Opinion
Nos. 49085-1-I, 49146-6-I.
Filed: February 18, 2003. DO NOT CITE. SEE RAP 10.4(h). UNPUBLISHED OPINION
Appeal from Superior Court of Snohomish County, No. 004001440, Hon. Joseph Thibodeau, August 1, 2001, Judgment or order under review.
Counsel for Appellant(s), David T. Lyons, 900 4th Ave Ste 4050, Seattle, WA 98164-1001.
Counsel for Defendant(s), Larry C. Leonardson, Frits Knowles Leonardson Pllc, P.O. Box 804, Bothell, WA 98041-0804.
Counsel for Respondent(s), J. B. Meagher, 6324 Broadway Ave, Everett, WA 98203.
In Washington, neither spouse has the power to dispose of community property by gift, inter vivos transfer, or testamentary instrument, except with the consent of the other. Such gifts are invalid and subject to being set aside. Where the power is improperly exercised by a will designating whole interests in community property to named beneficiaries other than the surviving spouse, that spouse is put to an election. This 'widow's election' requires the surviving spouse to elect to take under the will, or to take a one-half interest in the community property but nothing under the will. Ray did attempt to improperly dispose of community property, both outside of and by a will. The gifts are invalid as to Colleen's undivided one-half interest, but as to the testamentary dispositions she must elect.
FACTS
Ray G. McBride was married to his wife Colleen for 33 years. Ray and Colleen had no children of their own, but Ray had six children from a previous marriage. Five of his children survive him. The day before they married, Ray had Colleen sign a separate property agreement, subsequently declared void. During the marriage, Ray commingled separate assets with community assets such that all of his property became community property.
In 1997, Ray executed a will in Arizona in which he disposed of his property, specifically attempting to confirm gifts of community property that he mistakenly believed to be his separate property. At the time Ray was under a misconception as to the nature of his property. He believed the prenuptial agreement was in effect and that he was disposing of separate property. In January 2000, Ray died. Two of his children were named co-personal representatives of his estate. Colleen petitioned the court for an award of her interest in the community property that Ray attempted to give to others. Colleen claimed a portion of the assets that Ray attempted to confirm through his will, as well as other assets that were not initially subject to testamentary disposition. Colleen argued that she was entitled to her one-half interest of all community property, plus Ray's community interest in the two houses which he bequeathed to her in his will.
After a hearing on the petition, the trial court found that the separate property agreement executed on the eve of marriage was unfair and void because it did not make provision for Colleen and she was not advised of her right to independent counsel. That holding is not in dispute on appeal. Second, because the properties had been so commingled over the years and because Ray failed to take any steps to maintain the separateness of his business interests, the trial court found that Ray owned no separate property and that all of his property was community property. This holding is also not in dispute on appeal. Third, the trial court held that the State of Washington follows the item theory with regard to community property. The trial court held that Ray attempted to dispose of more than his one-half interest in a portion of his community property assets without the express or implied consent of Colleen. The trial court then applied RCW 11.02.070, and confirmed a one-half share of the community property to Colleen, and found only the other one-half share of the community property subject to testamentary disposition by Ray.
This theory provides that each spouse owns an undivided one-half interest in each community property asset, and may not dispose of more than his or her one-half interest either by gift or testamentary devise without the express consent of the other spouse.
RCW 11.02.070 provides:
Except as provided in RCW 41.04.273 {retirement system slayer statute} and 11.84.025 {disposition of proceeds of retirement system to slayer}, upon the death of a decedent, a one-half share of the community property shall be confirmed to the surviving spouse, and the other one-half share shall be subject to testamentary disposition by the decedent, or shall descend as provided in chapter 11.04 RCW. The whole of the community property shall be subject to probate administration for all purposes of this title, including the payment of obligations and debts of the community, the award in lieu of homestead, the allowance for family support, and any other matter for which the community property would be responsible or liable if the decedent were living. (Emphasis added.)
Thus, under the will, the trial court confirmed only Ray's community one-half share of the unnamed beneficiary portion of Ray's investment accounts to the residuary beneficiaries, but confirmed Ray's community interest in the McBride homes in Monroe, Washington and Sun City West, Arizona to Colleen. During his lifetime Ray used community funds to purchase various joint annuity contracts in his name and in the name of his children as beneficiaries. The trial court determined that Ray purchased these contracts without the knowledge or consent of Colleen. The trial court held that she was entitled to her one-half share of these contracts. Ray also attempted to make gifts of community funds to his children by purchasing accounts or annuity contracts solely in their names. Again, the trial court found that Ray did not obtain the consent or agreement of Colleen for these gifts or purchases. In addition, the trial court refused to apply the statute of limitation to negate the surviving spouse's challenge to the purported inter vivos gifts because it found that Colleen did not know of the gifts until Ray's death.
