Finance

What Happens to my Debt When I Die?

Debts After Death

Handling the estate of a deceased loved one can be a difficult and emotionally challenging time. Administrative issues are not always easy to handle and this is particularly true when outstanding debts are left. Debts after death are often misunderstood, so let’s delve into this issue deeper. And if you’re currently struggling to work things out as an Executor, contacting a Kent accountant for probate services could put your mind at rest.

Repayment of Debts From the Estate

Many people wrongly assume that debts are written off when someone dies. However, this is not typically the case. When someone with debt and no provision for paying it off passes away, their assets are collected from their estate. This is overseen by the Executor of the Will if such a legal document is present, or the next of kin if no valid Will exists.

If the estate value does not cover the debts owed, creditors will be paid in priority order. Funds for the funeral and Inheritance Tax (where applicable) are paid off first as well as mortgages and any other secured creditors. This is followed by rent payments, water bills, council tax, loans and credit cards (unsecured creditors). Only when all the debts have been paid, can beneficiaries enforce their rights and have access to assets laid out in the Will.

Who is Responsible for Paying Off Debts?

One of the best ways to stay on top of your assets, minimise Inheritance Tax after death and sort out any lingering debts is to seek professional help from a reputable wealth management specialist such as Nick Hughes. This is particularly important for non-doms and those with assets overseas.

If someone dies with debt, however, the Executor or Administrator of their estate must pay off the debts. Seeking expert advice for this is recommended, as mistakes can lead to personal liability of the decedent’s debts, although this isn’t common.

You may find yourself personally liable if you do not place a notice of death in a local newspaper to give potential creditors the chance to reclaim debt. If you distribute funds to beneficiaries and then a creditor comes forward at a later date, you might have to repay the debts from your own money.

What’s the Process of Handling Debts?

If you’re asked to be the Executor of a Will, it’s important to know what this entails and to perhaps speak about debt management well in advance so you know what to expect. When someone dies, the details of any debt remaining must be collated and repaid. Financial statements must be examined carefully and any guarantors should be made aware that they’re still responsible for any debt covered by a guarantee if it’s not paid by the estate.

As there are different kinds of debts – including individual debts, secured debts, unsecured debts and undisclosed debts – it’s important to understand what each entails. Individual debts can include things like credit cards, which can sometimes be written off if the estate does not cover the debts. Friends and relatives will not be required to pay off such debt. Joint debts, on the other hand, can leave surviving partners liable for any remaining money owed.

For help with wealth planning and advice on Inheritance Tax and other charges, speak to reputable Kent tax advisors.

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