Question: If someone dies, how do his creditors get paid?
Answer: Death is not generally a good method for avoiding creditors. In addition to the obvious disadvantage, Florida statutes credit procedures under which creditors may make claims against a decedent’s estate. Under the statutes, creditors must pursue claims within a limited period of time.
Claims against a decedent must generally be filed in probate. Probate is the court administered proceeding through which a decedent’s assets are gathered, bills paid and the remainder distributed to the decedent’s heirs or beneficiaries. Claims in probate must be filed within three months after notice of probate is published in a local newspaper or thirty days after the creditor is served with actual notice of probate by the personal representative. Actual notice is required to be served on all creditors who are reasonably ascertainable.
All claims are barred if not filed in probate within two years of a decedent’s death. That creates potential problems for many creditors.
The two-year limitation on filing claims supersedes the statute of limitations that might otherwise be applicable. That is one indication of the legislature’s intention that creditors move with dispatch and that affairs of the decedent be brought to a prompt conclusion.
The other indication of this policy is the broad scope of claims that must be filed or lost. A claim must be filed if it is due, is not yet due but will become due in the future, or is even contingent on some other occurrence. Claims for funeral and burial expenses must be timely filed. Claims for breach of contract, fraud or other wrongdoing by the decedent are also within the Statute. A claim must be filed even if there is an ongoing lawsuit against the decedent at the time of death.
To be sure they get notice of probate, the statutes have procedures for filing notice of the existence of a creditor with a court prior to commencement of probate. That filing is known as a caveat.Once the caveat is filed, the court is required to provide the creditor with notice if probate is opened.
Probate is not opened automatically.If the decedent’s family delays or if there is simply no one interested in opening probate, a creditor will have no place to make a claim. Probate may be avoided even where the decedent had a lot of money, as when the decedent has transferred all assets to a revocable trust.Assets in a trust do not have to go through probate and such trusts are often used to avoid the expense and delay of probate. Florida statutes have no provision for a decedent’s creditors to make a claim directly against a trust.
Florida statutes used to require a trustee to publish notice in the newspaper just like probate and attempted to create a procedure for creditors to make claims directly against the revocable trust of the decedent.The procedure was cumbersome and added additional expense. The current law requires the trustee to file a notice of trust with the court of the county of the decedent’s domicile and, if different, the court having jurisdiction of the decedent’s estate.
The clerk is required to send any creditor who has filed a caveat, a copy of the notice of trust That lets the creditor knows that a decedent died with a revocable trust.That also lets the creditor know that the revocable trust probably has assets.
The significance of these procedures lies within other provisions of Florida statutes that require the trustee of a decedent’s trust pay to the probate estate enough to satisfy claims and expenses of probate if the probate estate is inadequate.So, even though a creditor cannot file a claim directly against the trust, by pursuing its claim in probate, it can force the legal representative of the probate estate to get assets from the trust to pay the bills.
The creditor cannot wait longer than two years after the decedent died to file a claim. Since the creditor can only pursue claims within two years of the decedent’s death, it can be good strategy for the family to avoid filing for probate until more than two years have passed. However, the family or persons appointed by will are not the only parties that can start probate.A petition opening probate may be filed by any interested person.
An interested person is defined as anyone who may reasonably be expected to be affected by the outcome of the particular proceeding involved. Since a creditor can be paid or barred by a probate proceeding, a creditor is an interested person entitled to start the proceeding. That means a creditor need not wait to see if the family will open probate. The creditor can protect itself by opening probate if it feels that the decedent had assets with which to pay its claim or the decedent established a trust that has assets.
People owed money by a decedent often conclude they will never be paid when the debtor dies and probate is not opened. Because the opening of probate can be intentionally delayed, and because modern estate planning increasingly utilizes the revocable living trust, a creditor simply waiting to get paid may very well get nothing.If someone dies owing you money, you are well advised to discuss the situation with an experienced attorney at your earliest opportunity.There may be plenty of money to pay a debt, but if the creditor fails to use the key of opening probate, that money may never be applied to the debt.