The WAY to WOW Shows
Heirs, Debts & Drama: Administering an Insolvent Estate
April 21, 2025
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[0:00] Who are [Music] you? And where are you going? What do you [Music] want? Hello and welcome to Trust and Estates Weekly. I'm your host, Kevin Bemel, and we are here every Monday at 10 a.m. Pacific time to talk about estate planning, trust and estate administration, um, and all related topics, both from the standpoint of handling your own

[0:37] particular needs in those areas and for professionals like me who help people do that. So today I'm going to be talking about administrating an insolvent estate. So the idea for this show grew out of one of the matters that I'm currently handling. So there's a situation where uh the the deedent passed away now quite some time ago 10 years over 10 years ago. And uh I I I I don't know the details of this part, but um it appears that the

[1:14] deedent uh had um misused some copy uh writed property and the owner of the copyright sued the deedent and and won and they won quite a sizable judgment uh somewhere around two and a half$3 million and then subsequent ly the deedent died, right? And um the uh company that had the judgment sought to collect their money and and so they

[1:50] submitted a claim on the deedants's estate. Uh, and I won't get into um all of this, but but in any event, the claim is about two to three times the total value of the estate. And so, as a result, the debts of the estate are larger than the assets and that makes the estate insolvent. That's what an insolvent estate is. So there there are many uh somewhat

[2:25] unusual um uh situations that result from this. And so I'm going to talk about those as well as just some some general issues that relate to handling an insolvent estate. So the main problem comes from the fact that when when an estate has debts, okay, small or large makes no difference. All valid debts have to be satisfied before the heirs and beneficiaries get any of their money.

[3:03] Okay? So in this case like I said the the assets are maybe a half between a half and a third of of the debts and so the the heirs and beneficiaries are going to get nothing literally zero. Okay. And uh so uh okay so so that's that's the that's the scenario. So the first of all when someone whether it's you or a professional like me is administrating

[3:40] an estate it's important that very early on they determine what the assets and liabilities of the estate are. So that requires um locating all of the assets first of all and and getting a a pretty good idea of what those assets are worth. Okay? So look, there's bank accounts, so you know what the cash balances are. If there's brokerage accounts, you'll know based on the statement pretty close to what they're worth. Obviously, there could be a big

[4:16] swing in the market and that can change things, but generally speaking, those kinds of financial assets, you'll know what those are worth pretty quickly. On the other hand, if the asset has real estate, if it has cars, if it has unusual personal property, whether it's artwork, whether it's collections, coin collections, you know, valuable coin collections, valuable stamp collections. Um, I I've mentioned a few times I did an estate once where they had a particular type of horse, a particular breed of horse, I

[4:53] should say. So to get an idea of what those kinds of assets are worth, it it can be, you know, difficult. Uh if it's if it's real estate, there's probably going to have to be well, you're going to have to get an inventory and appraisal um on all the assets. However, uh the inventory and appraisal will not necessarily give you an accurate valuation of the assets. So, I'll give you an example again from one of my cases. Uh, we recently got an inventory and appraisal on a on a property owned

[5:29] by the estate for $800,000. And, uh, just before that came in, I got an offer on that same property for close to a million dollar. Okay. So you again, you can't always rely on the inventory and appraisal to to give you an accurate assessment of what property is worth. And by the way, that's with real estate. That was with real estate. Even more so if there's a business involved, if there's um you know, again, weird assets involved, artwork, uh valuable

[6:07] animals, a a a probate referee is extremely unlikely to have competence in those kinds of specialized assets. Okay. So uh while in general people don't think it's very important uh to get an accurate valuation of assets these days because the exemption from federal estate taxes is so high clo between 13 and 14 million if there are a lot of debts in the estate. So then

[6:42] getting an accurate valuation of the assets can be very important because it will give you an idea of whether or not you have a solvent or insolvent estate. Okay. So I'll give you another example. Um I have an estate where the probate referee uh valued a business at I believe it was $50,000. Right? uh and because this is a large estate and it is going it is subject to estate taxation. So I got a professional appraisal of that same

