What’s the Difference Between a Solvent and an Insolvent Estate?

Jul 9, 2010

When a person passes away there are usually some bills to be paid by the estate. There might be medical bills, credit card bills or even purchases. If you have been named the Personal Representative of a loved one’s estate, then you’ll need to understand how you will tackle these bills. Of course, you’ll have the guidance of your attorney, but it’s good to have a basic understanding of how debt works when it comes to probate.

Pending payments for bills are known as debt in legal language. Comparing the amount of debt carried by an estate to the amount of estate assets tells you whether the estate is solvent or insolvent.

What is a Solvent Estate?

A solvent estate includes enough assets for paying off all bills. The assets are more than the total value of the bills. The Personal Representative is responsible for paying off the bills. At the end of probate, 12 – 18 months in CA, once all legitimate expenses are paid – including clearing all debt – then the assets are distributed to the beneficiaries. The Personal Representative has to ensure that the beneficiaries receive their share.

What is an Insolvent Estate?

In an insolvent estate, the assets are not enough for paying off all bills. When an estate is insolvent, then the Personal Representative has to list all bills in order of priority in accordance with state law. Your attorney can explain how to prioritize the bills. The assets would then be used to pay off bills – wholly or partially. Those bills that cannot be paid would have to be written off as bad debt. Beneficiaries are not responsible for paying off an estate’s debt.

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