Marsh v. Cnty. of Richardson (In re Marsh)

307 Neb. 893

951 N.W.2d 486

IN RE ESTATE OF Gale H. MARSH, deceased.

Sarah J. Marsh and Carla M. Marsh, Cotrustees of the Gale H. Marsh Revocable Trust Agreement, appellees,

v.County of Richardson, Nebraska, appellant.

No. S-20-102.

Supreme Court of Nebraska.

Filed December 4, 2020

Douglas E. Merz, Richardson County Attorney, Samantha K. Scheitel, and Thomas J. Gist, for appellant.

Steven J. Mercure, Tecumseh, and Lindy L. Mahoney, of Nestor & Mercure, for appellees.

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

Cassel, J.

I. INTRODUCTION

After Gale H. Marsh died, his daughters brought a proceeding to determine the amount of inheritance tax due. The dispute centered on the ownership interest of Marsh's revocable trust in a limited liability company valued at over $12 million. The county court determined that assignments signed by Marsh rather than the trustees were valid. The County of Richardson (County) appeals. Finding no error by the county court in the respects alleged, we affirm.

II. BACKGROUND

1. PROCEDURAL BACKGROUND

Marsh, a domiciliary of Richardson County, Nebraska, died on April 6, 2017. On March 22, 2018, his daughters, Sarah J. Marsh and Carla M. Marsh, filed in the county court for Richardson County a petition for determination of inheritance tax. The petition alleged that Sarah and Carla (collectively cotrustees) were cotrustees of the Gale H. Marsh Revocable Trust Agreement, that they had a legal interest in the property involved in the determination of inheritance tax, that they were the beneficiaries of the trust property, and that they were the only persons against whom an inheritance tax may be assessed.

Together with the petition, the cotrustees filed a number of documents, including an inventory and an inheritance tax worksheet. The inventory stated that the Gale H. Marsh Revocable Trust owned a 15.62152-percent interest in Marcasa, LLC; that the total value of Marcasa was $12,914,162; and that the trust's interest amounted to $1,412,171.88. The inheritance tax worksheet showed assets of the estate of $1,476,720.88 and total deductions of $585,250.26, for a net value of property subject to Nebraska inheritance tax of $891,470.62. According to the inheritance tax computation, Sarah owed $4,081.22 and Carla owed $4,033.49. On March 26, 2018, the cotrustees filed an application and moved the court for an order allowing payment of tentative inheritance tax by Sarah and by Carla in the amounts computed on the worksheet.¹

The County filed an objection to the inheritance tax worksheet. According to the County, the worksheet did not reflect the fair market value of the assets owned by Marsh.

2. HEARING

Nearly 1½ years later, the court commenced an evidentiary hearing. The hearing was held on two dates in 2019: August 14 and September 20.

(a) Revocable Trust

Evidence was adduced concerning the trust. Marsh, identified as the settlor, created the inter vivos revocable trust on November 4, 1988. As mentioned, he designated his daughters as cotrustees. Sarah testified that she did not actually serve as a trustee or cotrustee during Marsh's lifetime, explaining that "he managed his own affairs."

Article II of the trust agreement addressed trust property. It stated that trust property was listed on an attached "Schedule ‘A’ " and that insurance policies were listed on an attached "Schedule ‘B’ "; however, Sarah was unable to find either document. Marsh "reserve[d] the right to add property to the trust or to withdraw property from the trust in the manner provided for alteration of the trust in ARTICLE IV."

Article IV of the trust agreement dealt with changes to the trust. It stated that Marsh "reserve[d] the right at any time ... to amend, alter, revoke or terminate this trust ... by an instrument in writing signed by the Settlor and delivered to the Trustee in the lifetime of the Settlor, or by the Settlor's Last Will and Testament at his death." The trust was never amended or revoked.

(b) Marsh Company, Limited

In 1998, Marsh created Marsh Company, Limited, a partnership used for ownership of his property. He transferred all of his real estate holdings in Richardson County to Marsh Company.

Initially, Marsh owned 100 percent of Marsh Company. In 1998 and 1999, he gave to each of the cotrustees, their spouses, and to a grandson an undivided "65/100ths" of 1 percent limited partnership interest in Marsh Company. Marsh reported these transfers on gift tax returns. In 2001, Marsh made several assignments of an undivided "40/100[ths]" of 1 percent limited interest in Marsh Company to family members. On December 31, 2001, Marsh owned a 91.6-percent interest in Marsh Company.

