The common scenario is this: Mom creates an estate plan that tries to ensure a probate estate is never opened. She puts a pay on death (POD) designation on all her accounts to her adult kids, she ensures that her car title has a transfer on death (TOD) beneficiary listed, she has a beneficiary deed for her home that she recorded and that says that when she dies the house that has been in the family goes to her kids, and she maybe even has a trust that she has put all the rest of her property into. She thinks she is saving her children from the bureaucratic nightmare that often results when assets have to be probated. A couple years before she dies, one of her children needs financial help getting a business venture off the ground. She takes out a loan with the local bank and signs a security agreement. Two years later, Mom dies, and the loan has not been paid off. Her family doesn’t open a probate estate because there are no assets to probate. So far, so good, right? Maybe not.
A creditor (in our factual scenario above, the Bank) can force open a probate estate in Missouri within one year of the date of death. They must also timely file their demand against the estate on the debt they seek to collect. The personal representative will have an obligation at that point to determine what assets, if any, belong in the estate. If there are no assets in the estate to probate, the creditor might then file a Petition for Accounting to void nonprobate transfers and have those assets brought into the probate estate for the purposes of paying off the debt. However, in order to do that, the creditor needs a substantial amount of information.
Missouri is a fact-pleading state. Jones v. St. Charles County, 181 S.W.3d 197, 202 (Mo. App. E.D. 2005). The overall purpose of fact pleading is “to enable a person of common understanding to know what is intended.” M & H Enters, v. Tri-State Delta Chemicals, Inc., 984
S.W.2d 175, 181 (Mo. App. S.D. 1998). “A petition must contain a short and plain statement of the facts showing that the pleader is entitled to relief.” Whipple v. Allen, 324 S.W.3d 447, 449 (Mo. App. E.D. 2010); Rule 55.051. Although “[t]he petition need not plead evidentiary or operative facts showing an entitlement to the relief sought, it must plead ultimate facts demonstrating such an entitlement.” Williams v. Barnes & Noble, Inc., 174 S.W.3d 556, 559-60 (Mo. App. W.D. 2005). And, in order to invoke these standards and rules of procedure, the pleader needs to request that the Court invoke the rules of procedure in the probate case by obtaining an Order designating the proceeding as adversarial. Some Missouri courts do this on their own volition. Many do not.
In a discovery of assets case, for example, allegations that a defendant “has assets in her possession or control received by her in trust for the benefit of the heirs named in Decedent’s Will, including: … $20,000 cash received by decedent in the sale of his home in Sulphur Springs, Missouri[,]” were held not sufficiently definite to survive potential dismissal. Estate of Gulat, 748 S.W.2d 79, 80 (Mo. App. E.D. 1988). If those allegations were not sufficiently definite, the bare bones allegations often made by creditors, like “upon information and belief, the following descendants of Decedent were recipients of recoverable transfers of Decedent’s property: …” shouldn’t be sufficient, either. Often, creditors fail to identify specific property or specific transfers.Dates of transfers or the means of the transfers, such as whether by beneficiary deed, pay on death designation, or otherwise, are often not identified. Creditors should at least provide the “information’’ it has and the facts forming the belief.
Let’s assume the creditor’s Petition refers to collateral described in the promissory notes and associated documents attached as exhibits to the claim filed by the creditor in the estate, if the debt is secured. Presumably, the transfers at issue in the Petition would then involve the collateral identified in the loan documents attached to the claim against the Estate. The claim should be carefully reviewed, because all claims founded on a written instrument must be evidenced by the written instrument itself. “If a claim is founded on a written instrument, the original or a copy thereof with all endorsements shall be attached to the claim. The original instrument shall be exhibited to the personal representative, upon demand, unless it is lost or destroyed.” RSMo. 473.380.2. If the instrument is lost or destroyed, the claim must state this fact. Id. Longstanding precedent in Missouri cautions that, “a claimant who fails to attach a written instrument bears the risk of having the claim denied because the claim may be deemed to have provided inadequate notice to the personal representative and, therefore, insufficient to invoke the jurisdiction of the probate court.” Estate of Hedrick, 808 S.W.2d 30, 33 (Mo. App. E.D. 1991).
A “recoverable transfer” is defined, in part, in the statute as “a nonprobate transfer of a decedent’s property under sections 461.003 to 461.081 [.]” RSMo. 461.300. The transfers referred to in the section are those the form the “Nonprobate Transfers Law of Missouri” (NTLM). RSMo § 461.300 is part of the NTLM. Proceedings under RSMo. 461.300 are proceedings under the probate code per RSMo. 461.300.7 and RSMo. 461.076. As such, the rules pertaining to actions under the probate code apply. RSMo. 472.080 requires that “every document” filed with the court under the probate code “shall contain a statement that it is made under oath or affirmation and that its representations are true and correct to the best knowledge and belief of the person signing the same, subject to the penalties of making a false affidavit or declaration.” Hold the creditor to this standard. They cannot just make allegations and hide behind unfounded information and belief.
This essential requirement is harmonious with Rule 55.03. Once the Court designates the proceeding as adversarial, invoking application of the civil rules of procedure and local rules, including Rule 55.03, the creditor is under a duty to ensure its representations to the court are not being made or (1) “presented or maintained for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation” and that (2) “the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support”. This is similar to Federal Rule of Civil Procedure 11.
