How estate creditor claims and payment priorities work

By Richard C. Wilson, founder of the Family Office Club, whose team has hosted more than 340 events over 19 years.

Begin with four separate questions: Who needs notice? When must a particular claim be presented? Has that claim been allowed? What payment rules apply? Use the state examples below with the estate attorney reviewing the actual notice, claim and payment records.

Research notice: Core authorities include Minnesota's creditor notice and payment statutes, Florida's payment priority statute and federal priority law. Each state example belongs to its named jurisdiction. Ask an estate attorney to confirm notice, presentation, allowance, exceptions and payment priority before acting on an estate claim.

How creditor claims enter estate administration

Keep the appointment documents, publication record, individual notices, creditor correspondence and payment history together. For a business owner or property investor, add the loan agreements and documents identifying collateral. Organize the file by creditor so the adviser can examine the entire history of each demand.

Georgia publication

In Georgia, the personal representative must publish general creditor notice within 60 days after qualification. Publication must occur once a week for four weeks in the official newspaper of the county where the representative qualified. The notice directs creditors to notify the representative of their claims and render an account of their demands for payment.

Use the Georgia guide for questions about sufficient claim notification, additional proof and consequences of a late claim. Keep those questions separate from this publication requirement.

Minnesota publication and individual notice

In Minnesota, for example, unless notice has already been given, creditor notice must be published once a week for two successive weeks, and other states differ. Publication follows informal appointment of a general personal representative or the filing of a petition for formal appointment of a general personal representative. The court administrator directs publication in a legal newspaper in the county where the proceedings are pending.

Within three months after first publication, the representative must serve each then known and identified creditor unless the claim has already been presented or paid. Service may be by delivery or by certified, registered or ordinary first class mail to the creditor's office or residence.

A known creditor includes one whose asserted claim arising during the decedent's life is known to the representative or clearly disclosed in accessible financial records known and available to the representative. A creditor is also known if a reasonably diligent search of those records would reveal the claim. A creditor is identified when the representative knows a name and address sufficient for service.

Potentially recoverable assistance received by the decedent or a predeceased spouse under §§246.53, 256B.15, 256D.16 or 261.04 requires a separate agency notice process. The Minnesota guide covers that process, distribution restrictions and amended notices. Take assistance records and the publication and service documents to that review.

North Carolina notice and its exceptions

In North Carolina, general creditor notice must state a deadline at least three months after first publication or posting and include the representative's or collector's mailing address. Publication must occur once a week for four consecutive weeks in a county newspaper qualified to publish legal advertisements. If no county newspaper exists, the representative or collector may publish in a newspaper with general county circulation and post at the courthouse, or post at the courthouse and four other public places in the county.

Before filing proof of notice, the representative or collector must personally deliver or send notice by first class mail to the last known address of creditors with unsatisfied claims actually known or reasonably ascertainable within 75 days after letters are granted. Notice must also go to the Division of Health Benefits if the decedent received medical assistance at death. Individual notice is unnecessary for a claim recognized as valid. No further publication or mailing is required after a collector or representative has already given the required notice. No publication or mailing is required when the only estate asset is a claim for wrongful death damages.

For covered claims arising before death, required individual notice gives the creditor 90 days after delivery or mailing if that period ends later than the general notice deadline. The individual notice must specify that later deadline. Three months after publication or posting and 90 days after individual notice are separate rules.

The bars for claims arising before death exclude contingent claims based on real estate conveyance warranties, United States claims and tax claims of North Carolina and its subdivisions. Claims subject to the statutory bars are barred if first publication or posting does not occur within three years after death. Lien enforcement survives, but a creditor that does not comply cannot obtain a deficiency judgment. Insurance protection is preserved to its extent, including applicable underinsured or uninsured motorist coverage.

Read the general notice and each individual notice side by side. Use the North Carolina guide for the full payment priority schedule and a review of the estate's particular notice documents.

Claim periods depend on state rules

For every demand, ask the adviser to identify the event that starts the relevant period. Bring the death record, appointment documents, published notice, mailing record and proof of delivery. Record whether the demand concerns events before or after death and whether another proceeding was already pending.

