Impoverished income beneficiary of a million dollar trust drafted in 1947 stuck with $500 per month income.
Jennie Shire created a testamentary trust in 1947. It was funded with $125,000 and provided that the bank trustee would pay $500 per month to her daughter and then her granddaughter for their lives.
Inflation and the passage of time did its work. At the time of the 2016 trial, the trust was worth nearly one million dollars and was projecting to generate an annual income stream of between $64,000 and $81,000 per year. But the $500 per month that the income beneficiary was receiving was never indexed to inflation and $500 in 1947 dollars is equivalent to about $5,000 today.
The granddaughter – who was living on her total monthly of $1,100 per month – petitioned the county court to modify the terms of the trust. Possible future beneficiaries – both known and unknown – were added to the lawsuit. The Nebraska Attorney General was appointed to represent the charitable beneficiaries. Half of the known beneficiaries consented to the modification of the trust, but an attorney appointed to represent unknown beneficiaries opposed it. The county court never heard either way from six known beneficiaries.
The county court ruled that the trust could not be modified because the trust did not permit a modification and all the of beneficiaries did not consent to a modification. The Nebraska Supreme Court affirmed.
If none of the living and known beneficiaries – along with the bank trustee – did not affirmatively object then why did both courts not allow modification?
Two reasons. The first reason is that a court – even sitting in equity – must follow both the plain language of the trust and of Nebraska law. They can’t make it up and the law doesn’t allow it. There is a difference in the law in affirmatively consenting to a modification and not objecting to a modification. There was no evidence on the record from six known beneficiaries regarding modification.
The other reason was the attorney representing unknown beneficiaries affirmatively opposed the modification. Their interests would be affected by a modification and therefore the trust could not be modified. In this case, Nebraska law required unanimous consent to modification of the trust.
Lesson:
Consider if you want your trust to be modified in the future and if you need to account for inflation in determining income payments.
In re Trust of Shire, 299 Neb. 25 (February 16, 2018).
