Hold on to your candy kiddos; this is a stickup!
Title 18-C MRS Section 6-102(2) (http://legislature.maine.gov/statutes/18-C/title18-Csec6-102.html) of Maine’s Uniform Probate Code introduces us to a new concept, nonprobate transferee liability. The statute provides that, except as otherwise provided by statute, a transferee of a nonprobate transfer is subject to liability to any probate estate of the decedent for allowed claims against the decedent’s probate estate and statutory allowances to the decedent’s spouse and children to the extent the estate is insufficient to satisfy those claims and allowances. In other words, if the probate estate is insolvent, creditors with allowed claims (claims that were timely presented and not denied) can seek recovery from assets passing outside of probate (trust, multi-party accounts, joint tenancy, beneficiary designation, etc.). Boo- that’s scary! Thankfully, the statute provides that the liability of a nonprobate transferee may not exceed the value of nonprobate transfers received or controlled by that transferee, but isn’t that stating the obvious?
This statute makes it important to still probate a will, even if there are no assets, because, in Maine, creditors have 4 months from the first date of the publication of notice to creditors (published in a local newspaper) to present their claims. Creditors that fail to do so are forever barred from bringing a claim. In the past, if the probate estate was insolvent, a revocable trust might be liable for claims, but the recipients of property otherwise passing outside of probate, such as assets jointly owned, were not similarly liable. Thanks to Title 18-C MRS 6-102(2), that is no longer the case.
Nonprobate transferees are liable for the insufficiency in the following order of priority:
- A transferee designated in the decedent’s will or any other governing instrument, as provided in the instrument;
- The trustee of a trust serving as the principal nonprobate instrument in the decedent’s estate plan as shown by its designation as devisee of the decedent’s residuary estate or by other facts or circumstances, to the extent of the value of the nonprobate transfer received or controlled; and
- Other nonprobate transferees, in proportion to the values, received.
The above default ordering rules also have the potential to cause trouble unless a will thoughtfully addresses who should bear the debts of an insolvent estate.
The increased statutory allowances (see Title 18-C MRS 2-401 -404) available to a decedent’s spouse and children, which are often overlooked, may encourage a different type of claim relief where assets of an insolvent estate are encumbered. In bankruptcy, what I am referring to is sometimes called a “cram down.” I’ll return to this issue in a future article but, I’ll tell you this, it’s a trick and not a treat.
Happy Drafting!