Insolvent estates

If the deceased had more debts than assets, the estate is dealt with in a different way. This particularly applies where the deceased has considerable debts but also has property out of which some debts could be paid. In these circumstances, the estate may be made bankrupt, in the same way as a living debtor is made bankrupt, and is administered by a trustee in bankruptcy (for example, a liquidator). Alternatively, the executor could administer the estate by following the provisions of the Probate & Administration Act 1898.

If the estate is made bankrupt, this may improve the position of an unsecured creditor against the estate because the recovery of any preferential payments may increase the size of the estate. If the estate is administered by a trustee in bankruptcy, the executor or administrator does not generally play any part in the administration of the estate.

Some assets are preserved from the payment of outstanding debts. Unless a contrary intention is expressed in the deceased's will, the proceeds of any life insurance policy are not to be used for payment of estate debts except for funeral or testamentary expenses, and may be distributed by the executor in accordance with a will or the intestacy rules (Life Insurance Act 1995 (Cth) section 205). Superannuation benefits under some government funds are protected by legislation and the protection cannot be revoked by a will.