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.
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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