Filed 3/12/20 Duval v. Zeise CA6

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

PAT DUVAL,

Plaintiff and Appellant,

v.

LARRY ZEISE,

Defendant and Respondent.

H045833

(Monterey County

Super. Ct. No. 18PR000006)

This action concerns a revocable living trust created by an unmarried couple, Pat DuVal and Carol Jarick. The trust was entitled “THE PAT DuVAL & CAROL JARICK REVOCABLE LIVING TRUST,” dated April 18, 2017 (hereafter referred to as the trust). Some years prior to the creation of the trust, Jarick had established an individual retirement account (IRA) with UBS Financial Services, Inc. (UBS). (Hereafter the IRA established by Jarick with UBS is referred to as the UBS IRA.) Jarick named DuVal and Larry Zeise, Jarick’s brother, as contingent beneficiaries of the UBS IRA in the event of her death. This dispute concerns the effect, if any, the creation of the trust had upon Jarick’s UBS IRA account.

After Jarick passed away, DuVal filed a petition for confirmation of trust assets pursuant to Probate Code section 850, subdivision (a)(3), seeking to confirm that two assets were part of the trust, namely, (1) real property located on South Carmel Hills Drive, Carmel (the Carmel property) co-owned by DuVal and Jarick, and (2) Jarick’s UBS IRA account. Zeise filed objections to the petition, asserting his opposition to the UBS IRA being treated as a trust asset that would effectively pass in its entirety to DuVal. The probate court granted in part and denied in part DuVal’s petition to confirm. In the formal order filed April 10, 2018, the court concluded that the Carmel property was a trust asset but the UBS IRA was not a trust asset. As to the second part of its order, the court found that the UBS IRA was “not subject to the management and control of Pat DuVal as trustee of the [trust], but rather [was] controlled by the IRA beneficiary designation on file with UBS.” DuVal appeals the order.

We conclude that the court did not err in denying DuVal’s petition to confirm that the UBS IRA was a trust asset. We will therefore affirm the order.

I. FACTS

The underlying facts relevant to this appeal are taken from the verified petition for confirmation of trust assets filed by DuVal on January 3, 2018, and the verified objections filed by Zeise on March 7, 2018.

DuVal and Jarick were “life partners . . . [who] resided together for several years.” On or about April 18, 2017, DuVal and Jarick created the trust, which was never revoked or modified after its creation. DuVal and Jarick were the trustors, and under the terms of the trust, they were designated as cotrustees. The trust instrument provided that upon the death of one cotrustee, the surviving cotrustee became successor trustee. The trust provided further that the trustors conveyed and transferred to the trustees all property described in an exhibit attached to the trust instrument, wherein the transferred property was generally described as “[a]ll and every item of real, personal, or mixed property owned by both of the Trustors or either of them,” including without limitation the Carmel property, and all accounts maintained by either trustor or both trustors. It was stated in the trust instrument that upon the death of one trustor, the trustee was to distribute the remaining trust estate to the surviving trustor free of trust, and the trust would then terminate.

Jarick passed away on August 24, 2017. DuVal thereby became the sole successor trustee and accepted that appointment. DuVal is the sole beneficiary under the trust.

DuVal alleged in the petition that Jarick transferred title to her assets into the trust shortly after its creation. In so doing, as alleged in the petition, “she inadvertently failed to transfer the [Carmel] property and the UBS IRA rollover account to the trust during her lifetime.” As a result, title to the Carmel property continued to be in the individual names of DuVal and Jarick, “and the beneficiaries of the IRA rollover account [were] designated as Pat DuVal and Larry Zeise.” DuVal alleged further in the petition that UBS, the UBS IRA’s custodian, had “stated that it [could not] distribute all or any part of the IRA Rollover Account without a Court Order overriding the pre-trust Beneficiary Statement.”

