U.S. Bank, National Association v. Jeffrey S. Bittner, Individually and as Trustee of the Joan Y. Bittner Marital Trust and Midwestone Bank, as Conservator of the Joan Y. Bittner Marital Trust ( 2023 )

IN THE SUPREME COURT OF IOWA
No. 21–0455
Submitted January 18, 2023—Filed March 3, 2023
U.S. BANK, National Association,
Appellee,
vs.
JEFFREY S. BITTNER, Individually and as Trustee of the JOAN Y. BITTNER
MARITAL TRUST,
Appellant,
and
MIDWESTONE BANK, as Conservator of the JOAN Y. BITTNER MARITAL
TRUST,
Appellee,
and
JOAN Y. BITTNER, KIMBERLY MONTGOMERY, TODD RICHARD BITTNER,
and LYNN VON SCHNEIDAU,
Defendants.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Scott County, Thomas Reidel,
Judge.
One of the decedent’s children seeks further review of a court of appeals
decision affirming a district court order awarding the decedent’s individual
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retirement account to the decedent’s spouse. DECISION OF COURT OF
APPEALS AND DISTRICT COURT JUDGMENT AFFIRMED.
Mansfield, J., delivered the opinion of the court, in which all participating
justices joined. Waterman and May, JJ., took no part in the consideration or
decision of the case.
Jeffrey S. Bittner, Davenport, and M. Leanne Tyler, Bettendorf (limited
appearance), for appellant.
Lynn W. Hartman and Nicholas D.K. Petersen of Simmons Perrine Moyer
Bergman PLC, Cedar Rapids, for appellee U.S. Bank, N.A.
Timothy J. Krumm and Danica L. Bird of Meardon, Sueppel & Downer,
P.L.C., Iowa City, for appellee MidWestOne Bank, as Conservator of the Joan Y.
Bittner Marital Trust.
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MANSFIELD, Justice.
I. Introduction.
Contract interpretation can involve somewhat of a paradox. Extrinsic
evidence may be used to interpret an integrated agreement but not to alter its
terms. As a practical matter, this means that an agreement first needs to be
examined by the court in light of relevant extrinsic evidence before such evidence
is turned away on the ground that it contradicts the agreement’s terms. This
approach sounds counterintuitive, but it is supported by our caselaw and the
Restatement (Second) of Contracts. Context may not be “king,” Des Moines Flying
Serv., Inc. v. Aerial Servs. Inc., 880 N.W.2d 212, 221 (Iowa 2016) (using that
expression with regard to statutory interpretation), but it is at least part of the
royal family, and a court should not ignore context before it determines the
unambiguous meaning of an agreement.
Here, one of four children of the decedent faces a steep uphill climb in a
case of contract interpretation. He argues that his father’s Individual Retirement
Account (IRA) beneficiary designation, which begins by stating that the
decedent’s spouse is the 100% primary beneficiary of the IRA, actually
designates an unnamed family trust as the primary beneficiary. On further
review, we hold that the district court should not have short-circuited this child’s
claim by ruling that the beneficiary designation was unambiguous without there
being a need to consider extrinsic evidence. Yet having said that, we are capable
here of examining the extrinsic evidence as contained in the son’s offer of proof.
And after reviewing that evidence, we too conclude that the designation
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unambiguously conveys the IRA to the decedent’s spouse rather than the
unnamed family trust. Accordingly, we affirm both the district court judgment
and the decision of the court of appeals.
II. Facts and Procedural History.
A. The Parties. R. Richard Bittner, a longtime Iowa attorney, passed away
in February 2019 at the age of ninety. His surviving family included his wife,
Joan Y. Bittner, and their four children: Kimberly Montgomery, Jeffrey Bittner,
Todd Bittner, and Lynn Von Schneidau. Joan is currently under a
conservatorship. Jeffrey, like his late father, is an attorney. Jeffrey is the
appellant in this case.
Richard accumulated considerable real and personal property assets
during his lifetime. These assets included an IRA worth over $3 million. U.S.
Bank, N.A. served as the trustee for that IRA.
B. The 2010 Will. During his lifetime, Richard prepared and signed
several wills, each of which revoked his prior wills. One of those wills was
executed on January 11, 2010. Subject to certain specific devises and bequests,
it provided that Richard’s estate would go to the Joan Y. Bittner Marital Trust
(Marital Trust) to the extent necessary to ensure that no federal estate tax would
be paid; the balance would go to the R. Richard Bittner Family Trust (Family
Trust). Thus, the will made the Family Trust a residual beneficiary:
While I have, during my lifetime, attempted to equalize the
value of assets owned by me and those owned by my wife, I have not
succeeded. The assets standing in my name substantially exceed
those in the name of JOAN Y. BITTNER. I have therefore concluded
to establish a family trust which will make full use and benefit of all
tax credits and deductions (other than the marital deduction)
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allowed to my estate for federal estate tax purposes. Therefore, and
except to the extent of the JOAN Y. BITTNER MARITAL TRUST and
the specific bequests to my children as hereinafter provided, all of
the rest, residue and remainder of my estate I do hereby give, devise
and bequeath to the R. RICHARD BITTNER FAMILY TRUST for the
use and benefit of my wife and my descendants as therein provided.
