When someone dies, the executor or administrator of an estate has a fiduciary duty to settle their financial and legal affairs. Part of this is validating and paying any outstanding debts solely in the person’s name from the estate.
In most states, an executor is required to publish a notice to creditors alerting them to a loved one’s death. In New York, though, executors can skip this step and it puts the onus on creditors to know when those who owe them money have died.
Creditors are supposed to use due diligence to follow up on collecting debts and finding out about a death. State law assumes that creditors will continue to send outstanding bills and the executor will learn of claims by receiving the bills.
How long creditors can make claims
According to New York probate law, creditors have a maximum of seven months from the date the executor is appointed to file any claim against an estate, and an estate cannot be distributed until then.
If a creditor fails to file a claim within the seven-month period, the estate is no longer responsible for paying the debt.
If a creditor fails to file a claim within the seven-month period, the executor is not liable to the creditor. In addition, there is a state-mandated order in which debts must be paid (see the full list in the section below). If an estate runs out of money before a specific debt is paid, then that creditor will not be paid back.
However, it is important to wait out the seven-month window for creditors to file claims. If a creditor makes a claim within the allowed time but the estate is distributed before the claim is validated, the executor can be held personally liable.
Creditors also have the right to try to collect the debt from beneficiaries, but are entitled to pursue estate assets only. In other words, they may try to persuade family members to pay debts they know you are not liable to pay personally.
Remember, in almost all cases you cannot inherit your loved one’s debt. If you are confused or unsure of how to respond, the advice of an estate lawyer can be an invaluable step.
Which debts you should pay first in New York
Creditor claims against an estate must be sent to the executor in writing and contain details of the debt and the amount owed.
Generally, debts in New York are legally required to be paid in this order before any distribution to heirs:
Reasonable funeral costs and estate administration expenses
Property taxes assessed before the person died
Court judgments, decrees, and bonds issued before death
All other contractual debts
In cases where the estate’s assets can’t cover all the outstanding amounts due, the executor may not be able to pay back every creditor.
In these cases, creditors in New York may be able to make a claim against assets that were not included in the estate, such as joint assets, that can be pursued to pay the claim. If someone else’s name is on the debt—such as a joint credit card or a co-signed loan—the surviving account holder may be liable for the remaining balance.
Paying Medicaid debt in New York
If the person who died qualified for support services through Medicaid, the state is considered a creditor of the estate and may be entitled to be reimbursed for all of the expenses it incurred.
Medicaid pays the bills but tracks the payments it makes. While Medicaid cannot pursue the estate for benefits provided when the recipient was under the age of 55 (except in very limited circumstances), for recipients over age 55, states may make claims for medical care, nursing facility services, home and community-based services, and related hospital and prescription drug services. There are some exceptions. New York repealed “expanded estate recovery” and does not allow Medicaid to pursue assets the recipient held jointly with right of survivorship, transferred to a living trust, or in which the recipient retained a life estate; Medicaid cannot pursue an estate with a surviving spouse until that surviving spouse also dies.
The state also cannot pursue the estate if the recipient had a surviving child under age 21, blind, or disabled.
There are also some exceptions to Medicaid pursuing the value of the home even when a recipient lived in a nursing home, e.g., continuous residence before and after the recipient leaves the home (a sibling must have lived in the home at least one year prior, an adult child at least two years prior); or hardship (e.g., the property is the sole income-producing asset of the beneficiaries, such as a family farm or family business and income produced by the asset is limited, or when the asset subject to recovery is real property of modest value and is the primary residence of the beneficiaries). Disputed claims can result in estate litigation. In some cases, the executor must provide an accounting of the estate’s transactions during the course of estate administration. If an executor knows of a debt, but has not received written notice or they can’t validate the claim, they can petition the court and ask that the creditor explain why the claim should be allowed to go forward.
If a creditor has complied with New York state probate law but the executor doesn’t fully allow the claim, the creditor can ask the court to require the executor to explain why the claim hasn’t been paid.
Estate litigation can be complex. In addition to paying creditors, the executor handles closing accounts, filing a final tax return and/or estate tax return, managing or selling property, and distributing assets.
Navigating these debt payments while dealing with your own and others’ grief may be easier with the help of a qualified attorney, who can ensure the estate is handled properly. If you are concerned about claims against a New York estate, you should discuss your situation with a probate lawyer.
You may be eligible for free bereavement support. Empathy can help with everything from funeral planning to estate administration, with step-by-step guidance and real-time expert support. Many people get free premium access to Empathy as a benefit with their life insurance claim. We partner with New York Life, Guardian Life Insurance Company, Bestow, Lemonade, and other leading carriers. When you make your life insurance claim, talk to your representative about whether Empathy is a benefit they offer.
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