10 Feb Probate – Notice to Creditors – Part 2
Probate – Notice to Creditors – Part 2
By: Barry E. Haimo, Esq.
March 12, 2014
Please read Notice to Creditors – Part 1 first if you have not already done so.
You hopefully learned from prior posts that Probate is definitely something worth investing money to avoid; at least most of the time. Sometimes, however, there are benefits, which should not be overlooked. In particular, the previous post highlighted the importance of notice to creditors as a means of reducing how much creditors receive out of the estate assets. This post is aimed to further explain how the notice to creditors works.
In probate or estate administration, the personal representative or executor, has a fiduciary duty to administer the estate properly. They are charged with identifying and gathering assets, identifying creditors, giving proper notice to creditors, paying creditors, settling all estate debts and ultimately distributing the assets to the appropriate beneficiaries. Remember, the proper beneficiaries are determined by your state statute or by your last will and testament or other instrument. If by statute, In Florida, the assets will pass by a mechanism called “Per Stirpes.” (Read more on this here.) In contrast, if you have a will, trust or otherwise planned to avoid probate using other instruments or retitling assets, you are exercising your right to choose. Congratulations, that’s a major step forward. In either case, the personal representative or executor’s only job is to administer probate assets, or assets that are solely in the deceased’s name alone. (The deceased is often referred to as the “decedent”).
(Stay tuned for the next few posts to learn about how – with exceptions – death severs a decedent’s future liabilities.)
The notice to creditors can be advantageous in many situations where there are existing known or unknown creditors of the deceased. As indicated in the previous post, the personal representative or executor must make a reasonable effort to discover creditors. Known creditors receive notice of the pending estate directly from the personal representative. The notice contains instructions for how to satisfy their debt from the deceased. Unlike known creditors unknown creditors receive their notice of the pending estate via publication. It is assumed that creditors check newspapers for this very purpose. Notice to creditors in either manner starts a clock for creditors to enforce their claims against the deceased. Probate or estate administration effectually condenses their window of time to recover on the decedent’s debts from two years to 90 days. This represents one of the two benefits of probate (the other benefit is the structured procedure and oversight required by probate or estate administration).
To dive deeper on the benefits of the notice to creditors, on one hand, sometimes, creditors will not file a claim or fail to file the claim on time (not timely). In both cases, the creditor is barred from recovering from the estate and its beneficiaries forever, unless the beneficiaries assumed the liability or liabilities. On the other hand, if the creditor does timely file a claim, it’s good practice to object to the claim and force the creditor to fight. Fighting requires time and therefore money. Sometimes the creditor fails to timely respond to the personal representative’s or executor’s objection. Other times, the creditor will accept pennies on the dollar to walk away. In either case, the estate assets are preserved and even maximized by just exercising good prudent decision-making. The bottom line here is not to immediately pay creditors upon a family member’s or friend’s death. The family of the deceased may need the money so the stakes are high. Let the probate or estate attorney do his or her job and maximize your interests.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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Originally posted 2014-03-12 09:30:50.