In Re the Estate of Fred N. Kirkes

FILED BY CLERK
IN THE COURT OF APPEALS MAR -8 2012
STATE OF ARIZONA
DIVISION TWO COURT OF APPEALS
DIVISION TWO
) 2 CA-CV 2011-0072
) DEPARTMENT A
)
In re the ESTATE OF FRED N. KIRKES. ) OPINION
)
)
)
APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY
Cause No. PB20100346
Honorable Charles V. Harrington, Judge
REVERSED AND REMANDED
Ethan Steele Tucson
and
Timothy A. Olcott Green Valley
Attorneys for Petitioner/Appellee
Gail J. Kirkes
Waterfall Economidis Caldwell Hanshaw &
Villamana, P.C.
By Jill D. Wiley and Corey B. Larson Tucson
Attorneys for Respondent/Appellant
Joshua C. Kirkes
H O W A R D, Chief Judge.
¶1 Appellant Joshua Kirkes appeals from the trial court’s grant of partial
summary judgment in favor of Gail Kirkes in the probate proceedings for the estate of
Fred Kirkes. Joshua argues the trial court erred by determining that Gail was entitled to
half of an individual retirement account (IRA) as community property and contends that
instead she was entitled to fifty percent of the entire community property estate, not half
of a particular item. For the following reasons we reverse the grant of partial summary
judgment and remand for further proceedings.
Factual and Procedural Background
¶2 The underlying facts are undisputed. Gail and Fred were married at the
time of Fred’s death. Joshua is Fred’s son from a previous marriage. Fred named Gail as
the sole beneficiary of his will. During the marriage, Fred created an IRA in his name
and named Gail as the sole beneficiary. He then modified the IRA beneficiary
designation, naming Joshua as beneficiary of eighty-three percent of the IRA and Gail as
beneficiary of seventeen percent. Fred died. Both parties agree that all assets contained
in the IRA are community property.
¶3 Gail filed a petition for declaration of rights, requesting the trial court
invalidate the IRA beneficiary designation, which Joshua opposed.1 The parties filed
cross-motions for partial summary judgment on the issue. The court granted Gail’s
motion and denied Joshua’s, declaring Gail entitled to half of the IRA. The court issued a
1
Joshua does not contest that this is a proper procedure for determination of rights
in an IRA.
2
final judgment on the issue pursuant to Rule 54(b), Ariz. R. Civ. P., and this appeal
followed.
Discussion
¶4 We review de novo a grant of summary judgment. Valder Law Offices v.
Keenan Law Firm, 212 Ariz. 244, ¶ 14, 129 P.3d 966, 971 (App. 2006). Summary
judgment is required when there is “no genuine issue as to any material fact and . . . the
moving party is entitled to a judgment as a matter of law.” Ariz. R. Civ. P. 56(c). On
appeal, we must determine de novo whether the trial court correctly applied the
substantive law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, ¶ 4, 7 P.3d 136, 139
(App. 2000).
¶5 Joshua argues the trial court erred by invalidating Fred’s naming him as
beneficiary of more than fifty percent of the IRA based on Gail’s community property
interest. He claims the court followed the item theory of division of community property
at death, rather than the aggregate theory, asserting that Arizona has followed the
aggregate theory. He asserts that under the aggregate theory the trial court should have
determined whether Gail had received other property that compensated her for the
diminished portion of the IRA.
¶6 Under the item theory of community property each spouse has “a one-half
interest in each item of community property,” whereas under the aggregate theory each
spouse has “a one-half interest in the total community property when viewed in the
aggregate.” Charles E. Zalesky, The Modified Item Theory: An Alternative Method of
Dividing Community Property upon the Death of a Spouse, 28 Idaho L. Rev. 1047, 1047-
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48 (1992). One drawback to the item theory is that it prevents the decedent from being
able to convey completely a particular item of community property to a non-spouse and
forces joint ownership of that item. Id. at 1051. This case, however, does not directly
involve how a community property estate must be divided. Rather, it involves one
spouse’s attempted transfer of a community property IRA interest to a non-spouse.
¶7 A beneficiary designation in an IRA is an allowed non-probate, non-
testamentary transfer.2 A.R.S. § 14-6101(A). However, a spouse’s right to transfer
community property is subject to a fiduciary duty to the other spouse’s interest in the
property. Mezey v. Fioramonti, 204 Ariz. 599, ¶ 38, 65 P.3d 980, 989 (App. 2003),
overruled on other grounds by Bilke v. State, 206 Ariz. 462, ¶ 28, 80 P.3d 269, 275
(2003). “[A]bsent intervening equities, a gift of substantial community property to a
third person without the other spouse’s consent may be revoked and set aside for the
benefit of the aggrieved spouse.” Id., quoting Roselli v. Rio Cmtys. Serv. Station, Inc.,
787 P.2d 428, 433 (N.M. 1990).
¶8 We have not been directed to any Arizona statute or case that uses the terms
“aggregate” or “item” theory in distributing a decedent’s assets. Joshua, however, argues
the legislature has “directed” that community interests in all assets be divided in the
aggregate by adopting A.R.S. § 14-3916. That statute states:
2
This court requested supplemental briefing “on the issue of the applicability, if
any, of A.R.S. §§ 14-6101 through 14-6227 to the account at issue here.” Gail argues the
statutes do not alter her rights to the IRA. Joshua contends §§ 14-6102 through 14-6227
do not apply in this situation. We conclude those statutes do not affect this case and we
do not address them.
