LANE CHANGE FOR CLAIMS IN ESTATES

By Cary A. Lind

A case was decided in December, 2003, that turned much of the law of claims in estates upside down. Prior to 1988, the approved procedure was to file the estate, publish the notice of claims, and wait out the claim period. If the creditor did not file a claim, the claim was barred. That changed abruptly in 1988. The United States Supreme Court held in Tulsa Professional Collection Services, Inc. v. Pope, 485 U.S. 478, 108 S.Ct. 1340, 99 L.Ed 2d 565 (1988), that due process requires a representative to make a reasonable effort to determine creditors of an estate and to give them actual rather than constructive notice. The representative cannot close his or her eyes to known or reasonably ascertainable creditors, publish for claims, and bar those claims based solely on the publication. Pope arose in Oklahoma, but Illinois statutes and practice were similar at the time and fell squarely within the Supreme Court's ruling.

After the decision, the Illinois Probate Act was amended to comply with Tulsa v. Pope. Estate of Anderson, 246 Ill.App.3d 116, 615 N.E.2d 1197, 186 Ill.Dec. 140 (1993), was decided after the amendments to the statute but before the amendments took effect. The opinion's reasoning echoed the Supreme Court's rationale:

The critical question in this case is whether the claimants, as secured creditors, were reasonably ascertainable upon reasonably diligent efforts by the executrix to ascertain decedent's debts and creditors. . .

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Upon reviewing Pope, we conclude that claimants who file a claim more than six months from the issuance of letters bear the initial burden of producing evidence sufficient to establish their failure to receive written notice by mail or delivery under Section 18-3 of the Act. Upon such showing, the burden then shifts to the estate representative to show either that the statutory notice was given, which will automatically bar the claim, or in the absence of notice, that the existence of the claim was not reasonably ascertainable upon reasonably diligent efforts. If the estate representative is able to prove this latter proposition by a preponderance of the evidence, then the claim will be barred.

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Minimum standards of diligent inquiry would necessitate a good-faith search of decedent's personal and business financial records to disclose debts of the estate, a search comparable to that required to marshal assets and compile a complete inventory of the estate.

The Court further specified what information needed to be included in the notice:

The time bar of Section 18-3 of the Act commenced to run not upon notice of the death, but on notice of the death plus the opening of the estate, the date of issuance of letters, name and address of the representative and his attorney of record, and that claims must be filed within six (6) months of the issuance of letters or they would be forever barred. It is the notice of the opening of the estate, the date of issuance of letters, and the six-month period for filing claims which are critical under Section 18-3(a) of the Act. [Citation omitted]

§18-3 of the Probate Act now provides that:

1. Actual notice must be given to known or reasonable ascertainable creditors. In similar manner as set forth above in Anderson, the notice must include the date of death of the decedent, the name and address of the representative and of the attorney of record, that claims may be filed on or before the date stated in the notice, which date shall be not less than 6 months from the date of the first publication or 3 months from the date of mailing or delivery, whichever is later, and that any claim not filed on or before that date is barred.
2. Notice must be given by publication to unknown creditors.
3. The representative must do one or the other in order to bar claims.

§18-12 now provides that a claim is barred if:

1. Actual notice is given to a known creditor pursuant to §18-3 and the creditor does not file a claim by the notice date.
2. Notice of Disallowance is given to a creditor pursuant to §18-11 and the creditor does not file a claim by the date in the notice.
3. Notice is published and the claimant is not known to or reasonably ascertainable by the representative.
4. Claims are barred (as set forth above) six months after the first date of publication pursuant to §18-3 or three months from the date of mailing or delivery, whichever is later. All claims not described above except those covered by liability insurance are barred two years after the date of death whether or not Probate has been instituted and without regard to any notice of any kind. The two-year period is an absolute bar to all other claims against a decedent's estate. Waiting out the two-year period is a strategy sometimes employed where the heirs or legatees of an estate do not intend to sell real estate and are willing to wait out the longer claim period.

After Anderson and the amendment of the Probate Act, the procedures seemed clear. Then came Estate of Lane, 345 Ill.App.3d 1123, 804 NE2d 113, 281 Ill.Dec. 487 (4th Dist. 2003). In that case a creditor wrote to the widow of the decedent in her individual capacity. The widow was also acting as the executor, was a co-debtor on the obligation, and had actual knowledge of the liability. However, the claim was dismissed as untimely, because the creditor's communications had been addressed to the widow personally and not as representative of the estate. Three cases were cited in Lane. One was from Minnesota. One was from Connecticut. The only Illinois cited in Lane dealt with the two-year absolute bar to claims and not the six-month claim period. The two-year period does not depend on notice, so the only Illinois case cited in Lane is easily distinguishable.

I believe the Lane decision is clearly wrong. The widow's communication in Lane clearly did not meet the notice requirements of Anderson, Tulsa vs. Pope, §18-3, or §18-12(a)(3). Lane did not discuss any of those cases or provisions of the Probate Act. It is as if the case was decided in a vacuum under pre-1988 law and purposely ignored all the rest of current Illinois law, both statutes and cases. Apart from statutes and cases, it is not "fair." It puts an impossible burden on creditors to monitor all of their debtors to be sure that they are still alive. If not, they must scour all Probate estate filings and newspapers in the vicinity of where the debtors lived. If they miss one, the claim is (pardon the expression) dead. To me, it is a "gotcha" against the creditor.

The basic issue is whose burden it is to see that claims of creditors who are known or reasonably ascertainable are paid or otherwise addressed. The Fourth District apparently believes that the greater burden should be on the creditor. The U.S. Supreme Court put the greater burden on the executor. Except for Lane, the statutes set forth above and the procedures in Anderson properly state Illinois law and also put the greater burden on the Executor. Lane is a Fourth District decision and not necessarily binding on First District trial courts. However, my advice to creditors until further notice is that they should be sure to communicate with the representative and the attorney for the estate and if there is any doubt, spend a few dollars and file their claims with the court. My advice to representatives is to deal directly with any known or reasonably ascertainable creditors in order to avoid a costly battle over procedures.

©2004 by Cary A. Lind, all rights reserved.

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