In the Matter of the Estate of Joseph C. Gantner III, Rachel Gantner

IN THE SUPREME COURT OF IOWA
No. 16–1028
Filed April 21, 2017
IN THE MATTER OF THE ESTATE OF
JOSEPH C. GANTNER III, Deceased
RACHEL GANTNER,
Appellant.
Appeal from the Iowa District Court for Linn County,
Sean McPartland, Judge.
A surviving spouse appeals the denial of an application for
temporary spousal support. AFFIRMED.
Benjamin M. Lange of Swisher & Cohrt, P.L.C., Independence, for
appellant.
Abbe M. Stensland and Crystal R. Pound of Simmons Perrine
Moyer Bergman PLC, Cedar Rapids, for appellees.
2
MANSFIELD, Justice.
This case requires us to determine whether a decedent’s individual
retirement accounts (IRAs) may be used to pay an allowance to a
surviving spouse who was not a beneficiary of those IRAs. The spouse
argues that under Iowa Code section 633D.8, she may reach the IRAs
because they were “a transfer at death of a security registered in
beneficiary form.” We conclude otherwise. In our view, an IRA is a
multifaceted crystallization of federal tax law. It is not a security or
securities account registered in beneficiary form whose ownership
automatically transfers to a beneficiary on death. Accordingly, we affirm
the judgment of the probate court.
I. Background Facts and Proceedings.
Joseph Gantner died on December 10, 2015, survived by his wife,
Rachel Gantner, and two daughters, Meredith and Paige Gantner, aged
twenty-three and twenty years old. Joseph had previously executed a
will that provided for the distribution of his personal property and
established a trust for the benefit of his daughters. The will also left
ninety percent of Joseph’s residual estate to his daughters. Joseph’s will
was admitted to probate on February 2, 2016, and a bank was appointed
executor that same day.
On February 16, Rachel Gantner filed for an elective share of
Joseph’s estate and also requested a spousal support allowance. See
Iowa Code §§ 633.236, .374 (2016). In her application for spousal
support, Rachel sought a $4000 per month allowance based on her
station in life and living arrangements during the marriage.
Meredith and Paige jointly resisted Rachel’s application for spousal
support. Of particular relevance to this appeal, the daughters
maintained that several retirement accounts did not constitute part of
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the probate estate and were therefore beyond the reach of Rachel’s
spousal allowance. The daughters also submitted an unsigned and
undated prenuptial agreement between Joseph and Rachel that
purported to waive spousal support rights.
A preliminary inventory of Joseph’s estate was filed by the
executor. The report indicated that Joseph individually owned real
estate in Cedar Rapids and jointly owned real estate in Hiawatha with
Rachel. The report also showed Joseph as holding three separate
retirement accounts—two IRAs and one account identified on the report
as an “SEP with Hartford Funds,” presumably a simplified employee
pension IRA (SEP IRA). 1 The executor valued the accounts at a combined
$214,100 and confirmed that Meredith and Paige were their
cobeneficiaries.
The probate court held an unreported hearing on Rachel’s
application for spousal support allowance on April 1. At the hearing, it
became clear that without the retirement accounts, Joseph’s estate had
insufficient assets from which to pay a spousal allowance to Rachel.
Following the hearing, Meredith and Paige filed several summary
documents concerning the three retirement accounts.
While Rachel acknowledged the Gantner daughters were
designated as cobeneficiaries on all three retirement accounts, she
maintained the accounts should be deemed part of Joseph’s estate for
spousal support purposes. Rachel pointed to Iowa Code section
633D.8(1), which provides that “a transfer at death of a security
registered in beneficiary form is not effective against the estate of the
1An SEP is a form of an IRA where the employer makes contributions. See 26
U.S.C. § 408(k) (2012).
4
deceased sole owner . . . to the extent needed to pay . . . statutory
allowances to the surviving spouse.” Iowa Code § 633D.8(1). Because
the investment holdings within the retirement accounts were likely
mutual funds or index funds, Rachel argued those accounts should be
considered “securities” within the meaning of the statute.
