Priority of Creditors Under the MUPC

The Uniform Probate Code is a model statutory scheme which governs areas of the law pertaining to inheritance and administration of decedent estates. The Uniform Probate Code's primary purpose is to streamline and standardize the probate process, which includes the management of, and disputes over, wills and intestate estates. In 2012, Massachusetts enacted a new Uniform Probate Code (the "MUPC") which brought sweeping changes to the family law practice area. Specifically, MUPC enacted a section controlling the hierarchy of claims asserted against an estate, referred to as the "priority list", which arises as an issue when the assets of an estate are insufficient to pay all existing claims in full. The priority list outlines the order in which creditors may be paid from the estate funds and assets. Generally speaking, creditors fall into one of two main categories: secured and unsecured creditors. Secured creditors typically have the first right to payment from the debtor's assets in satisfying the secured creditor's debts, while unsecured creditors are secondary in the priority list.

Why is this change in the MUPC and the Priority List significant?

A recent case, In Re: Estate of O'Brien, Michael J. gave us one of the first, if not the first, interpretation of the newly revised priority list section of the MUPC. This case highlights the significance of the priority list.

Generally, according to the holding of this case, a secured judgment lien takes priority over any unsecured debts levied against a decedent's estate. In the above-referenced case, a woman held a secured judgment lien against property in her late brother's estate, which was held to take priority over MassHealth's right to recoup Medicaid benefits it had provided to pay for the decedent's care in a nursing home. MassHealth argued that the judgment lien fell within the "all other claims" category of the newly enacted MUPC priority list, giving MassHealth's claim (categorized as a "debt due to division of medical assistance") higher priority.

Judge Kaplan disagreed, finding that "while MassHealth's assertion is accurate that the classification of claims under [the MUPC] does not specifically address secured creditors, it does not mean that a secured interest should be lumped in with the catch-all provision." Judge Kaplan ruled that secured creditors should receive preferential treatment with regard to Medicaid benefits

Since MassHealth often has Medicaid claims in these types of cases, this ruling is helpful in understanding the rights of a secured judgment creditor over a Medicaid claim.

What is a judgment lien?

In the above mentioned case, a sister sued her brother for withholding her share of rental payments generated by a property they owned together as tenants-in-common. The sister was issued a default judgment when the brother failed to answer her complaint. After receiving the default judgment, the sister began the process of levying the judgment against the brother's property. This is the judgment lien against the property.

When her brother died, the existence of the judgment lien made her a secured creditor in his estate. Because assets in the estate were not significant enough to cover all of the decedent's debts, MassHealth and the sister had competing claims against the estate.

How can legal counsel help?

Competing claims are common in probate cases, and often not easily sorted out. It is imperative that wills and other probate documents be reviewed carefully and in their entirety. Oftentimes, personal representatives appointed over the estates of loved ones do not have the experience necessary to fully ensure that the requirements under the MUPC are met. Additionally, if the estate is subject to multiple claims by creditors, the appointed personal representative will need the assistance of counsel to manage the satisfaction of these debts. Those who have a competing claim against a decedent's estate, especially if MassHealth is involved, are wise to seek the counsel of an experienced probate attorney to ensure the claimant recovers what they are owed under the law. A legal professional would review the will or intestacy statute (when decedent dies without a will) and evaluate the claim against the estate in order to determine how the claimant should proceed.