Can Executors File Claims Against the Estate

Emily just received a frantic call from her brother. Their mother passed away last month, and he was named as the executor. He’d discovered a substantial loan he’d personally guaranteed for their mother’s business – a loan the business could no longer cover. He wanted to know if he, as executor, could file a claim against the estate to get reimbursed. It’s a surprisingly common question, and the answer is…complicated. A claim filed by an executor is not inherently invalid, but it’s subject to intense scrutiny and a unique set of rules. A seemingly simple request can quickly become a legal minefield, costing the estate – and the executor personally – significant expense and delay.

After 35+ years as an Estate Planning Attorney and CPA, I’ve seen countless executors stumble into this trap. They think, “I’m owed money, the estate has assets, therefore, I’ll just file a claim.” But it’s rarely that straightforward. The key is understanding the executor’s role and the potential conflicts of interest involved. As a CPA, I also bring a unique perspective; simply reimbursing an executor without considering tax implications like step-up in basis or capital gains can be a costly mistake. Valuation of any asset subject to the claim is also critical, and often requires expert appraisal.

What Exactly is an Executor’s Role?

An executor’s primary duty is to collect the assets of the estate, pay valid debts, and distribute the remaining assets to the beneficiaries according to the will (or the laws of intestacy if there’s no will). They are a fiduciary, meaning they have a legal and ethical obligation to act in the best interests of the estate and its beneficiaries, not in their own self-interest. Filing a claim against the estate creates an inherent conflict. The executor is simultaneously a creditor (seeking reimbursement) and a fiduciary (responsible for protecting estate assets).

Is it Legal for an Executor to File a Claim?

Yes, it is legal, but it requires meticulous adherence to the law and full transparency. The executor must treat their claim exactly like any other creditor’s claim. This means:

• Proper Notice: All beneficiaries must receive notice of the claim, allowing them to object.
• Valid Debt: The debt must be legally enforceable. A simple IOU won’t cut it. The executor needs documentation – a promissory note, loan agreement, or other legally binding contract.
• Reasonable Value: The claimed amount must be reasonable and supported by evidence.

What Happens if Beneficiaries Object?

This is where things get tricky. If beneficiaries object to the claim, the executor can’t simply pay themselves. They must either reach a settlement with the beneficiaries, or petition the court to approve the claim. A court will carefully review the claim, considering the best interests of all parties. The court may reduce the claim, deny it altogether, or require the executor to seek legal counsel at their own expense. Probate Code § 9353 dictates that if an executor rejects a creditor’s claim, the creditor has exactly 90 days to file a lawsuit in civil court. This applies equally to an executor’s claim if beneficiaries object.

The Priority of Claims: Where Does the Executor Fall in Line?

Even if the claim is valid and unchallenged, the executor doesn’t get paid first. Probate Code § 11420 outlines the strict hierarchy of creditor claims: (1) Administration expenses, (2) Funeral costs, (3) Medical/Last Illness, (4) Family Allowance, (5) Wage Claims, and finally (7) General Debts (credit cards). An executor’s claim falls into the “general debts” category, meaning it’s paid last, after all other creditors are satisfied. If the estate doesn’t have enough assets to pay all creditors, the executor may receive only a partial reimbursement, or nothing at all.

The Risk of Personal Liability

An executor who acts improperly – by self-dealing, failing to disclose conflicts of interest, or making unreasonable claims – can be held personally liable for any losses to the estate. This means the executor’s own assets are at risk. It’s crucial to remember that the executor’s shield of protection only extends to good faith actions taken in accordance with the law.

Interest on the Debt: A Hidden Cost

Don’t forget about interest! Probate Code § 11423 states that debts bear interest from the date of death (or the date the claim is allowed) at the rate of 10% per annum (unless the contract specifies otherwise). Even if the estate has sufficient assets, delaying payment of the executor’s claim can significantly reduce the net amount received due to accruing interest.

What About Claims Arising from Trust Assets?

If the estate includes assets held in a trust, the rules are different. Probate Code § 19000 outlines the Optional Trust Claims Procedure. While probate requires creditor notice, trusts do not automatically trigger this process. However, a trustee can opt-in to the claims procedure to cut off liability after 4 months. Without this, creditors can theoretically sue the trust beneficiaries for up to 1 year after death (CCP § 366.2). This significantly extends the potential exposure for the estate and beneficiaries.

What causes California probate cases to spiral into delay, disputes, and extra cost?

California probate is designed to provide court-supervised transfer of property, yet cases often break down when authority is unclear, required steps are missed, or disputes arise over assets, notice, and fiduciary conduct. When the process is misunderstood, families can face avoidable delay, escalating conflict, and increased exposure to creditor issues, hearings, or litigation before the estate can close.

Ultimately, the difference between a routine distribution and a protracted legal battle often comes down to preparation. By anticipating the demands of the Probate Code and addressing potential friction points with beneficiaries and creditors upfront, fiduciaries can navigate the system with greater confidence and lower liability.

Verified Authority on Probate Creditor Claims

• The Creditor Window (4-Month Rule): California Probate Code § 9100
  This statute provides the primary protection for the estate. Generally, any creditor who fails to file a formal claim within four months of the executor receiving Letters is barred from collecting. This “clean break” is one of the main advantages of formal probate.
• Mandatory Notice to Public Agencies: California Probate Code § 9202
  Regular creditors aren’t the only concern. You MUST send specific notices to the Director of Health Care Services (Medi-Cal), the Franchise Tax Board, and the Victim Compensation Board. Missing this step keeps the liability window open indefinitely for the state.
• Priority of Payments: California Probate Code § 11420 (Debt Hierarchy)
  If an estate is “insolvent” (debts exceed assets), you cannot simply pay bills as they arrive. This code establishes the strict pecking order: funeral expenses and administration costs (lawyer/executor fees) get paid before credit cards and medical bills.
• Rejection of Claim (The “Sue or Lose It” Rule): California Probate Code § 9353
  When an executor formally rejects a claim (Form DE-174), the clock starts ticking. The creditor has exactly 90 days to file a civil lawsuit to enforce the debt. If they miss this deadline, the claim is barred, regardless of its validity.
• Personal Liability of Executor: California Probate Code § 9601
  An executor can be held personally liable for “breach of fiduciary duty” if they pay debts out of order (e.g., paying a credit card before the funeral home) or distribute assets to heirs before clearing all valid creditor claims.
• One-Year Statute of Limitations (Non-Probate): California Code of Civil Procedure § 366.2
  This is the ultimate backstop. Even if no probate is opened, creditors generally only have one year from the date of death to file a lawsuit against the decedent’s successors (e.g., trust beneficiaries). After one year, most debts expire automatically.