Court Says Decedent Clearly Named Surviving Spouse as Primary Beneficiary of Retirement Account

July 20, 2022 | Kitt Tovar Jensen

The case is U.S. Bank Nat’l Ass’n v. Bittner, No. 21-0455 (Iowa Ct. App. June 15, 2022).

On June 15, 2022, the Iowa Court of Appeals determined the primary beneficiary of a $3.5 million individual retirement account (IRA). Before passing away, the decedent opened an IRA and executed a beneficiary designation form. The court affirmed that the form was not ambiguous and clearly showed the decedent’s intent to name his wife as the primary beneficiary of the IRA.

Background

In 2010, the decedent executed a beneficiary agreement for his IRA trust. The beneficiary designation form directed the trustee to disburse the funds to the listed beneficiaries. The form allowed the decedent to use an addendum to specify the Primary Beneficiaries, Contingent Beneficiaries and Successor Beneficiaries. In the Primary Beneficiary section of the form, the decedent named his wife as the beneficiary to receive 100% of the account. The addendum also provided that:

My wife…is and shall be a primary beneficiary under my IRA Account….

The value of such IRA, to the extent necessary to achieve the marital deduction which shall result, shall be included in the [Marital Trust].

That part of such IRA which is necessary to achieve the minimum marital deduction which will result in no federal income tax is devised to the [Marital Trust] with respect to which [the wife] is the beneficiary.

In the Contingent Beneficiary section, the decedent named his four children. He also stated in the addendum that upon the death of his wife, his four children “shall become the primary beneficiaries and each shall have an equal share.”

Several years later, the decedent executed a will which revoked “all former Wills and Codicils.” The new will established both a family trust and marital trust upon his death. The will named his wife as the primary beneficiary of the martial trust. The decedent never changed the IRA beneficiary designation before passing away in 2019. His wife and four children survived him.

A bank along with one of the decedent’s children served as co-executors of the estate. The bank petitioned the court to transfer the IRA to the decedent’s surviving wife. The co-executor resisted, claiming that the marital trust was the primary beneficiary and that the decedent’s wife was an income beneficiary of the martial trust. The co-executor also asserted that the IRA would pass to the family trust after the decedent’s wife passed away.

The co-executor attempted to introduce extrinsic evidence of the decedent’s intent. The district court found that any extrinsic evidence was not necessary because the decedent clearly and unambiguously named his wife as the primary beneficiary of the IRA. The district court noted that the decedent named his four children as contingent beneficiaries despite the fact that the form provided that this was not necessary if the primary beneficiary was a trust. The co-executor appealed.

IRA Beneficiary Designation

On appeal, the co-executor claimed the district court erroneously interpreted the beneficiary designation form. He first argued that the decedent’s intent in naming the surviving wife as 100% owner of the IRA was unclear because the form did not define “primary beneficiary.”

The Court of Appeals disagreed stating that meaning of “primary beneficiary” is commonly understood. A beneficiary is “[s]omeone designated to receive money or property from a person who has died.” Beneficiary, Black’s Law Dictionary (11th ed. 2019). The decedent named only his wife as the primary beneficiary. The court explained that the marital trust is only mentioned to note that it would receive any part of the IRA “which is necessary to achieve the minimum marital deduction which will result in no federal income tax.” However, all parties agreed that the marital trust would not receive any part of the IRA because the value of the decedent’s estate was under the $11.4 million estate tax threshold.

The court also rejected the co-executor’s argument that the phrase “a” primary beneficiary suggested that there were more than one primary beneficiary. Instead, the court reasoned that this clarified that the surviving wife was a primary beneficiary rather than a contingent or successor beneficiary.

In the final paragraph of the addendum to the form, the decedent stated that upon the death of his wife, their four children “shall become the primary beneficiaries.” The co-executor argued that the district court’s interpretation made this final paragraph superfluous. “We assume no part of the contract is superfluous or of no effect and a construction giving meaning to all its clauses is preferred.” Estate of Pearson v. Interstate Power, 700 N.W.2d 333, 343 (Iowa 2005). The court again rejected the co-executor’s argument. The court determined that this paragraph described who will become the primary beneficiary if the decedent’s wife predeceased both the decedent and their four children. The decedent had multiple options to make his wife a lifetime beneficiary, but he did not do so. Thus, the court concluded that the form clearly demonstrated the decedent’s intent to name his wife as the primary beneficiary. As a result, the Court of Appeals affirmed the lower court’s decision.

 

The Center for Agricultural Law and Taxation is a partner of the National Agricultural Law Center (NALC) at the University of Arkansas System Division of Agriculture, which serves as the nation’s leading source of agricultural and food law research and information. This material is provided as part of that partnership and is based upon work supported by the National Agricultural Library, Agricultural Research Service, U.S. Department of Agriculture.