Q: How are creditors’ claims against estates handled?
When people think of estate planning, they often think about what assets they have and who they want to leave them to after they are gone.
Similarly, when beneficiaries think of estate administration, they may focus on what money and property they are going to receive—and how fast they’ll get it.
Many people don’t realize that before an estate’s executor or administrator can distribute any money or property to beneficiaries, they have to consider and pay any creditors for valid debts and claims made against the estate in a timely and proper manner. Failure to do so before distributing assets to beneficiaries may result in the executor or administrator being held personally responsible for the debt as a result of breaching their fiduciary duty.
Who are creditors of an estate?
Anyone who the decedent owed money to before they died is a potential creditor of the estate. Common examples may include:
- credit card debt
- mortgages or bank loans
- medical bills
- personal loans
- car loans
- personal loans
- business debts
- unpaid matrimonial obligations pursuant to divorce
Can creditors’ claims be disputed?
Creditors have an obligation to properly and timely present their claims against the estate. This is due, in part, to allow for the processing, administration and closing of an estate without unnecessarily lengthy delays. If the creditor files too late, or doesn’t file a claim in accordance with the state’s statutory requirements, the claim may be rejected and may not get paid. Claims can be disputed on other grounds as well.
State laws differ but generally, the time period begins to run from the date the Surrogate’s Court issues Letters Testamentary to an executor or Letters of Administration to an administrator (or Temporary or Preliminary versions of same) and ends some months later. For example, creditors against a New York estate must submit their claims in writing within seven months, satisfying additional statutory requirements as well.
Creditors should be mindful of the deadline to file a claim as an executor or administrator without knowledge of their claim may distribute estate assets to beneficiaries after the creditors’ time to file claims period has passed.
If you need assistance with an initial estate plan or with an estate administration the estate attorneys at Merlino and Gonzalez can help you. Contact us today to schedule a consultation.
From our offices in Staten Island, New York and East Brunswick, New Jersey, we represent clients in both states in all aspects of estate planning and estate administration.