Gail and Fred Kirkes were married at the time of Fred’s death. Fred named Gail as the sole beneficiary of his will and individual retirement account (IRA). Fred then modified the IRA beneficiary designation to name Joshua, Fred’s son from a previous marriage, as the beneficiary of 83% of the IRA and Gail as the beneficiary of the remaining 17%. After Fred died, Gail filed a petition asking the court to invalidate the IRA beneficiary designation. The parties agreed that the assets in the IRA are community property. After cross-motions for partial summary judgment, the trial court granted Gail’s motion and declared Gail entitled to half of the IRA.
On appeal, Joshua argued that the trial court erred in applying the item theory of division of community property rather than the aggregate theory. Under the item theory of community property, each spouse has a one-half interest in each item of community property. Under the aggregate theory, each spouse has a one-half interest in the total community property when viewed in the aggregate.
The Court of Appeals noted that no Arizona statute or case has specifically used the terms “aggregate” or “item” theory in distributing a decedent’s assets. While not controlling, the Court reviewed A.R.S. § 14-3916 which governs the distribution of estate assets and states that a personal representative “may consider community property held outside the estate so that the division of community property held in the estate and outside the estate is based on equal value but is not necessarily proportionate.” The Court held that this language clearly allows the personal representative to consider non-probate transfers of community property in distributing estate property, indicating that the aggregate theory is an acceptable method of distribution of assets.
Additionally, the Court looked to case law in the life-insurance context. In Gaethje v. Gaethje, 7 Ariz. App. 544, 546 (1968), the court upheld the validity of a life-insurance policy beneficiary designation which named a decedent’s son as the beneficiary instead of the decedent’s spouse. The court in Gaethje determined that a beneficiary designation does not result in fraud on the surviving spouse so long as the deceased spouse has made a testamentary or non-testamentary provision which provides at least half of the community property to the surviving spouse.
The Court found the cases cited by Gail were inapposite and that the same rules should apply to an IRA beneficiary designation as a life insurance beneficiary designation. Moreover, the purpose of the probate code and related law is to effect a decedent’s intent in distributing property and employing the item theory here would defeat Fred’s intent.
Reversed and remanded.
Judge Howard authored the opinion; Judges Eckerstrom and Brammer concurred.
Posted by: Christina Rubalcava