Posted on August 28, 2018 by Carol Hill
Notifying potential creditors, presenting claims, and rejecting or allowing creditors’ claims in an estate subject to probate may seem like second nature to some attorneys, but a surprising number of claims are litigated as a result of either a personal representative’s failure to properly notify creditors or a creditor’s failure to properly present a claim against an estate in a timely manner. For that reason, this article focuses on the fundamentals of creditors’ claims in estates subject to probate, as well as ways to approach (and avoid) litigation.
The process by which potential creditors are notified of a person’s death and the process by which claims must be submitted in an estate subject to probate is governed by RCW 11.40, otherwise known as the nonclaim statute. The policy of the nonclaim statute is to limit in rem claims against a decedent’s estate, expedite settling of estates, and facilitate distribution of a decedent’s property to heirs and devisees. The statute is mandatory and must be strictly followed. The statute cannot be waived by the personal representative of the estate and courts cannot give relief to a creditor of an estate who fails to comply.
Notice to Creditors: Review of the Fundamentals
The nonclaim statute permits the personal representative of an estate to provide notice to a decedent’s creditors. Such notice announces the personal representative’s appointment and requires creditors who have claims against the decedent to present their claims within specified timeframes or be forever barred from making their claims against the decedent’s probate and nonprobate assets.
If the personal representative chooses to provide notice, it must be filed with the court and published once each week for three successive weeks in a legal newspaper in the county in which the estate is being administered. The personal representative must also mail a copy of the notice, including the decedent’s social security number, to the Washington Department of Social and Health Services.
In addition to the publication of notice, the personal representative may give actual notice to any creditors who become known to the personal representative during the course of the probate proceedings. Actual notice is accomplished by either serving the notice on the creditor or mailing the notice to the creditor at the creditor’s last known address.
For both the publication of notice and actual notice to creditors, the personal representative must file with the court proof by affidavit of the giving and publication of the notice.
If probate proceedings are commenced in a county other than the county of the decedent’s residence at the time of death, the personal representative must publish notice once each week for three successive weeks in a legal newspaper in the county of the decedent’s residence and notice must be filed with the superior court of the county in which the probate proceedings were commenced.
For example, if the decedent died a resident of Pierce County, but the probate proceedings are commenced in King County, notice must be published in a Pierce County legal newspaper and the notice must be filed with the King County Superior Court.
Creditors’ Claim: Statute of Limitations
The time bar for presenting claims under RCW 11.40.040 applies to both probate and nonprobate assets. A long string of cases holds that the statute of limitations on creditors’ claims for an estate is more strictly enforced than general statutes of limitations. The limitations are mandatory, not subject to enlargement by interpretation, and cannot be waived. Compliance with the time bars is essential to a creditor’s recovery. The court is without authority to extend time for filing claims. Below is a chart setting forth the timeframes that apply in each possible circumstance.
No notice is published: Creditor has 24 months from date of decedent’s death for presentation of claim.
Personal representative publishes notice: Creditor must present claim within four months from date of first publication.
Personal representative sends actual notice to creditor: Creditor must present the claim within the later of 30 days after the personal representative’s service or mailing of notice to the creditor; and four months after the date of first publication of the notice.
Personal representative publishes notice and does not send actual notice to a reasonably ascertainable creditor: Creditor must present claim within 24 months of the decedent’s death.
Personal representative publishes notice and does not send actual notice to creditor because creditor was not reasonably ascertainable to personal representative: Creditor must present claim within four months of date of first publication.
Claim Against Estate: Properly Presenting
So long as a creditor properly presents a claim within the time limits discussed above, the claim is deemed presented by serving on or mailing to the personal representative or the personal representative’s attorney a copy of the signed claim and filing the original of the signed claim with the probate court, whichever is later. However, a personal representative may waive any defects of a claim if the creditor makes a written demand for payment and: 1) it is received within the time limits; 2) the claim is due; 3) the amount paid is the amount of indebtedness over and above all payments and offsets; 4) the estate is solvent; and 5) the payment is made in good faith.
Claims: Allowance and Rejection
Once it is determined that the claim has been properly presented (or the personal representative waives defects), the personal representative can allow or reject all claims in whole or in part. If the personal representative has not allowed or rejected a claim within four months of the first publication of the notice or 30 days from the filing of the claim, the claimant can serve written notice to the personal representative that it will petition the court to have the claim allowed. If the personal representative does not respond within 20 days after that notice, the claimant can petition the court for a hearing to determine whether its claim should be allowed.
