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The Basics Of Estate PlanningIMPORTANT NOTICE: This article is provided solely for research and archival purposes. MCLE self-study credit is no longer available. Even if you follow the instructions and submit payment you will not be granted MCLE self-study credit. Please note that low-cost MCLE is provided by the California Lawyers Association, pursuant to Business and Professions Code section 6056. Polly Planner brings Old Fogeys up to date on the latest in estate planning, trust and probate law By Margaret M. Hand
Last year, Olden, Crotchette & Fogey lost 10 clients to a competitor that has an estates and trusts department. In addition, three Old Fogey clients died, owing Old Fogey substantial fees. To stem the loss of clients and to handle the issues relating to its deceased clients, Old Fogey brought in Polly Planner, a certified specialist in estate planning, trust and probate law. As Polly was settling into her new office, Rose Greene, a junior associate, stuck her head in the door. Show-ing Polly a Judicial Council form titled “Notice of Administration to Creditors,” Greene asked, “what is a ‘personal representative?’” Polly explained that “personal representative” is a catch-all term. It means “executor,” if there is a will and the person named in it as executor is serving as such. It means “administrator with will annexed” if someone other than the named executor is appointed to administer the estate and it means “administrator,” when there is no will, only an intestate decedent. (Prob. Code §58.) Only after a person is appointed personal representative and the clerk of the court has issued to the person what are called “letters” does the person have power to administer the estate. (Prob. Code §8400.) Greene continued, “Jane Jones died owing Olden, Crotchette & Fogey a lot of money. Jones’ will has been admitted to probate and her husband was appointed executor. He just sent us this form. It says we have until four months from the date letters were first issued to the personal representative or 60 days from the date this notice was given, whichever comes later, to make a claim against the estate. What does this mean?” “Fill out the form and do not delay! By serving Olden, Crotchette & Fogey that notice, the executor has shortened the already short statute of limitations on claims against a deceased debtor." Polly then explained that the outside limitation on claims against a decedent is one year (Code of Civ. Proc. §366.2), but the notice Old Fogey just received shortens that time even further. Because a decedent’s personal representative may not pay claims barred by the statute of limitations (Prob. Code §9253), the creditor who makes a late claim will not be paid. “Really?” Greene persisted. “My grandfather died while I was in law school and I helped my mom administer his estate. I don’t remember Mom sending out notices like this and I am certain Mom paid all Grandpa’s debts before distributing his estate. Did Mom do something wrong when she paid Grandpa’s bills?” “No,” Polly explained. "Probate Code §9154 allows a personal representative to pay a timely claim, even if it is defective, as long as the claim is justly due, is paid in good faith, the personal representative does not pay too much and the estate is solvent. In other words, in most estates, the personal representative who wants to pay creditors may do so without fear of liability for doing so, as long as the creditor makes some sort of timely claim. Obviously, though, creditors should not rely on the kindness of executors. To ensure payment, creditors like Olden, Crotchette & Fogey must be sure to serve and file a proper claim within the time limits described in the Notice of Administration.” “Serve and file? Can’t we count on the executor to file this claim once it is served on him?” “No!” Polly practically shouted. “A claim is barred unless it is ‘filed in the manner and within the time provided by [Part 4, Division 7 of the Probate Code].’ (Prob. Code §9002.) To ensure payment, a creditor must comply with every requirement of Part 4 and that includes the requirement of serving and filing the claim.” Greene thanked Polly and left. Polly’s door had barely swung shut when John Bright, a senior associate barged in, sputtering, “Rose Greene just told me about the one-year statute of limitations and I’ve gotta do something. Our client Deadbeat Dan died owing Old Fogey a lot of money. His brother Dilettante Dan is probating his estate. We filed and served this claim eight months ago, but Dilettante is just ignoring it. The anniversary of Deadbeat’s death is tomorrow. What should I do?” “Relax,” Polly said, “your claim is protected. A claim that is properly filed and served tolls the statute of limitations.” (Prob. Code §9352.) Clearly relieved, but still not happy, Senior Associate complained, “Just after we filed our claim, Dilettante offered to pay 25 percent of Deadbeat’s fees. Now, Dilettante does not even return my calls. I think he is just waiting us out, hoping we will settle for pennies on the dollar. Doesn’t Dilettante have to do something? Isn’t there something I can do?” Polly explained that the personal representative must allow or reject, in whole or in