To many people, estate administration is synonymous with receiving an inheritance after a loved one dies. They think of a personal representative as someone who carries out a deceased person’s last wishes.
While that is certainly part of estate administration, there are other, less pleasant responsibilities to fulfill as well. Personal representatives typically need to ensure that they properly manage the lingering financial responsibilities of the decedent. In some cases, they may discover that the estate is insolvent after reviewing financial records. In other words, the estate owes more in debts than it has in assets.
What do personal representatives need to know about managing an insolvent estate?
Proper procedure is critical
Personal representatives can have direct financial responsibility if creditors can show they did not follow appropriate procedures. As such, following the right protocol to communicate with creditors is of the utmost importance.
After identifying the estate’s resources, publishing notice and sending letters to creditors, personal representatives then use estate assets to pay debts in a specific order. If they do not have enough capital to cover all remaining financial obligations, then addressing estate expenses and federal taxes, along with certain other costs, typically takes priority over repaying student loans and credit card balances.
Personal representatives may need to provide a detailed accounting of how they distributed resources in the event that creditors seek to hold them personally responsible for unpaid balances due. Their careful adherence to the law can limit their risk of facing litigation later.
Those attempting to oversee the administration of an insolvent state may need help protecting themselves, and that’s okay. Securing appropriate legal assistance and learning about the law can limit some of the risk inherent in estate administration.