Arizona notice and claims arising before death

In Arizona, unless notice was already given, the representative must publish creditor notice at appointment once a week for three successive weeks in a newspaper of general circulation in the county. The representative must also give written notice by mail or other delivery to all known creditors.

Published notice specifies four months after first publication. Actual notice gives the later of the published period, if applicable, or 60 days after mailing or delivery.

Claims arising before death remain subject to earlier limitation or nonclaim bars. Otherwise, presentation must occur within the earlier of the applicable notice period or two years after death plus the time remaining in a period commenced by actual or published notice. A claim already barred by the decedent's domicile's nonclaim statute before Arizona notice is also barred in Arizona.

Lien enforcement remains available. Proceedings to establish liability remain available only to the limits of liability insurance protection. Collection of compensation for services and reimbursement of expenses advanced by the representative or the representative's or estate's attorney or accountant are also preserved.

Use the Arizona guide for claims arising after death. Ask counsel to review the actual notice history before choosing a deadline for a claim arising before death.

Missouri filing, payment and separate bars

In Missouri, subject to §473.370, covered claims generally require probate filing within six months after first published notice of letters or two months after actual mailing or service, whichever is later. The statute also recognizes payment by the representative within six months after first publication. The six month period does not extend any other applicable limitation period.

A separate bar generally applies one year after death to claims not filed in probate or paid by the representative, unless already barred by law. That bar applies regardless of whether administration has begun or the creditor received notice.

Both statutes exclude administration costs and expenses, exempt property, family and homestead allowances, United States claims and claims of any taxing authority within the United States. Both preserve contingent claims based on warranties made in connection with real estate conveyances. Both also preserve lien enforcement, but attachment, judgment and execution liens must follow the probate statute.

Actions instituted or revived under §§473.363 or 473.367 require written notice filed in probate within six months after first published notice of letters. Without that notice, recovery on a judgment in such an action is unavailable from administered assets or a distributee or other recipient of those assets. Timely claim filing within six months satisfies the notice requirement whether the claim is filed before or after the action is instituted or revived.

The Missouri guide covers the separate procedures under §473.370. Bring both the probate filing record and any separate lawsuit documents to that review.

Massachusetts creditor actions

In Massachusetts, except as otherwise provided in the chapter, an ordinary creditor action generally must begin within one year after death. Before that period expires, process must be personally delivered to the representative, service must be accepted, or the specified notice must be filed with the probate register. Filed notice must state the estate's name, the creditor's name and address, the claim amount and the court where the action was brought.

A claim already barred by the decedent's domicile's statute before the Massachusetts limitation expires is barred in Massachusetts. Lien enforcement remains available. Collection of compensation for services and reimbursement of expenses advanced by the representative or the representative's attorney or accountant are also preserved.

A personal injury or death action may begin more than one year after death if it begins within three years after the cause of action accrues. Recovery is limited to liability insurance or bond proceeds, rather than general estate assets. If no representative has been appointed, the action must name the decedent and any necessary process must be served on the insurer or bond provider.

The Supreme Judicial Court may grant equitable relief when justice and equity require it and the creditor was not culpably negligent in failing to pursue the claim on time. The required registry notice must be filed immediately upon filing the equity complaint. A resulting judgment cannot disturb payments or distributions made before the complaint and notice were filed.

If the decedent received medical assistance at age 55 or older or while an inpatient in a nursing facility or other medical institution, chapter 118E §32 governs notice and recovery if the division chooses. Use the Massachusetts guide for trust creditor procedures. Identify insurance, bond and medical assistance records for the adviser reviewing the estate claim.

Minnesota presentation periods

In Minnesota, for example, presentation periods for claims arising before death depend on the notice received and any earlier limitation bar, and other states differ. For creditors reached only by publication, the general period is four months after the date of the court administrator's notice that is subsequently published. A creditor served under the individual notice provision receives the later of four months after first publication or one month after service.

A separate provision sets a period of one year after death whether or not notice has been published or served. That provision does not bar claims authorized by §§246.53, 256B.15 or 256D.16 after one year.

For claims arising after death, a claim based on a contract with the representative must be presented within four months after the representative's performance is due. Other claims arising after death must be presented within four months after they arise.

Lien enforcement remains available. Proceedings to establish liability remain available to the limits of liability insurance protection.

