If you have recently lost a loved one, the last thing you likely want to deal with are calls from creditors. Unfortunately, however, creditors do have a vested interest in finding out what is going on when a borrower or debtor dies because there are specific steps the creditor must take to preserve its claim against the decedent’s estate. If you are handling the probate of the estate, you are likely wondering “How are debts of the decedent handled during probate?”
Probate is the legal process that follows the death of an individual. Because almost everyone leaves behind assets when they die, the law has developed a process by which those assets are identified, located, valued, and eventually passed down to beneficiaries or heirs of the estate. This process is known as probate. During the probate process, creditors of the decedent are also allowed to files claims against the estate. Shortly after probate is opened, notice must be given to potential creditors of the estate through publishing notice of probate in a local newspaper. From that time, creditors have a specific time frame within which they must file a claim against the estate or the claim is forever barred. In most states, including Missouri, the time frame is six months.
The Executor/Personal Representative (PR) of the estate is charged with reviewing claims submitted by creditor and determining if they are valid or not. When an estate has sufficient liquid assets to pay all approved creditor claims the Executor/PR does so at the end of the six month period. Assets cannot be transferred to beneficiaries prior to payment of all creditor claims. Doing so can subject the Executor/PR to personal liability for the unpaid debts.
If the estate lacks liquid assets, estate assets will likely have to be sold to pay creditors. If the estate still does not have sufficient assets, claims are prioritized as follows:
3. Unsecured debts (credit cards, utilities bills, personal loans)
State law will also determine what, if any, assets are exempt from the claims of creditors. Most states exempt at least some equity, if not all, in the decedent’s homestead. The exception to this is when the creditor is the IRS.
If you are the Executor or PR of an estate you would be wise to retain the services of an experienced estate planning attorney to ensure that you do not make a mistake when reviewing or paying creditors of the estate.
If you have additional questions or concerns about creditor claims, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.