DuVal sought in the petition an order confirming that the Carmel property and the UBS IRA were included as assets of the trust. DuVal alleged that “Carol Jarick created a detailed schedule of assets, clearly indicating the assets she intended to be governed by the trust. . . . [And she] also executed a pourover will, in which she directed all of her assets into the trust.” DuVal invoked section 850, subdivision (a)(3) and Estate of Heggstad (1993) 16 Cal.App.4th 943 (Heggstad), in support of his petition.

In his verified objections, Zeise admitted the existence of the relationship between DuVal and Jarick, and their having established the trust; that Jarick had passed away on August 24, 2017, resulting in DuVal becoming the sole trustee and beneficiary under the trust; and that Jarick had created the UBS IRA, naming DuVal and Zeise as beneficiaries, and that Zeise had been included as a beneficiary “for many years.” Zeise stated that he had no objection to the Carmel property being confirmed by the court to be a trust asset, but he objected to DuVal’s petition seeking confirmation that the UBS IRA was an asset of the trust estate. Zeise argued, inter alia, that (1) Heggstad, supra, 16 Cal.App.4th 943 and its progeny did not provide authority for an order confirming the UBS IRA as a trust asset; (2) as a general proposition, an IRA must be held by an individual and may not be held by an entity, such as a trust; and (3) an IRA is “ ‘nontransferable property’ and can only be transferred during lifetime by withdrawing the assets and paying income tax on the withdrawal, [citation].”

II. DISCUSSION

A. Applicable Law

1. Petitions to Confirm Trust Assets

A trustee may bring a petition in the probate court to seek an order for recovery of trust property, real or personal, in the possession of a third party. (§ 850, subd. (a)(3)(B); see Estate of Thottam (2008) 165 Cal.App.4th 1331, 1335.) Thus, for example, a trustee may petition the court for confirmation that (1) real property not specifically identified in a trust instrument is a trust asset (Ukkestad, supra, 235 Cal.App.4th at p. 159), or (2) specific shares of stock not expressly described in a trust instrument are trust assets (Kucker, supra, 192 Cal.App.4th at p. 92).

2. Interpretation of Trusts

When a court interprets a trust instrument, as is the case with interpreting any document, it is bound to “ ‘ “first ascertain and then, if possible, give effect to the intent of the maker.” [Citations.]’ [Citation.]” (Estate of Cairns (2010) 188 Cal.App.4th 937, 944 (Cairns); see also § 21102, subd. (a) [transferor’s intention “as expressed in the instrument controls the legal effect of the dispositions made in the instrument”].) The court determines the settlor’s intent “from the whole of the [trust] instrument and in accordance with applicable law.” (Estate of O’Connor (2018) 26 Cal.App.5th 871, 878.) It gives consideration to “ ‘ “ ‘the circumstances under which the document was made so that the court may be placed in the position of the . . . trustor whose language it is interpreting, in order to determine whether the terms of the document are clear and definite, or ambiguous in some respect.’ ” [Citation.]’ [Citation.]” (Ammerman v. Callender (2016) 245 Cal.App.4th 1058, 1074 (Ammerman).) The court may consider extrinsic evidence in interpreting the instrument so long as in doing so, the court does not place meaning to which the instrument is not reasonably susceptible. (Id. at p. 1073; cf. Estate of Geffene (1969) 1 Cal.App.3d 506, 515-516 [testator’s declaration, made before, contemporaneous with, or after the instrument’s execution is admissible to show testator’s intent in executing the instrument]; Estate of Richards (1943) 60 Cal.App.2d 780, 784 (Richards) [parol evidence admissible to interpret will].)

3. Standard of Review

“[I]t is a fundamental principle of appellate procedure that a trial court judgment is ordinarily presumed to be correct and the burden is on an appellant to demonstrate, on the basis of the record presented to the appellate court, that the trial court committed an error that justifies reversal of the judgment.” (Jameson v. Desta (2018) 5 Cal.5th 594, 608-609 (Jameson).) In reviewing an appealable order granting or denying a motion, the appellate court will imply findings in favor of the trial court’s decision. (Fair v. Bakhtiari (2011) 195 Cal.App.4th 1135, 1148 (Fair).) To elaborate, an appellate court will “ ‘presume that the court’s order is supported by the record; if there is substantial evidence in the record to support the court’s implied finding of fact, the factual finding will be upheld. However, the conclusion the court reached based upon those findings of fact will be reviewed by [the appellate] court for abuse of discretion.’ [Citations.]” (Ibid., original italics.)

