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Bar News - February 18, 2011


The Modernization of Insolvent Estates

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An estate is insolvent when the debts of the estate exceed its assets. Itís a common scenario, particularly in these economic times. Historically, when an estate was insolvent, the probate court appointed from one-to-three commissioners who then gave notice to creditors, held meetings to determine the validity of claims, and ultimately submitted a report to the court. The process was cumbersome, time-consuming and expensive. A creditor who was dissatisfied with the commissionerís report had a right of appeal to the superior court.

In 2009, I appointed a committee comprised of probate judges and experienced probate practitioners to come up with a legislative proposal to simplify the process of probating an insolvent estate. In the 2010 session, the Legislature passed Senate Bill 353 which repealed the existing laws relative to insolvent estates (RSA Chapter 557), as well as the appeal process previously found in RSA Chapter 558.

The new procedure for handling insolvent estates is now found in RSA 554:19-b (Supp. 2010). Anytime after the estate is opened, the administrator may file a motion with the probate court for a determination that the estate is insolvent. If the motion is granted, the court issues a stay of all actions and suits against the deceased or administrator, except claims for which there is insurance coverage. The administrator receives and evaluates the claims against the estate and, no sooner than six months after the estate is opened, files a motion proposing a distribution scheme for the estate assets. The court reviews the distribution scheme, with or without a hearing, and issues an order. If the distribution is approved, the administrator pays administrative costs, fees, and creditors, and then notifies the court that the estate has been distributed.

In this new procedure, creditors will have 10 days to object to the motion for determination of insolvent estate and 30 days to object to the proposed distribution of the estate assets. If there are no objections to the motions, the court may issue orders without hearings. In some cases, the court may waive the requirement of filing accountings or an inventory.

This legislation also changed the priority of expenses and claims paid by the administrator in an estate, whether the estate is solvent or insolvent. RSA 554:19 now specifies that funeral expenses must be reasonable, DHHS medical assistance claims are paid on a par with other general creditors, and federal claims and taxes take priority over other debts of the decedent. Furthermore, this section states that claims of a higher priority must be fully paid before the administrator pays claims of a lower priority. Claims in each same priority class must be paid in the same proportion.

New forms, instructions and procedure for insolvent estates have been posted on the NH Judicial Branch website. The legislation was effective January 1, 2011, and this new insolvency process can be followed in new and existing estate administration cases.

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