Estate of Leier, Matter of

• Decision Date: 16 November 1994
• Docket Number: No. 940073,940073
• Citation: 524 N.W.2d 106
• Parties: In the Matter of the ESTATE OF Lee C. LEIER, a/k/a Leo "Lee" Leier, Deceased. Karen LEIER, Appellant, v. Eldore LEIER, Appellee. Civ.
• Court: North Dakota Supreme Court

Page 106

524 N.W.2d 106

In the Matter of the ESTATE OF Lee C. LEIER, a/k/a Leo "Lee"

Leier, Deceased.

Karen LEIER, Appellant, v. Eldore LEIER, Appellee.

Civ. No. 940073.

Supreme Court of North Dakota.

Nov. 16, 1994.

Kathleen B. Cunningham (argued), Cunningham Law Firm, Minot, for appellant.

Ella Van Berkom (argued), Ella Van Berkom Law Firm, Minot, for appellee.

MESCHKE, Justice.

Karen Leier, Lee Leier's widow, appealed from a probate court judgment awarding the balance of the decedent's individual retirement account (IRA) to Eldore Leier, Lee's former wife. Because Lee's daughters were designated contingent beneficiaries of the IRA, and their interests in the IRA were represented by Eldore, we affirm.

When Lee opened an IRA at the First National Bank of Minot in 1976, he designated his wife, Eldore, as primary beneficiary and their adult daughters, Kathy Crawford and Paula Luxem, as contingent beneficiaries. Lee and Eldore were divorced in 1979, and their stipulated divorce decree awarded Lee "exclusive ownership" of the IRA.

Lee married Karen in December 1979. In June 1981, Lee executed a will that effectively devised his estate to Karen if she survived Lee, and equally to Paula, Kathy, and Karen's son, Donnell Fry, if Karen did not survive Lee.

Lee continued contributions to the IRA through 1990. During his marriage to Karen, those contributions were made from their joint checking account. In 1991 the Bank distributed $15,183.44 from the IRA to Lee, and in 1992 it distributed $9,757.73 to him. Lee died on June 19, 1992, without changing the original beneficiaries designated in the IRA. The Bank distributed $6,000.00 to Karen for Lee's funeral expenses, leaving a balance of $18,802.62 in the IRA.

Karen sought a declaratory judgment that she was the sole owner of the IRA, contending Lee "inadvertently" or "through a mistake" left Eldore and his daughters on the IRA as beneficiaries. The trial court concluded that Lee's IRA was a "P.O.D. account" under NDCC Chapter 30.1-31; that it was governed by NDCC 30.1-31-09(2)(b); and that, under NDCC 30.1-31-10, it could not be altered by a will. The court determined that Eldore was entitled to the amount of Lee's contributions to the IRA before he married Karen; that, under equitable considerations, Karen was entitled to the amount of Lee's contributions to the IRA from their joint checking account; and that Karen and Eldore were entitled to interest earned on the IRA according to their proportional share in it. The court then subtracted the 1991 and 1992 distributions to Lee and Karen from Karen's share in the IRA. The court's computations resulted in Eldore receiving the entire $18,802.62 balance in the IRA. Karen appealed.

Before addressing this appeal by Karen, we summarize the statutory scheme in Article VI of the Uniform Probate Code, enacted as NDCC Chapter 30.1-31, for nonprobate transfers on death. In 1991, the Legislature repealed the former Article VI and enacted a new version to correspond with a revision approved in 1989 by the National Conference of Commissioners on Uniform State Laws. 1991 N.D.Laws Ch. 351. See Conservatorship of Milbrath, 508 N.W.2d 360 (N.D.1993). The Commissioners' 1989 Prefatory Note explains:

This amendment of Uniform Probate Code Article VI (nonprobate transfers) replaces former Article VI with a revised article. Part 1 (provisions relating to effect of death) of the revised article is amended and relocated from former Part 2. Part 2 (multiple-person accounts) of the revised article is amended and relocated from former Part 1. Part 3 (Uniform TOD Security Registration Act) of the revised article is new. This reorganization allows for general provisions at the beginning of the article, and permits parts to be divided into subparts that group related provisions together.

Although neither the U.P.C. organization of parts and subparts, nor the official comments for this Article on nonprobate transfers on death were incorporated in the North Dakota Century Code, the organization makes the statutory arrangement more comprehensible.

Part 1 consists solely of NDCC 30.1-31-01, ¹ which is a revised version of former NDCC 30.1-31-14. It broadly bestows effective status on contracts for the nonprobate transfer of property at death by various types of written instruments, including account agreements, deposit agreements, and individual retirement plans. "The sole purpose of this section is to prevent the transfers authorized here from being treated as testamentary." U.P.C. 6-101, Editorial Board Comment (1989). The effect of NDCC 30.1-31-01 is that the identified instruments need not be executed in compliance with the formalities for wills in order to be valid transfers of property, and that the contractual arrangements in those instruments control the nonprobate transfer of the property on death. Id.

