The Right ofan Unsecured to .. Recover From a Decedent’s Nonprobate Property faperson dies owning Property Not Automatically property that becomes subject Subject to Probate to a probate proceeding, that I. Property Owned Jointly person’s unsecured will with the Right of Survivorship. have the opportunity to recover When an owner of property that is the amounts owing to them from owned jointly with the right of the probate property. In this survivorship dies, his or her situation, the procedures for notice interest in that property is to creditors and for fding claims transferred to the surviving joint against the estate are clearly owner or owners without a probate defined by statute, ORS 115.001 proceeding. The right of an to 115.215. It is possible, unsecured creditor of the deceased however, for a person to die joint owner to recover the debt out owning little or no property that is of the jointly owned property automatically subject to a probate depends upon whether the joint proceeding. In these cases, the property interest was in real ability of an unsecured creditor to property or personal property. recover the amount owing to it is A. Real Property. far less certain. The purpose of 1. Tenancy by the Entirety. this article is to review various When real property is owned by a types of property which, under husband and wife as tenants by the Oregon law, are not automatically entirety, their interest in the subject to probate and to examine property is similar to a tenancy in the right of an unsecured creditor common with an indestructible to reach such property. right of survivorship. The death of the first spouse will cause the surviving spouse to automatically become the sole owner of the Oregon Estate Planning property. A creditor of the. first and Section Newsletter

In this issue Volume IX,No. 2 1 The Right Unsecured Creditor to Recover April 1992 of an From a Decedent’s Nonprobate Property 4 Revision of Guardianship/ConservatorshipStatutes Published by the 5 What’sNew Estatc Plnnning and Administration 7 Executive Committee Report Sectionof the Ckegon State Bar 8 Calendar of Seminars and Events spouse to die cannot recover from trust will not be subject to a legal representative. See ORS that spouse’s interest in the probate proceeding when a trustor 743.046. Proceeds of a group life tenancy by the entirety property. dies if the trust names a insurance policy are not subject to See Brownley v. Lincoln County, beneficiary for the property. The creditor claims if the proceeds are 218 Or 7,343 P2d 529 (1959). property in such trust, however, paid to someone other than the 2. Joint Ownership with the will be subject to the claims of a insured or the insured’s estate. See Right of Survivorship. The same deceased trustor’s creditors under ORS 743.047. result occurs as with tenancy by the rule set forth in Johnson v. B. Bank Accounts. Oregon the entirety property when real Commercial Bank, 284 Or 675, law permits certain types of bank property is owned jointly with the 588 P2d 1096 (1978). According accounts to have designated right of survivorship under ORS to Johnson, if the trustor retains a beneficiaries. Bank accounts for 93.180. That statute provides that life estate in the trust property and which beneficiaries may be each joint owner is a tenant in the right to revoke the trust, the designated are P.O.D. accounts common in the life estate and has a trustor is treated as having the under URS 708.641 and trust cross contingent remainder in the equivalent of a general power of accounts under ORS 708.646. The fee simple. As a result, when one appointment over the trust statutes that create these accounts joint owner, dies no property property and will be treated as the do not address the ability of a interest remains from which the owner of that property. The creditor of the deceased account unsecured creditors of the transfer to the trust is considered owner to reach the account deceased owner may recover. void against the trustor’s existing proceeds in the hands of the B. Personal Property. and subsequent creditors and the beneficiary. Consequently, a ORS 105.920 allows personal trustor’s creditors can reach the creditor could argue that since the property to be owned with the trust property after the trustor’s account owner has retained a lie right of survivorship. That statute death, subject only to the usual interest in the account and the right specifically provides, however, rule of laches. to designate a beneficiary, which is that a joint tenancy in personal III. Property for which equivalent to a general power of property does not derogate from there is a Designated appointment, the account balance the rights of creditors. Beneficiary. If a decedent dies is subject to the claims of the Consequently, the interest of a owning property for which a valid deceased account owner’s deceased joint tenant in personal beneficiary designation has been creditors under the theory adopted property would be subject to the made, the property will be by the court in Johnson v. claims of that deceased joint transferred to the beneficiary Commercial Bank, supra. tenant’s creditors even though the without a probate proceeding. Another statute, ORS 708.520, interest was automatically Property for which a beneficiary permits banks to pay accounts held transferred to the survivingjoint may be designated includes life in the separate name of a decedent tenant without a probate insurance policies, retirement directly to certain persons without proceeding. The survivingjoint benefits, certain bank accounts and a probate if specific requirements tenant would take the deceased securities. are met. This statute, however, joint tenant’s interest subject to the A. Life Insurance. The requires that if the deceased claims of the deceased tenant’s proceeds of a life insurance policy owner’s estate is probated, creditors. are not subject to creditor claims if amounts paid under its provision II. Property Held in a the proceeds are paid to someone must be accounted for to the Revocable Living Trust. other than the person effecting the decedent’s personal representative. Property held in a revocable living policy or that person’s estate or As a result, funds in accounts that