At the same time, the will contained a complicated provision dealing with
the IRA and the Marital Trust:
There shall be specifically included in the JOAN Y. BITTNER
MARITAL TRUST, the value of any and all interest received by such
trust attributable to a beneficiary designation with respect to my
Individual Retirement Account (“IRA”). Provided, however, that there
shall be included in the JOAN Y. BITTNER MARITAL TRUST, for the
purpose of achieving an equalization of the assets to assure
sufficient assets as will result in no federal estate tax and only that
portion of my IRA as is necessary to achieve the asset transfers that
are necessary to result in no federal estate tax. If and in the event
there is no federal estate tax in force at the date of my demise and
in the event JOAN Y. BITTNER survives me, she shall be entitled to
all of the required distributions from such IRA during her lifetime
and upon her death or in the event she does not survive me, then
the balance of my IRA shall pass to and be distributed under the R.
RICHARD BITTNER FAMILY TRUST . . . .
In addition, an article of the will devoted to one of Richard’s daughters
referred to the IRA:
A substantial part of the income for the benefit of my daughter
will be income from my IRA and it is my hope and expectation that
my daughter, LYNN VON SCHNEIDAU, will elect the option which
extends the payment of the income from such trust over the longest
period of time available at the time that she becomes entitled to her
share of that income.
C. The IRA Beneficiary Designation. On the same day that he executed
the 2010 will, Richard dictated and signed a new beneficiary designation for the
IRA. The designation took the form of a separate, typed addendum. Under the
heading, “Primary Beneficiary,” Richard identified “Joan Y. Bittner” and
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indicated that her share was “100%.” Beneath her name and information,
Richard added the following paragraphs:
My wife, Joan Y. Bittner, is and shall be a primary beneficiary
under my IRA Account No. XXXXXX which is currently administered
by U.S. Bank, N.A. Joan Y[.] Bittner is the primary beneficiary under
the Joan Y. Bittner Marital Trust under my Last Will & Testament
dated January 11, 2010 and she shall be entitled to all annual
distributions from my IRA based upon her life expectancy under the
then applicable federal income tax rules and regulations.
The value of such IRA, to the extent necessary to achieve the
marital deduction which shall result, shall be included in the Joan
Y. Bittner Marital Trust.
That part of my IRA which is necessary to achieve the
minimum marital deduction which will result in no federal income
tax is devised to the Joan Y. Bittner Marital Trust with respect to
which Joan Y. Bittner is the beneficiary.
The addendum contained an additional section with the heading,
“Contingent Beneficiaries.” Beneath that heading, Richard listed his four
children by name and indicated that each would receive a “25%” share. Below
their names and identifying information, Richard included the following
paragraph:
Upon the death of my wife, my children, Kimberly
Montgomery, Jeffrey S. Bittner, Todd R. Bittner and Lynn Von
Schneidau, shall become the primary beneficiaries and each shall
have an equal share. In the event any child of mine shall not survive
me and my wife and is survived by descendants, then such
descendants shall succeed to the interest of my child (or children)
herein.
Separate from the addendum, Richard checked a box under “Successor
Beneficiary(ies)” on the preprinted portion of the beneficiary designation form.
The purpose of this box was to indicate what should happen “[i]f a beneficiary
who survives me dies before his or her entire interest in the IRA has been
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distributed.” The form instructions specifically stated, “Not applicable if Trust or
Estate is beneficiary.” Nonetheless, Richard checked one of the boxes and
thereby selected “[t]he then living descendants, per stirpes, of the deceased
beneficiary” as successor beneficiaries of the IRA.
