Dealing With An Insolvent Estate

If the deceased’s debts are larger than the assets, then the estate is insolvent. If the estate is insolvent, not all the creditors will get what’s owed to them. Nevertheless, as an executor or administrator, it is up to you to make the best of a bad situation. If there is any doubt, you can always hire or consult a solicitor.

In cases of estate insolvency, you don’t simply pay out to the creditor that is the most persistent. You are bound by Act of Parliament to pay the debts in a certain order:

1. Mortgage

The lender will insist that the property is sold to repay the mortgage. The lender is known as a secured creditor.

2. Tax Authorities

If the deceased owed money to the tax-collector (such as VAT), then this has to be paid next.

3. Other Creditors

These are also called unsecured creditors. These debts can include credit cards, personal loans, and utility bills. Work out what percentage of all the debts can be met from the proceeds of the estate. Then offer creditors an equal percentage. If the debts are over £40,000 and the money available is just £20,000, offer all creditors 50% of their money back.

Where an estate is clearly insolvent you may decide not to bother applying for grant of probate or letters of administration. Instead, you can leave it up to the deceased’s creditors to apply for letters of administration – it will then be up to them to do the legwork.

Selling the Assets to Pay the Debts

Only sell anything of the deceased’s after you’ve explored all other avenues of raising the necessary cash. The will should give you full rights to dispose of the deceased’s property as you see fit.

You may need to sell the deceased’s assets for a number of reasons, including paying for the funeral, meeting creditor’s demands, or paying the IHT bill.

Discuss with the other executors which part of the estate should be sold so that the deceased’s wishes can most closely be met. Don’t just pick just one beneficiary and start selling off their gifts while leaving every one else’s intact, unless of course you have their consent.

You must try to get the best possible price for the deceased’s estate. If you fail to do so, then the beneficiaries may have a case to sue you.

Get three written quotes for the items you sell. Accept the highest and keep all three quotes on file, just in case someone checks that you got the best possible price.

Tracking Down Beneficiaries

Whether you’re administering an estate according to the terms of a will or the law of intestacy, you may encounter difficulty tracking down a beneficiary. After all people are more mobile than ever before.

From a legal perspective you are duty bound to make certain efforts to track down a beneficiary.  As with tracking down creditors, advertise in the London Gazette (England & Wales) or the Edinburgh Gazette in Scotland, or the Belfast Gazette in Northern Ireland, plus in the deceased’s local paper.

If you don’t have any luck try the following:

If you have a rough idea where the beneficiary lives, try advertising in their local newspaper

The web site www.192.com has a people finder function, which for a fee, allows access to the electoral register database

If the beneficiary has an uncommon name you may be able to find them by typing their name into a search engine (e.g. Facebook)

Try www.titlesearch.com, this site can help trace missing heirs or next of kin

If the inheritance is substantial, hire a private detective who is used to track down missing people.