Statute of Limitations
The decedent's creditors do not have an unlimited amount of time to make claims against his estate for money he owed them. Statutes of limitation and procedures vary somewhat according to state law, but in most jurisdictions, the estate's executor must post a notice to creditors in the newspaper shortly after opening probate. Some states require the executor to also send written notice to creditors she knows about. After receiving notice, creditors must usually act relatively quickly to file a written claim with the executor. For example, in Ohio, they have six months, but in Vermont they have only four months.
An estate’s executor usually doesn't rubber-stamp a claim as soon as she receives it, but will typically set it aside for further review.. If she pays a debt that’s not legitimate, the laws in some states allow the estate’s beneficiaries to hold her personally responsible. Since she won’t risk this, she won't pay anyone before she’s sure the estate has enough money to satisfy all claims. Generally, by the time creditors begin making claims for payment, the executor will have made a thorough inspection of the decedent’s personal paperwork and can match claims against invoices and statements. She can check the claimant’s amount against what the decedent’s records indicate he owed. If there’s a discrepancy or she has reason to doubt a debt is legitimate, the executor can deny the claim.
Contesting the Decision
An executor does not have the final say regarding debts she decides not to pay. If she denies a claim, the creditor has a right to go over her head and ask the court to overrule her decision. In most states, this means filing a lawsuit for payment in probate court. Statutes of limitation usually exist for these lawsuits as well; otherwise, probate might drag on interminably and the estate would never settle. For example, in Ohio, a claimant has only two months to file a suit. An executor has the right to defend her decision to the court and, ultimately, a judge will decide whether the estate pays the claim. This relieves the executor of any responsibility for paying it if the claim turns out to be illegitimate.
Satisfaction of creditors’ claims is contingent upon the estate having enough money to pay all of them. Most states prioritize claims, meaning some claimants receive payment before others. Usually, the executor pays taxes, funeral costs and expenses of operating the estate first. If the remaining estate funds are insufficient to pay other claims, creditors usually receive some portion of payment on a prorated basis and beneficiaries generally don't receive their bequests. Larger claims receive a greater percentage of the remaining money. The court will order liquidation of the estate’s assets to pay the creditors as much as possible. If the executor cannot pay any claims, the estate is insolvent. In this case, its beneficiaries don’t receive anything either.