part, each claim (Prob. Code §9250), but the Probate Code imposes no deadline for doing so. “Eventually, the beneficiaries are going to demand their inheritances. Dilettante cannot make distributions to them until he pays or compromises Olden, Crotchette & Fogey’s claim, so eventually Dilettante will be forced to address the claim.” Polly explained that personal representatives may not make preliminary distributions to beneficiaries if doing so would cause loss to a creditor (Prob. Code §11621) and may not petition for final distribution of the estate until all the claims are paid or adequately provided for (Prob. Code §11640), thus the beneficiaries’ desire for distribution puts some pressure on the personal representative to address claims in a timely fashion. In addition, in a small estate, the personal representative is required to report the status of the administration, or petition for final distribution, within one year of the issuance of letters. (Prob. Code §12200.) In estates large enough to require the filing of an estate tax return, this deadline is 18 months. (Id.) These deadlines also put some pressure on the personal representative to address claims. Still not happy, Bright grumbled, “it sounds like all the deadlines work against creditors. We must hurry up and pay attention, but the personal representative can just take his time.” “Well, there is some truth in that.” Polly went on to warn that if the personal representative rejected the claim, Olden, Crotchette & Fogey would face another short deadline, the three-month deadline for filing suit on a rejected claim. (Prob. Code §9353 bars suits on rejected claims unless the suit is brought (a) within three months of the rejection, if the claim is due at the time of the notice of rejection or (b) within three months after the claim becomes due, if the claim becomes due after the notice of rejection.) Bright continued grumbling, “It is frustrating that we know so little about what is going on. Short of going to the courthouse periodically and checking the file, how can we stay abreast of what’s happening? And isn’t there anything we can to do speed things along?” Polly explained that creditors may monitor the administration of a decedent’s estate by filing a request for special notice and requesting notice of all petitions, inventories, objections to appraisals, accounts and reports of the personal representative. (Prob. Code §1250.) Such notice enables a creditor to determine whether there are sufficient assets to pay its claim. It also allows the creditor to object, for example, to a petition for preliminary distribution, if the preliminary distribution would cause loss to the creditor. (Prob. Code §11621.) Polly continued, “If you believe Olden, Crotchette & Fogey will not be paid without suing, don’t wait for Dilettante to reject the claim. If a personal representative fails to act on a claim within 30 days, Probate Code §9256 allows a creditor to treat the claim as rejected and bring suit. Maybe Olden, Crotchette & Fogey should sue now.” “Yeah, thanks,” Bright said, “I’ll tell Rose Greene to file a complaint next week. This has taken way too long.” Polly returned to unpacking, but before she had time to open the third box, her telephone rang. Without waiting for Polly’s greeting, Mr. Olden cut in, “Polly, I just finished talking with Rose Greene about that Notice of Administration in the estate of Jane Jones. Greene does not know this, but Jane Jones’ executor is never going to pay that claim. Jane came to us because she thought her husband was diverting income from their community property business to an account in the name of the husband’s mistress. Jane died in the middle of our investigation. Now her husband is her executor. He knows why Jane consulted us and I am sure he will refuse to pay our claim. Can’t we just sue him now and avoid the delay of filing a claim?” “No, a creditor may not bring an action against a decedent’s personal representative without first filing a claim,” Polly responded, citing Probate Code §9351. “Greene should go ahead and complete that form.” Mr. Olden thanked Polly and then asked for her assistance with a long time client, Rooter Rooter Inc., a plumbing company. Rooter had done a lot of work for Homer Owner, who died 11 months ago, owing Rooter about $20,000. Rooter called Mr. Olden again today about the problem and Mr. Olden needed Polly’s guidance before returning Rooter’s call. Mr. Olden did not know whether anyone had opened a probate for Homer Owner’s estate. “The first step,” Polly explained, “is to check with the Clerk of the Court in the county in which Homer Owner was domiciled.” (Regardless of where a decedent died, if domiciled in California, the proper place of administration is the county in which the decedent was domiciled. Prob. Code §7051.) Polly continued, “If a probate has been opened, prepare and file a claim. If there is no probate opened, Rooter, Rooter Inc. better hurry up and petition for the appointment of a special administrator.” “Can’t Rooter wait . . .” Polly cut him off, “No!” Feeling like a broken record, she said, “there is an outside time limit of one year for filing claims against a decedent. (Code of Civ. Proc. §366.2.) The decedent’s personal representative may