The Gantner daughters disputed that either an IRA or a SEP IRA
qualifies as a “security” under section 633D.8(1). The daughters
reasoned that the retirement accounts were not securities simply
because they contained securities. Meredith and Paige also argued that
the definition of “security” within the Uniform Iowa Securities Act
specifically excludes any interest in a pension or welfare plan subject to
the Employee Retirement Income Security Act of 1974 (ERISA). See id.
§ 502.102(28)(c)(1). On these grounds, the Gantner daughters
maintained that the accounts were unavailable to pay any spousal
support for Rachel.
In a written order, the probate court denied Rachel’s application
for spousal allowance. Rather than focusing on the meaning of the term
“security” as used in section 633D.8(1), the court concluded that the
retirement accounts were not available for spousal support purposes
because they were nonprobate assets. Relying on our decision in In re
Estate of Myers, 825 N.W.2d 1 (Iowa 2012), the court determined that the
proceeds from each retirement account became the personal property of
the Gantner daughters at the time of Joseph’s death because they had
passed outside the estate. The court further concluded that “legislation
would be required in order to make the beneficiary accounts available to
satisfy a spousal allowance.”
Rachel appealed, and we retained the appeal.
5
II. Standard of Review.
A claim for spousal support under Iowa Code section 633.374 is
tried in equity, and we review a court’s ruling on an application for
spousal support for abuse of discretion. See Iowa Code § 633.33; In re
Estate of Sieh, 745 N.W.2d 477, 479 (Iowa 2008). However, “when there
are no disputed facts and the appeal turns on whether the probate
court’s interpretation of a statute was erroneous, . . . our review is for
corrections of errors of law.” Myers, 825 N.W.2d at 3–4.
III. Analysis.
A surviving spouse has a statutory right to submit an application
“for support for a period of twelve months following the death of the
decedent.” Iowa Code § 633.374(1). Section 633.374 provides in
relevant part,
The court shall, upon application, set off and order paid to
the surviving spouse, as part of the costs of administration,
sufficient of the decedent’s property including assets held in
a revocable trust of which the decedent is the settlor to the
extent that estate assets are not sufficient as it deems
reasonable for the proper support of the surviving spouse for
the period of twelve months following the death of the
decedent. . . . The court shall take into consideration the
station in life of the surviving spouse, the assets and
condition of the estate and any revocable trust of which the
decedent is the settlor, the nonprobate assets received by the
surviving spouse by reason of the death of the decedent, and
the income and other resources of the surviving spouse.
Id. § 633.374(2).
We have long held that a surviving spouse is entitled to an
allowance from estate property under this statute as a matter of right. In
re Estate of Tollefsrud, 275 N.W.2d 412, 415 (Iowa 1979); see Veeder v.
Veeder, 195 Iowa 587, 597, 192 N.W. 409, 413 (1923); 1 Sheldon F.
Kurtz, Kurtz on Iowa Estates: Intestacy, Wills, and Estate Administration
§ 8.24, at 341 (3d ed. 1995) (“The surviving spouse’s right to an
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allowance is nearly absolute.”). In this case, we consider the property
from which the allowance may be drawn—in particular, whether a court
may order a spousal allowance to be taken from IRAs of the decedent
that designated someone other than the spouse as beneficiary.
Because the probate court relied on our decision in In re Estate of
Myers, we will begin our discussion with that case. The issue in Myers
was “whether a surviving spouse’s elective share, as defined in Iowa Code
section 633.238 . . . , includes pay-on-death (POD) assets.” 825 N.W.2d
at 2. In that case, the decedent, Karen Myers, left virtually no
individually owned assets to her husband in her will aside from some
household furnishings. Id. The husband filed for an elective share
under section 633.238 and later assigned that right to several other
entities. Id. at 2–3. The assignees requested that the probate court
determine whether certain POD assets were available for the husband’s
elective share. Id. at 3. The probate court determined that because
those assets were within the decedent’s control before her death, they
should be available. Id.
