Oklahoma Bar Journal
Creditors, Claims and Costs of Administering or Probating an Estate
By Shanika Chapman and H. Terrell Monks
If you’ve been practicing in probate for any amount of time, you likely have a probate intake form for the prospective client that asks for heirs, assets and debts of the estate and decedent, along with other basic information. Of those three topics, nothing confounds a client more than the topic of debt. Clients remark, “Oh, mom didn’t have any credit cards,” or, “Mom always paid her debts.” For these clients, debt equates to credit cards. The practitioner’s job is to broaden that definition. Did mom have a mortgage? A car note? Did she pass in a medical facility? Are there any property liens or judgment liens? If the answer to any of these questions is yes, the estate now has a potential creditor entitled to notice. Paying proper debts of the decedent is a crucial duty of the personal representative1 that cannot be taken lightly, and it is better to be overinclusive.
The Oklahoma Probate Code has devoted an entire chapter to address what is a proper and valid claim or debt, what constitutes proper notice, when such claim or debt must be paid, how to properly reject or approve a claim and the consequences of such approval, rejection or failure to provide notice. Chapter 7, “Claims Against the Estate,” Sections 331-354 of the probate code, provides a detailed roadmap for navigating the potential landmine that is the world of creditor claims. Failure to follow it can have dire consequences, including facing a hefty bill for a wronged creditor’s attorney fees, and this could leave an attorney with an extremely dissatisfied client. The first half of this article will help guide a practitioner or creditor through the basics of creditors and claims. The second half will cover more esoteric matters and include case law and other statutes that may conflict and/or provide additional considerations.
PART I: CREDITOR CLAIM BASICS
The Personal Representative’s Responsibilities
Chapter 7 of Title 58 on creditor claims seeks to balance the rights of creditors to be repaid with the heirs and beneficiaries’ rights to the timely administration of an estate. Within two months of appointment, every personal representative must give notice of the decedent’s passing to any known creditors or reasonably ascertainable creditors and advise them that claims not timely presented are forever barred.2 Failure to do so can result in the revocation of the personal representative’s letters of administration or letters testamentary.3
The notice to creditors must be filed with the court clerk and published twice in a county newspaper over two consecutive weeks, within 10 days of filing.4 The personal representative must also mail such notice to any known creditors – those the personal representative actually knows of or through reasonable efforts could have located.5 All prospective personal representatives should go through the decedent’s effects (safe, filing cabinet, mail, etc.) in search of potential creditors. Note that the probate code does not require a personal representative to mail the notice to creditors to later discovered creditors.6
Sometimes creditors will respond by mailing statements or other documentation, arguably not constituting a claim (a discussion of what constitutes a valid claim is discussed infra) to the attorney for the personal representative subsequent to the filing of the petition to probate or administer the estate but prior to filing of the notice to creditors. Be sure to mail these creditors the notice to creditors once the personal representative is appointed, as they are now on notice of a known claimant. Note, however, a claim presented prior to the filing of the notice to creditors is deemed to have been validly presented, and the personal representative need not give notice by mail unless the claim is rejected in whole or in part.7
Section 331 of Title 58 provides the format for the notice, which typically must include a presentment date at least two months out.8 Publication schedules vary drastically by county. Some county newspapers only publish once a week, others daily – this is why the presentment date should be set about 65 days out since the first publication must occur within 10 days of filing the notice with the court clerk. Always follow up with the publisher to confirm the publication was timely published two times on consecutive weeks (certain publication requirements elsewhere in the probate code only require a one-time publication). Proof of publication and mailing or nonmailing must be made via affidavit9 by the personal representative and filed with the court clerk.
Once a claim is presented, the personal representative must approve or reject it, either in part or in whole.10 Allowed claims must be approved by the judge, who must likewise allow or reject the claim. If the judge approves the claim, the personal representative must file the claim with the court clerk within 30 days.11 Rejected claims, however, do not require approval by the judge, but notice of rejection must be mailed to the creditor within five days of the rejection.12If the personal representative fails to approve or reject the claim, it is presumed rejected on the 13th day after it was presented.13 Upon receipt of the notice of rejection, the creditor has 45 days to bring an ancillary proceeding or an independent action on a claim currently due or two months after the claim becomes due.14 If the personal representative neglects to mail the notice of rejection, the creditor has until the date the final petition is filed to bring suit.15 Note this is a change in the law, added in 2008, that greatly expands the window of opportunity for a creditor who was deprived of the notice of rejection. Note also that if the creditor prevails on its action, the estate is liable for the creditor’s attorney fees.16
A personal representative can pay what they believe to be a justly due debt at any time, even without the presentment of the claim, where the estate is solvent.17 Keep in mind, however, a debt that is otherwise barred by the statute of limitations is not a debt “justly due.”18 Further, an attorney should caution against authorizing the personal representative to pay debts until after they have a complete picture of the entirety of the decedent’s financial situation, as the code imposes a priority of payments of debts, discussed in greater detail infra.