shorten this time even further, by giving notice to creditors in the manner required by the Probate Code, but nothing in the chapters governing notice to creditors and the filing of claims extends the time within which a creditor must act.” (§9100(a)(2), which governs the time for filing claims, states, “Nothing in this paragraph extends the time provided in §366.2 of the Code of Civil Procedure.”) Confused, Mr. Olden demanded, “you mean Rooter has to do the work of opening a probate, just so it can file its claim? How is Rooter going to do that? No one at Rooter even knows if Homer Owner had a will.” “Seeking the appointment of a special administrator is not the same as petitioning for probate, though one uses the same Judicial Council form,” Polly explained. “A special administrator may be appointed to perform specific acts and for a limited purpose. (Prob. Code §8540.) This is what I recommend. Check to see whether anyone has lodged Homer Owner’s will with the clerk of the superior court in the county of Homer Owner’s domicile. The custodian of the original will should have done this within 30 days of Homer Owner’s death. (Prob. Code §8200.) If you find the will, contact the person named as executor and ask them to consent to serve as special administrator. The person named as executor has the right to appointment as such (Prob. Code §8420) and has priority of appointment as special administrator (Prob. Code §8541). “So, if the named executor wishes to serve, it would probably be a waste of time seeking the appointment of anyone else. On the other hand, if the nominated executor will not serve, or if you cannot find the will or if there is no will, or if you simply run out of time, Rooter should seek the appointment of its CEO or another officer as special administrator, solely for the purpose of filing a claim." (Of those entitled to appointment as administrators, creditors have nearly the lowest priority (see Prob. Code §8461(q)), but the court will appoint a creditor as special administrator, if it is necessary to prevent the running of the statute of limitations.) “But the CEO of Rooter will have no ability to pay Rooter’s claim,” Mr. Olden protested. “True,” Polly agreed, “but right now your problem is the statute of limitations. If you don’t get a claim filed and served by the anniversary of Homer Owner’s death, Rooter’s claim will be time barred. Worry about payment next. For now, focus on getting someone appointed as special administrator.” “OK,” Mr. Olden agreed as he walked out the door, “but once the messenger gets back from the court house, I’m turning this case over to you.” Minutes after Olden left Polly’s office, the telephone rang and without waiting, the new caller introduced herself as Wanda Williams and said that her ex-husband had just died. Wanda explained that a few months earlier, she had gotten a judgment against her ex-husband for back child support. Wanda continued, “I am familiar with the creditor claim procedure in probate because I was the executor of my mother’s estate, but I don’t have to go through that rigamarole now, do I? I proved my claim in Family Court before the jerk died.” Patiently, Polly explained that even judgment creditors must file claims if the judgment creditor wishes to be paid. (Prob. Code §§9300 et seq.) Only secured creditors who intend to rely solely on the security interest (Prob. Code §9391) and creditors who intend to rely solely on the decedent’s insurance coverage (Prob. Code §9390) may forego the necessity of filing a claim. “But,” Wanda interrupted, “Brian, my ex-husband’s brother, is named as executor in the will and he wrote to me, promising that he will pay the judgment. I trust Brian. He’s my kids’ uncle and he loves them.” Polly sighed. Some days, it seemed all she did was give bad news. Polly cautioned Wanda that Brian’s written promise might not provide Wanda with much protection. The one-year statute of limitations on claims against a decedent cannot be tolled by agreement. (Code Civ. Proc. §366.2, limitations period “shall not be tolled or extended for any reason except . . . creditor claims in administration of decedent’s estates . . .”) Wanda’s best protection is to make sure an administration is opened before the anniversary of her ex-husband’s death and then file and serve a claim. “What if my ex-husband had a revocable trust, instead of a will?” Wanda questioned. “Does that make a difference?” “Oh, dear,” Polly thought, “I am never going to get these boxes unpacked!” To Wanda, she suggested that they meet to discuss the complications a trust creates. “My secretary handles my calendar and I will transfer you to her. Tell her that we will need two hours.” • Oakland attorney Margaret M. Hand is a certified specialist in estate planning, trust and probate law and a member of the executive committee of the State Bar’s Trusts and Estates Section. Certification
SELF-ASSESSMENT TESTIndicate whether the following statements are true or false after reading the MCLE article on estate planning. Use the answer form provided to send the test, along with a $25 processing fee, to the State Bar. If you do not receive your certificate within four to six weeks, call 415-538-2504.
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