Insolvent Estates Of The Deceased

One of the less obvious effects of the recession is the impact it has had on deceased estates due to the continuing fall in property prices. Also, as elderly people struggle to make ends meet and seek to cover their expenses by taking out equity release schemes or by borrowing from banks and credit cards, at the time of death many properties are no longer free of mortgages. Values of shares have also been affected and often dividends which were being used to supplement income have virtually vanished over night.

Solicitors instructed by personal representatives to deal with obtaining a grant of probate and the administration of the estate are sometimes left in a difficult position. The estate might take years to conclude and during that period the value of the assets may well have diminished to such an extent that the estate becomes insolvent. If the value of the property falls, there may be insufficient funds within the estate to meet all the liabilities. Solicitors and personal representatives need to tread carefully in determining whether a deceased's estate is insolvent.

If it is they can either seek to administer the estate in accordance with bankruptcy law or an application can be made for an Insolvency Administration Order.

If solicitors choose to administer the estate they will need to have a detailed knowledge of bankruptcy proceedings as there are many pitfalls for the unwary. As soon as it is determined that the estate is insolvent it is essential that the parties administering the estate should make no distributions to ensure that the estate is protected.

The alternative route would be to seek an Insolvency Administration Order. If made by the Court the estate will be managed initially by the official receiver, and often then by a trustee who would either be appointed by the Secretary of State or by the creditors. The trustee would seek to administer the estate, essentially as a bankruptcy, by realising the assets and making a distribution to the creditors.

The Insolvency Administration Order is often the preferred route for solicitors and personal representatives who have been left in this difficult position. Although the personal representatives or executors will be asked to complete a statement of affairs in...