In In re Trust Created by Clifford Allen McGregor (308 Neb.405, Feb. 12, 2021), a beneficiary sought to enforce a nonjudicial settlement agreement with his sister regarding his father’s trust by appealing to the Supreme Court of Nebraska.
Clifford McGregor’s family trust became irrevocable on his death, and his wife, Evelyn, became the sole trustee. The trust directed that on Evelyn’s death, the trust property, which included real estate, be held in continuing trusts for his son, Allen, and daughter, Debra. The trust states that it should be construed as a “non-support discretionary spendthrift trust that may not be reached by the beneficiaries’ creditors for any reason.” However, after Clifford’s death, in 2011, Evelyn, Allen and Debra signed a nonjudicial settlement agreement that directed the distribution of the family trust directly to Allen and Debra, outright and free of trust.
Six years later, in 2017, Evelyn attempted to revoke the nonjudicial settlement agreement. Allen sued in the county court to enforce the agreement.
In Nebraska, a nonjudicial settlement agreement is valid only to the extent it doesn’t violate a material purpose of the trust, and it must be consented to by all “interested persons.”
The Supreme Court upheld the county court’s determination that the nonjudicial settlement agreement wasn’t binding because it violated a material purpose of the trust, namely the spendthrift protections. It also noted two other significant parts of the agreement that may have violated the original purpose of the trust: Allen was to receive an additional tract of land, and the two siblings were required to equalize their distributions through cash or debt settlement.
The court indicated, as an aside, that the agreement might also have been unenforceable if Allen and Debra were the only signatories, because their descendants might be “interested persons” who would have had to consent agreement. However, it didn’t rule on that point.