Gray vs. Fidelity Brokerage Services, 2023 OK 7

Opinion:Gray vs. Fidelity Brokerage Services, 2023 OK 7
Subject Matter:Estate Planning
Date Decided:February 7, 2023
Trial Court:District Court of Tulsa County
Route to this Court:Certiorari from the Court of Civil Appeals, Division III
Facts:The decedent, J. Jerry Dickman (Decedent), died on September 2, 2019,  with a profit sharing plan (PSP) and an IRA. The accounts had combined assets worth approximately $13 million at the time of his death. 

On December 21, 2013, Decedent named his Children as equal beneficiaries of his PSP (the IRA did not exist until a few days prior to Decedent’s death). On November 25, 2015, Decedent married Wife (Children’s stepmother). Prior to their marriage, Decedent and Wife entered into an antenuptial (a/k/a prenuptial) agreement which reserved to each party their respective property. The agreement was not intended to limit either party from taking assets of the other by a will or intestate succession in the event of death. 

In December 2017, Decedent executed a new PSP beneficiary designation naming Children and Wife as equal beneficiaries of the PSP. Wife did not sign a post-marital waiver of the PSP assets nor did she sign any post-marital consent to the beneficiary designation. 

In August 2019, Decedent executed documents provided by Fidelity to establish a Fidelity IRA account and to roll over the assets in his PSP into the new Fidelity IRA. At the same time, he executed an IRA beneficiary designation which listed each of his four Children as receiving $2.8 million and listed Wife as receiving the “balance.” The Fidelity IRA was established and was funded with all of the assets in the PSP maintained by Fidelity at the time (approximately $10.2 million of the approximately $13 million in the PSP). Decedent passed away two days later. The PSP balance of $1.8 was not rolled over to the Fidelity IRA because those assets were maintained by a brokerage firm other than Fidelity and no rollover documents were submitted to this other brokerage firm.  

Because the attempted designation of $11.2 million from the IRA to his Children exceeded the amount in the IRA (approximately $10.2 million due to the “partial” rollover), Fidelity declared the designation “not in good order.” Absent a valid beneficiary designation, the default  order of succession in the Fidelity IRA account agreement would make Wife the beneficiary of the entire account. Wife and Children both made claims for the funds in the IRA and this lawsuit ensued. 
The trial court granted summary judgment to the Wife, determining she is the sole beneficiary of both accounts. The children appealed and the Court of Civil Appeals reversed and remanded with instructions. 
Standard of Review:Summary judgment is reviewed de novo
Analysis:The issues in this case center on the interpretation and interplay of an antenuptial agreement and beneficiary designations. 

With respect to the PSP, Wife first contends that she is the sole beneficiary of the account because the PSP plan language requires Wife’s consent to roll over the PSP assets to the IRA and to designate beneficiaries. Wife is incorrect because the terms of the antenuptial agreement between Wife and Decedent, which specifically identified the PSP as the majority of Decedent’s assets, was broad enough to bar wife from making any claim to the PSP assets except for those which the Decedent specifically granted to her per the PSP beneficiary designation executed after their marriage. 

Next, Wife contends that the PSP was a qualified ERISA plan and under preemptive federal law her consent was necessary to roll over the PSP assets to the IRA and to designate beneficiaries. Wife is incorrect again because the PSP was not a qualified ERISA plan because a retirement plan is not covered by ERISA when the PSP belongs to a person that is the sole shareholder and only employee of the corporation. This was the case with respect to the Decedent. 

Finally, with respect to the IRA, Wife contends that Decedent’s IRA beneficiary designations were invalid because Decedent did not follow the IRA agreement language when he used dollar amounts in the designations instead of percentage shares. Wife is wrong in this respect, as well, because Decedent substantially complied with the requirements of the IRA agreement. The IRA beneficiary designations should be reformed to give effect to the Decedent’s intent. There is precedent for this in the life insurance context and the doctrine can be equally applied in the context of a beneficiary designation for an IRA.  

The IRA is underfunded compared to the dollar amounts designated by Decedent due to Decedent’s mistaken belief that all $13 million of the PSP would be transferred to the IRA. The Court using its equitable powers in such a case can reform for a mistake to ensure that the intent of the Decedent is carried out and the parties are placed where they would have stood if the mistake had not been made. It is undisputed that Decedent intended to give 86% of the PSP to his Children (a 21.5% share each) and the remaining 14% share to Wife. The assets in the IRA should be disbursed accordingly. 

However, the Court will not use its equitable powers to transfer the remaining $1.8 million in the PSP to the IRA. No contract exists to reform in this respect as no agreement to transfer the non-Fidelity maintained PSP assets to the IRA was ever executed by the Decedent. The assets remaining in the PSP should be disbursed according to the last executed PSP beneficiary designation- to the Children and Wife as equal beneficiaries. 
Outcome:Court of Civil Appeals Opinion Vacated; District Court’s Judgment Reversed and Remanded with Instructions.  
Vote:7-1; J. Winchester authored; V.C.J Rowe concurred in part, dissented in part; J. Gurich recused.
Other:While the COCA Opinion was Vacated, the OKSCT’s decision substantially agrees with the COCA Opinion. However, the COCA Opinion does not address how to handle the $1.8 million remaining in the PSP that was never rolled over to the IRA.