D. The 2014 Will. On January 7, 2014, Richard executed a new will,
revoking the 2010 will. The 2014 will provided generally for an equal division of
assets between the Marital Trust and the Family Trust, subject to certain specific
devises and bequests. As before, there was a complicated paragraph dealing with
the Marital Trust and the IRA:
There shall be specifically included in the JOAN Y. BITTNER
MARITAL TRUST, the value of any and all interest received by such
trust attributable to a beneficiary designation with respect to my
Individual Retirement Account (“IRA”). Provided, however, that there
shall be included in the JOAN Y. BITTNER MARITAL TRUST, for the
purpose of achieving an equalization of the assets to assure
sufficient assets as will result in no federal estate tax and only that
portion of my IRA as is necessary to achieve the asset transfers that
are necessary to result in no federal estate tax. If and in the event
there is no federal estate tax in force at the date of my demise and
in the event JOAN Y. BITTNER survives me, she shall be entitled to
all of the required distributions from such IRA during her lifetime
and upon her death or in the event she does not survive me, then
the balance of my IRA shall pass to and be distributed as set forth
in the beneficiary designation on file with U.S. Bank, N.A. as Trustee
of the IRA Trust established by me.
Notably, whereas the 2010 will seemingly contemplated a potential
division of the IRA between the Marital Trust and the Family Trust, this
part of the 2014 will mentioned only the Marital Trust and “the beneficiary
designation on file with U.S. Bank.” (Emphasis added.)
Like the 2010 will, the 2014 will also had an article relating to one
of Richard’s daughters that referenced the IRA:
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A substantial part of the income for the benefit of my daughter
will be income from my IRA and it is my hope and expectation that
my daughter, LYNN VON SCHNEIDAU, will elect the option which
extends the payment of the income from such trust over the longest
period of time available at the time that she becomes entitled to her
share of that income.
E. Subsequent Developments. On March 24, 2017, Richard executed an
updated IRA agreement with U.S. Bank that did not alter the 2010 beneficiary
designation.
Following Richard’s death in February 2019, his 2014 will was admitted
to probate in Scott County. On July 29, 2020, U.S. Bank, as the IRA trustee,
filed a separate petition for declaratory judgment in the district court seeking a
judicial declaration of the beneficiaries of the IRA. The petition named Joan,
MidWestOne Bank (as Joan’s conservator), the four Bittner children, and the
Marital Trust as defendants. Relying on the designation of Joan as the “primary
beneficiary” with a “100%” share in the first part of the addendum, U.S. Bank
took the position that the entire IRA should be transferred to her.
MidWestOne Bank, acting in its capacity as Joan’s conservator, answered
the petition and agreed that the IRA should be transferred to Joan. Three of
Richard’s children—Kimberly, Todd, and Lynn—likewise accepted U.S. Bank’s
position. Jeffrey, however, answered separately and objected to the outright
transfer of the IRA to Joan. He argued that the IRA account should be conveyed
to the Marital Trust or the Family Trust. He also counterclaimed against U.S.
Bank, alleging that it was operating under a conflict of interest since it was acting
as both the IRA trustee and a co-executor of Richard’s estate.
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F. The Hearing on Jeffrey’s Declaratory Judgment Petition. On
January 26–27, 2021, the district court held an evidentiary hearing on the
declaratory judgment petition. U.S. Bank and MidWestOne argued that the IRA
beneficiary designation to Joan was unambiguous and objected to much of
Jeffrey’s proffered evidence under the parol-evidence rule. The objected-to
evidence included testimony from a former legal colleague of Richard, a former
secretary to Richard, and Jeffrey; memos and correspondence generated by U.S.
Bank; the superseded 2010 will; and other previous wills and IRA beneficiary
designations executed by Richard. The district court generally sustained these
objections, but it allowed Jeffrey to submit the evidence in the form of an offer of
proof.1
On March 17, the district court issued two rulings. In one, it addressed
Jeffrey’s claim of conflict of interest. Although it did not find a conflict of interest,
1Jeffrey claimed that U.S. Bank had originally concluded that Joan should not receive
the IRA outright. On April 25, 2019, Sarah Maiers of U.S. Bank wrote a memo addressing issues
regarding the IRA. The memo first stated that the preferred course of action would be to
re-register the account in Joan’s name. She then said, “BUT that is not what the beneficiary
designation says—Joan, as an individual, is not the beneficiary—the marital trust is the
beneficiary.” Maiers continued on to say, “That brings us back to a discussion about whether or
not there will be a Marital Trust. . . . So if a Marital Trust is not established, then is the beneficiary
of this IRA Joan, as an individual, where she can roll this over into her existing IRA?” Below that,
she listed issues that need to be addressed; one of the issues was, “[W]ill the IRA be a spousal
rollover?”
Not long after, Maiers sent an email to Jeffrey’s counsel. In it, she said,
You already have the amount of [Richard]’s IRA and the [required
minimum distributions] for this year, I believe, and also the beneficiary is the
marital trust. As stated before, we need to discuss whether or not there will be a
marital trust or if Joan is the primary beneficiary and can make this her own IRA.
