In light of the time, expense and general unpopularity of the probate process, nonprobate transfers are often implemented to circumvent “traditional” estate administration (e.g., small estate affidavits, Letters Testamentary, Letters of Administration). A “nonprobate transfer” is when a transfer of property takes effect upon the death of the owner pursuant to a beneficiary designation. Section 461.005(7), RSMo. It can also encompass situations where property is co-owned and a surviving owner receives all of the jointly owned property (e.g., joint tenancy with right of survivorship). A beneficiary designation is a written provision (excluding a Will) that designates the beneficiary of the nonprobate transfer (i.e., the transferee) and makes the transfer effective on the death of the owner.
In addition to more efficiently transferring property outside of probate, nonprobate transfer are also done to avoid a decedent’s debts. For instance, if “X” has a substantial amount of debt and enough assets to satisfy some or all of those debts in a probate proceeding, sometimes he will create nonprobate transfers so that beneficiaries receive the assets outright without creditors being able to make a claim against the estate (and thereby reduce the heirs’/legatees’ inheritance) in the probate process. There are several considerations, however, that often come into play with this situation, the most important of which may be Section 461.300, RSMo.
Under Section 461.300, Missouri created a mechanism for recovering the value of nonprobate transfers under certain circumstances to satisfy certain statutory claims against a decedent’s estate. In short, it is a recognition of the fact that nonprobate transfers can (intentionally or unintentionally) result in a probate estate having insufficient assets to pay allowed claims against the estate.
Functionally, Section 461.300.1 provides, in pertinent part, that “[e]ach recipient of a recoverable transfer of a decedent’s property shall be liable to account for a pro rata share of the value of all such property received, to the extent necessary to discharge the statutory allowances to the decedent’s surviving spouse and dependent children, and claims remaining unpaid after application of the decedent’s estate, including expenses of administration and costs.” What,then, is a “recoverable transfer”? It is defined as a “nonprobate transfer…under sections 461.003 to 461.081 and any other transfer of a decedent’s property other than from the administration of the decedent’s probate estate that was subject to satisfaction of the decedent’s debts immediately prior to the decedent’s death[.]” Section 461.300.10(4). Note further that a “recoverable transfer” theoretically can encompass transfers to a revocable or irrevocable trust in light of the broad language utilized in the statute.
The purpose of Section 461.300, therefore, is to allow individuals entitled to statutory allowances and creditors to recover or “claw back” the value of assets formerly owned by a decedent but that are usually excluded from the probate estate. As such, a beneficiary can theoretically be held liable for the debts of a decedent if he/she is the transferee in a nonprobate transfer. This does not necessarily mean that the beneficiary gives the property back; rather, it means that the beneficiary is liable to account for a pro rata share of the value of the property received. Section 461.300.1, RSMo. Accordingly, if the beneficiary receives stock, he/she does not necessarily have to give back the stock, but is instead liable for the monetary value of the stock (practically, this may in fact mean liquidating the stock to pay off the liability).
Contact us with questions regarding nonprobate transfers and probate/estate administration.