Hawaii’s Elderly Population Vulnerable to Financial Abuse During Difficult Financial Times

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Do you know someone who has recently passed away that presently owes you money, or will owe you money in the future under an agreement or contract? There are very specific legal procedures with short time limitations in which you must, under Hawaii law, present these obligations or debts, regardless of whether the debt has already become due at the time the individual passed away. Michael Rudy spoke to the Hawaii State Bar Association Collections Division on October 7, 2022, and spoke about these complex and highly technical rules that protect your rights when someone who owes you a debt or other obligation passes away. Filing Creditor Claims Against the Estate or Revocable Trust Hawaii State Bar Association Collection Law Section October 7, 2022 9:00 a.m. YWCA Laniakea – Fuller Hall 1040 Richards Street Honolulu, Hawaii 96813 Michael Rudy founded MacDonald Rudy over 30 years ago. The law firm concentrates on fiduciary, trust and estate, and real property litigation. For over three decades he has litigated complex trust and estate matters and contested conservatorships involving some of Hawaii's largest private trusts and high-profile individuals and families in Hawaii. I. INTRODUCTION Creditor-claim Procedure in the probate court of Hawaii is highly statutory. The procedure, however, is fraught with peril with very short time limits for presenting claims. The rules are nuanced, and occasionally complex issues arise as to whether there exists a claim or whether the claim was pre- or post- death, or administrative. This is true even for more specialized practitioners in the probate courts of which there are unfortunately relatively few and qualified practitioners that can assist when complex issues arise. Although there are relatively few known litigated creditor claims in the probate court, when specific technical or legal issues do arise, there is little or no UPC case law or practical guidance to refer to. This is true not only in Hawaii but in other jurisdictions across the country that have adopted in some form the Uniform Probate Code. Creditor-claim issues, when they do occur, frequently revolve around the following: Failure to identify a proper claim; Failure to promptly identify the fiduciary whether it be trustee or personal representative; Complying with applicable short statute of limitations; Assessing and determining pre- or post- death or administrative claims; Assessing non-exempt and exempt non-probate transfers; Determining proper choice of forum to litigate efforts in creditor claims. A. Do You Have A Claim? 1. The definition of a claim is very broad. Claims are any potential or actual contractual obligation, whether breached or not at the time of death. Example: partnership obligations, executory contracts, personal guarantees, promissory notes not yet due, torts that have occurred, but damages are unliquidated, etc. Virtually any existing legal relationship the decedent may possess, vis a vis third parties, may contain a possible claim subsumed within it. B. Determine that the type of claim, whether it be pre-death, post-death, or administrative claim. 560:3-803 All claims against either a decedent or decedent's estate, which arose before the death . Proceedings such as will contests, trust disputes, or other claims to specific estate or trust property or fiduciary conduct is not a claim for purposes of 560:3-803. This Section is typically straightforward and not usually a fertile ground to litigate. Bearing in mind, however, claims can be absolute or contingent, liquidated, or unliquidated and still be pre-death claims. They may be found on contract or tort or other legal basis. Claims that are not administrative but arise after death. Again, there are few litigated claims in such area, but claims such as a decedent’s personal indemnity, obligations of an estate, other such contribution claims would be an example. Post-death claims are due four (4) months after it is due or 18 months, whichever is the first to occur. Publication does not bar a post-death claim. Administrative claims must be adjudicated and paid before probate closes or prior to the trustee final accounting being submitted. Note : Claim to enforce a mortgage, pledge, or other lien upon property is not a claim. A potential deficiency judgment will be a post-death, or possibly pre death unliquidated and contingent claim. “The entry of a deficiency judgment against decedent's estate in foreclosure proceeding could not override or eliminate the mandatory provisions of the probate code's nonclaim statute, and therefore, the entry of the deficiency judgment merely constituted a valid debt against the estate that must also have been presented within the time limits of the nonclaim statute.” In re Est. of Hover , 407 S.C. 194, 754 S.E.2d 875 (2014); See, e.g., Harter v. Lenmark, 443 N.W.2d 537, 540 (Minn.1989); Meissner v. Murphy, 58 Or.App. 174, 647 P.2d 972, 974 (1982); Provident Inst. for Sav. in Jersey City v. W. Bergen Trust Co., 126 N.J.L. 595, 20 A.2d 437, 439 (1941). II. SHORT STATUTE OF LIMITATIONS Pro Tip : If you are a known creditor or reasonably ascertained creditor, you are entitled to actual notice of the four (4) month bar date. If you get actual notice of the bar date, it is 4 months after the first published notice or 60 days after the delivery of the bar date notice, whichever is later . But if you do not get actual notice, and you are a known or ascertainable creditor, the bar date for a claim is 18 months. In Hawaii there is no actual obligation to provide actual notice to a known or reasonably ascertainable creditor. But in order to pass constitutional muster under Pope, without actual notice, an ascertainable credit is not bound by the four (4) month short statute of limitations. Pro Tip : Fiduciaries typically ignore and abuse the ascertainable standard and actual notice requirement and thus the 18 month statute applies in many more instances than otherwise believed. How do I know if my client is a reasonably ascertainable creditor? A decedent's fiduciary must make attempts to reasonably ascertain a