IN RE: ESTATE OF Margery M. MacDONALD, Deceased. Judith BOLTON, Petitioner and Appellant, v. Robert F. MacDONALD, Respondent.
The instant appeal is from a trial court ruling that decedent's community property interest in funds held in an IRA account had been transmuted into the separate property of her spouse. The factual background may be summarized in relevant part as follows.
Decedent Margery M. MacDonald married respondent Robert MacDonald in 1973. At the time, he was president of R.F. MacDonald Company, where he participated through the business in a defined benefit pension plan. Decedent worked as a bookkeeper for an accounting firm that provided services for R.F. MacDonald Company when she met respondent; from 1978 through 1980, she worked directly as a bookkeeper for the MacDonald company.
In August of 1984, decedent learned that she had terminal cancer, and she and respondent made plans to divide their property into separate estates. Wishing to leave her property to her own four children, decedent divided the couple's stock holdings, sold her half, and placed the proceeds in her separate account. The MacDonalds thereafter consulted with their personal accountant and attorney regarding the division of their real property holdings. The real properties were appraised and divided, and respondent paid decedent $33,000 to equalize the division.
Around the same time, in November 1984, respondent turned 65 and the company pension plan was terminated: it is undisputed that the plan's benefits were community property. On March 21, 1985, respondent received his pension disbursement of $266,577.90, and the proceeds were immediately deposited into IRA accounts at three separate financial institutions. So far as the evidence establishes, the pension funds were not divided or otherwise accounted for in the couple's previous division of their holdings, although both parties were aware of their existence.
The IRA accounts were opened solely in respondent's name, the designated beneficiary being a revocable living trust he had established in 1982. The three form documents prepared by the financial institutions, entitled “Adoption Agreement and Designation of Beneficiary,” (hereafter adoption agreements) provided space for the signature of a spouse not designated as the sole primary beneficiary, to indicate his or her consent to the designation.1 Decedent signed the consent portions of these documents.
Decedent died on June 17, 1985, leaving a will which bequeathed the residue of her estate to her four children.2 The procedural history of the case is as follows.
Judith Bolton, as executrix, filed a petition to determine title to personal property (Prob.Code, § 851.5) in San Mateo County Superior Court. Bolton sought to establish decedent's community property interest in the funds held in the IRA accounts.
At trial, in June 1987, respondent contended the IRA funds were his separate property by virtue of decedent's informed consent to transmute them into his separate property, as evidenced by the signed adoption agreements. He argued also that the “terminable interest rule” precluded any testamentary control by decedent over the IRA funds.
The trial court made the following factual findings, which were incorporated in its judgment:
“1. Decedent Margery MacDonald, both because of her occupation and as a result of advice received from professionals was both competent to and sophisticated in the administration of her estate assets;
“2. That Decedent was active in the business of Respondent Robert F. MacDonald and was aware of the financial decisions being made in that business, particularly in terms of the pension plan itself;
“3. Decedent was aware of the terms of the Living Trust which left the bulk of Respondent's estate to Respondent's children and left Decedent a life interest in the estate;
“4. Decedent made conscious and substantial choices regarding her assets and sought to put her estate in order to eliminate the possibility of any dissension between her children and her spouse;
“5. Decedent, in executing the Adoption Agreement for the three IRA's, intended to waive any community property right she had in those IRA's and in fact to transmute her share of that community property asset to the separate property of Respondent.”
Based on these factual findings, the trial court concluded decedent waived any community property rights in the IRA funds when she executed the adoption agreements, “or, in the alternative,” transmuted her community property share of those funds into the separate property of respondent. The court denied Bolton's petition.
Civil Code section 5110.730, subdivision (a), provides: “A transmutation of real or personal property is not valid unless made in writing by an express declaration that is made, joined in, consented to, or accepted by the spouse whose interest in the property is adversely affected.” (Emphasis added.) 3 Our task is to determine whether the “consent” given by decedent qualifies as such an “express declaration.”
