If you are set to inherit from a parent or another family member, you might become troubled if you learn that your relative left behind an insolvent estate. This may lead you to think something has gone seriously wrong with your relative’s assets.
Insolvent estates can occur without any wrongdoing. Understanding what an insolvent estate is and whether you may inherit anything regardless may help.
Defining an insolvent estate
According to CNBC, an insolvent estate comes about when the decedent did not leave behind enough assets to pay creditors that the decedent still owed money to. This is like bankruptcy, except in this case it applies to an estate and not a person. With an insolvent estate, creditors have no avenue to collect on debts unless a co-signer or other responsible party is involved.
Inheritance may still happen
An insolvent estate usually does not provide any assets for beneficiaries. However, this does not mean you cannot receive an inheritance. It depends on whether your relative passes property and funds to you outside of probate.
There are different ways to convey property that do not involve probate. You may receive property through joint tenancy with a right of survivorship. Your relative could also leave you money through a bank account with a pay-on-death provision. Inheritances through insurance policies and a trust are also possibilities.
Check executor conduct
An insolvent estate should not happen due to executor mismanagement. If you are not the executor of the estate, keeping a close eye on executor actions should help you determine if the estate has unnecessarily lost assets to make it insolvent. For example, delays in asset distribution or unethical financial transactions involving the estate could indicate executor misconduct.
Insolvent estates are not always a cause for alarm. Still, since your inheritance is at stake, it may be to your benefit to watch for suspicious actions on the part of an executor that would go against the estate wishes of your family member.