleging it served only Brackett’s interest and disregarded his fiduciary duty.
- Ultimately, seven of the nine trust beneficiaries opposed the sale, believing Inman intended the farmland to remain in trust for all beneficiaries due to its sentimental value and potential for future appreciation.
Procedural Posture:
- Robert H. Brackett, as trustee of the Inman Living Trust, petitioned the county court for Douglas County for authority to sell certain trust real property to himself.
- Several beneficiaries of the trust appeared in the county court in opposition to the proposed sale.
- The county court held an evidentiary hearing on August 15, 2003.
- The county court denied Brackett’s petition for authority to execute the proposed sale.
- Brackett perfected a timely appeal to the Nebraska Court of Appeals.
- The Nebraska Supreme Court moved the appeal to its docket on its own motion.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a county court err in denying a trustee's petition to sell trust real property to himself when beneficiaries object, the trustee cites a duty to diversify trust assets, and the trust instrument grants broad powers of sale?
Opinions:
Majority - Stephan, J.
No, the county court did not err in denying the trustee's petition because a trustee cannot sell trust property to themselves over the objections of beneficiaries unless it is clearly demonstrated that the transaction is solely consistent with and for the best interests of the beneficiaries. The court applied the Nebraska Uniform Trust Code (NUTC), finding its application appropriate without prejudice to the parties. The NUTC reiterates the trustee's fundamental duty of loyalty to administer the trust solely in the interests of the beneficiaries (§ 30-3867(a)). While the prudent investor rule generally includes a duty to diversify (§ 30-3885), the trust instrument in this case modified this duty by authorizing the trustee to retain non-diversified assets if it served the best interests of the beneficiaries, giving due consideration to principal preservation and income regularity. Furthermore, the prudent investor standard allows consideration of "an asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries" (§ 30-3884(c)(8)). The court distinguished a prior case, Love v. Fauquet, noting it involved a sale to a disinterested third party with income beneficiary consent, unlike Brackett's self-dealing transaction. The court emphasized that historically, self-dealing transactions are viewed with disfavor and require a clear demonstration that they are for the beneficiaries' best interest, especially when beneficiaries object. Brackett’s proposed investment plan for the proceeds was speculative, and the beneficiaries articulated a legitimate interest in maintaining the geographic integrity and sentimental value of the family farm. Without clear evidence that the proposed sale would enhance or protect the beneficiaries' interests, the county court's denial was affirmed.
Analysis:
This case significantly clarifies the limits of a trustee's discretion in self-dealing transactions, even when the trust instrument grants broad powers of sale or the trustee invokes the duty to diversify. It firmly establishes that the duty of loyalty, requiring a trustee to act solely in the beneficiaries' best interests, takes precedence over a trustee's personal desires or speculative investment strategies, particularly when beneficiaries raise valid objections, including those based on sentimental value. The decision serves as a crucial reminder for trustees that approval of self-dealing requires a high evidentiary bar, demanding specific, non-speculative proof of benefit to the beneficiaries, rather than mere assertions of potential financial gain or adherence to general investment principles.
