Opinion
No. 4-200 / 03-0857
May 26, 2004.
Appeal from the Iowa District Court for Montgomery County, Timothy O'Grady, Judge.
A residuary beneficiary of a residuary trust created by a trust established by her father appeals from a district court decision determining which assets of the trust should be used to fund the residuary trust. AFFIRMED.
Larry Melcher, Council Bluffs, Robert O'Brien, New Boston, New Hampshire, and Thomas Tarbox of Law office of Thomas T.Tarbox, Des Moines, for appellant.
Ronald Eich of Eich Law Firm, P.C., Carroll, Gary Faust of Stuart, Tinley, Peters, Thorn Hughes, Council Bluffs, and R. John Swanson of Swanson Law Firm, Red Oak, for appellee.
Considered by Zimmer, P.J., and Miller and Hecht, JJ.
Jan Arkfeld, a residuary beneficiary of a certain "Residuary Trust" created by a trust established by her father, Milton Johnson, Jr., appeals from a district court decision determining which assets of the trust should be used to fund the residuary trust. She claims the court erred in determining that the residuary trust should be funded solely by "personal assets" rather than an undivided one-half interest in farmland plus additional personal assets. We affirm.
Milton Johnson, Jr. executed a revocable trust agreement on November 7, 2000. He was both the "grantor" or "trustor" and the trustee. He transferred certain assets to the trust. Milton died April 27, 2001, survived by his spouse, Irene, and three children, Donald Johnson, Lana Bruning, and the appellant, Jan Arkfeld. Pursuant to its terms, Milton's trust became irrevocable upon his death.
In relevant part, and somewhat summarily stated, Milston's trust included the following provisions, in the following order:
(1) There first be paid from the trust all expenses of Milton's last illness and funeral, and any estate, gift, inheritance, or income tax owed by him;
(2) If his spouse survived him, the trustee distribute to her the residential real estate used by her as a homestead and all land adjacent thereto and used as a part thereof;
(3) If his spouse survived him, there be distributed to her certain listed personal effects, automobiles, household furniture and furnishings, and recreation equipment;
(4) If his spouse survived him, the trustee set aside and distribute to her such additional assets, having a value as of the date of valuation for federal estate tax purposes, as necessary to maximize the marital deduction allowed for federal estate tax purposes: provided, however, that the amount of such additional assets be reduced by the amount, if any, required to increase his taxable estate to the maximum amount that, considering the unified credit and state death tax credit available to his estate (except to the extent state death taxes would thereby be increased), would result in no federal estate tax payable, and that the assets so set aside have an aggregate fair market value fairly representative of the appreciation or depreciation in value, to the date of each distribution, of all assets thus available for distribution; and
(5) The residue of the trust assets, to be called the "RESIDUARY TRUST," be administered as follows:
(a) During the life of Milton's spouse paying the net income and such sums of principal as the trustee deemed advisable for her health, education, support, and maintenance, and
(b) At Milton's death dividing RESIDUARY TRUST into equal shares, one share for each of Milton's then living children, and one share for the living decedents, collectively, of each deceased child, and then, pursuant to the terms of the trust, distributing or continuing to administer each such share.
At the time of Milton's death the amount which his trust agreement required be placed in the residuary trust was $675,000.
After the homestead and designated items of tangible personal property were distributed to Irene the remaining assets of the trust, at values accepted for purposes of this appeal, consisted of: an undivided one-half interest in approximately 611 acres of farm real estate with an appraised value of $432,000 (Irene owned the other undivided one-half interest); cash in a money market account of $680,293; U.S. government bonds and notes valued at $131,515; various municipal tax exempt bonds valued at $594,584; and approximately $544,000 worth of machinery. These were thus the assets in the trust from which the $675,000 residuary trust was to be funded.
On March 24, 2003, Irene filed an "Application for Court Directions for Distribution of Assets and Funding Residuary Trust." In her application she requested the court direct the trustee to fund the residuary trust with "appropriate personal assets" from either the cash accounts or the securities in the trust, and that the real estate and machinery and balance of cash and securities not used to fund the residuary trust be distributed to her. Milton's daughters, Jan and Lana, as residuary beneficiaries of the residuary trust established by Milton, filed a response to Irene's application. In their response they disagreed with Irene's request and argued that the real estate would be more properly managed if placed in the residuary trust and that by doing so it would be preserved for Milton's children. Thus, they requested the court direct the trustee to fund the residuary trust with the real estate (valued at $432,000), with the balance of the trust to be funded with cash and securities as selected by Irene.
A hearing was held on the application and response. The district court ordered that the residuary trust be funded by "personal assets" as selected by the trustee, and that the undivided one-half interest in the 611 acres of farm real estate be distributed to Irene. In reaching its decision the court found there were adequate personal assets (including the cash, the U.S. government bonds and notes, and the municipal bonds) with which to fund the residuary trust, and that if the real estate was placed in the residuary trust the trustee would be "prevented from making independent decisions that would be necessary and appropriate for the efficient management of the Trust."
Jan appeals, claiming the district court erred in determining that the personal assets alone, rather than the real estate plus a portion of the personal assets, should be used to fund the residuary trust. She first contends the court misconstrued the trust language. She also contends the court's "concern for a distributive convenience is not justified." We will address her two contentions in the order presented.