We reversed on appeal, holding that “only the assets specifically
enumerated in section 633.238 may be included in the surviving
spouse’s elective share.” Id. at 8. Because POD accounts and annuities
were not mentioned in the statute, they could not be included in a
spouse’s elective share. Id. 2 Thus, to the extent the assignees in Myers
had a different view, we said their argument was “properly directed to the
legislature.” Id.
2Ina footnote, we observed that “[a]lthough the accounts in this case were POD
accounts, the same analysis would apply to transfer-on-death (TOD) accounts.” Myers,
825 N.W.2d at 2 n.1.
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Similar to the POD assets in Myers, the IRA and SEP IRA accounts
at issue here pass outside of the probate estate. Iowa Code section
633.357 directly resolves this issue:
The assets of a custodial independent retirement account
shall pass on or after the death of the designator of the
custodial independent 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.
Assets that pass to a beneficiary pursuant to this section shall
not be considered part of the designator’s probate estate
except to the extent that the designator’s estate is a
beneficiary.
Iowa Code § 633.357(2) (emphasis added). Section 633.357(1)(a) defines
“custodial independent retirement account” as including “an individual
retirement account in accordance with section 408(a) of the Internal
Revenue Code.” Id. § 633.357(1)(a). Traditional IRAs fall directly under
26 U.S.C. § 408(a), and SEP IRAs are simply a specialized form of IRA
and thus are likewise covered by § 408(a). See 26 U.S.C. § 408(a), (k)(1)
(2012).
Rachel, however, maintains that the provisions of Iowa Code
chapter 633D, the Iowa Uniform Transfer on Death (TOD) Security
Registration Act, apply in this case to expand the scope of assets
available for a surviving spouse’s statutory allowance. See Iowa Code
ch. 633D. Specifically, section 633D.8(1) provides,
If other assets of the estate of a deceased owner are
insufficient to pay debts, taxes, and expenses of
administration, including statutory allowances to the
surviving spouse and children, a transfer at death of a
security registered in beneficiary form is not effective against
the estate of the deceased sole owner . . . to the extent
needed to pay debts, taxes, and expenses of administration,
including statutory allowances to the surviving spouse and
children.
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Id. § 633D.8(1). Rachel contends that this statute allows TOD securities
to be used to pay a surviving spouse’s statutory allowance despite the
fact they are nonprobate assets. The only issue open to debate, she
insists, is “whether or not these individual retirement accounts are
‘securities’ within the meaning of Iowa Code § 633D.8(1).”
We agree with Rachel that Iowa Code section 633D.8 specifically
authorizes TOD securities to be used for “statutory allowances to the
surviving spouse.” Id. Unlike section 633.238—the statute involved in
Myers—section 633D.8 unambiguously allows a claim for spousal
allowance to proceed in defined circumstances, namely, as against any
“transfer at death of a security registered in beneficiary form.” Id.; see
also Myers, 825 N.W.2d at 7 n.8 (“[Section 633D.8(1)] allow[s] POD
accounts and securities to be reached to satisfy certain obligations of the
estate, yet [it] do[es] not mention elective share rights.”). Thus, Myers is
not controlling here and we instead need to ascertain the meaning of
chapter 633D.
Like many other uniform state laws, Iowa Code chapter 633D is
essentially self-contained. 3 Section 633D.5 provides that “[a] security,
whether evidenced by a certificate or account, is registered in beneficiary
form when the registration includes a designation of a beneficiary to take
the ownership at the death of the owner.” Iowa Code § 633D.5.
“Registration in beneficiary form” may be demonstrated by the terms
“transfer on death” or “pay on death,” or the abbreviations “TOD” or
3An explanation of the 1997 legislation enacting chapter 633D provides that the
bill “adopts the uniform [TOD] security registration Act as approved and recommended
by the national conference of commissioners on uniform state laws.” S.F. 241, 77th
G.A., 1st Sess., explanation (Iowa 1997); see 1997 Iowa Acts ch. 178, §§ 17–29 (now
codified as amended at Iowa Code § 633D.1–.12). We have not interpreted the
provisions of Iowa’s Uniform TOD Security Registration Act since its adoption.
