Is the Estate solvent?

Published - 11th January 2019

The first thing the executor should therefore do – before paying any debts – is ascertain the solvency of the Estate.  A simple balance sheet exercise should reveal if the estate is solvent or not.  But it is not always obvious what liabilities exist, there could be online gambling debts, store cards, hire purchase agreements or even payday loans.  If there is any risk that liabilities will outweigh assets, no immediate payments should be made to any creditors. 

If the estate is insolvent, the executor or personal representative should ensure that creditors are paid in the correct order of priority. It is crucial that no creditors are preferred ahead of others who are equally or higher ranked.  Any fees incurred by the executor for professional advice would be a priority debt and would be payable out of the estate before most other creditors’ claims.

Identify all debts and liabilities

If the estate is solvent, the executor should be certain that they are aware of all the debts and liabilities they are obliged to pay before finalising the estate.  In most estates, it’s not possible to be absolutely sure that all creditors have been identified, but protection against unknown claims can be easily obtained by placing notices under Section 27 of the Trustee Act 1925 (the Trustee Act 1958 in Northern Ireland) in The Gazette, and a local newspaper.

A deceased estates notice specifies a two-month period for claimants to contact the executor to register a claim against the estate.  Once that time has expired, the executor may distribute the estate, having regard only to the claims they have received notice of. 

A creditor who misses the deadline has no recourse against the executor personally, but can still pursue the beneficiaries who receive the estate. But the important thing for the executor is that they can, at a given point in time after the two month notice period has expired, hand the estate over to the beneficiaries, safe in the knowledge that they will face no personal difficulty if an unknown creditor later surfaces.

What are the risks of not placing a deceased estates notice?

If a deceased estates notice is not placed, a creditor may be able to enforce a debt against the executor long after the estate has been distributed. So historically it's been vital for an executor who wants to bring their liability to creditors to an end to either place a notice or buy insurance. 

Estatesearch™ now provides a new alternative for the executor with multiple benefits.  It proactively identify creditors within 48hrs, performs a bankruptcy and Insolvency check, but it also offers an additional protection against unknown creditors up to a value of £250,000 per Estate.  This removes the need to place a statutory section 27 notice in the Gazette and or local paper and reduces the time you have to wait from 2 months to 48hrs.

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