What Happens to Your Debts When You Die?

If you want to make sure you provide for your loved ones after you pass away, keep reading. Here, Prestige Tax and Trust Services explains what happens to your debts when you die.

Debts after death

Your debts aren’t automatically written off after you pass away. They’re paid out of your ‘estate,’ e.g. money, property, possessions etc. The person who’s responsible for managing your debts will either be the executor or the administrator of your estate and the difference between the two is important.

Duties of executor

You can appoint an executor to oversee your estate by writing a will. However the courts will appoint an administrator to complete this task if you haven’t made a will. Therefore, it’s vital that you write a will so you can appoint an executor you trust to pay off your debts. Think carefully about who should be your executor; choose someone with the financial skills to handle your debts efficiently.

Your executor will be required to pay them off any debts using funds from your estate in a set order before your beneficiaries can inherit anything. This order is as follows; mortgages and secured personal loans; funeral and admin costs; inheritance tax then utility bills, credit cards and any remaining taxes.

Effect on property

In most cases, your family won’t be liable to pay your debts if your estate can’t pay them off. However, there are some circumstances where your partner could be required to pay off your debts. For instance, if you took out a loan in joint names (e.g. mortgage) or if they acted as a guarantor for a loan taken out in your name, the debt would become theirs to pay off after you pass away.

If there’s not enough money in your estate to pay off your debts, your executor may have to sell your house to meet your financial obligations. This could be an issue if you jointly own the house, as it could mean your partner may have to sell the property. This depends on the legal position of the tenancy:

  • If you both own shares in the property (tenants in common), your debts will be paid from your share of the house. However, your partner may have to negotiate with creditors to prevent the sale of your portion of the property to meet your debts after you die.
  • If you owned the entire property together (joint tenants), your share of the house will pass to your partner automatically. Creditors may try obtaining an Insolvency Administration Order to force the sale of your house in order to meet your debts.

Prestige Tax and Trust Services

Therefore, you need to write a will to ensure your debts will be paid off by somebody you trust after you pass away. Prestige and Tax and Trust Services can help you write the will you need to safeguard your loved ones after you pass away.

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