4
In making a division or distribution of community property
held in the decedent’s estate, the 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.
§ 14-3916. And under A.R.S. § 14-3101(A), “the surviving spouse’s share of the
community property is subject to [probate] administration.” We agree with the trial court
that § 14-3916 does not control this case directly because we are not dealing with the
distribution of estate assets. We further agree with the trial court that the statute’s
provision that the personal representative may consider whether the division of
community property inside and outside the estate “is based on equal value but is not
necessarily proportionate” is “enigmatic.” But the statute clearly allows the personal
representative to consider non-probate transfers of community property in distributing
estate community property, thereby indicating the legislature considered the aggregate
theory an acceptable method of distributing estate assets. But, by using the permissive
“may,” the legislature did not mandate that this theory be applied, even in distributing
estate assets. Therefore, the statute, by itself, does not indicate that the court erred in
using the item theory.
¶9 Although Arizona courts have not directly adopted either theory, they have
dealt with the attempted alienation of more than a spouse’s share of community property
in the life-insurance context. In Gristy v. Hudgens, 23 Ariz. 339, 341, 348, 203 P. 569,
570, 572 (1922), abrogated by Day v. Clark, 36 Ariz. 353, 357, 285 P. 682, 683 (1930),
the Arizona Supreme Court considered a case in which life-insurance premiums
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potentially had been paid with community-property funds, but a third party had been
designated as the beneficiary. It held that even if the premiums had been paid with
community property, any insurance benefits paid to a non-spouse did not defraud the
wife, in part because there existed “no showing that the wife had not received even more
than her share of the community property.” Gristy, 23 Ariz. at 348, 203 P. at 572.
Similarly, in Gaethje v. Gaethje, 7 Ariz. App. 544, 546, 441 P.2d 579, 581 (1968), this
court was asked to determine the validity of a life-insurance policy beneficiary
designation which named a son as the beneficiary instead of the deceased’s spouse. We
relied on Gristy in holding that when a deceased spouse has made a testamentary or non-
testamentary provision for the surviving spouse, under which the surviving spouse
receives at least half of the community property, “then there has been no ‘fraud’ upon
[the surviving spouse’s] rights and the designation of beneficiary should stand effective.”
Gaethje, 7 Ariz. App. at 547, 549, 441 P.2d at 582, 584. However, if the surviving
spouse did not receive half the community property, then “there would be a constructive
fraud upon [the surviving spouse’s] rights and the designation would be ineffective to the
extent of such constructive fraud.” Id. at 549, 441 P.2d at 584.
¶10 In considering the benefits from a life-insurance policy, the Arizona
Supreme Court recognized the method of allocating community property in Gaethje as
“[o]ne approach approved in Arizona,” but did not identify any other approved methods.
In re Estate of Alarcon, 149 Ariz. 336, 339, 718 P.2d 989, 992 (1986). And this court
repeatedly has cited the approach in Gaethje in subsequent cases concerning life-
insurance proceeds. See, e.g., In re Estate of Agans, 196 Ariz. 367, ¶ 4, 998 P.2d 449,
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450 (App. 1999); Guerrero v. Guerrero, 18 Ariz. App. 400, 402, 502 P.2d 1077, 1079
(1972), abrogated by § 14-6101; Carpenter v. Carpenter, 150 Ariz. 130, 135, 722 P.2d
298, 303 (App. 1985), vacated in part on other grounds by Carpenter v. Carpenter, 150
Ariz. 62, 63, 722 P.2d 230, 231 (1986).
¶11 Gail, however, suggests the Arizona Supreme Court earlier implicitly had
applied the item theory in La Tourette v. La Tourette, 15 Ariz. 200, 137 P. 426 (1914),
abrogated by Mortensen v. Knight, 81 Ariz. 325, 331, 305 P.2d 463, 467 (1956).
