inheritance tax code iowaOn October 7, 2020, the Iowa Court of Appeals issued a Ruling in the matter of the Sandahl Trust (2017).  Craig Sandahl executed the Sandahl Trust which was a Revocable Grantor Trust in 1993.  The Trust was funded with substantially all of Craig Sandahl’s assets.  The Trust was last restated by a document dated August 14, 2017, which was two months before Craig Sandahl passed away.

The Trust distributed assets to two groups of recipients.  One group was the “Descendant’s Trust” of which Craig’s children’s lineal descendants were the beneficiaries and the other group was given to the Community Foundation of Greater Des Moines to be divided among three charities.

Craig’s health declined in October 2017 when he was hospitalized for three days.  Ryan Sandahl, one of Craig’s grandsons, met with Craig the day after he was released from the hospital.  At the meeting they discussed the Trust and with Craig’s permission, Ryan call Craig’s long time estate planning attorneys and scheduled a meeting with them.  Ryan met with the attorneys and learned that there was some uncertainty about lifetime exclusions and that the estimated amount of charitable donations was about six million dollars, which is larger than he anticipated.  Ryan discussed the meeting with Craig later that day and on the next day the attorneys went to Craig’s house and met with Craig, Ryan and C.J. Morton, a cousin of Ryan. The issue regarding the amount of the charitable donation was not discussed in the meeting.  The consensus was to amend the Trust to provide for some distribution to Craig’s five children, to contribute to the taxes and upkeep of the Okoboji house, and to make sure that there would be near-term liquidity within the Descendant’s Trust.  Later that evening C.J. and his aunt, Karen, who was Craig’s daughter, and Craig discussed the charitable provisions of the Trust.  The conversation was recorded.  C.J. is heard asking Craig “wouldn’t it be better to at least give your family some of it, at sixty percent, as opposed to giving all of it away”?  Later C.J. is heard saying “the lawyers just gave it all to charity, all seven million.”  Craig was heard saying he was “trying to avoid” taxes.  Later in the tape, Karen suggests that the lawyers draw up something by mid-week and that “at the very least it will give you (Craig) an option”.

The next morning Craig called Ryan and instructed him to prepare a document setting out the discussion from the meeting with the attorneys and to set out Craig’s intent.  The document was entitled “Craig Sandahl Follow-Up Estate Discussion, October 13, 2017”.  The document noted the individuals present at the meeting consisting of Ryan, C.J. and Craig.  The document set out a number of changes, including the following:

  1. That he would like to support charities, but in an attempt to avoid federal taxes, he may have allocated more funds to charity than he desires;
  2. That he is supportive of contributing up to two million dollars to charity;
  3. That the balance of the estate of at least one million after taxes, and which is not designated for the Generation Skipping Trust, shall be divided among the five children;
  4. That the five children should use the money in the “near-term” to continue to support endeavors that he has supported throughout his life including education, business investment, ownership and health and wellbeing, among others, including for non-lineal descendants such as Ruth Evans;
  5. That the changes were in addition to changes that were discussed with Craig’s attorneys. The document was signed by C.J. and Craig and emailed to Ryan who proceeded to sign the document which was then emailed to the attorneys.

The attorneys called Ryan to clarify Craig’s intent.  Before the Amendment was executed, Craig passed away on October 14, 2017.

Iowa State Bank, the Successor Trustee, sought judicial interpretation of the terms of the August 14, 2017 Trust as may have been later amended.  Craig E. Block, the Associate Probate Judge, found the document was “ambiguous” and concluded that Craig did not intend the October 13 document to constitute an amendment to the Trust or to any of his estate plans.

The Court of Appeals agreed with the analysis of Judge Block.  The Court stated that there was no mention that the document should be considered an amendment to or incorporated with the Trust; that the reference to “Craig’s Estate Plan” could be a reference to the Trust or a reference to Craig’s overall estate planning; that the words “he is supportive of contributing up to $2 million” are unclear; that the language “balance of his estate that is not currently being contributed to the Generation Skipping Trust shall be distributed among his five kids which distribution shall be no less than $1 million in the aggregate after taxes” is unclear; that the meaning of “near-term” is unclear; that the use of the term “immediate distribution will be to kids as beneficiaries, not Trustees” is ambiguous; and it appears that the document is incomplete based on the references to additional changes that were discussed with the attorneys.

The Court also ruled that there was not extrinsic evidence to establish the Grantor’s intent to modify the Trust.  The Court stated that the evidence presented shows the document was a summary of Craig’s thoughts to be submitted to his attorneys to prepare a formal amendment and concluded that the October 13, 2017 document was ambiguous and void for vagueness.  The Court affirmed the District Court’s finding that the document was not an amendment to the Grantor’s Trust.