Dealing with the Claims of Creditors

In today's economic environment, dealing with the claims of estate creditors can be challenging.  What do you do if you have a piece of property that is worth less than the mortgage owed?  What if you don't have enough money in the estate to pay all of the creditors?  What if you only have creditors and no assets in the estate?

Florida Statutes sets forth the procedures for identifying and paying the claims of creditors.  All known creditors must be given actual notice of their right to file a claim.  All unknown creditors are given notice by publication.  A creditor will have ninety (90) days from the date notice is given to file their legitimate claim in the estate.  They must follow the proper procedure or run the risk their claim may be improperly filed and therefore, invalid. 

If a claim is filed that the Personal Representative believes is an invalid claim, then the Personal Representative has the right to object to the claim.  The claimant then has thirty (30) days to bring an independent lawsuit for the purpose of enforcing their claim.  If they fail to file the lawsuit in a timely manner, their claim may be barred.  Many times, the parties will agree to an extension of time to file the independent suit to give time to truly ascertain the validity of a claim.  It would not be uncommon for a hospital to file a claim before all payments from insurance companies had been received.  They must file their claim in order to preserve their rights. 

Sometimes an estate will have more claims than it has assets.  If this is the case, Florida law establishes a scheme for determining the priority of claims.  Class 1 claims include costs, expenses of administration, and compensation of personal representatives and their attorneys fees and attorneys fees awarded under s. 733.106(3). Class 2 claims are the reasonable funeral, interment, and grave marker expenses, whether paid by a guardian, the Personal Representative, or any other person, not to exceed the aggregate of $6,000. Class 3.claims are debts and taxes with preference under federal law, claims pursuant to ss. 409.9101 and 414.28, and claims in favor of the state for unpaid court costs, fees, or fines. Class 4 claims are the reasonable and necessary medical and hospital expenses of the last 60 days of the last illness of the decedent, including compensation of persons attending the decedent. Class 5. claims are the family allowance. Class 6 claims are any arrearage from court-ordered child support. Class 7 claims are debts acquired after death by the continuation of the decedent’s business, in accordance with s. 733.612(22), but only to the extent of the assets of that business. Class 8 claims are all other claims, including those founded on judgments or decrees rendered against the decedent during the decedent’s lifetime, and any excess over the sums allowed in the Class 2 and Class 4 claims. 

Ultimately all claims are barred two (2) years after the death of the decedent except for those that arose because of a duly recorded mortgage or security interest or the lien of any person in possession of personal property or the right to foreclose and enforce the mortgage or lien.  

Estate claims can ultimately affect what assets are available for distribution to the beneficiaries.  As a result, sometimes a strategic decision may be made to postpone estate administration until after the non-claim statue has run.  

Consult with a qualified legal professional if you have questions about an estate administration. 

New Law Changes How Divorce Affects Beneficiary Designations

In 1951, Florida enacted a statute automatically cutting divorced spouses out of each other's wills (F.S.732.507(2)). In 1989, Florida enacted a similar statute for revocable trusts (F.S. 736.1105). But these laws did nothing to automatically eliminate a former spouse as a beneficiary on an asset like life insurance.  So, if you got divorced but did not remove your former spouse as the beneficiary and then you passed away, your former spouse would receive the proceeds from the life insurance regardless of your marital status.  This was also true for other non-probate assets such as annuities, pay-on-death accounts, and retirement accounts. Due to the inconsistency of the laws, many families experienced unexpected results during estate administration.

Consequently, the Florida Legislature acted, and on July 1, 2012, new F.S. 732.703 came into effect.  The new statute generally nullifies, upon divorce or annulment, the designation of a former spouse as a beneficiary of non-probate assets. There are a few exceptions including state-administered retirement plans.  If the provisions of the new statute apply, and a former spouse is listed as the beneficiary of one of the above-mentioned assets at the time it is administered, the asset will pass as if the former spouse predeceased the decedent. It will not pass to the former spouse.  F.S. 732.703 voids the designation of a former spouse as a beneficiary of an interest in an asset that will be transferred or paid upon the death of the decedent if, first, the decedent’s marriage was judicially dissolved or declared invalid before the decedent’s death; and the designation was made before the dissolution or order invalidating the marriage.

The new statute is not all encompassing and only applies to specific beneficiary-designated non-probate assets.  There are some assets to which the new law does not apply where a former spouse could inadvertently end up as the beneficiary.  This only reinforces the importance of periodically reviewing beneficiary designationsto ensure they remain consistent with and reflect your overall estate plan and ultimate goals. 

This recent change is but one of the ways the law is designed to protect people after a divorce and in the absence of updated planning.  There are still pitfalls that can and will happen.  Contact Florida Probate Professionals if you need assistance with estate planning or administration.