CHAPTER XIV

ASSEMBLING CLAIMS AND PAYING DEBTS

§ 107. Payment of Claims Requires Care

The law will not permit the distribution of a decedent's property to the exclusion of his creditors. The estate assets must first be applied to the payment of all just claims against it. The law of every state prescribes a certain routine through which the executor must go in order to save himself from personal liability to creditors, and the order of priority in which claims are to be paid.

All approved claims against the estate should be paid by the executor in the order prescribed by law, but the order of payment is of importance only in cases where there are not sufficient funds to pay all debts. (See § 111.) In such cases the executor may render himself personally liable if he pays without regard to the prescribed order.

§ 108. Notice to Present Claims

Since there can be no certainty that all debts can be ascertained by the executor from an examination of the books and records of the decedent, public notice must usually be given by the representative to creditors to present any claims they may have against the estate within a certain time. This action is usually taken after the appointment of an executor or an administrator, and after the inventory and appraisement of assets have been made. The time allowed creditors for the filing of claims differs in the various states, but usually runs from six months to two years. If they fail to present their claims within the statutory period, they cannot come in later and dis

turb the settlement that has been made. Jessup, in his work on Surrogates' Practice, says:

It is advisable to do this before the transfer tax proceedings, because of the deduction to which the estate is entitled by reason of such debts, in fixing the net amount of the tax payable.

Where there are claims that will not accrue within the time specified for payment, the statutes of the states usually provide that if such claims come up later they may be enforced, and if the executor or the administrator has been discharged they may be enforced against any heir or legatee of the will who has received assets of the estate. Persons having such deferred claims should, however, present them for allowance and ask that funds be set aside to meet them when due.

§ 109. Method of Presenting Claims

In some states the claims are presented directly to the executor or the administrator, while in others they go immediately to the court conducting the settlement of that particular estate. In most of the states, however, the claims are first presented to the representative, who will either allow the claim and settle it in good time, or reject it. If an executor believes a claim to be invalid, he should reject it. The creditor may bring the matter to the attention of the proper court to decide whether or not the executor or the administrator is right in refusing to allow the claim. In some states it is not the court which appointed the executor that has jurisdiction to order the payment of a rejected claim.

When all claims finally have been collected and passed upon, the representative must usually present a statement to the court containing the aggregate amount of all the claims and the total assets on hand to cover them. If the personal assets are not enough and there is real property, the court will be asked to

make a decree allowing the representative to sell as much of the real property as need be to pay the excess of debts. If the insufficiency of assets is satisfactorily shown, the court issues an order directing the sale of enough real estate to pay the debts in excess of the value of the personalty. Because of the possibility that the personal assets may not be sufficient to meet the debts, the executor should not pay over any legacies, either general or specific, until he is certain that there will be enough money from the sale of personal property to pay all the debts. If the legacies have to be abated in order to pay some of the debts, the money will be taken from all the general legacies proportionately, so that no one legatee will suffer more than another. (See §129.) Specific legacies will not be subject to the payment of debts until the general legacies have been exhausted. (See $130.) However, as has been mentioned before, if rightful claims should accrue after settlement, they may be collected directly from the heirs or the legatees.

Except where specific statutes have changed it, the usual rule is that the title to the legacy is in the legatee immediately upon the death of the testator, but the legacy itself need not be paid until one year from the testator's death. This gives the executor ample time to assemble all claims and to assure himself that they can be paid without abating legacies, or, if legacies have to be abated, to ascertain the abatement from each one. The executor can be held personally liable for the payment of a debt presented to him within, the time allowed by law to creditors for presenting claims, if in the meantime by distribution of assets he has made it impossible to pay the debt out of the estate.

§ 110. Charges upon Estate Prior to Preferred Claims

Claims against an estate are usually styled either "preferred" or "arbitrary," and they are not paid until all assets

and claims are gathered, and at that time preferred claims are paid off first.

But in practically all of the states, either by statute or otherwise, there are charges which accrue against an estate, and which must be paid off before anything else. These are not called "preferred claims" because they outrank even them, and are to be paid first of all, immediately upon appraisal, before the claims are assembled. Such charges are funeral expenses (including in some states physicians' charges and other expenses of the last illness), and an allowance for the support of the surviving parent and any children, pending settlement of the estate. The last depends entirely upon statute. Sums of money in amounts approved by the law may be paid from any ready money or assets on hand at the time, or may be advanced by the executor, who will later be reimbursed from the first assets acquired from the estate.

In Arkansas, Missouri, Alabama, Georgia, Utah, California and a few other states, the statutes provide that if the assets of any estate fail to reach a certain specified amount such assets shall remain exclusively to the surviving spouse and children, subject only to encumbrances which may have been on the property during the lifetime of the decedent.

This "right of allowance" being a statutory one, a person may not defeat the right of the court to assign such an allowance where necessary, even by putting a clause to that effect in his or her will. This allowance is distinct from the right of dower and in no way cuts off or lessens a wife's right of dower, nor will an antenuptial settlement in lieu of dower bar her right to such an allowance. A bequest may be made to her in lieu of her statutory right of dower. Then she elects to take one or the other. But an allowance may also be granted even if the estate is large if it is necessary for the support and maintenance of the surviving parent and children pending settlement of the estate and the granting of dower.

Where the survivor is the wife and there are no children, the property given to the wife as an allowance is hers absolutely and not just for the period of her life. This rule applies also to a surviving husband where there are no children.

The deceased should not be given a burial out of keeping with his standing in life. Usually there should be no large outlay, because if the estate is not extensive, as much money as possible must be left for the creditors and other expenses of the estate. Some of the states, however, following the English rule, fix the amount that may be spent on a funeral under various circumstances. In Alabama, for example, if the estate is solvent the amount has been fixed as from $200 to $300 and no more, regardless of the former style of living and the supposed wealth of the deceased.

The physician's charge for the last illness should also be attended to as soon as possible, but if the charge is unreasonable, a court may inquire into the matter and may allow only what it considers the correct amount. This will also be done in the case of funeral charges where the undertaker has presented an unreasonable bill.

The three kinds of charges given in the first part of this section-cxpenses of last illness, cost of burial, and statutory allowances for the family-must be paid first, and these three kinds are considered equal. If, therefore, the assets will not cover the aggregate amount, they must be divided equally among the three items.

§ 111. Preferred Claims

As a general rule, where the estate is large and there are ample assets to cover all debts, priority need not enter into the settlement at all. When the estate is small, the charges before mentioned are paid off first, and then come the general debts, among which there may or may not be preference in payment, as may be prescribed by the statutes of the different