Douglas A. Turner, P.C.

More and more individuals are avoiding probate by using revocable trusts, payable on death designations and joint tenancy. The end result is that when a person dies, their money quickly disappears leaving the creditors of the deceased with nothing but an account due and owing. However, there are ways to recover from those who received the deceased’s property, and the person in charge of the probate estate can be held personally liable for not recovering that property.

Probate is the legal process by which a person’s property is transferred to a new owner at death. It is one of many ways that property interests pass at death. An estate is opened, somebody is appointed to be in charge of the estate and then that same person collects the property of the deceased that did not automatically transfer to a new owner by some other method. As part of this process, creditors are paid and then distributions of any remaining property are made to the heirs and devisees of the deceased.

In general, individuals try to minimize or avoid probate. This is accomplished by designating a beneficiary on death for things like bank accounts, financial instruments and real estate. All the beneficiary need do is provide proof of death and the property is now theirs. This is called a nonprobate transfer.

Creditors of the deceased are not too happy when they do not get paid. The typical process is to file a claim against the estate of the deceased, wait until all the probate assets are gathered up and then get paid. However, if there are no probate assets, the creditors do not get paid. Credit card companies, lenders and medical service providers are often left with large bills totaling tens of thousands of dollars. Yet the heirs and devisees of the deceased may receive hundreds of thousands of dollars through nonprobate transfers.

How to Recover Non-probate Assets to Collect Debts from an Estate in Colorado

In July of 2006, Colorado passed laws making certain nonprobate transfers subject to the claims of creditors. In general, if the transfer occurred at death and could have been revoked by the deceased before they died, the property transferred can be recovered to pay claims against the estate. The major exceptions to this rule are survivorship interests in joint tenancy real estate, proceeds transferred pursuant to a beneficiary designation under a life insurance, accident insurance or annuity contract and retirement plans.

The person responsible for recovering the property is the person in charge of the probate estate (the “Personal Representative”). The creditor must make a demand upon the Personal Representative to recover the property. Only if the Personal Representative does not initiate proceedings to recover the nonprobate assets may the creditor initiate the proceeding, at the creditor’s own expense. However, the law appears to create personal liability for the Personal Representative who does not make a good faith effort to recover these nonprobate assets.

Creditors often overlook this little technique, probably because the technique is relatively new. As time goes on, I suspect more and more creditors will make a demand upon the person in charge of the probate estate to recover nonprobate assets. If the person in charge of the estate is also a beneficiary of nonprobate property, I suspect creditors will press the issue of personal liability for not turning over the property to the estate.

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