decedent's creditors through reasonably diligent search, such as a reasonably prudent person would make in view of the circumstances, and must extend to those places where information is likely to be obtained and to those persons would likely have information regarding decedents' creditors. See in re Estate of Loder 308 Neb. 210, 219-20, 953 N.W. 2d 541, 449 (2021). An example of a reasonably ascertainable creditor might be a medical care provider, hospice care that had provided previous medical services to an elderly or sick individual, in which the care provider gets no actual notice, but it is obvious care was provided. In that instance, the bar date without actual notice would be 18 months. Pro Tip : If a case is already filed in a court of appropriate jurisdiction, there is no need to file a proof of claim. III. WHERE TO FILE Deliver the claim to the personal representative with an affidavit in support to file the claim. Filing with the court with a copy to the personal representative. IV. FORM OF CLAIM Hawaii Probate Rules. See Probate Rule 63, all supporting documentation not required. “A creditor seeking payment from the deceased shall present a claim by (a) delivering the claim, with an affidavit in support thereof, to the person” Rule 63 - Presenting Claims , Haw. Prob. R. 63 ...an attempt is made in this rule to keep any court-filed documents with respect to presenting a claim as minimal as possible by not requiring that all supporting documentation be attached, but only that the claim be supported by affidavit. This rule does not prohibit the pursuit of claims by any other legal method. Pro Tip : There is no law on procedure for filing claims against a trustee of a revocable trust. Suggest always to file a claim in the estate and with a trustee or Jane Doe trustee, if necessary, with the clerk of the court at small estates in the First Circuit Court for decedent’s domicile there at death. If you choose to directly litigate without filing a proof of claim that is permissible, however, you need a defendant. You cannot sue a trust. You must sue a trust through a trustee. You cannot sue an estate. You must sue an estate or heirs directly. You must litigate a special administrator or personal representative. At some point, it may be necessary to file as a creditor, a creditor may as an interested party petition to open up a special administratorship, or a probate, or potentially even a conservatorship in the case of an incapacitated but living adult. The idea is to have an individual appointed as a defendant that can adequately represent the needs of the conservatorship, the estate, or in the cases of a revocable trust, the appointment of a successor trustee. A conservator, a special administrator or a personal representative can compromise claims with probate court approval. V. WHEN TO FILE A LAWSUIT Creditor litigation can be filed either in the probate court or the circuit court that has concurrent jurisdiction. A fiduciary has 60 days to reject a claim after presentment, or it is deemed accepted by the fiduciary. If the fiduciary rejects the claim, the creditor has 60 days after the denial to commence the lawsuit, unless the court extends the 60-day deadline for good cause, See H.R.S. Section 560:3-804, or if the fiduciary fails to notify the claimant of the 60 day bar date, Section 560:3- 806 states that the creditor then has 18 months to file the lawsuit. VI. WHAT ASSETS AVAILABLE? The Uniform Trust Code provides in 554D-505 that trust assets in a revocable trust are available to satisfy creditor claims notwithstanding the presence of a spendthrift provision in the trust. However, as stated above, the newly enacted Uniform Trust Code provides absolutely no procedures on filing claims against the trust. The Uniform Probate Code does set forth references to the 4-month and 18- month bar date that is a short and affects short statute of limitations for Claims against a trustee. Pro Tip : Practitioners that represent creditors, should assume that the procedural timing of presentation of claims applies with equal force to trust. However, there ostensibly is the argument that after a timely presentation of claim is made against the trustee, that the 60-day period for denial by a trustee in the following 60-day claim to file litigation subsequent to denial is not applicable to a trustee revocable trust. Claims are payable out of the assets of the probate estate (check filed inventory) subject to: housing allowance $15,000; exempt property allowance $10,000; family allowance $18,000 (but may be increased with court order); expense and administration; federal taxes; last illness medical expenses; state taxes. Non-probate transfers generally are not available for creditors since Hawaii has not adopted UPC § 6-415 or 6-102 which would otherwise make joint transfers available. There are other Hawaii statutes in play that also exempt certain assets from creditors of decedents such as life insurance, pensions, IRAs, and annuities. Joint bank accounts, payable and death accounts, tenancy by the entirety property, IRAs, 529 plans, life insurance are all equally exempt from a creditor after the death of the decedent or settlor. Jointly held real property exemptions in Hawaii are unresolved. Until the Legislature addresses this issue Hawaii courts should follow the common law principle that a creditor’s right against a joint tenant is extinguished upon the death of the joint tenant debtor. Hawaii has passed the Uniform Real Property Transfer on Death Act Section § 527-15 which makes the interest in the subject property available to claims against the estate if the probate estate is insufficient to pay claims. Pro Tip : Non-probate transfers, particularly death bed type transfers, are vulnerable to be set aside as a fraudulent transfer as to present creditors. See HRS §651C-4. Bearing in mind that the creditor and their counsel comply with the probate statute of limitations. Michael D. Rudy, Esq. For more information, please contact: MacDonald Rudy O'Neill & Yamauchi 1001 Bishop Street, Suite 2800 Honolulu, Hawaii 96813 Telephone: (808) 523-3080 Website: www.macdonaldrudy.com Email: mrudy@macdonaldrudy.com

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