Reich v. Reich ( 2024 )

Filed 10/24/24
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
PAMELA K. REICH, B332714, consolidated with
B332980
Plaintiff and Appellant,
(Los Angeles County
v. Super. Ct. Nos.
22STPB10378,
JUDITH REICH et al., as 22STPB10376)
Trustees, etc.,
Defendants and
Respondents.
APPEAL from orders of the Superior Court of Los Angeles
County, Jonathan L. Rosenbloom, Judge. Affirmed.
Jeffer, Mangels, Butler & Mitchell and Vatche J. Zetjian for
Plaintiff and Appellant.
Weinstock Manion, Jessica G. Babrick and Andrew G.
Smith for Defendants and Respondents.
******
Under California law, a person whose spouse dies without
providing for them in “testamentary instruments” pre-dating
their marriage is, as a general matter, statutorily entitled to a
share of the decedent’s “estate” as an “omitted spouse.” (Prob.
Code, § 21600 et seq.)1 This appeal presents the following
question: Does a decedent’s “estate,” for the purpose of
calculating the “omitted spouse’s share,” encompass the proceeds
of an individual retirement account (IRA)2 when the IRA’s
beneficiaries are two “separate trusts” that were created by the
decedent’s testamentary trust? We conclude that the answer is
“no” because an IRA is a nonprobate asset (§§ 5000, 5011) and
because the IRA proceeds never pass through the decedent’s
testamentary trust to the beneficiaries’ separate trusts. (Cf.
Estate of Davis (1985) 171 Cal.App.3d 854, 857-858). We
accordingly affirm the probate court’s orders denying the
surviving spouse’s petitions to include the IRA proceeds in
calculating her omitted spouse’s share.
1 All further statutory references are to the Probate Code
unless otherwise indicated.
2 An IRA is an account created by statute under the Internal
Revenue Code that “offer[s] tax advantages to encourage
individuals to save for retirement.” (Clark v. Rameker (2014) 573
U.S. 122, 124.)
2
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. The Trust
In September 2003, Thomas Reich3 created a revocable
trust to provide for the distribution of some of his assets upon his
death. The operative trust document is the Third Amendment
and Restatement of the Thomas M. Reich Revocable Trust (the
Trust), dated May 19, 2016. The Trust specifies that (1)
Thomas’s ex-wife, his brother, and his nephew are to receive a
total of $1.5 million in specific, cash gifts; and (2) Thomas’s
daughter Shannon Reich—or, if Shannon dies before Thomas,
Thomas’s granddaughter Leah Tesi—is to receive any residue of
the Trust’s assets in “separate trusts” created by the Trust for the
recipients’ benefit.4
B. The IRA
Thomas maintained an IRA at PNC Bank. On November 4,
2016, Thomas completed a form designating Shannon’s and
Leah’s separate trusts as each receiving one-half of the IRA’s
proceeds upon his death.
C. Marriage
Thomas thereafter married his “longtime close
acquaintance[],” Pamela Reich. They married on November 20,
2020, and Thomas died on July 2, 2021. At no point during their
3 Because many of the parties involved in this case share the
same last name, we use first names to avoid confusion. We mean
no disrespect.
4 Thomas also had a son, but expressly disinherited him in
the Trust.
3
seven-and-one-half-month marriage did Thomas update the Trust
to provide for Pamela.
D. Death
At the time of Thomas’s death, the IRA’s balance was
around $1.5 million. The IRA is Thomas’s separate property.
II. Procedural Background
A. Initial petition for an omitted spouse’s share,
and initial litigation
On November 16, 2021, Pamela filed a petition that sought,
among other things, an omitted spouse’s share of Thomas’s
estate. As pertinent here, she argued that the proceeds of
Thomas’s IRA were part of the estate from which she receives a
share because those proceeds had to be “marshal[led]” through
the Trust before they could pass to Shannon’s and Leah’s
separate trusts.
