** This article has been revised from its original version which was published on February 13, 2013.

There is a widely held belief that during the estate administration process, a creditor must file a claim against an estate within seven months after issuing letters by the Surrogate’s Court. This is a misinterpretation of the Surrogate’s Court Procedure Act. S.C.P.A. §1802 stating that if creditors fail to file a claim within seven months of the issuance of letters, the fiduciary won’t be charged for any assets distributed or monies paid in good faith. This provision isn’t a statute of limitations and doesn’t bar a creditor from filing a claim after the seven-month period.

The statute protects a fiduciary from personal liability for making good faith distributions of assets that were subject to a creditor’s claim that was not filed timely.

Claims Filed After Seven Months

Assuming assets were distributed in good faith, and the claim is not otherwise barred, a claim filed after the seven-month period is valid but may have to be enforced against the distributees. The issue becomes whether the fiduciary is personally liable to the creditor or whether the creditor must pursue the individual distributees.

The key to determining the personal liability of the fiduciary is whether they distributed the assets in good faith. The good faith test isn’t easy for a fiduciary to pass. They will be held liable if they should have known about the claim. It isn’t enough that they haven’t received one.

Personal Liability

In one case in which a creditor’s claim was not filed within seven months, the fiduciary, who had distributed most of the assets, was held personally liable because the death certificate listed a hospital as the place of death. This required the fiduciary to investigate whether the hospital bill was paid. There was no other information available to the fiduciary to reveal the possibility of a claim.

Medicaid Liens

The courts don’t take good faith language lightly. In the case of Medicaid liens, if a fiduciary wants to avoid personal liability, they should ascertain whether a Medicaid lien exists. If the decedent received Medicaid benefits, was age 55 or older, and left no surviving spouse or minor child who is disabled or blind, the fiduciary should wait to distribute any assets, before or even after seven months, until the question of a Medicaid claim is resolved. An elder law attorney or estate planning attorney should advise the estate fiduciary that distribution, even after seven months, will not defeat a Medicaid lien. If they know the decedent received Medicaid benefits, the fiduciary and the distributees will be personally liable if assets are distributed.

If the decedent received Medicaid benefits but no lien or notice has been filed, our attorneys and Medicaid consultants recommend that the fiduciary notify Medicaid that letters have been issued, putting them on notice, and speeding up the process.

In many cases, Medicaid will notify the estate that they intend to file a lien. This notice often contains a warning not to distribute the assets. Receiving this notice prevents a fiduciary from distributing assets in good faith, even in the absence of a lien. Medicaid uses the notice because it can be issued quickly.

Why Medicaid Liens are Often Filed Late

It sometimes takes months for Medicaid to determine the amount of Medicaid benefits provided to the decedent that is subject to recovery. Because a lien must state a specific amount, the notice of intent to file a lien is used. In some cases, Medicaid will file a lien containing a fictitious amount and later file an amended lien with the actual figures.

It is important to speak with a qualified estate planning attorney, elder law attorney, or Medicaid consultant if you’re a fiduciary handling estate administration. Our attorneys are familiar with estate laws and Medicaid rules that affect your role.

Please do not hesitate to contact Russo Law Group, P.C, with estate planning questions. Benefit from our experience, as well as caring and compassionate staff. You may also take advantage of our free seminars and webinars to learn more about how Russo Law Group, P.C., helps with guardianship proceedings.