Surviving Spouse’s Spousal Share Includes Trust Assets
Note: This case has been distinguished by In re Estate of Myers, No. 11-1378, 2012 Iowa Sup. LEXIS 99 (Iowa Sup. Ct. Nov. 2, 2012) (interpreting amended Iowa Code §633.238 to not apply to payable-on-death accounts, a form of tentative trust known as a "Totten trust" ).
While children can be disinherited, a spouse cannot. Even if the decedent’s will leaves nothing for the surviving spouse, the surviving spouse can make a statutory election to take a forced share against the will. Under Iowa law (Iowa Code §633.238) a surviving spouse that elects against the will is entitled to one-third of the decedent’s real property, all exempt personal property that the decedent held as head of the family, and one-third of all other personal property of the decedent that is not necessary for payment of debts and other charges. But, does the spousal forced share apply to assets the decedent held in a revocable trust at the time of death? That is an issue that numerous courts across the country have had to deal with in recent years, and it was the issue in this case - the first time the issue has come up in Iowa. It’s an important question because if all of a person’s property can be placed in a revocable trust and the spousal election not apply to it, a surviving spouse can be effectively disinherited if not named as a beneficiary of the trust.
In this case, the couple was married later in life. The husband had two children at the time of the marriage, and about six years before the marriage had transferred all of his personal property and a large amount of farmland he owned to a revocable trust. The couple had been married just over five years when the husband died - with the property still held in the trust. The surviving spouse filed an election to take against the will and wanted the probate court to include the assets contained in the trust in the computation of her elective share. The probate court refused on the basis that the trust was a separate legal entity from the husband’s estate, but noted that there was a split of authority on the issue. On appeal, the Iowa Supreme Court reversed. In holding that the trust assets should be subject to the spousal share computation, the Court noted that the trend in most jurisdictions is to apply the spousal election to property held in a revocable trust. The Court also noted that it had held in 1998 that a general creditor can proceed against assets contained in a revocable trust to satisfy a valid claim against the estate, and that the surviving spouse shouldn’t be any less favored. Also, because the surviving spouse was not challenging the validity of the will, she was not subject to the time limitation for filing a challenge against the trust. Sieh v. Sieh,713 N.W.2d 194 (Iowa 2006).
Note: In its 2005 session, the Iowa legislature amended Iowa Code §633.238 to include assets held in revocable trusts created by a deceased spouse in the surviving spouse’s statutory share. The new law didn’t apply in this case because the law had not yet been changed at the time of the decedent’s death.
Update: After the Supreme Court’s initial ruling, the trustees (children of the decedent) refused to pay the spousal share out of the trust assets on the basis that the trust did not have sufficient funds. The trial court disagreed and awarded the surviving spouse $3,000 per month for 12 months, payable in a lump sum. On further appeal, the Iowa Supreme Court affirmed. The trustees claimed they had little chance to review and respond to the surviving spouse’s financial affidavit before the hearing, but the Court held that Iowa Code §633.374 does not require a financial affidavit be filed before a court award of a spousal allowance. In addition, a “showing of necessity” is not a prerequisite for receiving a spousal allowance. Because the trustees never filed a petition for review of the award under Iowa Code §633.375, they had no basis to dispute the financial affidavit. Sieh v. Sieh, 745 N.W.2d 477 (Iowa Sup. Ct. 2008).