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Sacramento Probate Attorneys Identify 7 Classes of Creditors Under California Probate Law

Probate Creditors Sacramento Estate Attorney

Under California law, estates provide not only for heirs' inheritance but also for debts owed to creditors. Here at Hackard Law in Sacramento, we have a proven record of experience and professional excellence to identify threats to an estate and prevent harm to our clients.

After a person dies and her estate enters probate proceedings, California law provides notice to creditors of that fact. Creditors may then file creditor claims against the estate for debts owed (note: creditors not receiving notice have legal remedies at their disposal).

Once a personal representative has taken over the administration of the decedent's estate, she has the duty to pay any debts owed to creditors that have filed valid creditor claims against the estate.

One question that frequently comes up is, "How does one determine the priority of creditors who have filed creditor claims?" In other words, how does the personal representative of an estate know who gets paid first, second, third, and on down the line?

Fortunately, the California Probate Code provides the order of the priority when addressing each creditor's claim to receive a payment. Specifically, California Probate Code Section 11420 organizes kinds of debts sought by creditors into classes and assigns the following order of priority of payment to those classes:

Class 1: Expenses of Administration. The personal representative's first priority is to pay creditors seeking payment for the estate's administrative expenses. Be aware that expenses reasonably related to administering property with obligations secured by mortgage, deed of trust, or other lien (such as a judgment lien) take precedence over the mortgage, deed of trust, or lien obligations themselves, which are Class 2.

Class 2: Obligations Secured by a Mortgage, Deed of Trust, or Other Lien. The personal representative's second priority is to pay any obligations secured by a mortgage, deed of trust, or other lien (such as a judgment lien), in the order of their priority, so far as they may be paid out of the proceeds of the property that is subject to the lien. California law specifies that if the proceeds are insufficient, then the remaining obligation owed becomes part of the estate's general debts as defined in Class 7 below. If you would like more information on the enforcement of mortgages on property in an estate, click here.

Class 3: Funeral Expenses. The personal representative's third priority is to pay the decedent's funeral expenses (note: funeral expenses are subject to the same filing requirements as other creditor claims). The law is clear that funeral expenses are to be charged against the estate of the decedent and not against the surviving spouse. While the estate has an obligation to pay funeral expenses, a 1976 California case called Sinai Temple v. Kaplan provides that the estate has a right of reimbursement against a volunteer who assumes the burden of the funeral expenses (unless the assumption of the burden was on the estate's behalf).

Class 4: Last Illness. The personal representative's fourth priority is to pay the expenses of the decedent's last illness (that is, the illness that caused the decedent's death).

Class 5: Family Allowance. The personal representative's fifth priority is to pay a family allowance. Persons entitled to a reasonable family allowance out of the estate include the decedent's surviving spouse, minor children, and adult children who are physically or mentally incapacitated from earning a living and who were dependent on the decedent's support. The Court (in this case Sacramento Superior Court) may order additional reasonable family allowance at its discretion to other adult children and/or parents of the decedent who were dependent on the decedent's support.

Class 6: Wage Claims. The personal representative's sixth priority is to pay wage claims. A wage claim is defined as a claim for wages, up to $2,000.00, of each employee of the decedent for work done or personal services rendered within the 90 days before the death of the decedent.

Class 7: General Debts. The personal representative's seventh priority is to pay general debts, including judgments not secured by a lien and all other debts not included in Class 1 through Class 6 above.

These priorities also apply to claims against a revocable trust after the settlor dies.

Understanding this order of priority is important for personal representatives because California law states that no debt of any class may be paid until all those of prior classes are paid in full (note: if the property in the estate is insufficient to pay all debts of any class in full, then each debt in the class must be paid a proportionate share of the estate's assets).

Case law makes it clear that, notwithstanding the Court's approval of a compromise, a personal representative is personally liable to higher priority creditors if the assets of the estate prove insufficient to satisfy their claims. For example, if a personal representative decides to pay Class 6 creditors, and then lacks sufficient estate assets to pay higher priority Class 3 creditors, then the personal representative will be personally on the hook for debts owed to the unsatisfied Class 3 creditors. To avoid this kind of result, Hackard Law's attorneys advise personal representatives to follow the order of priority of the classes closely.

If you are unsure how a debt is classified, or if you have any other questions about the order of priority of debt classes, contact Hackard Law's experienced probate attorneys based in Sacramento, CA. We're here to protect our clients - call us at 916-313-3030.

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