A “nonprobate” asset is generally defined as an asset that passes upon a person’s death under a written instrument or arrangement other than a person’s Will. Life insurance is a good example of a nonprobate asset; the death benefit will be paid according to the beneficiary designation on file with the insurance company, not the decedent’s Will. There are several other types of nonprobate assets, including various types of retirement accounts, which generally have a beneficiary designation similar to life insurance.
The Testamentary Disposition of Nonprobate Assets Act is sometimes referred to as the “Super Will” statute, because it allows a testator to dispose of certain types of nonprobate assets by Will, despite any prior written instrument or arrangement to the contrary. Assets which may be passed on this way include bank accounts (but not real property) held by joint tenancy with right of survivorship; “payable on death” bank accounts; and assets held in a revocable trust of which the testator is the grantor and that becomes effective or irrevocable only upon the testator’s death.
The purposes of the Act include enhancing and facilitating the power of testators to control the disposition of nonprobate assets and providing simple procedures for resolution of disputes regarding entitlement to such assets.
The Act requires a Will to “specifically refer to” nonprobate assets in order to control their disposition. Therefore, nonprobate assets will not be controlled by a general residuary clause. However, a provision in a Will stating that it controls disposition of “all my nonprobate assets” or a category of assets, such as “all my payable on death bank accounts” is valid.
The Act was adopted in 1998, so there is not much case law interpreting it. However, the Washington Supreme Court recently had cause to do so in Manary v. Anderson (decided January 17, 2013).
The facts of the case are fairly straightforward. Homer and Eileen created a revocable living trust and transferred their home into it. After Eileen died, Homer had the option of dividing trust assets into a revocable “survivor’s trust” and irrevocable “family trust” but elected not to do so. In 2004 he executed a Will leaving the home (which was still held by the trust) to a friend. After Homer died in 2007, a dispute erupted between the friend and Homer’s nephew (as successor trustee) over whether the trust or Will controlled disposition of the home.
A large part of the dispute focused on whether the house was excluded from the definition of a “nonprobate asset” by RCW 11.11.010(7), which states that a nonprobate asset for purposes of the Act does not include “a deed or conveyance for which possession has been postponed until the death of the owner.” The majority found that this exclusion applies only to joint tenancies and future interests, two types of property interests not applicable here, and the house, as an asset of a revocable living trust, “squarely fits the definition of nonprobate asset” for purposes of the Act. Two dissenting justices found that the exclusion should apply because legislature intended to limit the Act’s application to real property interests; and that allowing a decedent to use a Will to transfer real estate titled in the name of a trust “would undermine the stability of real estate title records.”
The majority also held that testamentary disposition of the house was binding even though the Will did not mention that the house was owned by the trust.
One of the lessons of the case is the importance of using an experienced estate planning attorney, particularly for an estate of this complexity. Assuming Homer drafted the Will himself (and the opinion seems to indicate he did), the few hundred dollars he would have paid to have an attorney review his trust and draft the changes to his overall estate plan is far less than what his estate has had to pay to litigate this dispute.
And the case is not over; the Supreme Court noted that it was only deciding that Homer’s Will controlled disposition of his interest in the house. There is apparently a separate dispute over who inherits his late wife’s interest in the property, and whether the trust amendment he signed after her death changed the beneficiaries of the entire trust or just his share.