Page 2 are distributed under this statute after the owner’s death that named two years after the cause of action will be subject to creditor claims. the owner’s children as the accrued”; after a divorce, the wife C. Securities. Securities beneficiaries. An IRA is not is not responsible for family subject to Oregon’s Uniform TOD protected from claims under expenses incurred by the husband Security Registration Act (the federal law, and, since it is payable while they were living together; Act), ORS 59.535 to 59.585, may to persons other than the owner’s and, after a wrongful separation, have designated beneficiaries. spouse, it is not protected by ORS the wronged spouse is not Such beneficiaries will be entitled 23.170. Although there are no responsible for debts contracted by to ownership of the securities at Oregon cases addressing this issue, the other spouse subsequent to the the owner’s death. ORS 59.575(2) the general principles are discussed separation, except for those related specifically provides that the Act in the Kansas case of Bartlett to maintenance, support or does not limit the rights of a Co-op. Ass’n v. Patton, 239 Kan education of the parties’ minor security owner’s creditors against 628,722 P2d 551 (1986). children. the beneficiaries. As a result, a II. The Right of a Creditor creditor would be entitled to Procedures Available to to Require A Personal recover the debt out of such Unsecured Creditors to Collect Representative to Recover Amount Owing. securities. Property. The personal I. The Right a Creditor D. Retirement Plans. of representative of an estate is a Retirement plans generally permit to Proceed Directly Against the fiduciary and trustee for the the participant or owner to Decedent’s Surviving Spouse, creditors and beneficiaries of the designate a beneficiary for any ORS 108.040. estate. In Re Workman’s Estate, benefits that are unpaid at the Each spouse is liable 156 Or 333,68 P2d 479 (1937). participant’s or owner’s death. individually for expenses of the The personal representative is Section 401(a)(13) of the Internal family and for education of their required to recover property which Revenue Code prohibits creditors children under ORS 108.040. If was transferred by the decedent in from acquiring an interest in one spouse dies owing unsecured such a way that the transfer is void benefits to be paid by certain obligations incurred for matters or voidable as against the retirement plans to the plan subject to ORS 108.040, the decedent’s creditors if that beneficiary. Additionally, ORS creditor may maintain an action to propeay is necessary to pay 23.170 conclusively presumes that recover the debt directly against expenses, claims or taxes of the the retirement plans to which it the surviving spouse. Expenses of estate. ORS 114.435. Also see applies are valid spendthrift trusts the family include items necessary Estate of Hendrickson v. and the interest of the person for for the family’s immediate Warburton, 276 Or 989,557 P2d whom the retirement benefits are sustenance and comfort. Business 224 (1976). Any interested person provided and the interest of that expenses of either spouse are not may petition the court for person’s spouse are exempt from considered family expenses. instruction under ORS 114.275. A execution and all other process. Chamberlain v. Townsend, 12Or creditor has the right under that Retirement benefits protected by 207,142 P 782 (1914). Medical statute to ask the court to instruct federal or state law will not be and funeral expenses are the personal representative to subject to creditor claims. Other considered family expenses. recover assets not included in the retirement benefits, however, Hansen v. Hayes, 175 Or 358,154 estate if the requirements of ORS would be subject to such claims, P2d 202 (1944). 114.435 are met. A creditor with such as benefits from an Individual ORS 108.040 further provides an allowed but unpaid claim would ~~tir~~~~~Account (IRA) payable that “an action maintained against also be entitled, under ORS a wife must be commenced within

