Family Ties

Like a candle in the wind . . .

Hayes v. Hayes, 2018 VT 102

By Eric Fanning

Widower-plaintiff Patricia Hayes appeals the trial court’s grant of summary judgment for defendants, niece and nephew Allison and Brian Hayes. Why did Ms. Hayes sue her niece and nephew, you might ask? Here it is: Her husband died, but before he died, he removed her as beneficiary of his retirement fund and designated niece and nephew as beneficiaries. Naturally, she believes she was cheated and is still entitled to that money. Nothing brings families together like litigation around inheritances!

Backstory: Ms. Hayes and her late husband were married in December of 1979. They separated in 2016, and husband filed for divorce in June of 2016. Husband died in September of 2016, before the divorce was finalized. A year before he died, husband rolled over about $119,000 from his work retirement plan into a traditional IRA managed by defendant LPL Financial, LLC. He designated his niece and nephew as beneficiaries. The facts showed that they were close, and that niece and nephew visited husband regularly. Before opening the traditional IRA, wife was the sole beneficiary of his deferred compensation retirement plan through work.

So, anyway, husband died, and his will was admitted to probate, the court having found that it was properly executed and authenticated (both prerequisites to allowing a will to be probated). Ms. Hayes consented to the will’s allowance (meaning she took what was left to her in the will), and received a personal estate valued at about $95,000, husband’s probate estate, and sole possession of the marital home. Ms. Hayes filed suit in June 2017, requesting a declaratory judgment that her late husband’s IRA beneficiary designation was void as a matter of law. The trial court 86’ed her case via summary judgment for defendants. Enter SCOV.

Wife anchors her argument to 14 V.S.A. § 321, which says that a spouse cannot transfer or give away property during the marriage with the intent of defeating the other spouse’s interest in what would otherwise be included in their statutory share of the decedent spouse’s property. In other words, one spouse cannot dispose of or convey away of property that would normally be left to the surviving spouse after death with the intent of defeating the spouse’s share. This is said to constitute a fraud upon the marital rights of the surviving spouse. Here’s the text (side note, the law was amended by the legislature following this opinion, so I’m supplying the language as it existed at the time the case was decided):

A voluntary transfer of any property by an individual during a marriage or civil union and not to take effect until after the individual’s death, made without adequate consideration and for the primary purpose of defeating a surviving spouse in a claim to a share of the decedent’s property so transferred, shall be void and inoperative to bar the claim. The decedent shall be deemed at the time of his or her death to be the owner and seised of an interest in such property sufficient for the purpose of assigning and setting out the surviving spouse’s share.

The gist of wife’s argument is that husband’s transfer of beneficiary rights under his IRA had the effect of committing a fraud upon her marital rights in violation of the statute, and therefore the proceeds from his IRA should pass to her through his estate. SCOV sees a few problems with this argument.

First I’ll just quickly mention that SCOV seems to agree with the trial court that husband’s designation of his niece and nephew as IRA beneficiaries didn’t violate the statute because the transfer of beneficiary rights was not done with the intent to defraud his wife, or at least, wife didn’t come forward with evidence tending to show that the transfer was made with ill will towards her. A good faith conveyance of property by a spouse during the marriage is allowed; and in fact, “to hold that a wife has a vested interest in her husband’s personal estate that he is unable to divest during his lifetime, would be disastrous to trade and commerce.” So, a voluntary transfer by husband without ill intent doesn’t run afoul of the law—it’s a free alienation of property, which the law favors.

The real meat of SCOV’s opinion rests upon the definition of the term “share.” This is the term used by the statute raised by wife, and so it’s up to SCOV to decide what the language in the law means. Statutory interpretations are questions of law, so, as we all know, SCOV reviews the trial court’s interpretation de novo. The trial court ruled that the word “share,” as used in the statute, means only the surviving spouse’s share when the decedent dies intestate, or the surviving spouse’s elective share.

In case you’re not a lawyer, or haven’t had the good fortune (or misfortune?) of having a Wills, Trusts & Estates book fall into your lap—let me quickly unpack this for you. If somebody dies without having made a valid will, the person’s property passes by “intestacy,” which is a distribution of property to the decedent’s heirs. Such distribution schemes are established by statute. In a nutshell, the surviving spouse gets the whole estate if the decedent didn’t have any descendants, or, if all surviving descendants are also descendants of the surviving spouse. If the descendant is survived by descendants who aren’t descendants of the surviving spouse, then the spouse gets half of the estate.

A spouse’s elective share, on the other hand, is the modern day equivalent of what, in olden times, used to be called dower and curtesy. Those terms basically meant that a surviving spouse had a right to a certain portion of the dead spouse’s estate. These estates are known in modern times as “elective” shares because the surviving spouse is entitled to take said share in lieu of, or regardless of, what the decedent spouse provided for in the will (in Vermont, the statutory elective share is one-half of the estate). The design and intent of elective-share statutes are to ensure that the surviving spouse is adequately provided for upon the death of the other spouse.

So, anyway, SCOV agrees with the trial court that the word “share,” means either the surviving spouse’s elective share under 14 V.S.A. § 319 or the spouse’s intestate share under 14 V.S.A. § 311. This is bad news for wife because this leaves her with no right to the IRA proceeds, even if the court had found that husband’s transfer to have been void, since wife elected to take under husband’s will. This means in practice that, even if the IRA property had passed through husband’s estate due to failure of the beneficiary designation, wife can’t reach that property because she decided to take what was left to her in the will. As SCOV notes, “it is a familiar rule that one cannot take under a will and against it,” or put another way, “election…means a choice between two courses of action; acquiescence by the widow in her husband’s disposition of his property, or disregard of it and assertion of the rights the law gives her. There is no third or mixed course.”

Since wife chose to take what husband left her in his will instead of opting for the statutory elective share, § 311 doesn’t apply. SCOV affirms the trial court’s grant of summary judgment.