Legal News | 16.06.22

Solvent or insolvent? That is the question, but what is the answer?

If you are acting as a personal representative of a deceased’s estate, it’s important to be aware of your duties if it transpires that you may be dealing with an insolvent estate.

By definition, an insolvent estate is one which has insufficient assets to meet the debts and liabilities of the estate – this is called balance sheet insolvency. Current and future liabilities are taken into account when judging whether an estate could be insolvent.

Potential warning signs of an insolvent estate include:
• Petitions of bankruptcy;
• IVAs entered into during the deceased’s lifetime;
• Large creditors or ongoing disputes with creditors;
• Charging orders;
• Debts from HMRC;
• Lack of clarity regarding ownership or location of assets.

Even if the deceased left a Will setting out their wishes, while there is any uncertainty as to the solvency of an estate, you as executor should make no distributions of assets from the estate (either of monetary value or personal belongings). It may be that these assets will, in due course, be needed to settle pre-death debts and any costs that may arise during the course of the administration.

If you are unsure about whether an estate is insolvent, good practice is to treat the estate as insolvent until proven otherwise. This is particularly important because creditors to whom money is owed may hold the personal representatives of an estate personally liable if the correct order of repayment is not followed. An outcome that is definitely best avoided.

We recommend that if you are dealing with an estate and have any concerns at all regarding debts, you should seek our advice. Please get in touch with your usual contact or email us at wealth@wansbroughs.com.