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“POD.” Id. § 633D.6. Valid registration “has no effect on ownership until
the owner’s death,” id. § 633D.7, but upon the death of the owner,
“ownership of the securities registered in beneficiary form passes to the
beneficiary or beneficiaries who survive all owners,” id. § 633D.9. Hence,
“[a] transfer on death resulting from a registration in beneficiary form
shall be effective by reason of the contract regarding the
registration . . . and is not testamentary.” Id. § 633D.11(1).
The obvious intent of chapter 633D is to allow the transfer of
certain statutorily defined securities from owner to beneficiary outside of
the probate process. See S.F. 241, 77th G.A., 1st Sess., explanation
(Iowa 1997) (“The bill provides that a person . . . may transfer the
securities directly to the designated transferee on the owner’s death,
passing outside the probate process.”).
We must now determine whether Joseph’s IRAs and SEP IRA are
covered by chapter 633D as TOD securities. For purposes of chapter
633D, the term “security” means “a security as defined in section
502.102,” and “includes, but is not limited to, a certificated security, an
uncertificated security, and a security account.” Iowa Code § 633D.2(6).
The term “security account” encompasses six distinct items, as we shall
discuss below. See id. § 633D.2(7).
Section 502.102, meanwhile, provides the following comprehensive
definition of “security”:
“Security” means a note; stock; treasury stock; security
future; bond; debenture; evidence of indebtedness; certificate
of interest or participation in a profit-sharing agreement;
collateral trust certificate; preorganization certificate or
subscription; transferable share; investment contract; voting
trust certificate; certificate of deposit for a security; fractional
undivided interest in oil, gas, or other mineral rights; put,
call, straddle, option, or privilege on a security, certificate of
deposit, or group or index of securities, including an interest
therein or based on the value thereof; put, call, straddle,
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option, or privilege entered into on a national securities
exchange relating to foreign currency; or, in general, an
interest or instrument commonly known as a “security”; or a
certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or
right to subscribe to or purchase, any of the foregoing.
Id. § 502.102(28); see also id. § 502.102(28)(a), (d)–(f). However, security
does not include “[a]n interest in a contributory or noncontributory
pension or welfare plan subject to [ERISA].” Id. § 502.102(28)(c)(1); 4 see
also id. § 502.102(28)(b), (c)(2).
“When we are asked to interpret a statute, we apply well-settled
principles of statutory interpretation.” DuTrac Comm. Credit Union v.
Hefel, ___ N.W.2d ___, ___ (Iowa 2017). When the legislature defines
terms in a statute, “we are normally bound by the legislature’s own
definitions.” Sherwin-Williams Co. v. Iowa Dep’t of Revenue, 789 N.W.2d
417, 425 (Iowa 2010) (quoting State v. Fischer, 785 N.W.2d 697, 702
(Iowa 2010)); cf. Auen v. Alcoholic Beverage Div., 679 N.W.2d 586, 590
(Iowa 2004) (recognizing that we may not “extend, enlarge or otherwise
change the meaning of a statute” “[u]nder the guise of construction”).
“[W]e read statutes as a whole rather than looking at words and phrases
in isolation.” Iowa Ins. Inst. v. Core Grp. of Iowa Ass’n for Justice, 867
N.W.2d 58, 72 (Iowa 2015). Further “[w]e read related statutes together
4Notably, on appeal, neither party focuses on the language in section 502.102
excluding any interest in a “pension or welfare plan subject to [ERISA].” Iowa Code
§ 502.102(28)(c)(1). In general, courts have held that traditional IRAs formed in
accordance with § 408(a) of the Internal Revenue Code are not subject to ERISA. See
Charles Schwab & Co. v. Debickero, 593 F.3d 916, 919 (9th Cir. 2010). On the other
hand, SEP IRAs, which by definition have been set up by an employer, are subject to
certain requirements under ERISA. See Garratt v. Walker, 164 F.3d 1249, 1251 (10th
Cir. 1998); see also VFS Fin., Inc. v. Elias-Savion-Fox LLC, 73 F. Supp. 3d 329, 340 fn.5
(S.D.N.Y. 2014) (citing several cases and recognizing that an SEP “is within ERISA’s
scope”). As discussed herein, we ultimately conclude none of the IRAs meet the chapter
633D definition of “security” for other reasons. Thus, we do not need to address
whether the carve-out for interests in plans subject to ERISA also would apply here.
