In the case "In re Trust of Jennie Shire," the Nebraska Supreme Court addressed an appeal regarding trust modifications. The court clarified the standard of review for trust administration matters, noting that absent an equity question, the review is for errors in the record, while equity questions are reviewed de novo. Key legal principles included the interpretation of statutes, which should be given their plain meaning, and the requirement that a party seeking to modify a trust must show that all beneficiaries consent. The court emphasized that provisions regarding consent for unknown beneficiaries are governed by specific statutory sections. It also highlighted that a trust can be modified with the consent of the settlor and all beneficiaries, provided it is consistent with the trust’s purpose. The court affirmed the lower court's ruling, which denied Wells Fargo Bank's petition for increased disbursements to beneficiary Shirley Smith Gronin, determining that the modification was not authorized under the Nebraska Uniform Trust Code.
The Trust was established by Shire's will on September 10, 1947, with a funding of $125,000, mandating monthly payments of $500 to Shire's daughter, Ruth, during her lifetime and to Shire's granddaughter, Gronin, upon Ruth's death and Gronin reaching age 25. Upon the death of both beneficiaries, the remaining trust assets would be added to Shire's estate and distributed according to paragraph VI of the will. Gronin, born in 1945, began receiving the payments after Ruth's death in 1983. At trial, Gronin's monthly income totaled $1,152.38 from various sources, and she had minimal savings. As of September 26, 2016, the Trust had a principal balance of $981,874.58, with expected annual returns of $64,000 to $81,000. Evidence indicated that the 1948 $500 payment had a present value of approximately $5,000 to $5,400 today.
Wells Fargo sought to identify potential heirs of the beneficiaries under paragraph VI and requested the court to notify 12 identified individuals and entities. During the hearing, various beneficiaries participated, and an attorney was appointed for any unknown heirs. Post-hearing, only the counsel for unknown beneficiaries opposed modification of the Trust, while counsel for six beneficiaries requested adjustments to Gronin's payments that would not jeopardize the Trust's corpus. In February 2017, the court denied the modification request, citing lack of consent from all beneficiaries and potential detrimental effects on the Trust's residue, as well as the absence of unforeseen circumstances. Gronin appealed, and the case was subsequently removed to a higher court for review.
Gronin contends that the court erred in determining that modifying the Trust to increase her disbursements was inappropriate under Neb. Rev. Stat. 30-3837(b) and (e) and the doctrine of deviation. She also argues that the court incorrectly assessed her living circumstances as anticipated by Shire and that the Trust's purpose did not exclude providing reasonable income to her.
In reviewing trust administration matters, appellate courts assess for errors in the record, but if an equity question arises, the review is de novo, allowing for independent conclusions. Statutory interpretation is treated as a legal question, subject to independent review.
Gronin and Wells Fargo argue that 30-3837(b), which requires the "consent of all beneficiaries," should permit modification if no known beneficiary objects after notice. They reference Nebraska’s Uniform Probate Code to suggest that the lack of objection from known beneficiaries with common interests should suffice to meet statutory requirements. In contrast, the unknown beneficiaries assert the statute mandates unanimous consent and disallows representation based on common interests.
The statute's plain language indicates that a non-charitable irrevocable trust can be modified only with all beneficiaries' consent if the modification aligns with a material purpose of the Trust. The court emphasizes that statutory language must be interpreted as written, and when the Legislature incorporates comments from uniform law codes, these comments clarify statutory intent. Consequently, the requirement for unanimous consent in 30-3837(b) is upheld, and the argument that lack of objection by known beneficiaries suffices for modification is rejected. The statute's ambiguity regarding unidentified beneficiaries’ impact on consent is noted but remains unresolved.
The provisions of Article 3 of the Nebraska Uniform Trust Code (UTC) address representation and consent for beneficiaries unable to consent independently. Section 30-3825 allows a representative to act on behalf of minors, incapacitated individuals, or those whose identity is unknown, provided there is no conflict of interest. Section 30-3826 permits the court to appoint a representative if it finds inadequate representation for these individuals. These sections aim to clarify consent issues for those who cannot consent on their own. Additionally, statutes concerning a specific subject should be interpreted together to ascertain legislative intent.
