In UBS Financial Services, Inc. v. Aliberti (SJC-12662), the Massachusetts Supreme Judicial Court has ruled that no fiduciary relationship existed between the commercial custodian of an individual retirement account (IRA) and a named beneficiary of that account, because the IRA was not a “trust” under either state or federal law, finding that the complaint did not adequately plead sufficient facts to form the basis of a claim for breach of fiduciary duty. However, the Court did find that the conduct of UBS occurred in a business context and that the facts supported a claim that UBS had violated the Massachusetts Consumer Protection Law (M.G.L. Chapter 93A), and remanded the case to the trial court on that basis.
Background. This case arose following the death of the owner of three IRAs at UBS, who had designated his non-marital romantic partner (Donna M. Aliberti) as the sole beneficiary of each account when establishing them in 2008. In November of 2013, the account owner submitted beneficiary designation update forms for the two smaller accounts, naming four individuals (including Ms. Aliberti) as beneficiaries with a notation of “25%” next to each name, but with one name written in the space for “primary beneficiary” and the other three listed under “contingent beneficiary.” UBS declined to process these forms, as they were improperly completed, and sent new forms to the account owner, who died unexpectedly on December 2, 2013. UBS received no further forms with respect to those two IRAs, nor did UBS ever receive a request to update the beneficiary designation for the third, larger IRA.
In late December, UBS received a letter from an attorney for one of the individuals (Craig Gillespie) named on the improperly completed beneficiary designation forms, stating his understanding that the account owner had changed the beneficiary designations for the two smaller accounts and “was in the process of changing beneficiaries” for the third, larger account as well. The letter asked UBS not to make any distributions from the third IRA, as Gillespie intended to go to court to resolve whether he was a beneficiary of that account. As a result, UBS classified the third, larger IRA as “disputed,” thereby freezing the account pending a court order, Gillespie’s withdrawal of his claim, or the expiration of all statutes of limitations.
In February of 2014, Aliberti submitted paperwork requesting distribution of all three IRAs. In the spring of 2014, UBS distributed the two smaller IRAs to the four named beneficiaries, in accordance with the decedent’s apparent wishes. Following this, Aliberti retained counsel and made numerous attempts, over the course of a year, to obtain information from UBS regarding the disputed third IRA and her beneficial interest in all three accounts. In May of 2015, counsel for Aliberti sent UBS a Chapter 93A demand letter, invoking the Massachusetts consumer protection law. After the parties were unable to resolve this dispute, UBS filed an interpleader complaint, joining both Aliberti and Gillespie, asking the Superior Court to determine ownership of the larger IRA. In March of 2016, the parties reached a stipulation by which Gillespie waived all claims to the larger IRA. Nevertheless, UBS further delayed distributing the proceeds of that account to Aliberti until July of 2016.
Individual Retirement Accounts. Aside from tax treatment, nearly all legal aspects of an IRA are controlled by state law and by the terms of the account agreement promulgated by the private financial institution. Because IRAs generally are a non-probate asset, upon the account holder’s death title to the account passes according to the beneficiary designation—made under the terms of the account agreement—irrespective of any terms of the decedent’s will. In many states, including Massachusetts, there is no standard form for making or updating such beneficiary designations. Although the change in account ownership may occur automatically at the moment of death, most IRA custodians require formal documentation before the beneficiary can exercise control of the account.
Supreme Judicial Court Opinion. The Supreme Judicial Court held that UBS did not commit a breach of fiduciary duty, as no such fiduciary relationship existed between UBS and Aliberti, but that UBS’s actions constituted “unfair or deceptive acts or practices” in the course of business, in violation of the state’s consumer protection law.
Fiduciary duties may arise by operation of law—such as where the parties are in the roles of trustee and beneficiary—or based on the facts surrounding the relationship. Under Massachusetts law, the settlor must have expressed the intent to create a trust in order for a trust to be created. The Court found no evidence of such intent here. The Court also notes that, although the term “trust” appears throughout the section of federal law governing IRAs (26 U.S.C. § 408), Federal law does not require an IRA to be a trust under the relevant state’s law.
The Supreme Judicial Court previously ruled that, even absent a clearly defined fiduciary relationship, a fiduciary duty may arise whenever one party’s “faith, confidence, and trust” reposes “in another’s judgment and advice.” Doe v. Harbor School, Inc. 446 Mass. 245, 252 (2006). In the instant case, the Court found no evidence that Aliberti’s trust was so reposed, and no suggestion of anything more than a retail-consumer relationship. UBS was acting as the custodian of the IRAs, which is a recognized line of business in the consumer financial services sector. These custodial services include transferring the ownership of an IRA or distributing the funds therein, and those transactions are typically conducted at arm’s length.
As account custodian, UBS was contractually bound to transfer the IRAs upon the account holder’s death. This non-probate transfer of IRAs falls within the scope of Massachusetts Consumer Protection Law (M.G.L. c. 93A), which provides remedies to any individual consumer injured by a business’s “unfair or deceptive practices.” While UBS appeared to be acting in good faith with respect to the two smaller accounts, the Court found nothing to suggest there was ever a legitimate question as to whether Aliberti was the sole beneficiary of the third, larger IRA, as the decedent had never made any written request to change the beneficiary on that account. Nevertheless, UBS was slow to inform Aliberti that the IRA had been flagged as disputed and persistently failed to communicate with her regarding the account, causing her to incur the cost of legal actions and ultimately resulting in a delay of two and a half years before the funds were distributed. The Court found that UBS’s “policy of inaction” and “willful failures to communicate,” along with a significant delay of over one and a half years before filing an interpleader complaint, were “unfair” business practices causing injury to Aliberti in violation of Massachusetts consumer protection law.