TOTAL RETURN UNITRUSTS

Iowa Code tit. XV, ch. 637, subch. VI

in effect

Iowa Code § 637.601 Definitions.

637.601. Definitions. For purposes of this subchapter: 1. “Disinterested person” means a person who is not a related or subordinate party as defined in section 672(c) of the Internal Revenue Code with respect to the person acting as trustee of the trust and excludes the trustor of the trust and any interested trustee. 2. “Income trust” means a trust, created by either an inter vivos or a testamentary instrument, which directs or permits the trustee to distribute the net income of the trust to one or more persons, either in fixed proportions or in amounts or proportions determined by the trustee. However, a trust that does not meet this definition is nonetheless an income trust if the trust is subject to taxation under section 2001 or 2501 of the Internal Revenue Code, until the expiration of the period for filing the return, including extensions. 3. “Interested distributee” means a person, to whom distributions of income or principal can currently be made, who has the power to remove the existing trustee and designate as successor a person who may be a related or subordinate party, as defined in section 672(c) of the Internal Revenue Code, with respect to such distributee. 4. “Interested trustee” means any of the following: a. An individual trustee to whom the net income or principal of the trust can currently be distributed or would be distributed if the trust were to terminate and be distributed. b. Any trustee who may be removed and replaced by an interested distributee. c. An individual trustee whose legal obligation to support a beneficiary may be satisfied by distributions of income and principal of the trust. 5. “Total return unitrust” means an income trust which has been converted under and meets the provisions of this subchapter. 6. “Trustee” means a person acting as trustee of the trust, except where expressly noted otherwise, whether acting in the trustee’s discretion or on the direction of one or more persons acting in a fiduciary capacity. 7. “Trustor” means an individual who creates an inter vivos or a testamentary trust. 8. “Unitrust amount” means an amount computed as a percentage of the fair market value of the trust. 99 Acts, ch 124, §30; 2002 Acts, ch 1086, §5, 21; 2003 Acts, ch 108, §110

Iowa Code § 637.602 Trustee’s authority to convert.

637.602. Trustee’s authority to convert. A trustee, other than an interested trustee, or, where two or more persons are acting as trustee, a majority of the trustees who are not interested trustees, may, in the trustee’s sole discretion and without the approval of the court, do any of the following subject to the requirements of section 637.603: 1. Convert an income trust to a total return unitrust. 2. Reconvert a total return unitrust to an income trust. 3. Change the method used to determine the fair market value of the trust. 2002 Acts, ch 1086, §6, 21

Iowa Code § 637.603 Trustee requirements to convert or change computation method.

637.603. Trustee requirements to convert or change computation method. A trustee may proceed to take action under section 637.602 if all of the following apply: 1. The trustee adopts a written policy for the trust as follows: a. In the case of a trust being administered as an income trust, requiring that future distributions from the trust will be unitrust amounts rather than net income. b. In the case of a trust being administered as a total return unitrust, requiring that future distributions from the trust will be net income rather than unitrust amounts. c. Requiring that the method used to determine the fair market value of the trust will be changed as stated in the policy. 2. The trustee sends written notice of the trustee’s intention to take any action described in section 637.602, along with copies of such written policy and this subchapter, to all of the following persons: a. The trustor of the trust, if living. b. All living persons who are currently receiving or eligible to receive distributions of income of the trust. c. All living persons who would receive principal of the trust if the trust were to terminate at the time of the giving of such notice, without regard to the exercise of any power of appointment or, if the trust does not provide for its termination, all living persons who would receive or be eligible to receive distributions of income or principal of the trust if the persons identified in paragraph “b” were deceased. d. All persons named in the governing instrument as adviser to or protector of the trust. 3. At least one person receiving notice under subsection 2, paragraphs “b” and “c”, is legally competent. 4. No person receiving such notice under subsection 2, objects, by written instrument delivered to the trustee, to the proposed action of the trustee within sixty days of receipt of such notice. 2002 Acts, ch 1086, §7, 21; 2003 Acts, ch 44, §104

Iowa Code § 637.604 Interested trustee’s authority to convert.

