DECISION/ORDER Pending before the Court is an Order to Show Cause and Petition filed by William Call, Jr., the Executor of the Estate (hereinafter referred to as “the Petitioner”), seeking an Order, pursuant to SCPA §2103(3), directing Capital Group American Funds and its agent, American Funds Service Company (hereinafter referred to as the “Respondents”), to deliver certain funds being held by them that are alleged to belong to the Estate. Specifically, the funds being withheld are the proceeds of a Capital Bank and Trust Company Traditional IRA Account ending in 6210 (hereinafter referred to as “the Account”). By Order dated May 4, 2023, the Court temporarily restrained and prohibited Respondents from making any distributions of the proceeds of the Account pending further Order of the Court. It is undisputed that the Account was owned by the Decedent at the time of his death on April 3, 2021. The 100% designated beneficiary on the Account is Jan Assmann n/k/a Jan Call, the Decedent’s wife at the time the Account was opened. There is no contingent beneficiary named. The Decedent and Ms. Call were divorced prior to the Decedent’s death pursuant to a Judgment of Divorce dated December 22, 2015, a certified copy of which has been submitted with the Petition. The Petitioner argues that pursuant to EPTL §5-1.4, the dissolution of the Decedent’s marriage to Ms. Call revoked the beneficiary designation on the Account by operation of law and therefore, the proceeds of the Account should be payable to the Estate. The Petitioner demanded payment from Respondents. Respondents will not release the funds to the Estate without a Court Order. In response to the Order to Show Cause, Respondents submitted correspondence from Amy O’Leary, Vice President and Chief Compliance Officer of Capital Bank & Trust Company (“CB&T”), an affiliate of American Funds Service Company, stating that CB&T is the custodian of the Account. CB&T is a California corporation. The Account is governed by a custodial agreement that is governed by California law. Ms. O’Leary states that under California law, an ex-spouse beneficiary designation is deemed revoked absent clear and convincing evidence that the designation was intended by the account owner to remain in place. Without such evidence, and without a named contingent beneficiary, a default designation applies as set forth in the custodial agreement. The default designation, in this case, would be the Decedent’s son. Ms. O’Leary submitted a copy of the custodial agreement for the Court’s review. Pursuant to the Court’s directive in the Order to Show Cause, the Petitioner served Ms. Call with the papers and filed proof of such service with the Court. Ms. Call did not appear on the return date of the Order to Show Cause or file any papers in opposition thereto. Accordingly, Ms. Call is in default and has waived her right to the relief requested in the Petition. Subsequent to the return date of the Order to Show Cause and as directed by the Court, the Petitioner requested Respondents to produce all documents within their possession, custody and control, bearing the Decedent’s signature. Respondents provided to the Petitioner, and the Petitioner in turn filed with the Court, a copy of the Traditional IRA Application that was signed by the Decedent on June 3, 2015. Notably, Section 9 of the application states, in pertinent part, that “I hereby…acknowledge that I have received, read and agree to the terms set forth in the American Funds Traditional or Roth IRA Custodial Agreement”. Accordingly, the Court finds that the custodial agreement governs the Account. The custodial agreement provides that it “shall be governed by, construed in accordance with and administered under the laws of the State of California”. Therefore, the Court must look to and apply California law in determining the distribution of the Account. The Court finds that the following sections of the California Probate Code apply herein and govern the distribution of the Account. California Probate Code §5040, entitled, “Failure of nonprobate transfer; Exceptions”, provides in pertinent part as follows: (a) Except as provided in subdivision (b), a nonprobate transfer1 to the transfer’s former spouse, in an instrument executed by the transferor before or during the marriage or registered domestic partnership, fails if, at the time of the transferor’s death, the former spouse is not the transferor’s surviving spouse as defined in Section 78, as a result of the dissolution or annulment of the marriage or termination of registered domestic partnership…. (b) Subdivision (a) does not cause a nonprobate transfer to fail in any of the following cases: (1) The nonprobate transfer is not subject to revocation by the transferor at the time of the transferor’s death. (2) There is clear and convincing evidence that the transferor intended to preserve the nonprobate transfer to the former spouse…. (c) Where a nonprobate transfer fails by operation of this section, the instrument making the nonprobate transfer shall be treated as it would if the former spouse failed to survive the transferor….2 Applying the above provisions of California law to this matter, the Court finds that the beneficiary designation of the Decedent’s former spouse fails because the designation was revocable and there is no clear and convincing evidence before the Court that the Decedent intended to preserve his designation of his former spouse on the Account after their divorce.3 Therefore, the former spouse is treated as if she failed to survive, or predeceased, the Decedent. California Probate Code §21111, entitled, “Failed transfer”, governs the distribution of property in the event of a failed transfer. This section provides in pertinent part as follows: (a)…if a transfer fails for any reason, the property is transferred as follows: (1) If the transferring instrument provides for an alternative disposition in the event the transfer fails, the property is transferred according to the terms of the instrument. (2) If the transferring instrument does not provide for an alternative disposition but does provide for the transfer of a residue, the property becomes a part of the residue transferred under the instrument. (3) If the transferring instrument does not provide for an alternative disposition and does not provide for the transfer of a residue, or if the transfer is itself a residuary gift, the property is transferred to the decedent’s estate. While Respondents are correct in that the custodial agreement provides for an alternative disposition in the event that the beneficiary designation fails, which in this case would be to the Decedent’s son, the Court finds that the Decedent opted out of this alternative disposition as reflected in Section 4 of the Traditional IRA Application. This section of the application provided two (2) options to choose from, to wit: A. Automatic Beneficiary Designation Default, as set forth in the custodial agreement; or B. Alternate Beneficiary Designation. The application states that Option B should only be selected “if you do not want the default designation offered in the Custodial Agreement and as described in A above” [emphasis in original]. The Decedent selected Option B and named his then-current spouse as his 100 percent primary beneficiary. He did not name anyone as a contingent beneficiary. Since the Decedent opted out of the default designation offered in the custodial agreement, the Court finds that there is no alternative disposition contained in the agreement. Nor does it provide for the transfer of a residue. Accordingly, pursuant to California Probate Code §21111(a)(3) above, the Account must be transferred to the Decedent’s Estate. The Court finds that this determination is consistent with the Decedent’s testamentary intent. The Decedent executed a Last Will and Testament, which has been probated. California Probate Code §21102, entitled, “Intention of testator”, provides as follows: (a) The intention of the transferor as expressed in the instrument controls the legal effect of the dispositions made in the instrument. (b) The rules of construction in this part apply where the intention of the transferor is not indicated by the instrument. (c) Nothing in this section limits the use of extrinsic evidence, to the extent otherwise authorized by law, to determine the intention of the transferor. The Decedent expressed his intention in the Traditional IRA Application that he did not want the default designation offered by the custodial agreement to apply. The Decedent’s expressed intention that the entire Account be paid to his spouse, and if he did not have a spouse, then to his Estate, must control. Accordingly, based on the foregoing, the Petition is hereby granted. Respondents are hereby directed to turn over the proceeds of the Account to the Petitioner, in his fiduciary capacity as the Executor of the Decedent’s Estate, within thirty (30) days of the date of this Decision and Order. Upon receipt of the funds, the Petitioner shall treat the Account as part of the rest, residue and remainder of the Estate, to be distributed pursuant to the terms of the Decedent’s Last Will and Testament, dated December 1, 2010. The foregoing shall constitute the Decision and Order of this Court. Dated: November 1, 2023
