In re Estate of Tillotson, 05-19-01192-CV
| Decision Date | 30 December 2020 |
| Docket Number | No. 05-19-01192-CV,05-19-01192-CV |
| Parties | THE ESTATE OF LEAH RITA TILLOTSON, DECEASED |
| Court | Texas Court of Appeals |
On Appeal from the County Court at Law No. 2 Hunt County, Texas
Before Justices Schenck, Osborne, and Partida-Kipness
Opinion by Justice Partida-Kipness
In this probate proceeding, Thomas Tillotson appeals the trial court's order approving the inventory, appraisement, and list of claims filed by the administratrix of his wife's estate. In five issues, Thomas contends the trial court erred in overruling his objections to the administratrix's claims to a community interest in his Rollover IRA, Roth IRA, and U.S. savings bonds, and for reimbursement related to a down payment made on the community residence and funds used to benefit Thomas's separate real property. We reverse and remand in part and affirm in part.
Thomas and decedent Leah Rita Tillotson were married in 1980. Leah died intestate on August 31, 2017. Kristi Sherrill Hoyl, one of Leah's daughters from a previous marriage, was appointed administratrix of Leah's estate.
Hoyl filed an initial and amended inventory, appraisement, and list of claims with the trial court. Thomas objected to the amended inventory, appraisement, and list of claims. Specifically, Thomas objected that Hoyl had included among the estate's community property inventory Thomas's Rollover IRA, Roth IRA, and U.S. savings bonds. He argued that any community property interest the estate had in these items was preempted by federal law that established the investments and rendered them his separate property. Thomas also objected to two items listed among the claims owed to the estate: reimbursement to the estate of $25,000 in Leah's separate property used as down payment to purchase the couple's home in 1984; and community funds allegedly used to pay mortgage, taxes, and insurance on Thomas's separate real property. According to Thomas, the $25,000 down payment came from community funds, and the estate actually benefited from rent on his separate real property. The trial court heard and overruled Thomas's objections. This appeal followed.
Any interested person who considers an inventory, appraisement, or list of claims to be erroneous, unjust, or missing property or claims may file a writtencomplaint to compel the personal representative to appear and show cause why the alleged error should not be corrected. TEX. EST. CODE §§ 309.102(a), 309.103(a). A trial court shall conduct a hearing, and if the court is satisfied that the evidence has proven that property or claims have been omitted or that the inventory, appraisement, or list of claims is erroneous, the court shall enter an order addressing the corrections. TEX. EST. CODE §§ 309.102(b) (), 309.103(b) ().
We review a trial court's order on a complaint under sections 309.102 and 309.103 for an abuse of discretion. See In re Estate of Walker, 250 S.W.3d 212, 214 (Tex. App.—Dallas 2008, pet. denied) (); In re Estate of Denton, No. 11-10-00341-CV, 2012 WL 3063845, at *4 (Tex. App.—Eastland July 26, 2012, no pet.) (mem. op.) (reviewing an order approving an amended inventory under section 255 of the probate code, predecessor to section 309.054 of the estates code, for an abuse of discretion). "A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner without reference to any guiding rules or principles." In re Estate of Walker, 250 S.W.3d at 214 (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985)).
In five issues, Thomas contends the trial court erred in overruling his objections and approving Hoyl's amended inventory, appraisement, and list of claims.
In his first and second issues, Thomas contends the trial court erred in approving Hoyl's inventory and appraisement to include his Rollover IRA and Roth IRA among the estate's community property interests. Hoyl's amended inventory lists two IRAs:
According to Thomas, the federal law that created these IRAs for the exclusive benefit of the individual investor or his beneficiaries preempts state law that would treat them as community property. Hoyl contends the funds in both IRAs were earned during Thomas and Leah's marriage, and there is no legal authoritysupporting Thomas's position. Although Thomas admits the IRAs were funded with community property, he maintains any community property rights under state law are federally preempted by Sections 408 and 408A of the Internal Revenue Code.