In the case at hand, the court does not consider the Comments and Recommendations for Enactment of a Nebraska Uniform Trust Code as binding since they are not explicitly referenced in the statute. The court finds that Section 30-3837 is unambiguous and therefore does not rely on legislative history for interpretation. Although known beneficiaries of a Trust provided consent for modifications, evidence of consent from all known beneficiaries was lacking, leading the court to conclude that no modification was warranted under Section 30-3837(b). While the court could have allowed known beneficiaries' consent to bind unknown beneficiaries, it chose instead to appoint a representative to act on behalf of the unknown beneficiaries, whose objection to modification was thus valid and precluded the modification's application.
Modification of the Trust under subsection 30-3837(e) is under scrutiny, with Gronin and Wells Fargo asserting that the modification aligns with the Trust's purpose and adequately protects nonconsenting beneficiaries. Gronin interprets "adequate" as sufficient rather than absolute, arguing that an increase not affecting the Trust's principal would protect nonconsenting beneficiaries' interests. Conversely, the unknown beneficiaries argue that any increase to Gronin's distributions impacts their future interest in the Trust, advocating for a high protection standard when a modification reallocates funds among beneficiaries.
Subsection (e) allows court approval for trust modifications without unanimous consent if two conditions are met: (1) the trust could have been modified or terminated with full consent, and (2) the interests of nonconsenting beneficiaries will be adequately protected. Here, subsection (a) is inapplicable due to the lack of consent from beneficiary Shire, who died in 1948. Subsection (b) is also not applicable due to the absence of unanimous consent. Thus, the requirement for adequate protection of nonconsenting beneficiaries has not been fulfilled.
The document references the Restatement (Third) of Trusts and the Restatement (Second) of Trusts, which share the common-law principle that trust modifications require settlor and beneficiary consent, or consent from all beneficiaries if consistent with the Trust’s purpose. Notably, these Restatements allow modifications that do not prejudice nonconsenting beneficiaries’ interests. The comment to the Restatement emphasizes that a court may approve a modification if it serves the best interests of all beneficiaries without being inconsistent with the Trust's material purpose and does not harm nonconsenting beneficiaries. The illustration provided clarifies that a modification is impermissible if it adversely affects nonconsenting beneficiaries.
The Restatement illustrates a scenario where A transfers securities valued at $200,000 to B in trust for several annuitants, with C as a beneficiary. After all annuitants except D, who is entitled to a $500 annuity, pass away, the court may order B to transfer a portion of the securities to C while ensuring sufficient funds remain for D’s annuity. This demonstrates the Restatements' commitment to protecting nonconsenting beneficiaries, allowing court modifications without unanimous consent but requiring safeguards against potential prejudice.
In statutory interpretation, appellate courts must consider the plain meaning of the statute in conjunction with its entirety and related sections, particularly the comments of the Uniform Trust Code (UTC). The phrase "adequately protected" in Nebraska's statute 30-3837 is interpreted to align with the Restatements' protections for nonconsenting beneficiaries, despite differing terminology from "not prejudiced." This interpretation suggests that courts can modify trusts without harming nonconsenting beneficiaries’ interests, with or without additional safeguards.
Statutory constructions that limit common-law rights require explicit language to support such limitations. In this case, the statute does not clearly intend to restrict nonconsenting beneficiaries' rights, allowing for a reasonable interpretation that preserves those rights. The broader context of section 30-3837 focuses on trust modifications consistent with beneficiary consent, indicating that courts should not impose changes that could adversely affect nonconsenting beneficiaries.