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and attempt to harmonize them.” Iowa Individual Health Benefit Reins.
Ass’n v. State Univ. of Iowa, 876 N.W.2d 800, 805 (Iowa 2016) (quoting In
re A.M., 856 N.W.2d 365, 372 (Iowa 2014)).
An IRA (whether traditional or SEP) is not in itself a stock, bond,
interest or other form of “security” as defined in section 502.102. Often,
an IRA contains these securities. So, we focus on the latter part of the
definition in Iowa Code section 633D.2(6), which says that a security also
includes “a security account.” Is an IRA or an SEP a security account?
The statutory definition is quite specific. A security account
“means” (rather than “includes”) six separate items. When a statute
declares what a term “means,” this usually excludes any items not listed
in the definition. See 2A Norman J. Singer & Shambie Singer, Statutes
and Statutory Construction § 47:7, at 310–12 (7th rev. ed. 2014); cf.
Estate of Bockwoldt, 814 N.W.2d 215, 224 (Iowa 2012) (“A statute that
‘declares what it “includes” is more susceptible to extension of meaning
by construction than where the definition declares what a term
“means.” ’ ” (quoting 2A Normal J. Singer & J.D. Shambie Singer,
Sutherland Statutory Construction § 47:7, at 305 (7th ed. 2007)); Am.
Eyecare v. Dep’t of Human Servs., 770 N.W.2d 832, 837 (Iowa 2009).
The items listed in the definition are (1) a reinvestment account for
a security, i.e., where a security is purchased and then automatic
reinvestments of the earnings in additional purchases of that security
occur; (2) a securities account with a broker; (3) a cash balance in a
brokerage account; (4) earnings on one of the foregoing; (5) a cash
balance in an account held as a replacement for, or product of, an
account security; or (6) an investment management or custody account
with a bank or trust company including the securities, cash, and earning
therein. Iowa Code § 633D.2(7).
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Reading chapter 633D as a whole, we do not think an IRA qualifies
as a security account. An IRA is not just an account owned by an
individual. It is a form of trust. See 26 U.S.C. § 408(a) (defining an IRA
as “a trust created or organized in the United States for the exclusive
benefit of an individual or his beneficiaries”). It is true that an IRA is
often set up through a custodial account. See 26 C.F.R. § 1.408–2(a)
(2007) (“An individual retirement account must be a trust or a custodial
account . . . .”). And we recognize that in Bielat v. Bielat, 721 N.E.2d 28,
39–40 (Ohio 2000), the court assumed that Ohio’s version of the uniform
TOD security registration act applied to a designation of a beneficiary on
an IRA account containing securities. See also In re Estate of Gloege,
649 N.W.2d 468, 473 (Minn. Ct. App. 2002) (assuming the TOD statute
applied and concluding that words such as “transfer on death” did not
need to appear on each periodic statement for an SEP IRA to be
adequately registered).
However, to us it is critical that upon the death of the individual,
the account does not become de facto the property of the beneficiary or
beneficiaries. “If you inherit a traditional IRA from anyone other than
your deceased spouse, you cannot treat the inherited IRA as your own.”
IRS, Publication 590-B: Distributions from Individual Retirement
Arrangements (IRAs) 5 (2016). The beneficiary cannot roll over the IRA
into his or her own IRA. See 26 U.S.C. § 408(d)(3)(C). “[T]he only option
is to hold the IRA as an inherited account.” Clark v. Rameker, 573 U.S.
___, ___, 134 S. Ct. 2242, 2245 (2014). “[A] beneficiary must maintain
the [inherited] account in the decedent’s name and take a distribution of
all benefits within either five years or, if an election is made, over the
beneficiary’s remaining life expectancy in accordance with IRS tables.”
