In re The Max & Nelda Lauser Tr.

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IN THE MATTER OF THE MAX and NELDA LAUSER TRUST CREATED UNDER THE WILL OF MAX L. LAUSER, Deceased. BARBARA ZELLMER, Appellant.

No. 23-0038

Court of Appeals of Iowa

January 24, 2024

Appeal from the Iowa District Court for Muscatine County, Jeffrey D Bert, Judge.

A named beneficiary of a testamentary trust appeals the district court's declaratory ruling on the proper distribution of the remaining trust assets. REVERSED.

Alan R. Ostergren of Alan R. Ostergren, PC, Des Moines, and Gregory J. Kreitner of Allison &Kreitner, PC, Muscatine for appellant.

Terry M. Giebelstein of Lane &Waterman LLP, Davenport, for appellees Kent Egel, Brian Egel, Kelli D. Egel Forbes, Linda Lauser Hunter, Tony Jarvis, and Don Lauser.

Curt A. Oppel of Stanley, Lande &Hunter, Davenport, for appellee Liberty Trust &Savings Bank.

Heard by Schumacher, P.J., and Ahlers and Langholz, JJ.

LANGHOLZ, Judge.

This is a dispute about the proper interpretation of Max Lauser's will. Section 3.02(b) of the will names twelve beneficiaries to receive eleven equal shares of his estate if his wife has died before him. (One of the shares is designated to be split between two beneficiaries.) But Lauser died before his wife. So instead, as provided in a different part of the will Lauser's estate passed to a trust for her benefit. And the will provides that in this scenario, upon his wife's death, the trust estate is to be divided "into eleven equal shares to be distributed according to the provisions of Sections 3.02(b) and 3.04."

If that were all the will said, we likely would not be here. But section 3.02(b) also contains one more key provision "If any of these bequests lapses, the other bequests will increase proportionately." And here we have our fight. In one corner is Barbara Zellmer-one of the twelve named beneficiaries-who argues that this sentence means that only she and the other beneficiaries still living after the death of Lauser's wife should receive equal, proportionally increased shares of the trust estate. In the other are six children or grandchildren (or "issue," in probate speak) of named beneficiaries who survived Lauser but died before his wife. They urge that the sentence does not affect the trust distribution-that the shares of the deceased named beneficiaries should go to their issue rather than be divvied up.

Zellmer has the better argument. We must interpret the will to give effect to all its provisions. And we see no other possible meaning for the disputed sentence than an expression of intent to limit the distribution of the estate to the named beneficiaries and not their issue. We thus reverse the district court. The trust estate must be distributed in three equal shares to the living beneficiaries.

I.

Max Lauser's Will. In his 1995 will, Max Lauser set up three possible paths for the distribution of most of his estate after his death. First, if his wife dies before him, he names twelve beneficiaries to receive eleven equal shares of the residue of his estate. Section 3.02(b) governs this path, providing:

b. If my wife does not survive me, I give the residue of my estate in eleven equal shares as follows:

(1) One share to United Methodist Church of Wilton, Iowa.

(2) One share to my brother, Robert H. Lauser ....

(3) One share to my brother, Kent E. Lauser ....

(4) One share to my sister, Harriet J. Jensen ....

(5) One share to my sister, Miriam J. Sanson ....

(6) One share to my nephew, James Lauser . . . the sole heir at law of my deceased brother, Richard D. Lauser.

(7) One share to my nephews, Gregory Lauser . . . and Paul Lauser, . . . the heirs at law of my deceased brother, Charles D. Lauser.

(8) One share to my sister-in-law, Norma L. Grimm ....

(9) One share to my niece, Barbara Zellmer ....

(10) One share to my sister-in-law, Farene L. Harmsen ....

(11) One share to my brother-in-law, Kenneth D. Egel ....

If any of these bequests lapses, the other bequests will increase proportionately.

The omitted parts of this section merely identify the address and social security number of each named beneficiary. Except the church, all the named beneficiaries are family members of Lauser and his wife. The Lausers had no children.

The second and third paths are approached only if Lauser's wife survives him. If so, and she chooses to accept the bequest, the entire estate passes directly to her. But if she disclaims all or some of the bequest, the disclaimed estate passes to a trust created and governed by Articles 4 and 6 of the will.

