You’ve been helping your widowed mom handle her bills and finances. She dies. You want to be efficient, so you go ahead and pay her credit card bills as usual.
Was that a good idea? No, it was not.
Death marks an end to business-as-usual for financial matters.
The Different Classes of Claims
You should no longer view your mom’s bills as automatically payable. They must be turned into claims, which are then ranked by class. There are eight classes of claims. Class 1 claims get the highest priority and are paid first. The next classes are paid in order. Often an estate doesn’t have enough assets to pay all of the claims.
Before any class claims get paid, however, three other types of claims must be paid first. These are
- US government claims (such as taxes)
- The allowance in lieu of homestead.
- Preferred debts and liens.
Only when those have been satisfied can you turn to the class claims.
- Class 1 – Funeral and last illness expenses. Then comes the family allowance.
- Class 2 – Administrative expenses.
- Class 3 – Matured secured claims.
- Class 4 – Child support.
- Class 5 – State taxes.
- Class 6 – Incarceration costs.
- Class 7 – MERP (Medicaid Estate Recovery Program).
- Class 8 – Anything else (such as credit card bills).
Why You Shouldn’t Rush to Pay Claims
When you look at the big picture, you can see that rushing to pay your mom’s credit card debt is a huge mistake. Credit card debt falls last on the spectrum. How do you know there will be enough money to reach the last class until after you have valued your mom’s estate and the amount of the higher-ranked claims?
There are two other reasons why you should not rush to pay claims.
1. Lack of Authority
The first is that you don’t have the authority to pay a claim from your mom’s estate. That only comes after her estate has been probated and you have been named as her estate representative, e.g. independent executor, independent administrator, dependent executor, or dependent administrator.
2. Statute of Limitations
The second is that her estate may not owe the claim at all because the statute of limitations has run, the claim can be successfully disputed, or the creditor botches the claims process.
Texas has helpfully set out an orderly way for a creditor to make a claim against a probate estate.
Understanding the Creditor’s Process
Several processes come into play, depending upon the type of administration and the type of claim. The type of process the creditor must follow depends upon the answer to these four questions:
- Is it a money claim or another type of claim?
- Is it an unsecured claim or a secured claim?
- Did the estate representative give permissive notice when appropriate?
- Is it a dependent or independent administration?
The process is complicated. For every one of the questions, there are definitions and case law. What is a money claim? What is permissive notice and when is it appropriate? What is a secured claim?
Example of a Money Claim
Let’s go through a quick example of a money claim under a dependent administration where the creditor received permissive notice.
The claim must:
- Be presented within 120 days.
- Be signed by the creditor.
- State the amount claimed, the claim classification, and, if it is secured, an election for treatment.
- Be supported by an affidavit.
- Include all exhibits and vouchers to prove the claim.
And that’s just for starters. A lot of creditors lose because they don’t follow the claim procedure.
Hammerle Finley Law Firm is Here to Help with Probate
The answer? See a probate lawyer to guide you through the process. These are critical decisions. If you have questions about the probate process, contact the experts at Hammerle Finley Law Firm today to schedule a consultation.
Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship, and contested litigation. She may be reached at legaltalktexas@hammerle.com. This blog contains general information only and does not constitute legal advice.