Estate creditors have one year from the point of the person passing away to make claims on that estate. If we found ourselves in probate, there would be a duty to file in a local newspaper of regular distribution and ring the dinner bell. It would let all the creditors know that someone just passed away so that they could make a claim to the estate. For 365 days from that point, the creditor would have the opportunity to make a filing against the estate.
We recently saw a case where a man had died intestate, meaning without a will. Some creditors made a claim on the 364th day, one day away from the one year make, and they filed in court to become the administrator over the estate up to the point where they would have the amount they were going to substantiate as debt satisfied. This would mean they would be controlling all the money and they would be appointed as the administrator should they proceed in court and get appointed.
This left a grieving widow totally freaked out that some other party could come and claim to be a creditor and then get appointed as the administrator over her and the entire estate, and this was because that door was left open.
Can Any Type Of Creditor Claim From The Deceased Person's Property?
Yes, and some credit card companies have figured out they can file against the deceased to try and claim to become the administrator over the estate. They try to strong-arm people to make a payment rather than a settlement. Previously, they used to just discharge those types of debts as unsecured debt but unfortunately, the state of California allows debtors to possibly file and get appointed as the administrator over the estate. It is very scary and it is a doorway we never want to try and leave open.
How Can Someone Avoid Claims Being Made On Their Property?
One of the best ways to avoid this situation would be to have things wrapped in a living trust. This does not mean people would not be able to make claims and try and file a lawsuit, it just means they would have to proceed from the outside rather than coming on the inside and getting appointed as the administrator where they could control everything. They would have to come in and establish by virtue of a regular lawsuit that they had a claim substantiated. At that point they could try and get that approved by the courts. It would take a lot longer and it would be a more costly trail, so we find that a lot of people usually just let those go unless of course there is a lot of money involved.
How Are Taxes Handled In Probate?
This would depend, because in regards to taxes, there would really be four different types when a person passed away. There might be an income tax still due on any kind of pension plans the individual had, there may be gift tax or there may be an estate tax depending on the size of the estate. We sometimes see this happen with celebrities.
There may be capital gains tax, but all of these would have to be predicated on the type of asset and the size of the estate. Right now, everyone has $5,430,000 credit towards their estate in gift tax. When that is calculated for a couple or as spouses, it would be $10,860,000 before they would have to be concerned about that type of tax, so it would really depend on a case by case analysis.
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