Background
James Ibeling created a Panamanian private interest foundation (PIF) — the Harris 6 Foundation — in 2014, but left it unfunded for five years. In August 2019, after learning James planned to marry without a prenuptial agreement, his assistant informed Panamanian counsel that James wanted to transfer assets to the foundation to protect them from a potential spousal claim. James conveyed twelve Arizona properties to Harris 6 by warranty deed, recorded on August 23, 2019. Three days later, he married Nancy Ibeling. James died in February 2021, with Harris 6 still holding several of those properties valued at over $1.1 million.
Nancy filed for an elective share of James’s estate under Iowa Code section 633.238, which entitles a surviving spouse to one-third of property held in a revocable trust over which the decedent retained the power to alter, amend, or revoke at death. The guardian ad litem for a minor beneficiary of Harris 6 sought a declaratory judgment that the PIF assets were not subject to Nancy’s elective share. Both the probate court and the Iowa Court of Appeals ruled for the estate, finding that the PIF was not a revocable trust within the meaning of the statute.
The Iowa Supreme Court granted further review. Expert testimony established that under Panamanian Law No. 25 of June 12, 1995, a PIF is a distinct juridical person — registered in the Panamanian Public Registry, capable of holding property in its own name, and shielded from the personal debts of its founder. The same Panamanian law expressly provides that the inheritance laws of the founder’s domicile cannot be enforced against the foundation.
The Court’s Holding
A four-justice majority, authored by Justice McDonald, affirmed the lower courts and held that the assets of the Harris 6 Foundation are not included in Nancy’s elective share under Iowa Code section 633.238(1)(d)(1). The statute limits the elective share to four specific categories of property, and the majority construed that list as exhaustive. Property owned by a PIF does not appear in any of those categories. Because the statute repeatedly uses the terms “settlor,” “trustee,” and “revocable trust,” the majority concluded the legislature intended to reach only property held in a trust governed by trust law — not property owned by a foreign juridical entity governed by a different legal regime.
The court rejected Nancy’s argument that the foundation should be reclassified as a revocable trust because it functionally resembled one. The majority reasoned that trust law fills gaps where no independent body of law governs an arrangement, but where — as here — a comprehensive foreign legal regime defines the entity’s creation, governance, and operation, that regime controls. The PIF’s structural differences from a revocable trust were material: it is a juridical person requiring public registration, its assets cannot satisfy the founder’s personal debts, and its enabling statute expressly immunizes it from the inheritance laws of the founder’s domicile.
The court also declined Nancy’s invitation to expand the elective-share statute on public-policy grounds, observing that such policy choices belong to the legislature. Noting that Panamanian PIFs have existed since 1995 yet this was the court’s first encounter with one, the majority characterized the risk of widespread evasion as overstated.
Key Takeaways
- Iowa’s elective-share statute, section 633.238(1)(d)(1), is an exhaustive list; courts may not expand it beyond the four enumerated categories of property, which reach only assets held in a revocable trust governed by trust law.
- A Panamanian private interest foundation is a distinct juridical person — not a trust — because it is created, governed, and operated under its own body of law that expressly insulates it from the founder’s domicile’s inheritance rules.
- Where an independent legal regime already defines the rights and duties of the parties with respect to property, trust law does not overlay or supersede that regime, even if the arrangement has functional similarities to a trust.
- Challenges to whether a PIF was validly created or funded under Panamanian law must be litigated in Panama; defects in administration do not transform the PIF into a revocable trust for elective-share purposes.
Why It Matters
The decision confirms that a foreign entity governed by its own comprehensive legal regime — even one deliberately chosen to shield assets from a future spouse — falls outside the reach of Iowa’s elective-share statute as currently written. Because the court treated the statutory list as strictly exhaustive, surviving spouses cannot rely on a functional-equivalence argument to bring PIF assets into the elective share; any remedy must come from the legislature.
Three justices dissented, arguing the majority elevated form over substance. In their view, the foundation possessed every attribute of an Iowa revocable trust — sole lifetime beneficiary, founder-retained power to revoke and reclaim assets, no independent operation — and should have been treated as one regardless of its Panamanian label. The 4-3 split signals that the legislature may face pressure to amend section 633.238 to address asset-shielding vehicles that mimic revocable trusts without bearing that name.