Shannon demurred to the petition, partly on the ground
that the IRA proceeds would pass directly to the separate trusts
and hence not through the Trust, such that they fell outside of
Thomas’s estate for purposes of calculating the omitted spouse’s
share. In a May 2022 order, the trial court overruled the
demurrer, ruling that an IRA’s proceeds can sometimes be
included in a decedent’s estate and that the IRA proceeds in this
case would pass to “sub-Trust[s]” of the Trust and thus
“essentially . . . be paid” “into the actual Trust.”
B. Partial settlement of initial petition
In August 2022, Pamela and the Trust’s beneficiaries
reached a partial settlement. Because there were “insufficient
assets . . . to fully satisfy the specific gifts” delineated in the
Trust, the settling parties each agreed to take proportionally
reduced amounts to accommodate Pamela’s omitted spouse’s
4
share. Under the settlement, Pamela received $188,483.57 in
cash as well as stock and half of the proceeds of Thomas’s life
insurance policy. The IRA proceeds were explicitly “excluded”
“from [the] settlement,” leaving the dispute over Pamela’s share
of those proceeds to be resolved in future litigation.
C. Further petitions for omitted spouse’s share
Pamela subsequently filed two identical petitions—one as
to Shannon’s separate trust and another as to Leah’s separate
trust—regarding her entitlement to a share of the IRA proceeds
as part of her “omitted spouse’s share.” This new proceeding was
assigned to a different bench officer than Pamela’s original
petition.5
After briefing by Pamela and the trustees of the Trust, and
a hearing, the probate court issued orders on August 31, 2023
dismissing Pamela’s petitions with prejudice. The court reasoned
that the IRA proceeds were not part of Thomas’s “estate”—and
hence were not an asset subject to the “omitted spouse’s share”—
because the proceeds constitute a “nonprobate” asset and because
the IRA beneficiary designation form specifies that the proceeds
would “flow directly” to Shannon’s and Leah’s separate trusts
(rather than through Thomas’s Trust). The court also ruled the
prior demurrer ruling in Pamela’s favor on this issue was “not
controlling.”
D. Appeal
Pamela timely appealed the orders, and we consolidated
the two appeals.
5 Although neither the settlement nor the docket reflect a
dismissal of Pamela’s initial probate petition, the parties have
proceeded as if the only live petitions are the two new petitions
filed after the settlement. We will do the same.
5
DISCUSSION
Pamela asserts that the probate court erred in dismissing
her petitions for an omitted spouse’s share of the IRA proceeds.
Because our evaluation of this assertion turns on questions of
statutory and contractual interpretation as well as the
application of the law to undisputed facts, our review is de novo.
(Araiza v. Younkin (2010) 188 Cal.App.4th 1120, 1124
[construction of Probate Code; de novo review]; Burch v. George
(1994) 7 Cal.4th 246, 254 [interpretation of trust instrument with
no conflicting extrinsic evidence; question of law]; Estate of Dito
(2011) 198 Cal.App.4th 791, 804 [omitted spouse’s share focuses
on “the intent of the decedent”].)
I. Governing Law
Because “[i]t is the policy of [California] that [spouses are
to] provide[] for [one another],” a person’s failure to “provide for
[their] surviving spouse” in their testamentary instruments is
“‘strong[ly]’” “‘disfavor[ed]’” and thus generally presumed to be
the product of “oversight, accident, mistake or unexpected change
of condition” rather than intent. (Estate of Torregano (1960) 54
Cal.2d 234, 248-249; Estate of Allen (1993) 12 Cal.App.4th 1762,
1765; Estate of Duke (1953) 41 Cal.2d 509, 512; Estate of Will
(2009) 170 Cal.App.4th 902, 907; Estate of Katleman (1993) 13
Cal.App.4th 51, 60, 65.) One “unexpected change of condition”
that triggers this presumption is a marriage occurring after the
execution of a person’s testamentary instruments. Thus,
California has long protected spouses omitted from testamentary
instruments in this circumstance. Initially, California law
provided for the complete revocation of any will or trust that pre-
dated a marriage and did not provide for the omitted spouse.
