Navigating Creditor Claims in Probate
Brad:
Many people don’t realize that creditors must be paid before heirs can receive any distributions from the estates. In Georgia, where I live, there is a legal requirement to notify creditors. This usually involves publishing a notice that runs for a specified period, allowing creditors a certain amount of time to come forward with their claims, such as if Johnny owes them $10,000. Until this notification period is over, no money can be taken out of the estate. I assume Arizona has a similar process, as you mentioned earlier.
Arizona has a four-month waiting period for creditors during probate. I understand that people want to access and distribute the money as quickly as possible, but it’s important to recognize that you may not know your family member’s financial situation as well as you think. During probate, you might discover unpaid bills or other financial issues that you weren’t aware of, such as back taxes or significant credit card debt that the family didn’t know existed.
Many clients ask if they can distribute money from an estate that has over a million dollars, or if a partial distribution is possible. I take a firm stance on this and usually say no. I cannot allow any funds to be withdrawn before we fully understand the estate’s liabilities. It’s not uncommon to uncover unexpected financial problems, and I prefer to wait until we have clarity on all aspects of the estate before proceeding with the distribution process. This approach ensures that everyone knows exactly what to expect and avoids surprises later on.
Charles:
Two years ago, we handled a probate case in our office. The family and the personal representative, who was overseeing the probate process, worked with a professional like you, Bob, to liquidate the family home. They believed they had everything organized and were ready to move forward. However, just three days before the creditors’ notice window closed, we received a claim from a hospital for $1.4 million against an estate valued at $700,000.
If the family had proceeded with the distributions and used the funds to buy new boats, cars, or pay down their low 3% mortgages, they would have faced serious consequences. The hospital could have sued them and potentially taken back that money, which would have significantly impacted their lives since the estate was ultimately insolvent. In the end, the hospital only received half of their claim. This situation highlights the importance of following proper advice. It’s crucial to work with a real estate professional and a probate attorney to ensure that, as the personal representative of the estate, you do not inadvertently shortchange your family members. They might make financial decisions based on those distributions, so it’s vital to handle the process correctly.
𝐃𝐚𝐯𝐢𝐝 𝐆𝐞𝐫𝐬𝐳𝐞𝐰𝐬𝐤𝐢 𝐚𝐧𝐝 𝐄𝐥𝐢𝐳𝐚𝐛𝐞𝐭𝐡 𝐂𝐨𝐥𝐞 are attorneys at Citadel Law Firm in Chandler, Arizona, offering comprehensive legal services in estate planning, probate, trust administration, and asset protection. David brings a unique background in Wall Street, international business, and entrepreneurship, providing clients with holistic strategies that align with their financial goals. Elizabeth, formerly with the Arizona Attorney General’s Office, focuses on contested estates, guardianships, and probate litigation, leveraging virtual tools to serve clients efficiently and cost-effectively. Together, they deliver strategic, client-centered solutions backed by deep legal and financial insight. https://clfusa.com/