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Read more articles in: News, Rachel Blackburn

What happens to debts when someone dies?

Debt is always a complicated matter but it can be more confusing when it is regarding someone who has died.

The debts of someone who has died become a liability on their estate. Therefore, the executor will be responsible for paying off any debts from the estate.

Typically, surviving relatives will not be held responsible unless they were a guarantor or co-signatory of the debt.

Here, Rachel Blackburn, Head of our Wills, Probate and Older Client Services team, provides an overview of outstanding financial issues when someone has died.

Who pays off the debt?

As an executor, you are not personally held responsible for the debts of an estate but there are exceptions to this, such as where a debt is undisclosed and you pay beneficiaries before paying creditors, so it is something you should consider before taking on the responsibility.

For large or complex estates, it is important to get in touch with a relevant advisor who can go over the process with you.

An administrator is responsible if there is no Will left behind that would state who the executors should be.

Types of debt

For any of the debts left behind, it is important to check if there is a guarantor. If so, the guarantor will then be responsible for the debt if it is not paid by the estate.

Individual Debts

Any debts that are held only in the deceased’s name, such as a credit card, can be paid out of the value of the estate. If the assets do not cover the debt, then they will be written off.

Spouses, relatives or civil partners will not need to pay off individual debts unless they were a guarantor of those debts.

Joint debts

For joint debts, the debt will generally pass on to the surviving person(s) who also took on the loan.

There could be an insurance policy to pay off the debt in these cases so contact providers for details on the terms of the insurance.

Secured debts

When debts are secured against an asset, such as property or car, it can become more difficult.

You have to find out how an asset was owned and the value of the share that the deceased owned before you can find out the exact value of said asset.

For joint tenants, the share of the property for the deceased will automatically pass to the other owner. The property then is not considered as part of the estate and so will not count towards the payment of debts.

For tenants in common, you will only have a certain share of the property. Therefore, the deceased’s share of the property can be considered when repaying debts.

Similarly, if the asset is not a property and is owned outright by two or more people, it can’t be taken into account.

If it is solely owned by the deceased, it can be used to pay off outstanding debts. This applies even if other people have use of the asset.

To find out who owns the property, you can pay a small fee to the Land Registry for properties registered in England and Wales. If the property isn’t registered, you will need to check the deeds, where possible.

Unsecured debts

A credit card is an example of a debt that is not secured against an asset.

The estate may still be liable for these debts, but the priority debts will be paid first.

In our follow up article, we will explain the steps and order you should follow if you become responsible for someone’s debts.

Undisclosed debts

In some cases, you may be later informed of a debt that was not initially known about.

In order to avoid this happening, it is best to advertise the death, such as via a local newspaper, so that any creditors can come forward before you begin to pay the debts off.

You do not have to do this but there is a chance that you could be found personally responsible for debts if you have not placed a suitable notice before the debt payments are arranged.

To allow any creditors time to contact you, you should wait for at least two months following the publication of the notice before arranging the repayment of debts and distributing the estate to beneficiaries.

In the next instalment of this series, we will also explain the steps you should follow when handling the debts of someone who has died.

If you would like more information or advice on estate administration, please get in touch with us.

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