Later, U.S. Bank employees convened a meeting on these issues, and Maiers issued a memo on
May 30 conveying their determination. They ultimately determined that the IRA belonged to Joan
and not the Marital Trust—i.e., the position formally taken by the bank in the declaratory
judgment action.
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it nonetheless removed U.S. Bank as co-executor of Richard’s estate based upon
a provision in Richard’s will that permitted Jeffrey (the other co-executor) to
remove U.S. Bank if he was dissatisfied with the Bank’s performance. This
removal order was entered in the probate proceeding, and U.S. Bank did not
appeal it.
In its second ruling, the district court determined that Joan should receive
the entire IRA account outright. Here, the district court said,
[T]he intent of Richard is clear and unambiguous from the words of
the contract itself, and [the Court] can decide this matter without
the necessity of extrinsic evidence.
....
Richard’s intent to name his wife, Joan Y. Bittner, as the
primary beneficiary under his IRA account, which is currently
administered by U.S. Bank, is clear and unambiguous from the
words of the contract itself. Richard did not name the trust as the
primary beneficiary. Richard used clear and unequivocal language
designating his wife, Joan, as the 100 percent primary beneficiary.
The remaining language in the IRA beneficiary designation does not
support a contrary interpretation nor does it create ambiguity.
The Court specifically notes that Richard designated Joan as
the 100 percent primary beneficiary. Richard elected to name his
children as contingent beneficiaries despite the clear language of the
IRA beneficiary designation form that this was not necessary if a
trust or estate were listed as the primary beneficiary. . . .
....
Jeffrey relies upon Richard’s subjective desires and his firm
belief that Richard did not wish for Joan to have a sizeable
distribution directly to her. However, even if applicable, this does
not overcome the clear language set forth in the IRA beneficiary
designation.
G. Jeffrey’s Appeal. Jeffrey appealed this ruling. We transferred the case
to the court of appeals, which affirmed the district court. The court of appeals’
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reasoning echoed that of the district court in large part. It noted, “[Richard] did
not name the marital or family trust in section A as a primary beneficiary. In
fact, the family trust was not named in the beneficiary designation at all.”
Further, the court found the beneficiary designation unambiguous and thus did
not “resort to any extrinsic evidence” to aid in its interpretation.
Jeffrey applied for further review, and we granted his application.
III. Standard of Review.
This action was tried at law. We review matters of contract interpretation
for correction of errors at law. Colwell v. MCNA Ins., 960 N.W.2d 675, 676–77
(Iowa 2021). “Interpretation of a contract is a legal issue unless the interpretation
of the contract depends on extrinsic evidence.” Pillsbury Co. v. Wells Dairy, Inc.,
752 N.W.2d 430, 435 (Iowa 2008). If the interpretation depends upon “the
credibility of extrinsic evidence or on a choice among reasonable inferences that
can be drawn from the extrinsic evidence,” it is a job for the fact finder. Id. at
436.
IV. Legal Analysis.
A. Relevant Principles of Contract Law. An IRA is “a trust created or
organized . . . for the exclusive benefit of an individual or his beneficiaries.” 26
U.S.C. § 408(a). It is also a form of contract. See Alexander v. McEwen, 239
S.W.3d 519, 522 (Ark. 2006) (“An IRA constitutes a contract between the person
who establishes the IRA for his or her retirement and the financial institution
that acts as the custodian for the IRA.”). The IRA’s beneficiaries are deemed
third-party beneficiaries of the contract. See Luszcz v. Lavoie, 787 So. 2d 245,
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248 (Fla. Dist. Ct. App. 2001) (en banc) (characterizing an IRA as “a contract with
an institution that involves a third-party beneficiary designation”); UBS Fin.
Servs., Inc. v. Aliberti, 133 N.E.3d 277, 291 (Mass. 2019) (“Because Aliberti is a
designated beneficiary of each IRA, she is an intended third-party beneficiary of
the contracts . . . .”).
In 2017, Richard executed a renewed “Individual Retirement Account
Trust Agreement” with U.S. Bank. Richard’s preexisting 2010 IRA beneficiary
designation became part of that agreement, and the beneficiaries that it
established are deemed third-party beneficiaries of the contract. Because the IRA
is a contract, “we apply ordinary contract principles to determine its meaning
and legal effect” and “thus consider the [agreement] as a whole as well as any
pertinent extrinsic evidence.” Alta Vista Props., LLC v. Mauer Vision Ctr., PC, 855
N.W.2d 722, 727 (Iowa 2014) (citation omitted).
We have approved the approach to contract interpretation, including the
parol-evidence rule, found within the Restatement (Second) of Contracts. Two
principles have to be bridged: (1) the rule that parol evidence is admissible to
establish the meaning of a contract, and (2) the rule that parol evidence is
inadmissible to contradict (or in some cases supplement) a term of a contract.
