Insolvent Estates

After a peak in insolvencies over the past few years, the number of people becoming insolvent is gradually decreasing and is currently at its lowest level since Q4 2005. However, recent Ministry of Justice statistics show that in the 12 months ending March 2015, 1 in 478 people became insolvent which is not an insignificant number. The number of insolvent estates is usually linked to a difficult economic climate and so numbers may well climb again in the future. It is therefore likely that a private client practitioner will come across a few insolvent estates during their career yet because they are not usually part of a private client lawyers day to day caseload, it is worth refreshing ourselves on this area.

Insolvent estates are a current ‘hot topic’ with a number of celebrity estates (Michael Jackson, Jade Goody and Jimmy Saville to name a few) making headline news. Additionally, the Law Society’s Wills and Inheritance Protocol, the foundation of the relatively new Wills and Inheritance Quality Scheme, contains guidance on what to do before accepting instructions to administer potentially insolvent estates, highlighting the importance of this potentially complex area.

So, what are the perils and pitfalls of administering an insolvent estate? Well, unlike the usual advice given to personal representatives (PRs), in a deceased estate, their duty is to act in the best interests of the creditors rather than the beneficiaries of the estate. If they do not pay off the debts of the deceased before paying out legacies, then they themselves may be personally financially liable- a sobering prospect for any PR! There may also be repercussions for their advisers. The case of Re Vos saw solicitors having to repay fees they had charged for their services in administering an insolvent estate plus interest from the time when they should have known the estate was insolvent.

Something else to consider is that transactions made leading up to death may be set aside (for example, gifts made as part of the usual estate-planning process) if certain criteria are met and if they were made with the intention to put the assets out of reach of creditors, then these can be set aside regardless of how long ago they were made. Beware also the situation where the deceased repaid a debt to a connected party (family member) in preference to other creditors, as this may be challenged subsequently.

Your advice to the PRs regarding the steps to take will depend on the individual circumstances but options could include, renouncing probate, taking out the grant and petition for an Insolvency Administration Order, taking out a limited grant and taking out an unlimited grant. An insolvency practitioner could be appointed to provide further advice and support during the estate administration.

David Ellis, Head of the Insolvency Department at Higgs & Sons, will be covering the topic of Insolvent Estates in depth for CLT by way of a webinar to be broadcast live on 4th August. Please do tune in for what promises to be an informative hour! Further details are available at http://www.clt.co.uk/webinar/insolvent-estates-webinar/

Today's Wills and Probate