(Estate of Piatt (1943) 57 Cal.App.2d 211, 212.) Since 1931,
6
however, California law has more modestly mandated a “partial
revocation of [any] will [or trust] by operation of law” in order to
provide the omitted spouse a share of the decedent’s estate while
simultaneously trying to preserve as much of the decedent’s pre-
marital estate plan as feasible. (Estate of Stewart (1968) 69
Cal.2d 296, 299-300, italics added; Estate of Shimun (1977) 67
Cal.App.3d 436, 441; §§ 21610, 21612.)
As codified in the Probate Code today, an omitted spouse—
except in four statutorily enumerated circumstances not present
here6—is entitled to a “share in the decedent’s estate” consisting
of (1) “one-half” of the decedent’s community and quasi-
community property, and (2) “[a] share of the [decedent’s]
separate property” “equal in value” to what the omitted spouse
“would have received” had the decedent died intestate. (§ 21610,
italics added.) The omitted spouse’s share is to be drawn “first”
from any portion of the decedent’s estate “not disposed of by will
or trust” (§ 21612, subd. (a)(1)); if that is “not sufficient,” then the
omitted spouse’s share is to be “taken from all beneficiaries of
6 An omitted spouse is not entitled to any share of the
decedent’s estate if (1) the decedent “intentional[ly]” omitted the
spouse and that intent “appears from the testamentary
instruments” (§ 21611, subd. (a)), (2) the decedent provided for
the omitted spouse by a transfer “outside of the estate” (id., subd.
(b)), (3) the omitted spouse validly “waiv[ed]” their share (id.,
subd. (c)), or (4) the couple were married for less than six months
and the omitted spouse was the decedent’s care custodian unless
the omitted spouse “proves by clear and convincing evidence that
the marriage . . . was not the product of fraud or undue influence”
(id., subd. (d)).
7
[the] decedent’s testamentary instruments” “proportion[ately].”
(id., subd. (a)(2)).7
Critically, and as highlighted above, an omitted spouse’s
share is to be drawn solely from the decedent’s “estate.” For this
purpose, the “estate” includes (1) the “decedent’s probate estate”
and (2) “all property held in” or “passing by” “any revocable trust
that becomes irrevocable on the death of the decedent.” (§§
21601, subd. (b), 21600 [omitted spouse statutes apply only “to
property passing by will through a decedent’s estate or by a trust
. . . that becomes irrevocable only on the death of the settlor”].)
These definitions necessarily imply their converse: An omitted
spouse’s share is not to be drawn from (1) property that passes
outside the decedent’s “probate estate” and (2) property that does
not pass through a revocable trust that becomes irrevocable upon
the decedent’s death.
II. Analysis
The trial court correctly declined to include the proceeds
from Thomas’s IRA in Pamela’s omitted spouse share because
those proceeds are not part of Thomas’s “estate.”
IRA proceeds are not part of a decedent’s “probate estate.”
The Probate Code provides a nonexclusive list of several types of
“transfers” of property upon a person’s “death” that are
“nonprobate transfers.” (§ 5000, subd. (a); Estate of Petersen
(1994) 28 Cal.App.4th 1742, 1751 [list is not exhaustive].) These
nonprobate transfers need not “comply with the requirements for
execution of a will” (§ 5000, subd. (a)), and more to the point, they
7 The probate court has some flexibility to “exempt[]” a
“specific gift or devise” from this “apportionment” to avoid
“defeat[ing]” “the obvious intention of the decedent in relation to
[that specific] gift or devise.” (§ 21612, subd. (b).)
8
effectuate the transfer of property, not under the law of probate,
but instead under “[t]he terms of the instrument under which the
nonprobate transfer is made” (§ 5011, subd. (a)). IRAs are
explicitly listed as one of these nonprobate transfers (§ 5000,
subd. (a)), and California law has long treated them as such.
