[WSBAPT] Can a disclaimer shield assets from creditors?

[Sara Longley]

I am becoming more confident that disclaimer of an estate asset does not implicate the Voidable Transactions Act.  Here is my analysis, which you may take with several grains of salt since to my knowledge it has not been tested in court (also, this does not protect an estate beneficiary with an existing tax lien; see Drye v. United States, 528 US 49, 120 S.Ct. 474, 145 L.Ed.2d 466 (1999)).

RCW 19.40, the Voidable Transactions Act, was adopted in 1987.  Its definition of "transfer" is very broad, as Diane noted: "...every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset... ."  RCW 19.40.011(17).

RCW 11.86.041 was adopted in 1989, allowing estate beneficiaries to disclaim interests for any reason.  Its language specifically states that a disclaimer results in the disclaimed interest passing "as if the beneficiary had died immediately prior to the date of the transfer of the interest."  The next sentence reinforces this: "The disclaimer shall relate back to this date for all purposes."  RCW 11.86.041(1) (emphasis added).  The 1989 legislature clearly intended that a disclaiming beneficiary cannot be said to have made a transfer within the meaning of RCW 19.40 by exercising her right to disclaim an interest in an estate.  This language has not been amended since its adoption.

Now, if there were some under-the-table deal where the alternate estate beneficiary receiving the disclaimed asset gave some quid pro quo, that would obviously be a different story.  But that deal would also render the disclaimer invalid under RCW 11.86.051(1)(b).

Cheers,
Sara Longley


Sara D. Longley
Senior Attorney
Ivy Law Group, PLLC
1734 NW Market Street
Seattle, WA 98107
Phone: (206) 706-2909
sara at ivylawgroup.com<mailto:sara at ivylawgroup.com>
Pronouns: she, her, hers

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NOTE: Ivy Law Group offices will be closed November 11, 14, and 22-25.

From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Diane J. Kiepe
Sent: Wednesday, November 9, 2022 5:05 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Can a disclaimer shield assets from creditors?

Hi Sara

No disclaimer was involved and it had been so long since I looked at the Voidable Transaction rules I couldn't recall if they mentioned anything regarding disclaimers so I thought it would be worth a check - I'll show you where my concern is when it comes to disclaimer but I could be totally off base - I'm sure some of the other folk out there can set me straight.

RCW 19.40.011(17) "Transfer" means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.


Diane J. Kiepe

Diane J. Kiepe
Douglas Eden
717 W. Sprague Ave.
Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

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 Sara Longley
Sent: Monday, November 7, 2022 2:36 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Can a disclaimer shield assets from creditors?

Thank you Diane, Roger, and others who responded off list.

Diane, did your case involve a disclaimer?  If so, were you able to reach the beneficiary's estate share despite the disclaimer and bankruptcy?

RCW 19.40 (Voidable Transactions Act) reads as though it would apply even though the liability would come not from a business transaction but from a tort claim by one individual against another.  My analysis, though, is that when an asset is properly disclaimed, the disclaimant makes no transfer within the meaning of RCW 19.40 since under the disclaimer statute the disclaimant is treated as having died BEFORE the asset is transferred.  Legally, the disclaimant makes no transfer at all.

RCW 19.40.011(17) "Transfer" means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.

BUT,

RCW 11.86.041(1) Unless the instrument creating an interest directs to the contrary, the interest disclaimed shall pass as if the beneficiary had died immediately prior to the date of the transfer of the interest. The disclaimer shall relate back to this date for all purposes. [underline added.]

Therefore, I don't think it should matter whether the disclaimer is made after the disclaimant knew or should have known they would incur a debt, since the disclaimer of interest relates back to prior to any transfer.

Any thoughts?

Sara Longley


Sara D. Longley
Senior Attorney
Ivy Law Group, PLLC
1734 NW Market Street
Seattle, WA 98107
Phone: (206) 706-2909
sara at ivylawgroup.com<mailto:sara at ivylawgroup.com>
Pronouns: she, her, hers

[cid:image001.jpg at 01D8F4FB.663FDE60]

NOTE: Ivy Law Group offices will be closed November 11, 14, and 22-25.

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Diane J. Kiepe
Sent: Sunday, November 6, 2022 3:18 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Can a disclaimer shield assets from creditors?

Sara,

I think the focus here would be if it might be pulled back in by the laws related to Washington Voidable Transfer Laws RCW 19.40.

I believe the bankruptcy cases would most apply when you are doing your analysis because in essence, I think, if you walk it all the way through you would first assume judgement, consider how to avoid satisfying judgement (and bankruptcy may play a rule here - my memory is foggy).   I had a case with other counsel with me where we were winning the judgement, no doubt and the defendant, for the end, hired a bankruptcy lawyer.  We expressed our concern with this and in the end the judgement for us was found and when it comes time to settle up the estate we get to satisfy the judgement for that person from that person's share.

Diane J. Kiepe

Diane J. Kiepe
Douglas Eden
717 W. Sprague Ave.
Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

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: Saturday, November 5, 2022 1:46 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Can a disclaimer shield assets from creditors?

Sara: no similar experience here; but my vote would be that the disclaimer does not shield that asset from collection; it won't hurt however,

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 Sara Longley
Sent: Friday, November 4, 2022 4:52 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [WSBAPT] Can a disclaimer shield assets from creditors?

Hello listmates,

Here is your Friday afternoon head-scratcher.

Washington's disclaimer statute, RCW 11.86, allows an estate beneficiary to disclaim any interest and states (11.86.041(1)) that such disclaimed interest shall pass as if the beneficiary had died immediately prior to the date of the transfer of the interest.  In effect, it is as if the beneficiary never had a right to the disclaimed property.

My question: where an estate beneficiary is a defendant in a personal injury lawsuit at the time Decedent dies, can the beneficiary shield his inheritance from a later-entered judgment in favor of the tort plaintiffs by disclaiming it?

My hypothetical client is the alternate beneficiary who would inherit the estate property should the primary beneficiary disclaim it.  Will this hypothetical client be free of liability to the primary beneficiary's judgment creditors?

I have reviewed several bankruptcy court cases in which a disclaimer is held to be effective to shelter disclaimed estate assets from bankruptcy creditors where the bankruptcy is filed after the disclaimer.  However, they all depend on the bankruptcy code's reference to state law, which in turn brings in state-authorized disclaimers.  I have also read a Tax Court case which holds that a disclaimer is NOT effective to shield disclaimed assets from a tax lien in existence at the time the disclaimer is made, which rests its holding on the Internal Revenue Code's reference to federal, not state, law: because the IRC does not specifically exempt disclaimed property from collection, such property is deemed available to satisfy a tax debt.

My case is neither bankruptcy nor tax.  The events resulting in the ongoing lawsuit occurred prior to the Decedent's death.  Do any of you have experience with a similar matter or know of relevant case law?

Many thanks,
Sara Longley


Sara D. Longley
Senior Attorney
Ivy Law Group, PLLC
1734 NW Market Street
Seattle, WA 98107
Phone: (206) 706-2909
sara at ivylawgroup.com<mailto:sara at ivylawgroup.com>
Pronouns: she, her, hers

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NOTE: Ivy Law Group offices will be closed November 11, 14, and 22-25.

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