What to do when an estate is insolvent?

You’ve just received an inheritance. Unfortunately, it has debts that exceed the deceased person’s assets. This is known as an “insolvent estate”. What can you do? Can you renounce the inheritance? Who can help?

In short

Here are your options if you inherit an insolvent estate, that is, where the deceased person’s debts are greater than the assets bequeathed :

Accept the estate and become responsible for the deceased person’s debts.
Renounce the estate by contacting a notary, for a fee.
Have the estate declare bankruptcy with the help of a licensed insolvency trustee to discharge its debts.

In many situations, there are several advantages to the last option, both in terms of speed and cost. The licensed insolvency trustee will arrange for the sale of any assets of value to pay off the creditors.

To avoid adding stress to the loss of a loved one by having to pay debts, do not hesitate to contact one of our experts who will help you see things more clearly and find the best solution.

First of all, before you weigh your options, let’s look at what an “insolvent estate” is. It’s quite simple: it’s when the deceased person’s total debts are greater than the value of the assets left behind (for example: personal property, cash, investments, life insurance, real estate, etc.). So, even if you sold all the assets, you would not be able to pay back all the money owed.

Determining whether the deceased person has debts is not always easy. The liquidator named in the deceased’s will, or the person designated by the heirs if there is no will, must make an inventory of the assets and debts.

A good starting point for this inventory is to review the documents in the deceased’s home and any mail received. You need to review the most recent bank statements, tax returns and account statements. Refer to our article on this topic for more information.

It’s important to do the estate inventory as soon as possible since the heirs have six months from the date of death to decide whether they will accept or renounce the inheritance. After this time, they can no longer renounce the estate, other than in exceptional cases.

What should you do if the estate is insolvent?

There are several options if the estate is insolvent :

1.

Accept the inheritance

You can accept the inheritance, which includes the assets and the debts. Most heirs want to avoid this because they will have to pay the deceased’s debts. However, some people do not want to dispose of inherited assets of value. Additionally, many people are not aware of their options and miss the six-month deadline to sign a renunciation of estate document.

2.

Renounce the estate

You have to work with a notary to have the legal estate renunciation document prepared. This can cost several hundreds of dollars.

3.

Have the estate declare bankruptcy

Another quicker, less costly option is to contact a licensed insolvency trustee to have the estate declare bankruptcy. Don’t worry, this will not affect your personal credit rating.

Here are the steps to have an estate declare bankruptcy :

Working with a licensed insolvency trustee, the liquidator will ask the court for authorization to sign the estate’s bankruptcy documents. The trustee will prepare all of the required documents and will even go to court with the liquidator.
The trustee will notify the creditors of the bankruptcy and they will stop pursuing collections.
Assets that have value (car, furniture, jewelry, life insurance, house, cottage, investments, etc.) will be sold or redeemed by the trustee.
The funds received will be used to repay part of the amounts due to creditors, including the process fees, so you do not have to pay anything yourself.
The trustee will also prepare the tax returns for the year of death.

If you already know that the estate is insolvent, make an appointment with a licensed insolvency trustee who will explain and advise you on the various options available to you.

Five things you should know

Be careful : don’t be too quick to take possession of assets that have a sentimental value! This will result in your automatic acceptance of the entire estate, including the debts.
You can take certain urgent actions, such as emptying the refrigerator or apartment, or moving a car, without triggering your acceptance of the estate. These are called conservatory measures. You can store valuable items for safekeeping outside the residence.
You can cash the life insurance cheque if you are a designated beneficiary and it is made out to you.
You have six months from the date of death to make inquiries and verifications regarding the deceased’s assets and liabilities and to decide whether to accept or renounce the estate. After this time, it is no longer possible to renounce the estate, other than in exceptional cases.
If you find that the liquidator is not acting properly, you can ask the court to have the person replaced.