When the Probate Estate Falls Short
Many people assume that assets passing outside of probate are untouchable by creditors. That is not always the case. Probate assets alone may not cover all debts. When the deceased person's probate estate does not have enough to pay allowed claims and statutory allowances, the law creates a path for creditors to reach nonprobate transferees.
Except as otherwise provided by law, a transferee of a nonprobate transfer is subject to liability to the decedent's probate estate for allowed claims against the decedent's probate estate and statutory allowances to the decedent's spouse and children to the extent the decedent's probate estate is insufficient to satisfy those claims and allowances.
A.R.S. § 14-6102(A)The transferee's liability is capped at the value of what they received. A beneficiary who received $50,000 through a pay-on-death account cannot be held liable for more than $50,000 in estate debts.
Order of Liability Among Transferees
The statute does not treat all nonprobate transferees equally. It sets a specific order for who pays first. Any direction in the deceased person's will or governing instrument controls. If no direction exists, the trustee of the principal nonprobate trust bears liability first. This is usually the revocable living trust designated as the residuary beneficiary. Other nonprobate transferees share liability proportionally after that.
Creditors have a two-year window after the decedent's death to bring a proceeding. The personal representative must receive a written demand before any action begins. If the personal representative declines to pursue a claim in good faith, the creditor can bring the proceeding independently.
For families relying on nonprobate transfers as part of their estate plan, understanding this statute helps set realistic expectations. Real property and other valuable assets that pass outside probate may still be subject to creditor claims when the probate estate has insufficient funds.