Claims Against Decedent Estates
One of the major purposes of probate is to see that the just debts of the decedent are paid from his or her estate. To accomplish this purpose the Estates and Protected Individuals Code (EPIC) sets forth a claims procedure to be followed by the personal representative of the estate and creditors of the estate. The procedure is the same for all estate whether they began with an informal or formal proceeding. The procedure is the same for supervised or unsupervised administration. Estates commenced under the small estate provisions of EPIC are exempt from these procedures. Pursuant to MCL 700.1103(f):
"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 expenses 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.
Notice to Creditors
The personal representative must publish, in a newspaper defined in MCR 2.106(F), in a county in which a resident decedent was domiciled or in which the proceeding as to a nonresident was initiated, a notice to creditors. The notice need only be published once. If the creditor's address is unknown and cannot be ascertained after diligent inquiry, the notice must include the name of the creditor. Publication of notice to creditors may be accomplished by using Notice to Creditors Decedent's Estate (PC 574). MCR 5.306(A) requires that the notice include:
- The name, and if known, last known address, date of death, and social security number of the decedent.
- The name and address of the personal representative.
- The name and address of the court where proceedings are filed.
- A statement that claims will be forever barred unless presented to the personal representative, or to both the court and the personal representative, within 4 months after publication of the notice.
MCR 5.306(B) requires the personal representative to also serve notice personally or by mail on each known creditor of the estate and the trustee of a trust of which the decedent is settlor, as defined in MCL 700.7501(1) (this is a trust over which the decedent had a right at his or her death, either alone or with someone else, to revoke the trust and reinvest principal in himself or herself). A creditor is known to the personal representative if the personal representative has actual notice of the creditor or the creditor's existence is reasonably ascertainable based on an investigation of the decedent's available records for the 2 years immediately preceding death and the decedent's mail following death. The personal representative must give notice within the 4-month period following publication. However, if the personal representative first learns of the creditor within 28 days of the end of the 4-month period, the personal representative has 28 days from the time the personal representative first knows in which to give notice. Notice to known creditors may be accomplished by using Notice to Known Creditors (PC 578).
MCR 5.306(C) provides that no notice need to be given to creditors in the following situations:
- The estate has no assets.
- The estate qualifies and is administered under MCL 700.3982 or MCL 700.3987 (these are sections dealing with summary distribution of small estates).
- The decedent has been dead for more than 3 years.
- Notice has been previously been given under MCL 700.7504 in the county where the decedent was domiciled in Michigan (this section deals with the duty of a trustee of a trust described in MCL 700.7501(1) to give notice to creditor of a settlor's estate).
- Creditors whose claims have been presented and paid.
Pursuant to MCL 700.3801(3) and (4) the personal representative and the attorney for the personal representative are exonerated from liability if they give notice based on a belief, in good faith, that a person is believed to be a creditor.
Similarly, they are exonerated from liability if they believe, in good faith, that notice to a person is not required. However, the estate remains liable.
Presentment of Claims
A creditor has 4 months from the date of publication or 1 month from the date they receive actual notice, whichever is later, to present their written claim or it will be barred. The written statement must indicate the basis of the claim, the claimant's name and address and the amount of the claim. This can be accomplished by using Statement and Proof of Claim (PC 579). The Statement of Claim form must be used if the claim is filed with the court but is otherwise optional. If a claim is not yet due, the statement must include the date that the claim becomes due; however, failure to include the latter does not invalidate the presentation of the claim. If the claim is secured, the statement must describe the security; however, failure to describe the security does not invalidate the presentation. A claim (other than a claim of the personal representative) is presented by one of the following methods:
- The claimant may deliver or mail to the personal representative or the proposed personal representative, a written statement of claim.
- The claimant may file the Statement and Proof of Claim ( PC 579) with the court and mail or deliver a copy to the personal representative.
- The claimant may commence a civil action against the personal representative in a court that has jurisdiction.
Pursuant to MCL 700.3804(1)(b) if a claim is already the subject of a proceeding against the decedent at the time of the decedent's death, the claimant need not present the claim. Pursuant to MCL 700.3801(3)(a) a creditor with a security interest in estate property may pursue the collateral without presenting a claim. Pursuant to MCL 700.3801(3)(b) a creditor may commence a proceeding to establish the decedent's liability or the personal representative's liability for which there is liability insurance coverage without presenting a claim, but only to the limits of the coverage.
A claim by the personal representative of the estate is presented and handled in a different manner than other claims. A claim of the personal representative which arose before the death of the decedent must be served on all interested persons within 7 days after the claims period expires. MCR 5.307(C) provides that a claim by a personal representative against the estate for an obligation that arose before the death of the decedent shall only be allowed in a formal proceeding by order of the court. This will require notice to all interested persons. Such interested persons would be pursuant to MCR 5.125(12) the personal representative and other persons who will be affected by the adjudication. A post death claim by the personal representative such as a claim for services need not be presented and need not be in writing pursuant to MCL 700.3803(3)(c) and 700.3802(1).
Limitation of Action
Pursuant to MCL 700.8303 a claim, including a claim of the state or a subdivision of the state, that arose before the death of the decedent is barred against the estate, the personal representative, the decedent's heirs and devisees, and nonprobate transferees of the decedent as follows:
- A claim is barred if the statute of limitations had run at
the time of the decedent's death.