Section 408(a) defines "individual retirement account" as "a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries." 26 U.S.C. § 408(a) (2019). Section 408(g) states, "This section shall be applied without regard to any community property laws." 26 U.S.C. § 408(g). Section 408A(a) states that "[e]xcept as provided in this section, a Roth IRA shall be treated for purposes of this title in the same manner as an individual retirement plan." 26 U.S.C. § 408A(a). According to Thomas, these provisions are sufficient to preempt Texas community property law because state law conflicts with section 408(a)'s intent that his IRAs were created for his and his beneficiaries' "exclusive benefit." See Hyundai Motor Co. v. Alvarado, 974 S.W.2d 1, 4 (Tex. 1998) (). Consequently, Thomas argues the estate could not hold a community interest in the IRAs. Thomas cites no case law to support this proposition.
Hoyl, however, cites United States v. Berry, CR H-17-385, 2018 WL 6602184, at *1 (S.D. Tex. Dec. 17, 2018), supplemented, H-17-385, 2019 WL 545334 (S.D. Tex. Jan. 17, 2019), for the proposition that section 408 does notabrogate substantive rights under state law. Although only persuasive, we find Berry helpful to our analysis.
Berry concerned Gwendolyn Berry's conviction and imprisonment for wire fraud, mail fraud, and making a false tax return. Id. The conviction required Gwendolyn to pay restitution, and the government filed an application for writ of garnishment from five retirement accounts. Id. Gwendolyn was married to Michael Berry, and the requested garnishment would include 50% of Michael's investment in two IRAs on the grounds that the funds were Michael's solely managed community property. Id. The Berrys moved to quash the application on various grounds, including conflict-preemption of the state-law characterization of the IRAs. Id.
The trial court noted that "[t]he disputed accounts are comprised of funds that were once regulated by ERISA and are now regulated by Section 408 of the Tax Code." Id. The Berrys argued that "[l]ike ERISA as construed in [Boggs v. Boggs, 520 U.S. 833 (1997)], the federal law which is § 408 renders state efforts to categorize retirement funds as separate, community or anything else meaningless." Id. The court noted, however, "There is no federal case, involving an IRA rollover, that holds that some federal law, other than ERISA, preempts state community property law." Id. at *2. The court also cited IRS private letter ruling 1999-37-055 in which the IRS ruled that § 408(g) "does not abrogate any substantive rights under State law." Id. ). The courtnoted that "[t]he IRS explained that § 408(g) only applies to sections 219 and 220, as such, the classification of an IRA rollover as community property was a matter of state law." Id. Thus, the court held that section 408 does not preempt state community property law. Id. After Hoyl filed her brief here, the Fifth Circuit issued its opinion affirming the trial court's ruling in Berry. United States v. Berry, 951 F.3d 632, 636 (5th Cir. 2020).
Thomas argues that Berry is inapplicable here because it does not address section 408(a), which states that IRAs are created "for the exclusive benefit of an individual or his beneficiaries." See 26 U.S.C. § 408(a). We disagree. By denying the Berrys' motion to quash, the Berry court effectively held not only that section 408(g) did not abrogate state community property law, but also that an IRA could contain community property. Were it to have held otherwise, it could not have permitted the garnishment. This holding is also consistent with the I.R.S. private letter ruling cited by the Berry court. In that letter ruling, the I.R.S. ruled that funds invested in an IRA may be classified as marital property, subject state community property laws. I.R.S. Priv. Ltr. Rul. 199937055 (Sept. 17, 1999). Although Berry concerned the application of state community property law in the context of criminal restitution, Thomas has not provided, and we are not aware of, any authority suggesting that Berry's reasoning should not apply here.
Thomas also argues that tax implications associated with the withdrawal of IRA funds further demonstrate that state law is preempted. According to Thomas,he will incur the tax liability on a forced distribution of IRA funds to the estate, and...
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