What Happens to Your Debt After You Die?

You have just lost a loved one. Then, you get a phone call from one of their creditors. This will very likely and very understandably catch you off guard. Why would a creditor of a deceased family member be contacting you regarding payment of an outstanding debt? Do you really have to pay? Understanding what happens to debt after someone dies can protect you from being taken advantage of financially in the wake of losing a loved one. 

First, consider what happens during the probate administration proceedings. Regarding any unpaid debts of the deceased, all creditors are provided with formal notice so that they can make a claim against the estate to collect any outstanding debts of the deceased. All debts that can be covered by assets in the estate will be paid. Some assets will be exempts from being used to pay off debts, but most are fair game. In a perfect world, all debts would be covered and paid off. Medical bills and credit card debt would be satisfied by assets of the estate. However, sometimes there is just not enough money in the estate to cover all outstanding debts.

When an estate cannot cover all debts owed by the deceased, most commonly, creditors will have to cut their losses and walk away. Oftentimes, there is no other legal way for the creditor to recover the debt once the assets of the estate have been exhausted. In some instances, surviving heirs, family members, and others may be liable to cover unpaid debts incurred by the deceased. The circumstances where this happens are very limited and include:

  • Failure of the executor of the estate to properly put creditors on notice, violating probate laws;
  • When an individual co-signed for a debt obligation with the deceased;
  • When a surviving spouse signed a legal agreement to assume the debt and be held liable for the debt of the deceased spouse; and
  • If someone else jointly held an account with the deceased.

Absent any of the above circumstances, it is likely that surviving loved ones will not be responsible for paying off outstanding debts of the deceased. This means that any phone calls you receive from debt collectors contacting you about payment of a debt the deceased incurred, are most likely predatory and trying to make you pay for an obligation that is not yours. In fact, under the Fair Debts Collection Practices Act (FDCPA), surviving family members are protecting from these types of abusive and deceptive collection practices.

The probate administration process is complicated. Debt collection practices are complicated and often intimidating. Be sure to know your rights so that you are not taken advantage of. Debt collectors with no other options will try some pretty outrageous things to try and collect money due. Always be aware of your legal obligations to pay or not pay a debt, especially if it was a debt incurred by someone else. 

If you have any questions regarding estate planning, please do not hesitate to contact an Estate Planning Attorney at Schneiders & Associates, LLP for advice and counsel.

Roy Schneider’s areas of practice include business planning, entity formation, mergers, acquisitions and sales of businesses, employment law, contracts, transactional matters of all kinds, real estate transactions, homeowners associations, non-profit law and estate planning.

Common Mistakes Employers Make

California employers are subject to countless federal, state and local laws, imposing various requirements, including wage and hour and anti-discrimination laws. Unfortunately, many employers – particularly small businesses – are unaware of their obligations and violate various worker protection laws, often resulting in expensive lawsuits, civil settlements and penalties. Here are some common, costly mistakes employers make:

Misclassifying Non-Exempt Workers as Exempt
Generally, all workers are entitled to overtime pay. However, some employees – typically executive, managerial or professional employees – are “exempt” from overtime and receive a flat salary, regardless of the number of hours the employee works. However, the exemption only applies in certain narrow situations defined by law, and many employers improperly classify workers as “exempt” when they are legally entitled to overtime wages and meal and rest break requirements.

Misclassifying Employees as Independent Contractors
Determining whether a worker is an employee or independent contractor depends on a number of factors, and the law in this area is still evolving with the recent California Supreme Court decision in Dynamex v. Superior Court, and California’s new AB5 legislation. All workers in California are presumed to be employees, and there are only limited circumstances under which a worker (particularly if the worker will be doing the type of work that is part of the employer’s normal business) can be treated as an independent contractor. Because of the complexity surrounding the classification of independent contractors, and the enormous potential liability for employers for misclassifying workers, it is imperative to speak with legal counsel before treating a worker as an independent contractor.

Failing to Train Supervisors Regarding Employment and Labor Laws
Employment laws prohibit employers from taking action against an employee for certain reasons, including discrimination on the basis of a protected characteristic such as race, religion, gender, sexual orientation, national origin, pregnancy, etc. Employees are also protected from retaliation for complaints of discrimination or illegal activity. It is vital to train supervisors to manage their employees in accordance with all applicable laws.

