Creditor Claims on an Estate

An estate plan refers to a document that dictates how your estate will be managed and distributed when you die. Your estate could consist of your personal items, bank accounts, real estate, stocks and securities, and other assets.

In addition to determining the distribution of your estate, an estate plan could also include:

• How you wish to receive medical treatment should you become incapacitated and cannot speak for yourself;
• If you are an organ donor;
• Who will make legal and financial decisions on your behalf should you become incapacitated;
• Who will care for your minor children;
• Who will take over your business interests; and
• Any funeral arrangements you have already made.

An estate attorney can assist you in drafting your will, trust, power of attorney, or other necessary legal documents to ensure the protection and distribution of your estate. Although all estate plans will be different due to the needs of the estate owner, some of the general elements of a successful estate plan include:

• Your family understands your wishes in order to minimize legal disputes;
• Language that clearly states your wishes, to clarify any other vague documents;
• A will that transfers your property to your named beneficiaries, as well as appoints a legal guardian to care for your minor children;
• A healthcare directive that clarifies end of life treatment and other important medical decisions; and
• A financial power of attorney to make important legal and financial decisions in the event you become incapacitated.

What Is an Estate Executor?

Part of estate planning includes appointing a person who manages the estate and ensures that all property is distributed according to your wishes. This person is known as the executor of the estate and has several duties to fulfill their role:

• Notify financial institutions as well as governmental institutions of the person’s death;
• Using the funds from the estate to pay any ongoing or outstanding expenses;
• Pay off debts and taxes;
• Create a bank account for money owed to the decedent, such as paychecks and stock dividends;
• Make arrangements for any necessary probate proceedings;
• Determining who inherits what property;
• Distributing property whenever possible;
• Finding and managing the decedent’s assets during the probate process; and/or
• Supervising the distribution of property and other assets to the beneficiaries noted in the will.

What Sort of Claims May Be Brought Against My Estate? How Will These Claims Be Brought?

Should any claims be brought against an estate, its personal representative will handle them. A personal representative could be the estate’s executor, a trustee, a beneficiary, or another appointed representative. There are several different claims or demands for payment that may be brought against an estate.

If the estate has the available assets to pay for these claims, they are generally paid in the following order:

• Costs and expenses of administration;
• Reasonable funeral expenses;
• Debts and taxes with preference being given to those required by federal law;
• Reasonable and necessary medical and/or hospital expenses or payments to the people who assisted the decedent;
• Debts and taxes as required by individual state laws; and
• All other claims that may be brought against the estate.

The claimant will receive nothing if the estate’s money is depleted before a specific claim is paid out. Additionally, any claims that may arise at or after the estate owner’s death will not be honored.

The claimant, or the person who is seeking an interest in the estate, will generally mail their claim to the estate’s representative. The claimant will also need to file their claim in court. The following should be included in their claim:

• What their claim is for specifically;
• Who the claimant is; and/or
• When the claim is due if that due date has not already expired.

The claimant may take court action against the estate’s personal representative for debt collection. From there, the personal representative must be informed of the claim within a specific time period, or else the claimant will be unable to collect. These periods vary with each state’s estate law. The court may order an extension to allow the claimant more time to collect in some cases.

An estate’s personal representative can respond to a claimant with a written notice of disallowance of the claim. Claimants typically have sixty days within receiving the claim to respond. Next, the claimant may then petition the court to order payment of the claim.

What Does a Creditor Claim Mean for a Beneficiary to an Estate?

Creditors must file claims against an estate within a specific time period, or the claim will be barred forever. If a deceased person owes you money, you must pursue the claim. Payment of debts is made before inheritances are paid out. This reduces an estate’s total value.

What is the Time Frame for a Creditor to Make a Claim Against an Estate?

Each state limits the time for creditor claims. For example, some states provide creditors with one year after a person’s death to make a proper claim against the estate. These time limits exist so an executor can eventually distribute inheritances free from potential later claims by unknown creditors.

How is Debt Paid Off?

Estates are responsible for paying the deceased’s debts and claims. After an estate is converted to cash, all debts are paid off first. Claims against a deceased’s estate are categorized into:

• Funeral and burial expenses
• The surviving spouse’s or child’s award
• Debts to the United States of America
• Reasonable and necessary hospital, nursing home, and medical expenses and bills
• All other claims

After any other claims against the estate are settled, the remaining assets get distributed to the heirs.

Is There Any Advice for Fiduciaries?

Experienced, professional fiduciaries often hire experienced estate planning attorneys to advise them. As a fiduciary, you have the legal right to obtain an attorney to assist and advise you. There is no personal cost to you because estates or trusts pay the fee to obtain expert advice. Going without an attorney is foolish because a chance for personal liability exists.

Fiduciaries should not use estates or trust assets for personal gain. Decisions need to be free of conflict and self-righteousness. Sometimes, what constitutes personal gain and what is best for the beneficiaries becomes blurred. When the lines are unclear, seek the advice of an experienced estate planning attorney. A lawyer can help to ensure your actions will not create personal liability.

Do I Need an Attorney for Creditor Claims On an Estate?

As previously mentioned, an estate attorney can assist you in drafting your will, trust, power of attorney, or other necessary documents to ensure the protection and distribution of your estate. If you are the personal representative of an estate, or if you would like to ensure that any claims brought against your estate will be properly settled, you should also consult with a skilled and knowledgeable estate attorney.

Consider searching through LegalMatch’s large database full of experienced estate planning attorneys. If you need to hire an excellent estate planning lawyer in your area, use the link here. LegalMatch’s services will help you navigate your search for a lawyer in your area by allowing you to choose the specific issues involved in your case. LegalMatch is a unique service because there is never a fee to present your case, and the lawyers presented will be from your state or city. Lastly, LegalMatch’s service is always 100% confidential.