B. No Error in Denial of Petition to Confirm IRA as Trust Asset

DuVal contends that the probate court erred. He argues that “[u]nquestionably, [Jarick] wanted to transfer all of her property to [DuVal] (and vice versa) without going through probate.”

The probate court concluded that the UBS IRA established by Jarick was not subject to DuVal’s management and control as surviving trustee of the trust, but was instead controlled by the IRA beneficiary designation filed by Jarick with UBS. The court thereby impliedly found that Jarick’s intent in creating the trust did not include the transfer of the UBS IRA account into the trust. (See Fair, supra, 195 Cal.App.4th at p. 1148 [reviewing court will imply factual findings in favor of the trial court’s order].) This implied factual determination of Jarick’s intent was founded upon the probate court’s interpretation of the trust instrument by considering its language as a whole, rather than separate portions of it (see Cairns, supra, 188 Cal.App.4th at p. 944), and bearing in mind the circumstances under which the instrument was made (see Ammerman, supra, 245 Cal.App.4th at p. 1074).

The trust instrument here is susceptible of the interpretation urged by DuVal, namely, that the UBS IRA was included as an asset transferred to the trust. Such interpretation would be based upon the all-inclusive language of the instrument’s exhibit describing the trust property, as “[a]ll and every item of real, personal, or mixed property owned by both of the Trustors or either of them, including, but not necessarily limited to: [¶] . . . [¶] . . . all accounts of every kind owned or maintained by either trustor or both trustors in any banks, credit unions, savings & loan associations, stock brokerage houses, or otherwise.” (See, e.g., Ukkestad, supra, 235 Cal.App.4th at p. 159 [court confirmed two real property parcels were transferred into revocable trust, notwithstanding that trust instrument did not specifically describe the parcels but indicated that all of trustor’s “ ‘right, title and interest in and to all of his real and personal property’ ” was being assigned, granted, and conveyed to trustees].)

But the trust instrument failed to specifically identify the UBS IRA as an intended trust asset. And, as admitted in the petition, Jarick in her lifetime failed to transfer title in the UBS IRA to the trust. The trust instrument was thus also susceptible of the interpretation that Jarick intentionally excluded the UBS IRA account from the trust.

In viewing all of the circumstances under which the trust instrument here was made (see Ammerman, supra, 245 Cal.App.4th at p. 1074), the critical circumstances were that some years prior to April 18, 2017, Jarick opened the UBS IRA account, and (at that time or at a later date that was still years before creation of the trust) she signed a beneficiary designation identifying DuVal and Zeise as beneficiaries. There is no evidence that Jarick took any later action to modify this beneficiary designation. Had Jarick wished to have DuVal (to the exclusion of Zeise) succeed to the rights to the UBS IRA upon her death, it would have been a simple matter—permitted by the Internal Revenue Code—for her to have amended the beneficiary designation to either identify DuVal alone, or Jarick’s estate, as beneficiary. (See 26 C.F.R. § 1.408-2(b)(8) [defining “ ‘beneficiaries’ on whose behalf an [IRA] is established” to include “the estate of the individual . . . and any person designated by the individual to share in the benefits of the account after the death of the individual”]; see also Estate of Davis (1985) 171 Cal.App.3d 854, 858 (Davis) [observing that testator could have readily named his estate as his IRA beneficiary as permitted by federal regulations].) This evidence concerning Jarick’s creation of the UBS IRA and execution of the IRA beneficiary statement was extrinsic evidence that was admissible to interpret the trust instrument. (See Ammerman, supra, 245 Cal.App.4th at p. 1073; Richards, supra, 60 Cal.App.2d at p. 784 [extrinsic evidence admissible to show testator’s intent].) This extrinsic evidence constituted substantial evidence in support of the probate court’s implied finding of fact that Jarick did not intend to include the UBS IRA as a trust asset. (See Fair, supra, 195 Cal.App.4th at p. 1148.) Since the court’s duty is to ascertain and implement the trustor’s intent (Cairns, supra, 188 Cal.App.4th at p. 944), we conclude that the probate court did not abuse its discretion in holding that the UBS IRA was not part of the trust.