Claims for $1,000 or less that are properly presented are automatically allowed unless the personal representative rejects the claim by notifying the claimant of the rejection within the later of six months from the date of first publication of the notice to creditors and two months from the personal representative’s receipt of the claim. For claims higher than $1,000 that are allowed, the personal representative must notify the creditor by personal service or mail.
The personal representative must notify the claimant of the rejection by personal service or certified mail and file an affidavit with the court showing notification and the date of notification. The notification must advise the claimant that a suit must be brought in the proper court against the personal representative within 30 days after notification of rejection if the claimant disputes it. If a claimant disputes a rejection of a claim by a personal representative, the claimant must bring suit against the personal representative within 30 days after notification of rejection or the claim is forever barred.
Where a personal representative has rejected a creditor’s claim, the claimant disputing that rejection must bring an ordinary civil action that is not part of the probate proceedings. Under the Trust and Estate Dispute Resolution Act (TEDRA), any “party” may have a judicial proceeding for the declaration of rights or legal relations with respect to any matter. While TEDRA includes a “creditor” within its definition of a party, the court in Sloans held that a claimant is not yet a creditor because a claimant must proceed under RCW 11.40.100 to obtain a judgment establishing the amount of the claim; it is only after a judgment that said claim becomes subject to the rules of estate administration.
Reasonably Ascertainable Creditors
The time limit by which creditors of a decedent have to present a claim against an estate is significantly impacted by a determination of whether the creditor is “reasonably ascertainable.”
If the personal representative published notice and did not provide actual notice, a creditor that is not reasonably ascertainable must present a claim within four months of the first date of publication of notice. However, a creditor that is reasonably ascertainable, but did not receive actual notice, has 24 months from the decedent’s date of death to present a claim.
A reasonably ascertainable creditor of the decedent is one that the personal representative would discover upon exercise of reasonable diligence. To exercise reasonable diligence, the personal representative must review documentation that is reasonably available, including the decedent’s correspondence after his or her death, personal financial statements, loan documents, checkbooks, bank statements and tax returns.
Reasonably Ascertainable Creditors: Avoiding Litigation
The personal representative is presumed to have exercised reasonable diligence to ascertain decedent’s creditors if he or she conducts this review. Any creditor not ascertained in the review is presumed to be not reasonably ascertainable. These presumptions may be rebutted only by clear, cogent, and convincing evidence.
The importance of exercising due diligence when conducting a review for creditors is evidenced in In re Estate of Fitzgerald, in which an alleged creditor of the decent asserted two claims against the estate – one for $1.5 billion and one for $150 million – within 24 months of the date of the first publication, the time limit for reasonably ascertainable creditors who did not receive actual notice of the decedent’s death.
The alleged creditor asserted it was a reasonably ascertainable creditor and should not be barred by the four-month time limit for creditors who are not reasonably ascertainable. The Superior Court of King County held in favor of the estate, finding that the alleged creditor failed to rebut the statutory presumption after the personal representative filed an affidavit stating she reviewed decedent’s papers and found no evidence of the alleged creditor. The Court of Appeals of Washington affirmed.
A personal representative may preempt a challenge to a rejected claim by filing a petition under RCW 11.96A.080 as permitted under the nonclaim statute. A personal representative may evidence their review of the decedent’s correspondence, financial statements, and the resulting presumption by filing with the court an affidavit attesting to their reasonable review of the documents available to him or her, including decedent’s correspondence after his or her death, personal financial statements, loan documents, checkbooks, bank statements and tax returns. The personal representative may then petition the court for an order declaring that the personal representative has made a review and that any creditors not known to the personal representative are not reasonably ascertainable. The personal representative must also give notice by publication as prescribed under RCW 11.96A.110.
Creditors’ Claims and Successor Personal Representatives
If a personal representative resigns, dies, or is removed while administering an estate and the notice to creditors was provided, the successor personal representative must publish notice of the vacancy and succession for two successive weeks in the newspaper in which notice was originally published if the vacancy occurs within 24 months after the decedent’s death.
The successor personal representative must also provide notice of the vacancy and succession to a creditor if the creditor filed a claim and the claim has not been accepted or rejected by the prior personal representative or the creditor’s claim was rejected and the vacancy occurred within 30 days after rejection of the claim.
Personal Representative as Creditor of Estate
If you are representing a personal representative of an estate who is also a creditor of the estate, remember that the personal representative’s claim is subject to the same statutory bar if it is not filed. A personal representative who has a claim against the estate is within the phrase “all persons” in the statute, and must “file” his claim within the correct timeframe or be forever barred.
Published by the Real Property, Probate & Trust Section of the Washington State Bar Association, Winter 2017-2018.