Iowa Court Resolves Complex Family Trust Dispute
On March 17, 2021, the Iowa Court of Appeals issued another opinion in a family dispute regarding the management and ownership of a trust. The court affirmed the trial court’s judgment finding that the father had breached a trust established for the benefit of his daughter.
Prior Divorce Proceedings
In 1977, a woman established a trust naming herself as the beneficiary and her father as the trustee. In 1993, the father transferred proceeds from the trust into an investment account without his daughter’s consent and named his wife as the trustee. The father continued to act as if the account was for his daughter’s benefit, periodically telling her the trust was “doing great.”
In 2016, after 60 years of marriage, the daughter’s parents filed for divorce. During the divorce proceedings, her mother found the account in her name and listed it as her property to be distributed. After the father informed the mother that the money in the account was from the 1977 trust proceeds, the mother removed the account from her lists of assets.
During the divorce proceedings, the father claimed that the investment account was marital property. The daughter intervened in the proceeding, claiming that the account was not subject to distribution. The dissolution court agreed, ruling that the account was not marital property because the father created a resulting trust in favor of his daughter when he transferred the assets to the investment account. In an earlier case that came before the Iowa Court of Appeals, the court affirmed the trial court’s finding that a resulting trust had been established for the daughter. In re Marriage of Matherly, No. 18-0625, 2019 WL 3334355, at *15 (Iowa Ct. App. July 24, 2019).
The daughter then filed this lawsuit against her father, alleging that he had mismanaged the trust. She moved for summary judgment, arguing that her claims were solely equitable and must be tried to a court of equity under the Iowa Trust Code. In the father’s answer, he requested a jury trial claiming that the Iowa Trust Code did not apply because the daughter’s trust was a resulting trust. He also moved for summary judgment, claiming that he was not the trustee.
The district court denied the father’s motion for summary judgment and his request for a jury trial. In a bench trial, the trial court ruled that the father breached his fiduciary duties. The court also denied the daughter’s requests for double or triple damages and attorney fees for intervening in the dissolution proceeding. Both parties appealed.
On appeal, the father claimed that because the dissolution court determined that the account was a resulting trust, the trust was not subject to the Iowa Trust Code and that, if the Trust Code did apply, he was entitled to a jury trial. The court rejected the father’s claims, finding that the Iowa Trust Code applied and the he was not entitled to a jury trial because the daughter’s claims sounded in equity, even though she sought applicable remedies under the Trust Code.
The father also argued on appeal that he was not the trustee of the resulting trust, but rather the trustee was the his former wife who was listed on the account. However, neither the former wife nor the daughter received notice that the mother was the new trustee. Additionally, the father retained control of the assets and implied he was the trustee by telling the daughter that her assets were performing well. Therefore, the father was the trustee.
The father also argued that the language of the trust document exempted him from the duties of diversification and productivity under the Uniform Prudent Investor Act (UPIA). The trust document allowed the trustee to act freely in all matters regarding the trust and to retain trust assets regardless of the lack of diversification. However, court ruled that the trust document also invoked provisions of Iowa law regarding the general powers of trustees and trustee powers specific to investments.
A trustee must invest and manage trust property as a prudent investor would and must generally diversify the investments of a trust. Id. §§ 633A.4302(1), 633A.4303. The court found evidence that the defendant engaged in risky behavior such as day trading and failing to diversify the investments. Therefore, he breached his fiduciary duties under the UPIA.
Attorney Fees and Damages
On appeal, the daughter claimed that she was entitled to attorney fees for intervening in the divorce proceedings. In controversies involving the administration of a trust, the court may award costs, expenses, and attorney fees to a party. Id. § 633A.4507. While the court agreed that it was appropriate for the daughter to bring her claim during the divorce proceeding to determine ownership of the account, the dissolution was governed by Iowa Code chapter 598. The court ruled that because she followed “this procedural path,” there was no authority for the daughter to receive attorney fees.
The daughter also requested double and punitive damages for the defendant’s wrongful transfer of the trust property. “A person who, in bad faith, wrongfully takes, conceals, or disposes of trust property is liable for twice the value of the property, attorney fees, court costs, and where consistent with existing law, punitive damages, recoverable in an action by a trustee for the benefit of the trust.” Id. § 633A.4605. The court ruled, however that these damages are only recoverable when brought in an action by a trustee. Because the daughter was the beneficiary, she was not entitled to these damages.
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