Ask the Probate Judge—Reader Questions
Rudd, appeared August 25, 2005, Albuquerque Journal, Business Outlook
Reprinted with permission
Q: All my financial
accounts are POD and home TOD to my two daughters. The one daughter will
be my personal representative. How is she to pay my last expenses when I
die-cremation, any utility bills, etc.? V.M., Albuquerque, NM
I addressed this issue several years ago, but it is important enough to review now. New Mexico's Uniform Probate Code states, "If other assets of the estate are insufficient, a transfer resulting from a right of survivorship or POD designation…is not effective against the estate of a deceased party to the extent needed to pay claims against the estate and statutory allowances to the surviving spouse and children." The law governing transfer on death deeds for real property contains nearly identical language.
The transfer on death (TOD) law for stocks and security accounts also considers creditors' rights. The TOD laws do "not limit the rights of creditors of security owners against beneficiaries and other transferees under other laws of this state."
This means that POD and TOD account recipients are liable for a decedent's debts if there are no other funds to pay them. By law the recipient beneficiaries must account to the decedent's personal representative. The personal representative has the power to start a court proceeding to recover the funds once he or she receives a written demand for payment from a surviving spouse, creditor, or child of the decedent. This proceeding must be started within one year after a decedent's death.
Most of the time, the personal representative does not have to bring a legal action to recover funds distributed to beneficiaries. The recipients usually agree informally and voluntarily to share equally the costs of the decedent's debts from either the funds they claim at the bank or brokerage house or their own funds. Also, if the debts are small, creditors may decide not to collect from POD or other assets.
In your example, I hope that your two daughters will agree informally to pay your final expenses by contributing equal amounts from the POD accounts that they collect upon your death or from their own funds. If so, settling your estate should not require a court probate proceeding.