One of the main purposes for probate laws is to provide a means, a procedure, for creditors to be paid, to the extent there are assets, from the estate of deceased obligors. In fact, the legislation was amended not too long ago to include creditors into the definition of persons qualified to apply for the application to probate a decedent’s estate. Today, a creditor has the legal standing to file an application to administer an estate that owes the creditor money. This is a powerful tool for the creditor. The laws provide for strict adherence to the form of presented claims, specific language must be used, the requirement for filing of suit against a rejected claim, which can happen either expressly or impliedly, must occur within a specific period of time or else the claim becomes barred by law.
In addition, the probate laws provide for permissive direct notice to creditors of their needing to formally or informally present their respective claim to the personal representative within 120 days or their respective claim is legally barred as in, even if the personal representative paid you after the creditor’s claim was barred, the personally representative is liable to the beneficiaries for paying this barred claim though, you as the creditor, may be okay. The long and short of creditor rights in probate is that creditors have substantial rights in probate, but creditors also have to known their rights and navigate the claims procedures correctly or risk your claim legally being denied. Before the assets of any estate are distributed to the beneficiaries of that estate, the executor of the will or personal representative of the estate must:
• Conduct a thorough search of the decedent’s financial documents to try to determine who all or any creditors may be
• Notify all identified creditors that the decedent has passed away
• File an affidavit with the probate court that all creditors have been notified of the decedent’s death
• Settle all creditor claims.
There is a statute of limitations for creditor claims against an estate in Utah, and it dictates that creditors have between 120 days from the date of a notice to creditors being published in a local paper to file a creditor claim against the estate.
The idea that a probate creditor could seek payment from family members is a common fear in probate situations. This is made even worse when a probate creditor pops up demanding payment after an estate has been closed and the funds distributed to the family. Fortunately, if everything is done right in the estate and the probate court discharges the executor or administrator, probate law says the creditor is probably out of luck and no one is responsible to pay them.
Below are the first things to check to eliminate common mistakes. Although there are more considerations, and more ways that a family member could become liable to a probate creditor, the list below provides a good starting point.
• Confirm that the estate was formally opened with the probate court. Sometimes families will divide up the deceased’s property and then say the estate was settled even though no estate was ever opened with the probate court. If that is the case, then everyone who received property from the estate, and the person in charge may be liable to the creditor and could be forced to contribute to the bill.
• If an estate was formally opened with the probate court, confirm that legal notice was posted in the newspaper to notify creditors. If no legal notice was placed, then the creditors can pursue their claims against the executor or administrator of the estate, and all heirs and beneficiaries that received property from the estate.
• Ensure that all known creditor claims were handled properly. In order to give all creditors time to submit claims to the estate, probate law requires that an estate be held open for at least three months after the legal notice to the creditors is posted. In addition, if an executor or administrator knows about a creditor claim (even if the creditor did not file a formal claim with the estate), then the administrator or executor must pay the probate creditor or settle the claim in some way before closing the estate. If known creditor claims are not paid or settled, then the executor or administrator, and those who receive property from the estate can be liable to the unpaid creditors.
• Make sure that the estate was formally closed and that the executor or administrator was truthful in all statements to the probate court. After an estate has been fully administered, probate law allows an executor or administrator to petition the court for a discharge from office and, if they meet the requirements, from liability. Filing this petition will require the executor or administrator to make several certifications to the court. One of those is a statement that all creditor claims were properly paid, except the ones disclosed to the court as having not been paid. If any information disclosed to the court is untrue, then the executor or administrator can be liable to the court and to unpaid creditors. The creditors may also be able to seek payment from those who received property from the estate.
• Confirm that the executor or administrator was discharged from office and from liability. When the court enters a discharge order to close an estate, there are two ways for the court to do so. The court may simply discharge the executor or administrator from office, which closes the estate but does not prevent a creditor, heir, or beneficiary from going after the executor or administrator for bad acts at some point in the future. The second option is for the court to discharge the executor or administrator from office and from liability. When that happens, the executor or administrator cannot be held liable to new, unknown creditors, beneficiaries, or heirs for anything having to do with the estate, unless the executor or administrator was untruthful to the court.
These five items are not the only considerations, but they are the most important. If any one of them is missing, then the executor or administrator could be liable to pay the bill of the new creditor that has appeared.
Creditors’ Rights
Avoiding probate doesn’t let you off the hook from legal obligations to your creditors. If you don’t leave enough other assets to pay your debts and taxes, any assets that passed outside of probate may be subject to the claims of creditors after your death. If there is any probate proceeding, your executor the person named in your will to handle your affairs after your death can demand that whoever inherited the property turn over some or all of it so that creditors can be paid. Creditors, however, have only a set amount of time about three to six months, in most states to submit formal claims to your executor. A creditor who is properly notified of the probate court proceeding cannot file a claim after the deadline passes.
On the other hand, when property isn’t probated, creditors’ claims aren’t cut off so quickly. In theory, at least, a creditor could track down the property and sue the new owner to collect the debt a year or two later. As a practical matter, however, avoiding probate may actually provide more protection from creditors.