See Restatement (Second) of Conts. § 214(c), at 132–33 (Am. L. Inst. 1981); id.
§ 215, at 136. Our cases have adopted the Restatement’s method of bridging
them. See, e.g., Soults Farms, Inc. v. Schafer, 797 N.W.2d 92, 107–08 (Iowa
2011); Pillsbury Co., 752 N.W.2d at 436.
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“It is sometimes said that extrinsic evidence cannot change the plain
meaning of a writing, but meaning can almost never be plain except in a context.”
Restatement (Second) of Conts. § 212 cmt. b, at 126; see Soults Farms, Inc., 797
N.W.2d at 107 (“We now recognize the rule in the Restatement (Second) of
Contracts that states the meaning of a contract ‘can almost never be plain except
in a context.’ ” (quoting Restatement (Second) of Conts. § 212 cmt. b, at 126));
Pillsbury Co., 752 N.W.2d at 436 (same); Fausel v. JRJ Enters., Inc., 603 N.W.2d
612, 618 (Iowa 1999) (same). As we have said,
[A]ny determination of meaning or ambiguity should only be made
in the light of relevant evidence of the situation and relations of the
parties, the subject matter of the transaction, preliminary
negotiations and statements made therein, usages of trade, and the
course of dealing between the parties. But after the transaction has
been shown in all its length and breadth, the words of an integrated
agreement remain the most important evidence of intention.
Fausel, 603 N.W.2d at 618 (quoting Restatement (Second) of Conts. § 212 cmt.
b, at 126); Alta Vista Props., LLC, 855 N.W.2d at 727 (quoting same); Pillsbury
Co., 752 N.W.2d at 436 (quoting same).
Put another way, no determination of meaning or ambiguity should be
made by the trial court without first considering: (1) the contract as a whole, and
(2) any extrinsic evidence offered by the parties as to the contract’s meaning. At
this point, if the meaning of a contract term is unambiguous, parol evidence may
not be presented to the fact finder to contradict that term under the facade of
interpreting it. The command to the trial judge is, in effect: “Don’t keep the
evidence out until you’ve looked at it. Once you’ve looked at it, if the term is
14
unambiguous, don’t allow the evidence to come in for the purpose of
contradicting that term.”
Moreover, in the final analysis, “the words of the agreement are still the
most important evidence of the party’s intentions.” Pillsbury Co., 752 N.W.2d at
436; see, e.g., Alta Vista Props., LLC, 855 N.W.2d at 727 (summarizing the
extrinsic evidence and then stating that “our primary focus will be on the
language of the [agreement]”).
Further, we aim to “interpret every word and every provision of a contract
to give it effect, if possible.” Colwell, 960 N.W.2d at 679. “[A]n interpretation
which gives a reasonable, lawful, and effective meaning to all terms is preferred
to an interpretation which leaves a part unreasonable, unlawful, or of no effect.”
Iowa Fuel & Mins., Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859, 863 (Iowa
1991); see also Restatement (Second) of Conts. § 203(a), at 92–93 (same).
Therefore, we assume in the first instance that no part of an agreement is
superfluous. Smith Barney, Inc. v. Keeney, 570 N.W.2d 75, 78 (Iowa 1997).
Lastly, “[i]nstruments relating to the same transaction which are
contemporaneously executed should be construed together.” Taylor Enter., Inc.
v. Clarinda Prod. Credit Ass’n, 447 N.W.2d 113, 115 (Iowa 1989); see also
Restatement (Second) of Conts. § 202(2), at 86 (“A writing is interpreted as a
whole, and all writings that are part of the same transaction are interpreted
together.”).
Yet, at the same time, our Probate Code states,
The assets of a custodial independent retirement account shall pass
on or after the death of the designator of the custodial independent
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retirement account to the beneficiary or beneficiaries specified in the
custodial independent retirement account agreement signed by the
designator or designated by the designator in writing pursuant to
the custodial independent retirement account agreement.
Iowa Code § 633.357(2) (2020). This provision goes on to say that IRA accounts
“shall not be considered part of the designator’s probate estate.” Id. Thus, section
633.357(2) confirms that the relevant question is, “Who is the designated
beneficiary (or who are the designated beneficiaries) in the IRA agreement?” The
IRA agreement, not the will, controls. See generally In re Est. of Gantner, 893
N.W.2d 896, 903 (Iowa 2017) (discussing the special characteristics of IRA
inheritance).
B. Deciding This Case. We now turn to the question at the heart of the
case: Who gets the IRA?
