Which Debts Take Priority in Probate?

One of the important duties of a personal representative of a Michigan estate is to settle the debts owed by the estate. Many personal representatives, eager to do a good job, pay bills and other claims against the estate as soon as they come in. However, this could be a mistake. Why? Because there is a priority by which debts should be paid, and failure to abide by that priority could cause problems. 

If an estate doesn’t have enough funds to satisfy all claims against it, failing to pay attention to the priority of debts could result in some creditors getting paid against others who are more deserving, at least under the law. Here’s what you need to know about the priority of debts in a Michigan probate case.

What is the Priority of Debts in a Michigan Probate Case?

The priority of debts in a Michigan estate matter is established by the Estates and Protected Individuals Code (EPIC), specifically Michigan Compiled Laws section 700.3805, which states in relevant part:

“(1) If the applicable estate property is insufficient to pay all claims and allowances in full, the personal representative shall make payment in the following order of priority:

    (a) Costs and expenses of administration.

    (b) Reasonable funeral and burial expenses.

    (c) Homestead allowance.

    (d) Family allowance.

    (e) Exempt property.

    (f) Debts and taxes with priority under federal law, including, but not limited to, medical assistance payments that are subject to adjustment or recovery from an estate under section 1917 of the social security act, 42 USC 1396p.

    (g) Reasonable and necessary medical and hospital expenses of the decedent’s last illness, including a compensation of persons attending the decedent.

    (h) Debts and taxes with priority under other laws of this state.

    (i) All other claims.”

Although there are several categories of priority, it may not always be clear which debts fall into which categories. If you are serving as personal representative of an estate, an experienced probate attorney can help you with the process of identifying creditors and paying debts of the estate according to their priority. 

Note that there is no priority of claims within the same class. For instance, if the decedent had multiple medical bills incurred during their last illness, one does not have priority over the others, even if one is larger, was billed first, or came due before the others.

How Do I Know What Debts Are Owed by the Estate?

Of course, before you can begin to prioritize the debts owed by a decedent’s estate, you have to know what they are. Sometimes, it will be obvious: credit cards and utility bills may arrive in the mail (or to the decedent’s email address); medical bills will show up if the decedent received medical treatment before their death. 

But there may be other debts that you, as a personal representative, are unaware of. In Michigan, as in most states, the personal representative of an estate is required to give creditors notice of the death. How do you do that if you don’t know about all debts of the deceased?

The answer is a fairly common-sense one. Creditors who are known to the personal representative, or who can reasonably be ascertained, are entitled  to direct notice of the death. All other creditors can be notified by publication in a legal newspaper. The notice must give creditors the following information:

• The name, birthdate, and date of death of the decedent
• The decedent’s last known address
• The name and address of the personal representative of the estate
• The name and address of the probate court overseeing the estate
• Notice that the creditor’s claim will be barred unless presented to the personal representative or court within four months of the publication.

Notice to known creditors must be given within four months of publication of a legal notice of the death. However, if a personal representative learns of a creditor within 28 days before that four-month period expires, they have a full 28 days in which to provide notice to that creditor.    

Once proper notice has been provided, the ball is in the creditors’ court. If they do not present a claim within the time permitted by Michigan law, the claim is forever barred. It doesn’t actually matter if the creditor actually saw the notice of the decedent’s death, as long as the personal representative followed the required steps and made the required information available. Once the deadline for presentment of claims has passed, creditors who failed to make a claim against the estate are out of luck.

There are some limited circumstances in which you may not be required to provide notice of the death to creditors if you are serving as the personal representative of an estate. Notice may not be required if: 

• The estate had no assets
• The decedent has been dead for three or more years
• The estate went through the summary distribution procedure for small estates
• The creditor’s claims have already been paid
• The creditor was previously given notice of the death.

If you are not sure whether you are required to give notice of a decedent’s death, consult with a Michigan probate attorney. If you fail to give notice in your role as personal representative, you may escape personal liability if you were acting in good faith. However, the estate will still be required to pay the debt. It’s best to work with an attorney to be sure that you have properly notified all creditors of the estate, and paid them in the order dictated by Michigan law.

To learn more about the priority of debts in a probate estate, or to get help carrying out your duties as personal representative, contact Estate Planning & Elder Law Services to schedule a consultation.