Estate of Nagel, Matter of
| Decision Date | 01 July 1998 |
| Docket Number | No. 96-2022,96-2022 |
| Citation | 580 N.W.2d 810 |
| Parties | In the Matter of the ESTATE OF Barbara NAGEL, Deceased. Stephen J. PHILLIPS, Executor of the Estate of Barbara Nagel, Deceased, Appellee, v. Cal ROE, as Successor Trustee of the Malcom C. Roe Living Revocable Trust; and Cal Roe, as Successor Trustee of the Lenore J. Roe Living Revocable Trust, Appellant. |
| Court | Iowa Supreme Court |
R. Patrick Eich and Ronald F. Eich of the Eich Law Firm, P.C., Carroll, for appellant.
Thomas J. Levis and Stephanie L. Brick Drey of Brick, Gentry, Bowers, Swartz Stoltze, Schuling & Levis, P.C., Des Moines, for appellee.
Considered by McGIVERIN, C.J., and HARRIS, LAVORATO, SNELL, and ANDREASEN, JJ.
A husband and wife placed their property in living revocable trusts. The settlors were killed simultaneously in an accident that precipitated a tort action brought by the estate of a third person, also killed in the accident. The question is whether trusts' assets can be reached by the tort plaintiff even though the settlors' deaths rendered the trusts irrevocable. The trial court determined the assets could be reached and we agree.
This case was submitted on stipulated facts. On November 10, 1995, a vehicle driven by Malcom Roe collided with another vehicle driven by Barbara Nagel. Malcom's wife, Lenore Roe, was also in the car with Malcom. All three died as a result of the accident.
The plaintiff, Steven J. Phillips, executor of Barbara's estate, investigated a possible claim for her wrongful death and discovered the assets of Malcom and Lenore were subject to living revocable trusts. Malcom and Lenore had each established a trust in April 1993 as part of their estate planning. In so doing Malcom and Lenore declared themselves the trustee (with the other named as successor-trustee) and one of the beneficiaries of their respective trusts. They designated their children, Cal Roe and Kathy Pack, as the remaining beneficiaries and as successor-trustees. Both trusts contain the following provision:
Upon the death of the trustor:
This trust shall become irrevocable and there shall first be paid from the trust all expenses of the last illness and funeral of the Trustor, any indebtedness owed by the Trustor and any estate tax, gift tax, inheritance tax or income tax owed by the Trustor.
(Emphasis added.)
In the belief that Malcom's negligence caused the accident, Phillips brought this action for declaratory judgment, asserting the trusts' assets should be subject to the wrongful-death claim of Barbara's estate. The district court held the assets of the trusts were available to satisfy any wrongful-death judgment entered in favor of Barbara's estate. 1 The defendant trustee challenged the ruling in this appeal.
I. A revocable living trust, such as the trusts in this case, is a trust established during the settlor's lifetime in which the settlor reserves the right to alter, amend, or revoke the trust and may retain the right during his or her lifetime to direct the disposition of principal and income. See 76 Am.Jur.2d Trusts § 11 (1992). At the death of the settlor the trust assets are disposed of in accordance with the terms of the trust document. Id.
When a trust is created for the settlor's own benefit, the settlor's creditors can reach any trust assets available to the settlor. McKeon v. Department of Mental Health, 191 Mich.App. 514, 479 N.W.2d 25, 28 (1991); Vanderbilt Credit Corp. v. Chase Manhattan Bank, 100 A.D.2d 544, 473 N.Y.S.2d 242, 245 (1984); Restatement (Second) of Trusts § 156, at 326 (1959). This rule promotes a valid public policy:
A person ought not to be able to shelter his assets from his creditors in a discretionary trust of which he is the beneficiary and thus be able to enjoy all the benefits of ownership of the property without any of the burdens.
Defendant contends that, in order to reach the trusts' assets, it is necessary to find that Malcom and Lenore created the trusts with the intent to avoid their creditors. Such a finding is unnecessary however because it is irrelevant if a settlor intends to defraud his or her creditors or is solvent at the time of the creation of the trust. See Farmers State Bank v. Janish, 410 N.W.2d 188, 190 (S.D.1987); Restatement (Second) of Trusts § 156 cmt. a, at 326 ().
Here, Malcom and Lenore...
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