While one good goal of estate planning is avoiding probate, when it comes to avoiding taxes or debts, probate avoidance just doesn’t “do the trick”. That’s because in Indiana, just as in every other state, creditor’s rights come first, whether that creditor is a lending institution, an individual lender, or Uncle Sam.
In fact, in settling an estate, there are three things that must be done. After the executor takes stock of all the assets and their worth, all estate debts must be paid. Once those two steps have been completed, then, and only then, can assets be distributed to beneficiaries –(to the extent that assets remain!).
Probate, by the way, is no “big, bad ogre”, simply one legal process that can be used to transfer property from the estate of the person who has died to their beneficiaries. The challenge is that
in settling estates, creditors’ rights come first.
There are limits on the time creditors have to submit formal claims to the executor of a probated estate. An announcement is published saying that “All persons who have claims against this estate, whether or not now due, must file the claim in the office of the clerk of this court within three months from the date of the first publication of this notice, or within nine months after the decedent’s death, whichever is earlier”.
That notice to creditors is published in a “newspaper of general circulation, printed in the English language and published in the county where the court is located, once each week for two consecutive weeks, with a copy filed with the clerk of the court.
https://codes.findlaw.com/in/title-29-probate/in-code-sect-29-1-7-7.html
What happens if an estate was set up in such a way as to not go through probate at all? As Nolo.com explains, when property isn’t probated, creditors’ claims aren’t cut off so quickly. In theory, at least, a creditor could track down the property and sue the new owner to collect the debt a year or two later; however, in Indiana, all claims, except those of governmental entities, are barred within nine months of the decedent’s death.
Truth be told, when people die, it’s common for them to have had unpaid bills. Opening probate cuts short the amount of time a creditor has to claim against the estate, and, in fact, a creditor’s claim may be rejected by the executor if it is filed late.
At Geyer Law, it has happened that clients turn to us for advice in the following situation – they have been named as executor for a neighbor, friend or relative who has no assets – there are more bills in the “estate” than money to pay them. In that situation, we explain, there is no legal obligation for our clients to do anything to pay debts, communicate with creditors, or open probate. They would be within the law to file the will for that friend or relative or neighbor and “walk away”.
Most people, of course (as nolo.com hastens to explain), “don’t need to worry that after their death, creditors will line up to collect large debts from the estate.” On the other hand, our attorneys know that serving as the executor of an estate can be time consuming and stressful. At Geyer Law, we can assume these responsibilities, so the heirs can focus on moving forward after a loved one’s passing.
– By Rebecca W. Geyer
