Equitable Subrogation

Well, I just found out. Let me share this information with you.

My client, the Personal Representative of her mother’s estate, had used some of her own money to pay her mother’s expenses. She filed a claim for reimbursement, but the court rejected her claim. At the bottom of the form, the clerk had written “These are claims of Equitable Subrogation.” My client wanted to know why it was denied, and what she needed to do next. So, I researched. Here’s what I discovered.

Equitable Subrogation is an idea carried over from the English common law (available to Kings and Queens to fix problems where there was no written law), to US common law.

It is the idea that when one person, not acting as a mere volunteer, “pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter, the volunteer is entitled to restitution in order to prevent unjust enrichment.” Estate of William Johnson, (1966) 240 Cal. App. 2d 743.

A related issue is that the IRS doesn’t want any money going out until the Estate Tax, if any, has been paid.  The IRS says that funeral costs can be paid without approval but other costs have to take the back seat to any taxes due from the estate.

In most cases there is no estate tax due because the estates are usually valued under $11 million- which is when estate tax kicks in after last year’s tax act. However reimbursement for expenses paid by the Personal Representative usually comes at the closing of the estate.

Most Personal Representatives are entitled to recoup their costs by asking for approval in the final account. A creditor’s claim is often not the right way to ask.  The right way to ask is explained in an excerpt from the Contra Costa County Local Rules:

Contra Costa Local Probate Rules – Chapter 5. Creditors’ Claims
7.200. Nature and Form of Claims
(a)   Claim vs. Expense of Administration

(1)   The Court will not approve “creditors claims” which represent obligations of the estate arising after the death of the decedent (except reasonable funeral expense). Such expenses are properly expenses of administration, not creditor’s claims, and may be included for approval in the account or report.

(2)   The Court will not approve “creditors claims” which are requests for reimbursement by the person who paid what may otherwise have been a creditor claim. These are claims for equitable subrogation, and may be included for approval in the account or report.

Aren’t you glad you asked?

Rita Holder, attorney
925-482-8910, rita@ritaholderlaw.com
www.ritaholderlaw.com