(Estate of Davis, supra, 171 Cal.App.3d at p. 858 [“The proceeds
of [an IRA transfer] do not become a part of the [probate] estate”];
accord, UBS Financial Services, Inc. v. Aliberti (Mass. 2019) 133
N.E.3d 277, 283 [“IRAs are a type of ‘nonprobate’ asset, meaning
that upon the death of the owner, title passes in accordance with
a contractual beneficiary designation rather than under the
provisions of a will”].) This makes sense, as IRAs are akin to
innumerable other direct transfers of property upon death that
occur outside of probate, such as transfers of bank account
balances under so-called “Totten trusts” (Estate of Allen, supra,
12 Cal.App.4th at pp. 1764, 1766; §§ 80, 5132, subd. (c), 5302,
subd. (c), 5304), transfers of property held in joint tenancy with a
right of survivorship (Estate of Hobart (1947) 82 Cal.App.2d 502,
507), transfers of insurance proceeds (Estate of Welfer (1952) 110
Cal.App.2d 262, 265), and transfers of payments due under an
annuity (Estate of Petersen, at p. 1753).
Although IRA proceeds can sometimes pass through a
“trust that becomes irrevocable” upon death, such as when the
designated beneficiary of the IRA is the decedent’s trust (e.g.,
Estate of Davis, supra, 171 Cal.App.3d at p. 858), the IRA
proceeds in this case never became part of the Trust for purposes
of calculating Pamela’s omitted spouse’s share. It is undisputed
that the IRA was held by Thomas in his individual capacity and
not by the Trust; indeed, federal law governing IRAs prohibits
trusts from holding an IRA (26 U.S.C. § 408(a) [IRA defined as “a
9
trust created or organized . . . for the exclusive benefit of an
individual or his beneficiaries”]). It is also undisputed that
Thomas designated the separate trusts for Shannon and Leah as
the beneficiaries of the IRA’s proceeds rather than the Trust
itself. Thus, the IRA proceeds in this case at no point ever passed
through the Trust.
Pamela resists this analysis with what boils down to five
arguments.
First, she argues that the IRA proceeds did pass through
the Trust—and thus are part of Thomas’s “estate” for purposes of
calculating her omitted share—because the beneficiaries of the
proceeds are the “sub-trusts” for Shannon and Leah (rather than
Shannon and Leah as individuals), and because those “sub-
trusts” were created in the Trust. We reject these arguments. To
begin, Pamela’s characterization of the trusts created for
Shannon and Leah as “sub-trusts” is misleadingly inaccurate; the
Trust itself labels them “separate trust[s].” (Italics added.)
(Trolan v. Trolan (2019) 31 Cal.App.5th 939, 949 [“‘“Where the
terms of [the instrument] are free from ambiguity, the language
used must be interpreted according to its ordinary meaning and
legal import and the intention of the testator ascertained
thereby”’”]; §§ 21102, 21120, 21122 [rules of construction of trust
instruments].) If Thomas had created those separate trusts in
documents independent of the Trust, there is no question—under
the law set forth above—that the IRA proceeds would pass
directly from the IRA into those independently created separate
trusts, and thus completely outside of the Trust (and hence
completely outside of Thomas’s “estate”). We see no reason why
Thomas’s decision to kill two birds with one stone by creating the
separate trusts in the Trust document itself should lead to a
10
different result when the IRA proceeds are still passing directly
from the IRA to those separate trusts—and, importantly, not
through the Trust. Nor does it matter that the beneficiaries are
the separate trusts for Shannon and Leah rather than Shannon
and Leah as individuals; in either event, the proceeds are not
passing through the Trust.
