Over the course of a lifetime, we all acquire assets and possessions — and most of us also take on debt, in some form or another. What happens to those debts when you pass on? That’s where probate comes in.
One of the most important aspects of the Michigan probate process is receiving creditors’ claims; determining what claims are legitimate; and paying off or settling just debts from the decedent’s estate.
It can be intimidating to think of managing or resolving a decedent’s debts and financial obligations after they’re gone, particularly if you are a personal representative or another fiduciary tasked with guiding their estate through the probate courts.
After a death, it is not unheard of for creditors and debt collection agencies to begin hounding the decedent’s family members in an attempt to obtain payment — adding stress, pressure, and confusion to an already difficult time.
Whether you are planning ahead to make things easier for your loved ones down the line, or you are a personal representative or trustee involved in the administration of an estate, you probably have questions about claims, debts, and final expenses. Let’s explore the ins and outs of handling creditors’ claims and resolving decedent debts during Michigan probate:
Notifying Creditors and Presentation of Claims
One of the first steps in resolving a decedent’s debts is providing proper notice to their creditors, both known and unknown. Generally speaking, this is typically a responsibility of the personal representative.
Upon appointment, the personal representative must publish a notice to creditors in a public venue, such as a local newspaper for the county in which the decedent resided. This notice should include:
- Identifying information for the decedent (including their name, last known address, and date of death)
- Name and address of the personal representative
- Information for the court where proceedings are filed
- Notice that estate creditors must present their claims within four months after the date of the notice’s publication or be forever barred
In addition to publishing this public notice, the personal representative should also send a copy of the notice or a similar writing within four months to all of the estate creditors of which they are aware, as well as to any trustees of the estate.
A personal representative is considered to “know” of a creditor of the decedent if they have actual notice of the creditor’s existence, or if their existence is “reasonably ascertainable” based on the decedent’s available records for two years preceding their death, or any mail immediately after their death. If the personal representative first learns of an estate creditor less than 28 days before the expiration of the four-month time limit, they must give notice within 28 days.
Notice to creditors may not be necessary in situations where the estate has no assets, or if it qualifies for summary distribution as a small estate. It is important to consult with a lawyer to gain a better understanding of the process for administering a small estate in Michigan, including the most up-to-date values for when an estate may qualify for the simplified small estate process.
Broadly speaking, a creditor has four months from the date of publication of the notice to present their claim, or one month from the date they received notice (whichever is later). Failure to act in a timely fashion may result in the claim being barred. If proper notice requirements have not been met, the creditor must present their claims within three years after the decedent’s death.
Broadly speaking, a claimant can present their claims against an estate by:
- delivering or mailing a written statement to the personal representative indicating the claim’s basis, the claimant’s name and address, and the amount claimed, or by filing with the court a written statement of the claim and delivering or mailing a copy of the statement to the personal representative; or,
- by commencing a proceeding to obtain payment of a claim against the estate in a court in which the personal representative may be subjected to jurisdiction. The commencement of the proceeding shall occur within the time limit for presenting the claim.
Generally, a claim will be barred if the statute of limitations had run at the time of the decedent’s death; if the statute had not run out, the running of the statute is suspended for a four-month period following the date of the decedent’s death. A claim that arises after the decedent’s death must generally be presented within four months after the claim arises or the date of publication, whichever is later.
Priority of Claims
Often, the property and assets included in a decedent’s estate will not be sufficient to pay all claims and allowances in full. In such situations, Michigan law instructs the personal representative to make payment in the following order of priority:
- Costs and expenses of estate administration (such as filing fees, accounting fees, attorney’s fees, fiduciary fees, and other administrative expenses for the estate)
- Reasonable funeral and burial expenses
- Homestead allowance (as described under MCL 700.2402)
- Family allowance (as described under MCL 700.2403)
- Exempt property (as described under MCL 700.2404)
- Debts and taxes with priority under federal law (this includes federal taxes and medical assistance payments subject to Michigan’s Estate Recovery program)
- Reasonable and necessary medical and hospital expenses of the decedent’s last illness (including compensation for attendants)
- Debts and taxes with priority under other laws of the state
- All other claims
Importantly, preference is not given in the payment of one claim over another for all claims of the same class. A claim due and payable is not entitled to a preference over a claim not yet due.
If there are insufficient assets in the estate to pay all claims in full or to satisfy the homestead allowance, family allowance, and exempt property, the personal representative shall certify the amount and nature of the deficiency to the trustee of any trust of the decedent that was revocable at the time of the decedent’s death for payment. If the personal representative is aware of other nonprobate transfers that may be liable for claims and allowances, then, unless the decedent’s will provides otherwise, the personal representative may collect the deficiency in a reasonable manner so that each nonprobate transfer bears a proportionate or equitable share of the total burden.
