Discovery Rule Inapplicable to Revocable Trust Contests, But Equitable Estoppel Claim May Extend Statute of Limitations

August 1, 2022 | By Jennifer Harrington

Older Couple Looking Upset at Middle-Aged Woman

The case is Dittmer v. Dittmer, No. 21-1259 (Iowa Ct. App July 20, 2022).

On July 20, 2022, the Iowa Court of Appeals ruled that the statute of limitations to set aside a trust established by a decedent during his lifetime cannot be tolled using the discovery rule. The applicable statute, Iowa Code § 633A.3108, unambiguously states that any such claim must be brought within one year of death. The court found, however, that a claim of equitable estoppel could extend the statute of limitations if the petition was filed within a reasonable time after alleged fraud was discovered. The court ruled that it was for a fact finder to decide whether that happened.

Facts

Randall F. Dittmer passed away on November 16, 2017.  In 2016, he modified his revocable living trust and transferred real property to his wife’s trust. On November 20, 2019, Randall’s children Sean Dittmer, Stacy Almanza, and Stephanie Dittmer (the siblings) filed suit against the Trustee of Randall’s trust, Randall’s second wife Melody, seeking to have the trust and related real estate conveyance set aside. The conveyance was completed with a quitclaim deed. The siblings allege that Randall lacked capacity to amend the trust and transfer the real estate.

Melody moved for summary judgment arguing that the claim to set aside the trust was time barred by Iowa Code § 633A.3108, which states that an action must be brought within one year. The siblings resisted, arguing (1) the discovery rule tolled the statute of limitations, and (2) equitable estoppel prevented Melody from using a statute of limitations defense. The district court granted summary judgment because it reasoned the siblings had constructive notice of the quit claim deed and “thus notice of a change” to Randall’s estate planning documents. The siblings appealed on both issues.

The siblings alleged at trial and on appeal that shortly after Randall’s death,  Melody had told them nothing had changed with Randall’s will and trust. Melody “strenuously” denied she said this to the siblings. On January 18, 2019, the siblings requested a copy of Melody’s will and trust. Melody refused to give a copy. On April 15, 2019, Melody filed an objection to a related probate action the siblings were pursuing.  The siblings claim to have first learned that Melody moved all of Randall’s property to her trust using her Trustee powers when she filed the objection.

Court of Appeals Decision

On appeal, the Court of Appeals held that the discovery rule exception to the statute of limitations defense does not apply actions that challenge the validity of a revocable trust. The court stated that the discovery rule exception is not allowed when there is a triggering event found within the language of the applicable statute of limitations.  Here, the court found that the trigger event is the death of settlor, and, therefore, the discovery rule exception is not available to late-filing plaintiffs filing under the statute.

The Court of Appeals then reviewed the equitable estoppel claim. A successful equitable estoppel resistance would require the siblings to first prove four things: (1) Melody lied or concealed material facts, (2) the siblings didn’t know the material facts, (3) Melody intended the siblings to act on her lie or concealment, and (4) the siblings did rely on the lie or concealment. The court reasoned that there was enough of a fact issue about whether Melody lied when she allegedly claimed “nothing changed” to the siblings to prevent resolution of this case on summary judgment.

The court further stated that a successfully equitable estoppel claim to toll the statute of limitations requires that a plaintiff file suit within a “reasonable time” after the fraud is discovered. The Court stated that there was a question of when the alleged fraud was discovered. Therefore, the Court could not determine as a matter of law that the lawsuit was filed an unreasonable time after the alleged discovery of the alleged fraud.