The statute also preserves presentation and payment within one year after death of claims arising before death described in section 715, clause (18), of article 3 of chapter 524, even if otherwise barred by these presentation rules. Claims arising after death described in that provision may be presented and paid before a statutory closing petition or closing statement is filed, even if otherwise barred. Other otherwise barred claims may also be presented and paid before that filing if the court allows them for cause on the representative's or claimant's petition, with notice and hearing as the court directs.

For the Minnesota review, distinguish the court administrator's notice date from first publication and individual service. Ask the attorney to identify which provision applies to each creditor rather than placing every claim on a single countdown.

New York late claims and fiduciary protection

The New York guide covers late claims and fiduciary protection.

Claim evaluation follows state procedures

Presenting a Minnesota claim

In Minnesota, for example, a creditor may present a written claim to the representative or file it with the court administrator, and other states differ. Delivery or mailing to the representative is permitted. Court filing uses the prescribed written claim form. Presentation occurs at the earlier of the representative's receipt or court filing.

The claim must state its basis, the claimant's name and address and the amount claimed. If the claim is not yet due, it must state the maturity date. A contingent or unliquidated claim must describe the uncertainty, and a secured claim must describe the security. An incorrect description of security, uncertainty or maturity does not invalidate presentation.

A creditor may instead begin a proceeding within the presentation period in a court with jurisdiction over the representative. Matters already pending against the decedent at death require no separate presentation.

Keep the claim itself beside evidence of receipt, filing or litigation. Mark uncertainty about the amount, due date or collateral for the attorney's review.

Minnesota allowance and disallowance

In Minnesota, for example, the representative may disallow a timely presented claim by mailed notice, and other states differ. If the notice warns of the impending bar, the claimant generally has two months after mailing to petition for allowance or begin a proceeding against the representative. The claim is barred to the extent disallowed if the claimant does not act within that period.

Failure to mail notice of action on a claim for two months after the original presentation period expires has the effect of allowance. Judicial allowance is required for an individual's claim exceeding $3,000 for personal services to the decedent, including attendance during the last illness. Judicial allowance is also required for any representative claim arising before death or any claim in which the representative has an interest exceeding $3,000.

Before payment, the court may permit disallowance for cause on the representative's petition and notice to the claimant. For written claims presented under the statutory written claim procedure, the representative may consent to an extension of the two month proceeding period for future, contingent or unliquidated claims. The court may order an extension on petition to avoid injustice. No extension may run beyond the applicable statute of limitations.

Once the challenge period has expired and a disallowed claim is barred, the representative cannot change the disallowance without a court order for cause. For a disputed demand, collect the original claim, any disallowance notice, its mailing record and any court petition or order. Ask the adviser to examine both the original presentation period and the period for challenging disallowance.

Payment priority applies when estate funds are limited

Federal priority in an insufficient estate

When a deceased debtor's estate in the custody of the executor or administrator is insufficient to pay all debts, federal claims are paid first. A representative who pays another debt before a federal claim is personally liable for unpaid federal claims up to the amount paid. The federal priority rule does not apply in a bankruptcy case under title 11.

Bring federal demands to the adviser reviewing payment priority alongside the state claim list. Read the federal rule together with the state example rather than using a state's numbered classes alone.

Minnesota classes when assets are insufficient

In Minnesota, for example, when applicable estate assets are insufficient to pay all claims in full, the representative pays claims in statutory priority order, and other states differ. Subject separately to applicable federal priority, the classes are:

1. Costs and expenses of administration.
2. Reasonable funeral expenses.
3. Debts and taxes preferred under federal law.
4. Reasonable and necessary medical, hospital or nursing home expenses of the last illness, including attendants' compensation. This class also includes claims under §256B.15, including recovery of alternative care expenditures for nonmedical assistance recipients under §256B.0913.
5. Reasonable and necessary medical, hospital and nursing home expenses for care during the year immediately preceding death.
6. Debts preferred under other state laws and state taxes.
7. All other claims.

Generally, no claim receives preference over another claim in the same class, and a due claim receives no preference over an unmatured claim. An exception applies when last illness claims consist only of the listed public recovery claims. Alternative care recovery for nonmedical assistance recipients ranks before state hospital recovery and other §256B.15 recovery. State hospital recovery ranks before other §256B.15 recovery.

