August 6, 2015

Surrogate's Court: What Assets Can Creditors Reach?

Before attempting to answer the question: in a Surrogate's Court proceeding, what assets can a creditor reach, it's crucial to understand that, in all Surrogate's Court proceedings, there are two (2) categories of assets: Probate Assets and Non-Probate Assets.

Probate Assets:  In a nut shell, Probate Assets are any assets the deceased person owned at the time of death which are titled solely in the deceased person's name. By way of example, if a deceased person had two (2) bank accounts, one with Bank X, which is a joint checking account with the deceased person's name on it and his son's name, and one with Bank Y, which is a checking account in the deceased person's name alone, only the account with Bank Y will be a Probate Asset.

Non-Probate Assets: In a nut shell, Non-Probate assets are assets the deceased person owned at the time of death which were joint with another person or which have a beneficiary designated on the account. In the example above, the account with Bank X is a Non-Probate asset, because it's a joint bank account. The same is true for "In Trust for," or ITF, accounts.

Note that all of a deceased person's assets, be they bank accounts, brokerage accounts, IRA accounts, life insurance policies, pension accounts, etc. will either fall into the category of Probate Assets or Non-Probate Assets.

So, to get back to the question: in a Surrogate's Court proceeding, what assets can a creditor reach, the first answer to this question is all Probate Assets, subject to certain set-offs for surviving spouses. Probate Assets, no matter what type of assets they may be, are fully reachable by creditors, even if this means that a creditor will end up taking 100% of the deceased person's estate.

So are Non-Probate assets protected from creditors? Well, the answer to this question is, it depends on the type of Non-Probate asset. Without getting into too much detail, the following Non-Probate assets tend to be protected from the claims of creditors:
 
    1) Life insurance policies;
    2) Pension benefits;
    3) IRA accounts; and
    4) Irrevocable trust assets.

While the following Non-Probate assets tend to be subject to the claims of creditors:

    1) ITF accounts;
    2) Revocable trust assets;
    3) Joint accounts; and
    4) POD accounts.