[WSBAPT] insolvent estate

Thu Mar 5 15:18:37 PST 2020

Thank you, Eric.  I appreciate all the citations and thought involved here.
But considering that all the property was community property and the CPA
transferred it to the surviving spouse, I think we’ll just let the 2 years
run on the debts and  not open a probate.  If there wasn’t a CPA, it would
be a different story.  I’ll save your response for all the great citations
and thinking.  Also, the surviving spouse has enough to live on so she
doesn’t need a family support award.  She has considerable life insurance
coming, social security and her husband’s retirement money coming to her to
give her enough to live on, so she won’t need a family support award which
would involve opening an probate and having the PR become responsible for
the debts.

Thanks again.

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)

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

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

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com>
On Behalf Of Eric Nelsen
Sent: Thursday, March 05, 2020 1:55 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] insolvent estate

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,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=104+Wn.2d+78&fn=Washington%20Community%20Property%20Deskbook>
104 Wn.2d 78,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=701+P.2d+1114&fn=Washington%20Community%20Property%20Deskbook>
701 P.2d 1114 (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&sear
ch%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&sear
ch%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&c
odesec=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&sear
ch%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&sear
ch%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&sear
ch%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&sear
ch%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&sear
ch%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&sear
ch%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&c
odesec=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&sear
ch%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&sear
ch%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&sear
ch%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&sear
ch%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,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=97+Wash.+309&fn=Washington%20Community%20Property%20Deskbook>
97 Wash. 309,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=166+P.+634&fn=Washington%20Community%20Property%20Deskbook> 166
P. 634 (1917). Nor may a spouse’s interest in community property be reached.
Stockand v. Bartlett,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=4+Wash.+730&fn=Washington%20Community%20Property%20Deskbook> 4
Wash. 730,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=31+P.+24&fn=Washington%20Community%20Property%20Deskbook> 31 P.
24 (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,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=95+Wn.2d+237&fn=Washington%20Community%20Property%20Deskbook>
95 Wn.2d 237,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=622+P.2d+835&fn=Washington%20Community%20Property%20Deskbook>
622 P.2d 835 (1980), and Keene v. Edie,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=131+Wn.2d+822&fn=Washington%20Community%20Property%20Deskbook>
131 Wn.2d 822,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=935+P.2d+588&fn=Washington%20Community%20Property%20Deskbook>
935 P.2d 588 (1997). The insulation continues to exist as to contract
creditors. Nichols Hills Bank v. McCool,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=104+Wn.2d+78&fn=Washington%20Community%20Property%20Deskbook>
104 Wn.2d 78,
<http://links.casemakerlegal.com/states/WA/books/Case_Law/results?ci=14&sear
ch%5bCite%5d=701+P.2d+1114&fn=Washington%20Community%20Property%20Deskbook>
701 P.2d 1114 (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 <mailto:eric at sayrelawoffices.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 Susan Donahue
Sent: Thursday, March 5, 2020 1:13 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com
<mailto: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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