As stated in Estate of Blair (1988) 199 Cal.App.3d 161, 244 Cal.Rptr. 627, “[b]efore January 1, 1985, the form of title presumption could be rebutted by showing the character of the property had been changed by oral or written ‘agreement or common understanding between the spouses.’ [Citation.] Agreement could also be inferred from the conduct or declarations of the parties. [Citation.] Whether the presumption was rebutted was a question of fact. [Citation.] [¶] Section 5110.730, applicable to transmutation of property made after January 1, 1985, overruled existing case law which permitted oral transmutation of marital property. [See 17 Cal.Law Revision Com.Rep. (Sept.1983) pp. 213–215, 224–225.]” (Id. at p. 167, 244 Cal.Rptr. 627.) “[O]nly an express written declaration ․ will successfully rebut the form of title presumption.” (Id. at p. 168, 244 Cal.Rptr. 627.)
The determination of whether the adoption agreements are express written declarations within the meaning of section 5110.730, is one of law, requiring an independent review by this court. (See Cox Cable San Diego, Inc. v. City of San Diego (1987) 188 Cal.App.3d 952, 958, 233 Cal.Rptr. 735.)
The California Law Revision Commission in its report on the subject states: “Section 5110.730 imposes formalities on interspousal transmutations for the purpose of increasing certainty in the determination whether a transmutation has in fact occurred.” (17 Cal.Law Revision Com.Rep. (Sept.1983) p. 224–225.)
Bolton cites the definition of “express” given in Black's Law Dictionary. “Express” means: “Clear; definite; explicit; plain; direct; unmistakable; not dubious or ambiguous․ Directly and distinctly stated.” (Black's Law Dict. (5th ed. 1979) p. 521.) Hogoboom & King, in their practice guide, suggest “the ‘express declaration’ called for by CC § 5110.730(a) must clearly show the party's agreement to change the affected property interests.” (Hogoboom & King, Cal.Prac.Guide: Fam.Law I (1989) § 9:212.1, p. 9–52, emphasis in original.)
Respondent argues that section 5110.730 does not impose any specific requirement concerning the type of writing necessary to satisfy the statute, and notes that under section 5110.710, married persons may transmute property by “agreement or transfer.” 4
We note, however, from the California Law Revision Commissions report on the subject that it was precisely to obviate ambiguity and uncertainty in the transmutation of marital property that section 5110.730 was enacted: “․ for the purpose of increasing certainty” are words used in 17 California Law Revision Commission Report (Sept.1983) pages 224–225.
Here, however, the adoption agreements are merely standard forms used by financial institutions to open IRA accounts. They contain no reference to the character of the funds so deposited, nor any statement of intent to change the parties' interest therein. Nowhere in their perfunctory terms do we find any indication that the beneficiary designation is intended to be irrevocable. In sum, we are unable to conclude that the form provides the clear and positive declaration now required by statute.
We also think it clear that section 5110.710 is subject to section 5110.730. As respondent acknowledges, a transmutation may occur by transfer “if all other requirements ․ are met.” But one such requirement is an express written declaration (Estate of Blair, supra, 199 Cal.App.3d 161, 168, 244 Cal.Rptr. 627), and while section 5110.730 provides no specifics relative to the contents of the form, by clear implication it requires something more than the skeletal writing before us.
We view respondent's alternative argument, that decedent waived her interest in the IRA funds, as merely another means of circumventing the requirements of section 5110.730 and returning to pre–1985 law (cf. Estate of Levine (1981) 125 Cal.App.3d 701, 705, 178 Cal.Rptr. 275) allowing transmutations by oral agreement or conduct.5 The trial court erred in finding a waiver.
As yet another ground for terminating decedent's interest in the IRA funds, respondent urges us to apply the so-called “terminable interest rule.” The argument was rejected by the trial court, which found that the funds were “not ‘pension funds' in the classic community property definition,” and were thus not subject to the terminable interest rule.
As petitioner asserts, the much-criticized terminable interest rule has itself been terminated by legislation and subsequent case law. “It is the intent of the Legislature to abolish the terminable interest rule․” (Stats.1986, ch. 686, § 2, p. 471.) The section applies retroactively (In re Marriage of Taylor (1987) 189 Cal.App.3d 435, 443, 234 Cal.Rptr. 486).
Respondent argues, however, that the rule has been abolished only with respect to pension benefits payable upon dissolution, not death. However, in the very recent case of Estate of Austin (1988) 206 Cal.App.3d 1249, 1253, 254 Cal.Rptr. 372—a proceeding to fix inheritance tax—the court treated the terminable interest rule as if abolished in all contexts. Given the explicit language of the uncodified section cited above, this conclusion seems to us correct.
