One of the primary duties of an individual who has been named executor of a will or administrator of a decedent’s estate is to pay the estate’s debts. Creditors have a right to hold an estate or trust responsible for paying its outstanding debts. Those who are owed money should file a creditor’s claim in a timely manner and may litigate if necessary.
An executor, administrator, or trustee charged with closing a decedent’s estate should work expeditiously to settle all claims against the estate. However, all creditor claims may not be paid if the estate or trust lacks sufficient assets to cover the debts. The executor is also required by California law to prepare and file with the court a final accounting of actions taken to settle the decedent’s estate.
If you are the beneficiary of an estate or a trust, you have an interest in its proper administration. Since 2008, Albertson & Davidson has stood up for abused beneficiaries and recovered more than $130 million in verdicts and settlements for our deserving clients. If you think an estate or trust you are to benefit from is being managed wrongly, let us fight for you. Schedule a free consultation today to discuss your case.
Understanding the Administrators’ Role and Legal Framework
In many cases, paying an estate’s debts consists of paying bills, including those routinely sent to the decedent, such as for revolving credit accounts, or those on regular payment schedules, such as a mortgage. However, once a probate case is opened for an estate, creditors have the right to make formal claims against the estate. The estate administrator must respond to these, as well.
When a California estate goes into probate, the estate administrator is required to notify all known creditors. This requires completing a Notice of Administration to Creditors (form DE-157). The form should list creditors and potential creditors who should be notified of the decedent’s death.
A creditor’s claim may be ruled invalid if it is not submitted on the proper form, filed on time with the court, and a copy delivered to the personal representative of the estate or their attorney.
Timelines and Priority of Claims
Once the estate’s representative or the executor receives a claim for payment, they can pay it or, if it doesn’t seem legitimate, dispute it. At that time, it is up to the creditor to file a lawsuit demanding payment of the debt. If the creditor does not bring a lawsuit within the time allowed after the estate has disputed the claim, the creditor loses its ability to collect.
An estate administrator should use a checking account in the name of the estate to pay valid creditor claims and keep a record of these payments. The administrator also has the authority to sell estate assets if necessary to raise money to pay debts. In such cases, the administrator must take steps to ensure they receive fair value for assets sold and keep records of the sales. They should also notify beneficiaries of the estate of plans to sell assets and should work with any beneficiary interested in buying estate assets, as far as is practical, though this is not required.
The administrator of an estate must also set aside funds to pay federal and state taxes and the costs to administer the estate as it is closed out. Debts owed to the federal government and to the State of California take priority over others. California law establishes priorities for additional debt. Next, the estate is to sell any property secured by mortgages, deeds of trust, judgment liens, or other liens to pay these obligations (if there is no co-owner, like a spouse).
Additional debt payment priorities, in order, are:
- Funeral and burial expenses
- Medical bills and other reasonable expenses from the decedent’s last illness or injury
- Family allowances, stipends to parents and adult children who were dependent on the decedent
- Wage claims of up to $2,000 for work done for or personal services rendered to the deceased within 90 days of their death.
- General debts of the decedent, such as credit card debt.
Each category of debt must be paid in order of priority and in full before paying the next. If there is not enough money to pay all the debt within a category, each creditor in the category will receive a proportional share unless a statute directs otherwise. In some cases, if the estate’s assets run out, creditors may not get paid.
Because California is a community property state, the decedent’s spouse will assume liability for debt tied to jointly owned property, such as motor vehicles and real estate. A spouse would also be liable for debt on any of their late spouse’s separate property that does not go through probate.
Some debts are discharged upon the debtor’s death, including student loans, and some assets, such as property protected by a homestead or family allowance or property held in joint tenancy. The executor needs to understand these allowances and other rights afforded to the estate and creditors.
Rights of Creditors Against an Estate
Creditors in California have 60 days from the date on the DE-157 form to file a claim for money a decedent’s estate owes them or four months from the date the estate was opened in probate. Any creditor who fails to make a creditor claim on assets within a year of a decedent’s death is forever barred from doing so in the future.
If the estate runs out of money, creditors have the right to demand payment by attaching assets that do not go through probate. They may be able to collect from trust fund distributions, payable-on-death assets, or transfer-on-death assets.
Talk to Our Experienced California Will and Trust Litigation Lawyers
If you have recently lost a loved one and think their estate is being administered improperly and to the detriment of your financial interests, you should speak to a qualified attorney about your legal options. The lawyers at Albertson & Davidson fight beneficiary abuse by filing trust and estate accounting actions throughout California to demand that courts take steps to make things right.
If you have questions about how a trust or will you are a beneficiary of is being administered, contact us today for a free initial consultation. Albertson & Davidson has offices in San Diego, Carlsbad, Bay Area, Irvine, and Los Angeles, CA. Contact us online or at (855) 928-0542. We stand. We fight. We win.