DuVal, in a supplemental letter filed after briefing was completed, cited Placencia v. Strazicich (2019) 42 Cal.App.5th 730 (Placencia) in support of his position. There, the court upheld the trial court’s conclusion that the terms of a joint account providing for a right of survivorship in favor of the appellant were defeated by clear and convincing evidence that the testator/co-account holder intended to revoke that right of survivorship to make the account part of the estate. (Id. at pp. 734-738.) Placencia is distinguishable; here, the probate court implicitly found, based upon substantial evidence, that the trustor, Jarick, did not intend to alter her prior beneficiary designation to include the UBS IRA as part of the trust.

The general nature of IRAs and the law governing such accounts offer further support for our conclusion that there was no error. IRAs are created by statute under the Internal Revenue Code, 26 U.S.C. section 408, and they “offer tax advantages to encourage individuals to save for retirement.” (Clark v. Rameker (2014) 573 U.S. 122, 124 (Clark).) In addition to providing tax advantages for retirement, an IRA may serve as a means for an account holder to transfer property upon his or her death outside of probate. An IRA is a form of “ ‘nonprobate’ asset, meaning that upon the death of the owner, title passes in accordance with a contractual beneficiary designation rather than under the provisions of a will. [Citations.]” (UBS Financial Services, Inc. v. Aliberti (Mass. 2019) 133 N.E.3d 277, 283.) Under section 5000, subdivision (a), nonprobate transfers upon death as provided “in an . . . account agreement, custodial agreement, deposit agreement, . . . [or] individual retirement plan” are specifically recognized, notwithstanding the absence of the formalities required for execution of a will. (See Estate of Petersen (1994) 28 Cal.App.4th 1742, 1751.) As such, the ability to transfer an IRA upon the account holder’s death without probate obviates the need of including it in a will or revocable living trust. (See Davis, supra, 171 Cal.App.3d at pp. 857-858 [where depositor/decedent named son in IRA beneficiary designation, title to account passed to son upon depositor’s death, and the account did not become part of estate].)

As the name indicates, an individual retirement account (IRA) may be established and held by an individual. The Internal Revenue Code defines an IRA as “a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries. . . .” (26 U.S.C., § 408(a), italics added.) Other provisions of the statute also make clear that the party establishing and holding the IRA is an individual. Examples include that (1) the IRA’s written instrument be required to provide that “[t]he interest of an individual in the balance of his [or her] account is nonforfeitable” (id. at § 408(a)(4)); (2) an IRA will be treated as an inherited IRA if “the individual for whose benefit the account . . . is maintained acquired such account by reason of the death of another individual, and [¶] . . . such individual was not the surviving spouse of such other individual” (id. at § 408(d)(3)(C)(ii)(I)); (3) “[t]he transfer of an individual’s interest in an [IRA] . . . to his [or her] spouse or former spouse under a divorce or separation instrument . . . is not to be considered a taxable transfer made by such individual” (id. at § 408(d)(6)); (4) the loss of tax-exempt status and the automatic termination of an IRA will occur “[i]f, during any taxable year of the individual for whose benefit any [IRA] is established, that individual or his [or her] beneficiary engages in any transaction prohibited by [26 U.S.C.] section 4975 . . . with respect to such account” (id. at § 408(e)(2)(A)); and (5) the tax-exempt status of the IRA or portion thereof pledged will be lost where “the individual for whose benefit an [IRA] is established . . . uses the account or any portion thereof as security for a loan” (id. at § 408(e)(4)). The federal regulation promulgated in connection with 26 U.S.C. section 408 contains similar descriptions of the IRA holder as an individual. (See 26 C.F.R. § 1.408-2(b), (b)(4), (b)(6), (b)(8).) Thus, it is apparent that a legal entity, such as a revocable living trust, since it is not an individual, cannot be the holder of an IRA. This fact supports the probate court’s determination here that the UBS IRA was not transferred to the trust. (Cf. Bunney v. Commissioner of Internal Revenue (2000) 114 T.C. 259, 263 [because IRA holder, as provided in 26 U.S.C. § 408(a), is an individual, community property interest in IRA is not recognized; IRA “maintained jointly for a husband and wife would be created for the benefit of two individuals and would not meet this definition”].)