1. The text of the IRA agreement, including the beneficiary designation. We
start with the text of the agreement. The customized IRA addendum, prepared
by Richard, specifically identifies Joan as the “primary beneficiary” with a
“100%” share. In addition, on the standard beneficiary form, Richard designated
the children as “successor beneficiaries.” The instructions for that form
conspicuously state that the successor beneficiary designation is “[n]ot
applicable if Trust or Estate is beneficiary.”
So far, so clear. But the typed addendum also contains several sentences
referring to the “Marital Trust.” These sentences provide that: (1) Joan is the
primary beneficiary of the “Marital Trust” and “she shall be entitled to all annual
distributions from my IRA based upon her life expectancy under the then
applicable federal income tax rules and regulations”; (2) “[t]he value of such IRA”
16
shall be included in the Marital Trust “to the extent necessary to achieve the
marital deduction which shall result”; and (3) “[t]hat part of my IRA which is
necessary to achieve the minimum marital deduction which will result in no
federal income tax is devised to the [Marital Trust].” Additionally, the addendum
identifies all four children as “contingent beneficiaries” and goes on to say, “Upon
the death of my wife, my children ... shall become the primary
beneficiaries . . . .” What is the point of all this?
As the district court pointed out, the value of Richard’s estate turned out
to be below the threshold for federal estate tax, so it was not necessary to fund
the Marital Trust and no assets needed to be transferred to it. Thus, all three of
the statements relating to the Marital Trust could be true even with 100% of the
IRA going to Joan outright. Also, as the district court noted, one can read the
“contingent beneficiaries” section of the addendum simply as saying that if Joan
died before the children, the IRA would be distributed to the four children (they
would become the “primary beneficiaries”). See also Est. of Gantner, 893 N.W.2d
at 903 (discussing the difference in how an IRA passes to a surviving spouse
versus other beneficiaries). So it is possible to line up the entire addendum with
a scenario in which Joan has the status of sole beneficiary and recipient.
But even though it is possible to reconcile everything in the addendum with
an outright transfer of the IRA to Joan, such an approach renders much of the
addendum mere surplusage. Why even talk about the Marital Trust? It also
makes little sense to refer to transferring the IRA to the Marital Trust “to the
extent necessary to achieve a marital deduction” because that deduction would
17
be available whether the IRA went to Joan outright or to a trust for her benefit.
See 26 U.S.C. § 2056(a); 26 C.F.R. § 20.2056(a)-1; id. § 20.2056(b)-5(a); Turner
v. Comm’r, 138 T.C. 306, 316 (2012) (“Generally, an estate may deduct from the
value of the gross estate the value of property ‘which passes or has passed from
the decedent to his surviving spouse.’ ” (quoting 26 U.S.C. § 2056(a))); Est. of
Eldred v. Comm’r, 57 T.C.M. (CCH) 721 (T.C. 1989) (“We find that decedent’s
intent in this case was to pass one-half of his adjusted gross estate . . . to the
marital trust. Thus, we find that petitioner is entitled to claim a marital
deduction equal to [that amount].”).
It also makes little sense to talk about a marital deduction for income tax
purposes. IRA distributions are generally subject to income tax, 26 U.S.C.
§ 408(d)(1), but the marital deduction is part of the estate tax, not the income
tax. See id. § 2056(a).
Lastly, it makes little sense to say that Joan “shall be entitled to all annual
distributions from my IRA based upon her life expectancy” if Joan were receiving
the IRA outright. The greater may include the lesser. But why refer to the lesser
at all if the greater is intended?
Jeffrey contends that reading the primary beneficiary designation as
granting the IRA to Joan outright renders all the aforementioned paragraphs
superfluous. But the rule against superfluous language is not “the be-all and
end-all.” State v. Middlekauff, 974 N.W.2d 781, 808 (Iowa 2022) (Mansfield, J.,
dissenting) (quoting William Shakespeare, Macbeth act I, sc. 7) (making this point
about the analogous rule that statutes should not be construed as containing
18
surplusage); see Brazil v. Auto-Owners Ins., 3 F.4th 1040, 1043–44 (8th Cir.
2021) (“The canon against surplusage does not require courts to read a contract
in a way that contains no surplusage. . . . Here, there is no reasonable
interpretation of the Policy that avoids surplusage.”); Restatement (Second) of
Conts. § 203 cmt. b, at 93 (“Even agreements tailored to particular transactions
sometimes include overlapping or redundant or meaningless provisions. . . . The
preference for an interpretation which gives meaning to every part of an
agreement does not mean that every part is assumed to have legal
consequences.”). It is but one rule of construction.2
2. Extrinsic evidence offered by Jeffrey. In addition to the IRA agreement
itself, there are various items of extrinsic evidence.