In 2002, Marsh gave Sarah and Carla each an undivided 26.63-percent limited partnership interest in Marsh Company. He filed a gift tax return with respect to those gifts. He also gave a .456-percent interest to the cotrustees’ spouses and to trusts for three of his grandchildren. Marsh's percentage of ownership at the end of 2002 was 36.1 percent. Marsh transferred small amounts of his interest in 2003, 2004, and 2005. On December 31, 2006, Marsh owned a 34.17-percent interest in Marsh Company.

During the August 2019 hearing, Sarah testified that the gifts in Marsh Company came from the trust. But during the September hearing, Sarah testified that when her attorney "pulled out the deeds," she learned that Marsh's ownership in Marsh Company was his individually and was not placed in the trust. She clarified that the trust never held an interest in Marsh Company.

(c) Marcasa

In 2007, Marsh created Marcasa, a limited liability company. The operating agreement showed members of Marcasa to be Marsh, the cotrustees, the cotrustees’ spouses, and the cotrustees in their capacity as trustees of qualified trusts for their respective children. The operating agreement stated that "any Member may transfer all or any part of his or her interest in the Company by gift, in trust or otherwise, to or for the benefit of himself or herself, his or her spouse or his or her descendants." Sarah was not aware of any modifications to the Marcasa operating agreement.

On March 21, 2007, Marsh Company merged into Marcasa and ceased to exist. The membership interests of Marsh, the cotrustees, the cotrustees’ spouses, and the trusts for the children of the cotrustees in Marsh Company were converted to membership interests in Marcasa. Sarah was not aware of any additional contributions to Marcasa other than what was in Marsh Company. Approximately 1 month after the merger, Marsh and his wife executed a quitclaim deed to Marcasa, but Sarah stood by her testimony that no additional contributions to Marcasa were made after the merger. She testified that after that transfer, there was no change in Marsh's ownership interest. On December 31, 2007, Marsh held approximately a 34.17-percent interest in Marcasa, just as he had held in Marsh Company at the end of 2006.

On January 2, 2008, Marsh assigned interests of approximately .382 percent in Marcasa to each of the cotrustees, their spouses, and their children's trusts. On May 27, Marsh signed a memorandum of action concerning the trust. With that instrument, he assigned to the trust the ownership of various properties, including Marsh's interest in Marcasa.

Each year from 2009 to 2013, when Marsh assigned a percentage ownership of Marcasa to the cotrustees, their spouses, and their children's trusts, he signed the document as grantor of the trust. From January 31, 2014, to December 31, 2016, the trust owned a 15.62-percent interest in Marcasa, the cotrustees each owned a 27.92-percent interest, and their spouses and children's trusts each owned a 4.76-percent interest.

(d) Motion for Continuance

During the August 2019 hearing, the County requested a continuance. The County stated that it needed research on recently discovered deeds. The court continued the hearing from August 14 to September 20.

On September 10, 2019, the County filed a motion to continue. According to the motion, the County needed to engage in formal discovery because certain requested documents had not been provided. The County asserted that it was necessary to have the complete ledger of ownership interests for all years of Marsh Company. The cotrustees objected to a continuance. The court took the motion under advisement and later denied it.

(e) County's Witnesses

The County adduced testimony from three attorneys and a certified public accountant. One attorney testified that the cotrustees were the only people who could transfer from the trust and that the provisions to effectuate a gift would apply if there were transfers being made by Marsh as grantor of his own trust. The second attorney testified that "[t]he trust property would be under the title or authority of the co-trustees." The third attorney testified that "[a]ssets that are in the trust would be subject to the power over title of the Co-Trustees." In other words, the attorneys testified that the cotrustees were the people who could transfer assets in the trust.

The certified public accountant reviewed a number of documents for Marcasa. The documents included Schedule L forms for tax years 2007 through 2013, the complete 2014 tax return, and two pages of bank statements from 2006. The accountant testified that to properly determine capital contributions, she would need the full tax returns and all bank statements.

3. COURT'S ORDER

The county court reasoned that although the trust was the legal owner of Marcasa's interests, Marsh was the beneficial owner of those interests. It noted that Marsh retained authority to change the terms of the trust and that trustees are bound by duties of the Nebraska Uniform Trust Code.

After reciting the elements of a gift, the court determined that tax filings and other documentation showed the transfers were completed and consented to by the legal owner of the interests—the trust. The court overruled the County's objections to the worksheet...