What is Insolvency?

2 Minute Read

When someone dies with insufficient assets to meet the claims of their creditors, they leave an insolvent estate.

What happens to an insolvent estate? Let’s discuss.

In the case of an insolvent estate, this means the debt exceed the assets resulting in the likelihood that the estate all goes to creditors and the intended beneficiaries will unfortunately receive nothing. Beneficiaries and estate trustees are not responsible for paying the debt of the deceased.

The Ontario Bankruptcy and Insolvency Act governs the administration of an insolvent estate. It allows an executor of an insolvent estate to pay for a proper funeral and testamentary expenses (i.e., reasonable compensation of the executor) prior to administering the estate to creditors.

The Ontario Trustee Act instructs executors to distribute to the deceased’s creditors in a proportionate and non-preferential manner, so that each creditor receives a proportion of the estate that is proportionate to the percentage of debt owed from the deceased’s assets. If the executor fails to properly distribute the insolvent estate, they may be held personally liable to creditors who received less than what they are entitled to.

After paying off all liabilities from an estate, there may not be enough residual estate to distribute according to the testator’s wishes. Abatement refers to the reduction of some or all gifts in an estate where there are insufficient assets to cover all gifts and follow the testator’s wishes after paying off creditors.

When a joint owner of a property dies, the deceased owners name (ownership) is deleted from title of the property leaving the surviving owner as the sole owner. In this way, the property does not fall into the deceased’s estate and is not available to satisfy their debts.

We at Sweatman Law have over 30 years of experience helping estate trustees administer all kinds of estates. Contact us here to book a consultation today!

DISCLAIMER: This blog post should not be interpreted as legal advice for your specific situation, concerns, or challenges. All estate matters are unique and should be reviewed by legal, financial, and health professionals, and tax accountants. Please be advised that the information on this website relates to laws specific to Ontario or Canadian federal law. Legal advice, procedure, and legislature may vary in different jurisdictions.

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