When there are not enough probate assets to pay all of the creditors of the estate including funeral expenses and all other administration expenses, the estate will be labeled as insolvent. Basically, you have an insolvent estate when liabilities exceed assets.
The estate administrator begins by inventorying all the assets and liabilities. There may be certain non-probate assets that the court will need to consider bringing into the probate estate if certain creditors cannot be adequately satisfied by other means.
Often in this situation, an executor or personal representative may decide to withdraw from administering the estate if they will be dealing with creditors only rather than distributing assets to beneficiaries. The named executor is only a nomination to that role. The person nominated is not required to fill the role. He or she is free to decline for any reason. The court will then need to appoint someone to act in their stead so that the estate can be properly administered and closed out.
The next step is to determine the priority of the claims of creditors. High on the list of priorities are reasonable funeral expenses, administration costs including attorneys’ fees, tax debt, reasonable medical and hospital expenses of the last illness of the decedent and any outstanding judgements. These types of claims typically take priority over other creditors’ claims. Within any one category, if there are insufficient funds to pay all creditors in that category, available funds are pro-rated among creditors. All creditors of one category must be paid in full before creditors of a lower category receive any payment. Within a category, creditors get paid to the extent of funds proportional to the amount of their claim.
Executors dealing with insolvent estates have to be very careful in determining what assets of the estate are available to satisfy which claims and in which order. It is often advisable to hire an experienced probate attorney to provide assistance in dealing with any situation where there are not enough assets to pay all of the debts. Contact Stouffer Legal in the Greater Baltimore area for assistance with estate administration and probate issues.
