August 14, 2012
The Personal Representative of an estate is responsible for marshalling and managing the assets of the estate. One part of this responsibility is dealing with creditors of the estate. There are a number of South Carolina statutes that lay out what this responsibility is.
First off, creditors of an estate must file their claims in Probate Court prior to the earlier of eight months after a creditor’s advertisement is published or one year after the Decedent’s date of death. (SC Code §62-3-805) Personal Representatives can put themselves in serious jeopardy if they pay out funds from the estate to the estate beneficiaries before the expiration of the claim period. Personal Representatives who do so can be personally liable to any creditor who files a valid claim within the claim period but after the PR distributes assets to a beneficiary.
Creditors who do not make their claims prior to the expiration of the claim period will have their claims barred. One exception to this is if the creditor is a secured creditor, such as the holder of a mortgage on estate real property. This debt will not be barred by the claim period, as the mortgage is attached to the property. Typically bills like credit cards, medical bills, and utility bills, are unsecured debts, and can be barred if claims against the estate are not made on time.
Once the creditor’s period is passed, the Personal Representative may pay the valid claims made against the estate. The Personal Representative must evaluate all of the claims made and insure that they are valid debts and the claims have been validly and timely made. The validly and timely made claims can then be paid. If there are sufficient estate assets to pay with, they can all be paid and releases obtained and filed with the Probate Court. If there are insufficient assets to pay the claims, they must be paid according to the statutory order of claim priority, and if there are insufficient assets to pay all the claims at the same level of priority, they are paid on a pro rata basis.
S.C. Code §62-3-805 lays out the following order of claim priority:
Costs and expenses of estate administration, including attorney’s fees and reasonable funeral expenses have the highest priority. Claims with the second highest priority are those reasonable and necessary medical and hospital expenses of the decedent’s last illness and/or medical assistance paid under Medicaid for the Decedent’s benefit. The claims that come next are debts and taxes required to be paid under federal law, and debts and taxes required to be paid under South Carolina law. All other claims are paid last.