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Tennessee Court Finds the Term “Children” Ambiguous in IRA Beneficiary Designation, Rules Stepchildren Are Included
Posted by Martin Heller Potempa & Sheppard, PLLC on September 18, 2015
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In a recent opinion regarding an IRA beneficiary designation released by the Tennessee Court of Appeals, In re: Estate of Warren Elrod, the court reviewed a decision of the probate court finding that the stepchildren of the decedent and his biological son were entitled to an equal distribution of the decedent’s individual retirement account (IRA), a non-probate asset. The biological son of the decedent sought to collect the proceeds as the sole heir at law since there was no living beneficiary listed in the IRA agreement. However, the decedent’s two stepchildren argued that the IRA proceeds should be distributed equally among the three of them since the decedent’s will provided that they equally share the decedent’s real and personal property.
The decedent executed the IRA Adoption Agreement in 2010, designating his wife as the beneficiary. The IRA provided that if she did not survive the decedent, the IRA would be distributed among the decedent’s “children.” The decedent’s wife died in 2011, however, and the IRA beneficiary designation was not updated before the decedent’s death in 2013. In his Last Will and Testament, the decedent divided the majority of his assets, as well as the residue of his estate, among his two stepchildren and biological son equally. The Will did not define “children” or “child” for the purposes of the Will, nor did it specifically address the IRA or designate a beneficiary.
Generally, a court will look solely to the four corners of an agreement to determine the rights and interests of the parties. However, if a court finds that a contract is ambiguous, the court may consider extrinsic evidence to clarify its meaning. A contract is ambiguous if it is reasonably susceptible of more than one interpretation on its face. Due to the varying definitions of “children” in the dictionary, New York statutes (where the IRA agreement was executed), and Tennessee statutes (where the estate was probated), the probate court properly found that the term was ambiguous. Thus, the court will look to evidence of the decedent’s intent to determine the meaning of the term by holding an evidentiary hearing.
The Court of Appeals agreed that the evidence at the hearing demonstrated that the decedent’s expressed intention was that the three would be treated equally. The court noted that the strongest evidence of the decedent’s intent was found in how he designated the natural bounty from him in his Will, which did not differentiate between his biological son and stepchildren. The court also noted that the biological son had not resided with his father since he was an infant, nor did he have a close relationship with the decedent, whereas the decedent’s stepchildren had been his caretakers up until his death. Accordingly, the Court affirmed the decision of the probate court dividing the IRA proceeds equally.
An experienced estate litigation lawyer can protect your legal interests while ensuring that the estate is administered properly. At the Nashville firm of Martin Heller Potempa & Sheppard, our attorneys routinely handle legal issues involving wills and estate planning, probate laws, and establishing trusts. To schedule a consultation with one of our attorneys, contact us at (615) 800-7096 or through our website.
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