One of the problems that estate administrators can encounter during the probate process is dealing with an insolvent estate. This occurs when the decedent owes more to creditors than the estate is worth. An insolvent estate presents a unique set of challenges to estate administrators. By definition, an “insolvent estate” is one that doesn’t have sufficient funds to pay the liabilities and debts of the deceased.
If the decedent owed debts to secured creditors, those creditors hold security interests in the assets of the decedent’s estate, whatever those may be. Once they have been paid or the debts have been satisfactorily negotiated, there are strict rules about the ways proceeds from insolvent estates must be distributed. Personal representatives of decedents have to apply any funds available in insolvent estates in the below order:
- Reasonable final expenses for the decedent, along with expenses incurred in administering the decedent’s estate;
- Compensating the administrator of the estate according to provisions of the Trustee Act;
- Legal costs associated with the administration of the estate;
- Salaries, wages, compensation or commissions of workers, clerks, labourers, employees and travelling salespersons for services rendered over the six months immediately prior to the decedent’s death, up to a total of $2,000 per case;
- Claims of recurrent liabilities or debts accrued 12 months prior to the decedent’s death, in addition to lump sums owed for spousal support as decreed by the courts; taxes levied or assessed two years prior to the decedent’s death; arrearages for rent to landlords for the past three months, and many more specific conditions and circumstances which are too numerous to delineate here.
If all this sounds confusing and a bit worrisome for those in charge of probating an insolvent estate, fear not. An estate lawyer can provide you with the information you need to carry out your duties satisfactorily.
Source: bclaws.ca, “Division 12 — Insolvent Estates,” accessed July 29, 2016 http://www.bclaws.ca/civix/document/id/complete/statreg/09013_01#division_d2e12969