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Claims Against an Estate Part 2

The prior note discussed the procedure for notice to creditors, the presentment of claims to the estate and the statute of limitations for bringing an action against an estate for a claim. This note will discuss the allowance and disallowance of claims, how contested claims are handled, the priority of claims and the rights of a creditor under EPIC.

Allowance or Disallowance of Claims

Once a personal representative receives a claim, he or she may allow or disallow the claim. If the personal representative takes no action on a presented claim, it is considered to be automatically allowed 63 days after the time for original presentation of the claim has expired or after 63 days of the appointment of the personal representative, whichever is later. However, the personal representative can later change his or her position regarding the claim. However, a decision disallowing a claim may not be changed after the claim is barred. A judgment of another court constitutes an allowance of the claim. Pursuant to MCL 700.3807(3) an allowed claim may be disallowed later by the court in a formal proceeding if the whereabouts of the claimant is unknown when the personal representative attempts to pay the claim. Since there is no time limit for the presentation of claims for fees and expenses of the personal representative, attorney and other specialized agents under MCL 700.3803(3)(c), these claims are never "allowed" because the 63-day period never begins to run. The personal representative is permitted to pay these claims pursuant to MCL 700.3807(2). A claim by the personal representative for a claim that arose before the death of the decedent may only be allowed or disallowed by an order of the court in a formal proceeding pursuant to MCR 5.307(C).

The personal representative may also disallow the the claim in whole or in part by sending a notice to the claimant. The form used is Notice of Disallowance of Claim, (PC 580). The notice of disallowance must warn the claimant that the portion of the claim that was disallowed will be barred unless the claimant starts a civil action by filing a complaint against the personal representative within 63 days. It is extremely important to use PC 580 since it contains the proper language which will result in barring the claim if the proper action is not taken by the claimant within the proper time. It should be noted that the only proper way to have a disallowed claim allowed is by a civil action pursuant to MCR 5.101(C). After notice of disallowance the claimant must start a civil action by filing a complaint against the personal representative within 63 days after the mailing of the notice. If the claimant fails to do so, the claim will be barred.

Contested Claims

MCR 5.101(C) provides that a complaint filed by a claimant after notice that the claim has been disallowed must be titled civil action and must be commenced by filing a complaint and governed by the rules which are applicable to civil actions in circuit court. The intent of the rule is to require any action to allow a disallowed claim filed in a decedent's estate to be the same as any civil lawsuit. The matter is heard in the probate court. It must be commenced by filing a complaint and then an Answer must be filed by the personal representative. The case will proceed as any other civil lawsuit until a determination is made by the probate court. Pursuant to MCR 5.120 the personal representative must give notice to all interested persons that a contested matter has been commenced and must keep such interested persons reasonably informed of his or her actions. The personal representative must inform interested persons that they may file a petition to intervene in the matter and that failure to do so shall result in their being bound by the actions of the personal representative. Unless someone intervenes, interested persons are bound by determination made in the lawsuit.

Priority of Allowances of Claims

In an estate the allowances and claims must be satisfied before the payment of any devise. The Estates and Protected Individuals Code establishes the order in which each charge against an estate must be paid. This becomes very important when there are insufficient assets to pay all such charges. A preference shall not be given in the payment of a claim over another claim of the same class, and a claim due and payable shall not be entitled to a preference over a claim not due. The charges against an estate must be paid in the following order of priority:

1. Expenses of administration.

2. Funeral and burial expense.

3. Homestead allowance.

4. Family allowance.

5. Exempt property allowance.

6. Debts and taxes with priority under federal law.

7. Reasonable and necessary medical and hospital expenses of the decedent's last illness, including a compensation of persons attending the decedent.

8. Debts and taxes with priority under laws of Michigan

9. All other claims

Payment of Claims

After the expiration of the 4 months following publication of the notice to creditors, and after providing for homestead, family and exempt property allowances, for claims that have been disallowed and appealed, and costs of administration, the personal representative must pay the claims allowed in the order of the priority as provided above. No order allowing claims is necessary. If a claim is presented and if it appears to be in the estate's best interest, the personal representative may settle the claim. Pursuant to MCL 700.3807(2) the personal representative may pay claims sooner, but the personal representative may be liable to another claimant whose claim is allowed and who is injured by the payment if (1) the claim is paid early and there is no or inadequate security for repayment, or (2) payment is made due to the negligence or willful fault of the personal representative in a manner that deprives the claimant of priority.

Rights of Claimants

Creditors have the right to take several actions under the Estates and Protected Individuals Code. A creditor may do any or all of the following:

1. Pursuant to MCL 700.3205 file a demand for notice.

2. Pursuant to MCL 700.3605 make a written demand that the personal representative file a bond if the amount of the claim is in excess of $2,500.

3. Pursuant to MCL 700.3401 commence a formal proceeding to determine testacy or commence a formal proceeding to determine the priority or qualification of the personal representative.

4. Pursuant to MCL 700.3502 file a petition for supervised administration.

5. Pursuant to MCL 700.3607 file a petition for a temporary restraining order to restrain the personal representative from performing some act.

6. Pursuant to MCL 700.3911 commence a proceeding against a distributee to recover property improperly distributed.

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