The trial court found that after Ray's death, some of his children cashed out a number of these annuity contracts, despite being advised against it.
The proceeds were in the control of the children or the estate and the trial court ordered that Colleen receive one-half the value of these assets. Because many of these accounts had been cashed out, the trial court granted money judgments equal to one-half of the date of death value against the individual child/owner and the estate. Ray and Colleen also used joint funds to purchase an Allstate Life Insurance Company annuity contract, with title taken as joint owners. Ray was the primary annuitant owner, with Colleen as the contingent annuitant owner. Two of Ray's children were named as designated beneficiaries. The trial court held that under the terms of the annuity Colleen was entitled to receive all of the proceeds as the contingent owner.
The trial court also ordered that licensed vehicles, a car, a motor home, and a pickup truck, be sold and awarded Colleen one-half of the proceeds, with the remaining going into the residuary of the estate.
The estate and Ray's children appeal the decisions of the trial court under two cause numbers, consolidated on appeal. Their principal contention is that the circumstances of this case required that the trial court find Colleen was subject to a widow's election as to the entirety of the estate.
In short, they argue that she could not take all of the two houses bequeathed her in the will while asserting her rights to her one-half interest in the remainder of the estate. So stated, we agree. Colleen was put to an election and on remand she will have to determine if she wishes to renounce the bequest of Ray's interest in the two homes.
DISCUSSION
The circumstances here are remarkably similar to those of the signal case, In re Estate of Patton, which we find directly applicable. The Pattons were married for 32 years and had no children together. John Patton, however, had two children from a previous marriage. In his will, John gave all items of property that were in both his and his wife's name to his wife, and the remainder of his estate, which he termed 'all other property', he gave to his children. The Patton court first determined that it was John's intent to give to his wife the whole interest in the property jointly held by him with her, and to devise to the children the whole interest in all the other community property. This he could not do. Indeed, as the Patton court recognizes, some courts have called any attempt to dispose of the rights of a spouse in community property without the consent of that spouse a fraud on the community and void ab initio.
In re Estate of Patton, 6 Wn. App. 464, 494 P.2d 238 (1972).
Patton, 6 Wn. App. at 470-71.
Patton, 6 Wn. App. at 472 (citing In re Estate of Yiatchos, 60 Wn.2d 179, 373 P.2d 125 (1962)).
The Patton court faced this question in order to assess the nature of the harm to the community; whether to view that harm from the perspective of the aggregate of the community estate, or from that of each item improperly disposed. The Patton court opted for the item theory, finding it consistent with the lack of power for either spouse to make a gift of community property to third parties without consent (such gifts are invalid) and with prior case law regarding testamentary dispositions (any attempt to dispose of the other spouse's community interest is invalid). The court then stated the remaining question as follows:
Patton, 6 Wn. App. at 476-77.
Having determined that the testator purported to dispose of more than his share of community property by including the entire community estate in his plan of testamentary disposition, we are faced with the troublesome question of whether the widow must, in such circumstances, elect either to renounce her community property right in each item of property and assent to the will, or to insist upon her community interest and take independently of the will.
Patton, 6 Wn. App. at 477 (footnote omitted).
And, the answer was:
To create the necessity for a widow's election upon the husband's death, there must appear on the face of the husband's will a clear and unmistakable intention to dispose of property which is not in fact his own and which was not within his power of disposition. Herrick v. Miller, 69 Wn. 456, 125 P. 974 (1912); Andrews v. Kelleher, 124 Wn. 517, 214 P. 1056 (1923); Collins v. Collins, {152 Wn. 499, 278 P. 186 (1929)}. It has been determined that it is immaterial whether the testator knew the property he purported to dispose of in his will was not within his power of disposition, or whether he erroneously believed it to be, because, in either case, if the intention to dispose of it specifically appears, the necessity for an election exists. Andrews v. Kelleher, supra. See In re Estate of Cooper, 32 Wn.2d 444, 202 P.2d 439 (1949).
It is of no consequence that the testator here may have improperly interpreted the law or otherwise erroneously conceived it to permit disposition of whole interests in community assets if such disposition would not violate his wife's interest in the community estate when viewed in the aggregate, because so long as his intention to make such disposition appears, as we have found it does, the necessity for an election exists.
