What If the Estate Is Insolvent?

A man leans on a packing box with his head in his hand.At the end of the life of your family member or loved one, there are many issues to take care of. These issues include planning the funeral, notifying relatives, and cleaning out the residence if he or she does not have a surviving spouse or partner. One step that needs to be taken in most cases is probate. Probate is the process through which the estate’s debts will be paid and the assets are then distributed to the heirs or beneficiaries. In the optimal situation, the estate will have more than enough assets to make sure all the debts are paid. However, in some cases, there will not be enough assets to pay off all of the debts. In that case, the estate is considered insolvent.

It is the responsibility of the personal representative to make sure that all of the creditors are properly notified of the death and the probate proceedings.  It is then up to the creditors to file a claim. The personal representative will then determine which claims are valid and allowable. Once the personal representative determines there will not be sufficient assets to cover all the debts, the personal representative must take steps to officially declare the estate insolvent.

The personal representative must then look at the claims that have been filed and determine which debts get paid first. Under Minnesota law, there is a specific order in which the debts must be paid. The first priority debts are the costs and expenses of administering the estate, including attorney’s fees.  Next, reasonable funeral expenses will be paid. Third, any debt that has preference under federal law, including, for example, federal taxes. Fourth, expenses for medical costs or hospital stays for the deceased’s final illness. Fifth, the expenses for medical costs or hospital expenses incurred during the year before death. Sixth, any debts under federal law, such as state taxes, and last, any other unsecured debt. The personal representative pays the debts in this order, not in the order in which the claims are received. Once the assets of the estate run out, then the debts that are further down the priority list will simply not get paid.

If you have questions about probate and the process, we can answer them. Call us at (651) 371-9117 to talk about your case and how we can help you move forward.