PAYMENT OF

DEBTS

MODULE 8
Where am I now?

 Grant of Representation has been obtained

 All Assets of the Estate have been Identified and Quantified
 Total Asset figure known
 P.R. has acted with due diligence
NEXT STEPS

 P.R. to identify all debts of the estate

 P.R. to quantify all debts of the estate
 Advertisements for Creditors may be made
 Debts may include:
 Funeral & Testamentary Expenses
 Secured Debt
 Preferred Debt
 Ordinary or Unsecured Debt
 Deferred Debt
IS THE ESTATE SOLVENT OR INSOLVENT

 By subtracting the Total Liabilities (Debt) from Total Assets

 Insolvent = Total Liabilities are greater than Total Assets
 Solvent = Total Liabilities are less than Total Assets
INSOLVENT ESTATE

 Beneficiaries would not receive anything

 PR has to be concerned about the priority of Creditors
 Payment to Creditors can be done in one of three (3) ways:
 By Agreement of the Creditors either as a whole or by class
 By the direction of the Court either on the application of the P.R. or by a Creditor
 Pursuant to Bankruptcy Legislation
SOLVENT ESTATE ON AN INTESTACY

 P.R. pays off all debts and liabilities in full

 Residue of the Estate is then distributed as per the requirements of intestate succession
legislation
SOLVENT ESTATE ON A TESTACY

 Has the Testator Appropriated and/or Charged Assets that are sufficient in value to
liquidate debts ?
 Identify an appropriated asset
 Identify charged asset
 If yes then comply with the Testator’s direction
 Liquidate Asset(s) appropriated and/or charged and clear all debts
 Distribute rest of estate in accordance with the terms of the Testator’s Will
SOLVENT ESTATE ON A TESTACY Cont’d

 If Assets have not been charged and/or appropriated by the Testator in his Will or
 If the Assets charged and/or appropriated are insufficient in value;
 The Order for payment either under the Common Law or Statute (depending on your
territory) must be followed in order to pay off the debts of the Estate
SOLVENT ESTATE – TESTACY Cont’d

 P.R. to categorise all the assets of the estate into Seven (7) Funds
 Placement of Assets into these funds are a “paper” exercise and are based on the classification of the Assets in the
Testator’s Will
 See the definition of the Funds as set out in the Manual both on the Common Law position or the Statutory Position
(as required by your territory)
 Once the Assets have been placed in these Funds, then the P.R. is required to liquidate the Assets of each Fund in turn
and to pay off the debts in full
 The Assets that have been fully used are said to have “Abated” fully
 Where only part of the value of the Asset (or Fund) have been used then there is partial “Abatement”. The beneficiary
in such an instance may still be entitled to part of the value of that Asset (or Fund) on a “pro-rated” basis.
 Where no part of a Fund has been used, the Beneficiaries in such an instance entitled to those assets may receive their
full entitlement.
SOLVENT ESTATE- TESTACY Cont’d

 Only when ALL DEBTS AND LIABILITIES have been paid in full can the P.R.
distribute the remaining estate
 At that time the P.R. would have to consider issues pertaining to lapsed gifts etc. such as
when a Beneficiary has pre-deceased the Testator.
 At that time therefore gifts may still “fail” or “lapse” and fall to the residue
SOLVENT ESTATE- TESTACY Cont’d
Other Matters

 It is to be noted that the use of the “Funds” only occurs where:

 The Testator has made NO provision in his Will (no assets appropriated or charged)
 The Testator has made INADEQUATE provision ie the Assets appropriated and/or charged are
insufficient in value to clear off his debts

Note that a Charged Asset as per the Funds IS NOT the same as an Asset Mortgaged by the Testator
inter vivos
SOLVENT ESTATE- TESTACY Cont’d

 Note the changes to the common law via Locke King’s Acts w.r.t gifts of Real Property
that are subject to a Mortgage-
 The Beneficiary is only entitled to the property subject to the outstanding amount due on
the Mortgage. This would affect the value of his entitlement either in total or on a pro-
rated basis
PAYMENT OF DEBTS

QUESTION AS PER
ACTIVITY SHEET