The doctrine of election was succinctly described in Tacoma Sav. Loan Ass'n v. Nadham, 14 Wn.2d 576, 596, 128 P.2d 982 (1942):
The doctrine of 'election,' as applied to the law of wills, means simply that one who takes under a will must conform to all its provisions, and if he accepts a benefit thereunder he must renounce every right inconsistent therewith. {Citations omitted.}.
We conclude that the respondent widow must elect to take either under the will, or independently of it.
Patton, 6 Wn. App. at 477-78 (footnote omitted).
The same result follows in this case.
It is clear that Ray intended to dispose of the whole of the community property. It is of no moment that this resulted from a misguided belief that it was his separate property. Ray's attempts to dispose of the bulk of the personal property outside of the estate and outside of probate by giving the whole of those assets to someone other than Colleen are invalid, at least as to Colleen's undivided one-half interest in them. That is what the trial court recognized and that is what the trial court's judgment accomplishes. However, as to the remaining property subject to testamentary disposition, it is clear that Colleen must make the widow's election; she can take all of the two homes and none of the Merrill Lynch accounts, all as bequeathed in the will, or she can renounce the bequest and elect to take her community one-half interest. Next, with regard to the Allstate annuity, the estate and Ray's children argue that the trial court erred in determining that Colleen, the joint owner and contingent annuitant, was entitled to the entire annuity asset in light of the fact that there were also designated beneficiaries along with a group insurance certificate amendment to the policy.
The construction of a contractual insurance policy provision is a question of law and therefore subject to de novo appellate review. Resort to the annuity contract and to the group insurance certificate amendment shows that Colleen, as the joint owner and contingent annuitant, is entitled to the entire annuity at the time of the death of the primary annuitant, Ray. Under the Allstate single premium deferred annuity contract, Ray and Colleen purchased an annuity for a premium of $96,620.09.
Queen City Farms, Inc. v. Cent. Nat'l Ins. Co., 64 Wn. App. 838, 853, 827 P.2d 1024 (1992) (citing Grange Ins. Co. v. Brosseau, 113 Wn.2d 91, 95, 776 P.2d 123 (1989) (citing Sears v. Grange Ins. Ass'n, 111 Wn.2d 636, 638, 762 P.2d 1141 (1988))), aff'd, 126 Wn.2d 50 (1994).
The funds were paid in community funds, a joint account bearing the names of both Ray and Colleen. Ray was the named annuitant. Colleen was named the contingent annuitant of the contract which plainly stated that the contingent annuitant becomes the annuitant if the first annuitant dies prior to the income starting date. The contract provided for the distribution of annuity income starting in 2003.
The estate relies on a separate undated group insurance certificate amendment which does not specifically reference the McBride annuity. Even if this amendment is to be incorporated, the position taken by the co-personal representatives is incorrect. The amendment first states that for purposes of these provisions only the 'designated beneficiary' is:
1. the Beneficiary as defined on Pages 5 and 6 of the Certificate when the Owner and the Annuitant are the same person and the death benefit becomes payable under the Certificate; or 2. the Joint Owner or Contingent Owner who becomes the Owner upon the prior Owner's death and who is the owner at the time we make the required distribution; or, if none, the Owner's estate.
The amendment goes on to state:
If the Owner or any Joint Owner of the Certificate dies before the Income Starting Date, the entire value of the Certificate must be distributed to the 'Designated Beneficiary' as described below. However, if the 'Designated Beneficiary' is the spouse of the deceased Owner or Joint Owner, the required distribution rules described below do not apply.
Obviously, the co-personal representatives would like the court to overlook the second item of the first paragraph of the amendment regarding the Internal Revenue Service's required distribution rules and proceed to the next paragraph as if all annuitants are dead. This would allow distributions to them as designated beneficiaries. But those are not the facts here. Colleen, as contingent annuitant, becomes the annuitant upon Ray's death under the contract. At that point, she possesses all rights of the owner/annuitant. The fact that Allstate improperly paid out the funds to the co-personal representatives is of no moment. 'The policy 'should be given a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance." Colleen is the joint owner and annuitant of this annuity. The trial court did not err.
Queen City Farms, 64 Wn. App. at 853 (citing Sears, 111 Wn.2d at 638 and Brosseau, 113 Wn.2d at 95).
We next consider whether the trial court erred in awarding money judgments to the surviving spouse equal to one-half of the date of death value in certain community assets instead of awarding a one-half interest in the assets themselves. The co-personal representatives and the surviving children object to the trial court's award of money judgments in favor of the surviving spouse. After Ray's death, and certainly before trial, most of the bank accounts, brokerage accounts, and annuity contracts were liquidated or transferred to new accounts. Some of these accounts were claimed by the beneficiaries designated on them and others were moved to new accounts. Due to this fact, the trial court did not abuse its discretion in awarding a judgment in specific accounts because those accounts were no longer in existence.
