Creditor claims against an estate: points to note
Before paying out any money from the estate, an Executor (or Personal Representative) needs to make sure that there is enough money to pay the Deceased’s debts. In other words, the Executor needs to make sure that the estate is solvent. The Executor will do a simple calculation of the money and assets in the estate, minus the debts that he or she knows about.
If the estate is insolvent, the Executor or Personal Representative should seek immediate legal advice on what to do next. The key issue here is that creditors are paid in the correct order as prescribed by law. The legal costs of obtaining advice in this instance would be a priority debt, payable out of the Deceased’s estate ahead of most other creditor claims.
Although the Executors or Personal Representatives may have a good idea of the debts owing, they cannot be sure that there are not unknown debts. To protect themselves, they must place a notice under Section 27 of the Trustee Act 1925 in The Gazette, together with a local newspaper.
The Notice will specify a two month period in which claimants can contact the Executor / PR to register a claim against the estate. Once the two month period has expired, the Executor or PR will be able to pay the Deceased’s debts and liabilities then distribute the estate in accordance with the Will or rules of intestacy.
If the Deceased owed you money and you miss the notice, you will not be able to claim against the Executor personally – however, you can still claim against the Beneficiaries who receive money and property from the estate.
If a Section 27 notice is not placed in accordance with the requirements, creditors can enforce the debt against the Executor personally, even after the estate has been distributed.