An executor of an estate that is overburdened with debt should consider the following to determine if the deceased’s estate is insolvent and should be assigned into bankruptcy:
1. What are the assets in the estate and how difficult are they to convert to cash? Compile a list detailing each asset, the estimated value, the costs to realize on the asset, and any secured loans against the asset to determine the estimated realizable value. Appraisals may be beneficial to estimate the value of an asset.
2. Review assets that may not form part of the deceased estate including, but not limited to:
- Life insurance policies with a designated beneficiary;
- RRSPs and pensions with a designated beneficiary;
- exempt assets under provincial Executions Acts; and
- real estate that upon death vests with another party outside of the deceased estate.
3. What is owed by the deceased? Compile a list of debt including bank loans, credit cards, taxes owed, personal loans, business debt, and potential shortfall on any secured debt where the value of the asset is less than the balance owed. Consider any contingent debt where the deceased is being sued or co-signed another parties’ debt. Determine if any other party co-signed debt for the deceased and thus will be left responsible if the estate is unable to pay in full.
4. Reasonable funeral expenses which will have a priority for payment.
An executor is not automatically liable for the debts of the deceased; however, an executor is liable for ensuring that the debts of the deceased are handled properly. All creditors of the estate must be treated equitably. An executor will be liable if they distribute funds to beneficiaries without first ensuring that all creditors are paid in full.
Administering an insolvent estate can be extremely complicated and a costly affair due to the number of legislative provisions and common law principals that are imposed on the executor or estate trustee.
If it is determined that the estate creditors cannot be paid in full from the realization of estate assets, the executor should consider assigning the deceased estate into bankruptcy. A Licensed Insolvency Trustee (“LIT”) will review the estate’s financial situation and assist in the following steps necessary to bankrupt an estate:
- Preparation of an affidavit on behalf of the Executor of the estate outlining why the deceased is insolvent. A listing of the assets and liabilities at the date of death and presently proves the insolvent status of the estate.
- Making a motion before the Court to seek an Order for leave for the executor to place the deceased estate into bankruptcy.
- Once the Order is obtained, preparation of the necessary documents to file an assignment in bankruptcy on behalf of the deceased estate.
The LIT will then take control of the estate and administer assets and distribute available funds to creditors pursuant to the Bankruptcy and Insolvency Act.
We would be pleased to meet with you to discuss the process in further detail as it pertains to your particular situation. The initial consultation at Fresh Start Now, Taylor Leibow Inc. is always free of charge.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency
and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
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