[7:19] business and that same and that valuation came in at something like uh just under $300,000. Okay. Now, why is that important? Because the IRS, generally speaking, will not accept a probate referee's valuation because the the IRS has figured out probate referees oftentimes have little or no competence in valuing many of the assets that they give a value to. Okay? And here's here's a perfect example. He was off by a factor of six. Now, from the IRS's standpoint,

[7:55] that additional um you know, $250,000 in value, let's say, okay, that's an additional $100,000 in estate taxes, 40% of the additional value. Okay. So this this is why it's important first off to determine assets and liabilities and and determine solvency of the estate. Okay. So uh in and in by the way in some jurisdictions um whether the estate is

[8:30] solvent or not may even determine whether it has to go through probate at all. Okay? it may it may qualify for a simplified procedure if the estate is insolvent. Okay. Now, with respect to creditors, it won't always be obvious uh you know whether there are debts to the estate. Okay. So, you know, you can go through the paperwork, credit card statements, um whatever else. There may be a loan recorded against real estate. Okay, in that case, you know, there's a debt

[9:06] there. But not all debts are secured debts. So, for example, credit card debts are an unsecured debt. So, unless you happen to see a statement or you knew that the deedent had that particular credit card, you wouldn't know that a credit card debt existed. And and credit card debts can be large. Okay. Um, there are people who who who have, you know, $50, $100,000 or more on their credit cards. And by the way, they may pay off that balance every month, but if they died before they pay that month's particular bill, you could have

[9:41] $100,000 in credit cards outstanding, and that's a substantial that's a substantial debt. Okay. Now in the case of a creditor or I mean I'm sorry in the case of of litigation where the deedent while he was alive you know lost a case and now he's he's a a debtor with respect to that litigant. So unless the uh the um the prevailing party has filed some kind of lean

[10:19] against maybe the real estate of of the per of the deedent. So maybe there was some kind of attachment lean filed or something like that. You may not know okay that that debt exists. And so credit creditors or potential creditors have to be properly notified. So, uh, here in California, there's a statutory requirement, um, for notification of creditors. Okay? It's in probate code sections 90050 through

[10:54] 9054. Okay? And it it requires as follows. I'm gonna I'm sort of glancing over here at my notes because this is important. And so, uh, I want to make sure I give it to you correctly. So, um, first of all, there's a time frame for notification. So according to probate code section 9051, okay, the personal representative, you're you're the executive, you're an an administrator, okay, personal representative includes both, okay, must provide notice to creditors with within the la later of four months after the

[11:31] letters were first issued. Okay, so you get your letters of administration. From there you have four months to notify creditors or 30 days after the personal representative first has knowledge of the creditor. Okay. So obviously you can't give notice to a creditor that you have no knowledge of. Okay. So, uh, you know, um, creditors, if you're a creditor, by the way, you would be wise to keep track of whether your debtors are alive, right? Because if you let a

[12:08] certain amount of time pass, okay, you may be barred from uh, you know, from uh, filing a claim against the estate. Okay? So four months after letters of administration are issued, 30 days after the personal representative first has knowledge of the creditor. And by the way, you can see there's some ambiguity there. When did the the personal representative get knowledge of the creditor? Who who knows, right? It it's it's difficult to say or it can be

[12:43] difficult to say, right? Again, you want to do this kind of thing in writing if you're a creditor. So, there is a record, you know, of of when the personal representative was notified. Okay. Creditor claim filing deadline. So the filing period according to probate code section 9100 uh is uh the creditor must file a claim uh 4 months after the date of letters are first issued to a general personal representative. Okay, that wouldn't be a special representative most likely, but

[13:20] a general personal representative. Okay. Or 60 days after the date of notice of of administration is mailed or personally delivered to the creditor. So an email notification wouldn't necessarily constitute proper notification. Okay? So let's say let's say you're that judgment uh creditor. Okay. and you notify you send a letter to the personal representative of an estate that that's now you know the the essentially your creditor. Okay.

