Death and Debts

“You are worth more dead than alive” is a quote that you may have heard from time to time before and in the most part this statement is true. Your Estate when you pass away comprises of not only what you have in your wallet or in savings accounts but also what property you own or what tangible goods are in your possession too. Any possessions that are owned by the Deceased will be liquidated in order to give the Administrator of the Estate an overall figure for how much the Estate is worth.

But what happens if the Deceased left a debt unpaid during their lifetime? Liabilities are, after all, deemed part of an Estate and must be assessed before any distributions are made to the Beneficiaries of said Estate. So in short, no, your debts are not wiped upon your death.

Initially, it is crucial to understand when undertaking the Estate administration that every liability owed by the Deceased must be re-paid to the Creditor, regardless of whether it was owed jointly or solely. A Creditor’s due will take priority over a Beneficiaries share.

A sole debt, one being in the name of the Deceased’s only, shall always be paid from the Estate’s assets. If there are sufficient assets in the Deceased’s sole name, or held as Tenant in Common, to cover this debt then the Administrator will arrange for the debts to be paid out of the proceeds from these assets. Until this debt is paid then the Administrator shall not distribute the remainder to the Beneficiaries. If there are not enough assets in the Deceased’s sole name then the Creditor can, in certain circumstances, apply for an Insolvency Administration Order which asks the court to consider forcing the sale of an asset owned as Joint Tenants to settle the debt, i.e. a family home.

A joint debt, one that is owed not only by the deceased but also another party, will mostly be governed by a written agreement with a creditor. For example household debts such as council tax or utility bills are classed as joint debts and incur “joint and several liability”. This means that on the death of one debtor, the debt becomes the sole responsibility of the other joint debtor, in this example the other householder. Bank Loans and Mortgages will also fall under the category of “Joint and Several liability” if they were taken out under more than one person’s name. Joint debts are not taken into consideration for probate purposes when someone dies, meaning their Beneficiaries will not feel the brunt of this, and instead the surviving joint debtor will.

Dealing with Estate administration and someone else’s bills can be complicated and needs careful attention, especially as an Administrator can find themselves incurring personal liability if the Estate is not administered correctly. If you have any questions about Estate administration, please contact our friendly and experienced Private Client team on 01484 821 500 or email willsandprobate@ramsdens.co.uk