The Creditor’s Responsibilities
There may be a conflict within the creditor statutes and case law regarding the creditor’s obligation vis a vis certain types of debt, which will be discussed in greater detail below. However, generally, for the majority of debts, upon receipt of the notice to creditors, a creditor must present a valid claim to the personal representative. To be valid, the claim must be signed by the creditor’s authorized representative, include the amount owed, state the nature and source of the claim and, if secured, include a description of the security interest.19
Fortunately for the personal representative, with few exceptions, the claim of a creditor who received notice but did not present the claim by the presentment date is forever barred.20 This is an important point of discussion to have with a personal representative, particularly where the estate at issue has multiple creditors. It is not unusual for some creditors to neglect to file a claim at all, a source of great relief for some clients handling an estate with a lot of debt. Note that an out-of-state creditor who did not receive notice has until the final decree is entered to present a claim.21
Further, creditors who fail to present a valid claim (one that meets the particulars of 58 O.S. §334 discussed above) by the presentment date are also out of luck. For example, some creditors will simply mail a bill. Generally, this unsigned document will not suffice to meet the statutory requirements of a claim. However, if the estate is solvent and the personal representative knows it to be a valid debt, pursuant to 58 O.S. §335, the personal representative may elect to pay it. Even if the creditor presented a timely, valid claim, it may not be entitled to payment, for example, if the estate is insolvent or the only assets in the estate are exempt.
Generally, creditors cannot bring suit against an estate without first presenting a claim.22 Certain creditors, however, are not required to file a claim in order to secure their debt. Judgment creditors who have placed a lien on the decedent’s real property and mortgage holders are two such examples.23 However, if such creditor does not file a claim, the creditor cannot pursue any deficiency from the estate. Note that creditors holding a judgment for money must first present the claim to the personal representative.24
If the only assets in the estate are exempt personal property, exempt cash and the homestead, and the decedent left a surviving spouse or minor child, such assets cannot be forced to satisfy the decedent’s debts. However, the exempt personal property and cash may be liable for expenses of the last illness, funeral costs and costs of administration.25
If the personal representative has a claim against the estate, they must present their claim like any other creditor, but they cannot approve their own claim – it must be presented to the judge.26 Sometimes, the personal representative might pay certain estate debts out of pocket if the estate does not yet have funds, such as utilities, lawn care or a mortgage payment. These expenses do not constitute a claim but are instead expenses of administration for which the personal representative should be repaid, possibly at the time of the final distribution. Nonetheless, where there is more than one heir, it is a good idea to get approval from other heirs, or an order of the court, for the repayment of those expenses prior to the conclusion of the probate.
PART II: ISSUES RELATED TO COSTS OF ADMINISTRATION AND CREDITOR CLAIMS
Debts Versus Claims and Priority of Payments
Not all creditors are treated equally under the Oklahoma probate code. Certain debts are entitled to priority payment and should be paid as soon as funds are available in a solvent estate. There is, however, a conflict between the probate code and case law on this topic.
The code and Oklahoma case law make numerous references to a trio of debts that hold the important status of receiving priority of payment: funeral costs, expenses of the last illness and costs of administration. The Oklahoma Supreme Court has long held that expenses of administration, including attorneys’ fees, have priority over every other obligation.27 Thereafter, funeral costs and expenses of the last illness rank first and second for payment under the order of payment statute,28 and funeral costs and expenses of administration are to be paid prior to any family allowance.29 This trio of debts is also an exception to the exempt property statute, “No such property shall be liable for any prior debts or claims against the decedent, except, when there are no assets thereunto available, for the payment of the necessary expenses of his last illness, funeral charges and expenses of administration.”30
Further, Section 594 provides that a personal representative “as soon as he has sufficient funds in his hands, must pay the funeral expenses, and the expenses of the last sickness, and the allowance made to the family of the decedent. He may retain in his hands the necessary expenses of administration, but he is not obliged to pay any other debt or any legacy until, as prescribed in this chapter, the payment has been ordered by the court.”
Finally, the statutes on small estate and summary probates likewise distinguish this trio from other debts and claims, requiring “proof of payment of funeral expenses, expenses of last sickness and of administration and allowed claims.”31 Collectively, these statutes demonstrate that expenses of the last illness, funeral costs and expenses of administration are a unique set of debts that receive priority of payment under Oklahoma law.