Subsection (e) of comment 411 allows courts to issue orders that protect the interests of nonconsenting beneficiaries while enabling the distribution of trust property without restrictions. Protective orders may involve partial trust continuation, annuity purchases, or cash payouts. Courts can also partially terminate trusts or implement arrangements like bonding or insurance to safeguard nonconsenting beneficiaries' interests. Modifications can occur under sections 412 to 416 of the UTC without requiring beneficiary consent, as established by sections 30-3838 to 30-3842. Section 30-3838(a) permits trust modifications without consent if unforeseen circumstances arise that further the trust's purpose, while both 30-3837 and 30-3838 require consistency with the trust's terms. The distinction lies in the requirement for "adequate protection" of nonconsenting beneficiaries versus proof of unexpected circumstances. The interpretation of "adequately protected" suggests that nonconsenting beneficiaries' interests should not be significantly harmed, leading to a potentially lower burden for modifications that do not prioritize the settlor’s intent. A proposed modification by Wells Fargo to increase distributions to Gronin was deemed inappropriate, as it would harm the interests of both known and unknown beneficiaries in the trust's principal and future growth. Thus, the court's decision against the modification was not erroneous. While Gronin and Wells Fargo argue for avoiding absurd statutory constructions, a narrow interpretation does not equate to absurdity. The court's interpretation still allows for modifications consistent with the Restatements. Potential scenarios include modifying the trust terms for earlier payments to Gronin with consent or allowing a remaining residuary beneficiary to receive a portion of the trust before Gronin's death, provided that adequate protections for Gronin’s interests are established through insurance or bonding.
The court did not consider the common-law doctrine of deviation when ruling on the modification of the Trust, focusing instead on Nebraska Statute 30-3838. Gronin later recognized that this statute was inapplicable because the Trust became irrevocable prior to January 1, 2005. Gronin and Wells Fargo contended that the appeal could address the common-law doctrine of deviation, asserting that 30-3838 codified it and that it applied under 30-3806. However, because these issues weren’t presented or decided by the trial court, they were deemed inappropriate for appellate consideration. The court affirmed the decision that the Trust could not be modified under 30-3837 due to the lack of unanimous consent from beneficiaries and the necessity to protect the interests of non-consenting parties. The court noted that a potential path for relief might exist if known beneficiaries were willing to adjust their shares to safeguard unknown beneficiaries. It was suggested that should no unknown beneficiaries be found, the known beneficiaries could support a lifetime beneficiary without additional costs, incurring only minor reductions in future payouts if unknown beneficiaries were located. The Trust was projected to generate annual income and appreciation of $64,000 to $81,000, and discussions included the present value of historical payments. Before the petition was filed, Wells Fargo sought to identify potential heirs related to the beneficiaries of Shire’s will.
Wells Fargo identified 12 interested individuals and entities in its petition and requested court notification regarding the proceedings. The court was asked to determine the beneficiaries under paragraph VI of the Trust, which was separated for future consideration. During a hearing on the Trust’s modification, six beneficiaries were represented by counsel, one appeared pro se, and the Nebraska Attorney General participated on behalf of charitable beneficiaries. The court appointed an attorney for any unknown heirs of the beneficiaries under paragraph VI. Post-hearing, only the counsel for unknown beneficiaries opposed Wells Fargo's motion; others, including the Attorney General and the pro se beneficiary, did not submit briefs. The counsel for the six beneficiaries submitted a brief advocating for an adjustment to monthly distributions to Gronin, without objection from others.
In February 2017, the court ruled against the modification request, stating the Trust's language did not allow for increased distributions, and that not all beneficiaries consented to the modification. Additionally, it found that increasing Gronin's payments would harm the Trust's residue and that there were no unanticipated changes in circumstances justifying a modification. Gronin appealed the ruling, asserting errors in the court's conclusions regarding the modification under specific statutes and the Trust’s purpose related to her income. The appellate court reviews trust administration matters for record errors, while equitable issues are reviewed de novo. Statutory interpretation is also independently reviewed. Gronin and Wells Fargo contended that the statutory requirement for “consent of all beneficiaries” should be interpreted in their favor for the modification.
