Being the personal representative or executor of a loved one’s estate comes with a significant amount of responsibility. Some of the essential duties that must be performed are related to dealing with the decedent’s creditors. Not only must potential creditors be identified and provided with proper notice of the probate proceedings, but claims must be paid in a specific order. If you have been named as an executor in a will or appointed as a personal representative, it’s crucial to be aware of your duties to the decedent’s estate — and the obligation you have to settle any outstanding debts.
What is a Creditor?
As an initial matter, it’s critical to understand what a creditor is. A creditor of an estate is an individual or entity to whom the decedent owed money or a debt before they passed. Notably, creditors must be paid in full before any distributions can be made to beneficiaries or heirs of the estate.
Creditors can be classified as “known” or “unknown.” Known creditors are those that can reasonably be found by reviewing the decedent’s financial records. While there are no specific statutory steps in Illinois that must be taken to identify creditors, they must be personally notified of the probate proceedings. In contrast, unknown creditors are those who cannot be found in a timely manner through reasonable means.
Do Creditors Need to Be Notified of Probate?
Under the Illinois Probate Act, the personal representative of a decedent’s estate has a duty to provide notice of probate to potential creditors. Failure to do so can result in personal liability if a creditor files a claim after payment has been distributed. However, the Act also protects personal representatives from incurring liability if they acted in good faith to notify the creditor.
By law, it is a personal representative’s duty to publish a notice once a week for three consecutive weeks. The notice must be published in a newspaper of general circulation in the county where the estate is being administered. While publication serves as adequate notice for unknown creditors, known creditors must be served by mail or personal delivery if their addresses are known or reasonably ascertainable.
What Order are Creditors’ Claims Paid in Illinois?
In the event an estate does not have enough money to pay all creditors, there is a certain order in which the claims must be paid by law. Specifically, there are seven classes of probate claims in Illinois, including the following:
- Class 1 claims: Funeral and burial expenses, administration expenses, statutory custodial claims
- Class 2 claims: The surviving spouse or child’s monetary award
- Class 3 claims: Debts due to the United States, including federal tax liens
- Class 4 claims: Money owed to employees of the decedent and medical expenses incurred as a result of the decedent’s last illness
- Class 5 claims: Money received by the decedent or held in trust, which cannot be identified or traced
- Class 6 claims: Debts owed to state and local government entities
- Class 7 claims: All other claims, including payment on personal notes, medical debt outside the one-year window, and other types of claims
Each class of claims must be paid before money from the estate can be allocated into the following class. If there are multiple creditor claims within each class, the claims are paid pro rata in that category — this means that each claim receives the same percentage of payment from the estate. After all claims have been paid, the remainder of the estate can be distributed in accordance with the decedent’s intent.
How Long Do Creditors Have to Collect a Debt from an Estate?
Creditors only have a limited amount of time to make a claim against a decedent’s estate. Under Illinois law, a creditor only has two years from the date the decedent passed to file a claim. But this statute of limitation may be shortened, depending upon whether — and how — a creditor was served with notice of probate.
Creditors have three months to file claims against an estate if they have been personally served with notice. After the claims period, they are barred from filing a claim to take legal action to collect. If the creditor did not receive a personal notice in the mail, they would have six months to file a claim against the estate beginning on the date of publication. If there is any issue or defect found in the notice provided to the creditor, the deadline to make a claim will default to the two-year statute of limitations.
Contact an Experienced Illinois Probate Attorney
If you are a personal representative or executor of an estate, it’s important to have a diligent attorney on your side who can help you navigate the legal process. Located in Rolling Meadows, Illinois and serving clients throughout the Northwest suburbs and Chicago area, Hess Law Firm offers reliable counsel and experienced representation for a wide variety of trusts and estates issues. Call (847) 367-6990 or email firstname.lastname@example.org today to schedule an appointment.