How to Probate an Insolvent Estate in California

When I was asked to serve as the administrator of an estate in California, I immediately purchased a copy of How to Probate an Estate in California (16th Edition) from Nolo. I found the book to be an invaluable resource and highly recommend it to anyone administering an estate without the assistance of an attorney.

Everything was fine until I got ready to file the Petition for Final Distribution. I was going merrily along copying the necessary information into my word processor, when I got to this sentence: “The estate is solvent.” This presented me with a dilemma; the estate I was administering was not solvent. I started searching for the alternate version for an insolvent estate and could not find one. I did however find the following paragraph in the first chapter of the book:

An “insolvent estate” is one that does not have enough assets to pay creditors in full. Insolvent estates are subject to special rules and we do not include specific details here. Usually you must consult an attorney.
That was not particularly helpful! The estate did not have enough money to pay all of its bills (many of which were due to me). Going out to hire an attorney did not make a lot of sense. I went down to the local law library and looked for any samples that might help me file the petition. I found some samples for solvent estates, but that did not get me any closer to filing my paperwork. I decided to venture out on my own and through sheer luck, I found the right words to get the judge to accept the Petition for Final Distribution and the Order settling the estate.

Petition for Final Distribution

While your mileage may vary, you may find the alternate versions that follow helpful when filing the paperwork for an insolvent estate. In the table that follows, I provide the paragraph number and the first few words of text as proposed in the 16th Edition of the Nolo book (just in case the numbers change in other editions). I had to renumber paragraphs because I both added and deleted paragraphs.

¶ 1ANABELL KIDD, aka ANABELLE O. KIDD, died on June 18, 20XX,

I used the proposed paragraph.

new ¶On August 26, 20xx, petitioner was granted authority by order of this court to administer the estate without court supervision under the Independent Administration of Estates Act. This authority has not been revoked.

I found this paragraph in a sample petition in the law library and decided to use it.

new ¶Petitioner has performed all duties required of him for the estate of the decedent with respect to administration of the estate. The estate is now ready for distribution and is in a condition to be closed.

This is another sample paragraph I picked up from the law library.

¶ 2Notice of death was timely published. Petitioner made a thorough

I used the second variation of this paragraph, which begins with “Actual notice of administration under Probate Code 9050...”

¶ 3The decedent did not receive Medi-Cal benefits,

I used the second variation of this paragraph to which I added: “A notice was received from the Director of Health Services stating that no creditor’s claim will be filed against the estate.”

¶ 4No claims were filed against the estate.

I used the second variation of this paragraph because claims were filed against the estate.

¶ 5Certain debts were paid under the provisions of Probate Code Section 9154

The proposed paragraph 5 contained the problematic phrase, “The estate is solvent.” Originally, I thought that I would just include the paragraph either without the phrase or changing it to say that the estate is insolvent. However, there were no debts paid without formal claims so I just deleted the entire paragraph.

¶ 6All debts of the decedent and of the estate

Paragraph 6 presented a problem because there were debts that had not been (and could not be) paid until the judge reviewed the proposed distribution. This is how I addressed that issue:

All debts of the decedent and of the estate and all expenses of administration (with the exception of those expenses listed in Exhibit X), and statutory commissions of the personal representative have been paid.

¶ 7An Inventory and Appraisal of the estate assets

I used the proposed paragraph and added the following sentence (from the law library): “Petitioner alleges that such inventory contains all the assets of the decedent’s estate that have come to petitioner’s knowledge or into his possession.”

¶ 8The estate was administered under the Independent Administration of Estates Act.

I used the proposed paragraph. (Looking back on it, I’m not sure that this paragraph is needed in addition to the two paragraphs that I added between the proposed ¶ 1 and ¶ 2.)

¶ 9No personal property taxes are due or payable by the estate.

I used the proposed paragraph.

¶ 10All income tax returns due by the decedent or the estate

I used the following statement: “No California or federal income taxes are due and payable by the estate.”

¶ 11No California or federal estate taxes are due.

I used the proposed paragraph.

¶ 12The assets on hand, including their community or separate character,

I did not include any equivalent paragraph.

¶ 13The names, present address, ages, and relationship

I used the proposed paragraph.

¶ 14Petitioner waives the filing of a final account.

Since the sole heir had not waived accounting (although I am sure she would have if I asked her to) and because one of the creditors was a major credit card company, I decided it was prudent to include the following accounting:

Petitioner is chargeable with and is entitled to the credits set forth in the Summary of Account below. The account covers the period from June 18, 20xx to September 18, 20xx. Exhibits E through G in support of the Summary of Account are attached hereto and incorporated herein by this reference:

CHARGES
Inventory and Appraisal$9,835.99
Receipts During Account Period (Exhibit E)$35.05
Total Charges$9,871.04
CREDITS
Disbursements During Accounting Period (Exhibit F)$497.07
Losses on Sales or Other Disposition of Assets (Exhibit G)$1,338.14
Property on Hand at End of Accounting Period$8,035.83
Total Credits$9,871.04
That wasn’t so hard although I did have to create those exhibits to back up the numbers.
¶ 15Petitioner waives any right to statutory commissions.

I did not include any equivalent paragraph. I did not waive my right to the paltry commission to which I was entitled; instead I included it in the accounting (see the new paragraph following ¶ 19).

¶ 16Petitioner requests authorization to withhold

I did not include any equivalent paragraph. I knew all the assets and claims. I also just wanted to be done with the work.

