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For a person writing his or her will (known as a testator), an important consideration of estate administration is to appoint a trusted friend or family member to handle the affairs of the estate after the death of the testator. This trusted person is known in Michigan as a Personal Representative. The Personal Representative was formerly known in Michigan as an Executor (male) or Executrix (female).
The Personal Representative has many duties and obligations to the estate administration of the deceased. The estate may include personal property, real estate, vehicles, heirs, devises, and liabilities such as debt in the form of loans, mortgages, credit cards, etc. All of these things will include time deadlines in which notice must be given to all persons legally entitled to the estate.
This section will focus on the duty of the Personal Representative to handle claims against the estate. Once a person has been appointed the Personal Representative (PR) of a decedent's estate, one of the very first things a PR must do after filing the will and getting letters of authority from the court, will be to publish a notice to creditors. This is the single most important duty of the PR in estate administration.
This is not the same as publishing an obituary in the local newspapers. A notice to creditors is published in a legal newspaper in the county of residence of the decedent. An example would be, The Oakland Legal News or The Detroit Legal News. This publication of the notice of the death of the decedent starts a 4 month clock ticking.
This 4 month clock is the time frame in which a creditor, who may have a claim for repayment of a debt, must file a claim against the estate in order to prevent being barred from collecting the debt. In other words, this publication period is a four month statute of limitations also known as S.O.L. and the common vernacular interpretation of SOL applies here. This four month notice period is very important to estate administration because in Michigan, unsecured debt that is a result of a contract, such as loans, and credit cards, has a statute of limitations of 6 years. So, from the time the last payment is made on a loan or credit card, if a debtor defaults on the debt, the creditor can take up to 6 years and still file a lawsuit to collect on the debt.
However, once a debtor dies and the PR publishes a notice to creditors, the creditor has only four months in which to file a claim against the estate or be forever barred from collecting the debt or a portion of it. Note that I have specifically left out mortgages (secured debt) because most people leave real estate to their children and the heirs take the real estate subject to the mortgage. If the heirs default on the mortgage, the mortgage company will just foreclose on the property and take it that way outside of the probate process.
As a general rule, if a creditor makes a claim within this four month estate administration notice period, the claim will be considered made "timely" and the PR will have to deal with it one way or another if the court "allows" the claim. However, if a claim is not made timely, meaning after the four month notice period, then the claim can be "disallowed". You just tell the creditor's representative, "sorry, you missed the claims period, now please go away." You might be amazed at how often this really happens.
There are some creditors that are too big or too lazy or disorganized to file claims in a timely fashion and this causes them to lose their claim against the estate.
What is a claim? Like so many other things legal, there is a statute that defines a claim. MCLA 700.1103(g) states: "Claim" includes, but is not limited to, in respect to a decedent's or protected individual's estate, a liability of the decedent or protected individual, whether arising in contract, tort, or otherwise, and a liability of the estate that arises at or after the decedent's death or after a conservator's appointment, including funeral and burial expenses and costs and expenses of administration. Claim does not include an estate or inheritance tax, or a demand or dispute regarding a decedent's or protected individual's title to specific property alleged to be included in the estate.
There are a number of different types of claims that can be made in the course of estate administration against the estate:
- Costs & Expenses of Administration. This claim includes the associated costs of administering the decedent's estate such as attorney fees, fiduciary fees, accountant fees, appraiser fees, investment advisor fees, and any other fees for "specialized agents" or assistants to the PR. These fees can be reviewed by the court to ensure that they are reasonable under the circumstances.
- Funeral & Burial Expenses. The most common cost associated with estate administration of a decedent's funeral and burial are cremation or burial including casket or urn, mortuary services, grave plot & marker or headstones.
- Taxes & Deficiencies. A decedent's tax obligations survive his or her death. These taxes include income, estate and inheritance taxes as well as any tax deficiencies the decedent owed while still alive.
- Medical & Hospital Expenses. These claims are for the treatment for the decedent's last illness. The claims include doctor fees, hospital charges, laboratory charges and medications.
- Secured Claims. Mortgages and liens on real estate.
- Unsecured Claims. Credit cards, loans.
- Claims based on Torts. This category may include a claim against the estate if the decedent died in an accident that was his or her fault and a plaintiff may sue the estate for injuries sustained in the accident. (A "tort" is a lawsuit for damages resulting from negligence or other legal theory).
As a general rule, most creditors will present a claim against the estate by delivering or mailing a written notice to the PR or by filing a statement with the probate court. The claim must indicate the basis of the claim, the claimant's name, address and amount claimed.
A personal representative may seem as though he or she is acting as an accounts payable manager, but in reality, the PR will not pay any claim until it is "allowed" by the court. A PR should not feel obligated to allow every claim and, in fact, proper estate administration should include scrutinizing each claim to see if it should or should not be paid.
Important to remember: a PR who pays a claim before the expiration of the claims period or makes a payment in disregard of a creditor's priority over other creditors, can be found personally liable if the estate becomes insolvent because the PR made payments prematurely and the court later allows a timely made claim by a creditor and there is no money left to pay the claim.
All persons making their will should choose their personal representative carefully and ensure that person is up to the task of estate administration. If you are asked to be the personal representative in a person's will, make sure you are willing to accept the responsibility of overseeing the testator's estate and all the work it involves. Hiring an estate planning attorney with a practice in probate can also make the job much easier and the fees can be paid from the estate funds.