Settling Debts in Michigan Probate

Paid Invoice for DebtPeople tend to think of probate as the process by which a person’s assets get distributed after their death. While this is true, it overlooks one very important part of the process: before assets can be distributed, the legitimate debts of the estate must be resolved. Failure to do this means that creditors might try to pursue the heirs of the deceased in an effort to collect what is owed them. Even if this effort is unsuccessful, it can still be costly and upsetting to loved ones who believed the estate was settled. Here’s what you need to know about settling debts in Michigan probate.

Notifying Creditors is the First Step in Settling Debts in Michigan Probate

The executor, also known as the personal representative (PR) of the estate, is in charge of settling the estate’s legitimate debts. In order to settle a debt, of course, you must know that it exists, and most of us don’t know every debt and creditor of even our closest loved ones. So how do you figure out what debts they owed, and to whom?

Michigan law provides for the publication of a notice to creditors, typically in a legal newspaper such as the Detroit Legal News (for the estates of Wayne County residents) or the Oakland County Legal News (for Oakland County). Publishing a notice in the appropriate legal newspaper according to the requirements of the Michigan Estates and Protected Individuals Code (EPIC) will satisfy an executor’s responsibilities toward any unknown creditors of the estate.

The notice must contain the following information:

  • The name, and, if known, the date of death and date of birth of the decedent;
  • The name and address of the personal representative;
  • The name and address of the court where proceedings are filed; and
  • A statement that claims will be forever barred unless presented to the personal representative, or to both the court and the personal representative within 4 months after the publication of the notice.

As long as the notice is properly published, it doesn’t matter if an unknown creditor did not actually see it; they still will not be able to pursue a claim outside of that four-month window.

What about creditors who are known—or should be known? If you are taking care of a loved one’s estate, you have access to the bills they have received and any files they kept. If there are any creditors you actually know about, such as a credit card company or utility, you must provide them direct notice of the death in a timely fashion. This means within the four month period after the publication of a notice to creditors.

If you learn of the existence of a creditor less than 28 days before the end of that four month period, you must give notice of the death within 28 days after first learning of the creditor. Don’t think that you can avoid the need for direct notice by not looking through the deceased person’s records. The law considers a creditor “known” if you actually knew of their existence, or if you could have reasonably determined their existence by going through the deceased’s records or mail after death.

If the deceased was the creator (settlor) of a trust, notice of the death must also be given to the trustee of the trust.

There are some limited circumstances in which notice of a death does not have to be given to creditors. No notice is required if:

  • The deceased person (decedent) has been dead for over three years;
  • The creditor’s claim has been presented and/or paid;
  • The estate has no assets, and certain other legal conditions are met; or
  • For a trustee, the cost of administration equals or exceeds the value of the trust estate.

How Are Debts Paid in a Michigan Probate Matter?

Creditors may present claims by mailing or presenting them to the personal representative of the estate, or by filing with the court and  mailing a copy of the claim to the personal representative. A claim is considered “presented” for purposes of legal deadlines when it is mailed, if addressed to the PR or his or her attorney, or in all other cases, when it is actually received.

It is important to know that not all claims are created equal in a Michigan probate matter. Many personal representatives make the mistake of believing that it is their responsibility to pay each claim as it comes in. When an estate does not have enough assets to pay all claims, this can result in a claim that has greater priority going unpaid while one with lesser priority gets paid in full.

Here is the order in which claims against a probate estate should be paid in Michigan:

  • Costs and expenses of administration.
  • Reasonable funeral and burial expenses.
  • Homestead allowance.
  • Family allowance.
  • Exempt property.
  • Debts and taxes with priority under federal law, including, but not limited to, medical assistance payments that are subject to adjustment or recovery from an estate under section 1917 of the Social Security Act, 42 USC 1396p.
  • Reasonable and necessary medical and hospital expenses of the decedent’s last illness, including a compensation of persons attending the decedent.
  • Debts and taxes with priority under other laws of this state.
  • All other claims.

Within the classes of claims listed above, there is no priority among different claims. For instance, two medical bills from the deceased person’s last illness are given the same priority, as would two credit card bills. Similarly, whether or not a claim is due when presented does not affect its priority; a bill that is overdue has the same priority as another claim in the same class that is not due for another 30 days.

Some unscrupulous creditors may try to make family members believe that they are responsible for debts owed by the decedent’s estate. Often, this is not the case, but family members pay anyway out of a sense of obligation or fear for their own credit rating. Once a payment is made, it is very hard to get the money back. If you have any doubts about whether a claim is legitimate or whether you are obligated to make a payment (either personally or on behalf of the estate), contact an experienced Michigan probate attorney.

If you are the personal representative of a Michigan estate, we invite you to contact our law office with any questions you may have about settling debts in Michigan probate.

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