Jeffrey Cymrot & Donald R. Lassman, Inherited IRAs: Exemption Issues
13
Under the Code, Am. Bankr. Inst. J. 1–2 (May 2011). In short, the
nonspouse beneficiary has a right (indeed an obligation) to take
distributions from the IRA, but does not take title to the IRA.
Thus, an IRA does not and cannot literally “transfer on death” to
anyone other than a spouse. See Iowa Code § 633D.6 (describing how
registration in beneficiary form may be shown). The beneficiary does not
and cannot take “the ownership [of the account] at the death of the
owner.” Id. § 633D.5. Although section 633D.9 literally provides that on
the death of owner, the account ownership “passes to” the beneficiary or
beneficiaries, id. § 633D.9, this is not possible under federal law with
respect to a nonspouse’s interest in an IRA. Hence, there is no way
under federal law for an IRA to conform to chapter 633D’s specifications
for a TOD account.
The presence of Iowa Code section 633.357 further strengthens our
conviction that chapter 633D does not pertain to IRAs. Two years after
chapter 633D was enacted in 1997, the legislature adopted section
633.357 covering custodial independent retirement accounts, a provision
we discussed earlier. See 1999 Iowa Acts ch. 56, § 4. Section 633.357
provides that
[t]he assets of a custodial independent retirement account
shall pass on or after the death of the designator of the . . .
account to the beneficiary or beneficiaries specified in
the . . . account agreement . . . pursuant to the . . . account
agreement.
Iowa Code § 633.357(2). It further provides that the assets that pass
pursuant to this section “shall not be considered part of the designator’s
probate estate.” Id.
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Thus, in 1999, the general assembly decided to enact a specific,
separate statute governing custodial IRA accounts. As the bill
explanation stated,
The bill creates a new Code section 633.357 to provide
that the beneficiary designation by the owner of a custodial
independent retirement account controls the distribution of
the benefits and the account is not a part of the
testamentary disposition of a deceased owner subject to the
terms of the will of the owner unless the designated
beneficiary of the account is the estate of the owner.
H.F. 662, 78th G.A., 1st Sess., explanation (Iowa 1999).
Unlike chapter 633D, this statute correctly characterizes the
process by which the benefits of IRAs flow to the beneficiaries—i.e., not
through a direct transfer of ownership of the account but through
passage of “[t]he assets” thereof in accordance with the “independent
retirement account agreement.” Iowa Code § 633.357(2). Moreover,
unlike chapter 633D, this statute does not subject custodial IRA
accounts to the temporary spousal allowance.
Yet if chapter 633D already covered custodial IRAs in the manner
desired by the legislature, it would have been largely if not entirely
unnecessary for the legislature to enact section 633.357 as part of its
1999 package. See Iowa Code § 4.4(2) (setting forth the presumption
that “[t]he entire statute is intended to be effective”); Exceptional Persons,
Inc. v. Iowa Dept. of Human Servs., 878 N.W.2d 247, 251 (Iowa 2016)
(noting that we assume “no part of an act is intended to be superfluous”
(quoting TLC Home Health Care, L.L.C. v. Iowa Dep’t of Human Servs.,
638 N.W.2d 708, 713 (Iowa 2002))).5
5The Iowa Code section 502.102(28) definition of a security—which chapter
633D incorporates—is broad and includes notes, stocks, bonds, and certificates of
deposit. See Iowa Code § 502.102(28). It is possible section 633.357 reaches some
additional assets that can be held in an IRA custodial account but do not qualify as
15
IV. Conclusion.
For the foregoing reasons, we conclude that chapter 633D does not
apply to an IRA where one or more nonspouses are designated the
beneficiaries. Therefore, we affirm the probate court’s judgment that
Joseph’s IRAs were not available to pay a spousal allowance to Rachel.
AFFIRMED.
_____________________________________
securities, such as noncollectible gold, silver, and platinum. See 26 U.S.C. § 408(m)(3).
Still, it is difficult to conceive of a reason why the legislature would have enacted
633.357 as written if chapter 633D already dealt with IRA custodial accounts
containing securities.