Prior posts on this site have dealt with terminating a trust or breaking a trust in Iowa. A recent case from the Iowa Court of Appeals further clarified the ability of beneficiaries to terminate a trust in Iowa under the Iowa Trust Code. In the Matter of the Trust under the Last Will and Testament of Mary E. Weitzel, Mom executed a will which provided that her assets would stay in trust for her life, then upon daughter's death, the balance of the estate would pass to daughter's children (mom's grand kids). The will contained a relatively common provision, called a "spendthrift" provision, which prevented the daughter or the creditors of the daughter from getting access to the trust principal. The daughter claimed that the creditor issues that once existed were no longer an issue, and thus the spendthrift provision was no longer needed. Apparently, daughter and sons didn't care for the bank as the trustee and having restrictions in their access to the trust assets, so they sought to have the trust terminated.
The Iowa Trust Code permits termination of a trust if all of the beneficiaries consent and there remains no further material purpose of the trust. The question in this case focused on whether the spendthrift provision constituted a material purpose, thereby not permitting the trust to be terminated even if all of the beneficiaries consent to the early termination. The ruling from the Iowa Court of Appeals was that the spendthrift provision, with the facts of this case, was a material purpose and would not permit the trust to be terminated before the trust was directed to be terminated.
This ruling further emphasizes the direction that Iowa courts are going in preserving trusts. Some other states are taking a different approach in adopting a flexible approach permitting the termination of trusts when all of the beneficiaries consent.
Rather than terminating a trust, what if the beneficiaries sought to simply amend the provisions of the trust?