Fred Kirkes named his son Joshua from a previous marriage as the 83% beneficiary of a community-owned individual retirement account (“IRA”). When Fred died, his wife Gail challenged the designation. On cross-motions for summary judgment, the Superior Court ruled in favor of Gail and awarded her 50% of the IRA. The Court of Appeals reversed.
On review, the Supreme Court agreed with the Court of Appeals. The Court first noted that community-property states are split on how to view and divide non-probate assets at death. “Item theory” states, like California, restrict transfers of community property to one-half of the interest in each asset and divide the community based on the value of each major asset. “Aggregate theory” states, like Arizona, apply a more flexible approach and view community property as a whole when dividing it at the death of one spouse. The Arizona legislature adopted the aggregate theory in A.R.S. § 25-318.
In contexts analogous to this case, both the Arizona Supreme Court and the Court of Appeals have previously approved the designation of a non-spouse beneficiary of a life-insurance policy paid for with community funds, so long as the surviving spouse received at least one-half of the total value of community assets. The Supreme Court found no reason to apply a different rule to retirement accounts. The Court noted that A.R.S. § 14-3916, while not technically applicable, supported this result because it authorizes an estate’s personal representative to consider the value of the entire estate, including both probate and non-probate assets, when dividing community property. Finally, the Court noted that, in circumstances not present in this case, equitable considerations might dictate a different outcome. The Court remanded the case to the Superior Court for division of the IRA in accordance with the beneficiary designation.
Chief Justice Berch authored the opinion for a unanimous Court.
Posted by: Kathy O'Meara