¶ 17No compensation has been paid from the estate assets

I did not include any equivalent paragraph.

¶ 18There is no family or affiliate relationship

I did not include any equivalent paragraph.

¶ 19Petitioner has kept all cash invested in interest-bearing accounts

I used the following statement: “Petitioner has not invested cash on hand in interest bearing accounts as the amount of cash on hand has not exceeded the amount necessary for the orderly administration of the estate.”

After selling the decedent’s van, I had about $8,000 cash on hand. When I looked into investing those funds, I found that it would cost me more than could be earned unless the investment was kept for more than three months. Since there was a “final” hearing date two months away, I just left the money in a non-interest bearing account. As it turned out, the hearing was postponed twice and the money could have been invested for six months, but there was no way to know that when I wrote the petition.

new ¶The estate is insolvent. Final distribution of the assets of the estate is proposed based on the classes defined in Probate Code § 11420 as follows:

Debts owed to the United States$0.00
Debts owed to the State of California$0.00
Administration expenses (Exhibit C)$2,214.56
Statutory commissions$341.32
Funeral expenses$3,971.78
General creditors$1,508.17

In case you’re wondering, the commission was calculated as 4% of the property on hand plus the disbursements during the accounting period.

Prayer

WHEREFORE, petitioner prays that the administration of the estate be brought to a close; that all acts and proceedings of petitioner as herein set forth be confirmed and approved; that petitioner be authorized to deliver the remaining personal property to the sole beneficiary of the estate; that petitioner be allowed $2,214.56 for costs advanced, $341.32 for statutory fees, and $3,971.78 for funeral expenses; and that petitioner be authorized to reimburse the general creditors on a pro-rated basis as follows: Discover Financial Services in the amount of $1,058.92 and the petitioner in the amount of $449.25.


I sanitized the actual petition that I filed using names and addresses from the Nolo book and some that I made up. I left the numbers intact (mostly because it is too much effort to change them). Perhaps you will find the result, InsolventPetition.rtf, useful in filing a similar petition.


Order

Creating the Order for Final Distribution was also problematic since I had no guidance on what to say for an insolvent estate. The following is the order signed by the judge (after he edited my proposal):

The Amended First and Final Account of Administrator, Amended Petition for Allowance of Statutory Fees to Personal Representative, and for Final Distribution filed by the Administrator, Petitioner, came on regularly for Settlement of the Report, and Hearing of the Petition by the Court on this date. On evidence given to the satisfaction of the Court,

THE COURT FINDS that:

1. Due notice of the Hearing of the Petition has been regularly given as required by law.

2. All the allegations of the Petition are true.

3. Anabelle Kidd died intestate on June 18, 20xx. Said decedent at the time of her death, was a resident of the County of Alameda, State of California.

4. On August 26, 20XX, Billy M. Kidd was granted authority by order of this court to administer the estate without court supervision under the Independent Administration of Estates Act, and Letters Testamentary were issued on August 26, 20XX. This authority has not been revoked.

5. The report of the personal representative has been filed with the Court.

6. Notice to creditors has been published in the manner and for the period prescribed by law.

7. More than four months have elapsed since the notice to creditors was first published, and the period for filing claims against the Estate has expired.

8. Claims were filed against the estate by four parties. Claim by Company in the amount of $X.XX was rejected by the personal representative. Due notice of the rejected claim was given as required by law. No suit has been filed on the rejected claim and no service of process has been served upon petitioner. The time to file suit has expired. One claim was paid by the personal representative at the end of the filing period. The remaining two claims will be paid on a prorated basis.

9. No Federal or California Estate taxes are due.

10. No Federal or California State Income Taxes are due.

11. No personal property taxes are due.

12. The Estate is insolvent.

13. The Estate is in a condition to be finally closed. The Administrator should be authorized and directed to pay all remaining debts and all expenses of administration.

14. The Administrator should be authorized and directed to pay himself the sum hereafter specified as ordinary fees for services rendered in the administration of the Estate.

15. All the assets of the Estate were the separate property of the decedent and distribution should be ordered as specified below.

IT IS ORDERED AND ADJUDGED that:

1. The administration of the Estate is brought to a close and the Account and Report of the Administrator is settled and approved.

2. All the reported acts and transactions of the administration are confirmed, settled, and approved.

3. Notice to creditors has been duly given as required by law.

4. The estate is insolvent.

5. The Administrator is authorized and directed to pay himself the sum of $341.32 as full payment of Statutory Fees and the sum of $2,214.56 for costs advanced.

6. The Administrator is authorized and directed to pay himself the sum of $3,971.78 for funeral expenses.

7. The Administrator is authorized and directed to pay creditor claims on a prorated basis as follows:

Bankamericard Visa$1,058.92
himself$449.25

8. No further filing claims are due.

9. Any other property in the Estate, not known now or later discovered which may belong to the Estate or the Estate may have any interest, shall be distributed as follows:

A. First to the creditors named above on the same prorated schedule until such creditors have been fully reimbursed;

B. All remaining items to the sole heir at law of the decedent, her mother, Margaret Kidd.

Dated: 11/3/XX

Signature

JUDGE OF THE SUPERIOR COURT


Order.rtf contains the preceding text.

The contents of this page and the attachments, InsolventPetition.rtf and Order.rtf, are Copyright 2006, 2007, Tony Lewis. Permission is granted to individual “petitioners in pro per” to reproduce and edit this information in creating their own petitions and orders. All other uses of the information are reserved; contact the author at tlewis@exelana.com to request permission for any other use.