On May 15, 2019, the Iowa Court of Appeals issued an Opinion in the case of Alberhasky v. Alberhasky. The Opinion has received national attention. The plaintiff, Max Alberhasky, sued his father, Rodney Alberhasky, alleging that Rod breached his fiduciary duties as a trustee of assets transferred to Rod’s mother. Rod filed for divorce in 1999. Rod has two children, Max and Grayson. In 2000, Rod’s mother, Allie, set up a Revocable Trust and named Rod and her daughter, JoEllen, as successor trustees. Rod and JoEllen became co-trustees for Allie’s Trust in 2009. In 2010, Allie’s Trust enrolled in an Iowa Advisor 529 Plan with Max as the named beneficiary, by depositing $65,000.00 in trust assets into the account. The check from Allie’s Trust provided in the memo section as follows: “ FBO Max Alberhasky”. Allie’s Trust set up 529 Plans for the other three grandchildren in the amount of $65,000.00 for each account. Allie also transferred her interest in a North Liberty Farm to the Alberhasky Family LLC and distributed shares to Rod, JoEllen, Max, Grayson, and JoEllen’s two children. Allie then gave the share to her grandchildren through the Uniform Transfers to Minors Act (UTMA).
Allie died in 2011 and in 2012 Rod modified the 529 Plan which initially named Max as beneficiary to instead name Max’s younger brother, Grayson, as beneficiary. In December 2013, Max sued Rod alleging that Rod owed Max fiduciary duties in handling both the 529 Plan and the UTMA funds and that Rod breached such fiduciary duties. In February 2014, Rod moved to dismiss Max’s suit. Rod claimed that the 529 Plan was not subject to the Iowa Trust Code and Max lacked standing to challenge any change in the beneficiary designation because owners are authorized to change beneficiaries as they see fit. Rod further claimed that the UTMA assets were not governed by the trust code.
The District Court granted the motion to dismiss finding that the Iowa Trust Code does not apply to the UTMA account and the UTMA account was closed with funds distributed to the petitioner in 2012. In regard to the 529 Plan, the court found that Max had “no standing” to challenge how the account was controlled by the owner and that the 529 account is not subject to the Iowa Trust Code.
The Court of Appeals found that the definitions in Section 633A.1002 of the Iowa Trust Code did not expressly exclude a 529 Plan investment. The court went on to state that any kind of property may be transferred and conveyed by the owner to a Trustee to be held by the Trustee for use or benefit of others. The court went on to conclude that Chapter 12D does not place all 529 Plans outside the reach of the Trust Code. It went on to state that while section 12D.3 enables an individual account owner to change the beneficiary designation, such freedom does not automatically supplant fiduciary duties imposed on a trustee in managing a trust-owned 529 plan.
The Court of Appeals went on to find that Max’s petition was legally sufficient to survive a motion to dismiss. The court found that the question of whether Allie created the Trust for Max’s benefit and under what terms are questions of fact. The court went on to state that assuming the truth of Max’s factual allegations that the 529 Plan funds were held in trust for Max and that Rod, acting as trustee, depleted the funds out of animosity toward Max, such action could constitute a breach of fiduciary duty under Section 633A.4202, entitling Max to relief.
In regard to the claim involving the UTMA funds, the Court of Appeals concluded that Max’s petition adequately alerted Rod that Max was seeking damages for Rod’s alleged bad-faith liquidation of Max’s shares of Alberhasky Family, LLC. The court found that the district court had jumped the gun by concluding Max failed to state a claim as far as Rod’s mishandling of the UTMA funds. The court concluded that a motion to dismiss shall be granted if the petition “on its face shows no right of recovery under any state of facts.” Iowa Code section 565B.12(2) states that a custodian holding property under the UTMA is required to observe the standard care that would be observed by a prudent person dealing with property of another. The court concluded that Max’s petition was adequate on its face to withstand the motion to dismiss.