Zutavern v. Zutavern (In re William R. Zutavern Revocable Trust)

• Decision Date: 25 June 2021
• Docket Number: No. S-20-455.,S-20-455.
• Citation: 961 N.W.2d 807,309 Neb. 542
• Court: Nebraska Supreme Court
• Parties: IN RE WILLIAM R. ZUTAVERN REVOCABLE TRUST. Shawn W. Zutavern and Russell C. Zutavern, appellants, v. Meredith A. Zutavern, individually and as Trustee of the William R. Zutavern Family Trust, et al., appellees.

309 Neb. 542

961 N.W.2d 807

IN RE WILLIAM R. ZUTAVERN REVOCABLE TRUST.Shawn W. Zutavern and Russell C. Zutavern, appellants,

v.Meredith A. Zutavern, individually and as Trustee of the William R. Zutavern Family Trust, et al., appellees.

No. S-20-455.

Supreme Court of Nebraska.

Filed June 25, 2021

John V. Matson, James A. Tews, Brian J. Koenig, and Quinn R. Eaton, of Koley Jessen, P.C., L.L.O., Omaha, for appellants.

Daniel J. Guinan, Robert W. Futhey, and Ryan M. Ricke, of Fraser Stryker, P.C., L.L.O., Omahafor appellees.

Heavican, C.J., Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.

Funke, J. Shawn W. Zutavern and his son, Russell C. Zutavern, petitioned the district court for Lancaster County for removal of the trustee of a trust created by Shawn's father, William R. Zutavern. Shawn and Russell then moved to enjoin the trustee's potential sale of the family ranch. The court found that Shawn and Russell were not beneficiaries and were owed no duties by the trustee, dismissing the petition and motion for injunction.

Shawn and Russell appeal. We conclude that Shawn and Russell are beneficiaries and that the court erred by dismissing their petition. The cause is remanded for further proceedings consistent with this opinion.

BACKGROUND

ZUTAVERN FAMILY

William died on November 26, 2011. Meredith A. Zutavern is William's surviving spouse, and together William and Meredith had four children, all still living: Shawn, Shayne T. Zutavern, Kelly R. Leonard (Kelly), and Maria D. Zutavern. William and Meredith lived on a ranch near Dunning, Blaine County, Nebraska, and maintained significant real estate holdings.

On February 29, 1988, William, Meredith, Shawn, and Shayne incorporated Wm. Zutavern Cattle Co. (WZCC), a Nebraska corporation. WZCC managed a ranch of approximately 22,000 acres in Blaine and Custer Counties. William owned approximately 38 percent of the corporate stock. Meredith owns 30 percent, Shawn owns 18 percent, and Shayne owns 14 percent.

WILLIAM'S TRUST AND FAMILY TRUST

On January 31, 2008, William, as the settlor and trustee, and Meredith, as substitute trustee, executed a trust agreement to establish the William R. Zutavern Revocable Trust (Trust). The Trust included a provision setting forth William's family information, stating that he and Meredith had four children—Shawn, Shayne, Kelly, Maria—"and several grandchildren."

William transferred his corporate stock to himself as trustee to create the Trust estate, which was "to be held, managed, controlled, invested and re-invested, the income therefrom to be controlled, and ... to be administered, distributed and disposed of as provided herein." William held the power to dispose of Trust income and principal. In the absence of direction, he would receive Trust income at least quarterly. William reserved the right to modify or terminate the Trust during his life by delivery of written notice to the trustee or substitute trustee. The Trust indicated that it "may not be changed orally." Meredith would serve as substitute trustee upon William's death or incapacitation, Shawn would serve as substitute trustee upon Meredith's death or incapacitation, and Shayne would serve as substitute trustee upon Shawn's death or incapacitation.

The Trust states that the general powers, duties, and restrictions upon the trustee or substitute trustee include all powers pursuant to the Nebraska Uniform Trust Code (NUTC), see Neb. Rev. Stat. §§ 30-3801 to 30-38,110 (Reissue 2016 & Cum. Supp. 2020), which are not in conflict with any Trust provisions. The trustee or substitute trustee shall have the power to invest and reinvest any Trust property, including stocks, "in such manner as will be in the best interests of the Trust beneficiaries, giving due consideration to the preservation of principal and the amount and regularity of the income to be derived therefrom." The trustee or substitute trustee shall keep "books of account," showing all transactions relating to the Trust estate. The substitute trustee is required to furnish annually to each beneficiary statements of receipts and disbursements and a schedule of all Trust assets and liabilities. Any beneficiary may at reasonable times inspect Trust records. All powers and obligations granted or imposed by the Trust are legally binding upon the parties to the trust agreement, and upon their "successors, executors, administrators, assignees and Trustees, as the case may be."

