In Shaddick v. Hessler, 316 Neb. 600 (May 10, 2024), the Nebraska Supreme Court decided that explicit tax apportionment provisions in a decedent’s revocable trust trumped the state law rule that all beneficiaries proportionally share in the inheritance tax burden.
Michael Hessler established a revocable trust as part of his initial estate plan. Later, he amended the trust to leave his home outright and free of trust to his girlfriend, Lori J. Miller. The remainder of his estate passed equally to his children. Michael’s children argued that Lori should be responsible for a proportionate share of the estate tax. However, Lori pointed to a provision in the trust that specifically assigned the estate tax burden to the residuary beneficiaries. The court agreed with Lori and affirmed the lower court’s decision.
The default provisions of Nebraska Revised Statutes state that the estate tax is to be proportionally shared by the beneficiaries unless directed otherwise. Michael’s trust stated, in relevant part, that “The Successor Trustee shall pay from this trust all inheritance and estate taxes due by reason of the Settlor’s death irrespective of whether such taxes are in respect of the trust property.” The court found that such direction, coupled with the specific outright distribution of the decedent’s home to Lori, meant that the taxes would be paid from the trust “off the top” and that the home was removed from consideration. The court relied on its 2015 decision in In re Estate of Shell, in which similar language shifted the tax burden to the decedent’s estate.