Trust Termination in Iowa Restricted
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?
A parent creates a Revocable Living Trust in 2000. Two months later he amends it to be Irrevocable in all respects and etc. As the two forms of trusts, revocable and irrevocable are very different, would the applied amendment cancel out the Revocable Trust?
Joe-
Assuming the amendment to the revocable trust was proper, then yes, the revocable trust is no longer "revocable" so it can't be amended, changed, terminated, etc. How ever, depending on the purpose for the change and some key provisions, this could be a dangerous strategy. Careful guidance by legal counsel would be necessary.
If there are 7 trustees on a revocable living trust, could one of the trustees, on their own, sell a piece of property without the others knowing anything about it? Or, for that matter, withdraw funds from a savings account? Could they "get by with it" and how would the other trustees re-coup the property/money?