What Does it Mean for an Estate to be Insolvent?

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Author: Victoria Chan-Pablo

What is an insolvent estate?

An estate is insolvent when the decedent’s debts exceed the value of his or her assets and there are insufficient estate assets to pay for expenses of the estate, such as administration expenses, funeral expenses, and valid claims against the estate, etc. In other words, an insolvent estate is one in which the debts exceed the value of the assets. In this circumstance, creditors of the estate may reduce the debt or write off the loss, and unfortunately the heirs or beneficiaries of the estate will not receive a distribution.

What is a solvent estate?

A solvent estate is an estate in which there are sufficient assets to pay all debts, funeral expenses, and administrative expenses in full. In other words, a solvent estate is one in which there are still assets left over after all the debts have been paid. In this circumstance, after all debts of the decedent and all administration expenses are paid, the remaining balance of the decedent’s estate is distributed to the decedent’s heirs or beneficiaries pursuant to the decedent’s last will and testament. If the decedent did not have a will, the remaining balance of decedent’s estate would be distributed in accordance with the rules of intestacy. Rules of intestacy go into effect when a person dies without leaving a valid will and determine the order of distribution among the decedent’s heirs.
Of course, having a solvent estate is ideal so that your beneficiaries and heirs inherit a portion of your estate. Talking with an estate planning attorney and preparing a will are important to help plan for a solvent estate. To learn more about creating your own estate plan, please contact our office.

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