Perils of the Amateur Trustee

Glenn Forgey created a revocable living trust to manage his assets, naming his oldest child, Lyle, as trustee.  The trust owned bank stock and agricultural property.  At Glenn’s death in 1993, the trust was to be divided into equal shares, one for Lyle, one for his brother Wayne, and one for his sister Bessie.  The bank stock was to be allocated to Lyle’s share.  However, Lyle did nothing about creating the new trusts.

An accountant prepared an estate tax return for Glenn’s $3 million estate, but Lyle failed to sign the return and submit it in a timely fashion, resulting insubstantial penalties and interest. Wayne and Lyle continued a ranching operation on the property, but they did not pay any rent to the trust for the use of the land.  Lyle did not provide any trust accounting to the other beneficiaries, although he did share fiduciary income tax returns with them beginning in 2003. 

In order to pay estate tax, Lyle lent the trust some money personally, and the rest was borrowed from the bank that Lyle owned.

When Bessie asked for money from the trust, Lyle provided her with cash distributions in 2008, 2009, and 2010. No earlier distributions were made because the trust was still paying off the tax-forced debts.

After Wayne died (the date is not given, but likely in 2012), his surviving spouse,Marvel, brought a lawsuit to remove Lyle as trustee, secure administration of the trust, value the trust assets, divide those assets into separate trusts for the beneficiaries, and determine liabilities for alleged breaches of fiduciary duties by Lyle. 

By that time the trust had grown in value to $25 million.  Thus, the trial court held that the beneficiaries had not been harmed by Lyle’s several violations of fiduciary duty, except to the extent of the penalties and interest due on the late estate tax.  Failing to charge rent for the agricultural land, for example, meant that none of the land had to be sold to pay the taxes.  The court ordered the division of the trust into three trusts, taking into account the advances to Bessie and the estate tax penalties.

The Supreme Court of Nebraska held that when Wayne and Lyle failed to pay rent,they breached their duty of impartiality to Bessie, and so it ordered an additional adjustment to her share.  The Supreme Court also ordered Lyle to pay a portion of the attorney’s fees for Marvel and Bessie, because “if we do not impose a penalty such as attorney fees in the instant case, then future trustees may believe that the statutory requirement to report [to beneficiaries] has no significance.”