An Insolvent Estate
- Before Grant of Nonintervention Powers
- After Grant of Nonintervention Powers
- Payment of Estate Liabilities (eg, Creditor’s Claims)
Before Grant of Nonintervention Powers
One of the requirements for obtaining Nonintervention Powers is that the estate is solvent. RCW 11.68.011(2) Consequently, if the estate is insolvent at the hearing on your Petition for Letters, you are ineligible to be granted Nonintervention Powers.
After Grant of Nonintervention Powers
The estate appears to become insolvent: After being granted Nonintervention Powers, you may receive Creditor’s Claims such that:
- Their aggregate face value, when added to
- The other debts and the taxes and expenses having greater priority (eg, see RCW 11.76.110),
exceeds the apparent value of the property in the estate — appearing to cause the estate to be insolvent. If this occurs (or for any other reason, you become aware that the estate may be insolvent):
- Complete a Notice of Apparent Estate Insolvency & Declaration of Mailing form.
- Mail a copy of the Notice to:
- All the Beneficiaries if Decedent died with a Will;
- All the Heirs if any property in the estate passes other than by Will;
- All the unpaid creditors to the extent that his/her/their claim has not then become barred, for example, by a statute of limitations; and
- Anyone from whom you have received a Request for Special Notice under RCW 11.28.240.
- File the original of the Notice with the Court (and get a conformed copy). RCW 11.68.080(1)
Timing: Within 10 days of your receiving the Creditor’s Claims that appear to cause the estate to be insolvent.
- Complete a Petition for Determination re Nonintervention Powers Upon Estate Insolvency form.
Timing: Within 10 days of your receiving the Creditor’s Claims that cause the estate to be insolvent. - Determine when probate petitions are heard at your Courthouse.
- Select a suitable date and time for the hearing on your Petition, making sure that your proposed hearing date is at least 20 (+3) days into the future.
- Complete a Notice of Hearing on Petition for Determination re Nonintervention Powers
Upon Estate Insolvency & Declaration of Mailing form. - Attach to your Notice a copy of your Petition and make sufficient copies of that combined document (Notice + Petition).
- Mail a copy of that combined document (Notice + Petition) to each person entitled to notice:
- Decedent’s heirs,
- Decedent’s beneficiaries,
- Decedent’s unpaid creditors, and
- Anyone from whom you have received a Request for Special Notice under RCW 11.28.240.
Timing: At least 20 days before the hearing.
At least in King County: File Working Copies including a proposed Order with the Probate Department at least 7 days before the hearing.
- Complete an Order Reaffirming, Rescinding, or Restricting Nonintervention Powers Upon Estate Insolvency form.
- Attend the hearing on your Petition. Assuming no one objects to your Petition, the Judge will likely ask you for a proposed Order. Hand it to the Judge (or to the clerk for the Judge) for his/her review and signature and return to you. It would be better practice for you to return the file and the signed Order to the Clerk’s Office and obtain a copy of the signed Order for your records.
Payment of Estate Liabilities (eg, Creditor’s Claims)
Insolvency itself has no bearing on allowance of Creditor’s Claims, only on their payment. (Allowance concerns only the validity of a Claim, not whether the estate has funds to pay it.) Payment of Creditor’s Claims, taxes, and other expenses of an insolvent estate is handled by:
- “Ranking:” Assigning each liability to one or another of a prioritized series of classes set forth in RCW 11.76.110:
- Costs of estate administration (eg, filing fees, your commissions, your counsel’s attorney’s fees, accounting fees, appraisal fees, etc.);
- Funeral expenses (eg, funeral and burial expenses);
- Expenses of last illness (eg, doctors’ and hospital bills);
- Wages due for labor performed in the period beginning 60 days before Decedent’s death (eg, servants’ wages);
- Debts having preference under federal law (eg, federal income, gift, and estate taxes); Caution: Estate of Shoptaw, 54 Wn.2d 740 (1959), negates this ranking by finding that federal law takes precedence over expenses of last illness, so federal taxes are to be paid after costs of administration and then funeral expenses but before any lower rank.
- Taxes or other debts due to the State (eg, property taxes, business taxes, WDSHS reimbursement);
- Judgments rendered against the Decedent during his/her lifetime, which judgments are liens on real estate on which an execution might have issued at date of death, and debts secured by mortgages in order of their priority, and (finally)
- All other demands against the estate (eg, most ordinary Creditor’s Claims, typically, credit card debt).
- Paying:
- Starting with the top class, all the liabilities within that class are paid (in Washington, presumably) according to their pro-rata share.
- If the assets of the estate are sufficient to pay all of those liabilities within one class in their entirety, then all the liabilities within the next lower class are similarly paid — in full if sufficient assets are available, pro-rata if not. This payment process continues serially from one class to the next lower class until the assets are exhausted. Within the final class, the creditors will each receive less than his/her/their full Claim, and no creditor in any lower class will receive anything.
The Washington statute does not expressly provide for it, but other similar statutes, such as that of the Uniform Probate Code, provide that “No preference shall be given in the payment of any claim over any other claim of the same class, and a claim due and payable shall not be entitled to a preference over claims not due.” See, for example, Montana Code Annotated 72-3-807(2). No Washington case has yet been found directly on point on this issue.