Failing to Use an Employee Handbook
An employee handbook informs employees about the employer’s values and policies and facilitates compliance with employment and labor laws. A proper employee handbook can be an essential shield for an employer to raise when defending wage and hour claims or discrimination claims.

Failing to Properly Document Employee Job Performance
Proper documentation clearly establishes the employer’s expectations and where the employee failed to reach them. Written job descriptions and employee evaluations serve as training tools, performance measures and critical evidence in the event you have to terminate an employee.

Failing to Accommodate Disabled Workers
The law not only prohibits employers from discriminating against those with disabilities, it also imposes a duty on employers to engage in an “interactive process” with employees who may have a disability and to “reasonably accommodate” disabled employees so they can perform the essential functions of their job. Accommodations may include assistive devices, a modified work schedule or a restructuring of job duties.

Failing to Comply with Wage Payment and Notification Requirements
California requires employers to pay their employees in a certain manner and provide written notice of pay periods and amounts. There are no less than ten itemized requirements that must appear on all employee pay stubs. Failure to comply can subject the employer to penalties and a civil lawsuit, and every pay period in which a violation of these requirements exists can trigger a separate penalty. 

If you have questions about your compliance in regards to any of the foregoing employment laws, please do not hesitate to contact an employment attorney at Schneiders & Associates, L.L.P. for advice and legal guidance.

5 New Laws in the Golden State

Governor Gavin Newsom signed several new laws that will take effect at the start of 2023. Here are 5 new laws to be aware of as we ring in the new year!

Minimum Wage Increase

California’s minimum wage will increase to $15.50. The new state salary threshold will increase to $64,480. Fast food minimum wage will increase to $22 per hour. The new law applies to “fast food chains” with 100 or more restaurants nationwide. It defines a “fast food restaurant” as establishments that provide food for “immediate consumption either on or off the premises” for customers who select and pay for items before eating, and where the restaurant prepares items in advance. The law does not apply to restaurants with table service.

Bereavement Leave

Governor Newsom also signed AB 1949, which makes Bereavement Leave a protected Leave of Absence. AB 1949 applies to all employers with five or more employees and all public sector employers. To be eligible for bereavement leave, the person must be employed by the employer for at least 30 days prior to starting the leave. Employees may take up to five days of bereavement leave upon the death of a family member, defined as including a spouse, child, parent, sibling, grandparent, grandchild, domestic partner or parent-in-law. Bereavement leave may be unpaid, but employees can use existing leave available to the employee (e.g., vacation, paid time off [PTO], sick leave, etc.). Bereavement Leave must be completed within three months of the family member’s death. Employers can require documentation to support the leave including a death certificate; a published obituary; or a verification of death, burial or memorial services from a mortuary, funeral home, burial society, crematorium, religious institution or government agency.

New Holidays

Effective January 1, 2023, Governor Newsom proclaimed the following holidays:

  • Monday, April 24 Genocide Remembrance Day​
  • Monday, June 19​ Juneteenth​
  • Friday, September 22​ Native American Day
  • Sunday, January 22 Lunar New Year

AB 1655 adds June 19, known as “Juneteenth,” to the list of state holidays. The bill authorizes state employees to elect to take paid time.

AB 2596, recognizes Lunar New Year as an official state holiday and allows state employees to take paid time off from work to celebrate.

AB 1801 authorizes state employees to elect to take time off with pay in recognition of “Genocide Remembrance Day.”

AB 855 establishes that California Native American Day will be a paid holiday for all statewide court employees.

Wage Transparency

SB 1162 requires businesses with 15 or more employees to include information about salary ranges for all job postings. It also gives workers the right to know the pay scale for their current position. Companies with 100 or more employees are required to submit pay data and wage history to the state by May of each year.

COVID-19 Noticing Requirements

AB 2693 extends the employer’s obligation to notify its employees about possible COVID-19 exposure in the workplace until January 1, 2024. It also allows employers to post a notice of a possible workplace exposure instead of issuing individual written notice to each employee. AB 2693 eliminates the employer’s requirement to notify the local health department.

