The OneYear Statute of Limitations

I recently had a client, David, come to me in absolute panic. His mother had passed away six months prior, and he’d just received a demand letter from a debt collection agency for a significant amount – a loan his mother had guaranteed for a friend. David believed he’d handled everything correctly, meticulously following the instructions of the executor. The problem? The executor hadn’t utilized the optional claims procedure for the trust, and now, nearly a year after his mother’s death, David was facing potential personal liability for a debt he hadn’t even known about. This situation, unfortunately, isn’t uncommon.

What Happens If a Creditor Misses the Probate Deadline?

Many people assume that once a loved one passes away, there’s a single, fixed deadline for creditors to come forward. It’s not that simple. For probate estates, creditors have a strict window to file a claim: either 4 months after Letters are issued or 60 days after notice is mailed (whichever is later). Once this period expires, unfiled claims are generally forever barred, protecting the heirs. However, that’s just for probate. Trusts present a different landscape.

Why Trusts Have Longer “Tails”

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 is what tripped up David. The creditor had waited nearly a year, knowing they could still pursue a claim directly against the beneficiaries if the trust hadn’t formally closed out the claims period.

What About Debts the Executor Didn’t Know About?

It’s not just about missed deadlines, it’s also about undiscovered debts. The executor has a mandatory duty to send specific notice to the Franchise Tax Board, Victim Compensation Board, and Medi-Cal (DHCS) within 90 days of appointment. Failure to notify these agencies pauses their statute of limitations, allowing them to claw back assets years later. These agencies are incredibly diligent and often uncover debts the family was unaware of.

Can I Reject a Claim if I Think It’s Invalid?

Absolutely, but you must do it correctly. If an executor rejects a creditor’s claim (using Form DE-174), the creditor has exactly 90 days to file a lawsuit in civil court. If they fail to sue within this window, the claim is legally dead. However, simply ignoring a claim isn’t an option. It remains valid, and the estate could be liable.

What If There’s a Dispute Over the Debt?

Disputes are common. Perhaps the debt was already paid, the amount is incorrect, or there’s a question of fraud. Regardless, a creditor can still file a lawsuit. It’s crucial to respond to any disputed claim promptly and document everything meticulously.

How Does Payment Priority Work?

Debts are not paid first-come, first-served. They follow a strict hierarchy: (1) Administration expenses, (2) Funeral costs, (3) Medical/Last Illness, (4) Family Allowance, (5) Wage Claims, and finally (7) General Debts (credit cards). Executors who pay low-priority debts first can be personally liable. And don’t forget about interest. 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). Delaying payment unnecessarily drains the inheritance.

For over 35 years, I’ve been helping families navigate these complex probate and trust issues as both an Estate Planning Attorney and a CPA. This dual background is invaluable. As a CPA, I immediately focus on the tax implications – the crucial step-up in basis, potential capital gains, and the need for accurate asset valuation. It’s a holistic approach that protects not just the estate, but also the beneficiaries’ financial future.

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.

California probate is most manageable when authority is documented early, assets are classified correctly, and procedure is followed consistently from petition through closing. When the process is approached with realistic expectations about notice, claims, accounting, and dispute risk, the estate is more likely to move toward closure without avoidable conflict or delay.

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.