Nevada's N.R.S 111.779 & Creditors Claims
Keep In Mind:
Most Creditor clams against an estate are handled by a collection agency working on a percentage of the money collected. Many of these claims never get paid. Therefore, if you taking an estate through probate and you have the ability, along with the other heirs, to offer immediate cash to creditors with claims, you can often settle these claims at a very significant discount. Some probates go on for years before creditors get paid. So a bird in the hand can be worth two or more in the bush.
Also, let's take the case of heirs who cannot afford to reach into their own pockets and pay off the creditor claims at a discount. You may still be able to settle them at a discount. Contact us to discuss.
Handling Probate & Nevada's N.R.S 111.779
A huge issue in handling many probates and many trusts after the grantor dies is: How does the executor / administrator / successor trustee do things right so that he or she won't be sued by creditors of the person who died?
This issue is complicated by N.R.S. 111.779 which reads in pertinent part as follows:
NRS 111.779 Liability of non-probate transferee; proceedings to impose liability; payment of claims against non-probate assets.
- Except as otherwise provided in NRS 21.090 and other applicable law, a transferee of a non-probate transfer is liable to the probate estate of the decedent for allowed claims against that decedent's probate estate to the extent the estate is insufficient to satisfy those claims.
- The liability of a non-probate transferee may not exceed the value of non-probate transfers received or controlled by that transferee.
- Non-probate transferees are liable for the insufficiency described in subsection 1 in the following order of priority:
- A transferee specified in the decedent's will or any other governing instrument as being liable for such an insufficiency, in the order of priority provided in the will or other governing instrument;
- The trustee of a trust serving as the principal non-probate instrument in the decedent's estate plan as shown by its designation as devisee of the decedent's residuary estate or by other facts or circumstances, to the extent of the value of the non-probate transfer received or controlled; and
- Other non-probate transferees, in proportion to the values received.
- Unless otherwise provided by the trust instrument, interests of beneficiaries in all trusts incurring liabilities under this section abate as necessary to satisfy the liability, as if all the trust instruments were a single will and the interests were devises under it.
- If a non-probate transferee is a spouse or a minor child, the non-probate transferee may petition the court to be excluded from the liability imposed by this section as if the non-probate property received by the spouse or minor child were part of the decedent's estate. Such a petition may be made pursuant to the applicable provisions of chapter 146 of NRS, including, without limitation, the provisions of NRS 146.010, NRS 146.020 without regard to the filing of an inventory and subsection 2 of ;NRS 146.070.
The executive summary of this law:
- The distinction between "probate" and "non-probate" assets is this: "Probate assets" are assets of the dead person that have to go through a court process called probate to pass on to heirs. If the asset has a title or name, such as real estate or a bank account, and it is only titled in the name of the dead person, a probate proceeding is necessary to transfer to title whether or not there is a will. To avoid probate many people plan to pass on their assets to their heirs in a "non-probate" way. They can put the assets in a trust. Or they can hold joint accounts or hold property in joint tenancy. Or they can put Nevada real estate or financial accounts into a transferrable on death status.
- In an ordinary probate proceeding involving more than $100,000, creditors of the estate must be notified of the probate and they have an opportunity to make a probate claim. If they are given notice and fail to timely file a creditor's claim their claim becomes invalid.
- In a probate proceeding involving not more than $100,000, minor children and/or a surviving spouse trump creditors. If there are no minor children or a surviving spouse the Petitioner must either pay all creditors or state under penalty of perjury that there are no creditors. Sometimes, if the estate is less than $100,000 and there is no surviving spouse or minor children, the more complicated procedure for estates over $100,000 is used to determine if there are creditors.
- So, "non probate" assets escape the scrutiny of the probate court and the legal requirements (the violation of which is a criminal violation because representations are made to the court under penalty of perjury) to advise the court of estate creditors; so as a practical matter in a probate proceeding certain things have to be done to either pay creditors or give them an opportunity to assert a claim. BUT if the transfer is outside of probate then the heirs have the ability to avoid creditors without incurring criminal liability by lying the Probate Court. BUT, the above law allows creditors to lay claim to what the heirs inherit.
- In addition, the above law imposes civil liability (for money damages) on the trustee of a trust who ignores creditors. The trustee can publish notice to creditors to protect him or herself from liability and most trustees are well advised to do so unless they are confident all creditors have been paid.
- If the dead person's property passes to heirs through a transfer on death deed or account or through joint tenancy or a joint account, the heir could still be liable to a creditor of the dead person, BUT there is no trustee involved to also share liability. A trustee of a trust might be only one of several beneficiaries of the trust but could be liable to creditors for the full amount of the trust if the trustee did not notify creditors. In contrast, the person who "inherits" joint property or transferrable on death property is only potentially liable to creditors for whatever they got.
- As a practical matter, let us consider a person who dies and their only significant asset is their house, but before their death they had at some point received Nevada Medicaid benefits (as opposed to Medicare benefits). If the house has to go through probate, the heirs must notify Nevada Medicaid of the probate proceeding and Nevada Medicaid will make a claim which will have to be paid. On the other hand, if the house had a Transfer on Death Deed to an adult child, the adult child would take the house by filing a death certificate and Nevada Medicaid would probably never know it had a claim. Theoretically Nevada Medicaid could claim against the house, but probably it would never know to do so. Ditto for a bank account that had to go through probate (because it was only in the name of the dead person) versus a bank account that was joint with an heir or payable on death to an heir.