[13:57] So that's uh that's um now the uh the personal representative has actual knowledge of the debt. Okay. So now um the uh um the personal representative has you know 30 days to notify you that in fact you know it is an estate or blah blah blah blah blah give you that that notification. Okay. And now you have 60 days after that date of of notice of administration is mailed to you or personally delivered. Okay. Now, you may

[14:34] be able to wave uh personal or mail delivered notice um and accept it by email. You know, that that may that that would be a question for you to talk to your lawyer about if if that, you know, makes things easier for you to do that. But in any event, that's the process. Okay. Consequences for late filing. If a creditor files late, okay, so let's say you receive the notice of administration, okay, the formal notice of administration, and you don't file your claim for 90 days. In other words, after

[15:11] the 60 days, okay, so now you could be barred from making a claim because your claim is late. Okay? So it's very important to adhere to these deadlines. Okay. Um, and now from the personal representatives standpoint, okay, uh, if a creditor is late in filing a claim, okay, even though you may think it's the right thing to do to pay that claim, if it's late, you may be barred from paying it.

[15:48] And if you do pay it, you could be liable to the beneficiaries for basically having given their money to this creditor. Okay? That's why these deadlines are so important. Okay? And in fact, if a creditor files late, what otherwise might have been an insolvent estate could now be a solvent estate because the creditor is barred from asserting a claim against an estate. So, you can see why this why again why these deadlines

[16:23] are so important. Okay? And if you remember um a a few weeks ago, I think I talked about small estate probates in California. One of the as aspects of a small estate probate in California was creditors actually have a longer time period to to submit a claim to the estate. So while there are many benefits for the heirs and beneficiaries to a small small probate uh in in California, one of the detriments is

[16:59] creditors have a longer time period in which to file a claim. Okay. So uh now um under some circumstances a late claim uh may be admitted by the court. Okay. But at that point you you know you you as the creditor you would have to petition the court uh hearing that particular probate and you would have to give your reasons as to why it was late and then it would be at the discretion of the court uh

[17:35] to decide whether to is in essence wave the the the you're being late and allow your creditor's claim to uh you know to be to take effects against the estate. Okay. Failure to notify creditors properly could expose the the personal representative to personal liability if creditors later claim that they for example they were never given no due notice. Okay, that again that's why this is so so important. Okay.

[18:10] Now, um Okay. So, step number one, as quickly as possible, get a handle on the estates and uh I'm sorry, on the assets and debts of the estate. Step number two, make sure that as a personal representative, you are following the proper uh creditor notification procedure. Okay. So next um there is a there's a prioritization of of debts uh that the estate must adhere to. Now this may vary

[18:48] from jurisdiction to jurisdiction. I'm dealing with uh California um and it could be a little bit different in your particular jurisdiction but the uh the priority of of uh debts it is as follows. So number one, administration expenses. Okay, so the fees to the personal representative, court costs for the probate, um attorneys fees, um and necessary uh professional services like appraisals, like accounting, that has number one priority. Now, that makes sense

[19:24] because if those people, you know, are are going to do a lot of work and in the end may not get paid, they're probably not going to want to do the work. Okay? I I I know I wouldn't want to be in a situation where I, you know, do a year or more work on an estate and then find out, oh, you know, there's a bunch of claims ahead of me and I'm getting nothing for all of my work. I I could I couldn't run a business on that basis. Okay. Number two in priority are funeral and burial expenses. Okay, now this is interesting because I did an episode uh

[20:01] a couple of weeks ago um with um oh gosh, who was it? Um uh Blackburn. I can't think of her first name. Uh okay, I gota I got I got to bring this up now so that you can remember it. Uh oh, Jolene. Okay. Yeah, it was actually was it was about four weeks ago. So, I did an episode about four weeks ago with Jolene Blackburn, who's an estate planning attorney, but also uh her episode was about the most overlooked aspect of estate planning, and it was funeral planning. And one of the things she noted

[20:38] is mortuaries and and and cemeteries and such, um they're not going to perform services unless they get paid upfront. Okay? They're not going to end up again, you know, like people administering the estate, they they're not they don't want to end up in a situation where they've provided services and now there's no money in the estate to pay them because other debtors uh had had a priority over them. Okay. So, and and and by the way, um if there's any question about whether the estate is solvent, um as a personal

[21:14] representative, uh you would be ill advised to pay the funeral expenses out of the estate. if in fact there's that that that could be um taking priority away from a claimant that has a higher priority. Okay. So, I mean you would say how could an estate possibly um be in a situation where all of the assets go to the administration of the estate? Well, I mean it can happen. It's probably unlikely. Um, but it's something that

