Creditor claims against an estate are typically handled as part of the probate process during estate settlement.
Well-planned estates that utilize trusts and certain accounts and assets with named beneficiaries may avoid the probate process. However, most of those governed by a Last Will and Testament Will go through one of several probate processes:
A trustee is typically named to pay debts and distribute assets as part of an estate settlement involving a trust. For those with a Will settled as part of the probate process, the Will typically names an executor. When no executor is named, an administrator will be named as part of the probate process. In each case, the person in charge of settling the estate has legal obligations and a fiduciary duty to pay creditors.
Under Ohio law, creditors must typically make a claim within six months of the death of the decedent. The law identifies classes that determine in what order creditors are paid.
1) costs and expenses of administration; 2) funeral expenses up to $4,000 and burial expenses up to $3,000; 3) allowance for support of $40,000 made to the surviving spouse, minor children, or both; 4) federal taxes; 5) expenses of last illness; 6) an additional amount of $2,000 for funeral expenses; 7) nursing home expenses; 8) state taxes and Medicaid reimbursement; 9) manual labor for decedent within 12 months of death up to $300 by any one person; and (10) miscellaneous other expenses.
Liens against personal property, such as car loans or mortgages, must also be satisfied before such property can be liquidated and excess proceeds made ready for distribution to legal heirs. Heirs will be determined by a trust, by a Last Will and Testament, or, in cases where neither is available to advise of the descendant’s wishes, by Ohio law governing intestate estates. State law governing disbursement of Intestate estates, or estates without a Last Will and Testament, creates a specific hierarchy of heirs, beginning with those closest to the decedent and spreading outward from spouse, children and parents, to more distant relatives.
In any case, properly identifying creditors and paying all of those with a legitimate claim is a critical part of the process.
When a creditor makes a claim on an estate within the allowable time period, the executor or administrator is tasked with determining whether the claim is legitimate. Such claims are paid in a specific order as determined by law.
If the creditor’s claim is deemed illegitimate, the creditor can request a hearing to determine the claim’s legitimacy. The court can order the claim to be paid if it is in fact legitimate.
Probate assets can be used to pay unsecured creditors. But with few exceptions, non-probate assets, such as assets held in trust, or property held with survivorship rights, cannot be used to settle debts, and so are protected. Nor is a spouse typically obligated to pay debts, unless the debts were held jointly with the deceased.
The Law Offices of Daniel McGowan, LLC, represents clients in probate and estate matters throughout the Cleveland area, including Lakewood, Rocky River, Fairview Park, Shaker Heights, Cleveland Heights, South Euclid, East Cleveland, Linndale, Brooklyn, Parma, Brook Park. Newburgh Heights, Cuyahoga Heights, Brooklyn Heights, Warrensville Heights, Maple Heights, Garfield Heights, Bratenahl and Euclid.
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