Court Rules that Deceased Beneficiaries’ Shares of Trust “Lapsed”

March 7, 2024 | Jennifer Harrington

On January 24, 2024, the Iowa Court of Appeals ruled that a district court improperly determined that the heirs of deceased beneficiaries were to receive the deceased beneficiaries’ shares of a testamentary trust. Ultimately the court held that “lapse” language in the will showed a clear intent that only named beneficiaries alive at the time of the trust’s termination were entitled to a a share of the trust.


Max Lauser establish his estate plan via will in 1995. His will had three possible distribution schemes: (1) distribution if his wife predeceased him, (2) distribution of the estate to his wife, and (3) a trust for any portion of the estate his wife disclaimed. In 1997, Max passed away. His wife disclaimed the estate, and a trust was established.

The trust directed that the income and any principal would be used to support Max’s wife during her lifetime. Upon her death, the trustee was directed to “divide the trust estate into eleven equal shares to be distributed according to the provisions of Section 3.02(b).”

Section 3.02(b) was the distribution paragraph to be applied if Max’s wife predeceased him. In it, twelve named beneficiaries would receive eleven equal shares of his estate. One share went to a church, most shares went to the living siblings of Max and his wife, and one share went to a niece whose mother was also listed as a beneficiary. Two siblings had already died at the time the will was written and their shares went to their children, who were named beneficiaries. One deceased sibling had two children and the will called for them to split a share. After listing the beneficiaries, the section then stated, “If any of these bequests lapses, the other bequests will increase proportionately.”

Max’s wife died in 2021, twenty-four years after the trust was established. By this time, eight of the named beneficiaries had died. The four remaining named beneficiaries included the two nephews who were to split a share, one niece, and the church.

In 2022, the trustee asked the court for a declaratory ruling on who should receive the trust assets. The trustee argued that section 3.02(b) required them to split the assets into three shares because the bequests directed to the eight deceased beneficiaries lapsed. The surviving heirs of the deceased beneficiaries objected. They argued that the bequests did not lapse and that the shares should be distributed to the beneficiaries’ issue.

The district court relied on the Iowa Trust Code (Iowa Code Chapter 633A) and ruled that the issue were entitled to receive their deceased ancestors’ shares. The court determined the trust code required the share of a deceased beneficiary to go to the issue of that beneficiary if the trust did not provide for an alternative beneficiary or an express condition of survivorship. The court then found that the trust contained neither provision. Further, the court reasoned that because the trust directed the principal to be divided into eleven shares, “each share of the Trust was separate and distinct, and intended to be permanent[.]”

One of the four named beneficiaries appealed, arguing that the district court was wrong in its interpretation of the trust.


On appeal, the court of appeals found that the rules of testamentary interpretation required it to “give meaning to as many of the substantive instructions [. . .] expressed in Section 3.02” as possible. This included the last sentence of Section 3.02(b): “If any of these bequests lapses, the other bequests will increase proportionately.”

In the context of wills, the court explained that the common law rule was that a bequest lapsed when a beneficiary predeceased the testator since the beneficiary no longer existed and one cannot give property to something that does not exist.  However, every state, including Iowa, has modified this common law with an antilapse statute. The Iowa antilapse statute, Iowa Code § 633.273(1), allows surviving issue to receive the property right that a predeceased beneficiary would have received. However, the law states that the antilapse statute does not apply “if from the terms of the will, the intent is clear and explicit to the contrary.” The court found that the last sentence in section 3.02(b) “expresse[d] a clear intent to distribute [the] estate to only those named beneficiaries who [were] alive to receive the shares.” Therefore, the court of appeals found that the antilapse statute did not apply to this situation.

The court also examined the Iowa Trust Code to aid in its interpretation. Iowa Code § 633A.4701(1) states that a beneficiary’s interest in a trust is contingent on the beneficiary’s survival until the day the beneficiary is “entitled to possession or enjoyment.” Under the facts at hand, none of the beneficiaries had any right to possession or enjoyment of the trust principal until Max’s wife died. The court noted, however, that the Trust Code does contain a default savings provision—much like the antilapse statute—that gives the interest of a beneficiary who “dies prior to becoming entitled to possession or enjoyment of” the interest to the beneficiary’s “issue who are living on the date the interest becomes possessory.” Iowa Code § 633A.4701(3). This provision applies only if “no alternate beneficiary is named in the trust” and only if the interest is not “subject to an express condition of survivorship imposed by the terms of the trust.” After reviewing this provision, the court ruled that the last sentence of section 3.02(b) was a contrary trust term that prevented application of the savings statute. Thus, the court found that the deceased beneficiaries’ shares “lapsed.”

The court next found that the broader distribution scheme of the will supported the court’s interpretation. Max devised one share to a niece and another share to the niece’s mother. This niece was “the only one of many nieces and nephews with their parents still living to receive an independent equal share of her own.” The share to the niece with a living mother was done purposefully and the court reasoned that the purpose “would be disturbed by passing on all the other shares to the deceased beneficiaries’ issue rather than limiting the distribution to only those beneficiaries named.”

Therefore, the court held that “to distribute the trust estate in compliance with the trust terms in the will, [. . .] the trustee must proportionally increase the shares of the beneficiaries named in section 3.02(b) who are still alive or in existence with the lapsed shares of those beneficiaries who have died.”