[21:50] you would want to be very careful about and I know if it were me um and and I and I had any reason to think that the estate might be insolvent. So before I reimbured uh you know funeral and burial expenses, I I would probably I would I would consider petitioning the court to make sure that uh you know it didn't cause a problem uh down the road. Okay, so that's number two, funeral and burial expenses. Number three, taxes. You could have guessed, right? Uncle Sam and and here in California, I

[22:25] don't know, Uncle Bear. The bear is kind of our state mascot, okay? They're going to get their taxes, okay? Come what may. Okay, they could be federal or state and state income taxes. They could be estate federal estate taxes. Now, Cal in California, we don't have an estate tax, but there are a few states, I think three or four that still have an estate tax. So, they want their estate taxes. Uh, or there could be an estate inheritance tax. There could be property taxes due. Okay? There are so many different,

[23:01] you know, taxes uh levied these days. They all have collectively third priority. Okay. All right. So, that's number three. Number four, secured debts. Okay, so these are debts that are secured by some kind of collateral. For example, a loan on a home, okay, a mortgage or in California, we call them mortgages, but they're actually secured by a trustee, okay? So, if there's uh a property loan, okay, that's that's secured by property now owned by the

[23:37] estate, that is a secured debt. There could be a car loan that's secured by a car that's now owned by the estate. That's a secured debt. Okay. Now, in theory, uh those creditors can foreclose against the the security this the property that's security for the debt if payments aren't made. in practice. Okay. Uh it's unlikely that the probate court will let that uh that um foreclosure go through

[24:13] if it will materially damage the estate. So let's say you have a situation where the estate has no liquidity or very little liquidity, okay, and there's not enough money there to pay taxes and mortgage payments on a property. Okay. In theory, the lender could foreclose on the debt. In practice, the the the probate court may very well uh uh stop that foreclosure proceeding and essentially tell the lender, "Look, you're just going to have to wait to get your money

[24:48] until the administration of the estate is is is wrapped up and proceeds from the estate are distributed." Okay? and and whatever interests during that time um you'll be able to you know you'll be able to collect that um but you may not get late fees or whatever the judge may disallow those uh because there's there is no money there to make the payments okay so secured debts are fourth and priority fifth and priority are judgments and leans okay this is the the

[25:24] example that I gave you on the on the matter that I that I have um that I'm dealing with with the insolvent of an estate. So debts with court judgments or or leans against property of the estate. Um so this in this case again the the person um misused uh copy uh writed material and and the owner of the copyright was successful in suing them and so now they have a judgment that that judgment has fifth priority. Okay. Now, by the way, there may be no secure debts. Uh, in in in the matter I'm

[26:00] working on, there are no secured debts. So, they move up to, let's say, you know, fourth priority, but that's only because there are no secured debts. Okay? So, this isn't to say that in every case there's all these types of debts, although almost for sure, well, there's always going to be some administration expenses if it's going through probate because there's court costs, there's probably some legal costs, etc. And there's there's presumably always going to be a funeral and burial expense. I mean, I guess unless the person, I don't know, maybe they were, you know, washed overboard on a ship at sea and so there's no, you

[26:35] know, funeral and burial expense. Okay. Um and and you know but but you know maybe their taxes are all paid so there's no taxes to pay. Um maybe there are no secured debts. Okay. And so then the judgment lean doesn't have to worry about uh whether there the taxes and secured debts are so high that there's nothing left to pay the judgment lean. Okay. But in any event um judgment leans have fifth priority. Okay. Judgments and other leans. Okay. F number six is unsec

[27:10] unsecured debts. Okay. Credit cards, medical bills, personal loans that were, you know, for no collateral. These could be utility bills, you know, all all kinds of whatever, you know, whatever the deedent owed at the time he died that wasn't secured by some kind of specific collateral. Okay. There there could be all kinds of things. Okay. uh you know uh I'm just I you know I don't know that gambling debts would would would fall into this. I it would depend I suppose

