Dealing with a Deceased Estate in Scotland

What happens when a debtor passes away with debts unpaid? Paul McDougall, Associate Director in Wylie & Bisset’s Insolvency Practice, explains the implications for the executor of an estate that has unpaid debts attached.

There is a common misconception in society that when an individual passes away their debt is written off. Unfortunately, this is not the case if the deceased individual leaves an estate with assets. When a debtor dies, no one is required to settle their debts unless the debts were in joint names such as a joint loan or overdraft. However, if the deceased individual had assets, those assets must be used to pay the outstanding debts before beneficiaries can receive any inheritance. This underpins the main role of an executor.

If the level of the deceased’s assets are insufficient to settle the level of outstanding debts, the estate is classed as insolvent and an executor has an obligation to place the estate into an insolvent position. This is completed with the assistance of an Approved Money Advisor, but more likely an Insolvency Practitioner.

In accordance with Section 14 (3) an executor, or anyone entitled to be appointed as an executor, can apply to the Accountant in Bankruptcy for the bankruptcy of the deceased estate. The application must be made no longer than 12 months following the day in which the executor knew, or ought to have known, that the estate was insolvent and likely to remain so. 

If the executor misses this deadline, an application can still be made for the sequestration of the estate, but through a court process. This is a longer and more costly route, so executors are advised to make the deadline if they can.

This removes the need for formal confirmation and appointment of an executor and an application to sequestrate a deceased estate is processed by an application made to the Accountant in Bankruptcy.   From an executor fee, their fees can be settled from the estate funds.

Wylie Bisset LLP are an experienced firm in dealing with deceased insolvent estates and can assist with the application and formal appointment as Trustee.

If you are an executor and conclude the estate in insolvent and would like an initial discussion about your position, please contact our Associate Director Paul McDougall.