For a Minnesota review, identify the nature of each claim before discussing its class. Flag public recovery claims for specific attention to the exception within the last illness class.

Florida's eight payment classes

In Florida, §733.707(1) sets eight payment classes, subject separately to applicable federal priority:

1. Administration costs and expenses, personal representative compensation, fees for the representative's attorneys and attorney fees awarded under §733.106(3).
2. Reasonable funeral, interment and grave marker expenses up to $6,000 in aggregate, regardless of who paid them.
3. Federally preferred debts and taxes, claims under §§409.9101 and 414.28 and unpaid state court costs, fees or fines.
4. Reasonable and necessary medical and hospital expenses of the last 60 days of the last illness, including attendants' compensation.
5. Family allowance.
6. Arrears of court ordered child support.
7. Debts acquired after death by continuing the decedent's business in accordance with §733.612(22), limited to that business's assets.
8. All other claims, including lifetime judgments and decrees and expenses exceeding the amounts allowed in the funeral and last illness classes.

After preceding classes are paid, an underfunded class is paid proportionally to its respective claims. Use the Florida guide with the claim documents and a list of business assets. Ask the adviser to distinguish the statutory funeral preference limit from the actual expenses submitted.

Minnesota payment and provision for unresolved claims

In Minnesota, for example, the personal representative pays allowed claims in statutory priority order after the earliest presentation limit expires and after providing for family maintenance, statutory allowances, unresolved claims and unbarred claims still presentable, and other states differ. That provision includes presented claims not yet allowed or whose allowance is under appeal, as well as administration costs and expenses.

An allowed but unpaid claimant may seek a payment order to the extent estate funds are available. A just, unbarred claim may be paid earlier, with or without formal presentation.

The representative is personally liable to an injured allowed claimant if payment before the earliest presentation limit expired lacked adequate security for a refund needed to pay other claimants. Personal liability also applies if negligent or willful payment deprived the injured allowed claimant of priority.

Discuss unresolved claims, appeals, allowances and administration expenses together before approving a payment plan. Ask counsel to explain the proposed provision for each item and any refund security associated with an early payment.

Real estate liens remain relevant

In Minnesota, for example, lien enforcement remains available under the claim presentation statute, and other states differ. Payment of a secured claim uses the allowed amount if the creditor surrenders the security.

If the creditor exhausts the security before payment, the payment basis is the allowed amount less the security's fair value, unless other law precludes that treatment. If the creditor cannot exhaust the security or has not done so, the payment basis is the allowed amount less the security's value. That value is determined by converting the security into money under the agreement that delivered it to the creditor, or by agreement, arbitration, compromise or litigation between the creditor and representative.

For a property related demand, bring the mortgage or other security agreement, lien documents, payment history and any collateral disposition records. Ask the attorney to distinguish the secured claim payment question from the lien enforcement question.

For Arizona's lien preservation and Missouri's contingent real estate warranty and lien exceptions, read the complete state discussions above. Keep those exceptions attached to the relevant state's presentation rules when reviewing a property transaction.

Business and investment assets can affect available cash

Owners' families can use this guide to prepare a discussion of business debts, property collateral and claims with uncertain amounts or future due dates. Bring business continuation records, loan agreements and investment commitments to the adviser reviewing the estate's proposed payments.

Use the Florida payment discussion for its business continuation class and its restriction to business assets. Use the secured claim discussion for the Minnesota treatment of collateral, and the related liquidity guide below for borrowing and installment questions.

Minnesota future and contingent claims

In Minnesota, for example, an allowed or judicially established future, contingent or unliquidated claim that becomes due or certain before distribution is paid like presently due, absolute claims of the same class, and other states differ.

In other cases, the representative may arrange payment. The court may also arrange payment on the representative's or claimant's petition in a special proceeding. Payment of present or agreed value requires the claimant's consent and must account for uncertainty.

Future or possible payment upon the contingency's occurrence or liquidation may instead be arranged through a trust, mortgage, bond, security from a distributee or another arrangement. Identify the event that would make a claim payable and the documents describing the uncertainty. Ask the adviser to explain any proposed consent, valuation or arrangement for future payment.

Common questions