When the person passes, they leave what is called an estate, and this is overseen by an executor. The person’s estate is the money, property and possessions they leave behind. The money portion can include cash, bank accounts, investments, and any life insurance policies. Investments, stocks and cash can be easily assessed, but life insurance policies can be more complex. Some loans and credit cards often have some form of life insurance built-in. Each life insurance policy will need to be assessed to see if it will pay out. This money can:
- Be paid into their estate
- Be paid to the joint policy-holder, if they are still alive
- Be paid to any nominated beneficiary
- Be paid into a trust
The executors or administrators of the will must estimate the value of the estate before anything else is done, in case inheritance tax is due. The executors will sometimes have access to the deceased accounts, but some assets may require permission (called probate). Probate is the legal right given to an executor or administrator of a will to deal with the deceased person’s estate, including paying off their debts. You shouldn’t make any financial plans or put their property on the market until you have probate. You don’t always need probate. For example, if the person who passed away only owed a small amount of money and didn’t own property, or they jointly owned assets, you are unlikely to need probate. The executor named in the will can apply for probate. This can be done online.
Executors and surviving relatives are not personally liable for the debt, unless:
- They had a joint loan or agreement with the deceased person
- They acted as a guarantor for them
- They distribute the estate before all creditors have come forward.
Paying off the debts
If the deceased person has an estate and debts, the next stage is to work out how much these debts are and what kind of debts they are. Go through their financial documents and make a list of everything they owed. If there’s a guarantor for any debts, they are responsible for paying it, not the estate.
There are several types of debt, such as secured, unsecured and joint debts. But there may also be debts that were not known about, these are called undisclosed debts. If the assets of the estate have already been distributed, the executors may be liable for any undisclosed debts. You can place a Deceased Estates Notice in The Gazette and a local newspaper in order to avoid this. A Deceased Estates Notice is a statutory advertisement that shows an effort has been made to find any remaining creditors and protects the executors from being liable for undisclosed debts. It can also alert creditors to the death of the person with the debt. Leave two months and a day for them to come forward.
Cover essential costs
There’s a lot to do after someone dies, from organising a funeral to dealing with debts. Executors may be able to claim some expenses back from the estate (which will reduce the amount available to creditors). Examples include:
- Costs for cleaning and clearing a property
- Funeral expenses
- Legal fees for selling a property and other legal fees
- Probate Registry fees (these will change according to the size of the estate
- Costs of Inheritance Tax administration
- Travel costs
- Valuation costs
What happens if there isn’t enough money to pay off the debts?
- If there are more debts than the estate is able to pay, it’s known as an insolvent estate, and some debts will be left unpaid.
- If the deceased person hasn’t left an estate, the debts will go unpaid
These unpaid debts will die with the person. However, there may be some cases where the debt was jointly owed, or another person acted as a guarantor. In those instances, the debt would transfer to the other person.
Debts must be paid in the following order:
- Secured debts such as a mortgage or secured loans
- Priority debts which can include bills, such as gas, electricity, phone and internet bills, council tax arrears, court fines, overpaid tax credits, rent arrears, TV license payments unpaid child maintenance and unpaid taxes.
- Unsecured debts which can include: catalogue debts, credit card debt, overpaid benefits, store card debt, unpaid parking tickets and unsecured loans.
Getting support for debt payment
Paying off someone else’s debts can be stressful. But there are ways to manage the situation. Debt advisors can help you by suggesting ways to pay off the debts, including pointing you towards help that’s available. Many of them are also free to access.
What happens when all the debts have been paid?
The estate can be distributed to the parties listed in the will if all the debts and taxes have been paid.
What happens if a person dies whilst in an IVA?
If a debtor dies before the conclusion of the IVA the IVA will have failed. Assets included in the IVA are held in trust by the IVA supervisor to be distributed to the creditors bound by the IVA. Any other assets of the debtor will be realised and used to pay the expenses of winding up the estate and any debts not included in the IVA with the remainder being paid to the beneficiaries of the estate.
Many lenders and providers of consumer credit will simply write off their debts when informed of the death of the debtor and they will not seek to claim from the IVA or from the debtor’s estate. In circumstances where the debtor dies and leaves a surviving spouse, partner or dependents we would usually seek creditors’ approval to a decision that the IVA should be concluded on the basis that the debtor has substantially complied with the debtor’s obligations under the terms of the IVA. Creditors invariably approved such a decision. Any available funds in the IVA would be paid to creditors and the creditors would have no further claims against the estate of the debtor. If the debtor dies without leaving a surviving spouse or partner or dependents the Supervisor will terminate the IVA which will enable the creditors of the debtor to claim payment of their debts from the debtor’s estate.