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In re Estate of Kirkes - 3/1/2013

Arizona Supreme Court Holds That a Deceased Spouse May Leave More Than One-Half of a Community-Owned Retirement Account to a Non-Spouse Beneficiary as Long as the Surviving Spouse Receives at Least One-Half of the Community’s Total Value.

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

Posted On: 4/1/2013