California’s probate process aims to expeditiously identify and resolve the claims of creditors against decedents. Creditors who are unsophisticated, or who simply do not learn of the decedent’s passing, may find themselves with an uncollectable claim against an otherwise solvent estate. You snooze, you lose.
On the other hand, once a creditor makes a claim in a California probate case, the claim can lie dormant like an oak tree in winter and later come to life to interfere with the distribution of the decedent’s assets. That’s the lesson of Estate of Holdaway (2019) 40 Cal.App.5th 1059, published by the Court of Appeal this month.
Patricia Files a Creditor’s Claim Against Richard’s Estate
Richard Holdaway died in June 2013. Not quite a year later, Patricia Everett filed a petition to probate his estate and she also filed a creditor’s claim seeking $90,875 from the estate. She claimed that she (1) had loaned him $25,200, (2) had provided $24,000 in “in-home services” to him, (3) had incurred $17,675 in expenses on his behalf, and (4) owned “certain property” valued at $24,000 that he possessed upon his death.
As explained in a prior post, a creditor’s claim is a demand for payment that must be filed with a California probate court and served on the personal representative (e.g., executor) of a decedent’s estate within a specified timeframe. Presentment of a claim (and its rejection) is required before a lawsuit may be filed against the decedent’s estate.
Patricia got the ball rolling by petitioning for probate in San Bernardino County Superior Court. However, she did not pursue her probate petition and so the court ultimately dismissed it “without prejudice” for failure to prosecute.
Richard’s Son Becomes Executor, Rejects Claim, and Court Finds It Time Barred
Months later, Patricia filed another probate petition under the same case number and this time Richard’s son filed a competing petition asserting that he was a nominated executor under Richard’s will.
The court granted the petition filed by Richard’s son. He, as court-appointed executor, eventually rejected Patricia’s creditor’s claim. Two months later, on May 19, 2017, she filed a complaint against him, seeking damages in the amount of $90,875 in accord with her claim.
The Executor (Richard’s son) argued that the complaint was time barred under California Code of Civil Procedure section 366.2, which generally requires claims against a decedent to be filed within a year of the decedent’s death.
The trial court judge agreed, sustaining the Executor’s demurrer without leave to amend.
Court of Appeal Finds that Claim Was Dormant, Not Dead
The Court of Appeal explained that the timely filing of a creditor’s claim tolls the one-year statute of limitations under section 366.2. That tolling continues, under California Probate Code section 9352, until the claim is allowed, approved or rejected. Hence, when the Executor rejected Patricia’s claim in 2017, she had 90 days to get a complaint on file to pursue her claim, and she acted within that period.
The Executor argued that the court’s dismissal of Patricia’s initial probate petition constituted a “rejection” of her creditor’s claim, but the appellate court found no legal authority to support such an argument. While the court perhaps could have dismissed Patricia’s creditor’s claim pursuant to its general power to oversee court proceedings, the court did not do so.
Thus, the one-year limitations period in section 366.2 was tolled and did not preclude Patricia from pursuing her claim.
Lessons for Creditors and Beneficiaries
The “issue of first impression” in Estate of Holdaway, resulting in the published opinion, is that a California probate judge’s dismissal of a creditor’s own petition to be appointed as representative of an estate does not terminate the tolling of the statute of limitations triggered by the creditor’s claim.
For creditors, the takeaway is that filing a petition to open a probate proceeding is enough to lay a foundation for a creditor’s claim and that the creditor may not have to take further steps to prosecute the petition in order to preserve the claim from a statute of limitations perspective. However, until the petition is granted and an executor or personal representative is appointed, the creditor will not be able to sue the decedent’s estate and in the interim the available assets may be dissipated.
Estate beneficiaries, on the other hand, should keep an eye out for probate petitions by checking the docket of the Superior Court for the county where the decedent resided at the time of his or her death. If a creditor initiated a probate proceeding, there may be a viable creditor’s claim on file with the court and years could elapse before the creditor comes forward to try to collect on that claim. A timely-filed creditor’s claim, even if apparently dormant, should not be forgotten.
Jeffrey Galvin is an attorney with Downey Brand LLP, based in Sacramento. He litigates trust and estate cases in Northern California, including disputes involving trust and probate administration, contests of trusts and wills, and financial elder abuse claims.