When property is distributed without probate, there is no legal requirement that creditors be notified in writing. They may not know of the death for years. They may not know where the property went, and especially if the debt is small; it may not be worth their while to track down the new owners and try to collect. Most people don’t need to worry that after their death, creditors will line up to collect large debts from the estate. In most situations, the surviving relatives simply pay the valid debts, such as monthly bills, taxes, and medical and funeral expenses. But if you are concerned about the possibility of large claims, you may want to let your property go through probate. A creditor may look to non-probate assets to pay debts. This may happen if there is an indication that the assets of the decedent were large and if there was a transfer of money in order to avoid the debt. Creditors employ several methods to force their debtors to pay them, including the use of property liens. A creditor’s property lien results from a money judgment that the creditor convinces a court to grant. With a judgment in hand, a creditor can attach a lien to the property of a debtor, including any homes. Creditors can even place property liens on a deceased debtor’s residence if allowed to do so by the courts.
Property Liens
A deceased person’s house is like all other property of that person and a deceased person’s creditors sue the estate, not the person. Liens are notices attached to a debtor’s property informing the world the debtor owes the creditor money. Property liens prevent the sale, transfer or refinancing of the properties to which they’re attached until the lien is paid or dismissed. Inheritors receiving a deceased person’s home may have to settle any existing liens so that they can transfer the home’s title to their names. However, California law makes an allowance for immediate family members who were supported in whole or part by the deceased to file for an exemption to attachment liens.
Post-Death Liens
The most common type of lien that attaches to a deceased person’s home is the silent lien. A silent lien is usually created as a result of a federal gift or estate taxes and can attach to all property in a deceased person’s estate without notice or filing. Federal gift and federal estate tax liens are enforceable for ten years. Almost all other property lien must result from creditor lawsuits brought before a court having jurisdiction.
Creditor’s Representative
Though one of your creditors can open your probate estate, the court might not permit the creditor to act as the representative of your estate. Since your estate’s representative has the power to approve or deny creditor claims, the court could decide your creditor has a conflict of interest and therefore should not have the power to control your estate. Instead, the court can appoint a friend, family member, attorney or other appropriate representative. Creditors, and legal counsel representing them, need to be well-versed in the claims procedure of estate when a debtor dies.
Creditors should also keep track of debtors and guarantors, probably on more than an annual basis. Without knowledge of the rules for filing claims in probate estate, or without even knowing that a debtor or guarantor is deceased, the ability to collect on a debt or guaranty can be lost with no ability to file or revive a claim for payment. Claims can be filed as actual claims or contingent claims. An actual claim would be when an amount of money is actually due and should be paid. A contingent claim typically arises when a debt is being properly serviced but the claim needs to be filed to protect a guaranty given by a now-deceased guarantor. The debt on such a guaranty may not be accelerated or due and owning but could be in the event of default. In such cases, the claim would be contingent but still needs to be filed to protect the guaranty and force a replacement guaranty or refinance of the debt.
Time span for Creditors to Make Claim
Creditors in search of payment must present their request in writing during a prescribed time frame, which varies from state-to-state. For unsecured debts, the time limit ranges from 3-6 months in most states. State laws require executors to post notice of the death, either in a newspaper or directly to known creditors to give them a chance to file a claim. No claims are accepted after the time frame has expired. It is not unusual for debt collectors to use the same tactics they are infamous for – badgering, harassing and intimidating – on relatives of the deceased, hoping somebody caves in and pays the debts. All they care about is the money. Executors and family members can block debt collectors from harassing them by sending them a cease and desist letter or hiring a lawyer and directing all calls to the law office.
One of the clearest situations in which you may have to pay a dead relative’s debt involves co-signing. If you have ever co-signed a loan or other credit for that person, you may have financial responsibility. Other situations involve people who live in states that have more far-reaching rules on debt collection for assets, known as community property states. In addition to the above, you may have to assume a dead relative’s loan if you also are receiving the asset attached to the loan.
Exceptions to the Rule
There are several circumstances in which you or members of your family are responsible for a decedent’s debt:
• Joint Debts: Joint debts, which are debts owned by two or more people, are the responsibility of both the estate and the surviving debtor to repay. Creditors do not have to wait to go through the probate process to collect the debt from you because you are just as responsible for the debt as the deceased borrower (the joint account holder), the creditor can come after you for the debt without waiting to go through the probate process even if there is enough money in the estate.
• Filial Responsibility Laws: One of the more rarely encountered and potentially troubling exceptions to the general debt after death rule comes in the form of filial responsibility laws. Also known as “filial support” or “filial piety” laws, these are state laws that make it possible for creditors to pursue a decedent’s relatives if the decedent left behind medical debt and was unable to pay it. Though these laws differ between states, they allow care providers such as assisted living facilities and nursing homes the ability to sue relatives for debts of deceased relatives, even if the surviving relatives played no part in acquiring them.
• Administrator Negligence or Misconduct: In general, an estate administrator, executor, or personal representative does not have to use his or her own money to repay any estate debts. The administrator has a responsibility to manage the estate and use estate money to pay valid debts, but does not have to pay those debts out of pocket. Furthermore, the administration and management of an estate through probate can be a lengthy and difficult project, requiring a lot of time and work. Administrators are typically entitled to compensation for their efforts, and are paid through the estate.
Probate Attorney Free Consultation
When you need legal help for probate, estate administration, wills, trusts, etc., please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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— Tim Cella (@TimCella2) October 10, 2022