Given the clear edict by the Legislature that the personal representative must pay these debts, it is not unreasonable for a practitioner to presume such payments must be made regardless of if the creditor also filed a claim. However, the Oklahoma Supreme Court has called such thinking into question in the Estate of Pope.32
In Pope, the creditor for the expenses of the decedent’s last illness failed to present its claim to the personal representative within the statutory period outlined in 58 O.S. §331.33 Four years later, the creditor’s assignee filed an application for an order compelling payment of expenses of last illness. The trial court held the creditor’s failure to file a timely claim barred its assertion of the claim.34 After a lengthy analysis of the claim presentation statutes and 58 O.S. §594, the Oklahoma Supreme Court agreed, holding that a creditor for the expenses of the last illness must also present a valid claim.35 However, not all the justices agreed with the holding, and one dissenting judge offered reasons as to why he believed the court got it wrong, including its failure to recognize the Legislature intended to treat certain debts, such as those of the last illness, differently than other claims.36 It will be interesting to see how this apparent conflict in the law may develop in the future.
Once the personal representative has received all the debts of the estate, Sections 591 and 593 collectively delineate the order of payment, organizing each group of debts by “classes” and instructing that where the estate lacks the funds to pay the entirety of the claims within that class, each creditor from such class receives a pro-rata share.37
One final point of discussion is that attorneys’ fees sit comfortably within the costs of administration of an estate.38 When such fees will come from estate assets, they must be approved by the court.39 Sometimes, the source of payment isn’t always clear. In such case, disclosure to the court of the attorney fee is the better route. For example, if the sole heir pays the attorney fee upfront at the initial consultation, at that moment, the heir has presumably paid from their own assets. However, if they will inherit cash from the estate, an argument could be made that since cash is fungible, they essentially paid your fee from estate assets. Requesting approval of such fee from the court is the much better option here, especially in light of our duty of candor to the tribunal and Mansfield.40
The personal representative has an obligation to appropriately address creditor claims. The probate practitioner’s familiarity with the probate code’s roadmap regarding the treatment, priority and payment of creditor claims, coupled with detailed instructions to their client, will assure the personal representative can efficiently meet this obligation, and they have been competently represented and counseled.
ABOUT THE AUTHORS
Shanika Chapman is an attorney with Oklahoma Estate Attorneys PLLC in Oklahoma City and practices in the areas of probate and estate planning. She received her J.D. from the OCU School of Law in 2013.
H. Terrell Monks is the senior attorney of Oklahoma Estate Attorneys PLLC, where he practices primarily in the areas of estate planning, Medicaid and probate in Edmond and Midwest City. He is an adjunct professor at Rose State College, municipal judge for the city of Piedmont, associate judge for the city of Bethany and a 1997 graduate of the OCU School of Law.
- The term “personal representative” shall also encompass “executor,” “executrix” and “administrator.”
- 58 O.S. §§331, 331.1., 352.
- 58 O.S. §352.
- 58 O.S. §331.
- 58 O.S. §331.1.
- 58 O.S. §331.2.
- 58 O.S. §337(E); See also In re: the Estate of Villines, 2005 OK 63, 122 P.3d 466.
- If the decedent died at least five years prior to the filing of the probate, or if the personal representative elects to file a summary administration, the presentment date is shortened to one month. 58 O.S. §331.
- 58 O.S. §332.
- 58 O.S. §337.
- 58 O.S. §338.
- Id. §337.
- Id. §339.
- Id. §337(F)(2).
- Id. §350.
- Id. §335.
- See In re: Estate of Carlin, 1977 OK CIV APP 55, ¶7, 572 P.2d 606.
- 58 O.S. §334.
- Id. §333.
- Id. §341.
- Id. §333; Stewart Drugs, INC. v. Estate of Funnell, 2001 OK CIV APP 7, 16 P.3d 1134.
- 58 O.S. §346.
- Id. §312.
- Id. §351.
- See Tims Funeral Home v. Phillips, 1972 OK 121, ¶¶8-14, 501 P.2d 493.
- 58 O.S. §591.
- Id. §315.
- Id. §312.
- Id. §§241, 247.
- In re: the Estate of Pope, 1986 OK 72, 733 P.2d 396.
- Id. at ¶8, 399.
- Id. at ¶2, 397.
- Id. at ¶8, 399.
- Id. at
- 58 O.S. §§591, 593.
- See Tims Funeral Home v. Phillips, 1972 OK 121, ¶¶8-14, 501 P.2d 493.
- State ex rel. Oklahoma Bar Association v. Mansfield, 2015 OK 22, 350 P.3d 108, states in pertinent part as follows:
Oklahoma law clearly requires prior court approval for the payment of any and all fees for such services regardless of whether an attorney acts as special administrator, personal representative, executor, or attorney for an estate. Probate judges and the practicing bar must exercise diligence to ensure fees are not removed from an estate without court approval.
Originally published in the Oklahoma Bar Journal – OBJ 92 (February 2021)