The HBO costume drama The Gilded Age uses the death of her father — and subsequent disappearance of nearly all his assets to pay his creditors – to catapult the young Marian Brooks from rural Pennsylvania into New York City society. While seeking refuge with old-money relatives in the family mansion is not an option for most of us, it is not uncommon to have a loved one die owing debts to creditors but without assets requiring a probate. When this happens, beneficiaries can claim bank account funds or other nonprobate assets, but those funds must first be used to pay the deceased person’s creditors.
This series of blog posts discusses non-probate estate administration under Washington law. Previously, I discussed the procedure under Washington law for providing notice to creditors when there is no probate and the order in which creditor claims are paid. This post addresses the order in which assets are used to pay debts owed by a deceased person.
Abatement, in the context of estate administration, is a term that is used to refer to the reduction of a beneficiary’s gift from an estate. Abatement can occur when a person does not have sufficient assets to fulfill all the gifts made in their will. Abatement can also occur if non-probate assets must be used to pay the decedent’s debts or to pay the costs of estate administration.
RCW 11.10.010 sets forth the priority of abatement of assets and applies to both the probate and non-probate administration of estates. Under that statute, assets are subject to abatement in the following order: (1) intestate property (i.e., assets of people without a will); (2) residuary gifts in a will; (3) general gifts in a will; and (4) specific gifts in a will. Most non-probate assets passing to a beneficiary on death, such as joint tenancies or payable-on-death accounts, are treated as specific bequests for purposes of abatement under RCW 11.10.040, provides for abatement of nonprobate assets as follows:
(1) If abatement is necessary among takers of a nonprobate asset, the court shall adopt the abatement order and limitations set out in RCW 11.10.010, 11.10.020, and 11.10.030, assigning categories in accordance with subsection (2) of this section.
(2) A nonprobate transfer must be categorized for purposes of abatement, within the list of priorities set out in RCW 11.10.010(1), as follows:
(a) All nonprobate forms of transfer under which an identifiable nonprobate asset passes to a beneficiary or beneficiaries on the event of the decedent’s death, such as, but not limited to, joint tenancies and payable-on-death accounts, are categorized as specific bequests.
(b) With respect to all other interests passing under nonprobate forms of transfer, each must be categorized in the manner that is most closely comparable to the nature of the transfer of that interest.
(3) If and to the extent that a nonprobate asset is subject to the same obligations as are assets disposed of under the decedent’s will, the nonprobate assets abate ratably with the probate assets, within the categories set out in subsection (2) of this section.
(4) If the nonprobate instrument of transfer or the decedent’s will expresses a different order of abatement, or if the decedent’s overall dispositive plan or the express or implied purpose of the transfer would be defeated by the order of abatement stated in subsections (1) through (3) of this section, the nonprobate assets abate as may be found necessary to give effect to the intention of the decedent.
Nonprobate assets are among the lowest-priority assets subject to abatement in a probate. However, when all assets are distributed without probate, non-probate accounts will be used to pay the decedent’s debts. Under RCW 11.10.040(3), if a non-probate asset would be subject to pay a person’s debts when alive, then that asset is likely to be subject to abatement to pay the person’s debts after they are dead. Even if the deceased person’s assets are in an account with a beneficiary designation, the designated beneficiary receives those funds subject to the payment of the deceased person’s debts. This can be unwelcome news to beneficiaries of nonprobate accounts.
Do you have questions regarding the nonprobate administration of an estate? We’re happy to chat.
This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.