Jeffrey maintains that the IRA beneficiary designation must be read in
conjunction with Richard’s 2010 will. Notably, the 2010 will contemplated that
Richard’s daughter, Lynn, would receive distributions from the IRA (even though
no such distributions could be guaranteed if the IRA passed outright to Joan). It
also contemplated that upon Joan’s death, “the balance of my IRA shall pass to
and be distributed under the [Family Trust].” Again, Richard’s effort to maintain
postmortem control over the IRA assets seems inconsistent with an outright
transfer of those assets to Joan.
2Jeffrey also points out that the IRA designation refers to Joan as “a primary beneficiary”
under Richard’s IRA and “the primary beneficiary” under the Marital Trust. He contends that the
different articles should have different meanings. However, Jeffrey overlooks that the heading
simply refers to Joan as “Primary Beneficiary” (i.e., with no “a” or “the”). And, in any event, the
article “a” does not inherently create conflict; Joan could be both a primary beneficiary and the
only primary beneficiary at the same time.
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But the 2010 will is not part of the IRA agreement. See Iowa Code
§ 633.357(2); see also In re of Est. of Wood, No. 80645–9–I, 2020 WL 1893671,
at *3 (Wash. Ct. App. Jan. 21, 2020) (explaining that because an IRA is a
nonprobate asset, a contemporaneous will can be considered only as extrinsic
evidence). The IRA agreement, including the beneficiary designation, does not
refer to the will or incorporate it by reference. Thus, the 2010 will is at most
extrinsic evidence as opposed to part of the IRA agreement itself.
Also, Richard revoked the 2010 will and replaced it with the 2014 will. In
the latter, more recent will, he provided:
[Joan] shall be entitled to all of the required distributions from such
IRA during her lifetime and upon her death . . . , then the balance
of my IRA shall pass to and be distributed as set forth in the
beneficiary designation on file with U.S. Bank, N.A. as Trustee of the
IRA Trust established by me.
This language is potentially confusing because the IRA beneficiary designation
seemingly gives the IRA to Joan outright, not merely for her lifetime—but it is
notable that the 2014 will no longer refers to the Family Trust as a recipient of
IRA assets.
Jeffrey also points to Richard’s pre-2010 wills and IRA beneficiary
designations as additional extrinsic evidence. For example, in prior 1998 and
1999 IRA beneficiary designations, it was expressly provided that the IRA would
go to the Marital Trust. This is a double-edged sword, because the 2010 IRA
beneficiary designation was worded quite differently, and Richard’s former
secretary testified in the offer of proof that Richard went over it quite carefully.
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This suggests that maybe Richard did intend to make a change in 2010, which
is exactly what U.S. Bank and Joan claim.
Additionally, Jeffrey adduced testimony from various witnesses (including
himself) that Richard had kept Joan on an allowance during their lifetimes and
that it would have been inconsistent with Richard’s practice to give her all the
IRA assets outright after he died. Further, Jeffrey offered documentary evidence
to try to show that after Richard passed away, U.S. Bank’s initial review
concluded that the Marital Trust was the beneficiary of the IRA. We think
Jeffrey’s evidence actually doesn’t go that far; we believe it demonstrates only
that U.S. Bank was for a while uncertain as to the appropriate IRA beneficiaries.
Finally, Jeffrey offered evidence that Richard was a sophisticated attorney
with an astute grasp of estate planning. This too is a double-edged sword. Given
Richard’s legal skills, assuming he wanted to transfer the IRA upon his death to
the Family Trust, we would expect this to be self-evident from reading the
documents he drafted.
3. Interpreting the IRA beneficiary designation. As we have discussed above,
the trial court should not shut the door to extrinsic evidence without first
examining it. (And in reality, we believe the district court here did examine the
extrinsic evidence before discounting it.) Likewise, in undertaking our appellate
review of the district court’s ruling that the IRA should go to Joan, we too will
look at the extrinsic evidence. We consider Jeffrey’s extrinsic evidence to the
extent it “sheds light on the situation of the parties, . . . the attendant
circumstances, and the objects they were striving to attain.” Kroblin v. RDR
21
Motels, Inc., 347 N.W.2d 430, 433 (Iowa 1984). But at the end of the day, our job
is to decide what the IRA agreement says, not what Richard may have intended.
Jeffrey’s evidence cannot be used to vary the express terms of the agreement.
