Trustee did not abuse its discretion by decision to not pay expenses of beneficiary’s final illness where estate assets sufficient.

Henry S. Hansen created an inter vivos trust for his lifetime benefit. Following his death, the trust was to provide net income to both daughters for their lifetimes, and provided for discretionary principal payments for the daughters if “needed” as a result of accident or illness. After the death of both daughters, the trust provided for distribution to the grantor’s descendants.

One daughter died in 1986, and the surviving daughter, Ruth, died in 2005 after suffering from a medical condition that necessitated extensive healthcare costs starting in 2002. Ruth suffered from dementia for several years, and a guardianship proceeding had been initiated by the daughter of her longtime companion, Falion. Falion sought appointment as Ruth’s guardian and learned about the trust during the guardianship proceeding. Although Ruth died while the guardianship suit was pending, Falion (on behalf of Ruth’s estate) demanded payment from the trust for the expenses of Ruth’s final illness. The remainder beneficiaries objected. The trial court held that the trustee had discretion to decide whether to pay the expenses. The trustee declined to pay the expenses and proposed to distribute the trust assets to the remainder beneficiaries.

Falion objected on behalf of the estate, but the trial court granted the trustee summary judgment and dismissed the objection. Falion appealed.

On appeal, the Nebraska Supreme Court affirmed the trial court on the grounds that: (1) Nebraska adopted the Restatement (Third) of Trusts standard that a trustee is presumed to have a duty to pay last-illness expenses only if the estate or other assets are insufficient or the trustee either agreed to make payments or unreasonably delayed in paying a claim for which it was required to make payment; (2) the estate’s assets were sufficient to pay her last expenses; (3) the trustee never agreed to pay any of the expenses; (4) the trustee did not abuse its discretion in declining to pay the medical expenses because the trustee properly examined Ruth’s other assets to see if her estate “needed” an additional distribution of principal; (5) the trustee had no duty to inquire into Ruth’s health when determining whether to make discretionary principal distributions; and (6) the trustee’s communications with remainder beneficiaries were not improper or an abuse of discretion.