11.1 The Non-Probate “Revolution”
Professor John H. Langbein wrote a seminal article in 1984, addressing various implications of the “non-probate revolution.” It is, of course, a fact of life – wealth is increasingly held in forms that avoid probate: joint tenancies, IRAs and 401(k)s, transfer on death accounts, and – of course – revocable trusts. Additionally, planners are increasingly focused on using asset protection techniques most, if not all, involving non-probate devices. Remarkably, creditors seemed disinterested in participating in this revolution or in protecting their interests:
The puzzle in the story of the nonprobate revolution is not that transferors should have sought to avoid probate, but rather that other persons whose interests probate was meant to serve-above all, creditors-should have allowed the protections of the probate system to slip away from them. Probate performs three essential functions: (1) making property owned at death marketable again (title-clearing); (2) paying off the decedent’s debts (creditor protection); and (3) implementing the decedent’s donative intent respecting the property that remains once the claims of creditors have been discharged (distribution).
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The other set of changes that underlie the nonprobate revolution concerns another great mission of probate: discharging the decedent’s debts. Many of the details of the American probate procedure, as well as much of its larger structure, would not exist but for the need to identify and pay off creditors. These procedures are indispensable, but-and here I am asserting a proposition that has not been adequately understood-only for the most exceptional cases. In general, creditors do not need or use probate. Langbein, supra n.1, at 1120.
John H. Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv. L. Rev. 1108, 1116 (1984). Professor Langbein’s proposition is that creditors have not been focused on the non-probate revolution, despite its adverse impact on these creditors, because the impact is seen as nominal. Most of the larger creditors look to other security arrangements or payment modalities (mortgage liens or other security arrangements against specific property, life insurance policies backstopping the debt, medical insurance covering most medical expenses, multiple guarantors, etc.). The “smaller” creditors – basically credit card companies – find that moral suasion and/or professional debt collection efforts work well and those creditors are willing to pursue probate estates, showing little interest to date in non-probate transfers. Langbein, supra n.1, at 1120-5. When probate assets exist for the enforcement of creditor rights, of course, that is the simplest collection method because certainty exists as to the procedure. Creditor’s rights to enforce against non-probate assets, on the other hand, depend on the nature of the asset, the law governing the treatment of that asset, and, in many instances, the fraudulent conveyance act.