Page 3 116.103, to object to the personal 113.035,ORS 111.005(19) and 172 Or 434,138 P2d 613,143 representative’s final account if the ORS 113.085(1)(f). ORS P2d. 243 (1943), the court noted personal representative did not 115.005(4) requires such a creditor that in certain circumstances a take all necessary steps to recover to initiate the probate proceeding creditor of a decedent whose claim property from which the creditor’s adfile the claim not later than is not satisfied through a probate claim could be paid. The court has two years after the decedent’s proceeding could maintain an the power to surcharge the death since claims not filed within action, in equity, directly against personal representative for loss that two year period are barred the heir receiving estate assets. It is caused by any breach of duty and from payment from the estate. possible that the same equitable to deny the personal In the case of an estate that has remedies would exist for a creditor representative’s right to been probated and closed, a against a recipient of property compensation, in whole or in part, reasonably ascertainable creditor transferred outside of probate. under ORS 116.123. who did not receive the written It may also be possible for a III. The Right of a Creditor notice required under ORS creditor of a decedent to proceed to Initiate a Probate Proceeding, 115.003(2) has the right to reopen directly against a transferee of the ORS 12.190(2). If a person the estate under ORS 116.233 and decedent’s property under against whom an action may be file a claim within two years from Oregon’s Uniform Fraudulent commenced dies before the the date of the decedent’s death. Transfer Act, ORS 95.200 to expiration of the applicable statute Such a creditor’s claim is not 95.310, if the requirements of that of limitation, ORS 12.190(2) otherwise barred until 30 days Act have been met. provides that an action may be after mailing or delivery of the Daniel C. Re maintained against the personal required notice. ORS representative of such person after 115.005(2)(b). the expiration of the limitation As personal representative, the period and within one year of the creditor has the power to void person’s death. This statute transfers and recover property requires that the decedent’s estate necessary for the payment of be probated since an action claims and expenses under ORS Revision of initiated under it must be 114.435. The personal Guardianship/ maintained against the decedent’s representative would also have the Statutes personal representative. Also, see right to receive compensation ORS 115.305, which provides in under ORS 116.173 and to recover he Estate Planning and part that all causes of action expenses and reasonable attorney Administration Section against a person survive to that fees under ORS 116.183. A Legislative Subcommittee, person’s personal representative creditor serving as personal through a task force composed of and ORS 115.325, which prohibits representative must be aware of Scott W. McGraw, Carole Kyle an action on a claim from being ORS 115.105, which contains and Margaret Nightingale, is commenced against a personal specific procedures for claims working on a complete revision of representative until the claim has made by the personal Oregon’s guardianship and been presented and disallowed. representative. conservatorship statutes. It is A creditor may initiate a N. Right of Creditor to planned that the proposed revision probate and be appointed personal Proceed Directly Against the will be submitted to the 1993 representative of the deceased Transferee. In the case of First Legislative Assembly. Anyone ’s estate under ORS Nat. Bank of Portland v. Connolly, having questions, comments or requiring additional information

Page 4 should contact Scott McGraw at a beneficiary designation in a a number of times. The decedent Pound, Dorszynski and McGraw, trust account, or a P.O.D. payee designation, cannot be changed then returned to the hospital and 1049 Oak Street SE, Salem, by will. died about two months after Oregon 97301, phone: 399-7370. The objecting daughter relied executing the will. on ORS 708.621 to assert that a Right after decedent died, certificate of deposit was not Selken went to the decedent’s subject to ORS 708.616 because house to look for the will and neither the decedent nor the found the will with a typewritten personal representative signed any page signed by the decedent which What’s New documents in connection with the stated creation of the certificate of “Before my will. I give an Blessing v. Nicholas deposit. The court noted that ORS undivided half interest [sic] in 708.621 only requires a written my books to Sally Selken as a 110 Or App 28 (1991) joint owner. I expressly declare ne daughter objected to order to alter an account, not to this interest [sic] created to be a the final account of the create one. Since it was not the joint tenancy with right of bank’s practice to require signature survivorship. 105.920.This does personal representative, not include my plays or foreign who was the other daughter of the cards to establish certificates of language books which she does decedent, because the personal deposit, it was not necessary for not care about. She is kind, and admires my books.” representative had not included a the decedent to sign any to create a Selken was appointed personal certificate of deposit, a money jointly owned certS5cate. In representative and included only market account and a checking addition, the court noted that ORS part of the books in the inventory. account in the inventory of the 708.600(3) defines joint account to He did not inform the devisees of estate. These accounts were in the mean, “an account payable on the estate about the books that joint names of the decedent and request to one or more of two or were omitted from inventory. All the daughter appointed personal more parties whether or not of the books were sold and the representative during the mention is made of any right of proceeds were divided between decedent’s lifetime. In holding that survivorship.” (Emphasis added by Mrs. Selken and the estate. At the the accounts passed to the daughter the court.) Id. at 31. Thus, it is not time the final account was filed, appointed personal representative necessary to use the words “right the devisees fmt learned of the by right of survivorship, the Court of survivorship” to create a joint sale and division of the proceeds of Appeals stated that the language account with survivorship rights. from the books. One of the of ORS 708.616 is clear and devisees objected to the final unambiguous. Estate of Leda Mae Grove - - v. account on several grounds, ORS 708.616 provides in Selken 109 Or App 668 (1991) claiming that the books should be pertinent part, he decedent hired Selken, included in the inventory, that (1) Sums remaining on deposit SeIken had charged excessive at the deafh of a party to a joint an attorney, to prepare his account belong to the surviving will. Selken met with the attorney fees and that, as personal representative, he had made accounting errors. evidence of a different intention prepared the will and met with him The Court of Appeals held that at the time the account is created. the purported gift of the books did ... a second time to execute the will. Selken’s wife was present at both not meet the requirements of an (5) A right of survivorship arising from the exDresS of meetings. After decedent left the inter vivos gift because there was the account or under this section, hospital, Selken’s wife visited him

