In this case, a second marriage brought about problems for a husband after his wife’s death. Here, the wife died and her children from a former marriage challenged the husband’s authority with respect to a trust agreement between the couple. The couple executed the revocable trust in 2003, naming themselves as co-trustees and their six children (both had three from a prior marriage) as the alternate trustees and remainder beneficiaries. The wife died in 2008 and the husband became the sole trustee. He did not provide a trust accounting to the remainder beneficiaries and twice amended the trust to remove the wife’s children as successor trustees and to provide for a complete payout (rather than incremental) of the assets upon his death. He also sold the couple’s condo and never transferred any of his own assets to the trust.
The wife’s children sued their step-father and sought a court order directing him not to modify the trust and compelling him to transfer his assets to the trust and withdraw only interest and income during his life. The children also sought to have the husband removed as trustee. However, the trial court determined that the husband had the power to revoke or modify the terms of the trust with respect to his assets during his life. The court also denied the children’s request regarding use of the trust assets and found no authority to remove the husband as trustee.
On appeal, the Iowa Court of Appeals first dealt with the issue of the husband’s authority to modify or revoke the trust. The appellate court found that nothing in the trust agreement barred the surviving trustee from amending or revoking the trust agreement. Further, if a revocable trust has more than one settler (husband and wife in this case) then each settler ordinarily may revoke or amend the trust with regard to the portion of the trust that is attributable to the settlor’s contribution. However, the court did agree with the wife’s children that the husband had no power to make amendments or revocations affecting the assets contributed to the trust by the wife.
Next, the appellate court turned to the husband’s obligations to the remainder beneficiaries under the trust. The court first asked whether the husband was obligated to transfer his assets into the trust. Here, the trust agreement did not require any such transfer with respect to the husband’s assets. Further, the trust agreement allowed the husband to withdraw interest and income from the trust during his lifetime.
The court did find that the husband should have, at least annually, made an accounting to all of the residual beneficiaries. In Iowa, a court may remove a trustee if 1) they commit a material breach of the trust, or) are unfit to administer the trust, or 3) are hostile or display a lack of cooperation that impairs the administration of the trust, or 4) perform consistently and substantially substandard with respect to investments, or 5) they compensate themselves excessively, or 6) for other good cause. The appellate court found that the husband was “unfit” to administer the trust, because he lacked an understanding of his obligations to the beneficiaries with respect to record-keeping and accounting. Schneider, et al. v. Brown, No. 0-910/10-0816, 2011 Iowa App. LEXIS 137 (Iowa Ct. App. Feb. 23, 2011).