What Employers Should Do Now

Register for Schneiders & Associates Annual Employment Law Update, 2023. New employment laws, including the 5 summarized, will be discussed on January 25, 2023 by Schneiders & Associates Partner Roy Schneider and Attorney Christopher Correa. Roy and Christopher will present the 2023 Annual Employment Law Update – an in-depth discussion and further explanation of new laws, via Zoom. Please register for this free webinar. We hope to see you there to answer all your new employment law related questions!

Attorneys Who Care Too Much Won’t Get Their Fees

The prevailing party in a lawsuit can recover their attorney’s fees from their opponent if there is a statute or contract providing this recovery. However, courts are allowed to reduce the amount of fees awarded if it appears that the attorney over-litigated the case.

It’s not unusual to receive a motion for award of attorney’s fees where, on close examination of the supporting declaration and exhibits showing attorney billing time entries, the fees appear unusual. Often, courts will simply reduce by 10% whatever amount is sought in the motion. Now, a court of appeal has held that if the attorney’s time entries show over-litigation of the file, the fee award can be reduced accordingly.

In Karton v. Ari Design & Constr., Inc., 61 Cal. App. 5th 734, 738 (2021), as modified on denial of reh'g (Mar. 29, 2021), review denied (June 23, 2021), the court stated:

Trial judges deciding motions for attorney fees properly may consider whether the attorney seeking the fee has become personally embroiled and has, therefore, over-litigated the case. Similarly, judges permissibly may consider whether an attorney's incivility in litigation has affected the litigation costs.

In Karton, plaintiff was an attorney with a dispute against his general contractor. Attorney Karton wanted a refund worth $22K more than the amount defendant contractor offered to pay, so Karton sued and won a $133K judgment. Karton then sought a $271K fee award. The trial court awarded $90K because plaintiff Karton, who represented himself[1] with limited help from another attorney, behaved uncivilly in his briefs, like personally attacking opposing counsel. The court did not appreciate Karton getting agitated about the case, which the court said was because it was a personal dispute.

The order reviewed law about the lodestar method of fee calculation. The lodestar is the product of a reasonable hourly rate and a reasonable number of hours. The court has broad discretion to adjust an award downward or to deny it completely if it determines a request was excessive.

In Karton on a different issue, the court held it was error for the trial judge to find that plaintiffs had no basis to collect the reduced $90,000 award from an insurance company that had posted a surety bond for defendant general contractor. The liability of the surety is commensurate with the liability of its principal. In this case, by statute, defendant was required to pay the attorney fees as an element of court costs. So the surety was liable for the fee award along with the defendant.

[1] There is no recovery for the time a pro per plaintiff like Karton himself had spent on the case. (See Trope v. Katz (1995) 11 Cal.4th 274, 292 (attorney litigants may not recover attorney fees as compensation for effort they spend litigating matters on their own behalf.)

By: Kathleen J. Smith, Esq.

Corporation Shareholder Rights to Inspect and Participate

The California Corporations Code, as well as common law not found in the statutes, provide for shareholder inspection and participation rights in a corporation.

California Corporations Code section 1601(a)(1) provides that any shareholder is entitled to inspect and copy the following, at any reasonable time during usual business hours for a purpose reasonably related to such holder's interest as a shareholder or holder of a voting trust certificate.

  1. the record of shareholders
  2. the accounting books and records
  3. minutes of proceedings of
    • the shareholders and
    • the board and
    • committees of the board.

The holders of 5% of any class of shares of the corporation may request, at specified intervals during the fiscal year, income statements and balance sheets and, if no annual report has been sent, the statements required by Corp. Code section 1501 (a).

The definition of “accounting books and records” is not defined explicitly in the Corporations Code. Other sections impose duties of financial disclosure that show the meaning of accounting books and records—balance sheet, income statement, and statement of cashflows.  The corporation does not have to allow inspection of the General Ledger at entry level, or line item level balance sheet showing what each principal has loaned the Company, if the balance sheet shows a summary of those loans as a consolidated number. The inspection must be allowed at any reasonable time, so, the shareholder might access monthly information rather than just annual data, if the shareholder repeats the requests more than once annually.

Corp. Code section 1501(a) is an example of the type of accounting books and records that a shareholder may inspect. (Jara v. Suprema Meats, Inc. (2004) 121 Cal. App. 4th 1238.) Section 1501 requires that the directors of a corporation send to shareholders an annual report on the business and financial condition of the corporation.[1] Corp. Code section 1501(a)(1) provides that the report must contain a balance sheet and an income statement and statement of cashflows for the fiscal year, accompanied by a report of independent accountants or a certificate of an authorized officer that the statement was prepared without audit from the books and records of the corporation.