Page 5 no delivery, an essential element of Article three of the will provided Peven v. Holhahy an inter vivos gift. The document that decedent give all of the 109 Or App 336 (1991) did not qualify as a testamentary residue of the decedent’s estate to he decedent was a minor gift because there were no her husband. Article five of the child who contracted witnesses to the decedent’s will, however, provided that leukemia. His parents signature. Thus the books should certain property which was owned were not married and his mother, have been included in the assets of by each before marriage was to be who had custody, was receiving the probate estate. given to the respective families on public assistance. The mother The trial court found that the death of the survivor. The sought public funds for a bone Seken had charged excessive decedent provided that her house marrow transplant, but was denied attorney fees because much of the was to be sold on the death of the funds in Oregon. The mother work included as attorney fees was survivor and the proceeds moved the child to Washington, more properly classified as distributed to her two daughters where the transplant was administrative work of the and grandson. The husband performed. personal representative and claimed and the drafting attorney The doctors subsequently because he made accounting errors so testified that the decedent discovered that a sponge had been as personal representative, for intended that the husband receive a left in the child, and the hospital which he was surcharged. fee interest in the house and that began negotiating with the mother The second issue before the article five should have contained to settle the matter. Meanwhile, the Court of Appeals was whether a the words “if not previously sold.” child died, the father was probate court has authority to enter The lower court found the appointed personal representative a judgment imposing personal omission to be a scrivener’s error of the child‘s estate in Oregon and liability against a personal and construed the will as if the commenced an action against the representative for breach of omitted words were included in the hospital. The hospital settled with fiduciary duties. The Court of will. The Court of Appeals the mother, and the father sought Appeals held “A probate court has reversed, stating that “the to have the settlement treated as a authority to enter a personal overriding principle in the portion of the child‘s estate. The judgment against a personal construction of wills, reiterated in Court of Appeals ruled that the representative for willful or LuGrand, is that an unambiguous mother’s negotiation with the negligent misconduct in the will ‘speaks for itself and resort to hospital was governed by administration of his fiduciary extrinsic evidence may not be had Washington law, which gives the duties.”Id. at 676. The Court of to ascertain a testator’s intent.”’Id, parent of a minor child a cause of Appeals also noted that Selken had at 460. The court held that a court action for death. The settlement conflicts of interest in serving as may not correct a scrivener’s error that she obtained, therefore, was personal representative and when the effect of the correction independent of any claim the attorney of the estate while would be to change the child‘s estate may have had against representing his wife’s interest beneficiaries that a will the hospital, and the child‘s estate regarding the books. unambiguously defines. The court was not entitled to any portion of declined to rule on whether it the settlement paid to the mother. Scarlet v. Hopper would be appropriate to correct 110 Or App 457 (1992) scriveners’ errors in other In re Hednck ecedent and her husband instances. 312 Or 442 (1991) executed a joint, mutual edrick prepared a will for and reciprocal will. the decedent which named Hedrick as the