- However, if the statute of limitations had not run at the time of the decedent's death, the running of the statute is suspended for a period of 4 months following the decedent's death. It should be noted that this 4-month period starts with the date of death, not the date of publication of the notice to creditors.
- For purposes of the statute of limitations, proper presentation of a claim is equivalent to commencing an action on the claim.
- If an estate is solvent, the personal representative, with the consent of all interested persons who would be affected (this may include other creditors), may waive a statute of limitations defense available to the estate.
- A claim is barred if proper notice is given and the claim is not presented in a timely fashion.
- If the notice requirements have not been met, a claim is barred 3 years after the decedent's death.
- A claim that arises at or after the death of the decedent
is barred unless it is presented within the following time
- For a claim based on a contract with the personal representative, within 4 months after the performance by the personal representative is due.
- For all other claims, within 4 months after the claim arises or 4 months after the date of publication, whichever is later.
- There is no time limit for the presentation of claims of the personal representative, the attorney for the personal representative, and other specialized agents retained by the personal representative.
Allowance or Disallowance of Claims
Once a personal representative receives a claim, he or she may allow or disallow the claim. If the personal representative takes no action on a presented claim, it is considered to be automatically allowed 63 days after the time for original presentation of the claim has expired or after 63 days of the appointment of the personal representative, whichever is later. However, the personal representative can later change his or her position regarding the claim. However, a decision disallowing a claim may not be changed after the claim is barred. A judgment of another court constitutes an allowance of the claim. Pursuant to MCL 700.3807(3) an allowed claim may be disallowed later by the court in a formal proceeding if the whereabouts of the claimant is unknown when the personal representative attempts to pay the claim. Since there is no time limit for the presentation of claims for fees and expenses of the personal representative, attorney and other specialized agents under MCL 700.3803(3)(c), these claims are never "allowed" because the 63-day period never begins to run. The personal representative is permitted to pay these claims pursuant to MCL 700.3807(2). A claim by the personal representative for a claim that arose before the death of the decedent may only be allowed or disallowed by an order of the court in a formal proceeding pursuant to MCR 5.307(C).
The personal representative may also disallow the the claim in whole or in part by sending a notice to the claimant. The form used is Notice of Disallowance of Claim, ( PC 580). The notice of disallowance must warn the claimant that the portion of the claim that was disallowed will be barred unless the claimant starts a civil action by filing a complaint against the personal representative within 63 days. It is extremely important to use PC 580 since it contains the proper language which will result in barring the claim if the proper action is not taken by the claimant within the proper time. It should be noted that the only proper way to have a disallowed claim allowed is by a civil action pursuant to MCR 5.101(C). After notice of disallowance the claimant must start a civil action by filing a complaint against the personal representative within 63 days after the mailing of the notice. If the claimant fails to do so, the claim will be barred.
MCR 5.101(C) provides that a complaint filed by a claimant after notice that the claim has been disallowed must be titled civil action and must be commenced by filing a complaint and governed by the rules which are applicable to civil actions in circuit court. The intent of the rule is to require any action to allow a disallowed claim filed in a decedent's estate to be the same as any civil lawsuit. The matter is heard in the probate court. It must be commenced by filing a complaint and then an Answer must be filed by the personal representative. The case will proceed as any other civil lawsuit until a determination is made by the probate court. Pursuant to MCR 5.120 the personal representative must give notice to all interested persons that a contested matter has been commenced and must keep such interested persons reasonably informed of his or her actions. The personal representative must inform interested persons that they may file a petition to intervene in the matter and that failure to do so shall result in their being bound by the actions of the personal representative. Unless someone intervenes, interested persons are bound by determination made in the lawsuit.
Priority of Allowances of Claims
In an estate the allowances and claims must be satisfied before the payment of any devise. The Estates and Protected Individuals Code establishes the order in which each charge against an estate must be paid. This becomes very important when there are insufficient assets to pay all such charges. A preference shall not be given in the payment of a claim over another claim of the same class, and a claim due and payable shall not be entitled to a preference over a claim not due. The charges against an estate must be paid in the following order of priority:
- Expenses f administration.
- Funeral and burial expense.
- Homestead allowance.
- Family allowance.
- Exempt property allowance.
- Debts and taxes with priority under federal law.
- Reasonable and necessary medical and hospital expenses of the decedent's last illness, including a compensation of persons attending the decedent.
- Debts and taxes with priority under laws of Michigan
- All other claims
Payment of Claims
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 settle the claim. Pursuant to MCL 700.3807(2) the personal representative may pay claims sooner, but the personal representative may be liable to another claimant whose claim is allowed and who is injured by the payment if (1) the claim is paid early and there is no or inadequate security for repayment, or (2) payment is made due to the negligence or willful fault of the personal representative in a manner that deprives the claimant of priority.
Rights of Claimants
Creditors have the right to take several actions under the Estates and Protected Individuals Code. A creditor may do any or all of the following:
- Pursuant to MCL 700.3205 file a demand for notice.
- Pursuant to MCL 700.3605 make a written demand that the personal representative file a bond if the amount of the claim is in excess of $2,500.
- Pursuant to MCL 700.3401 commence a formal proceeding to determine testacy or commence a formal proceeding to determine the priority or qualification of the personal representative.
- Pursuant to MCL 700.3502 file a petition for supervised administration.
- Pursuant to MCL 700.3607 file a petition for a temporary restraining order to restrain the personal representative from performing some act.
- Pursuant to MCL 700.3911 commence a proceeding against a distributee to recover property improperly distributed.