Solvent Estate vs. Insolvent Estate

August 16, 2010

When you pass away, your estate will either be solvent or insolvent. What does this mean? And more importantly, why do you care?

What Does It Mean if You Have a Solvent Estate?

A solvent estate means that there are enough assets to cover your outstanding debts and still provide some form of an inheritance to your heirs.

If your estate is insolvent, you don’t have enough assets to cover your debts and your heirs end up with nothing. How can this be, you wonder?

Inheriting an Estate with Debt

Before your heirs can inherit any portion of your estate, your outstanding debts must be settled. There is a legal procedure for this of course, and any creditors wanting to file a claim against your estate must do so within a certain amount of time.

However, if a creditor does file a claim and the debt is valid, your executor or personal representative must use funds from the estate to pay the debt. If there aren’t enough liquid funds, the executor will sell off assets to create the cash needed to cover the debts.

The more debt you have when you die, the more assets that may need to be sold to pay off your debts. If your outstanding debts are greater than the value of the estate, there won’t be any assets left for your loved ones to inherit. To prevent this scenario, you need to start planning now.

Reno Estate Planning Attorneys

Good estate planning attorneys can help you draft a plan that addresses your debts and earmarks funds and/or assets to cover them. This will ensure that your loved ones receive the heirlooms and inheritance you want them to have.

To learn more about debt planning, get in touch with the Reno estate planning lawyers at Anderson, Dorn & Rader, Ltd.

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