Releasing assets to pay debts etc

Question 1

when should debts and liabilities be paid?

Answer 1

as soon as money becomes available

Question 2

what is a solvent estate?

Answer 2

an estate with funds to pay all funeral, testamentary & administration expenses, debts and liabilities in full (gifts not inc.)

Question 3

what should PRs do if they are unsure whether the estate is solvent or not?

Answer 3

follow the statutory order for insolvent estates

Question 4

what is the position regarding secured debts when the estate is solvent?

Answer 4

B takes the property + the debt unless there is contrary intention in the Will. Therefore, secured debts (generally) aren’t paid by the estate

Question 5

in what order is estate property used to pay debts in a solvent estates?

Answer 5

Assets should be applied to pay debts in accordance with the terms of the Will. If there are no terms/no Will:
1. Property undisposed of by the Will (i.e. it will pass on intestacy) (enough must be retained to pay any pecuniary legacies)
2. Residuary estate (enough must be retained to pay any pecuniary legacies)
3. Property specifically bequeathed for the payment of debts
4. Property bequeathed to B but subject to a charge for the payment of debts (i.e. asset to be used to pay debt and any remaining proceeds go to B)
5. The pecuniary legacy fund
6. Specific gifts

Question 6

what is an insolvent estate?

Answer 6

an estate with insufficient assets to pay all its debts and liabilities in full

Question 7

how can an insolvent estate be administered?

Answer 7

o D’s PRs out of court
o D’s PRs under the court’s direction pursuant to an administration order
o In bankruptcy, pursuant to an insolvency administration order

Question 8

in what order are debts paid when the estate is insolvent?

Answer 8

this is mandatory and the same order irrespective of how the insolvent estate is administered. This cannot be altered by the Will:
1. Secured creditors
2. Bankruptcy costs (inc. reasonable funeral, testamentary & administration expenses)

The creditors within each category will rank & abate equally:
3. Ordinary preferential debts (i.e. wages/holiday pay owed to employees. Capped.)
4. Secondary preferential debts (i.e. tax owed to HMRC e.g. income tax, VAT)
5. Ordinary unsecured debts
6. Debts to spouses/CPs