Iowa Supreme Court Says Court Approval Necessary to Modify Irrevocable Trust after Death of a Settlor

June 1, 2022 | Kitt Tovar Jensen

The case is Little v. Davis, No. 21-0953 (Iowa Sup. Ct. May 6, 2022).

On May 6, 2022, the Iowa Supreme Court affirmed that court approval is required to modify an irrevocable trust once one of the settlors has died. After one spouse passed away, a couple’s joint trust became irrevocable. The surviving spouse attempted to modify the trust by obtaining the written consent of all the trust beneficiaries. The Court ruled that the amendment was invalid because irrevocable trusts may be modified by either obtaining the consent of all the settlors and beneficiaries or by obtaining court approval. Iowa Code § 633A.2202-.2203. Here, because one of the settlors had died, she could not provide her consent, and court approval was required.

Background

A husband and wife established a joint revocable trust. Both spouses only had children from previous relationships. The couple created the trust to protect the husband’s farmland he obtained prior to marriage against claims by the wife or her children if the husband predeceased the wife. During life, the spouses could jointly amend the trust. Upon the death of the first settlor, the trust provided that the surviving settlor “shall not have the power to amend, revoke and/or terminate the [trust].”  Upon the death of the surviving settlor, the trust’s assets were to be distributed equally to the husband’s four children. The trust also named the husband’s children as successor trustees.

After the wife passed away, the husband decided he wanted to amend the trust. The husband’s attorney prepared a two-page “Consent to Modify Trust Agreement,” which gave the husband the “power and authority to alter, amend, or revoke” the trust. All four of his children signed the consent agreement. The husband then amended the trust so that the farmland would be split equally between two of his sons, Donald and Keith, at his death. A third son was to receive $50,000, while his daughter was to receive $25,000. The rest of the estate was to be divided equally among all four children. The amendment named Donald and Keith as the sole co-trustees.

The husband passed away the following year. The daughter filed this lawsuit claiming that the trust agreement was void because the trust could not be changed after her stepmother’s death. She also claimed that her father pressured her into signing the one-page consent document that did not specify the amendments to be made to the trust. She argued that she did not knowingly and voluntarily consent to the subsequent amendments.

The district court granted summary judgment in favor of the daughter, stating, “The terms of a trust shall always control and take precedence over any section of [the] trust code to the contrary.” Iowa Code § 633A.1105. The court held that, under Iowa Code § 633A.1105, the trust language prohibiting the surviving settlor from changing the trust was controlling and, therefore, the modification was void. The two trustees appealed.

Analyzing the District Court’s Decision

On appeal, the Supreme Court first determined whether the district court properly relied on Iowa Code section 633A.1105 in issuing judgment for the daughter. Even though this trust document expressly prohibited the surviving settlor from amending, revoking, or terminating the trust, the Court noted this language merely made the trust irrevocable. Iowa’s common law allows an irrevocable trust to be modified or terminated if the settlor and all the beneficiaries consent. Similarly, Iowa law allows an irrevocable trust to be modified by either obtaining the consent of the settlor and all the beneficiaries or by court order. Iowa Code § 633A.2202 - 633A.2203. Under the district court’s interpretation, these provisions would be meaningless.

Although the Court concluded that the district court erred in relying on § 633A.1105, it affirmed the grant of summary judgment after finding that the trust was not properly modified.

Permissible Irrevocable Trust Modification

The Court based its ruling upon a determination that, in the absence of court approval, § 633A.2202 requires all settlors to consent to a modification. An irrevocable trust may be modified without a court order “upon the consent of the settlor and all of the beneficiaries.” Iowa Code § 633A.2202(1) (emphasis added). The trustees argued that the statute allowed a single surviving “settlor” to consent to the modification. However, Iowa law states, “Unless otherwise specifically provided by law the singular includes the plural, and the plural includes the singular.” Iowa Code § 4.1(17).

One of the fundamental goals of trust laws is to carry out the intent of the settlor. A court has a duty to fulfill the wishes of a settlor or testator. In re Spencer’s Est., 232 N.W.2d 491, 497 (Iowa 1975). If all settlors cannot consent, the court must give approval to modify an irrevocable trust. Here, the Court found that a court order was necessary to modify the trust because the deceased settlor could not consent. Because the amendment was obtained without court approval, it was not valid. The Court did not address the daughter’s lack of voluntary consent claim because it affirmed the grant of summary judgment on alternative grounds.