Modification of a trust is permissible when all known beneficiaries have received notice and do not object. For unknown beneficiaries, it is argued that the lack of objection from known beneficiaries with shared interests should satisfy consent requirements per Neb. Rev. Stat. 30-24,123 and 30-24,124 under Nebraska’s Uniform Probate Code. However, unknown beneficiaries contend that Neb. Rev. Stat. 30-3837(b) explicitly requires unanimous consent from all beneficiaries, rejecting the idea of common interest representation. This statute allows for modification of a non-charitable irrevocable trust only if all beneficiaries consent, and courts interpret statutory language based on its plain meaning. The incorporation of comments from the Uniform Trust Code indicates that modifications cannot occur without explicit consent from all beneficiaries. The statute does not clarify the treatment of unidentified beneficiaries, but the comments suggest that existing provisions on representation and consent must be applied. Overall, the party seeking modification must conclusively demonstrate that all beneficiaries have consented, which is not satisfied merely by the absence of objections from known beneficiaries.
A minor, incapacitated, unborn individual, or a person whose identity or location is unknown may be represented and bound by another individual with a substantially identical interest, provided there is no conflict of interest. If the court finds that an interest is inadequately represented, it can appoint a representative to act on behalf of these individuals, allowing them to receive notice, give consent, and represent their interests under the Nebraska Uniform Trust Code (UTC). A representative can act in various matters related to the trust, regardless of any pending judicial proceedings, and may consider the general benefits to living family members when making decisions.
These statutes collectively address consent issues for individuals unable to consent themselves. Legal interpretation indicates that related statutes should be considered together to discern legislative intent, ensuring consistency and clarity. The court must resolve consent issues for unknown beneficiaries based on specific sections of the Nebraska Uniform Trust Code. Although parties referenced legislative comments regarding the enactment of the UTC, the court determined these comments do not form part of the statutory text and therefore do not apply to the interpretation of the relevant sections. The court found no ambiguity in the statute at issue, thus not considering these comments. In this case, known beneficiaries of the Trust had filed a brief consenting to the proposed modifications.
The court determined that no modification of the trust was justified due to the absence of evidence showing that all known beneficiaries consented, as required under statute 30-3837b. Although the court had the option to allow unknown beneficiaries to be represented by the unanimous consent of known beneficiaries, it chose to appoint a separate representative to act on behalf of unknown beneficiaries, which was initiated by Wells Fargo. This representative's objection to the modification was deemed valid and precluded the application of the relevant section.
Gronin and Wells Fargo argued that statute 30-3837(e) was applicable, positing that the proposed modification was consistent with the trust's purpose and would sufficiently protect the interests of nonconsenting beneficiaries. Gronin suggested interpreting "adequate" as "sufficient," asserting that a modification that does not impact the principal of the trust would protect nonconsenting beneficiaries' interests. However, unknown beneficiaries countered that any increase in distributions to Gronin would negatively affect their future interests in the trust, advocating for a stringent interpretation of "adequately protected" when modification reallocates benefits among beneficiaries.
Subsection (e) states that if not all beneficiaries consent, the court may approve a modification if it is satisfied that: 1) all beneficiaries would have consented to the modification, and 2) the interests of nonconsenting beneficiaries are adequately protected. In this case, neither subsection (a) nor (b) applied due to the lack of unanimous consent and the death of a key beneficiary in 1948. To meet the second requirement of subsection (e), it must be demonstrated that the interests of nonconsenting beneficiaries are adequately protected by the proposed modification, which was not established in this instance. The commentary indicates this provision aligns with principles from the Restatement (Third) of Trusts, which allows modifications under certain conditions but specifies protections for nonconsenting beneficiaries.
A court may modify or partially terminate a trust if it serves the best interests of the beneficiaries as a whole and does not conflict with the trust's material purpose, ensuring non-consenting beneficiaries are not prejudiced. This principle is supported by the Restatement (Third) of Trusts, which emphasizes protection for non-consenting beneficiaries, permitting modifications only when they do not adversely affect those beneficiaries. Specific illustrations clarify that even if certain beneficiaries do not consent, modifications can occur if adequate safeguards, such as bonding or insurance, are in place to protect their interests. When interpreting statutes, appellate courts should consider the statute's plain meaning in conjunction with related sections to discern legislative intent. The comment to § 411 of the Uniform Trust Code (UTC) indicates that the statute is broader than the Restatements, particularly regarding the phrase “adequately protected,” which differs from the Restatements’ “not prejudiced.”
