June 12, 1991
TO: PENSION COMMITTEE NO. 14-91
RE: CALIFORNIA APPLIES COMMUNITY PROPERTY LAWS TO IRA ASSETS
__________________________________________________________
Section 408(g) of the Internal Revenue Code provides that
individual retirement arrangement provisions shall be applied
without regard to any community property laws. Nevertheless, the
California Supreme Court recently determined that the community
property laws of that state applied to IRA assets.
The case involved a claim by a deceased spouse's estate for
its community property share of the surviving spouse's IRA
assets. Prior to her death, the deceased spouse had signed a
"spousal consent" statement under the IRA application agreeing to
the designation of a beneficiary other than herself. The Court
did not explain the purpose of the spousal consent provision.
However, it determined that IRA assets can only be "transmuted"
from community property to separate property by an express
written declaration which was not satisfied by the beneficiary
designation consent statement. The Court rejected the notion
that the consent of the deceased spouse constituted a "waiver"
which could transmute the community property to separate prop-
erty. The Court suggested that an additional sentence, such as
"I give to the account holder any interest I have in the funds
deposited in this account" could have satisfied the state's
requirement for express community property transmutation.
The Court's decision does not address the responsibility,
if any, of the IRA trustee with regard to community property
matters. Also absent from the decision is any reference to
section 408(g) of the Internal Revenue Code.
A copy of Estate of MacDonald v. MacDonald, 794 P.2d 911
(Cal. 1990) is attached. We will keep you informed of related
developments.
W. Richard Mason
Assistant Counsel - Pension
Attachment