Allowance, Disallowance, and Payment of Claims
Broadly speaking, once the personal representative receives a claim, they may decide to allow it or disallow it.
To disallow a claim, the personal representative may deliver or mail a notice to the claimant stating that the claim has been disallowed, either in whole or in part.
The personal representative can later change their position on the allowance or disallowance of a claim; if they do so, they must provide appropriate notice to the claimant. A personal representative cannot disallow a claim after allowance by a court order or judgment directing the claim’s payment. Similarly, the personal representative cannot decide to allow a claim that has previously been barred.
Broadly speaking, a claim that the personal representative disallows will be barred to the extent of the disallowance, unless the claimant commences a proceeding for allowance no later than 63 days after receiving appropriate notice.
If the personal representative fails to deliver or mail notice of action on the claim within 63 days after the time for the claim’s presentation expires, or within 63 days after the personal representative’s appointment — whichever is later — then the claim is considered to be allowed.
As for payment of claims? As the Probate Court of Kent County explains in a writing:
After the expiration of the 4 months following publication of the notice to creditors, and after providing for homestead, family and exempt property allowances, for claims that have been disallowed and appealed, and costs of administration, the personal representative must pay the claims allowed in the order of the priority as provided above. No order allowing claims is necessary.
If a claim is presented and if it appears to be in the estate’s best interest, the personal representative may also settle the claim, “whether due or not due, absolute or contingent, liquidated or unliquidated.”
While the personal representative may pay a claim that is not barred at any time, with or without formal presentation, it is generally advisable for the personal representative to take their time and allow for all claims to be presented before taking action. The personal representative may be “individually liable to another claimant whose claim is allowed” and who is injured by the payment, including:
- If a payment is made before the expiration of the time limit and the personal representative fails to require the payee to give adequate security for the refund of any of the payment necessary to pay another claimant.
- Payment is made due to the negligence or willful fault of the personal representative in a manner that deprives the claimant of priority.
Importantly, secured claims are handled somewhat differently. A personal representative shall only pay a secured claim “on the basis of the amount allowed if the creditor surrenders the security.” Otherwise, the personal representative pays the amount of the claim allowed minus the fair value of the security (if the creditor exhausts the security before receiving payment). If the creditor does not have the right to exhaust the security or has not done so, payment is based upon “the amount of the claim allowed less the value of the security determined by converting it into money according to the terms of the agreement under which the security was delivered to the creditor,” or “by the creditor and personal representative by agreement, arbitration, compromise, or litigation.”
When allowing a claim, a personal representative may deduct any counterclaims that the estate has against the claimant. In determining a claim against an estate, the court shall reduce the amount allowed by the amount of a counterclaim and, if counterclaims exceed the claim, render a judgment against the claimant for the excess amount.
Finally, if estate property is encumbered by a mortgage, pledge, lien, or other security interest and it appears to be in the estate’s best interest, the personal representative may pay the encumbrance or a part of the encumbrance; renew or extend an obligation secured by the encumbrance; or convey or transfer the property to the creditor in satisfaction of the lien, in whole or in part, whether or not the encumbrance holder has presented a claim.
Looking to Learn More About Any Aspect of Michigan Probate?
Dealing with a loved one’s passing is a difficult and emotional process – one that is only made more complicated when you need to deal with intricate financial and legal matters at the same time. In this difficult moment, it’s important to have an experienced and professional advocate on your side.
Whether you are an heir, a trustee, a creditor, or a personal representative, Attorney Dean Patrick can provide the assistance and support that you need as an estate is guided through the Michigan probate courts.
At the Patrick & Associates, PLLC., we put our legal experience and skills together with our commitment to excellence in representing your rights. You can depend on our law firm’s ability to listen to you and our talent for creative strategies as we help you navigate probate and estate administration, including (but certainly not limited to) general probate litigation, will and trust contests, beneficiary disputes, guardianships, and conservatorships.
If you have any probate-related issue that has interrupted your life, we will work hard to accomplish your goals – while providing the expertise, empathy, intellect, and professionalism your matter deserves at every step of the way.
Have any more questions? Ready to get started? Contact Mr. Patrick at his Southfield office at (833) 469-4897, or click here to arrange your initial consultation. Our staff is available 24/7 to answer any questions and help you with your legal matters.
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