When you die you do not want your surviving spouse to be left asking how you could leave him or her with nothing. If you leave an insolvent estate, however, that may be exactly what you’re doing. In order to avoid this, take steps today to ensure the solvency of your estate.
If you are wondering about the difference between insolvent and solvent, let’s clarify that first. A solvent estate is, basically, an estate that has enough assets to be able to cover any outstanding debts but is still capable of providing an inheritance to your heirs. An insolvent estate may or may not have enough assets to cover the outstanding debts; the key difference is that the solvent estate has enough assets left over to provide an inheritance to heirs.
If you have outstanding debts when you die, and most people do, creditors of your estate will have a certain amount of time in which to file a claim against the estate. If that claim is deemed valid, the executor of your estate will have to take funds out of the estate to pay off the debt. If there are not enough funds then the executor will have to start selling off personal property and family heirlooms in order to raise the funds.
So how do you prevent your estate from being insolvent? The most important step is to contact an estate planning attorney to help you formulate a plan. The next step is to start reducing your debts immediately, even if you can only afford to pay nickels on the dollar.