Q. My father’s home was in his Trust and the home was sold. The money from the sale was deposited into the Trust account. In cleaning out my father’ home, we found a monthly statement for a home loan but did not know the status of the loan. We learned that there was no Deed of Trust recorded on the home which is why nothing showed up on the title search when the home was sold. We have tried to contact the bank to inquire as to the status of this loan and pay any remaining balance. We left messages for numerous managers at the bank but no one returns our calls. My father died almost a year ago and we want to settle and close the Trust. What should we do?
A. As the Trustee, you are obligated to plan for payment of your father’s debts and obligations, such as income taxes, gift taxes, credit card debts, and mortgage payments. If an estate tax is due, these debts can be deducted for estate tax purposes. But, as Trustee, you are not legally required to notify your father’s creditors of his death.
Conversely, you are required to notify various state agencies that may have claims such as the State Board of Equalization, Franchise Tax Board, Department of Human Resources Development, Department of Mental Health, Department of Health Care Services and Medi-Cal.
Since one year has passed since your father’s death, all creditor claims are more than likely barred from collection. Code of Civil Procedure section 366.2 limits creditor claims to one year after death. The purpose of the limitation period in Section 366.2 is to protect a decedent’s heirs and beneficiaries from stale claims and to effectuate the strong public policy of expeditious and final estate administration. Accordingly, your father’s creditors, with minimal exceptions, have one year after his death to claim payment. Any legal action against the Trust or beneficiaries to collect a debt after one year is generally time barred. Absent notice of a claim within one year of your father’s death, you, as the Trustee can more than likely safely distribute the Trust assets.
Alternatively, if one year has not passed, you may want to consider shortening the time for claims. California provides a statutory procedure for shortening the time for a creditor to make a claim against the Trust to four (4) months. (Prob. Code § 19000 et seq.) If you choose to do so, you can initiate an elective claims procedure by filing with the County Clerk a form of Notice to Creditors. You must then publish notice to creditors and send actual notice to all known creditors. Broadly speaking, creditors who do not file claims within four months are barred from ever filing a claim against the Trust.
Deciding whether to elect this optional procedure and whether to distribute Trust assests can be an important decision. For that reason, you should consult with your legal advisor promptly regarding the preferable way to handle the your father’s debts. The Law Office of Kristina M. Reed can answer your questions about how to handle debts in the course of Trust Administration.