Iowa Court Defines “Per Stirpes” in Distribution of Farmland Dispute
On May 12, 2021, the Iowa Court of Appeals issued an opinion concerning the distribution of trust property and a testamentary option to purchase farmland. Because the testator clearly showed an intent to devise the trust property equally between his three sons, the court affirmed the district court’s construction of the will.
William Kron, Sr. executed a will which, after death, would create a trust that included his one-half interest in a farm. He named his son, Steven, as both the executor of the will and the trustee. He also gave Steven the first option to purchase the property.
In 2007, William passed away. Two years later, Steven petitioned to establish a residuary trust. The court granted the petition and named Steven as the trustee. In the following years, his mother and two brothers, Bill and Doug, passed away. In 2017, Steven met with three family members serving as executors of his mother’s and two brothers’ estates. The parties signed an agreement allowing Steven to purchase the farmland in the trust for a fixed price and stating that the trust should be terminated as soon as possible and equally divided between William’s three sons.
Steven purchased the property and then filed a petition with the district court for construction of the will. Doug’s estate responded claiming that “Steven is now taking a contrary position to the mediation agreement which he signed individually and as Trustee, in that he says now there may be other family members affected by this agreement.” After a hearing, the district court ordered the trust to be closed and distributions made to the three sons or their estate per stirpes. Following Steven’s motion to amend or enlarge the findings and conclusions, the court clarified that the trust distribution should follow the family agreement. The court also denied a motion to remove Steven as the trustee.
On appeal, Steven claimed that the trust assets should be distributed “one-third to Bill’s issue, per stirpes, one-third to [himself, individually], and one third to Doug’s issue, per stirpes.” Per stirpes is the method of proportionally dividing an inheritance “between beneficiaries according to their deceased ancestor's share.” Per Stirpes, Black’s Law Dictionary (11th ed. 2019).
To support his argument, Steven pointed to Iowa Code § 633A.1103 and § 663.273. “Unless the trust instrument provides otherwise, all gifts to multigeneration classes shall be by stirpes.” Iowa Code § 633A.1103. The court ruled, however, that the named beneficiaries, William’s three sons, were not multigenerational. As such, § 633A.1103 was inapplicable.
“If a devisee dies before the testator, leaving issue who survive the testator, the devisee’s issue who survive the testator shall inherit the property devised to the devisee per stirpes, unless from the terms of the will, the intent is clear and explicit to the contrary.” Iowa Code § 633.273(1). In this case, Bill and Doug both survived their father. Additionally, the plain language of the will clearly showed William’s intent to name his three sons as beneficiaries. Because two of the sons had since died, their inheritance was properly paid to their estates. Noting that the family agreement also explicitly stated that the trust should be equally divided between the three sons, the court affirmed the district court’s order.
Removal of a Trustee
Doug’s estate cross-appealed, arguing that Steven should be removed as trustee for “material breach of fiduciary duties.” A court may remove a trustee in order to protect the best interests of the trust and the beneficiaries. Schildberg v. Schildberg, 461 N.W.2d 186, 191 (Iowa 1990).
The court agreed that Steven engaged in self-dealing by using trust funds to loan himself money and pay for items such as farm maintenance and property taxes. However, the court found the district court’s resolution ordering repayment of the remaining loan balances and other expenses was sufficient. Removing Steven as trustee would only prolong termination of the trust and be contrary to William’s intent.
Judge Schumacher dissented in part regarding Steven’s removal as trustee. She found that Steven engaged in serious self-dealing, such as using trust funds for personal attorney’s fees and for improvement of the farm he would eventually purchase. Believing these actions constituted a material breach, Schumacher concluded that a new trustee should be appointed despite any delay in closure.
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