So even if waived in the smaller corporation’s bylaws, this section informs the definition of accounting books and records.

The inspection of books and records does not mean the shareholder is entitled to unfettered access to corporate confidences and secrets. (National Football League Properties, Inc. v. Superior Court (1998) 65 Cal.App.4th 100, 107 [no shareholder inspection of attorney-client privileged material.]) The shareholder’s inspection must have a proper purpose “reasonably related to shareholder's interest as a shareholder.”  (Corp. C. §1601(a).) So in most instances, the limited books and records inspection described here will fulfill the corporation’s duties to the shareholders. The “purpose” must be to determine the condition of the corporation and the value of shareholders’  interests therein.[1] For instance, inspection was permitted by the California Supreme Court in Schnabel v. Superior Ct. (1993) 5 Cal. 4th 704, 715, the purpose being to “ascertain the value of the stock” in a divorce case.

Meeting minutes are open to inspection (Corp. C.§ 1601[a]), even if they contain information about salaries and bonuses. Some privileges will apply, and possibly third party financial privacy could protect the actual dollar amounts and recipients. (National Football League Properties, supra.) But the information will probably be detected in the accounting books and records. Accessing historic minutes is probably required by section 1601. The section makes no exception for minutes created prior to the shareholder’s acquisition of stock.

Shareholders have rights around dissolution. The corporation can voluntarily dissolve only  upon the vote of shareholders holding shares representing 50% or more of the voting power of the corporation. Any 5% of the shareholders can petition for court involvement in a voluntary dissolution. Any 33.3% of shareholders can petition for involuntary dissolution, and the shares of the alleged wrongdoers don’t count.

Shareholders have rights around meetings as well. Shareholders have a right to attend shareholder meetings, which must occur at least annually for the election of directors. (Corp. Code § 600.) Although shareholders have no right to attend directors’ meetings, they have a right to inspect the minutes upon demand, at a reasonable time.

This subject is purposefully vague, and the courts are there to protect shareholder legitimate interests.  We have litigated cases in the past where the Board of Directors did not want to share certain requested information as it believed the information would be used for wrongful purposes, such as for competition. Such litigation is costly, time consuming and bad for morale.  However, for fully transparent corporations, the sharing of books and records and other legitimately requested reviews works just fine.

[1]This obligation can be waived in the bylaws of a corporation with fewer than 100 shareholders of record.

[2]One extreme example is Hobbs v. Tom Reed Gold Mining Co. (1913) 164 Cal. 497, 500-501, which is now considered limited by section 1601 because it allowed a shareholder to inspect the company’s Arizona gold mine. Hobbs set forth the common law definition of proper purpose: to determine whether company operations were carried on with skill and good judgment. In Hobbs, The California Supreme Court permitted the gold mine inspection “for the protection of his interest or for his information as to the condition of the corporation and the value of his interest therein.” (Hobbs supra at 501.) Section 1601 would not permit the mine inspection, but, the basis for the inspection--to protect the shareholder’s interest and the value of his stock—still applies.

Article By: Kathleen J. Smith

Kathleen J. Smith is an experienced civil litigator. Kathi advises clients on and handles all types of civil litigation, including employment matters, wage and hour, business, real estate, trademark disputes, class action defense, trust and probate, and homeowners association disputes. Kathi is experienced in all types of dispute resolution, from mediation to arbitration to civil trial.

Fiduciary Responsibilities and Your Business

As the owner of a corporation, you have certain responsibilities to other parties that must be fulfilled. Although being a sole proprietor gives you more leeway, a sole proprietorship lacks any liability protection for its owner.  Business owners who use corporations or LLC’s for their business structure must be familiar with fiduciary responsibilities. These obligations extend to corporate officers and even managers in some situations. So, what are fiduciary responsibilities for business owners and corporate officers?

What are Fiduciary Duties?

A fiduciary duty is a legal requirement that applies to anyone who has a relationship of trust with another person or organization. While fiduciary responsibilities extend to more than just the business context, they are often associated with corporations and partnerships. 

