Nontestamentary Disposition of Assets in an Arizona Probate
In Arizona, a surviving spouse is entitled to a statutory allowance from the other spouse’s estate. Sometimes the estate doesn’t have enough assets to pay that allowance. Arizona law gave the probate court authority to take the decedent’s life insurance policy proceeds to pay that allowance.
This was true even when another person was named as beneficiary. In re: re: Estate of Agens, 998 P.2d 449 (1999) the Arizona Supreme Court considered Arizona law on that subject.
Specifically, it looked at whether the Uniform Probate Code changed that result.
Facts of the Case
Mr. Agans died while married. His wife opened probate but found that there were not enough assets in the estate to pay her surviving spouse’s allowance.
She asked the court to bring into the estate the proceeds of a life insurance policy. The couple purchased it during the marriage with community funds. The named beneficiary was Mr. Agans’s mother. The probate court agreed with the wife.
It ordered that the life insurance proceeds of $20,000 should be part of the estate. An appeal of that ruling followed.
Prior Arizona Law
The Court reviewed the current state of the law in Arizona on the subject. Arizona is a community property state. This means that all money earned by either spouse during a marriage belongs to the marriage community.
When that community money is spent on a life insurance policy, the surviving spouse has an interest in the proceeds. This is true even if a different person is named as beneficiary.
When the estate lacks funds to pay the surviving spouse’s allowance, the court can use the insurance proceeds.
Impact of Uniform Probate Code
However, all this was law before Arizona passed the Uniform Probate Code. The Arizona Supreme Court ruled that the Uniform Probate Code specifically changed that law.
The Uniform Code limits probate authority to take assets that normally pass to a third party outside of probate. These assets, termed “nontestamentary dispositions,” can include payable-on-death accounts and insurance policies.
Under the uniform laws, nontestamentary dispositions cannot be reclaimed by the estate to pay surviving spouse benefits. Only testamentary dispositions (those written into the will, like bequests to third parties) yield to a spouse’s allowance.
The Arizona Supreme Court reversed the trial court’s order. It said the court could not grant the petition including the proceeds in the estate. Those insurance proceeds could not be taken to pay Wife’s statutory allowances. The Court ordered the trial court to determine whether Wife had any community property rights in the insurance proceeds.
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