Iowa Court Resolves Sibling Dispute over Irrevocable Trust

On February 19, 2020, the Iowa Court of Appeals denied a beneficiary’s request to invalidate a September 2018 court order approving a plan to make property distributions and then terminate a family farm trust

A married couple created an irrevocable trust and placed farmland into the trust. The parents named their three children as beneficiaries. The trust originally provided for terminating distributions once the three children reached fifty-five years of age.

In 2006, the parents and the three children executed a modification agreement to extend the age of termination distribution to sixty-five. At the time, one of the grandchildren had reached eighteen years of age but did not sign the agreement. The other three grandchildren were minors, but no one represented their interests regarding the agreement. Later, two of the children, realizing that the modification agreement did not comply with Iowa law, filed a joint motion to invalidate the modification agreement and order terminating distributions from the land trust immediately. However, because their sister had not agreed to the termination, a two-day mediation session was schedule. The sister was notified of the session but refused to attend. She also declined to have her attorney attend.

The two siblings reached an agreement and submitted a joint motion to the district court requesting the court to invalidate the modification agreement and terminate the trust. The court ordered notice of the motion to be served on all the beneficiaries of the trust. None of the beneficiaries filed objections, and after a hearing, the court granted the motion to invalidate the modification agreement and approved the termination of distributions from the land trust. Two weeks later, the sister appealed claiming she received no notice of the proceedings.

Notice

The sister claimed her siblings did not properly serve her with motion to invalidate the modification agreement. Evidence showed that her attorney received the EDMS notification and that the sister and her children were served by first class mail. At all relevant times, the sister had legal representation. The district court’s order directing the beneficiaries to receive notice allowed the interested parties to receive notice via email. The record shows the sister was in contact with her attorney and knew the motion distribute the trust property was filed. Therefore, the court denied her motion to reconsider.

Modification of Irrevocable Trusts

Irrevocable trust can be used to reduce an individual’s taxable estate, protect assets from creditors, as well as provide a team of professional management. Normally, an irrevocable trust cannot be changed after it is executed. However, here in Iowa, an irrevocable trust may be modified or terminated by a court order if all beneficiaries consent to the changes or termination. Iowa Code § 633A.2203. In this case, neither the beneficiary grandchildren nor their guardians consented to the 2006 modification. This is why the court invalidated the modification.

While modifying and terminating an irrevocable trust is possible, practically it may be difficult to do. If just one beneficiary does not agree to the modification, the trust cannot be changed or modified. If any of the beneficiaries are minors, their interests must be represented by a guardian. Modifying an irrevocable trust may also create tax consequences. When working with your estate planning team, it is important to consider many different contingencies as your family and farming situation may change over the years.