In Little v. Davis, a May 6, 2022 opinion from the Iowa Supreme Court, the Court concluded that a surviving settlor of an irrevocable trust cannot, even with the consent of all of the beneficiaries, modify the dispositive terms of an irrevocable trust without court approval.
The Facts Of Little v. Davis
Donald and Collen Davis established a trust (the “Trust”). The Trust could be amended while they were both living and competent, but provided that “[u]pon the death of the first Co-Trustor to die . . . the then surviving Co-Trustor . . . shall not have the power to amend, revoke and/or terminate the [trust].”
Upon the death of the surviving spouse, the Trust estate was to be distributed to Donald’s four children: Keith, Donald Jeffrey, and Katina. Collen predeceased Donald. At some point after Collen’s death, Donald decided he wanted to amend the dispositive terms of the Trust. His attorney prepared a consent document. The consent document acknowledged that the trust agreement provided the surviving trustor did not have the power to amend, revoke, or terminate the trust. The consent document stated the purpose of the irrevocability provision—to protect Donald’s farmland against any claims from Collen or her children—no longer existed. The second page of the consent document contained signature lines for Donald and each of the four beneficiaries of the trust underneath a single paragraph. That paragraph stated:
THEREFORE, the undersigned, being the current trustee, the current income beneficiary, and all of the adult beneficiaries who would receive a share of the trust if Donald K. Davis was not living, hereby agree that Donald K. Davis, as surviving Trustor and as surviving Trustee, shall have the power and authority to alter, amend, or revoke the DONALD K. & COLLEN DAVIS FAMILY TRUST[.]
Donald and all of his children signed the consent document. Shortly after everyone signed, Donald executed a document called the “First Amendment to Trust Agreement of Donald K. & Collen Davis Family Trust.” The amendment provided that Donald’s farmland was to pass one-half each to his sons Donald and Keith, and that Jeffrey was to receive $50,000, and Katina $25,000. The remainder of the trust estate was to be divided equally among the four beneficiaries. The First Amendment document also changed the successor trustees to Donald and Keith, instead of all four children.
Donald died in 2019. In 2020, Katina received notice including the initial trust and the First Amendment. Katina sued Donald and Keith as trustees, contending that the amendment to the Trust was void.
Competing motions for summary judgment were filed. The co-trustees argued the amendment was valid, and Katina argued that the amendment was invalid.
The Iowa district court granted Katina’s motion for summary judgment, holding that the amendment was void for lack of authority under Iowa Code section 633A.1105, which states, “The terms of a trust shall always control and take precedence over any section of [the] trust code to the contrary.”
The Iowa Supreme Court affirmed the district court’s judgment, but for different reasons, finding that the court reached the right result for the wrong reasons.
How Is an Irrevocable Trust Created Under Iowa Law?
Every trust agreement in Iowa executed after July 1, 2000, is presumed revocable and can be revoked or modified by the settlor “[u]nless the terms of the trust expressly provide that the trust is irrevocable.” Iowa Code § 633A.3102(1). Thus, for an Iowa trust to be irrevocable, the trust instrument necessarily must contain terms that make it irrevocable.
When Can an Irrevocable Trust Be Modified Under Iowa Common Law?
An irrevocable trust can be modified under Iowa common law with the consent of the settlor and all the beneficiaries. Therefore, the settlor or settlors must be alive at the time of modification. The Iowa Supreme Court summarized:
At common law, an irrevocable trust was not permanently unchangeable. The “traditional rule” was that “an irrevocable trust may be modified or terminated on consent of all the beneficiaries.” Iowa followed the traditional rule. See Harrison v. City Nat’l Bank of Clinton, Iowa, 210 F. Supp. 362, 368–69 (S.D. Iowa 1962) (applying Iowa law and citing Restatement (Second) of Trusts section 338); Sawyer v. Sawyer, 152 N.W.2d 605, 611 (Iowa 1967) (stating consent of the settlor and all beneficiaries was required to terminate an irrevocable trust and finding not all beneficiaries had consented to purported termination).
When Can an Irrevocable Trust Be Modified Under Iowa Code?
The Iowa Code provides that an irrevocable trust may be modified in one of two ways.
First, an irrevocable trust can be modified without court approval under Iowa Code section 633A.2022(1) with “the consent of the settlor and all of the beneficiaries.” This means all of the settlors, not just the surviving settlor:
The trustees argue that the statute’s use of the singular term “settlor” shows that only the consent of the surviving settlor is required to modify the trust without court approval. We disagree. Iowa Code section 4.1(17) states, “Unless otherwise specifically provided by law the singular includes the plural, and the plural includes the singular.” See also Porter v. Harden, 891 N.W.2d 420, 426 (Iowa 2017); Sexton v. Lauman, 57 N.W.2d 200, 202 (Iowa 1953). Nothing in the Trust Code suggests this rule of construction is inapplicable to section 633A.2202. The plain language of the statute thus requires the consent of all settlors of the trust.
Second, an irrevocable trust can be modified pursuant to Iowa Code § 633A.2203(1), with court approval, “with the consent of all of the beneficiaries if continuance of the trust on the same or different terms is not necessary to carry out a material purpose.”
Can a Surviving Settlor Modify the Terms Of an Irrevocable Trust With The Consent Of the Beneficiaries But Without Court Approval?
No. Under Iowa law, a surviving settlor cannot modify the terms of an irrevocable trust without court approval, even if all of the beneficiaries consent to the modification.
The Iowa Supreme Court held:
We thus hold that the dispositive terms of an irrevocable trust can be modified without court approval pursuant to section 633A.2202(1) only upon the consent of all settlors and beneficiaries. In the absence of consent by all the settlors and beneficiaries, the dispositive terms of an irrevocable trust can be modified only with court approval pursuant to section 633A.2203(1). Here, the purported amendment was obtained without court approval and is not valid.
The Iowa Supreme Court affirmed the grant of summary judgment and held that the amendment to the irrevocable trust was invalid. In distinguishing its rationale from the rationale of the Iowa district court, the Iowa Supreme Court stated:
The district court held the amendment to the trust agreement was void. In reaching that conclusion, the district court relied on Iowa Code section 633A.1105. That Code section provides: The terms of a trust shall always control and take precedence over any section of this trust code to the contrary. If a term of the trust modifies or makes any section of this trust code inapplicable to the trust, the common law shall apply to any issues raised by such term.
Iowa Code § 633A.1105. In the district court’s view, section 633A.1105 compelled the conclusion that the terms of the trust agreement—that the surviving settlor could not amend, revoke, or terminate the trust—disallowed any amendment, revocation, or termination of the trust under any circumstances…. But the conclusion that the terms of the trust control and that the text of this trust instrument creates an irrevocable trust does not address the question of whether and under what circumstances an irrevocable trust can be amended, revoked, or terminated. That question is answered by the common law and other provisions of the Trust Code.
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