Trustee Did Not Breach Duty to Inform Beneficiary

On October 16, 2024, the Iowa Court of Appeals affirmed the district court’s decision to dismiss a trust beneficiary’s claim that the bank trustee breached its duty when failing to advise the beneficiary about the power of appointment granted to him in the trust. The court found the duty to inform merely required the trustee to provide a copy of the trust and notify the beneficiary of the right to request more information, not to explain the significance of provisions found within the trust.

Facts

In 2015, Gregory Autenrieth became the life beneficiary of a share of his father’s trust, from which he received “income and principal” distributions “as necessary for his health, education, maintenance and support.”. Gregory was also given a general power of appointment that allowed him to name the beneficiaries of any amount remaining in the trust at his death. If he did not use the power of appointment, then the trust property would be distributed to contingent beneficiaries. In the same year Gregory was notified of the trust and given a copy.

Shortly after receiving the letter, Savings Bank Primghar became trustee. In 2016, Gregory and the bank met to discuss the trust. The bank advised Gregory to contact an accountant and attorney to help him manage his affairs. Gregory retained an attorney to help with estate planning, but his will did not mention his power of appointment.

In 2020, Gregory died without exercising the power of appointment. Douglas Kelley was named executor. Kelley, on behalf of Gregory’s estate, sued the bank claiming that it violated its duties as trustee by failing to advise Gregory on the “nature and effect” of his general power of appointment.

The bank motioned for summary judgment. All parties agreed there were no disputed facts, but disagreed about the duty of a trustee to advise a beneficiary. The district court eventually ruled that the trustee had no duty to advise Gregory with regard to his power of appointment. Kelley appealed.

Opinion

The court of appeals began its analysis by reviewing Iowa Code Chapter 633A. Iowa Code § 633A.4213 creates a duty that requires a trustee to “keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and the material facts necessary to protect the beneficiaries’ interests.” The court found the trustee met this duty when it gave Gregory a copy of the trust and advised him to consult with an attorney about the trust. 

The court explained that the scope of the duty to inform has not been well-developed in case law. Citing the Restatement of Trusts, the court opined that the duty to inform does not require the trustee to “ensure the beneficiary is fully aware of each term’s significance.” While the trustee must disclose the beneficiary’s right to request more information, “[a] trustee rarely has a duty to provide specific information without a beneficiary’s request.” In affirming judgment for the bank, the court stated that the estate “failed to support its novel legal theory” with any authority that would extend a trustee’s duty so far that it “requires the trust to affirmatively ensure the beneficiary understands his right under the trust to dispose of any remaining trust property in his will.”