[27:45] on whether the particular gambling debt were uh were a legal debt or not. Um but that's one that comes to mind. Okay. So um unsecured creditors or unsecured claims are sixth and then finally all other claims are seventh. Anything that's not covered in any of the previous six categories uh would would end up in category number seven. Now you can see this is a long list and if there aren't a lot of assets in the estate,

[28:21] okay, it could very well be that an estate is insolvent, meaning there's more debts than there are assets. Now, someone may have a lot of personal property, for example. Um, they may have a beautiful wardrobe. They may have, you know, pictures on the walls of their house. Okay? Um, they may have a really cool coin collection. Okay? Uh, and ostensibly that may it may look like, wow, this person's, you know, doing pretty well. Uh but if if that's all they have, those kind of personal property, it's very likely none of that

[28:59] is worth anything at all. Okay, the clothes are unlikely to be worth very much, you know, unless it's I don't know, they she has a Birkin handbag, you know, or something like that or or the man has, you know, some bion suits that can be resold. And even then, you know, you a bion suit is what a I don't know a10 $15,000 $20,000 suit. You might get a few hundred dollars for it. Okay. Now, Birkin handbag is those are very valuable. In many cases, they're worth more um than they were originally bought for. Okay. So, you you would want to be

[29:35] careful about going through those things. But, you know, artwork. I I have a situation right now where the the deedent uh you know, collected art u but but none of it is worth anything. They're all unknown artists. Um they they they were unknown when he bought it. They remained unknown. Um they have they have no value other than sentimental value. Something like that. So, um, it's it's it's not so difficult to e even outside of an a somewhat unusual circumstance where there's a large judgment creditor for an estate to

[30:10] be insolvent, especially if the person had a lot of credit card debt and had no solid assets. Okay? Even a car. Okay? If if a car is, you know, more than a two or three or four years old, unless it's something really special, maybe a Rolls-Royce or something like that, it's unlikely to be worth very much. Okay? So, uh you know, the if there's a loan against the car, that loan could very well be upside down. And you would say, well, why would a car lender lend more money than a car is worth? Well, um because most car lenders know that

[30:46] people need a car to get around, to get to work, etc. And so that they're going to make the payments uh you know, as as as long as they have the ability to do so. So they're looking more at the creditworthiness of the of the borrower than they are the value of the collateral, at least the value of the of the collateral over time. But when somebody dies, right, all of a sudden, you know, the the lender is upside down in that loan, okay, and

[31:21] uh you know, if if there's an outstanding standstanding car loan, let's say for $50,000 and the car is worth, let's say, $25,000. Okay? So that creditor is now both a secured and an unsecured creditor. Okay? So you need to be careful with that kind of thing. So to treat the entire debt as being secured may not comport with the the the law of probate administration in your jurisdiction. Okay. So again these are some fine points that that you know one needs to

[31:56] be careful about if you're administrating an estate. Okay. So, so those are that is the order of priority of debts and you can see there's a lot of them. Um, and especially if the state is insolvent, you must be very careful not to pay the debts out of order. It all needs to be documented. Okay. So, and in fact, if if the state is insolvent or maybe it appears to be insolvent, it's what's what's really

[32:32] going to come down to is maybe you know what a piece of of real estate actually sells for. Okay? So, you would probably be wise not to start paying any debts until you know the full cash value of the estate. Okay? because in the end if if the estate is in solvent all the assets are going to be liquidated and the cash used to pay the debts. Okay. So that's the process that you you would need to to follow. Okay. And if and if a

[33:07] creditor is pressing you for payment uh you know the you may need to uh petition the probate court uh to gain a forbearance against that creditor. meaning the creditor has to the creditor will be unable to press a foreclosure or force payment of the debt by the estate until such a time that you as the personal representative are ready. Okay. Um so and this this leads into the next point which is you absolutely need to avoid you need to avoid improper

[33:45] distributions when when you have an insolvent estate. So once the once the heirs and beneficiaries uh realize that the estate is insolvent okay now there's what from what I've seen there's a change in dynamic okay so while they may have been cooperative uh before um now that they know that the estate is insolvent and they're not going to get anything their cooperation may cease. Okay? Now, if

