Allard v. Frech, 2-86-074-CV

• Decision Date: 05 August 1987
• Docket Number: No. 2-86-074-CV,2-86-074-CV
• Citation: 735 S.W.2d 311
• Parties: Billy L. ALLARD, Appellant, v. Martha Parten FRECH, Independent Executrix of the Estate of Billie J. Allard, Deceased, Appellee.
• Court: Texas Court of Appeals

Page 311

735 S.W.2d 311

Billy L. ALLARD, Appellant, v. Martha Parten FRECH, Independent Executrix of the Estate of Billie J. Allard, Deceased, Appellee.

No. 2-86-074-CV.

Court of Appeals of Texas Fort Worth.

Aug. 5, 1987.

Rehearing Denied Sept. 9, 1987.

Kerry, Harrison, Brown, Lewis, Steck & Forderhase and Henry E. Kerry, Fort Worth, for appellant.

Lively & Kasselman and John R. Lively, Fort Worth, for appellee.

Before JOE SPURLOCK, II, FARRIS and KELTNER, JJ.

OPINION

JOE SPURLOCK, II, Justice.

Appellant, Billy L. Allard, appeals from two orders issued in connection with the probate of the estate of his deceased wife Billie J. Allard. An approval order was entered by the court after a trial on the inventory, appraisal and list of claims filed by Martha Parten Frech, executrix. A second order was later issued to compel compliance with the approval order.

We affirm in part and reverse and remand in part.

Billie J. Allard and Billy L. Allard were married in 1945. During their marriage, Mr. Allard began working for General Dynamics Corp., retiring in May, 1982. Mrs. Allard died on April 11, 1983, after a long bout with cancer. The couple was married until Mrs. Allard's death. Martha Parten Frech, Mrs. Allard's sister, offered a will dated January 12, 1983 into probate. Allard contested the will and offered a later will, dated March 22, 1983. The later will was rejected by the court. When the will offered by Mrs. Frech was admitted to probate, as independent executrix she filed an "Inventory, Appraisement, and List of Claims" to which Allard objected. At trial, the issues were limited by agreement to those concerning the characterization of certain property. The court approved the inventory, signed the approval order, and later entered the second order to compel delivery of property in compliance with the approval order. Points of error one through thirteen challenge the approval order. Points of error fourteen through sixteen challenge the second order.

In point of error one, Allard contends the court erred in finding that his General Dynamics retirement plan was community property, one-half of which the court included in Mrs. Allard's estate. The retirement plan had a value of $102,080.00 and vested in 1982. As a result of the community characterization, Mrs. Allard's one-half of the retirement plan passes to two trusts set up in favor of the Allards' daughter and grandchildren. Allard claims these beneficiaries were never intended to be protected by or share in his retirement plan because they are able-bodied young adults capable of supporting themselves. We are in sympathy with the position taken by appellant and agree that adult children should not share in the retirement of a parent. Nevertheless, we must reject this argument.

In support of his argument, Allard asks this court to apply the result of Valdez v. Ramirez, 574 S.W.2d 748 (Tex.1978) to this case, or to adopt for Texas a probate rule called the terminable interest rule. In Valdez the Court held the employee-wife's retirement benefits remaining after her husband's death were her separate property because as a federal government employee, her retirement was provided by the Civil Service Retirement Act, 5 U.S.C. sec. 8331 (Supp. VIII 1987), et seq., which pre-empts conflicting state marital property rules. Valdez, 574 S.W.2d at 751; see also Ex parte Burson, 615 S.W.2d 192, 193-94 (Tex.1981).

The terminable interest rule answers the question of whether or not to disburse retirement benefits to heirs of the deceased spouse by terminating the non-employee spouse's interest in a pension at the death of either spouse. Waite v. Waite, 6 Cal.3d 461, 99 Cal.Rptr. 325, 492 P.2d 13 (1972); Matter of Estate of Allen, 108 Cal.App.3d 614, 166 Cal.Rptr. 653 (Court of Appeals [1st Dist.] 1980). Both of these rules offer an equitable solution to the dilemma of whether or not to pay one-half of a person's retirement to devisees or heirs of the deceased spouse's interest in the community estate. These persons otherwise would not, and should not, have an interest in a survivor's hard earned and needed retirement benefits. In this connection, we are not speaking of a plan which provides some sort of specific death benefit, but rather the type which when put into effect, was contemplated to provide minimum subsistence for the retired employee or spouse for the remainder of their natural lives, or a stated period of time.

