In the last installment of our series on probate, we discussed the filing of the inventory, or the listing of all the assets that were present at the time of the individual’s death. Once the personal representative/executor has taken control of everything, we are in a mandatory waiting period. This does not mean that the personal representative can not conduct business, rather it is a time period for them to conduct business, including dealing with any bills/creditor issues.
Almost always, a person has some outstanding bills as of their death. Sometimes, these debts can be substantial (perhaps even greater than the value of their assets), and other times it may just be the final utility bills and medical bills for the month of their death. One of the important jobs that the personal representative/executor has to handle is determining what creditors must be paid, should be paid, may be paid, or should not be paid. The personal representative has a lot of latitude in determining how to deal with creditors, but their decisions can be scrutinized by the other heirs and/or the Court. Some creditors, like a mortgage on a house that clearly has equity, need to be paid. If they are not, then the interest/penalties, etc. are still added to the loan. Ultimately, the bank could foreclose on the house. Basically, there is nothing positive that can come from not paying this type of creditor. Others, like credit cards, have a decent likelihood of not properly enforcing their rights as a creditor, and the administrator may very well be able to avoid paying this balance- even if it is several thousand dollars.
Creditors have one remedy to require payment- they must properly file and present a claim in the probate court, and they must file the claim timely. Filing a claim is not a difficult process, it is basically a one page form that anyone who feels they are owed money completes and submits to the Court. Once this is done, the Court will not let the estate close until this creditor is dealt with in some manner. If the personal representative/executor feels that this is a valid debt, they can voluntary pay it, and then the creditor must file a satisfaction with the Court. If the personal representative/executor does not feel that the debt is valid, they can set the claim for hearing. At the hearing, the burden is on the creditor to prove that they are owed money. In the case of credit card companies, they almost never show up at the hearing, and their claim is dismissed. If they were to show up, they would need to be able to produce the signed cardholder agreement (that may have been executed several decades earlier), plus proof of the purchases made that makes up the debt.
The mandatory waiting period is six months from when the estate was opened (technically it is six months from the first publication in the newspaper, which usually happens a few weeks after the estate is opened). During that time, in addition to dealing with creditors, the administrator should be selling the real estate, consolidating the accounts, getting the insurance proceeds, etc. Once the administrator feels they have everything dealt with, they can begin to close the estate, if the waiting period has elapsed. It is not unusual at all that the period has elapsed, but there is still business to conduct (such as if the house hasn’t sold yet). This is done by preparing an accounting, which is a summary of all the income and expenses since the death. This report starts with the Inventory values, and explains all discrepancies since that time. For instance, if the house was listed on the Inventory as being worth $150,000, but only ended up selling for $135,000, that would be explained. The purpose of this accounting is to give both the heirs and the Court the ability to see what the personal representative/executor has done, and to raise any objections they have at that point. Assuming there are none, then at the end of the accounting is a proposed distribution schedule. All of the heirs will sign off on this, and the estate can close, and checks can be cut to each of the heirs. If an heir had an objection, the personal representative/executor would set the matter for hearing, and the Court can decide if the administrator handled the issue correctly, or if they did breach their duties. If a duty was breached, the administrator can be compelled to make the estate whole. In my office, this is also typically where the personal representative and my office will be paid their compensation pursuant to the fee schedule we discussed a few posts ago (typically about 3% of the estate).
In our next (and last) post on probate, we will go through some of the tax issues facing a probate estate.