Further, a transfer of an IRA to a revocable living trust—as DuVal argues occurred here—would be a prohibited transaction under the Internal Revenue Code. As noted above, under 26 U.S.C. section 408(e)(2)(A), an IRA will lose its tax-exempt status and it will “cease[] to be an [IRA]” “[i]f, during any taxable year of the individual for whose benefit any [IRA] is established, that individual or his [or her] beneficiary engages in any transaction prohibited by [26 U.S.C.] section 4975 . . . with respect to such account.” Included in the definition of “ ‘prohibited transaction’ ” is the “transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan.” (26 U.S.C. § 4975(c)(1)(D).) The statute’s definition of a “disqualified person” includes both “a fiduciary” (id. § 4975(e)(2)(A)), and a “trust or estate,” 50 percent or more of which is owned by a fiduciary (id. § 4975(e)(2)(G)). (See also Moy, Retirement Benefits: Revocable Living Trusts as Beneficiary and Intermediary Payee (2003) 28 Estates, Gifts & Trust Journal (BNA) 275 [advising that trustor of revocable trust should not convey ownership of his or her IRA to trustee because IRA is for exclusive benefit of individual; such transfer would be a prohibited transaction that would result in IRA ceasing to exist].) Moreover, such a transfer of an IRA to a revocable trust would potentially violate the Internal Revenue Code’s prohibition against the commingling of IRA assets with other property. (26 U.S.C. § 408(a)(5); see also 26 C.F.R. § 1.408-2(b)(5)(i).) Therefore, these statutory provisions indicating that the transfer of the UBS IRA would have constituted a prohibited transaction and would have violated commingling prohibitions further support the probate court’s conclusion that Jarick did not intend to transfer the UBS IRA to the trust.

DuVal relies on Ukkestad, supra, 235 Cal.App.4th 156 in support of his contention that the probate court erred, arguing that Ukkestad presented “a common sense resolution of [the] problem” where the schedule of assets attached to a trust instrument fails to specifically identify property claimed to have been intended to be a trust asset. In Ukkestad, the trustor, who owned two parcels of real estate (in Vista and Indio, California), did not specifically describe the real property in the trust instrument, which provided that he “ ‘assign[ed], grant[ed] and convey[ed] to the Trustees of this instrument all of [his] right, title and interest in and to all of his real and personal property.’ ” (Id. at p. 159.) After the trustor’s death, the cotrustees filed a petition under section 850 to confirm that the two parcels were trust assets, and the petition included real estate title documents showing the trustor’s ownership of the two parcels, which petition was opposed by a potential creditor of the trustor’s estate. (Ukkestad, supra, at p. 159.) The probate court denied the petition, concluding that because the trust instrument failed to satisfy the statute of frauds, the two parcels were not trust assets. (Id. at p. 160.) The appellate court reversed. (Id. at p. 164.) It concluded that the trust instrument had language that identified the trustor’s real property that was being transferred to the trust, and, as established from the title documents presented below, “it [was] a simple matter of referring to publicly available records to determine [the trustor’s] real estate holdings. . . [which could be] used to make an otherwise incomplete description of real property certain enough that it could be reliably identified and [from which it could be] conclude[d] that the description complied with the statute of frauds.” (Id. at p. 163, fn. omitted.)

