The Supreme Court of Nebraska holds that a trust showed clear intent for the decedent’s estate to pay the inheritance taxes. In re the Michael Hessler Living Trust (Neb. No. S-23-472, May 10, 2024).
Michael Hessler created a trust, leaving his home to his girlfriend, Lori Miller, and the residuary to his three children. Because he and his girlfriend never married, transferring the house to her incurred higher inheritance taxes. The children wanted her to pay these taxes, whereas she argued the taxes should come from the estate.
The trust provided 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.” This immediately preceded a section on the payment of expenses and debts.
The county court determined that the residue of the estate should pay all inheritance taxes. The children argued that the beneficiaries should be responsible for the taxes proportionally. This would financially benefit them.
Under the default rule, Chapter 77, Article 20, of the Nebraska Revised Statutes, inheritance taxes fall on the beneficiary, not the decedent’s estate. The testator can decide to assume responsibility for inheritance taxes. Shifting the responsibility to the decedent requires unambiguous instruction in an estate planning document, such as a will or a trust. If the instruction is ambiguous, the default rule applies.
In re Estate of Shell, the Nebraska Supreme Court found sufficient intent to treat inheritance taxes as estate expenses. There, the testator coupled a direction to pay estate and inheritance taxes with a direction to pay the testator’s debts, funeral expenses, and administration costs. This demonstrated an intent for the estate to cover all the expenses.
In this case, the instructions are similarly coupled. The trust language clearly conveys an intent to shift the burden of the inheritance tax from the beneficiaries. All the trust assets must be used to pay the inheritance taxes.
The highest court of Nebraska affirms the lower court’s decision. The trust shows that the decedent wanted the estate to pay the inheritance taxes.
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