Page 6 personal representative and The fact that he sent a copy to her made a misrepresentation of the provided that the will would not be counsel did not mitigate his facts as they existed at the time revoked by a subsequent marriage. violation of the rule. and, therefore, violated DR The decedent remarried three years 1-102(A)(3) and DR 7-102(A)(5). later and executed a new will five In re Boardman Helen Rives years after the mamage naming his 312 Or 452 (1991) wife the personal representative oardman was counsel for and sole devisee of his estate. The the widow in the Hedrick decedent died a year later, and case discussed above. In Hedrick prepared, but did not fde, January 1988, Boardman filed a a petition to probate the fiist will. petition to admit the second will to Hedrick subsequently learned of probate and appoint the widow the existence of the second will, personal representative. The judge but he and the devisees under the did not immediately appoint the fiit will decided to probate the widow personal representative Executive Committee because Hedrick had already been fiist will. Hedrick’s petition did Report not inform the court of the appointed the personal existence of the second will. The representative. Due to various court admitted the fiit will to continuances, the trial on the he Executive Committee probate and named Hedrick as contested appointment was regrets to report that Jill personal representative. Later delayed until November, 1988, and Golden, Chair of the Hedrick sent a letter directly to the the parties settled a few days Section, died in December, 1991. widow, with a copy to her counsel, before trial, with the widow being Stephen Kantor, Chair-Elect, has demanding the return of certain of appointed the personal assumed the duties as Chair for the the decedent’s funds. The widow’s representative. The decedent had rest of the year. counsel had not authorized owned some property jointly with The trust seminar given in Hedrick to communicate directly another couple. The property had February, 1992, was very popular, with his client. sold prior to the decedent’s death, with over 400 people attending. The Supreme Court found that but the transaction was not closed The Section is planning to publish Hedrick violated DR 1-102(A)(3) at the time of the decedent’s death. a brochure. about revocable living when he failed to disclose the Boardman represented to the musts. The brochure, when existence of the second will t3 the attorney for the couple that the published, will be geared to the court. The court noted that judges widow was the personal general public and will be rely on the candor, honesty and representative and had authority to available for attorneys to purchase integrity of the lawyer appearing execute the documents for the sale and give to their clients. before them in ex parre matters. at the time that Hedrick was still The legislative subcommittee The failure to disclose a material the personal representative is working on various bills for the fact is as much a misrepresentation appointed by the court. The court 1993 session. Carol Kyle, Scott as a lie. The court further found noted that Boardman made his McGrew and Meg Nightingale that Hedrick violated DR representation on the belief that the have drafted a proposed revision to 7-104(A)(1) when he sent the widow was legally entitled to be ORS Chapter 126. Anyone demand letter to the widow, the personal representative and that interested in this project should because her counsel had not Boardman did not appear to have contact one of them. consented to such communication. intended any harm to the couple. Helen Rives Even so, Boardman knowingly Secretary

Page 7 Calendar of Seminars and Events

May 7-9.1992 (Sponsored by June 2,1992 (Sponsored by Oregon * July 27-31.1992 (S nsored by New American Bar Association). Thud Estate Planning Council and York University ScR" 001 of Continuing Annual Section of Real Property, Eugenc/Springfield Tax Association), Education) Trusts and Estates, New Probate and Trust Law, Opryland Imminent Death Estate Plannine and York, New York, Telephone: (212) Hotel, Nashville, Tennessee, 7901320. Telephone: (615) 883-2211. * October 21-24.1992 (Sponsored by May 6-7,1992 (Sponsored by New The Southern California Tax and Estate York Universitv School of Continuine Planning Forum) Twelfth Annual Education), Trhsts and Estates. Gran-d June 8-9.1992 (Sponsored by New Southern California Tax &Estate H att New York, Telephone: (212) York university School of Continuing Planning Forum, Meridian, San do-1320. Education) Trusts and Estates, Hyatt Diego, California, Telephone: (619) Regency, San Francisco, Telephone: 696-6773. (212) 790-1320. * July 23,1992 (Sponsored by PESI), OregodFederal Estate and Gift Tax Wo&shop, Portland, Oregon, Telephone: 1-800-621-5336.

Estate Planning and Adminisnation Section Pcmdt No. 341 Lake Oswego, OR 97035-0889

Oregon Entalc Flaming and Adminisvation Section Ncwslcfler Daniel C. Re Edilor-inChicf Edilorinl Bonrd Lauric Caldwdl-Lcc Richard W. Miller hald Muclcdr Helen Riva Tmolhy R Stradcr