637.604. Interested trustee’s authority to convert. If there is no trustee of the trust other than an interested trustee, the interested trustee or, where two or more persons are acting as trustee and are interested trustees, a majority of such interested trustees may, in the trustee’s sole discretion and without the approval of the court, do any of the following subject to the requirements of section 637.605: 1. Convert an income trust to a total return unitrust. 2. Reconvert a total return unitrust to an income trust. 3. Change the method used to determine the fair market value of the trust. 2002 Acts, ch 1086, §8, 21

Iowa Code § 637.605 Interested trustee requirements to convert or change computation method.

637.605. Interested trustee requirements to convert or change computation method. An interested trustee may proceed to take action under section 637.604 if all of the following apply: 1. The trustee adopts a written policy for the trust as follows: a. In the case of a trust being administered as an income trust, requiring that future distributions from the trust will be unitrust amounts rather than net income. b. In the case of a trust being administered as a total return unitrust, requiring that future distributions from the trust will be net income rather than unitrust amounts. c. Requiring that the method used to determine the fair market value of the trust will be changed as stated in the policy. 2. The trustee appoints a disinterested person who, in the person’s sole discretion, but acting in a fiduciary capacity, determines for the trustee the method to be used in determining the fair market value of the trust, and which assets, if any, are to be excluded in determining the unitrust amount. 3. The trustee sends written notice of the trustee’s intention to take any action described in section 637.604, along with copies of such written policy, this subchapter, and the determination of the disinterested person to all of the following persons: a. The trustor of the trust, if living. b. All living persons who are currently receiving or eligible to receive distributions of income of the trust. c. All living persons who would receive principal of the trust if the trust were to terminate at the time of the giving of such notice, without regard to the exercise of any power of appointment or, if the trust does not provide for its termination, all living persons who would receive or be eligible to receive distributions of income or principal of the trust if the persons identified in paragraph “b” were deceased. d. All persons named in the governing instrument as adviser to or protector of the trust. 4. At least one person receiving notice under subsection 3, paragraphs “b” and “c”, is legally competent. 5. No person receiving the notice described in subsection 3 objects, by written instrument delivered to the trustee, to the proposed action of the trustee within sixty days of receipt of such notice. 2002 Acts, ch 1086, §9, 21; 2003 Acts, ch 44, §105; 2003 Acts, ch 108, §111

Iowa Code § 637.606 Petition to court to convert trust.

637.606. Petition to court to convert trust. 1. If any trustee desires to do any of the following but does not have the ability to or elects not to do so under the provisions of section 637.602 or 637.604, the trustee may petition the court for such order as the trustee deems appropriate: a. Convert an income trust to a total return unitrust. b. Reconvert a total return unitrust to an income trust. c. Change the percentage used to calculate the unitrust amount or the method used to determine the fair market value of the trust. 2. If, however, there is only one trustee of such trust and such trustee is an interested trustee or in the event there are two or more trustees of such trust and a majority of them are interested trustees, the court, in its own discretion or upon the petition of such trustee or trustees or any person interested in the trust, may appoint a disinterested person who, acting in a fiduciary capacity, shall present such information to the court as necessary to enable the court to make its determinations. 2002 Acts, ch 1086, §10, 21; 2013 Acts, ch 30, §261

Iowa Code § 637.607 Valuation of trust.

637.607. Valuation of trust. The fair market value of the trust shall be determined at least annually, using such valuation date or dates or averages of valuation dates as are deemed appropriate. Assets for which a fair market value cannot be readily ascertained shall be valued using such valuation methods as are deemed reasonable and appropriate. Such assets may be excluded from valuation, provided all income received with respect to such assets is distributed to the extent distributable in accordance with the terms of the governing instrument. 2002 Acts, ch 1086, §11, 21

Iowa Code § 637.608 Payout percentage.

637.608. Payout percentage. The annual unitrust payout percentage shall be four percent unless the governing instrument specifically provides a different percentage or the court approves a percentage of not less than three percent or more than five percent after notice of intent to seek a payout percentage other than four percent has been given to all of the following persons: 1. The trustor of the trust, if living. 2. All living persons who are currently receiving or eligible to receive distributions of income of the trust. 3. All living persons who would receive principal of the trust if the trust were to terminate at the time of the giving of such notice without regard to the exercise of any power of appointment or, if the trust does not provide for its termination, all living persons who would receive or be eligible to receive distributions of income or principal of the trust if the persons identified in subsection 2 were deceased. 4. All persons named in the governing instrument as adviser to or protector of the trust. 2002 Acts, ch 1086, §12, 21

Iowa Code § 637.610 Procedure upon conversion of income trust to total return unitrust.