Jan's first contention is that the district court's ruling violates Milton's trust's requirement that the assets distributed to Irene to satisfy the marital bequest (and thus also the assets distributed to the residuary trust) have an aggregate fair market value fairly representative of the appreciation or depreciation in value of all assets. For the reasons that follow we find that error was not preserved on this issue.
In view of the range of interests protected by our error preservation rules, we will consider on appeal whether error was preserved despite the opposing party's omission in not raising the issue. Top of Iowa Coop. v. Sime Farms, Inc., 608 N.W.2d 454, 470 (Iowa 2000). Accordingly, the absence of an assertion by Irene that Jan failed to preserve error does not preclude us from determining whether error has been properly preserved. See id. (stating that the plaintiff's failure to object to the trial court's consideration of an issue in its ruling on the defendant's post-trial motion did not preclude the appellate court from determining whether error had been properly preserved).
"It is a fundamental doctrine of appellate review that issues must ordinarily be both raised and decided by the district court before we will decide them on appeal." Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002). "It is not a sensible exercise of appellate review to analyze facts of an issue `without the benefit of a full record or lower court determination.'" Id. (quoting Yee v. City of Escondido, 503 U.S. 519, 538, 112 So. Ct. 1522, 1534, 118 L.Ed.2d 153, 172 (1992)).
Irene's application requested only that the district court direct the trustee to fund the residuary trust from cash accounts and securities and that the farm real estate, machinery, and remaining cash and securities be distributed to her. The response by Jan and Jan's sister merely disagreed with Irene's request, stated a belief the real estate would be more properly managed and preserved for Milton's children if placed in the residuary trust, and requested that the court direct the trustee to fund the residuary trust with the real estate and with cash and securities selected by Irene. Neither the application nor the response, either in express terms or by necessary implication, raised any issue concerning appreciation or depreciation in the value of assets since the date of valuation used for federal estate tax purposes. Nor does it appear that any evidence was presented to the court concerning any appreciation or depreciation in value of the assets. Accordingly, the court did not address or rule on the issue Jan asks us to decide on appeal.
Although the "claim or issue raised does not actually need to be used as the basis for the decision to be preserved," the "record must at least reveal the court was aware of the claim or issue and litigated it." Id. at 540. Nothing in the record before us indicates that the district court was aware of the issue Jan now raises on appeal, or that such issue was litigated before it.
However, even if we assume this issue was raised before the district court, it is clear the court did not address or rule on the issue. "When a district court fails to rule on an issue properly raised by a party, the party who raised the issue must file a motion requesting a ruling in order to preserve error for appeal." Meier, 641 N.W.2d at 537 (citing Benavides v. J.C. Penney Life Ins. Co., 539 N.W.2d 352, 356 (Iowa 1995)). If this issue was raised, Jan did not call to the attention of the district court its failure to rule on the issue and thus did not give the court an opportunity to address its failure. See id. at 539 (holding that preservation of error doctrine was not satisfied when district court was not given the opportunity to address its failure to rule on an issue either by making a ruling or refusing to do so).
We conclude error was not preserved on the issue Jan now attempts to present on appeal. The issue is thus not properly before us for our review and we decline to rule on its merits.
Jan's second contention is that the district court's "concern for a distributive convenience is not justified." Irene's application and the response by Jan and Jan's sister were filed in probate. The proceeding was thus one in equity. See Iowa Code § 633.33 (2003). Our review is de novo. Iowa R. App. P. 6.4.
The issue presented to the district court was, simply put, whether Milton's undivided one-half interest in the 611 acres of farm real estate should be distributed to Irene, who owned the other undivided one-half interest, as part of her bequest, or should be distributed to the residuary trust. Irene wanted Milton's interest distributed to her, resulting in her being the sole owner of the 611 acres. The trustee of Milton's trust agreed with Irene's proposal, opining it would be awkward to administer an undivided interest and it would be more efficient to have the trust funded with cash and/or securities. Jan and her sister wanted Milton's undivided one-half interest to be placed in the residuary trust, apparently hoping to be part owners of the real estate upon termination of the trust.
The district court found that if Milton's undivided one-half interest were placed in the residuary trust the trustee "would be prevented from making independent decisions that would be necessary and appropriate for the efficient management of the Trust." The court's ruling is intuitively correct. If the trust were to hold an undivided one-half interest in a large tract of farm real estate the trustee would not be free to make independent decisions in the best interest of the beneficiaries concerning the use, management, and possible disposition of the real estate, but would instead be constrained by the possibly differing and conflicting opinions and desires of the owner of the other undivided interest. Further, the trustee could in all likelihood more efficiently manage a trust consisting solely of cash and securities than a trust which included an undivided interest in a large tract of farm real estate. The trial court could therefore logically and reasonably conclude, as it did, that Milton's undivided one-half interest should be distributed to Irene, who would then be the sole owner of the farm real estate, and the residuary trust should be funded with cash and securities.
Upon our de novo review we agree with the district court's findings and conclusions regarding this second issue, and adopt them as our own.
We affirm the district court's ruling.