Estate, Powers and Trusts, § 12-2.3: Effect of Application of Surrogate to Sell Real Property

Under New York estate law, the executor or administrator of an estate is obligated to address all claims presented against the estate within the prescribed time frame and in the form set forth by law. Before the executor or administrator is permitted to distribute estate assets to beneficiaries or heirs, he or she must first pay all valid, timely claims. Distributions to beneficiaries and heirs are then made with whatever assets remain in the estate. On occasion there are creditors who do not receive payment from the estate prior to the distribution of assets. Such creditors are allowed to sue the distributees to recover the money owed to them. However, there are several rules that the creditors must follow when attempting to recoup money from distributees. Under New York Estate, Powers and Trusts, § 12-2.3, Effect of application to surrogate to sell real property, if the estate included real property and there is an action to settle the account of the estate administrator, any claim of a creditor related to the real property will be stayed until the administrator’s account is settled. If you have concerns related to real estate that is part of an estate, contact an experienced New York estate administration lawyer.

Typically before a decedent’s assets are distributed to his or her beneficiaries of heirs, the estate executor or administrator must pay debts owed by the estate. There are several types of debts that must be paid including expenses of estate administration as submitted to the court by the estate administrator. Once the administrator reports to the court that estate debts have been paid, the court will give the administrator permission to close the estate and distribute the assets according to the terms of the will. If there is no will, the estate assets will be distributed to the decedent’s heirs according to the laws of intestate succession.

However, there are several rules that the creditors must follow when attempting to recoup money from distributees. For example, under New York Estate, Powers and Trusts, § 12-2.3, if the estate include real property and there is an action to settle the account of the estate administrator, any claim of a creditor related to the real property will be stayed until the administrator’s account is settled. To learn more about special rules that apply when real property is involved in an estate, contact an experienced New York estate administration lawyer.

The executor has the overall responsibility of managing the estate of a decedent according to the terms of the decedent’s will. If the decedent passed away without a will, the role of managing the estate is filled by an estate administrator appointed by the Surrogate’s Court.

The executor must assess the value of the property in the estate and the type of property in the estate. This step is crucial as the executor must know the value of the estate in order to determine assets available to pay creditors and distribute to beneficiaries. If there is not enough cash in the estate to pay creditors, the executor may need to sell estate property to raise cash. Only after estate debts are paid can the executor distribute property to beneficiaries. If there is not enough property in the estate after debts are paid, the dispositions to the beneficiaries may fail or partially fail due to abatement.

Creditors have 7 months to file claims against the estate. The time starts to run on the date that the executor is formally appointed by the Surrogate’s Court. The executor must pay claims that are valid and submitted timely. Claims that are filed after the 7 month period may still get paid from estate assets if there are still assets in the estate. As an estate administration attorney in New York will explain, if the assets have been distributed, then the creditor must try to recover the debt from the distributees.

1. Extent of liability; judgment debtor’s right to indemnity and contribution: Estates, Powers and Trusts, § 12-1.3
2. Action not impaired by failure of creditor or other person to precent claim to representative as prescribed by law: Estates, Powers and Trusts, § 12-2.1
3. Title of bona fide purchaser from distribute or testamentary beneficiary protected: Estates, Powers and Trusts, § 12-2.5

If, during the pendency of an action to enforce a liability created by this article against a distributee or devisee of real property, a proceeding is pending or is subsequently commenced for the judicial settlement of the account of the personal representative, the action insofar as it affects any real property of the decedent shall be stayed until the accounting proceeding is concluded without an application for an order, under SCPA article 19, to dispose of real property of the decedent for the payment of debts, funeral or administration expenses having been made or, if made, without such an order having been granted.  If such an order is granted, the action shall be dismissed as to the real property ordered to be disposed of and the plaintiff remitted to the enforcement of his rights against the proceeds of the real property held by the personal representative.  Nothing contained herein precludes a person from asserting any right he may have under this article with respect to any other property of the decedent.

The rules related to distribution of assets and paying creditors can be confusing. If you are involved in a complicated estate matter, it is important that you are represented by an estate administration attorney serving New York who has significant experience with complex estate matters. The attorneys at the Law Offices of Stephen Bilkis & Associates have years of experience representing clients in estate disputes, including issues related to creditors and asset distribution. We are here to help. Contact us at 800-696-9529 to schedule a free, no obligation consultation regarding your case. We represent clients in the following locations: Nassau County, Suffolk County, Westchester County, Bronx, Brooklyn, Long Island, Manhattan, Queens, and Staten Island.