{Read in 4 minutes} Every now and then someone will come into my office who has spent a significant amount of money on behalf of a person who is now deceased. Perhaps this person paid for the funeral expenses, or maybe they made a loan to the deceased during his lifetime and he did not survive long enough to pay it back (hopefully the person sitting in my office is not a loan shark who’s the reason that the debtor is deceased – that would probably take a different kind of attorney!). What rights do these people have and what steps should they take to enforce these rights?
Most lawyers will tell you that when a person dies, their Estate is subject to the rights of various creditors before any funds are distributed to the beneficiaries of the estate. Claimants are put into three different categories:
– Funeral: The first is people who laid out for the funeral, burial, or cremation expense. Why do they get paid first? Is it because we want to encourage people to properly dispose of the remains of the deceased, rather than putting them out on the curb on trash day? That may be a crass way of putting it, but it demonstrates the compelling public policy reason behind prioritizing this expense.
– Expenses of administration: This would include things like appraisal fees, accountant fees, lawyers fees, etc. If a person sitting across the desk from me has provided these fees or services on behalf of an Estate (or laid out for their cost), they are entitled to get paid back second.
– Debts of the deceased: This could be anything from a mortgage on a piece of property, to student loan debt, to unpaid taxes, to a judgment for a person’s unpaid credit card. If a person is a creditor of the Estate, New York State law provides them with a period of time during which they must present their claim to the Executor of the Estate. This period runs from seven months after the court appoints a fiduciary of the Estate (generally seven months from appointment, not seven months from date of death).
Creditors who know that their debtor is deceased should periodically review the records of the Surrogate’s Court to determine whether or not the Court has appointed a fiduciary of the person’s Estate. As soon as the creditors know that a fiduciary has been appointed, they should serve a verified claim upon the fiduciary with details as to the basis of the claim, such as the invoices, the note signed by the deceased, etc. This is a legal document that would be best prepared by an attorney. Debtors should also file it with the Surrogate’s Court after serving it upon the Executor.
Why is this important? Generally speaking, the Executor of an Estate manages the assets of a deceased person for a limited amount of time, usually between nine to 24 months, during which they are collecting assets, paying bills, and distributing out to the beneficiaries. The Estate will not stay open forever, and it’s important that creditors make themselves known so that the Executor doesn’t give away all of the money before paying their claim. That seven-month period protects both the Executor and the Estate’s beneficiaries. If the Executor has no actual knowledge of the creditor’s claim and the creditors don’t file claims within that seven-month period, the Court generally cannot hold the Executor responsible for distributing the Estate without paying the creditor’s claim. However, if the Executor did have actual knowledge of the creditor’s claim during the seven-month period and distributed the Estate anyway, the Court can order the Executor to pay the creditor’s claim from the Executor’s own personal funds.
It is important that both creditors and Executors discuss their legal rights with their attorneys. Even if a genuine dispute exists concerning the validity of the claim, early notice and communication can lead to settlement or an expedited proceeding for the Court to determine the issue.
By the way, I have also explored the other side of this topic in this blog: do beneficiaries inherit the debts of the deceased and the obligation to pay? Check it out if you’re curious.
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