Opinion ID: 1231420
Heading Depth: 1
Heading Rank: 3

Heading: Purpose of the Trust.

Text: The purpose of a trust governs its administration and enforcement. Anderson v. Telsrow, 237 Iowa 568, 575, 21 N.W.2d 781, 785 (1946). The purpose is determined by examining the language of the trust instrument and the surrounding circumstances. First Nat'l Bank of Dubuque v. Mackey, 338 N.W.2d 361, 363 (Iowa 1983). In setting out the trustee's distribution powers, the Hanson trust provides: It is my desire without making it mandatory that each power to make discretionary payment of income or principal shall be exercised by the trustees subject to the following guides: (1) such power shall be exercised liberally for the beneficiary, without regard to more remote interests, to provide for the health, comfortable support, education ... and welfare of the beneficiary, ... taking into account the beneficiary's customary standard of living and station in life.... Given this very liberal language, it seems clear that the trust was not intended as a means of limiting Hanson's spending. He intended to maintain his customary standard of living, and that involved spending a great deal of money. It would appear from the evidence that the trust as amended in 1978 had several purposes. One was to provide new management for the trust assets. Another purpose of the trust not expressed therein, but clear from the surrounding circumstances, was to secure refinancing for Hanson's loans. In addition Hanson expressed a desire to secure a corporate trustee in Iowa which would provide investment and accounting services. Hanson intended the trust would continue to provide for his extravagant lifestyle. Diversification of the trust assets was not an express purpose of the amended trust, although it was discussed. The trust instrument expressly authorized the trustees to retain Winnebago stock. The trust did not place any personal restrictions on Hanson, or give the trustees any control over his person. Hanson conceded that the purpose of the trust was not to defraud his creditors. While the trust contains spendthrift-type language, it is universally held that a settlor may not create a spendthrift trust in favor of himself. 76 Am.Jur.2d Trusts § 168 (1975), 89 C.J.S. Trusts § 26 (1955); Restatement (Second) of Trusts § 156 (1957); A. Scott, W. Fratcher, II A Scott on Trusts § 156 (4th ed. 1987); Harrison v. City Nat'l Bank of Clinton, Iowa, 210 F.Supp. 362, 370 (S.D.Iowa 1962). Hanson contends that while this language is ineffective to create a spendthrift trust, it does evince an intent to protect Hanson from his own poor spending and investment habits. This purpose is at odds, however, with the extremely liberal distribution language and with the clause that immediately follows the pseudo-spendthrift language: [h]owever, the Trustee may elect to pay the debts incurred by the beneficiary. Thus any intent to restrain Hanson's spending was outweighed by his intent to continue with his previous lifestyle.