What Do You Mean the Estate Has To Pay Claims?
By Susan F. Harville-Stein, LCSW and Dean D. Stein, CMA
Hard as it is to fathom, while you can't take “it” with you, unfortunately your creditors will continue to pursue “it”! Yes, an estate has to face a deceased (known as decedent) person's creditors. In fact, when an estate is opened, the estate must remain open for at least six months, as this is generally the “claims period”. During this six months, creditors who did not have their accounts satisfied during the life of the decedent, have the opportunity to file a claim for remaining amounts against the assets of their estate. This is done by filing a verified claim with the court.
How do creditors find out about the estate? First, when the estate is opened, the opening of the estate and information on where the estate is being probated must be published, called notice by publication. Second, you are going to tell them! It may be a surprise, that the Personal Representative, also known as Executor, Executrix or Administrator, must send notice to the known creditors of the decedent “as soon as practical” after the creditors identity is known. This must be done by first class mail, to their last known address, or by other method that can be “reasonably calculated” to provide actual notice. This must be provided to all persons, firms, and corporations having claims against the decedent. We would suggest use of certified mail with a return receipt. This creates an obligation on the Personal Representative to give notice to known creditors as well as those that can be “reasonably ascertained.” Claims must then be presented by creditors within six months after the grant of Letters of Administration or Letters Testamentary, or within five months of the date of the first publication of notice, whichever is later. However, in either case, a creditor entitled to actual notice must be allowed thirty days after notice within which to file the claim.
Well, they filed their claim, now what? The Personal Representative can dispute any claim, by giving notice in writing to the claimant that the claim is being disputed in whole or in part. Either the Personal Representative or the claimant can file with the court to have the court pass judgement on the validity of a claim.
When it comes time to pay remaining valid claims, the Personal Representative may pay claims before the end of the six month claims period, but the better practice may be to wait until the expiration of the six month period, because it may not be possible to determine the number of claims to be filed against an estate during the six month claim period. However, after the expiration of the six-month period, the Personal Representative is protected to the extent of payment of claims from any other creditor of the estate, which has not been presented at the time of payment. When a Personal Representative pays a claim, they should require the creditor to execute a satisfaction of the claim, which should then be filed with the court.
The court will not approve a final settlement of an estate until all claims shown on the court docket are settled.
Dealing with claims is a very important issue and can be a little tricky, and several legal concepts, rules and requirements applying to claims overlap and must be given due considered. It may be best to seek guidance of your probate attorney in how to best handle the claims process in any estate in which you are the Personal Representative.
This article is generally based on Alabama law, the law of your state can vary widely. This is not intended to constitute, nor should be taken by you as legal advice and is not intended and does not create an attorney/client relationship.
Susan F. Harville-Stein, LCSW, is an attorney at law. Ms. Harville-Stein is also a Licensed Certified Social Worker, with a Masters degree in Social Work.
Dean Stein, CMA, is an attorney who has a Masters degree in business and is a Certified Management Accountant (CMA).