Background
Edward and Marilyn Meyer created a joint revocable trust in 2019. After Edward died, siblings Steven Meyer and Dorothy Schwiesow became co-trustees. The trust directed that annual net income be distributed to Marilyn during her lifetime. Dorothy reported trust income as distributed to Marilyn on tax returns from 2022 through 2024, but the money remained in the trust.
Steven, William, and Diana challenged Dorothy’s administration, including proposed payments to Dorothy, her husband Jeff, and their sister Rita for work allegedly benefiting the trust. They also sought Marilyn’s personal bank records to examine Dorothy’s conduct under a power of attorney. The district court reduced and approved certain labor payments, quashed the subpoenas, and ordered distribution of $124,784 in accumulated income to Marilyn.
The Court’s Holding
The Iowa Court of Appeals affirmed the labor-payment ruling and the order quashing subpoenas for Marilyn’s personal bank records. The district court reasonably limited compensation to work that clearly benefited trust property, excluding work connected to Marilyn personally and to the former family residence. The personal-bank-record discovery was not relevant to the trust-income and expense issues then before the court.
The court reversed the order directing distribution of the accumulated income to Marilyn. Although the trust required annual distribution of net income, the record did not establish what the trust’s actual net income was. It also indicated that some accumulated funds may represent rent owed to sibling co-owners of part of the farmland and funds that may have belonged directly to Marilyn. The court remanded for a full accounting of trust financial activity from 2022 through the hearing date before determining what should be distributed to Marilyn and what should be paid to others.
Key Takeaways
- A trustee must establish the amount of actual net trust income before an income-distribution order can be entered.
- Potentially commingled funds and unpaid amounts owed to non-trust owners require an accounting before distribution.
- Trust expenses may be paid only when reasonable and connected to trust property or purposes.
Why It Matters
The decision underscores that a trust’s instruction to distribute income does not eliminate the need for a reliable accounting. Where records suggest that retained funds may include money owed to other owners or money not properly held by the trust, distribution is premature until the source and ownership of those funds are determined.