California Small Estate Affidavit

Participant dies without a beneficiary.  Estate is the beney under the plan document.  CA has a small estate affidavit to help small estates avoid probate court.  By using the small estate affidavit the death proceeds could be made payable directly to the beneficiary of the estate rather than the estate.  

Should the plan sponsor be concerned that creditors might have a claim?  Creditor claims do not appear to be specifically addressed in the small claims affividavit.

Thank you for any guidance.

I work with a large plan based in CA and they had a concern about how deeply involved the plan should get involved, if at all, in alternative means of paying out a death benefit to an estate.  All of this was triggered by their processes for tracking down missing participants and for resolving uncashed checks.

The plan document says the payee of last resort is the estate.  After looking at possibly making payments using small claims affidavits, they decided that plan will continue to pay the benefit to the estate.  Once paid, the plan is no longer involved with what may happen afterwards.

3 hours ago, R. Butler said:

Participant dies without a beneficiary.  Estate is the beney under the plan document.  CA has a small estate affidavit to help small estates avoid probate court.  By using the small estate affidavit the death proceeds could be made payable directly to the beneficiary of the estate rather than the estate.  

Should the plan sponsor be concerned that creditors might have a claim?  Creditor claims do not appear to be specifically addressed in the small claims affividavit.

Thank you for any guidance.

I can't speak to California law in specific - but I think if you dig deep enough, there is probably a provision that indicates 1) the claimant has to attest that there are no known claims against the estate, and 2) the claimant is liable - to the extent of the distribution received, should any claims arise.

In any event, it isn't the plan's responsibility.  The plan and it's trust are not required to turn claims over to creditors (401(a)(13)) - and the small estate affidavit only provides a short cut for bene's to make claims.  If under state law no formal estate administration is required, then the plan is insulated in making payments to the claimant (provided the affidavit is consistent with the provisions of the law).

If an ERISA-governed plan’s administrator chooses to rely on a small-estate-affidavit regime for some claims, the administrator might constrain (to less than what a superseded State law allows) the circumstances for which the administrator might accept such an affidavit, the waiting period for observing that no probate petition is filed, and the amount for which the administrator might rely.

For example, instead of waiting only the 30 or 40 days many States’ statutes require, an administrator might require a longer wait.

And instead of allowing a distribution up to $184,500 (California), a plan’s administrator might set a procedure-specified national limit—for example, $100,000 or, if less, the State-law limit for the State whose law the claimant’s affidavit is based on.

16 hours ago, Peter Gulia said:

If an ERISA-governed plan’s administrator chooses to rely on a small-estate-affidavit regime for some claims, the administrator might constrain (to less than what a superseded State law allows) the circumstances for which the administrator might accept such an affidavit, the waiting period for observing that no probate petition is filed, and the amount for which the administrator might rely.

For example, instead of waiting only the 30 or 40 days many States’ statutes require, an administrator might require a longer wait.

And instead of allowing a distribution up to $184,500 (California), a plan’s administrator might set a procedure-specified national limit—for example, $100,000 or, if less, the State-law limit for the State whose law the claimant’s affidavit is based on.