On this third, circuitous path, the trustee is directed and empowered by the will to support Lauser's wife throughout her life with all the trust's income and as much of its principal as is needed "for her health and maintenance in reasonable comfort." And after her death, section 4.03 of the will provides that "the trustee shall divide the trust estate into eleven equal shares to be distributed according to the provisions of Sections 3.02(b) and 3.04." Section 3.04-which appears to have little relevance-provides that Lauser's wife is deemed to survive him if the order of their deaths cannot be established and that she may be a beneficiary of the trust even if she disclaims a bequest under the will. And section 3.02(b), of course, circles us back to the contingent residuary bequests to twelve beneficiaries and the directive that "[i]f any of these bequests lapses, the other bequests will increase proportionately." Finally, the will directs that "[a]fter dividing the trust estate, the trustee shall distribute the shares."

Administration of the Will and Trust. Two years after executing the will, Lauser died. His wife was still alive. And she chose path three-disclaiming the estate in favor of creating the Max and Nelda Lauser Trust under the will. In accordance with the will, a local bank was appointed trustee, and the trust supported Lauser's wife for her life. It was not relevant then-since Lauser's wife survived him-but all twelve of the beneficiaries named in section 3.02(b) were still alive (or in existence, in the case of the church) at the time of Lauser's death.

Twenty-four years later, Lauser's wife died. During those intervening years, eight of the twelve named beneficiaries also died. Six of those eight were survived by children and, in some cases, grandchildren (their issue); two died without any issue.^[1] And only four named beneficiaries were still alive (or in existence): Appellant Barbara Zellmer, Gregory and Paul Lauser (splitting a single share), and the United Methodist Church in Wilton.

This Proceeding. In July 2022, the trustee requested a declaratory ruling "as to who should receive the remainder of the trust assets." The trustee argued that the assets should be distributed in three equal shares only to the beneficiaries who were still alive because of the final sentence in section 3.02(b) directing proportional increases in the shares if any bequest lapses. Six children or grandchildren of two named beneficiaries-who survived Lauser but died before his wife-objected to the trustee's position.^[2] These Objectors argued that the shares of named beneficiaries with issue still alive did not lapse and should be distributed to the beneficiaries' issue rather than proportionally increasing the other named beneficiaries' shares. One of the named beneficiaries-Zellmer-also weighed in, supporting the trustee's interpretation of the will.

None of the parties offered any extrinsic evidence of the will's meaning, except for a summary chart of the Lausers' family tree, including both the named beneficiaries and family members who were not named and showing whether and when any family members died. Comparing this summary-which both parties concede may be considered-to the will, we can see that Lauser named all of his and his wife's siblings who were living at the time he executed the will. In place of the only two siblings who died by the time he executed the will, he named those siblings' children, specifying that his brother's two sons would split a single share. And while Lauser and his wife had many other nieces and nephews whose parents were then still living, he named only one of them-Zellmer-to receive an independent equal share of her own even though her mother was also named as a beneficiary.

The district court ultimately agreed with the Objectors rather than Zellmer and the trustee. The court reasoned that under the Iowa Trust Code, a beneficiary's issue receive the beneficiary's share when the beneficiary dies before becoming entitled to it unless the terms of the trust provide for an alternate beneficiary or impose an express condition of survivorship. See Iowa Code § 633A.4701(2), (3), (8) (2022). And looking at the terms of the trust in the will, the court saw no language providing for an alternate beneficiary or requiring survivorship.

Instead, the district court heavily weighed section 4.03's directive to "divide the trust estate into eleven equal shares." According to the court, this showed that "[e]ach share of the Trust was separate and distinct, and intended to be permanent, provided the placeholder had issue." And the court discounted the relevance of section 3.02(b)'s directive to "increase proportionately" the shares "[i]f any of these bequests lapses" because, in the court's view, that section only shows that Lauser "intended to 'proportionally' reduce the shares where the beneficiaries took immediately after his death."

The district court thus ruled that the trust estate must be divided into nine equal shares. (Two of the named beneficiaries died without having any children, and all the parties agreed that their shares should be distributed by proportionally increasing the other shares.) And the court decided that the shares of the...