[WSBAPT] insolvent estate

Thu Mar 5 13:54:39 PST 2020

Dalynne's recommendation of a family support award is a good one, I think, if the house's equity is less than about $220,000. See Ch. 11.54 RCW<https://app.leg.wa.gov/RCW/default.aspx?cite=11.54&full=true>. That can shield $125,000 from creditors, so if the house equity is above that you'd still have to pay creditors some amount. If the equity is $220,000 or more, then family support won't really prevent the creditors from trying to force sale.

Consider also the nature of the debt-is there any argument that it's all separate debt that wasn't for the benefit of the marital community? If so, there might be a basis to assert that the creditors can't attach his community property interest in the house. Key case is Nichols Hills Bank v. McCool, which specifically states that for contractual (as opposed to tort) obligations, if the contract was a separate obligation of the spouse, the creditor cannot reach the community property.  Nichols Hills Bank v. McCool, 104 Wn.2d 78<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=104+Wn.2d+78&fn=Washington%20Community%20Property%20Deskbook>, 701 P.2d 1114<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=701+P.2d+1114&fn=Washington%20Community%20Property%20Deskbook> (1985).

>From WSBA Community Property Deskbook:

Most nontort obligations incurred during marriage are incurred voluntarily, but this is not always true. Medical expenses and residential placements, for example, may frequently be involuntary. In Dean v. Lehman, 143 Wn.2d 12<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=143+Wn.2d+12&fn=Washington%20Community%20Property%20Deskbook>, 18 P.3d 523<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=18+P.3d+523&fn=Washington%20Community%20Property%20Deskbook> (2001), the court held that the costs of incarcerating a prison inmate create community liability. Id. at 30-31. The same would be true of tax liabilities, which are rarely voluntary. Reid v. United States, 2001-1 U.S. Tax Cas. (CCH) ¶50,250, 87 A.F.T.R.2d (RIA) 1042 (W.D. Wash. 2001). In general, the family expense statute, RCW 26.16.205<http://links.casemakerlegal.com/states/WA/books/Revised_Code/browse?ci=14&codesec=26.16.205&title=26&fn=Washington%20Community%20Property%20Deskbook>, imposes community liability and separate liability on both spouses for "expenses of the family and the education of the children, including stepchildren."

The act of a spouse managing community property is presumed to be for community benefit, and so one spouse's knowledge may commence the running of the statute of limitations on a community claim. In Huling v. Vaux, 18 Wn.App. 222<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=18+Wn.App.+222&fn=Washington%20Community%20Property%20Deskbook>, 566 P.2d 1271<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=566+P.2d+1271&fn=Washington%20Community%20Property%20Deskbook> (1977), the court held that the statute began to run at the time at which the wife became aware of the true boundaries of community real property purchased in her name alone. The husband could not accept the benefit of his wife's purchase while repudiating her knowledge of the transaction. Similarly, one spouse acting alone may toll the statute of limitations on a claim against the community if the act is done for a community benefit. Again, the community benefit is presumed. Catlin v. Mills, 140 Wash. 1<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=140+Wash.+1&fn=Washington%20Community%20Property%20Deskbook>, 247 P. 1013<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=247+P.+1013&fn=Washington%20Community%20Property%20Deskbook> (1926). But that presumption can be rebutted. Gannon v. Robinson, 59 Wn.2d 906<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=59+Wn.2d+906&fn=Washington%20Community%20Property%20Deskbook>, 371 P.2d 274<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=371+P.2d+274&fn=Washington%20Community%20Property%20Deskbook> (1962).

