Mar 22, 2018  | Tags: debt, estate planning

Our Insights ...

Debt and death are both painful topics to discuss.

But by addressing how these issues are related today, you can spare your loved ones a lot of needless anxiety and pain in the future.

Here’s what you should know and share with your loved ones about debt after death.

Executor of the Estate

Whoever is appointed Executor will be the one to manage the deceased’s assets to pay back debts. After debts are settled, whatever is left can be distributed to the beneficiaries as stated in the Will. 

Mortgage debt 

Whoever inherits the property in line with the deceased’s wishes may also be responsible for paying off the mortgage. If the beneficiary cannot afford the mortgage, he or she may opt to sell the property and use the proceeds to pay off the mortgage.

Secured vs. unsecured debt

Secured debt is backed by property such as a vehicle or home. Home loans are an example of secured debt. Unsecured debt is something like a personal loan or credit card debt. 

The bank can collect on unpaid secured debt by repossessing an item. If surviving family members don’t want to lose the item, they must decide to continue making payments on the debt taken out against it.

Unsecured debts are not attached to specific property. However, they should be paid back as much as possible with cash from the sale of other items or the property. Prior to the sale of any assets the executors should be aware if the sale of the property is not enough to cover the debts and if they may not be able to be repaid in full. The executors can then either ask the creditor to write off the debt or in certain circumstances appoint a bankruptcy Trustee and enter the estate into bankruptcy prior to selling any assets. 

Attached to debt?

Those surviving the deceased are only legally responsible for paying off debt if they are also personally connected to it. This may be the case if they went guarantor for a loan taken out by the deceased, had a debt secured against one of their own assets or took out a joint loan with the deceased.

At this point, the remaining debt becomes the responsibility of the surviving individual.

Outside of this exception, no one should be harassed into paying debts left by the deceased. Your family should know who to contact in the event that a debt collection agency bothers them after all payable debts have been taken care of through the estate.

Make sure your Will is up to date

When you write up your Will, you must nominate as executor someone capable of overseeing the repayment of your outstanding debts upon your death. Choose someone responsible enough to do this as well as responsible enough to respect your wishes.

Clearly state your wishes and preferences in your Will. Consult close your spouse, children and other such close family members before making serious decisions about how to handle remaining debt on your passing. And of course, make sure you get your Will done with an experienced lawyer.

For more debt and financial planning advice, talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your appointment.

Written by Ben Calder, Private Client Adviser at Calder Wealth Management.