With all due respect, I think you run into a problem there.  First, the obvious - ERISA preemption only applies to some state law that is inconsistent with ERISA.  It works in tandem with state law that isn't inconsistent.  Determining who is the "estate" is purely a state law function - and if an affidavit which on it's face is adequate under state law to determine that an individual (or several individuals) are the "estate" or a substitute for one, then it is so.  Keep in mind that most people think of an "estate" as a formal probate court created thing - it is not.  An estate is the corpus of one's assets - both when alive and when deceased - the only questions is, who controls it.  When alive, it's the individual, unless under guardianship (of the estate), and when deceased, it's whatever state law says - sometimes it's an appointed administrator/executor, and sometimes its individuals who step in under small estate laws (some of which only require an affidavit, some require a simple filing with the probate court).  Second, if the bene is the "estate," and state law determines under its small state affidavit who the estate is, then those so deemed to be the stand-ins for the estate *are the beneficiaries* if the estate is the bene of the plan.  Changing the rules by imposing a lower limit for acceptance of a small estate affidavit is contrary to the state law that determines the estate - and once these people become the "benes" of the plan, they have an ERISA right to the benefits  PERIOD.  Who the creditors of the estate are is of no concern to the plan.  UNDER NO CIURCUMSTANCES CAN THE PLAN PAY ANY OF THE CREDITORS.  It's a simple anti-alienation issue.   Once the money hits the hands of the "estate" even if no formal admin is initiated, then it is their problem to settle debts under state law, and assuming the plan administrator reviewed the affidavit to determine that on it's face it complies with state law, the creditors will NOT have any recourse against the plan.  In my experience, by the way, there is a rather short time to present claims for debts once an estate is formerly open - but there is no requirement to actually open an estate - ever (and as a parenthetical, one of the great joys in my professional life came when I told a creditor of my step-father's estate that we would not be opening an estate - as there were no probate assets witrh which to pay their claim - and that they were welcome to do so if they wished).  In many cases, the time limit to make such claims may be extended until an estate is opened.  Creditors can, at least in the jurisdictions I've practiced in, open an estate and force an administrator to be appointed to handle settlement of claims.  In any event - it has NOTHING to do with the plan.  Once a bene is determined - the bene has ERISA rights to the plan benefits, and the creditors be damned (from the plan's perspective).

I concur with MoJo’s observations that an ERISA-governed retirement plan’s administrator need not (and should not) consider the interests of a participant/decedent’s creditors.

But to discern the meaning of the plan’s governing documents—including status terms such as “personal representative”, “estate”, “child”, “parent”, or “sibling”—or to resolve questions of fact, a plan’s fiduciary makes its own discretionary interpretations, which need not follow any State’s law. A court follows the fiduciary’s interpretation unless it is obviously unreasoned.

For example, Herring v. Campbell, 690 F.3d 413, 53 Empl. Benefits Cas. (BL) 2515 (5th Cir. Aug. 7, 2012) (John Wayne Hunter, the participant/decedent, died with no effective beneficiary designation. The retirement plan’s default beneficiary provision provided the remaining benefit according to a priority that put the participant’s “surviving children” ahead of his “surviving brothers and sisters[.]” Stephen Herring and Michael Herring, John’s stepsons, claimed the benefit. John’s will left his estate to Stephen and Michael, and referred to them as his “beloved sons.” Also, Stephen and Michael asserted that under Texas law’s doctrine of equitable adoption they were John’s children. The plan’s administrator decided that the word “children” referred only to a biological or legally adopted child. The appeals court held that it was proper for the plan’s administrator to ignore Texas’ and any State’s law. The appeals court deferred to the administrator’s interpretation of the plan.)

About ERISA’s express supersession or preemption provision, the text is: “Except as provided in subsection (b) of this section, the provisions of this title [I] and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) and not exempt under section 4(b).”

ERISA § 514(a) (emphasis added). (The quotation is of ERISA § 514(a), not the unofficial compilation in 29 United States Code § 1144(a). The “relate to” text is the same in both the Statutes at Large and the unofficial U.S.C. compilation.)

MoJo is right that courts, struggling to find meaning in and some boundary for “relates to” have sometimes considered whether a State’s statute seems consistent or inconsistent with ERISA’s provisions, including Congress’s § 2 findings and declaration of policy.

But courts’ decisions about preemption, and about ERISA § 404(a)(1)(D)’s plan-documents rule, have been clearest when requiring a plan’s fiduciary to follow States’ laws would interfere with administering a plan according to its governing documents, or would interfere with national uniformity in a plan’s administration.

For example:

Boggs v. Boggs, 520 U.S. 833, 21 Empl. Benefits Cas. (BL) 1047 (June 2, 1997) (A plan’s administrator may ignore a State’s community-property law. Further, ERISA preempted Louisiana law to the extent that it allowed the participant’s spouse to make a testamentary transfer of her State-law property interest in benefits the plans had already distributed.).

Egelhoff v. Egelhoff, 532 U.S. 141, 151, 25 Empl. Benefits Cas. (BL) 2089 (Mar. 21, 2001) (ERISA supersedes a State law that, absent a plan provision to the contrary, would revoke, absent reaffirmation, a beneficiary designation that names a former spouse). The Court’s opinion reasoned that the State law’s provision allowing a plan’s sponsor to opt out of the default-revocation provision did not remove the State law from ERISA’s preemption. The Court’s opinion reasoned that a need to maintain awareness of States’ laws “is exactly the burden ERISA seeks to eliminate.”

Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 45 Empl. Benefits Cas. (BL) 2249 (Jan. 26, 2009) (A plan’s administrator may ignore a State’s law, even a State court’s order, that purports to waive a benefit the plan’s governing document provides.).

All these decisions refer to what the DuPont opinion describes as a need for “a uniform administrative scheme” that does not require a plan’s administrator to look to any State’s law.

I’m unaware of any US Supreme Court or Federal appeals court decision holding that an ERISA-governed plan’s fiduciary must pay or deliver money, rights, or other property to obey a State’s small-estate-affidavit statute.

1 hour ago, Peter Gulia said:

But to discern the meaning of the plan’s governing documents—including status terms such as “personal representative”, “estate”, “child”, “parent”, or “sibling”—or to resolve questions of fact, a plan’s fiduciary makes its own discretionary interpretations, which need not follow any State’s law. A court follows the fiduciary’s interpretation unless it is obviously unreasoned.

I would not want to take such a situation to court where a fiduciary defines "estate" as something other than what the state defines it as.  The simple solution is to merely defining the beneficiaries in the plan as "the duly authorized and fully administered estate as determined by a probate court having jurisdiction without regard to any exceptions for small estates" or something to that effect.  But when you use a term that has an accepted meaning, it usually has that meaning.  I will, when I have time, review the cases you cite - but the fact that they are case borne of "litigation" - best to be conservative and follow common sense (lest my own retirement get padded defending such things that are avoidable...).

I too prefer that my client not interpret a word that has a generally received legal meaning to mean something other than relevant law’s received meaning.

If the plan’s sponsor were my client, the particular question we’re remarking on would never happen because I would have written or rewritten, even for an IRS-preapproved document, the provisions for a default taker. And for a provision that looks to the estate, the plan would provide (at least) for a payment to a human who, or an artificial person that, has power to act as the or a personal representative of the estate, perhaps including a small-estate affiant. The plan’s trustee and administrator need someone to do the act of depositing or otherwise negotiating the plan trust’s check or other payment.

Even if my client provides (or interprets the plan to recognize) a small-estate-affidavit regime, the administrator (often, the same person as the plan’s sponsor) might prefer not to learn the State laws of 50+ States.

Some might not want to rely only on an affidavit to pay the six-figure amounts some States’ laws allow.

Some might not want the burden of deciding which State’s law is relevant.

Those and further reasons are why I leave room for a plan’s sponsor or administrator to invent its own nationally uniform regime that builds from the concepts of small-estate-affidavit regimes, without applying a particular State’s law.

I too advise clients that being correct is not enough to avoid a loss, liability, or expense. But all courses of action (including inaction) can bear those risks. If one must defend something, it might be simpler for an ERISA-governed plan’s fiduciary to defend a posture that courts have recognized: the plan-documents rule, or Firestone deference to a fiduciary’s discretionary interpretation.

Anyhow, we see similarly your idea that an ERISA-governed plan’s administrator may choose as its discretionary interpretation one that looks to relevant State law. One doubts a Federal court would say such an interpretation is so obviously unreasoned that it does not get (at least) deference.

Literally just advised a client on essentially the same sort of issue but involving Louisiana succession law.  Participant died unmarried and without designating a beneficiary.  Plan says that beneficiary is participant's estate under these circumstances.  Purported sibling completed small succession affidavit and demanded that the plan distribute the deceased participant's account balance to him.  Louisiana law says payors and others may rely on the affidavit.  However, there's no court or administrative inquiry into the validity of statements made on such an affidavit.  As long as it's signed and notarized, the parish court clerk's office just records the thing.  I strongly advised my client to decline to give effect to the affidavit as if it was evidence of the existence of an estate or the equivalent thereof under state law or that the sibling was an executor or administrator of the deceased participant's estate.  I don't think Louisiana state law is going to help a plan fiduciary who so loosely interprets express plan provisions.