Benjamin joined the firm as an associate in September of 2008. He is a recent graduate from Drake University Law School where he served on the Drake Journal of Agricultural Law. Benjamin's knowledge in the areas of environmental, agricultural, real estate, corporate, and public utility law are an asset to the Firm.
Many people understand that a corporation or limited liability company can provide its individual owners with protection from the debts of the company. For example, if a company is unable to pay its vendors, those vendors are typically unable to go after the owners of the company for those debts. Or if the company borrows money, the lender can only recover the debt from the company and not the owners/shareholders/members, generally.
However, if the owner of the company has provided a personal guarantee to that vendor or any other entity that has provided money or services to the company, the corporate liability protection is meaningless at that point. Most guarantees don't require that the creditor look to the company first, but could look first to the individual providing the personal guarantee.
If at all possible, an owner should avoid giving a personal guarantee when entering into any agreements. Conversely, as a creditor, whenever dealing with a small business with limited operating history, you should demand a personal guarantee from the owner(s) of the company.
A common question that I get asked is about "breaking a trust". By breaking a trust, someone typically means doing away with a trust for some reason or changing its terms. Is it hard to do? Can it be done? Yes, it certainly can be done. The difficulty of doing so depends on the circumstances.
Terminating or Modifying a Trust in Iowa
The general background is that a trust will run its course until its objectives are reached. However, there are situations which may be applicable that affect the trust. Under the Iowa Trust Code, which is still relatively new and untested in Iowa, there are several statutory options that are available for consideration.
Terminating a Small Trust in Iowa
If the amount of the trust is relatively low and incurring costs in its administration, it is possible to terminate the trust and distribute the assets to the beneficiaries, even if the trust terms provide for the trust to continue into the future. A court would need to approve such a termination after either the trustee or a beneficiary request the court to terminate the trust. Iowa Code sec. 633A.2205 (2007). Whatever "low" value means depends on the costs involved, the argument presented to the court and the court's opinion as to what is "low enough".
Modifying a Trust in Iowa
it is possible to change an irrevocable trust. If the settlor (the person who created the trust) is still alive, so long as they consent and all the beneficiaries consent, a trust could be modified or even terminated. Court involvement is not necessary. Iowa Code 633A.2202. If the settlor is dead, there is a different procedure involved. If ALL the beneficiaries are in agreement and it isn't necessary for the trust to carry on with the same terms, a court can permit the trust to be modified or even terminated. The difficult component is getting the consent of each beneficiary. The Iowa Trust Code does provide some relief when dealing with minor beneficiaries. Iowa Code 633A.2203.
Replacing the Trustee of an Iowa Trust
This provision has some unresolved questions that may need to be clarified in the future through some legislative changes. Historically, it was difficult to remove a trustee from a trust. However, the relatively new (& untested) Iowa Trust code does provide some "gray area" that may be used to change the trustee. There is also the possibility that a trust could be amended by insertion of a provision in a trust permitting a procedure to remove a trustee. At least one court in Iowa has permitted this change.
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