Debt is usually not the first thing that comes to mind when someone dies, but it is an important topic to discuss.
Can I Inherit Debt?
You cannot inherit debt in the UK, but that does not mean that when we die our debts die with us. Instead, all debts, including funeral costs are paid out of the deceased person’s estate before the remaining estate is divided among the beneficiaries.
If someone has debt when they die, debt repayment may diminish or eliminate any property or assets that were to be passed on as inheritance.
Who Pays the Debts of the Deceased?
As debts are paid out of the estate, it is up to the will’s executor to take care of any debt repayment. In the case of an individual dying without a will, the administrator takes responsibility for ensuring these debts are paid out of the estate.
If you’re an executor, you will need to go through the paperwork and bank statements of the deceased to work out who they owed money to. You will then need to get in touch with these lenders to request outstanding balances of what is still owed. MoneyHelper offers more help with what other steps you will need to take here.
Many executors choose to place a Deceased Estate’s Notice in a local newspaper to help them find out about any undisclosed debts. This helps to protect executors from personal liability for these debts, by showing that they have put in sufficient effort to find creditors before distributing the estate of the deceased.
Placing a Deceased Estate’s Notice is not a legal obligation, but if an executor fails to do so and a creditor then comes forward after the estate has been distributed, the executor may have to pay this debt themselves.
What if the Estate Doesn’t Cover the Debts?
If the deceased’s estate does not cover the value of outstanding debt and funeral costs, this is referred to as an insolvent estate. In this instance, the debts would be paid in priority order, and any remaining debts when the estate runs out tend to be written off.
What if I am a Guarantor or Co-Signatory?
If you took out a joint loan with the deceased, where a loan is in both of your names, the outstanding debt will become your sole responsibility.
You should check the loan terms and contact the lenders to request that they transfer future bills to your sole name. If you think you might struggle to make the new higher repayments, you can ask the lender if they are willing to alter the repayments to make them more manageable; they may agree to extend the loan terms which would reduce the amount payable each month.
If you are a guarantor for a loan, you will also become liable for the debt when the borrower dies. This is because guarantors are responsible for loan repayments if the borrower can’t or won’t make repayments.