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At LCF Barber Titleys many clients come to see us when they have been appointed as Executors in the Will of a relative or friend who has died. It can be particularly important to take proper legal advice if you are an Executor of an estate that you think might be insolvent.
The Executors are the people who are named in the Will to deal with the estate and their duties include identifying the assets and liabilities of the estate, collecting in the assets and paying off the liabilities before dividing up the balance of the estate in accordance with the terms of the Will.
An insolvent estate is one where the total value of the liabilities of the estate comes to more that the value of the assets. There will be nothing left over for the beneficiaries of the estate and it will be impossible to pay all of the creditors in full.
Where an estate is insolvent, there are legal rules setting down an order of priority for how the costs and liabilities of the estate should be paid and, in particular, which creditors should receive what. If you act as an Executor of an insolvent estate and distribute the cash available in the wrong way you can become personally liable to the creditors who lose out.
The best option can often be to renounce probate before becoming involved in the estate. This means that you sign a form formally giving up your right to act as Executor and it is then left to one of the creditors to deal with the estate. This releases you from any duties or liabilities in relation to the estate.
While there are one or two urgent matters that it will be sensible to deal with, such as securing the house and ensuring it is insured and arranging the funeral, you can only renounce probate before becoming actively involved in dealing with the assets and liabilities. The problem is that it will often not become apparent that an estate is insolvent until the Executors are already too deeply involved to renounce probate.
So what should you do if you find yourself dealing with an insolvent estate?
The steps to take will include:
From the remaining available funds, the cost of a basic funeral comes next, followed by the testamentary and administration expenses (such as the legal costs and expenses of dealing with the estate).
Certain preferential debts should be paid next which include things such as contributions to occupational pension schemes and remuneration of employees of the deceased's business.
Finally, there are the ordinary debts of the estate which are those which do not fall into any of the earlier categories. There will be insufficient funds to pay these debts in full and they are therefore reduced pro rata. In other words, each of the debts is reduced by the same percentage to use up the available funds.
There are three particular points to bear in mind:
Most important of all, take proper legal advice at the earliest possible opportunity and certainly before involving yourself in the financial aspects of the estate.
Further advice please contact Mark Jones on 01423 502211 or email@example.com
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