The estate claims the money judgments place undue hardships on it and the beneficiaries. But the estate and the individuals were warned that if they cashed out these accounts or annuities, they were taking a risk.
There is no merit to the claim.
The estate next claims the trial court erred in holding that it was jointly liable for the one-half of the date of death value of non-probate assets. The trial court entered conclusion of law 35, holding the estate jointly and severally liable with the beneficiaries for obligations to the surviving spouse for assets subject to probate. The appellants did not assign error to this finding, although they certainly argue the underlying facts in their brief. Whether the assets were properly considered 'non-probate' or probate assets is a red herring, due to the determination of the nature of the property as community property and the fact that these assets were subject to the jurisdiction of the court in probate.
A trial court ruling to which no error is assigned is the law of the case. In re Estate of Campbell, 87 Wn. App. 506, 512 n. 1, 942 P.2d 1008 (1997).
The co-personal representatives had specific duties regarding those assets. The estate claims that because it had no control over these assets or the third parties as to the assets, it should not be held liable. But an administrator of an estate acts in a trust capacity and must conform to the rules governing a trustee. Contrary to the claims of the estate, the estate had the ability and the right to prevent or restrict access or attempt to stop any beneficiary from gaining access to those funds. The co-personal representatives had the ability to exert or obtain control over these funds. The trial court did not err in holding the estate jointly and severally liable.
In re Estate of Winslow, 30 Wn. App. 575, 578, 636 P.2d 505 (1981).
See RCW 11.18.200 and RCW 11.48.010.
Finally, the co-personal representatives argue that the gifts of the financial accounts and annuities to beneficiaries other than the surviving spouse transpired a number of years previously and therefore the surviving spouse is barred by the statute of limitation from objecting to those gifts.
Benefits of insurance and annuity policies that were purchased with community property funds are themselves community property. As such, neither spouse has the right to dispose of more than one-half of the benefit of any policy. Similarly, either spouse, acting alone, may give his or her share of a community asset to another. But RCW 26.16.030(2) prohibits either spouse from making a gift of community property 'without the express or implied consent of the other.' Here, the estate and beneficiaries argue that to the extent Colleen had any community interest in property given or purchased with community funds, she was required to seek to set aside the gifts or purchases at the time the gifts occurred. Thus, they claim that the surviving spouse is barred from setting aside any of these transfers due to the passage of time and the application of the statute of limitation.
In re Estate of Bellingham, 85 Wn. App. 450, 454-55, 933 P.2d 425 (1997).
Francis v. Francis, 89 Wn.2d 511, 515-16, 573 P.2d 369 (1978); RCW 26.16.030(1).
In re Marriage of Schweitzer, 132 Wn.2d 318, 331, 937 P.2d 1062 (1997) (citing RCW 26.16.030(2) and Nichols Hills Bank v. McCool, 104 Wn.2d 78, 82, 701 P.2d 1114 (1985)).
Unisys Corp. v. Senn, 99 Wn. App. 391, 398, 994 P.2d 244 (2000).
The trial court obviously believed the testimony of the surviving spouse that she did not know of these transfers until Ray's death.
Therefore, based on what she knew, she could not ratify, assent, or consent to any gift before his death. There is no need to apply the statute of limitation to the facts here, because the surviving spouse initiated an action promptly within any appropriate time limit.
Even applying a presumption created by RCW 48.18.440, that a beneficiary was designated with the consent of the other spouse, that presumption may be timely challenged. Here, the surviving spouse promptly notified the co-personal representatives and beneficiaries of her claim to one-half interest of each of the policies, accounts, or annuities. The trial court heard the testimony and agreed that Colleen had not agreed to a gift of her half of the community property used to purchase these accounts. Here, there was no written document or even an attempt by Ray to request Colleen's consent, most likely because he thought the funds were his separate property. The use of community funds to purchase accounts and annuities, at least as to Colleen's one-half interest, is invalid and the trial court properly awarded an amount equaling one-half of each asset at the date of Ray's death to Colleen.
See Miller v. Paul Revere Life Ins. Co, 81 Wn.2d 302, 309, 501 P.2d 1063 (1972).
The decision of the trial court is affirmed in part and reversed in part. The case is remanded for modification of the judgment in accordance with our opinion.
ELLINGTON and KENNEDY, JJ., concur.