Opinion
No. 1-1019 / 01-0108.
Filed May 31, 2002.
Appeal from the Iowa District Court for Linn County, William L. Thomas, Judge.
Plaintiff-appellant, Thomas Wright, appeals from the district court order and judgment in favor of his parents in his suit challenging certain of their actions as trustees of trusts for him. AFFIRMED.
Thomas Pence, Cedar Rapids, for appellant.
Gary Berkland, Belmond, for appellee.
Considered by Sackett, C.J., and Huitink and Hecht, JJ.
Defendant-appellees George and Lillian Wright established what can be referred to as a discretionary spendthrift trust for their son, plaintiff-appellant Thomas G. Wright, in 1972. In 1988 George's sister, Helen Wright, established a similar trust for Thomas. George and Lillian are trustees for both trusts. Thomas sued his parents as trustees of both trusts, contending they abused their discretion in the administration of the trusts, and that their breaches should be redressed. The district court denied Thomas's claims and this appeal followed. We affirm.
Thomas, the youngest of three sons of George and Lillian Wright, was fifty-one years old at the time of trial. As early as 1966 Thomas displayed symptoms of mental disorder, eventually diagnosed as "intense delusional disorder" or "chronic paranoid schizophrenia." He has been hospitalized numerous times and received treatment over a period of years for his condition.
Both trusts had similar provisions giving the trustees broad discretion to use the income and principal to benefit Thomas during his life. Both trusts provided the remainder would pass to children of Thomas, if any, then to the heirs of George and Lillian. The original principal of the 1972 trust was approximately $84,000. The original principal of the 1988 trust was approximately $180,000. The trusts grew to a value in excess of $3,000,000. By the time of trial, Thomas had received payments in excess of $860,000 of principal from the trusts, in addition to substantial income.
The trust established by George and Lillian was amended in1982, 1986 and 1992. The trust established by Helen was amended in 1988 and 1982.
In 1998 and 1999 George and Lillian, as trustees of the 1972 and 1988 trusts, funded four charitable remainder unitrusts using approximately $1,115,000 of the assets of the 1972 and 1988 trusts.
The assets transferred to the unitrusts at current value had a low cost basis and a low rate of return. The trustees of the unitrusts are obligated to pay Thomas monthly a fixed percentage of interest on the net fair market value of the assets of the trust as valued on the first day of a defined taxable year. The payments are to be made for Thomas's lifetime. The charitable organizations designated in the unitrusts are the remainder beneficiaries. It was estimated that the transfer of appreciated assets to the unitrusts saved the trusts established for Thomas some $200,000 in income taxes, and it was suggested, though not shown, that there was a possibility of tax savings for Thomas.
The trustees are (1) Aquinas Institute of Theology, which pays seven percent; (2) Mayo Foundation for Medical Education and Research, which pays five percent; (3) The Sinsinawa Dominicans, which pays seven percent; and (4) The Order of St. Benedict, which pays eight percent.
Thomas claims here and claimed at trial that his parents as trustees abused their discretion, breached their fiduciary obligations to him, and acted illegally in establishing the unitrusts. He contends he was prejudiced by their actions because (1) the principal in the trust was no longer available to him and (2) no further appreciation in the trust assets is available to him. Thomas also contends that gifting of trust property was done in violation of the trustee's duties.
The district court found in part:
There is no evidence of dishonesty, improper motive, or failure to use judgment by the trustee. By contrast, the evidence clearly shows the trustees were diligent in their duties, contemplating the best path for the future and longevity of the trusts. The Plaintiff has failed to show an abuse of discretion.
The court determined the trust documents gave the trustees sole and uncontrolled discretion to manage the trusts, to invest and reinvest, to buy and sell trust assets; to determine if, how, and when distributions of income or principal should be made; and to determine if or when the trusts should terminate.
Although this case was filed as a law action, "[g]enerally, the remedies of a beneficiary against the trustee are exclusively equitable." Carstens v. Central Nat'l Bank Trust Co., 461 N.W.2d 331, 333 (Iowa 1990). Therefore, our review is de novo. Iowa R. App. P. 6.4. "The polestar of our analysis is the rule that the [settlors'] intent must prevail." In re Trust of Killian, 459 N.W.2d 497, 499 (Iowa 1990). We determine intent from the trust documents themselves, the scheme of distribution, and the circumstances surrounding their creation. Id. We "resort to technical rules of construction only if ambiguous language in the will or trust creates uncertainty about the maker's intent." Id.; see First Nat'l Bank of Dubuque v. Mackey, 338 N.W.2d 361, 363 (Iowa 1983).
In our de novo review of the trust documents, we do not find them ambiguous. George, Lillian, and Helen intended "to aid and assist" Thomas during his life so that he might have a "modest quality of life." They wanted "to make up to him what, but for his illnesses, he would have been able to accomplish for himself and by his own efforts as the other two sons have been able to do." Given the "uncertainties of life" and of his possible needs, they intended the trustees to have "absolute, inviolable, and uncontrolled" discretion in the use of the trust funds. As did the district court, we find no evidence of dishonesty, improper motive, or a failure to use judgment on the part of the trustees. Our review of the record impresses us with the trustees' concern for Thomas and his financial security. They have gone above and beyond what is expected of a parent to provide for the needs of a child disabled by an unfortunate mental illness.
We first address Thomas's claim the trustees abused their discretion. A court "may not arbitrarily interfere, or control the discretion of the trustee granted him by the settlor, in the manner in which he shall discharge his duties." In re Small's Estate, 244 Iowa 1209, 1239, 58 N.W.2d 477, 492 (1953). Thomas argues his parents breached their fiduciary duty to him to keep control of and preserve trust property. Restatement (Second) of Trusts § 175, at 380 (1959). By funding the four charitable remainder unitrusts, Thomas claims, the trustees "lost control of those assets and did not preserve them." Although we agree the assets used to fund the unitrusts no longer are under the control of the trustees, we find no breach of fiduciary duty or abuse of discretion. The creation of the unitrusts to provide Thomas with a guaranteed income may be likened to the purchase of annuities, but without the tax consequences of selling the appreciated stocks in the trusts to obtain the funds to purchase annuity contracts. The trustees had complete discretion "to buy, sell, convey, exchange, transfer, pledge" and to "sell, assign, hypothecate, and pledge any or all of the trust property, and to invest and re-invest the same; [and] enter into transactions of every kind or nature. . . ." The plain terms of the trust documents allow the trustees to transfer trust assets to benefit Thomas. The creation of the unitrusts provided a substantial benefit to Thomas by tripling his income.
It is estimated that Thomas's annual income increased from $27,000 to nearly $90,000.
We next address Thomas's contention the trustees do not have the discretion to gift trust property. See 76 Am. Jur. 2d Trusts § 558, at 547 (1992). Although we agree with this principle, we find the creation of the unitrusts was not a gift of trust property. A gift is a voluntary transfer without consideration. See Black's Law Dictionary 619 (5th ed. 1979). The unitrust agreements provided consideration — payment of a guaranteed rate of return to Thomas.
Thomas also claims the transfer of assets potentially deprives any children he may have or his two brothers of any remainder interest after his death. The remainder beneficiaries are not parties to this action. Consequently, we do not address this claim. Because the organizations involved in the unitrusts, like the remainder beneficiaries of Thomas's trusts, are not parties in this case, nothing in this decision should be understood to limit any rights they may have.
Finally, Thomas contends the district court erred by failing to compel the trustees to redress their breaches of trust. Because we have found no breach of trust or abuse of discretion on the part of the trustees, no redress is warranted.
AFFIRMED.