Prior to its abolition, the terminable interest rule was held not to apply to a private pension plan which would provide benefits to any beneficiary designated by the employee. (Bowman v. Bowman (1985) 171 Cal.App.3d 148, 155–156, 217 Cal.Rptr. 174.) “The reason for the rule was to prohibit interference with the contractual mandates and policy considerations of public employment retirement plans.” (Id. at p. 155, 217 Cal.Rptr. 174.) 6
Here, the pension plan itself had been terminated and the benefits disbursed. Mr. MacDonald and decedent had complete control over the funds. They chose to place the funds in tax-deferred IRA accounts. The funds were still under the respondent's control. No interference with contractual rights between an employer—private or public—and its employee could have occurred.
The matter is reversed and the court directed to enter judgment for petitioner.
Civil Code section 5110.730, subdivision (a), provides no guidance as to the form or content of a satisfactory written “express declaration.” The statute was enacted in order to overrule “existing case law which permitted oral transmutation of marital property,” as stated in Estate of Blair (1988) 199 Cal.App.3d 161, 167, 244 Cal.Rptr. 627 and “for the purpose of increasing certainty in the determination whether a transmutation has in fact occurred,” as reported by the California Law Review Commission (17 Cal.Law Revision Com.Rep. (Sept.1983) pp. 224–225.). (Emphasis added.)
In the present case, there was no claimed “oral transmutation.” There was, however, an accomplished “transfer,” and decedent had consented in writing to that disposition of the funds (i.e., the designation of the trust beneficiaries). Though the adoption agreements were contracts between respondent and the financial institutions, they were also binding on decedent.1 There was no uncertainty of purpose or intent and, thus, no room for “increasing certainty” as to whether a transmutation had in fact occurred.
The statute does not require use of the term “transmutation” or prescribe other magic words. A transmutation is the result of actions, or at least effectuated intentions of the parties concerned. I perceive no action any more specific, clear, and final that decedent and respondent here could have taken to accomplish both the transfer and a consequent transmutation. The language and purpose of the statutory requirement were fully satisfied. I believe the trial court correctly found decedent transmuted her community property share of the IRA funds to the separate property of respondent, when she executed the adoption agreements.
1. The documents provided: “If participant's spouse is not designated as the sole primary beneficiary, spouse must sign consent. Consent of Spouse: Being the participant's spouse, I hereby consent to the above designation.”
2. The parties stipulated to most of the relevant facts. Respondent presented his own testimony and that of decedent's accountant, in order to establish decedent's state of mind when she signed the adoption agreements.
3. All statutory references are to the Civil Code.
4. Section 5110.710 provides: “Subject to Sections 5110.720 to 5110.740, inclusive, married persons may by agreement or transfer, with or without consideration, do any of the following: (a) Transmute community property to separate property of either spouse. (b) Transmute separate property of either spouse to community property. (c) Transmute separate property of one spouse to separate property of the other spouse.”
5. The same reasoning applies to Mr. MacDonald's argument that the adoption agreements created an interest analogous to a general power of appointment. A writing is required to create a power of appointment (§ 1381.1, subd. (f), though no particular form of words is necessary (Estate of Rosecrans (1971) 4 Cal.3d 34, 38, 92 Cal.Rptr. 680, 480 P.2d 296). No intent to create a power appears in the adoption agreement, and again the requirements of section 5110.730 would be circumvented by finding such an intent in this case. It is also doubtful that Mr. MacDonald should be allowed to pursue this theory on appeal. He mentioned this theory in his trial brief, but it appears the theory was not pursued at trial, and the trial court made no mention of the theory in its ruling. (See Richmond v. Dart Industries, Inc. (1987) 196 Cal.App.3d 869, 874, 879, 242 Cal.Rptr. 184.)
6. We are aware, however, that an opinion from this district did apply the rule to a private pension plan where the benefits were nonassignable, inalienable, and nontransferable. (Estate of Allen (1980) 108 Cal.App.3d 614, 616, 620, 166 Cal.Rptr. 653.)
1. Although decedent thereby relinquished control of her interest in the pension funds, I note that respondent's designations did include her as a potential beneficiary of part of the trusts created.
NEWSOM, Associate Justice.
RACANELLI, P.J., concurs.