Second, Pamela cites section 21610 as well as Katleman,
supra, 13 Cal.App.4th at p. 64, and Stewart, supra, 69 Cal.2d at
p. 299, for the proposition that an omitted spouse’s share of a
decedent’s separate property is defined by what that spouse
“would have received if the decedent had died without having
executed [the] testamentary instrument” at issue. Pamela then
goes on to argue that, had Thomas not executed the Trust, then
the separate trusts for Shannon and Leah would not have been
created by that Trust and the IRA’s beneficiary designation
would be a nullity (because it designates those separate trusts as
the beneficiaries), such that the IRA must necessarily pour into
Thomas’s estate. We reject this argument. The “what would
have happened” test is meant to define the omitted spouse’s
share—not, as Pamela urges, to determine whether property is
part of the estate in the first instance. More to the point, the
whole purpose of probate law is to effectuate the decedent’s
intent: Here, Thomas’s intent to designate the separate trusts for
Shannon and Leah as the beneficiaries of his IRA is crystal clear;
we decline to import a test developed in one context into a
different context in order to defeat that intent. (Katleman, at p.
64 [“It is, of course, a cardinal rule of construction that a
testator’s intent, as manifested by the terms of the [testamentary
instrument and other documents] must be given effect, and
11
technical rules of construction must yield to an intention clearly
expressed”].)
Third, Pamela argues that the separate trusts became
irrevocable upon Thomas’s death, such that the IRA proceeds are
“held in” or “pass[] by” a “revocable trust that becomes
irrevocable on the death of the decedent” (and thus are part of
Thomas’s “estate”). (§§ 21600, 21601, subd. (b).) Although the
separate trusts ostensibly came into being and thus become
irrevocable upon Thomas’s death and although the IRA proceeds
undoubtedly are held in those separate trusts, the IRA proceeds
never pass through the Trust itself. Because only the decedent’s
testamentary instruments are subject to the omitted spouse’s
share (§ 21610), and because only the Trust is Thomas’s
testamentary instrument, whether or not the separate trusts
became irrevocable upon Thomas’s death is irrelevant.
Fourth, Pamela argues the various provisions of the Trust
addressing IRA proceeds indicate that any such proceeds are
passing through the Trust. To be sure, Pamela is correct that a
decedent can pass assets such as IRA proceeds through a trust
(which would make them part of the decedent’s “estate”), and
that the key is whether the decedent so intended. (Cf. Placencia
v. Strazicich (2019) 42 Cal.App.5th 730, 734-735 [express intent
in estate plan can overcome nonprobate character of asset];
Brown v. Labow (2007) 157 Cal.App.4th 795, 812 [“paramount
rule in construing” trust instrument is determining “intent from
the instrument itself”].) Yet Thomas has evinced no such intent
here. The Trust contains instructions for distributing IRAs and
some of those instructions are located in the provisions describing
the two separate trusts, but those instructions deal with how the
trustees of those separate trusts are to distribute the proceeds for
12
tax purposes; they do not deal with the Trust at all. (Italics
added.) The Trust also provides that “[i]f any trust created
hereunder is the beneficiary of any IRA . . . , initially all of such
IRA shall be allocated to and treated as principal of such trust for
trust accounting and distribution purposes” (italics added), but
this provision applies in this case only to the separate trusts
because only the separate trusts are the beneficiaries of the IRA.
Fifth and finally, Pamela argues that the probate court’s
ruling on demurrer is controlling and precluded the court from
coming to a different conclusion when ruling on Pamela’s second
two petitions. She cites no authority in support of her argument,
and for good reason: Demurrer rulings are not binding on a
different judge making later rulings on the merits. (Summers v.
City of Cathedral City (1990) 225 Cal.App.3d 1047, 1063 [“It
should go without saying that a ruling which erroneously
overrules a demurrer is not binding on anyone”]; Wrightson v.
Dougherty (1936) 5 Cal.2d 257, 265 [same].)
DISPOSITION
The orders are affirmed. The trustees are entitled to costs
on appeal.
CERTIFIED FOR PUBLICATION.
______________________, J.
HOFFSTADT
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We concur:
_________________________, P. J.
LUI
_________________________, J.
CHAVEZ
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