HOW TO HANDLE CREDITORS’ CLAIMS AS
AN EXECUTOR OR TRUSTEE IN ARKANSAS
Picture this: you’ve been named the personal representative in someone’s will or the successor trustee in a person’s living trust. When the person who named you passes away, you are the one responsible for administering the estate according to the decedent’s wishes.
Ultimately, the goal is to distribute assets to the heirs and beneficiaries, but before that can happen, you must account for all of their debts and make sure they are paid, including taxes and personal obligations. Depending on the size of the estate and the number of creditors and other claimants, this can be an arduous task. Where should you even begin?
If you’re the personal representative or trustee tasked with administering an estate, it’s always wise to seek legal counsel along the way, especially if claimants, heirs, or potential beneficiaries raise objections. At the Bond Law Office, we have helped hundreds of personal representatives and trustees carry out their responsibilities and expedite the proceedings. Contact our office if you’re in Fayetteville, Fort Smith, or anywhere else in the Arkansas River Valley.
How Trusts and Wills Differ
In Arkansas, is there a difference in how debts and claims are handled when the person dies with a will versus if they die with a living trust? If so, do the responsibilities of the personal representative or trustee differ?
Both a living trust and a will ultimately dictate the distribution of assets to heirs and beneficiaries, but the paths that lead to that final outcome are a bit different. A will must go through court-supervised probate proceedings. A trust does not.
Paying Off Debts Through a Will
In probate, the named personal representative becomes the executor of the will. If the will fails to name a representative, the court will appoint an administrator, usually a close family member. The executor, or administrator, has many tasks that must be completed before assets can be handed over to heirs and beneficiaries. One of those is to pay debts.
Probate requires the executor to notify each creditor that the will is being probated and that they need to submit any claims expeditiously. In addition to notifying creditors directly, the executor must also place an announcement in the local newspaper and run it for two weeks.
The Circuit Judges Benchbook for Probate states: “All claims except expenses of administration and claims of the U.S.A. not barrable by a statute of nonclaim shall be filed within 6 months after the date of the first publication of notice to creditors, including claims for injury or death caused by the negligence of the decedent.”
In other words, probate proceedings cannot end until the conclusion of the six-month period after creditor notification. Likewise, any claim submitted after that time frame will not be honored.
Arkansas also places a five-year statute of limitations on debt collection. Debt older than five years does not have to be honored.
Avoiding Probate Through a Trust
In a living trust, the trustor or settlor who creates the trust places all of his or her assets into the trust. While alive, the trustor continues to control the assets as the trustee. When the trustor passes away, the successor trustee named in the document becomes like the executor of a will with the exception that there is no probate court overseeing the process.
Though there is no probate requirement, the trustee of the estate must still notify creditors and other claimants and give them six months to file their claims. Claims made after the six-month period are invalid, according to Arkansas Code Section 28-50-101.
Revocable Trusts vs. Irrevocable Trusts
A living trust is also called a revocable trust, meaning it can be updated, modified, or terminated at any time. A revocable trust does not shield the trustee from creditors or other claims or lawsuits. On the other hand, an irrevocable trust — which can never be changed or canceled — does usually provide a shield against claims and lawsuits.
In an irrevocable trust, the trustor basically hands over all assets to the appointed trustee. This in turn helps shield the assets from claims and lawsuits arising after the creation of the trust, since the trustor no longer has any access or control over those assets. Thus, for the most part, the trustee of an irrevocable trust does not have to notify creditors or claimants when the trustor passes away.
How the Bond Law Office Can Help
At the end of the day, the duties and responsibilities of an executor or trustee can be complex and challenging. When it comes to debts, you have to sort through the decedent’s mail and financial records to identify creditors, and then notify them individually as well as broadly. Additionally, you have to locate and safeguard all of the assets for the sake of the beneficiaries. Not everyone named as a personal representative or successor trustee necessarily has the background or skills to juggle all of these tasks, especially if disputes arise.
That’s where an experienced legal group like the Bond Law Office can help. We have guided families, trustees, and personal representatives through hundreds of probate proceedings and trust settlements. If you live in Fort Smith, Fayetteville, or anywhere in the Arkansas River Valley, including Harrison, Eureka Springs, or Waldron, Arkansas, and are looking for guidance as an executor or trustee, we’ve got your back. Call or reach out to our office today to set up a consultation so we can meet and discuss the details of your situation. We’d be happy to answer all of your questions and help you take the first steps forward.