Ukkestad does not support DuVal’s claim of error as it is distinguishable on several grounds. First, the primary focus in Ukkestad was whether the dispositive provisions of the trust instrument, as a matter of law, were sufficient to satisfy the statute of frauds. No such issue was presented here. Second, perhaps most significantly, unlike in the present case, in Ukkestad there was no evidence that the trustor had made a conflicting disposition of the assets in question before signing the trust instrument. There was thus—unlike the case here—no evidence that contradicted the trustor’s intent in Ukkestad to transfer the subject assets to his trust. Third, the Ukkestad court held that it was a simple matter to refer to public filings to ascertain the specific real estate holdings owned by the trustor that were generally described in the trust instrument. No such public record of deposit accounts, such as IRAs, exists in the instant case.

DuVal cites a number of federal and out-of-state authorities concerning the alienability of IRA funds. DuVal fails to make clear how these authorities support his claim of error, and in any event they do not assist his position. For instance, in Clark, supra, 573 U.S. 122, the Supreme Court concluded that funds held in an inherited IRA were “not ‘retirement funds’ within the meaning of [11 U.S.C.] § 522(b)(3)(C)[]” (id. at p. 127) that provided the debtor/holder of the inherited IRA with an exemption from his or her creditors in bankruptcy (id. at pp. 127-130). Clark concerned inherited IRAs, and the high court’s opinion included significant discussion contrasting inherited IRAs with ordinary IRAs opened by the individual account holder for retirement planning. (See id. at pp. 124-125, 128-129.) No issue concerning inherited IRAs was presented here; at the time of the claimed transfer (i.e., the alleged transfer of the UBS IRA to the trust), the subject IRA was an IRA established by the initial account holder, not an inherited IRA. In Halliburton Co. v. Mor (N.J. Sup. 1988) 555 A.2d 55, 56, the court held that IRAs were not pension plans exempt from execution by creditors under the Employee Retirement Income Security Act (ERISA; 29 U.S.C. § 1001 et seq.). Similarly, the appellate court concluded in Rowland v. Strickland (S.C.App. 1987) 362 S.E.2d 892 that, because no federal statute prohibited alienation of an IRA, it was not exempt from levy of attachment by a judgment creditor. (Id. at pp. 892-893.) None of these cases cited by DuVal supports his contention that the court erred in concluding that Jarick did not intend to transfer the UBS IRA to the trust.

Lastly, DuVal argues that Zeise did not refer in his objections below to the UBS IRA beneficiary statement and he “never produced this alleged [b]eneficiary statement”; he notes that neither he nor Zeise ever introduced such statement. DuVal contends that the absence of evidence presented concerning this IRA beneficiary statement is a significant flaw, and that this court “[a]t the very least, . . . should remand the case and [o]rder the parties to produce—and the trial court to consider—the alleged beneficiary designation.” This contention is without merit. DuVal himself, under penalty of perjury in the petition, averred that DuVal and Zeise were designated as beneficiaries under the UBS IRA. He is bound by this judicial admission. (See Knoell v. Petrovich (1999) 76 Cal.App.4th 164, 168-169.) Moreover, to the extent that DuVal complains about the probate court’s reliance upon both parties’ representations to the court that Jarick had designated DuVal and Zeise as beneficiaries of the UBS IRA without requiring production of the beneficiary statement, he is estopped from challenging the issue under the doctrine of invited error. (See Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 403 [party who induced trial court to commit error is estopped from asserting such error as basis for reversing judgment].)

Based upon the record before us, DuVal has failed to meet his burden of overcoming the presumption of correctness of the order by showing that the probate court committed error warranting reversal. (Jameson, supra, 5 Cal.5th at pp. 608-609.)

III. DISPOSITION

The order filed on April 10, 2018, is affirmed.

BAMATTRE-MANOUKIAN, J.

WE CONCUR:

PREMO, ACTING P.J.

MIHARA, J.

Duval v. Zeise

H045833