637.610. Procedure upon conversion of income trust to total return unitrust. Following the conversion of an income trust to a total return unitrust, the trustee: 1. Shall treat the unitrust amount as if it were net income of the trust for purposes of determining the amount available, from time to time, for distribution from the trust. 2. Shall allocate an amount to trust income, not in excess of the annual unitrust payout amount, in the following order: a. The amount derived from net income, as determined if the trust were other than a total return unitrust. b. The amount derived from other ordinary income as determined for federal income tax purposes. c. The amount derived from net realized short-term capital gains as determined for federal income tax purposes. d. The amount derived from net realized long-term capital gains as determined for federal income tax purposes. e. The amount derived from trust principal. 2002 Acts, ch 1086, §14, 21

Iowa Code § 637.611 Total return unitrust administration.

637.611. Total return unitrust administration. In administering a total return unitrust, the trustee may, in the trustee’s sole discretion but subject to the provisions of the governing instrument, determine all of the following: 1. The effective date of the conversion. 2. The timing of distributions, including provisions for prorating a distribution for a short year in which a beneficiary’s right to payments commences or ceases. 3. Whether distributions are to be made in cash or in kind or partly in cash and partly in kind. 4. If the trust is reconverted to an income trust, the effective date of such reconversion. 5. Such other administrative issues as may be necessary or appropriate to carry out the purposes of this subchapter. 2002 Acts, ch 1086, §15, 21

Iowa Code § 637.612 Principal distributions subject to governing instrument.

637.612. Principal distributions subject to governing instrument. Conversion to a total return unitrust under the provisions of this subchapter shall not affect any other provision of the governing instrument, if any, regarding distributions of principal. 2002 Acts, ch 1086, §16, 21

Iowa Code § 637.613 Construction and applicability.

637.613. Construction and applicability. This subchapter shall be construed as pertaining to the administration of a trust and shall be available to any trust that is administered in Iowa under Iowa law unless any of the following apply: 1. The governing instrument reflects an intention that the current beneficiary or beneficiaries are to receive an amount other than a reasonable current return from the trust. 2. The trust is a trust described in section 170(f)(2)(B), 664(d), 1361(d), 2702(a)(3), or 2702(b) of the Internal Revenue Code. 3. One or more persons to whom the trustee could distribute income have a power of withdrawal over the trust that is not subject to an ascertainable standard under section 2041 or 2514 of the Internal Revenue Code or that can be exercised to discharge a duty of support the person possesses. 4. The governing instrument expressly prohibits use of this subchapter by specific reference to the subchapter. A provision in the governing instrument that the provisions of sections 637.601 through 637.615 or any corresponding provision of future law shall not be used in the administration of this trust or similar words reflecting such intent shall be sufficient to preclude the use of this subchapter. 2002 Acts, ch 1086, §17, 21

Iowa Code § 637.614 Good faith actions.

637.614. Good faith actions. Any trustee or disinterested person who in good faith takes or fails to take any action under this subchapter shall not be liable to any person affected by such action or inaction, regardless of whether such person received written notice as provided in this subchapter and regardless of whether such person was under a legal disability at the time of the delivery of such notice. Such person’s exclusive remedy shall be to obtain an order of the court directing the trustee to convert an income trust to a total return unitrust, or to reconvert a total return unitrust to an income trust. 2002 Acts, ch 1086, §18, 21

Iowa Code § 637.615 Effective date.

637.615. Effective date. This subchapter takes effect April 5, 2002, and applies to trusts in existence on that date or created after that date. 2002 Acts, ch 1086, §19, 21

Source: Iowa Legislature (legis.iowa.gov)URL: https://www.legis.iowa.gov/law/iowaCode/sections?codeChapter=637&year=2026Fetched: 10/20/2026