[34:22] that's all that happens, that may not be so bad. Uh but uh sometimes they will start trying to actively um inhibit the administration of the estate. So in the matter I I I mentioned at the beginning of the show, the heirs uh submitted a will to probate that after 3 years was declared fraudulent. Okay. And um I'm now I'm trying to get

[34:58] information about what other assets there may there may be in the estate and and they are absolutely stonewalling me. Okay. So, you know, and and my my guess is because the deedent died more than 10 years ago, there may have been um some other assets that were taken by the heirs, maybe because they knew the estate was insolvent. Now, if that's the case, they would have to give those assets back. Okay? So, I've had, you know,

[35:35] discussions with uh the lawyer representing me. Um, you know, how h how do we find that out? Can we find it out? If we find it out, what do we do? Right? There's a range of issues there. Um, and and that that need to be dealt with and need to be dealt with uh properly to make sure that I fulfill my fiduciary duty in this particular situation. Now generally a a personal representative's fiduciary duty is is it well it's to the estate but it it's it's sort of it's kind of to the heirs and

[36:10] beneficiaries right the estate is is being administrated for their benefit right in this case though they're not going to get anything okay so I'm walking a different kind of line than I might otherwise have to walk okay So when it comes time to distribute the the assets or really distribute the cash from the estate, I'm going to have to be very careful about documenting who got what when. Okay. And why, okay? So that that that list of priorities is adhered

[36:46] to. Okay? And again, if were were I to do something wrong, I could be potentially personally liable uh for uh you know, for that mistake. So I I I you know when when when there's an insolvent estate, one cannot cherrypick. Okay. So, so let's say for example there's an there's an insolvent estate and uh there are administration expenses, there are funeral and burial expenses, there are no taxes owed, but there's

[37:21] there are several secured debts. Okay, so the administrative expenses would get paid first, the funeral and burial expenses second. And now let's say let's say there's um after those first two categories of expenses are paid, there's no taxes to pay. So let's say there's $500,000 left. However, there's a million dollar insecured debts. Okay. So, I I wouldn't be able to say, "Well, you

[37:56] know, the lender on the car, you know, he's just a private lender, even though it's a secure debt. I'm going to pay all of his and so the lender on the house is going to get less." No, doesn't work that way. So, if so each of those secured creditors may only get 50 cents on the dollar. In other words, they're proratic share of the ratio of assets to debts. Okay? So, you know, that would be the the the fair way to to deal with it. Uh what happens with the other half of

[38:32] their debt? They lose that money, right? That's one of the risks of being a lender. Okay? So, um all these things will have to be planned out. um you know uh it might be wise to submit the plan to the court for for uh confirmation or approval before the distributions are made. Okay. Uh to make sure that whatever you're doing uh you you know you're you have the court's consent basically. Okay. Um all right. Next. um

[39:09] uh it's in in in the case of uh an insolvent estate, all of the assets are going to have to be sold most likely. Now, it's it's possible that one of the creditors may also be a beneficiary. Okay? And maybe that beneficiary will accept uh an asset, a non-cash asset in settlement of their claim is and and and and maybe because it's it's something of sentimental

[39:44] value. Okay? And they they don't want to see it sold. They want to have it kept in the family. Okay? So rather than seeing that particular asset sold, they may propose, hey, you know, I know there's I'm only going to get 50 cents on the dollar um if you sell or or around 50 cents on the dollar if you sell all the assets. Um, if if you were to give me, you know, uh, you know, my my deceased father's car, it would only be worth 40 cents on

[40:19] the dollar compared to what I'm owned owed, but I'd be willing to take a lesser prattish share because the car has sentimental value. You My dad owned it, you know, his entire life. I remember him taking me to, I don't know, Disneyland when I was a kid in the car. I don't know whatever whatever the reason might be. Okay. Now, it it may be that that's a to the advantage of the other creditors because they'll be one fewer creditor and now instead of being 50 cents on the dollar for their prora share, maybe it'll be 52 or 53 cents on the dollar. Maybe it'll go up a little

[40:54] bit. So it may be that the other creditors will agree to the distribution of that non-cash asset to that particular creditor uh because in in effect it benefits them because they'll get more more of their debt paid. So again, um, when it comes to liquidating assets to pay debts, uh, it may be possible to kind of, you know, make some deals if you were, if you will, where it's kind of a win-win for, you know, for all parties, like the example that I just gave. Um, but if

