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Insolvent
Estates
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If a Virginia
personal representative is faced with an insolvent estate, that is, an
estate where the assets are not sufficient to pay all debts, claims and
expenses, it is recommended that the personal representative seek legal
advice in handling the estate.
Virginia
law provides very specific requirements for handling insolvent estates.
Failure to follow the statutory requirements can result in disapproval
of fiduciary accountings by the commissioner of accounts and personal
liability on the part of the personal representative.
Generally,
where an estate is insolvent, Virginia law provides a specific priority
of payment of debts and claims. For example, costs and expenses of estate
administration, family allowance, exempt property, homestead claims, and
funeral expenses to the extent of $3,500 have high priority of payment.
Federal debts and taxes, medical expenses to limited amounts, and debts
and taxes payable to Virginia have priority over other debts and claims.
Debts of a superior class must be paid before debts of an inferior class
are paid. The statute must be reviewed for specific classifications.
In the case
of an intestate
estate , where there is no will or power of sale over the decedent's real
estate, and where the personal property of the estate is not sufficient
to pay the debts and claims, the administrator may petition the court
to grant power of sale over the real estate in order to pay debts of the
estate.
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Personal
representatives should seek legal advice before making any disbursements
or distributions (including household items and other personal property)
where the estate is insolvent.
It
is not uncommon for personal representatives to promptly pay a funeral
bill after they have qualified. If it turns out that the estate
is insolvent, the personal representative may be required to reimburse
the amount of that bill in excess of $2,000.
It
is also not uncommon for a personal representative to make mortgage
payments on the decedent's former residence. Again, if this violates
the statutory priority of payment for an insolvent estate, the personal
representative may have personal responsibility.
Advice
related to the specific circumstances of the estate should be obtained.
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