Dear Mr. Premack: All of the funds in my mother’s estate passed as non-testamentary POD bank accounts and IRA accounts to named beneficiaries. I became Executor under her Will, but there is no money to pay her debts. Can I, as Executor, I require any of the named beneficiaries to contribute to the estate’s debts from their respective portions? – WRP
Funds paid to beneficiaries under POD accounts or Right of Survivorship arrangements can be pulled back into the estate if there are no other funds available for payment of the decedent’s debts (that is, if the estate is insolvent). However, recalling non-testamentary funds into the estate is a complex procedure which is rarely invoked. Creditors of insolvent estates have no easy way to discover that non-testamentary assets even existed, and are usually reluctant to spend more money to collect what appears to be an uncollectible debt.
Before the Executor can start a recall action, demand must be made in writing by a creditor or by the spouse or by someone acting on behalf of a minor child. The Executor cannot start a recall on his own desire. Further, if more than two years have passed since the date of the decedent’s death, recall is forbidden. There is minimal risk to the recipient of the non-testamentary funds.
You also asked about IRA accounts. Unlike non-testamentary bank accounts, there are broader exceptions under the law for IRAs, life insurance proceeds and other retirement benefits. These cannot be pulled back into the estate to pay the decedent’s debts, even if the estate is insolvent and demand is made by a creditor.
Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2013) practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, April 2, 2010