Opinion ID: 1869856
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Heading: The Effect of the Spendthrift Clause.

Text: Having determined the Gist Trust is the type of trust from which the State is entitled to reimbursement for its Title XIX claim, we must determine whether the spendthrift clause protects the assets of the trust. The trustees argue that the Iowa Trust Code's provisions on spendthrift trusts prevent the State from seeking reimbursement from the trust on its Title XIX lien. The trustees cite Iowa Trust Code sections 633A.2301 and 633A.2302, which provide in relevant part: 633A.2301. Spendthrift protection recognized Except as otherwise provided in section 633A.2302, all of the following provisions shall apply: 1. A term of a trust providing that the interest of a beneficiary is held subject to a spendthrift trust, or words of similar import, is sufficient to restrain both voluntary and involuntary transfers of the beneficiary's interest. .... 4. A creditor or assignee of a beneficiary of a spendthrift trust may not compel a distribution that is subject to the trustee's discretion despite the fact that: a. The distribution is expressed in the form of a standard of distribution. b. The trustee has abused its discretion. Iowa Code § 633A.2301. 633A.2302. Exception to spendthrift protection A term of a trust prohibiting an involuntary transfer of a beneficiary's interest shall be invalid as against claims by any creditor of the beneficiary if the beneficiary is the settlor. Id. § 633A.2302. On its face, these sections of the Iowa Trust Code appear to end the analysis because the Code does not contain an exception to the spendthrift protection in the trust for services or supplies provided for necessities. See Restatement (Third) of Trusts § 59(b) (2003) (providing an exception to a spendthrift provision in a trust for services or supplies provided for necessities). However, our analysis must continue based on section 633A.1104 of the Iowa Trust Code, which provides, [e]xcept to the extent that this chapter modifies the common law governing trusts, the common law of trusts shall supplement this trust code. Iowa Code § 633A.1104. Our common law does have an exception to a spendthrift provision for services or supplies provided for necessities. In re Estate of Dodge, 281 N.W.2d 447, 451-52 (Iowa 1979). There we held a creditor's claim may be enforced against the trustee of a support trust subject to a spendthrift clause if (1) the claim is for necessary goods or services, not officiously rendered, which the settlor intended to provide the beneficiary through trust funds; and (2) the withholding of payment for the goods and services is not properly within the discretion granted the trustee by the trust instrument. Id. at 451. The Iowa Trust Code is silent as to a necessity exception. Sections 633A.2301 and 633A.2302 do not provide that its exceptions are exclusive. As section 633A.1104 clearly establishes, the common law of trusts shall supplement the trust code. Our common law has recognized a necessity exception since 1979. Accordingly, the common law necessity exception in Dodge still applies notwithstanding enactment of the Iowa Trust Code. See Martin D. Begleiter, In the Code We Trust  Some Trust Law for Iowa at Last, 49 Drake L.Rev. 165, 210-11 (2001) (opining that section 633A.1104 retains the necessity exception). Applying the exception as set forth in Dodge, the State provided Elenore with necessary goods or services. The settlor of the trust intended for the trust to provide a reasonable standard of living for Elenore, which includes the goods and services provided by the State. Additionally, because this was a discretionary trust with standards, the withholding of payment for the goods and services was not properly within the discretion granted the trustee by the instrument. Barkema, 690 N.W.2d at 54. Therefore, the spendthrift provision of the trust does not prevent the State from collecting its Title XIX lien.