In this article, we discuss Iowa guardianships and revocable living trusts and answer the question, “what power does a guardian in Iowa have or the ward’s revocable living trust?” We also discuss what happens to a person’s revocable living trust if they become incapacitated and are appointed a guardian.
People create revocable living trusts for a variety of reasons, most common being so their assets are protected and avoid probate upon death. The person who creates the trust is known as the grantor. The grantor has full and complete authority over the revocable living trust while alive until his death when the trust becomes irrevocable. The trustee is the individual or entity tasked with managing the trust according to the terms of the trust for the benefit of the beneficiaries. Generally, while of sound mind, the grantor of the trust will control the assets and investments in the trust just like any other in his portfolio, but if the trust is a significant investment vehicle he may leave the managing portion to the entity assigned as trustee.
If the grantor has been adjudicated by the court as legally disabled, he or she will typically be appointed a guardian. In this case, if the grantor was the trustee of the revocable living trust the individual or entity named as the successor trustee will take over management and distribution of the trust. While alive, the grantor will continue to be the beneficiary of the trust unless stated otherwise in the terms of the trust.
Sometimes the new trustee will be the same person as the guardian appointed for the ward. In this case, the guardian would control all the assets within the trust for the ward as well as all the ward’s assets outside the trust. However, in Iowa, the guardianship system is created in such a way as to give the guardian only what power is absolutely necessary. So it may be that the ward is deemed legally disabled by the court and assigned a guardian, but the ward remains the trustee of his trust. Another likely scenario would be that the guardian and the successor trustee are two different people. This would be the case if the ward is assigned both a guardian and a conservator, with the guardian handling all nonfinancial aspects of the estate and the conservator handling all the financial aspects of the state, including the trust. If there is no conservator, but the successor trustee if different from the guardian then the guardian would be referred to as the guardian of the estate and would handle all the assets owned by the disabled adult outside of the trust.
In Iowa, guardianship can be plenary or limited. Plenary guardianship is full or complete guardianship, similar to how an adult has the power to make all the legal, financial, and medical decisions for a young child as long as they are in the child’s best interest. Limited guardianship involves the court setting stipulations in the guardianship agreement that only allow the guardian power over certain aspects of the ward’s life that the ward cannot otherwise tend to himself. In Iowa, the court ultimately determines what level of power to give the guardian, typically erring on the side of maintaining the ward’s independence.
In general, guardians do not have the power to revoke her ward’s revocable living trust whether the guardianship is plenary or otherwise. If an unforeseen circumstance arises which renders the stipulations in the trust obsolete an Iowa court may hear a petition by the guardian to change the terms of the revocable trust. However, the Iowa court uses what is termed substitute judgment when making any decision or ruling in the case of the guardian. Unless the grantor (also the ward in this case), put forth unusual stipulations in his trust that are now negatively impacting the viability of the trust the court will likely turn down the guardian petition citing that a change in the revocable trust is not what the grantor would have wanted.
A guardian can petition for a new trust to be created on the ward’s behalf and fund it with trust assets as a vehicle for the ward’s wishes. Again, the court in Iowa must decide if the creation of a new trust to effectuate the ward’s wishes is something the ward would want to do if she was of sound mind.
Iowa guardians do not have the right to force a conservator or trustee to distribute funds from the trust to the guardian. Funds can be distributed to the grantor (typically still the beneficiary if living) in order to pay for customary and reasonable living expenses for the ward, and with all failsafe put into place by the court under the Iowa guardianship system the chance of these funds being misappropriated by the guardian is low.
Iowa guardians do have the power to petition the court to remove a trustee or compel a trustee to take certain actions if the guardian feels the trustee has been poorly managing the trust, misappropriating funds, or abusing his or her discretion with respect to distribution or management of the assets in the trust. The guardian has the right to all the accounting and financial information of the trust from the trustee.
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