See id.Yet even giving Jeffrey’s extrinsic evidence every benefit of the doubt, we
too agree that the beneficiary provision transferring the IRA is unambiguous and
that Joan should receive the IRA. We are unable to accept Jeffrey’s position that
the IRA agreement makes the Family Trust the beneficiary of the IRA when that
trust is not even named in the IRA agreement. Joan must be the primary
beneficiary because that is the only interpretation that can be squared with the
actual wording of the beneficiary designation. Richard may have intended
something different, but he didn’t achieve that end. Significantly, Jeffrey hasn’t
sought reformation based on mistake. He doesn’t argue that Richard made an
inadvertent error; he argues that the Family Trust is the actual, designated
beneficiary of the IRA. Cf. Ciampa v. Bank of Am., 35 N.E.3d 765, 768–69 (Mass.
App. Ct. 2015) (discussing reformation claim where the IRA beneficiary form
named “a person who does not exist”).
Under U.S. Bank and Joan’s interpretation, there is concededly some
puzzling language in the IRA beneficiary designation. But those imperfections
pale in comparison to the difficulties with Jeffrey’s interpretation. Jeffrey would
have the IRA go to a phantom beneficiary not named in the IRA beneficiary
designation rather than the person specifically identified as the 100% primary
beneficiary. Jeffrey asks the courts to find, in effect, that the language of the
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2010 will outweighs the language of the 2010 IRA beneficiary designation, even
though the 2010 will was revoked in 2014 and the 2010 beneficiary designation
was reaffirmed in 2017.
Civil litigation is not a quest for perfection. Often judges and juries must
deal with a messy situation and decide what outcome, under the law and
evidence, makes the most sense—even if it doesn’t make perfect sense. When all
is said and done, Jeffrey’s interpretation is far more of a reach than simply
reading the IRA beneficiary designation as containing surplusage and reflecting
some misunderstanding about the marital deduction and federal income tax.
Jeffrey’s briefing does an excellent job of pointing out the flaws in U.S. Bank and
the district court’s interpretation, but he does not address the far greater flaws
in his own interpretation. We affirm the district court and the court of appeals
on this point.
C. Whether U.S. Bank Acted Improperly in Bringing This Action for
Declaratory Judgment. Jeffrey also argues on appeal that U.S. Bank was not
allowed to bring an action for declaratory judgment and initiate these
proceedings; it could only file an interpleader action. Jeffrey argues that a
conflict of interest existed between U.S. Bank’s role as estate co-executor and
IRA trustee such that U.S. Bank could not have taken a stance on interpreting
the IRA designation. Alternatively, he contends that serving as Joan’s advocate
exceeded U.S. Bank’s contractual authority. For these additional reasons, Jeffrey
asks that the judgment be reversed and this case remanded for a new trial.
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Jeffrey cites no Iowa authority in support of his position that U.S. Bank
acted beyond its authority by filing a petition for declaratory judgment rather
than an interpleader action. For example, he cites Rowen v. Le Mars Mutual
Insurance Co. of Iowa, 282 N.W.2d 639, 645 (Iowa 1979) (en banc), which is a
stockholder derivative case, not a lawsuit brought by the trustee of an account.
Our interpleader rule is discretionary; it states that “[a] person who is or
may be exposed to multiple liability or vexatious litigation because of several
claims against the person for the same thing, may bring an equitable action of
interpleader against all such claimants.” Iowa R. Civ. P. 1.251 (emphasis added).
Logically, it strikes us that this case would be in the same posture
regardless of the form of action filed by U.S. Bank. Either a declaratory judgment
or an interpleader action would have resulted in a legal determination of the IRA
beneficiaries. Jeffrey disregards the fact that Joan’s conservator appeared
through counsel and participated in the proceedings below. Joan’s conservator
examined witnesses, filed briefs, and argued—along with U.S. Bank—that Joan
was entitled to the IRA. Presumably Joan’s conservator would have done more
to carry the ball if U.S. Bank had been neutral. But the underlying facts and law
would have been the same as they are now.
The district court ultimately removed U.S. Bank as co-executor based on
a clause in the 2014 will stating that if Jeffrey was “dissatisfied with the services
provided by [U.S. Bank] . . . he may select and determine a successor corporate
Co-Executor.” But even if we assume that U.S. Bank had a conflict of interest in
serving as both co-executor and IRA custodian, Jeffrey fails to explain why that
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would necessitate a do-over of the declaratory judgment proceeding. Jeffrey does
not explain how that conflict could have affected the final interpretation of the
IRA beneficiary addendum.
In the end, Jeffrey’s arguments really go to the question of whether and
how much in attorney fees U.S. Bank is entitled to recover—an issue as to which
Jeffrey has filed a separate appeal.
V. Conclusion.
For the foregoing reasons, we affirm the judgment of the district court and
the decision of the court of appeals.
DECISION OF COURT OF APPEALS AND DISTRICT COURT JUDGMENT
AFFIRMED.
All justices concur except Waterman and May, JJ., who take no part.