Part 2 consists of NDCC 30.1-31-02 through 30.1-31-20. It generally deals with "accounts," which may be either "single party" or "multiple parties" and applies to accounts established before its effective date. NDCC 30.1-31-04. For purposes of Part 2, an "account" is a "contract of deposit between a depositor and a financial institution," and a "party" is "a person who, by the terms of an account, has a present right, subject to request, to payment from the account other than as a beneficiary." NDCC 30.1-31-02(1) and (6). ² Part 2 is organized into three distinct subparts: "definitions and general provisions," "ownership as between parties and others," and "protection of financial institutions." See U.P.C. 6-201 through 6-227. The "definitions and general provisions" subpart encompasses NDCC 30.1-31-02 through 30.1-31-07.

The limitations of the remaining two subparts are explained in NDCC 30.1-31-07:

The provisions of sections 30.1-31-08 through 30.1-31-13 concerning beneficial ownership as between parties or as between parties and beneficiaries apply only to controversies between those persons and their creditors and other successors, and do not apply to the right of those persons to payment as determined by the terms of the account. Sections 30.1-31-14 through 30.1-31-20 govern the liability and setoff rights of financial institutions that make payments pursuant to it.

Under NDCC 30.1-31-07, NDCC 30.1-31-08 through 30.1-31-13 control controversies about beneficial ownership between parties and beneficiaries and with their creditors and other successors, and the "terms of the account" determine the rights of "parties" and "beneficiaries" to payment from the account.

NDCC 30.1-31-08 spells out rules for apportioning beneficial ownership of an account during the lifetime of a "party." On the death of a "party," NDCC 30.1-31-09 ³ prescribes rules for determining rights in an account. Those rights are determined by the type of account and may be altered only by a party's written notice to the financial institution to change the type of account, or to stop or vary payment under the terms of the account. NDCC 30.1-31-10(1). See Conservatorship of Milbrath, 508 N.W.2d 360 (N.D.1993) (decided under similar provisions of prior law). Under NDCC 30.1-31-10(2), survivorship rights arising from the express terms of the account, transfers under NDCC 30.1-31-09, or a P.O.D. designation may not be altered by will.

NDCC 30.1-31-11 says:

Except as provided in chapter 30.1-05 [elective share of surviving spouse] or as a consequence of, and to the extent directed by, section 30.1-31-12 [rights of creditors and others], a transfer resulting from the application of section 30.1-31-09 is effective by reason of the terms of the account involved and this part and is not testamentary or subject to chapters 30.1-01 through 30.1-25 [estate administration].

The 1989 Editorial Board Comment to that section explains that its purpose is to "bolster" the explicit statement that transfers of accounts under NDCC 30.1-31-02 through 30.1-31-20 are nontestamentary and are effective modes of transfer on death.

Relief from the nontestamentary transfers authorized by NDCC Chapter 30.1-31 is enabled by NDCC 30.1-31-12, if the assets of the estate are insufficient to pay the claims against the estate and the statutory allowances for the surviving spouse and children. According to the Editorial Board Comment, that section gives a remedy to creditors, the surviving spouse, and minor children to assure them that effective nonprobate transfers at death cannot reduce their essential protections if those transfers would have been testamentary.

Within that statutory framework, we consider Karen's argument that the trial court erred in concluding that Lee's IRA was a "P.O.D. account." She contends that Lee's IRA is not an "account" with a "P.O.D. designation" as defined by NDCC 30.1-31-02(1) and (8), because the definition of "account" is limited to the four examples listed in NDCC 30.1-31-02(1): "a checking account, savings account, certificate of deposit, and share account." She therefore argues that the trial court erred in applying NDCC 30.1-31-09 and 30.1-31-10. Alternatively, she argues that, if NDCC 30.1-31-09 is applicable, (see fn. 3), she was entitled to the proceeds from the IRA under NDCC 30.1-31-09(1) as a surviving spouse, or under NDCC 30.1-31-09(3) as a residual devisee of Lee's estate.

The four examples of "accounts" listed in NDCC 30.1-31-02(1) are preceded by the primary definition of "a contract of deposit between a depositor and a financial institution," and by the term "includes" that generally is not a term of limitation, but a term of enlargement. Lucke v. Lucke, 300 N.W.2d 231 (N.D.1980). Some of the instruments designated in NDCC 30.1-31-01, such as "account agreement" and "deposit agreement," may satisfy that primary definition of account. However, an IRA does not lend itself to easy labeling and arguably contains elements of an "account" with a "P.O.D. designation." See Johnson v. Johnson, 113 Idaho 602, 746 P.2d 1061 (Ct.App.1987); ...