However, La Tourette did not address which theory to apply but instead set forth the rule
that a wife had an interest in community property before her husband’s death, although
she acquired management and control of her share only at his death. 15 Ariz. at 207-08,
137 P. at 428-29. Thus, La Tourette is inapposite.
¶12 Gail also argues that in In re Monaghan’s Estate, 65 Ariz. 9, 22-23, 173
P.2d 107, 115 (1946), our supreme court applied the item theory when it held that only
the decedent’s share of real property could be sold to pay probate expenses. However,
the court considered only the issue of whether the wife’s portion of community property
could be sold to satisfy probate expenses; it did not consider or adopt either theory of
community property disposition. In re Monaghan’s Estate, 65 Ariz. at 22-23, 173 P.2d at
115. Gail further relies on Propstra v. United States, 680 F.2d 1248, 1250-51, 1251 n.3
(9th Cir. 1982), but that case dealt with valuation of an estate for federal tax purposes and
not whether Arizona followed the “item” or “aggregate” method for determining
community property interests in the administration of an estate. Furthermore, “federal
decisions on state law issues do not bind us.” Dube v. Likins, 216 Ariz. 406, ¶ 37, 167
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P.3d 93, 104 (App. 2007). We conclude Arizona cases have adopted and relied on
Gaethje’s approach in the context of life-insurance proceeds and have not clearly adopted
or rejected an item theory.
¶13 Gail next contends that prior Arizona cases concerning life-insurance
beneficiary designations should not control, because retirement accounts are of a “special
nature.” She argues retirement accounts are intended to provide financial security for a
surviving spouse. She further suggests that we adopt a “modified item theory” in which
most community property is distributed on an item basis, but fungible property is
distributed on an aggregate basis. See Zalesky, supra, at 1067-70. Gail argues that the
item theory should apply here again because of the special nature of retirement accounts.
¶14 However, both life-insurance policies and retirement-account beneficiary
designations are methods of allocating assets for the future, and both may be used to
provide for a surviving spouse. Moreover, both proceeds from life-insurance policies and
IRA assets are fungible, in that they are money or may be sold easily. Even under a
modified item theory, which we do not adopt here, fungible assets are divided in the
aggregate. Id. Although Gail analogizes the IRA to other retirement plans governed by
federal law, she concedes those statutes do not apply here. Therefore, Gail has failed to
differentiate an IRA beneficiary designation from a life-insurance beneficiary designation
or demonstrate that the item theory was properly employed here. Rather, applying the
same rule that applies to a life-insurance beneficiary designation to an IRA beneficiary
designation achieves consistency in related legal issues.
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¶15 Gail further relies on a case from Louisiana in which the court
differentiated between profit-sharing plans and life-insurance policies. T. L. James & Co.
v. Montgomery, 332 So. 2d 834, 844-45 (La. 1975). But, in that case, the court
acknowledged that the Louisiana Constitution and civil code always had treated life
insurance distinctly and, therefore, the court did not apply general statutes and principles
of law to life insurance. Id. at 845. Gail provides no authority for the proposition that
Arizona historically has treated life-insurance policies in a distinct way. Instead, § 14-
6101(A) includes both individual retirement plans and insurance policies in its list of
non-probate transfers which are non-testamentary. Thus, we would not find this
Louisiana precedent to be persuasive in any event. Ramsey v. Yavapai Family Advocacy
Ctr., 225 Ariz. 132, ¶ 32, 235 P.3d 285, 294 (App. 2010).
¶16 One purpose of the probate code and related case law is to effect a
decedent’s intent in distributing property. A.R.S. § 14-1102(B)(2); In re Estate of
Shumway, 198 Ariz. 323, ¶ 7, 9 P.3d 1062, 1065 (2000). As the trial court found, Fred
intended that Joshua receive eighty-three percent of the IRA and Gail receive seventeen
percent. Employing the item theory here would defeat Fred’s intent. Furthermore, Gail
has failed to differentiate an IRA beneficiary designation from a life-insurance
beneficiary designation; both direct the transfer of money to a recipient. Thus, we
conclude the purpose expressed in § 14-1102(B)(2), the reasoning in Gaethje, and the
legislative intent expressed in § 14-3916 control the IRA beneficiary designation here.
We reverse the trial court’s grant of summary judgment in favor of Gail.
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¶17 Joshua argues the trial court erred by not granting his cross-motion for
summary judgment, contending Gail did not present evidence the beneficiary designation
resulted in a fraud on her interest. But under the IRA beneficiary designation, Joshua
would receive more than fifty percent of a community asset. And, the law concerning
this issue was unclear. The more equitable result is to allow both parties to marshal
whatever evidence is relevant to the legal issue as clarified above.
Conclusion
¶18 For the foregoing reasons, we reverse the trial court’s grant of summary
judgment in favor of Gail and remand for proceedings consistent with this decision.
/s/ Joseph W. Howard
JOSEPH W. HOWARD, Chief Judge
CONCURRING:
/s/ Peter J. Eckerstrom
PETER J. ECKERSTROM, Presiding Judge
/s/ J. William Brammer, Jr.
J. WILLIAM BRAMMER, JR., Judge
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