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Wednesday, August 11, 2010

Should an executor advertise for creditors and claimants?


Creditors are people to whom the deceased owed money. Claimants are people who say that the deceased owed them money, and who may or may not be correct about that.


When an executor begins the administration of an estate, he or she has to prepare an inventory of all of the deceased's assets and debts. Click here to read my recent post on preparing an inventory. Most of the creditors will be listed on the inventory because the executor will have found paperwork that proves the amount of the debt, the name of the creditor and the nature of the debt, such as credit card bills, and statements from the bank showing the balance owing on a mortgage or line of credit.


But what if there are creditors that the executor doesn't know about? For example, the deceased might have hired a gardener to clear away brush and small trees for $3,000, but did not sign a contract. Or, the deceased might have borrowed money from a friend. Perhaps the deceased had a business as a sole proprietor and didn't keep very careful records, overlooking payment to a supplier. How would the executor know to include any of these debts in the inventory?


The executor finds out about these debts by placing an advertisement in the Legal Notices section of the newspaper in the area where the deceased lived. It advises readers that the deceased has passed away, gives an address where the executor can be reached, and gives a deadline (usually 30 days) for the claimant to give the details of the claim to the executor.


In most jurisdictions, placing this advertisement is optional. An executor can decide whether or not there is any chance there could be an unpaid creditor or claimant out there.


The debts of an estate always have to be paid in full before beneficiaries can receive their shares of the estate. This means that if an executor finds out about a debt after he has paid out the beneficiaries, he may be on the hook to pay it personally. In every estate, the executor must assess the risk of that happening. For example, if the executor is acting on his mother's estate, after having acted as attorney for his mother under a Power of Attorney for the previous five years, he may feel confident that there are no unpaid bills.


If the executor does place the advertisement in the paper, he or she not only reduces the chance of any legitimate creditors being overlooked, but has also shown shown that he/she took extra steps to give the unpaid claimants a reasonable opportunity to make themselves known.

7 comments:

  1. What is the executors responsibility to pay an 5 year old debt that was just invoiced for the first time. My husband is executor for his father's will and the lawyer that wrote up the wills has submitted an invoice to the estate for an 'erroneously un-invoiced debt' from 5 years previous. My husband has paid all the current bills to this lawyer for work he did in settling the estate, but did not pay the 5 year old debt, as he has no way to confirm or deny, at this point, whether the invoice is legitimate or not. Now the lawyer has sued him in small claims court for the 5 year (now 7 year old) debt. What is the legality of having to pay this?

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  2. My father passed away in September and I am the executor of his estate. Prior to being executor I also had Power of Attorney for the last seven years and paid all his bills during the time he owned his home. I also sold his home and put the proceeds into Mutual Funds and Bonds. He owned his own business but sold it in 1987 when he retired. After selling his home I tied up all the loose ends regarding payments for utilities, etc. and continued to pay bills during his stay at a retirement home. My question is whether or not I should advertise for creditors and claimants. My father was a staunch believer in only buying what you can afford, etc. and would get very upset when customers didn't pay their bills and felt the sting from losing money with bankrupt customers. I highly doubt that there are any claimants but I would like to make sure without tempting some ne'er do well from making a frivolous claim.

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    Replies
    1. You obviously know that advertising for creditors and claimants is optional. You have to ask yourself whether there is a reasonable chance there's an unpaid creditor out there. If you handled your father's financial affairs for seven years before his death, you must have a pretty darn good grasp of his financial position. I usually recommend that advertising be done when the deceased owned a business, but in this case the business was sold almost 30 years ago. Any debts arising from business activities would be out of time now (i.e. the statute of limitations would bar the creditors from going ahead now). However, you must weigh your own risk. The risk is that if you pay out the estate and a creditor comes forward later, you might end up paying that creditor from your own funds. If a ne'er do well should show up, keep in mind that he or she must prove the claim. They don't get paid just for showing up.

      Lynne

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  3. I have handled my mom's finances for the past 2 years as she had dementia. She has nothing in her estate after the funeral is paid for and in fact there is a negative balance. I know that all of her standard utility bills have been paid for but I don't know if there were any other types of debts that may be out there. I can advertise in the local paper but there is no money to cover any other debts. What should I do?

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    Replies
    1. If there is simply nothing there, you can't pay any debts. You're not obligated to pay them out of your own money. Make sure you've applied for any benefits such as CPP death benefit that might be available. Since you've handled her finances for the last 2 years, it could be that there are no other debts. Surely you would know about them? If there was a little bit in the estate, you could offer creditors a few cents on the dollar on what is owed to them, but if there just isn't anything to divide, there isn't much you can do.

      Lynne

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  4. My husband passed away 1 month ago. The house and land is in my name only. My husband and I jointly own our vehicles. I do not have any money to pay for the funeral. The bank will not lend me any money because I insufficient funds to repay a loan. The estate has no money that will be going into it unless the death benefit cheque is made out to the estate. Do I have to pay for the funeral now that the bank has refused to help me.

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  5. My sister in law passed away and there is not an estate to speak of. Her mortgage on her condo is more than what we can sell it for and she had no other assets. We are going to turn the keys into the bank and walk away. She had some credit card debt and will owe income tax in the new year. Since there is no money, do we need to advertise for creditors and claimants? She did have a small amount in RRSPs that she named her brother the beneficiary of. It is my understanding that this is not part of the estate and he will not be responsible to pay any of her debts with that money. Is that correct?

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