[WSBAPT] insolvent estate

[Susan Donahue]

I have a situation where the decedent left a will with everything to his
wife and also left a Community Property Agreement.  The real property has
been transferred to the wife with filing the death certificate at the county
auditor's office.

 

My question is about what to do about the creditors.  The decedent left
about $95,000 in debt-unbeknownst to his family.  There are no assets in the
estate except for the real property.  There are life insurance policies
totaling about $95,000.  One option is to use the life insurance funds to
pay the creditors and not go through probate at all since the real property
has already been transferred via the CPA.  This is okay with the wife.  She
has onset of dementia although still capable of understanding and deciding
what to do.  Her daughter is helping her decide what to do.  There is the
concern that she will need Medicaid in the future to go into an assisted
living home.  They want to transfer the real property (house) to the
daughter with a quit claim deed so that it would be protected from Medicaid
in the future.  

 

If we go through probate and declare insolvency, I understand that the
creditors cannot access the life insurance money.  BUT, in the probate
process for an insolvent estate, can the creditors demand that the real
property be sold to pay them?  I think that they can, but I want to get some
confirmation about this.  Could selling the real property to pay the
creditors if we did the insolvent probate action be avoided if the wife quit
claimed the real property to her daughter right now thus making it
unavailable to creditors in an insolvent probate action, or would that be
viewed as an improper way to shield that asset?   

 

Finally, doing an insolvent probate action would cost a lot in attorney
fees, maybe $10,000 or more because there are 22 creditors that would have
to be contacted, etc. and then there would be the hearing to discharge them
that they might challenge and try to get the real property even though or
even because it was quit claimed to the daughter immediately before filing
the insolvent probate action.  

 

I'm wondering if there are any strategies or circumstances that I am not
thinking about.  The plan right now is to pay the creditors with the life
insurance money and be done with it and not do a probate at all.  That way,
the house is secured for the wife for sure and she can safely quit claim it
to her daughter.  (Although the 5-year look-back on Medicaid might capture
the house unless the mother applies for Medicaid 5 years after quit claiming
it to her daughter.  But I'm not absolutely certain about this, either.)
The mother and the daughter don't seem upset to lose the $95,000 in
insurance money.  In fact, they are in favor of this plan, but I want to be
sure I am giving them the best option since so much money is involved.  

 

Thank you.

 

Susan

 

Susan Donahue

Law Office of Susan Donahue

125 West 2nd Avenue, Suite "B"

P.O. Box 81

Twisp, WA 98856

(509) 996-5944 (phone)

(509) 362-9692 (fax)

sdonahue at sdonahuelaw.com <mailto:sdonahue at sdonahuelaw.com> 

www.sdonahuelaw.com <http://www.sdonahuelaw.com> 

 

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