December 5th, 2024
By David B. Shea, Esq.
Marriage often brings joy, but when it happens later in life—or follows a prior union—it can leave surprising gaps in estate planning. That’s exactly what happened in Reich v. Reich (2024) ___ Cal.App5th ____ (Oct. 24, 2024, B332980), where Thomas Reich married Pamela years after creating a trust and naming beneficiaries of his IRA, yet never updated his estate plan to reflect their marriage. In such cases, California’s omitted spouse doctrine typically serves as a safety net, ensuring that a surviving spouse, inadvertently left out of outdated documents, still receives a share of the estate. The doctrine assumes these omissions are unintentional unless the decedent provided for the spouse in other ways, such as naming them as a beneficiary of a life insurance policy. But IRAs, with their fixed beneficiary designations, pose a unique legal challenge. In Reich, the court tackled the key question: should IRA proceeds be included in the surviving spouse’s share? The court’s answer—a definitive no—drew a firm line, confirming that nonprobate assets like IRAs lie beyond the reach of the omitted spouse doctrine. This ruling not only highlights the power of beneficiary designations, but also underscores the limits of statutory protections for surviving spouses. For estate planners, it reinforces the necessity of updating estate plans and beneficiary designations. For litigators, it clarifies the boundaries of omitted spouse claims.
When Thomas passed away in 2021, he left behind a trust naming his daughter and granddaughter as beneficiaries and an IRA worth $1.5 million. Thomas had completed a beneficiary designation form specifying that Shannon’s and Leah’s separate trusts would each receive half of the IRA’s proceeds upon his death. Pamela, who married Thomas in 2020, argued that the IRA proceeds should be included in her statutory share as an omitted spouse because the separate trusts were created under Thomas’s revocable trust. California’s omitted spouse doctrine typically provides a share of the estate to a spouse unintentionally excluded from a decedent’s will or trust, as defined in Probate Code sections 21600–21612. However, the doctrine applies only to probate assets or property passing through a revocable trust that becomes irrevocable upon the decedent’s death.
The court rejected Pamela’s argument, holding that IRA proceeds are nonprobate assets governed by their beneficiary designations. These proceeds do not pass through a decedent’s will or trust unless explicitly directed otherwise. This principle is firmly rooted in California law, including Probate Code section 5000, subdivision (a), which identifies IRAs as nonprobate transfers. The court relied on Estate of Davis (1985) 171 Cal.App.3d 854, 858, which held that IRA proceeds “do not become a part of the [probate] estate” when transferred directly to designated beneficiaries, and Estate of Petersen (1994) 28 Cal.App.4th 1742, 1751, which reaffirmed that such transfers bypass probate.
Pamela advanced multiple arguments in her attempt to include the IRA proceeds in her statutory share. She claimed that the IRA passed through the revocable trust because the beneficiaries were sub-trusts created under it. The court rejected this theory, clarifying that the separate trusts functioned independently and received the IRA proceeds directly under the beneficiary designations. Pamela further contended that absent the trust, the IRA proceeds would have reverted to the estate. The court dismissed this hypothetical, emphasizing Thomas’s clear intent as evidenced by the account’s beneficiary designations.
In addition to these substantive issues, Pamela raised procedural challenges, arguing that an earlier ruling on demurrer, which had allowed her claim to proceed, precluded dismissal of her petitions. The appellate court rejected this argument, noting that preliminary rulings on demurrers do not bind subsequent substantive decisions. The court relied on Summers v. City of Cathedral City (1990) 225 Cal.App.3d 1047, 1063, and Wrightson v. Dougherty (1936) 5 Cal.2d 257, 265, which affirm that such rulings are procedural and do not determine the merits of a case.
The decision in Reich underscores critical lessons for estate planners and litigators alike. For estate planners, it highlights the importance of ensuring beneficiary designations align with a client’s intentions, particularly after significant life events like marriage. Nonprobate assets, such as IRAs, operate outside the probate process, governed by contractual terms that must be consistent with the broader estate plan to prevent unintended exclusions.
For litigators, the case clarifies the boundaries of omitted spouse claims by reinforcing the distinction between probate and nonprobate assets. Courts give precedence to explicit beneficiary designations and the decedent’s clear intent, emphasizing the need for clarity and consistency in governing instruments to avoid disputes.
Ultimately, Reich serves as both a cautionary tale and a roadmap. It demonstrates the risks of procrastination in estate planning and affirms the power of beneficiary designations to dictate asset distribution. For both planners and litigators, the case underscores the value of meticulous preparation and proactive strategies to ensure that all parties—surviving spouses and designated beneficiaries alike—are treated in accordance with the decedent’s wishes.
David B. Shea, a Partner at Ferguson Case Orr Paterson LLP, is a certified specialist in Estate Planning, Trust, and Probate Law. Utilizing his extensive litigation experience, he also serves as a mediator, concentrating on resolving trust and estate disputes.
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