Debts at Probate
In a probate proceeding in Missouri, one of the chief responsibilities of a personal representative is to handle the debts of the decedent. Generally, in order of priority, the expenses of the decedent’s last illness and funeral, any other debts to creditors, and tax elections (estate taxes, generation-skipping tax, and all other transfer taxes — if applicable) must be addressed.
Under 473.270 RSMo, the personal representative has the authority to defend against any debts of the estate (and also prosecute any debts that were owed to the decedent). There exist, though, several statutory rules in Missouri which can really frustrate a personal representative when addressing debts. For instance, there is sometimes (albeit rarely) the issue of creditors alleging that the decedent transferred property out of his or her estate before death for the purpose of defeating a creditor’s claim. 473.267 RSMo addresses this issue and specifically states that the real and personal property liable for the payment of claims includes all property transferred by the decedent with intent to defraud his creditors or any of them. Because fraud requires proof of a special state of mind (i.e., intent to transfer with the objective of circumventing a debt), this can be difficult to prove.
A much more common problem is how to pay a debt that is secured by another person’s property. 473.290 RSMo provides the answer:
[The debt is allowed as a claim against the estate] unless it appears to the court that (1) the mortgage, pledge or lien was given to secure payment of the purchase price of the encumbered property or of an obligation incurred in connection with the improvement of the property, or (2) the decedent did not actually receive a substantial consideration in the transaction in which the indebtedness arose, or (3) the decedent had exclusive ownership and control of the property during his lifetime and it appears from the loan or mortgage agreement or […] that decedent intended that the security should be exhausted in case of his death before any payment thereon is made from his estate.
Lastly, aside from the nuanced procedures which govern how to handle specific debt problems, there is a notice requirement for creditors. Namely, creditors of a decedent’s estate which the personal representative knows or has reasonable grounds to know exists must be contacted directly. Further, there must be a Notice of Creditors statement placed in the appropriate newspaper to provide notice and a chance to any other creditors that they must make their claims. Under the Missouri Probate Code, creditors have a certain amount of time to make a claim against an estate.