[41:30] not, um, all the assets will have to be sold. Now, you're going to want to make sure that you are selling them for their market value. Okay? So, you know, you extra sure, especially because the estate is is insolvent. Uh, and there is every incentive for the heirs and beneficiaries to call into question what you did. They have nothing to lose. Okay? So if if they can paint you as having you the personal representative as having done something improper and you know get a you know

[42:07] stick a claim against your professional liability insurance they'll get some money um even though it won't come from the estate. So uh you don't want to leave yourself open to a potential claim that you did not realize market value from the sale of a particular asset. So this is why reliance on the inventory and appraisal uh may not be such a good idea. Okay. So, if you have reason to believe that an asset has been been misvalued by a probate referee, you you

[42:44] might be well advised to to get a a a competent evaluation of the value of that asset uh before you put it on the market to make sure that you are getting market value. And and although you may have general authority, meaning you have the authority to sell assets without the court's confirmation, it may be wise to seek court confirmation so that afterwards, you know, parties uh heirs, beneficiaries cannot claim that the

[43:21] asset was sold under market value. Okay, that's part of the court confirmation process is establishing that indeed the price represents a a fair price uh for the property. Okay. So then uh in the case of an insolvent estate, okay, um the personal representative is still going to have to file a personal tax return for the deedent for the deedent's final uh year of life. Okay. Now, um they may need to

[43:59] file an estate tax return. uh I mean sorry an estate t an estate income tax return uh that's a form 1041 if the administration of the estate um lasts beyond one year in essence okay so um these these need to be uh taken into account this is something you're going to want to uh um I'm I'm sorry I I explained it slightly wrong um most most likely As the personal representative, you're going to need to

[44:35] file a final income tax return for the deedent. You may need to file a form 1041, an income, an estate income tax return for the estate depending on whether it has income or not. This is something to discuss uh with with your uh with the accountant who is helping you with the administration of the estate. Okay? So so don't overlook that an estate is an entity that's liable for filing an income tax return just like a

[45:10] corporation is just like a a live person is or a natural person is. Okay. Now the um there they're as far as a 706 is concerned if the estate is insolvent um one would imagine it doesn't owe any estate taxes no matter what the size. Okay. Uh but again this is something to talk to your accountant about um and just make sure that there's not some weird thing going on that necessitates the filing of a 706 despite the insolveny. Okay. So, I wouldn't I

[45:46] wouldn't make an assumption. You know what they say about assumptions? When you assume, you make an A out of you and me, right? The famous Odd Couple episode. Okay. Um, and then the uh personal representative will have to file a final accounting uh with the probate court showing all of the assets, how they were handled, um how the debts were paid. Okay? Okay. And like I said, you may want to get uh court approval of your plan for payment of debts before you make the

[46:21] dispersements to make sure that after the fact that you know certain creditors don't come back to you and claim that you did it wrong or unfairly or this or that. Okay. So, uh these are the these are the aspects of dealing with an insolvent estate. Now, um you may say, "Well, that doesn't sound so different than uh a solvent estate." And and the fact of the matter is it's not super different. Um the main differences come down to having to be extraordinarily careful when you make

[46:57] distributions so that they're done in accordance with priority of debts. Number one. And number two, uh uh um being uh very careful about sale of assets and and how you can maximize the proceeds from the sale of those assets. Okay? again so that a creditor can't come back after the fact and claim that you didn't sell the assets at market value and so therefore you you know they were in essence cheated out of their out of their uh payment on their debt. And

[47:33] finally, the fact that when you have beneficiaries to an estate or heirs to an estate who are not going to get anything, they do not have any incentive at all to cooperate with you. And again to the contrary they they will probably be as or the incentive is for them to be as disruptive as possible um to try and you know extend things out and see if there isn't some way. So for example uh you know a judgment uh debt

