Estate Administration and Creditors
Let’s talk a little about debt and creditors in probate.
To begin, once a probate process starts, someone is usually appointed the administrator of the estate. This could be an executor named in a will, or someone who applies to be an administrator with the court if there is no will.
I often get calls from potential administrators telling me that creditors are calling and stressing them out. First, be aware that all creditors have to follow the law in attempting to collect, if you feel that there is some serious harassment going on, contact a law firm to reign them in.
If you are appointed administrator, you will be responsible for carrying out the wrapping up of the estate according to the structure dictated. As we have discussed in the past, there are significant differences in the method of probate, but regardless, an administrator will owe a duty to both the estate, and any heirs or beneficiaries of the person who passed.
One of these duties is to administer the estate in regard to debts that were incurred during the lifetime of the person who passed. It’s important to note that when it comes to creditors trying to get funds out of an estate, Texas Estates Code 355.102 prioritizes which claims get paid first.
Most people are relieved to find that reimbursement for burial expenses is at the top of the list, following by expenses incurred before an administrator was appointed such as legal fees and court costs. The list for claim priorities keeps going from there.
As an administrator, the next thing you will want to figure out is whether or not the creditors you’re hearing from are known as secured creditors or unsecured creditors. A secured creditor is one that has debt secured with collateral. The easiest example is a car loan. If a person stops paying, the lender can legally come repossess the vehicle, hence the loan is “secured” by a claim on the car. In most cases, secured creditors will take precedence over other creditors. In many cases, there are strict procedures for filing claims with the estate or for perfecting a claim in general, which may give you options.
Unsecured creditors are basically just the normal debt on your credit. Credit cards are the most common type of unsecured debt and aren’t secured by any collateral. Unsecured creditors will have a lower priority in getting paid out of estate assets than other creditors.
As in your own personal tax planning and estate preparation, an administrator is not required to pay every claim to the maximum without finding out which are legitimate or inflated. The more assets you can save for the heirs or beneficiaries, the better. So use some discernment and seek legal advice if you feel the ground is getting slippery.
–Zane Frisbie is a partner at Regan and Frisbie, PLLC, a law firm focused in the Dallas/Metro area. If you have questions or would like to set up an appointment, give us a call at out office in Plano at 469-200-4737.