The Trust instructs that upon William's death, the substitute trustee shall pay William's debts and expenses. Thereafter, regarding the residuary, the substitute trustee "is directed to divide the Trust assets into two parts." The first part, consisting of an amount equal to the largest amount which could pass free of federal estate taxes, was to be distributed to the William R. Zutavern Family Trust (Family Trust). The second part, consisting of the rest, residue, and remainder, was to be transferred to Meredith "as hers absolutely and without restriction."

The Family Trust was to "remain in trust and administered and disposed of in accordance with" the provisions of the Family Trust. The Family Trust provides that if Meredith survives William, the trustee shall pay Meredith the Trust income for her life. Then, upon Meredith's death, the trustee shall distribute all of the shares of WZCC stock that are held in trust "to those of my children and/or grandchildren who are [then] actively involved in the operation and management of [WZCC]." Any other assets of the Family Trust shall be distributed to Kelly and Maria.

SHAWN AND RUSSELL'S PETITION ALLEGATIONS

On November 18, 2019, Shawn and Russell filed a verified petition in the district court for Lancaster County for removal of the trustee, appointment of a successor trustee and special fiduciary, an accounting, and a surcharge against the trustee. Portions of the Trust were attached to the petition. The background section of the petition included the following relevant factual allegations: Shawn and Russell alleged that they are beneficiaries under the Family Trust, because they qualified as " ‘[William's] children and/or grandchildren who are [, at the time of Meredith's death,] actively involved in the management or operation of [WZCC].’ " (Emphasis omitted.) Shawn alleged that he worked full time on the ranch from 1980 until his wrongful termination in the fall of 2017. Russell alleged that he was employed by the ranch but was recently fired.

Shawn and Russell alleged that the Trust grants the trustee no discretion in distributing the principal of the Family Trust and that no one holds a power of appointment with respect to the Family Trust. They alleged that in 2015 and 2016, Meredith sold approximately one quarter of the ranch, referred to as the "Flying A/Forester Property." They alleged that the sale proceeds were used to pay a company debt and that the remaining funds were distributed to the WZCC shareholders, which included Meredith as the trustee of the Family Trust. Shawn alleged that Meredith refused his numerous requests for an accounting of Family Trust assets which consist of the sale proceeds.

Shawn and Russell alleged that from the time of William's death in 2011 until the summer of 2017, Shawn, Shayne, and Meredith served as directors of WZCC, with Shawn as president, Shayne as vice president, and Meredith as secretary and treasurer. They alleged that at an annual stockholders meeting on June 21, 2017, Meredith and Shayne removed Shawn as president and appointed Meredith as president, secretary, and treasurer. Shawn alleged that he has stopped receiving WZCC financial reports. Shawn alleged that Meredith began making false accusations against him for the sole purpose of removing him as a beneficiary of the Family Trust. Shawn and Russell alleged that Meredith plans to sell the ranch and equally split the proceeds among her children, regardless of ownership. Shawn alleged that Meredith has improperly handled the Family Trust and fears that she will "attempt an illegal, oppressive and improper sale of the Ranch in the near-term."

In their first claim for relief, Shawn and Russell asserted that Meredith has breached fiduciary duties in her capacity as trustee of the Family Trust. They asserted that Meredith intends to sell the ranch and will do so by exercising her shareholder votes as trustee of the Family Trust, in combination with her personal shareholder votes. Shawn and Russell asserted that such a sale would violate the Trust and constitute a breach of the trustee's duties and that they "intend to seek injunctive relief against the trustee." Shawn and Russell alleged that Meredith breached her fiduciary duties as trustee of the Family Trust in the following ways: failing to administer the Family Trust in good faith; failing to properly report and account Family Trust assets to Shawn and Russell, in violation of § 30-3878; voting WZCC stock in a manner contrary to the best interests of Shawn and Russell, in violation of § 30-3867(f); breaching her duty of impartiality among beneficiaries, in violation of § 30-3868; failing to administer the Family Trust as a prudent person by engaging in self-dealing and failing to exercise reasonable care, skill, and caution, in violation of § 30-3869; and failing to keep adequate records of the administration of the Family Trust, in violation of § 30-3875. Shawn and Russell alleged that as a direct and proximate result of Meredith's breach of fiduciary duties, they have suffered immediate and irreparable harm and have incurred money damages. Shawn and Russell requested relief in the form of a declaration that Meredith has breached her duties as trustee; injunctive relief preventing further breaches; and an award of damages, costs, attorney fees, and other just relief.

For their second claim for relief, Shawn and Russell asserted that Meredith should be removed as trustee and that a successor trustee and special fiduciary should be appointed under §...