The revision of terminology aims to alter the interpretation of the common-law principle concerning the rights of nonconsenting beneficiaries. The phrase “adequately protected” should be understood to include safeguards outlined in the Restatements to prevent harm to these beneficiaries. The Restatements' language of “not prejudiced” implies that courts can modify trusts if nonconsenting beneficiaries' rights are sufficiently safeguarded. However, “adequately protected” allows courts to modify a trust without necessarily ensuring safeguards, provided the modification is unlikely to harm the beneficiaries' interests.
The construction of any statute that limits common-law rights must be compelled by the statute's clear wording. The current statute does not explicitly limit nonconsenting beneficiaries' common-law rights, allowing for a reasonable interpretation that maintains their rights. The context of Section 30-3837 and the Nebraska Uniform Trust Code indicates that “adequately protected” should not restrict these rights. This section emphasizes modifications with beneficiary consent or in alignment with the trust's purpose, implying that courts cannot enforce modifications detrimental to beneficiaries' interests.
Subsection (e) of the relevant comment allows courts to create orders that protect nonconsenting beneficiaries while permitting unrestricted distribution of trust property. Protective measures may include partial trust continuation, annuity purchases, or cash-out options. Courts can also effectuate partial trust terminations in ways that will not harm nonconsenting beneficiaries. Modifications under the Uniform Trust Code (UTC) can occur without beneficiary consent in certain unforeseen circumstances, as outlined in sections 30-3838a, which emphasizes consistency with the trust's terms.
In summary, interpreting “adequately protected” to mean that nonconsenting beneficiaries should not face significant harm would simplify the process of modifying trusts without detracting from the central principle of honoring the settlor's intent. This interpretation is inconsistent with the statutes' framework and the Nebraska Uniform Trust Code.
To protect the interests of nonconsenting beneficiaries, the court must ensure that any proposed modifications to a trust do not adversely impact those interests and may need to impose safeguards. Wells Fargo sought to modify a Trust to increase monthly distributions to Gronin, which would harm both known and unknown beneficiaries' interests in the Trust's principal and future growth. Consequently, the court correctly determined that the modification was inappropriate.
While Gronin and Wells Fargo argue for avoiding statutory interpretations that lead to unreasonable outcomes, a narrow construction of the law does not equate to absurdity. The law still allows for modifications as outlined in the Restatements. For instance, modifications could allow Gronin to receive payments before Ruth's death if both consented and Ruth's needs were met, or if only one residuary beneficiary remained, a court could modify the Trust to provide that beneficiary with a portion before Gronin's death, ensuring Gronin's interests were protected through insurance or a bond.
The court did not consider whether the Trust could be modified under the common-law doctrine of deviation, as that issue was not presented. After the ruling, Gronin realized that the relevant statute did not apply to the Trust because it became irrevocable before a specified date. Nevertheless, Gronin and Wells Fargo contend that the appeal can revisit the court's decision on modification by framing it within the context of the common-law doctrine of deviation, arguing that the statute reflects this doctrine.
The doctrine of deviation is argued to apply to trusts under Nebraska statute 30-3806, but issues not addressed by the trial court cannot be considered on appeal. The appellate court must first determine if the doctrine applies to trusts in Nebraska and if its principles were altered by statute 30-3838. Since these issues were not ruled upon by the trial court, they are not suitable for appellate consideration, leading to the rejection of related assignments of error regarding the doctrine of deviation.
The court upheld the trial court's finding that the Trust could not be modified under statute 30-3837 due to the lack of unanimous consent from the beneficiaries and the potential risk to the interests of nonconsenting beneficiaries. Consequently, the appeal is affirmed. A potential path for relief exists if known beneficiaries believe no unknown beneficiaries are present and are willing to adjust their shares to accommodate a lifetime beneficiary, thus allowing the trustee to manage any unknown beneficiaries' claims. If unknown beneficiaries do exist, known beneficiaries would face only a minor reduction in their future payouts.