Once these requirements have been examined, each potential item of collateral, property, or transfer should be carefully reviewed. The recoverable transfers statute defines such transfers as including “a transfer of property taking effect upon the death of the owner, pursuant to beneficiary designation.” RSMo. 461.005(7). But then, the statutory definition goes on to broadly exclude from the NTLM: survivorship rights in property held as joint tenants or tenants by the entirety; a transfer to a remainderman on termination of a life tenancy; a transfer under a trust established by an individual, either inter vivos or testamentary; a transfer pursuant to the exercise or non-exercise of a power of appointment; and a transfer made on death of a person who did not have the right to designate his or her estate as a beneficiary of the transfer. Id. By way of further exclusion, a creditor cannot recover “accounts or deposits at financial institutions unless the provisions of sections 461.003 to 461.081 are incorporated into the certificate, account or deposit agreement in whole or in part by express reference.” RSMo. 461.073.3. Further excluded are transfers to beneficiaries of life insurance, annuities “or other products sold or issued by a life insurance company unless the provisions of sections 461.003 to 461.081 are incorporated into the policy or beneficiary designation in whole or in part by express reference.” RSMo. 461.073.6. Because the NTLM actually excludes numerous types of transfers, the breadth of RSMo. 461.300 is far narrower and includes few real world transactions than would appear at first blush. Any real property secured by Deed of Trust in Missouri should be identified in the Petition. As outlined above, how the real estate was deeded at death is critical to this analysis, as is whether it was subject to a power of appointment and the identification of a person holding such power. Additionally, possible references to typical catchall language of “all business assets”, fails to indicate which business, identify which assets of the business are being sought, who the owners or responsible parties for the business are or is, and additionally, may be fatal to collection if the business entity is not named or identified as a defendant to the suit.
This last element is of particular import, because even though RSMo. 461.300.10(4) includes “any other transfer of a decedent’s property other than from the administration of the decedent’s probate estate that was subject to satisfaction of the decedent’s debts immediately prior to the decedent’s death, but only to the extent of the decedent’s contribution to the value of such property”, the essential factual issue turns on whether the asset in question could have been reached by creditors were the decedent still living. Often, no such facts demonstrating entitlement to relief have been pleaded by the creditor’s Petition. For example, carrying the implications of this statutory provision to its logical conclusion, most life insurance policies would be beyond the reach of a creditor during the decedent’s lifetime and would thus arguably fall outside of at least the second half of the definition of recoverable transfers. To get around this provision, a creditor would have to show that the requirements imposed by RSMo. 461.073.6 have been complied with. By law, a judgment against a person owning these assets would not be executable on such assets.
Arguably, value of the transfer should be determined at the time of the transfer – in this instance, the date of death – since § 461.300 is primarily focused on that event. RSMo. 461.300.10(4). Without an indication of what transfers are at issue, how the property is alleged to have been owned then and now, and the value of such transfers, defendants won’t be given notice as to the amount of damages the creditor is seeking to collect.
Another potential issue creditors could run into is that they often fail to adequately plead jurisdiction. The jurisdiction of a court to adjudicate a controversy rests on three essential elements: (1) jurisdiction of the subject matter; (2) jurisdiction of the res (property) or the parties; and (3) jurisdiction to render the particular judgment in the particular case. Missouri Soybean Ass’n v. Missouri Clean Water Comm’n, 102 S.W.3d 10, 21 (Mo. banc 2003); Jenkins v. Croft, 63 S.W.3d 710, 712 (Mo. App. 2002). It is quintessential to the rules of pleading that a claimant must state a claim upon which relief may be granted in order to confer upon the court subject matter jurisdiction.
See Article V of the Missouri Constitution; JCW ex rel. Webb v. Wyciskalla, 275 S.W.3d 249 (Mo. banc 2009). The argument that a court lacks subject matter jurisdiction can be raised at any stage in the proceedings. Rule 55.27; American Indus. Resources, Inc. v. T.S.E. Supply Co., 708 S.W.2d 806, 808 (Mo. App. E.D. 1986). The only action a court without subject matter jurisdiction can take is to exercise its power to dismiss. Rule 55.27(g)(3); Niedringhaus v. Zucker, 208 S.W.2d 211 (Mo. 1948) (A pleading which states no cause of action confers no subject matter a court can adjudicate, and is subject to dismissal); Parmer v. Bean, 636 S.W.2d 691,694 (Mo. App. E.D. 1982); Johnson v. Director of Revenue, 879 S.W.2d 754, 755 (Mo. App. E.D. 1994). Therefore, ensure that the claimant has properly tied the property they seek to jurisdiction in Missouri. This is easiest with real estate, but may be difficult for personal property, accounts, and intangible assets.
Creditors will often whine that they don’t have a way to get this information, other than through a lawsuit. However, this argument often lacks merit. For example, Medicaid programs collect extensive amounts of information pertaining to the benefit recipient’s assets on a yearly basis when their eligibility is first assessed and then reviewed. Banks and other lenders have security agreements that they often do not properly perfect or fail to adequately follow up on. For example, if a lender tries to claim a life insurance policy as collateral, then the lender should (1) ensure the statutory provisions cited above are recited in the policy; (2) obtain a copy of the policy; and (3) ensure that any beneficiary designations on the policy are harmonious with the security agreements. If they fail to do so, they will be hard pressed to cry foul in failing to protect their own interests as a creditor.