Retirement Plan Terms Can Trump State Probate Laws

Having specific language and instructions in wills or estate plans can help distribute a decedent’s assets in accordance to their wishes. There may be cases where more than one beneficiary can lay claim to a decedent’s assets.  As San Antonio probate attorneys, we often see this when individuals feel they are entitled to the property or asset or there was some problem with how the estate plan was executed.  This can also come up if the intended beneficiary under the estate plan died before the party who created the will.  Disputes in this area often arise when one party dies right after receiving an inheritance, which brings up the question of whether retirement plan terms can trump state probate laws

In this situation, who is entitled to be the beneficiary – an heir of the original intended beneficiary who just died or someone else that is related to the decedent?  The In re Phillips, No. 09-21-00284-CV (Tex. App.–Beaumont [9th Dist.] 2023) case helps to answer this question.

Facts & Procedural History

The decedent participated in a retirement plan.  The plan was qualified under ERISA, as is the case for most retirement plans.  

The beneficiary designation form for the retirement plan listed the decedent’s husband as the beneficiary in the event of her passing.  Her brother was the contingent beneficiary. 

Her husband was survived by his brother and his brother was his sole heir. 

The facts in the case are such that shortly after the decedent passed away, her husband, the intended beneficiary, also passed away.

After both of their deaths, the plan’s administrator paid the retirement account to the husband. 

The wife’s brother then sued the husband’s estate on the basis.  He cited the 120-hour rule.  The court had to decide whether the decedent’s husband was alive for a certain period of time after her death and if his estate should receive the retirement account proceeds, or if it should go to a different beneficiary.

Texas 120-Hour Survival Law

The Texas Estates Code addresses the situation when one party dies close in time to the other party.  

Section 121.102(a) provides a 120-hour survival requirement for beneficiaries: 

  • Sec. 121.102.  REQUIRED PERIOD OF SURVIVAL FOR CONTINGENT BENEFICIARY.  (a)  If property is disposed of in a manner that conditions the right of a beneficiary to succeed to an interest in the property on the beneficiary surviving another person, the beneficiary is considered not to have survived the other person unless the beneficiary survives the person by 120 hours, except as provided by Subsection (b).
  • (b)  If an interest in property is given alternatively to one of two or more beneficiaries, with the right of each beneficiary to take being dependent on that beneficiary surviving the other beneficiary or beneficiaries, and all of the beneficiaries die within a period of less than 120 hours, the property shall be divided into as many equal portions as there are beneficiaries.  The portions shall be distributed respectively to those who would have taken if each beneficiary had survived.

Given this rule, one has to survive their benefactor by at least 120 hours. Otherwise they would be considered as not having survived the benefactor, and they are not entitled to inherit.

Who Inherits: The Parties Arguments

In this case, the decedent’s brother argued that the decedent’s husband failed to live past the 120-hour time period, and, as a result, the husband was not entitled to inherit the retirement account proceeds.  According to the brother, it was the brother who should be entitled to inherit the plan because he was the decedent’s contingent beneficiary.

That is not where this dispute ends.  The retirement plan company had included terms in the plan that said that survival requirements do not require 120-hours.  The only requirement was that the primary beneficiary be alive at the time of the account holder’s death.  This led to the plan administrator to determine that, based on plan documents and beneficiary designations, the decedent’s husband should have received the benefits and that the Texas survival statute did not apply. As such, retirement plan terms can trump state probate laws.

The Terms of the Retirement Plan Govern

The court started with the ERISA rules.  ERISA is a federal law regulating employer-sponsored retirement and benefit plans. It contains rules on plan administration, fiduciary duties, and beneficiaries’ rights. 

ERISA has broad rules that provide for preemption over conflicting state laws.  These rules say that plan administrators must follow plan documents for determining benefits if consistent with ERISA.  The retirement plan in this case only required that the primary beneficiary outlive the participant, not a 120-hour period. Thus, under the ERISA rules the 120-hour Texas law gave way to ERISA rules and the plan administrator correctly paid the husband’s estate, since he was alive at the time of  his wife’s death.

The court noted that the Texas Estates Code confirms this result.  It says that the rules in the Texas Estates Code do not apply if a non-probate instrument, like an ERISA plan as in this case, provides for a different distribution than provided for in the Texas Estates Code.  

The Takeaway

This case shows that not all things are as they seem.  A state statute may give way to Federal law and/or to terms set out in documents, such as retirement plan documents.  In this case, that dictated who inherited and it did so despite the clear Texas statute on point.  This case emphasizes the importance of careful planning when it comes to beneficiary designations as part of an overall estate plan.

Do you need help with a probate matter in San Antonio or the surrounding area?  We are San Antonio probate attorneys.  We help clients navigate the probate process.   Call today for a free confidential consultation, (210) 239-8518.

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The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.

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