Whether running or tolling applies to all of the property of the nonacting spouse seems unclear. The courts have held under the family expense statute, RCW 26.16.205<http://links.casemakerlegal.com/states/WA/books/Revised_Code/browse?ci=14&codesec=26.16.205&title=26&fn=Washington%20Community%20Property%20Deskbook>, which imposes a three-way liability upon the community and the separate property of each spouse, that an action by one of the spouses that would toll the statute does not continue separate liability of the nonacting spouse. See Haddad v. Chapin, 153 Wash. 163<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=153+Wash.+163&fn=Washington%20Community%20Property%20Deskbook>, 279 P. 583<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=279+P.+583&fn=Washington%20Community%20Property%20Deskbook> (1929). Whether the statute is tolled depends on the particular facts. See Burnham v. Burnham, 18 Wn. App. 1<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=18+Wn.+App.+1&fn=Washington%20Community%20Property%20Deskbook>, 567 P.2d 242<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=567+P.2d+242&fn=Washington%20Community%20Property%20Deskbook> (1977) (award to the wife, in a dissolution decree, of real property encumbered by a mortgage did not constitute a new promise to pay).

Generally, the separate debt of one spouse cannot be satisfied out of community property. Schramm v. Steele, 97 Wash. 309<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=97+Wash.+309&fn=Washington%20Community%20Property%20Deskbook>, 166 P. 634<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=166+P.+634&fn=Washington%20Community%20Property%20Deskbook> (1917). Nor may a spouse's interest in community property be reached. Stockand v. Bartlett, 4 Wash. 730<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=4+Wash.+730&fn=Washington%20Community%20Property%20Deskbook>, 31 P. 24<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=31+P.+24&fn=Washington%20Community%20Property%20Deskbook> (1892). As noted in §6.3, above, the insulation of the debtor spouse's half interest in community personal property has been narrowed for tort creditors by deElche v. Jacobsen, 95 Wn.2d 237<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=95+Wn.2d+237&fn=Washington%20Community%20Property%20Deskbook>, 622 P.2d 835<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=622+P.2d+835&fn=Washington%20Community%20Property%20Deskbook> (1980), and Keene v. Edie, 131 Wn.2d 822<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=131+Wn.2d+822&fn=Washington%20Community%20Property%20Deskbook>, 935 P.2d 588<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=935+P.2d+588&fn=Washington%20Community%20Property%20Deskbook> (1997). The insulation continues to exist as to contract creditors. Nichols Hills Bank v. McCool, 104 Wn.2d 78<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=104+Wn.2d+78&fn=Washington%20Community%20Property%20Deskbook>, 701 P.2d 1114<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&search%5bCite%5d=701+P.2d+1114&fn=Washington%20Community%20Property%20Deskbook> (1985).

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
1417 31st Ave South
Seattle WA 98144-3909
206-625-0092
eric at sayrelawoffices.com

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Susan Donahue
Sent: Thursday, March 5, 2020 1:13 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] insolvent estate

Thank  you, Roger.  There was a Community Property Agreement that left everything to the surviving spouse.  There was no separate property for either of them.  We are thinking of doing the probate as an insolvent estate and getting all the creditors discharged after notice.  I think that will work.  The surviving spouse doesn't need a family allowance, and there are no funds to give  her one.  She has social security and retirement funds from her deceased husband.  I'm still wondering if these retirement amounts, as non probate assets, would be available to the creditors.  Also, I'm wondering if I need to set out all the probate and non-probate assets in the inventory since they all go to the surviving spouse by means of the CPA and so I can just state that all the property was community property and it all passed to the surviving spouse via the CPA and then list all the debts which are about $95,000.  I don't think I have to list all the probate and non-probate assets if they have all gone to the surviving spouse anyway.  The CPA was recorded as was the decedent's death certificate.

Still puzzling a little bit.

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>

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Roger Hawkes
Sent: Thursday, March 05, 2020 12:34 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] insolvent estate

Susan: at the very least you should negotiate with creditors; probability is that most of them would accept half rather than argue trying to get it all.

Roger Hawkes, WSBA # 5173
Hawkes Law Firm and Sultan Lawyers
19944 Ballinger Way NE, Shoreline, WA 98155 and
423 Main, Sultan, WA 98294
206 367 5000
360 799 6438

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Susan Donahue
Sent: Wednesday, March 4, 2020 12:10 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] insolvent estate

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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