Other examples of this type of relationship include:

  • Trustee and beneficiaries
  • Investment manager and participants in an investment plan
  • Banker and customers
  • Attorney and client

In these relationships, the fiduciary often accepts legal ownership or control of property or an asset that belongs to someone else. In the business context, corporate owners and managers have this type of obligation to stockholders and investors in the business.

An Overview of Fiduciary Responsibilities

Several duties apply to those in fiduciary roles, such a corporate director or officer. Below is a general overview of responsibilities that likely apply to corporate owners and officers.

  1. Obedience - Officers and directors must carry out their roles according to the requirements of the corporate bylaws, articles of incorporation, and other controlling documents. They are obligated to follow voting procedures and executed decisions made by the stockholders or investors. They must also fulfill their obligations under state and federal law.
  2. Loyalty - Business owners and officers have a duty of loyalty to the corporation and their shareholders. This means they must put the interest of the shareholders and the company ahead of any personal aspirations or goals. Any conflict of interest should be decided in favor of the business, and officers cannot use information gained in their roles in a way that would harm the company.
  3. Care- Diligence and care are essential duties in the corporate context. If corporate officers make decisions without thoroughly investigating the implications of those decisions, that could seriously endanger the company. They should act as prudent investors and decision makers and consider how the stockholders are affected in making every important decision involving the company. 
  4. Good Faith and Fair Dealing - Officers, directors, and owners are required to act with honesty, fairness, and good faith in everything they do for the business. This requirement applies to daily operations of the company as well as significant decision-making functions. This duty dovetails with the obligations of obedience, loyalty and care.
  5. Disclosure - Those who make important decisions for the business must disclose relevant information about those decisions to others. The duty of disclosure is often referred to as a “duty of candor.”  Officers, owners, and directors not only have a duty to their shareholders, but to the other key decision makers as well. There is also a duty to disclose potential conflicts of interest which coincides with the duties of loyalty, good faith and fair dealing.

The Takeaway

Given the significant fiduciary responsibilities associated with running a business, owners, directors, officers and managers should contact our office for proper legal representation in fulfilling these important duties.

By: Theodore Schneider, Esq.

Theodore Schneider assists his clients in Ventura County and surrounding areas, with respect to all aspects of personnel matters, including employee discipline, wrongful termination, retaliation, discrimination, hostile work environment, sexual harassment, leaves of absence, Americans with Disabilities Act, Fair Employment and Housing Act, Fair Labor Standards Act, and the California Labor Code. Ted also drafts and reviews employee handbooks and employment policies for his clients. Email Ted at tschneider@rstlegal.com.

What are Letters Testamentary?

An individual who has been named as a personal representative or executor in a will has a number of important duties. These include gathering the deceased person's property and transferring it to the beneficiaries through a court-supervised process known as probate. In order to initiate this proceeding, the executor must first obtain what are referred to as letters testamentary. This document gives the executor the legal authority to administer the deceased person's estate. 

While the process varies from state to state, the executor must petition the probate court in the county in which the decedent lived. This typically requires submitting the death certificate and completing a short application. The application includes a sworn statement that the person has been named as the executor in the will, as well as an estimate of the estate's property and debts

The probate court will then hold a hearing to verify that the individual meets the qualifications to act as executor. Generally he or she must be a mentally competent adult and not be a convicted felon. If approved, the court will issue letters testamentary and officially open probate.

In short, the letters allow the executor to collect the assets of the deceased which may be held by  another person or an institution such as a bank. Since banks and other institutions may want to keep the document on file, it is necessary to obtain multiple certified copies. The executor can also carry out his or her other duties such as inventorying and appraising assets, paying debts, and transferring property to beneficiaries, according to the terms of the will.

Letters of Administration

In the event a person dies without a valid will in place, an heir of the decedent, typically a legal relative, needs to petition the probate court for letters of administration. In this situation, the court will hold a hearing to appoint this individual to act as the estate administrator, issue the letters and open probate. The administrator then manages and distributes the assets according to the state's intestacy laws which generally give priority to spouses, children and parents.

If you have any questions regarding estate planning, please do not hesitate to contact an Estate Planning Attorney at Schneiders & Associates, LLP for advice and counsel.

By: Roy Schneider, Esq.

