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Washington Estate Creditors and Taxes

Posted by attorney Brad Lancaster

Notice to Creditors.

As Personal Representative or Administrator of the estate of a Washington decedent, Washington law requires, in order to invoke the four month statute of limitations for creditor claims against an estate, that a Notice to Creditors be filed with the Court, and then published once a week for three consecutive weeks in a court-approved newspaper. Your attorney's office will take care of this task. A four-month claims period begins to run on the date of the first newspaper publication of the Notice to Creditors. After you identify what appears to be a potential creditor, send your attorney the invoice or other documentation concerning that creditor. Your attorney must send that creditor a Notice to Creditors. Any creditor who is not given this Notice until the fourth month of the creditor period will have thirty (30) days from the date of its Notice to make its claim. Pay no creditors until you have, in consultation with your counsel, determined that the Estate is solvent. Pay no creditors unless they file a pleading called a Creditor Claim. If the Estate is insolvent, and you pay the wrong creditors, you might end up personally liable to those creditors of the Estate who should have legally been paid. Creditor Claims.

Debts incurred before the decedent died are called "creditor claims." Debts incurred after the decedent died are called "administration expenses." Administration expenses include court filing fees, real estate taxes, attorney fees, accountant fees, and any ongoing maintenance or other services related to the Estate assets. Administration expenses have first priority, and may be paid any time. Creditor claims include credit card bills, medical bills, mortgages, bank loans, and so forth. A statutory process is set out for paying these bills. Two paths exist, but I recommend only the first. (The other path is to send Notice to Creditors to no one. If potential creditors fail within two years to make their claim, the claim is cut off. You do not want to keep the probate open that long, if possible to do otherwise.) The path I recommend is to identify potential creditors by going through all the decedent's papers and talking with those who should know of claims. We then mail a Notice to Creditors to each potential creditor, which apprises them that a probate has commenced and they should make their claims if they have any. After four months, if the creditor fails to file a Creditor Claim, the claim is forever cut off and void. After you (or we) have received a Creditor Claim, evaluate the claim. Do not pay any claims until you determine the Estate is solvent, and have an opportunity to determine the validity of the claim. However, if you receive a Creditor Claim you believe is invalid, call your attorney immediately. You have only thirty (30) days to reject a Creditor's Claim of less than one thousand dollars. Any claim upon the Estate that may be invalid should be brought to your attorney's attention immediately. Declaration of Diligence.

After the four month creditor claim period has elapsed, you may ask the court to rule that you have done everything to ascertain potential creditors. That will cut off those who have not made claims. No claim need be paid, if the creditor has failed to serve a Creditor Claim. You may, however, wish to pay some claims where no Creditor Claim was served, depending on your assessment of those claims and your perception of the sentiments of the deceased. Please discuss any such decision with your attorney before you make payment of a claim for which no Creditor Claim is received. ESTATE TAXES If the gross estate has a value of less than then-current exclusion amount, then no federal or state estate taxes will be due. If that is so, you should be able to avoid filing a Federal Estate Tax Return 706. Washington State also has an estate tax. Its exclusion amount may differ from that for federal estate taxes. Please check with your accountant for estate tax liability. INCOME TAXES You will have to file at least two income tax returns. The first is for the taxable year in which the decedent died from January first of that year to the date of death. This is the decedent's personal tax return, filed on Form 1040. The second tax return is the Estate's tax return, and it encompasses income the Estate gathered from the date of death to the end of the Estate's taxable year, filed on Form 1041, "United States Fiduciary Income Tax Return." If the Estate earns more than a specified minimum amount in a tax year, the 1041 return must be filed. Beginning the second tax year of the Estate's existence, you will be required to file quarterly estimated tax payments, if the Estate is expected to owe at least minimum amount (consult a CPA) in taxes.

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