I am getting good feedback from my lecture notes so here are some more. This is also from my 2008 probate lecture to attorneys held at the Sheraton in downtown Sacramento. It was a lecture to a room full of people interested in the California probate process. This section is about creditors. There are ways we can use probate to reduce creditor claims against the decedent’s estate. Using these techniques properly can put more money in YOUR pocket if you are a beneficiary. If creditors are not handled property in a probate you could have PERSONAL liability after the probate ends. Make sure you hire the best probate attorney you can find.
Please contact me with questions about creditor claims or any other facet of California wills, trusts, probate, and estate planning. Also, you can visit our main probate website at www.californiaprobate.info for more information.
I.ADMINISTERING THE ESTATE EFFECTIVELY
10:35 – 11:20 John B. Palley
- How to Respond to Creditors’ Claims
- A creditor shall file their claim within four months after Letters are issued or sixty days after the date notice of administration is given to them pursuant to PC 9100. The claim shall be filed with the Court and a copy shall be provided to the PR (or her attorney). If a creditor had no knowledge of the administration of an estate they can petition the Court, pursuant to PC 9103, to file a claim late. In no instance shall a claim be filed more than one year after death unless there was fraud, or similar, by the PR (Cal. CCP 366.2). A sample creditors claim is attached as Exhibit JBP-5.
- When a PR, or her counsel, receive a creditor’s claim they should take one of 3 actions toward it: accept it, reject it or ignore it. For an acceptance or rejection the same form is used. It should be noted that accepting a claim does not mean the PR will pay the entire claim. Rather it means that the PR accepts the claim has valid and will pay it if the estate is solvent. The allowance or rejection shall contact the following information:
i. The name of the creditor;
ii. The total amount of the claim;
iii. The date of issuance of Letters;
iv. The date of the decedent’s death;
v. The estimated value of the decedent’s estate;
vi. The amount allowed or rejected by the PR;
vii. Whether the PR is authorized to act under IAEA;
viii. Statement that the creditor has three months in which to act on a rejected claim.
The Judicial Council form for allowing or rejecting a claim is enclosed as Exhibit JBP-6.
- By rejecting a claim, or ignoring it, a creditor has 90 days to file an action against the PR. When rejecting a claim there is not a spot on the form for stating why it is being rejected so it’s good practice to add a cover letter or attachment with an explanation. Some reasons to reject a claim would include, but certainly not be limited to: wrong debtor, invalid charges, and the like. In particular, when probating an estate with anything but an unusual name it is good practice to ask for copies of the statements or bills to substantiate the claim. Often the statements or bills are for a totally different debtor!
- If a claim is not rejected within 30 days of filing a creditor may deem the non-response as a rejection and take appropriate action (PC 9256).
- If the claim being filed is by the PR or the PR’s attorney the claim, and form accepting it, must be presented to the Court for approval. This may be done on an ex-parte basis but some Courts may set it for hearing or reject it if they have any doubt as to the validity of the claim or the extent of the assets.
- As soon as the PR has sufficient funds, and has retained sufficient amount to pay costs of administration, PC 11421 requires the PR to pay: funeral expenses, expenses of last illness, family allowance and wage claims. Beyond that it is good practice to wait until all application creditor periods have expired (generally the later of 4 months after letters issued or 60 days after notice sent to creditors) before paying the claims to assure that there are sufficient assets to pay the claims in full. It should also be pointed out that a PR is not required to pay any claim until ordered to do so by the Court.
- In some cases it may be advisable to compromise or settle claims which are made against the estate. PC 9830 et seq. provides the general rules for such settlement but see PC 10552 which allows a PR with IAEA authority to “allow, pay, reject, or contest any claim by or against the estate.” Though the PR with IAEA has authority to do all this, and more, it may be advisable to put heirs and interested parties on notice in cases that may be insolvent, fighting family members, etc…. Additionally, when such a tentative settlement is made it is good practice to state that Court approval may be required.
PRACTICE POINTER: I have had a probate attorney tell me that they reject EVERY single claim that is filed no matter what. Since very few creditors will take action against a rejected claim this type of action does have the possibility of saving the estate money. In this writer’s opinion that would be an ethical decision you will need to discuss with your client.