[48:11] um usually has some kind of statute of limitations on it. Okay. So, you know, the heirs may may try and play a game if they can string it along long enough uh that that judgment uh claim may outlaw and now they'll get the money. Okay. So, uh these are so so again you're unlike in a a regular administration where the heirs and beneficiaries are looking forward to getting money and so they they may want to be helpful. I I I don't want to say they're always going to be helpful because they're not. Okay. I've

[48:46] I've got another um matter that I'm working on where there's I think 10 potent 10 heirs and beneficiaries and they've divided themselves into two camps and they are fighting like cats and dogs. Um and it's entirely likely that after they're done fighting all the assets of the estate will have been consumed with lawyers fees, etc. And they'll end up getting little or nothing. Okay? and and and and this is with a solvent estate, but when an estate is insolvent, again, there is no incentive to cooperation. And so that's,

[49:21] you know, you're you're not going to get any. Okay, so those are the those are the aspects of of administrating an insolvent estate. Again, it can be complex, it can be challenging, it can be extraordinarily aggravating. uh but uh you know especially for professionals like me. So this is where we can truly add value uh to to the probate process. So for an individual who doesn't do this on a regular basis and who doesn't have a whole lot of

[49:56] knowledge, it will be extraordinarily frustrating and fraught with high liability because they they don't know the rules and they may not know the rules and they could easily make a misstep. So this is where we as as lawyers, accountants, professional fiduciaries, financial advisors can come in and really make a difference. So imagine being the executive under a will and a beneficiary, but the estate is insolvent to do the right thing and making sure

[50:31] all of the debts of the estate get paid knowing you're going to get nothing or maybe you're going to get a, you know, a small fee as the executive. you do something wrong and you end up getting held personally liable for part of the debt to one of the creditors. How gling would that be? How horrible would that be? Right? And so these are the kinds of these are the kinds of situations that I I I hope um this episode will help you avoid. And if you're a professional like me, these are the kind of epis these are the kind of situations where we can really

[51:09] uh add value uh to to the whole process and and and help protect someone who you know in the example I just gave is trying to do the right thing despite getting no no real benefit out of it. Uh but but you know maybe doing it just you know to protect the legacy of of their parent or something like that. and and we we want to make sure that someone like that uh you know I is is is protected uh from you know potential liability. So if you have any questions, comments, thoughts, uh please uh feel

[51:46] free to drop them into the uh uh social media. Um all links to social media will be in the show notes after this episode posts on YouTube. So then uh let's see for tomorrow uh Tuesday at 10:00 a.m. Pacific time is my show Business Lessons from the Military. My guest is Jason Hollander. He is a Marine Corps veteran who uh became a uh basically an investment banker. He handles mergers and acquisitions and and so uh uh his

[52:23] practice is informed by his time in the Marine Corps. So, I hope you'll join me to hear uh what Jason has to say. That's tomorrow, Tuesday at 10 a.m. Pacific time. Wednesday at 10 am did I say 2 am? Sorry. Tuesday 10:00 a.m. Pacific time for business lessons from the military with my guest Jason Hollander. On Wednesday at 10:00 a.m. Pacific time is my monthly show, Economic Echoes, where we take a look at the economic data and see what that means for our individual lives and how it impacts the decisions

[52:58] we need to need to make for our families and ourselves. And then Thursday at 5:00 pm Pacific time is my every other week show, Jiggers's Place. We're going to sit back and have a cocktail and talk about uh 19th century literature. You're like, "Wait, no, I don't want to do that." Yes, you do. I think you will find it much more fascinating, much more interesting uh than you did when you were in high school or if you're in high school now and then you're currently finding it in high school. There is a wealth there of

[53:36] of useful ideas of of a pleasant pastime and I'm I'm going to share that with you o over a cocktail. By the way, if you want to get the cocktail recipes, uh, please go to my website, bemmel.com, scroll down to the bottom and subscribe to my email list and then on the mornings before one of the one of our Jiggers's Place episodes happens, you'll get an email with the cocktail recipe so you can make it along with me uh in the afternoon. Okay? And then one week from today, um I'll be back for the next

[54:13] episode of uh Trust and Estates uh weekly. And it just leaves for me then to thank you very much for joining me, especially those of you uh who are joining me live. Thank you very much. And signing off as I always do. Marie darling, you are my bell. Courage at all times, my friends.