Category: Estate Planning
Tags: Administration, Life Insurance, Tax, Creditors, Estates

Creditor Claims Against Decedents in North Carolina

Posted on: March 23rd, 2015

One of the many responsibilities executors have is ensuring that the decedent’s debts are satisfied. Creditor claims against estates in North Carolina generally fall into categories of priority. The North Carolina Administrative Office of the Courts provides the Order of Priority of Claims in Estate Procedures:

  1. Property liens up to the amount of the property value.
  2. Funeral expenses up to $3,500, plus $1,500 toward the purchase of a gravestone or burial site. Fees in excess of these amounts fall into priority noted in #8.
  3. Taxes, dues, and other claims under federal law.
  4. Taxes, dues, and other claims under North Carolina state law.
  5. Judgments made in any North Carolina jurisdiction, Medicaid claims, and/or liens on decedent’s property active on their date of death.
  6. Medical expenses, necessary drug costs, medical supply fees accrued in the 12 months prior to the decedent’s date of the death. Outstanding wages due to employees of the decedent, accrued no more than 12 months prior to the date of the decedent’s death.
  7. A) Equitable distribution claims; B) Farm operation expenses under harvest.
  8. Credit card and all other claims.

Under some circumstances, medical expenses incurred during the decedent’s end-of-life care could deplete an estate. Individuals can help to prevent this by investing in Long-Term Care insurance, properly forecasting and adequately saving, and structuring assets effectively to ensure assets are free from creditor claims. Fortunately, North Carolina law shields creditor claims from life insurance benefits paid to a surviving spouse or children. (If a debt was shared by the decedent and the surviving spouse, the creditor could pursue the claim against the surviving spouse directly.)

North Carolina law provides a “year’s allowance” paid to the surviving spouse and children before any creditor is paid. The allowance is protected from creditor claims. The spousal allowance is $30,000 as of this writing when the decedent died on or after January 1, 2014. Minor children (and disabled or college-enrolled adult children) can receive $5,000 each. After making these payments, if the estate does not have sufficient funds to pay off creditors, a “Note to Limit Creditors” might be filed by the executor.

The executor might not pay all creditors who come forward with a claim if the claim does not appear to be valid. The executor has the authority to deny a creditor claim and the creditor can take court action as a result. Creditors have three months from the date of denial to file in court. Click the link to learn more about estate administration in North Carolina.

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