Roy Schneider to Discuss Ethics at CLU’s Fifty and Better Summer Lecture Series

Roy Schneider will lecture at CLU's Fifty and Better Lecture Series on the topic, "How Does Ethical Decisions We Make Impact our Businesses and Personal Lives?" The lecture will explore ethics; the definition, whether ethics and morality are the same, reasons people sometimes make clearly unethical choices, compliance with law and ethical considerations (i.e., can law mandate ethical behavior?), theories of ethical behavior and how ethics works in making ethical choices in business and personal decisions. In this lecture we will address the questions of whether ethics and morality change over time - is ethics universal or situational? Many are familiar with the McDonald’s hot coffee case and the debate it sparked. We will explore this and other new and interesting cases, helping to better understand business decisions affecting us as consumers, and how to make better ethical decisions in our daily lives and in our relationships with others.

Date & Time: June 21, 2022, 1:00-3pm PDT

Click here to register!

LLC Operating Agreements Will Save You

Business partners, seeking to make their fortunes, form their LLCs at a moment when they expect to work together indefinitely, with good will between them and nothing but cooperation as their modus operandi. At this time in a business partnership, the idea of distrusting their business partner and needing to dissolve the LLC is furthest from their minds. Commerce demand their attention, and they may forget to sign their operating agreement after they register their LLC with the California Secretary of State. What happens when dissension leads one partner to reject the terms of the unsigned OA, simply because they never signed it. Answer: they probably have to honor it anyway.

LLC Operating Agreements (“OA”) are governed by the law of contracts. The National Conference of Commissioners on Uniform State Laws, Uniform Limited Liability Company Act (2006)(Last Amended 2013) With Prefatory Note and Comments, 2014, at p. 15, states in the discussion of the definition of “Operating Agreement” the following:

An operating agreement is a contract, and therefore all statutory language pertaining to the operating agreement must be understood in the context of the law of contracts.

Every contract requires consenting parties. (See California Civil Code §§1550, 1565; 1 Witkin, Summary 11th Contracts § 116 [2021].) A party’s consent is gathered from the reasonable meaning of her words and acts, and not from any unexpressed intentions or understanding. (1 Witkin, Summary 11th Contracts § 116 [2021].) For instance, your partner’s consent is demonstrated when they comply with a term in the OA—like asking the co-member to consent to a transfer of their membership to their trust. Or perhaps your partner will cite the OA in a legal document, like, when the LLC applies for a bank loan.

Such consent can also be evidence of ratification of the unsigned OA. Ratification arises when your partner benefits from the bank loan based on their signed Certificate of Incumbency. If your LLC stands to receive income as a result of a loan-- perhaps enabling investment funds to be leveraged geometrically with borrowed funds—then ratification can arise.

California Civil Code section 2310 states:


A ratification can be made only in the manner that would have been necessary to confer an original authority for the act ratified, or where an oral authorization would suffice, by accepting or retaining the benefit of the act, with notice thereof.

In Rakestraw v. Rodrigues (1972) 8 Cal. 3d 67, ratification was found where signer Rakestraw, whose signature was forged on a deed of trust, did nothing to repudiate the challenged signature because she anticipated receiving monetary benefits from the mortgaged property. In Rakestraw, the court found that the forger was acting as agent for principal Rakestraw. On that basis, the court held that any requirement that the ratification be done in writing was inapplicable. (Rakestraw at 76.) Written ratification required under California Civil Code section 2310 was not intended to apply to a ratification as between a principal and agent. (Rakestraw at 77, citing Sunset-Sternau Food Co. v. Bonzi (1964) 60 Cal.2d 834.)

Consent and ratification are two classic contract principles that support validation of the unsigned OA. If your partner is repudiating your unsigned OA, look back over the years for indicia and evidence of consent and ratification. It’s probably there.

By: Kathleen J. Smith, Esq.

Kathleen J. Smith is an experienced civil litigator. Kathi advises clients on and handles all types of civil litigation, including employment matters, wage and hour, business, real estate, trademark disputes, class action defense, trust and probate, and homeowners association disputes. Kathi is experienced in all types of dispute resolution, from mediation to arbitration to civil trial.

To find out more about LLC operating agreements, please feel free to contact the knowledgeable attorneys at Schneiders & Associates, LLP. We will be pleased to answer any questions you may have, and make sure you are comfortable with our law firm. For more information please call or email our Oxnard office.