Allard acknowledges that a spouse has a community property interest (while alive) in that portion of the retirement benefits of the earning spouse accruing during their marriage. He argues that certain comments by our Supreme Court in Valdez, 574 S.W.2d at 748 coupled with legitimate public policy considerations, dictate that Texas should adopt the terminable interest rule. That rule asserts the non-employee spouse's pension interest terminates at the death of either spouse, hence, is not subject to testamentary disposition. See Waite, 6 Cal.3d 461, 99 Cal.Rptr. 325, 492 P.2d 13. In essence Allard is arguing that while the community property interest may be determined and divided upon dissolution of the marriage while both spouses are alive, dissolution by death should effect another result.

In Valdez, a United States Civil Service employee had been receiving retirement benefits for two years when her husband died intestate. He had been married to the retired employee for 340 months of the 352 months of her employment. The issue was whether the deceased husband's interest in his wife's civil service retirement benefits was inheritable by his adult children of a former wife.

The Supreme Court held that the retired employee succeeded to the survivor portion of the annuity benefit, consequently none of the benefit could pass by the intestacy of her husband. The decision was not based upon Texas law but upon the requirements of the federal Civil Service Act, which provides only for payment to the employee, or in the case of the employee's death, to the surviving spouse and to the employee's minor, incapacitated or student children. The Court found that "[I]t would be contrary to the whole contract, policy, and plan of the Retirement Act for nearly one-half of Mrs. Valdez's monthly payments to be taken from her and awarded to her deceased husband's adult children." Valdez, 574 S.W.2d at 750. Allard argues the same equitable result should obtain here.

The Valdez court noted that a recognized non-probate asset, not subject to disposition by will or intestate distribution, is property passing by right of joint survivorship. Id. at 750. Allard argues this also is authority for his position as his retirement is a non-probate asset. However, in Valdez, the court pointed out that the employee had exercised the joint and survivorship option provided by her retirement plan. Although this option provided a lower monthly payment to her and her husband while both were living, and a lower payment to her if she survived him, it also created in the husband a right to an annuity if he survived her. Id. at 751. The annuity, being a valid joint survivorship community asset, was therefore a non-probate asset to which either was entitled to full enjoyment upon the death of the other. Id.

In the retirement plan before us there is a joint survivor option but that option was not exercised by Allard, whose plan is to pay benefits during his entire lifetime with ten years of benefits guaranteed to him or someone else. Consequently, the holding and result in Valdez may be distinguished here.

Another reason to distinguish the instant case from Valdez is the source of the retirement plan. On motion for rehearing in Valdez the Court very carefully noted that "we are dealing here with a type of joint and survivorship annuity which was created by federal law." Id. at 753. The Court further specifically held: "[A] joint survivorship annuity clearly authorized by federal law to serve a federal purpose may preempt conflicting state laws in the absence of its use to perpetuate a fraud by one spouse on the other." Id.

What is most troublesome is that, having noted on p. 750 that property passing at death pursuant to terms of a contract, such as provided in life insurance policies and under contributory retirement plans is one of "four categories of assets known as non-probate assets, not subject to disposition by will and not subject to the rules of intestate distribution," Justice Daniel, writing for the Court, did not use this as a basis for the decision in Valdez, and never otherwise remarked on this rule in the opinion. This rule was not the basis for the holding in Valdez. Specifically, on rehearing, Justice Daniel seemed to be making very clear that except for the fact that the Valdez retirement was federal, there might be "conflicting state laws" governing the disposition of a joint (community) interest in retirement. Therefore, we do not find Valdez to be authority in this case to hold the community interest of Mrs. Allard terminated on her death, as was the result reached in Valdez.

The Supreme Court had a clear opportunity in Valdez to adopt the terminable interest rule, or use an exclusionary rule of defining the entire retirement interest as a non-probate asset, but did not do so. The Court very carefully based the entire decision on federal law. The footnote cases by Justice Daniel used as authority in discussing the non-probate category of assets do not support Allard's position either. Id. at 750 n. 3.

It would be interesting to know what arguments or discussions occurred in the Supreme Court while the motion for rehearing was pending in Valdez, but all we do know is that, having mentioned contributory-retirement at one place as a non-probate (excluded) asset in the main body of the opinion, the court never again discussed this characteristic of the property. Obviously if the Supreme Court were to adopt either an exclusionary rule or terminable...