Giving Notice to Creditors Best Defense

When someone acts as the Executor of a probate estate or the Successor Trustee of a trust, they often focus on the ultimate beneficiaries of the will or trust.  The Executor or Trustee tends to be concerned about whether a beneficiary will object, or how quickly they can distribute to a beneficiary in need.  While certainly valid concerns, you should not overlook the creditors of an Estate.

When someone passes away, they will owe money to someone.  Sometimes it is as simple as the last month’s utility bills.  There are also usually bills owed from the last illness, like medical or funeral expenses.  There may be larger debts owed such as credit card bills and the mortgage.  Just because someone has passed away does not mean that these debts can go unpaid.  Indeed, the assets of an Estate must be used to pay the last bills of the deceased person.

An Executor or Trustee is not personally responsible for the debts of the deceased, unless the Executor or Trustee guaranteed the debt (such as a co-signer for a mortgage).  The Executor or Trustee has a legal obligation to use the deceased’s assets to pay outstanding bills.  If an Executor or Trustee fails to pay known creditor’s bills when there were assets in the Estate to pay that bill, then the Executor or Trustee could be liable to pay that bill him or herself.

When someone passes away, a creditor has up to three years to go after the deceased person’s assets in order to have those assets used to satisfy the bill.  However, that time can be cut short by simply giving notice to creditors.  By mailing notice to known creditors and publishing notice in the newspaper, the Executor or Trustee can force creditors to file a claim for payment within 60 to 90 days.  If the creditor fails to timely file, then their claim is forever barred by statute.

Sometimes, the claims filed by a creditor can be more than the total assets in the estate.  When that happens, state law provides an order of priority for payment of claims.  For example, an allowance to the surviving spouse and family takes precedent over other claims, and payment of taxes over certain other claims.  These priorities give clear guidance on which creditors to pay.  If an Executor or Trustee fails to honor the statutory priorities for payment of claims then he or she may become personally liable for the debt.  When there are several creditors who have the same priority, the Executor or Trustee may need to negotiate between them in order to fairly and justly divide the property among the many creditors.

Creditor’s claims against a deceased person can be very difficult to deal with.  Often the creditors treat the family members or Executor or Trustee in the same inappropriate, unethical, or even illegal, way they would treat the original debtor.  In their collection efforts, the creditors may threaten to take action that is not legally possible.  Just remember in that situation that the deceased’s property stands to pay the debts, and that if you have given the notice required by law, then a creditor must file an appropriate claim within 60 to 90 days to even be able to collect.  The creditor generally cannot go against your personal assets to pay the debt of another.

Giving notice to creditors and properly paying creditor’s claims is an indispensable step to administering any Estate, whether through probate or a trust.  Be sure not to overlook this important step.  By giving notice, it is the best defense an Executor or Successor Trustee has against creditor’s claims appearing out of nowhere in the future.

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