Here’s the next in what will be an ever growing series of comments and answers from a legal perspective. You can read the first blog post here.
Usually when thinking about the financial affairs of someone who has passed away, the first thing people think of is inheritance and distributing assets. However, it is also important to consider what happens when a loved one leaves behind minor or significant debts and to understand how they are dealt with.
This post considers different debts that could be left behind by a loved on and how they are deal with both practically and by the law.
What happens to debts when someone dies?
When a person passes away, any debts that they owe are paid out of their estate. Your estate is the name for any money and property that you leave behind. You will only be responsible for the debts of a deceased person if you had a joint loan or agreement or you acted as a guarantor for that person. You will not be held automatically responsible for a partner, spouse or civil partner’s debts.
What makes up a persons estate?
The estate of the deceased is made up of any cash (including from insurance payout), any investments, property and possessions they left behind.
The estate of the deceased person is dealt with by one or more executors – you can appoint a solicitor to be your executor or any family members or friends who you believe would be able to carry out the role.
In the event that the estate is worth over a certain amount, the executor must apply to the court for special permission (known as Confirmation) to enable them to deal with the deceased’s affairs, including paying off any debts.
What happens if there is not enough to pay the deceased’s debts?
Where there is not enough in the deceased’s estate to pay off all of the debts owed, the debts must be paid out in a certain priority order until the money from the estate runs out. Debts must be paid out before anything can be given to people named in the will.
What if I owned a home with the deceased?
If you and the deceased person owned a home together and there is not enough money in the estate to pay the debts of the deceased, you may have to sell your home. The options available to you will depend greatly on whether you owned it jointly with or without an automatic destination to the survivor in the title to the property.
If you are unsure about this, you can speak to a solicitor.
Jointly with no destination to the survivor
This means that in the will, there is no automatic transfer of the deceased share in the property to the person they jointly own the property with.
If this is the case, the share of the property belonging to the deceased person will become party of their estate and go to whoever is mentioned in their Will. However, if there are outstanding debts on the estate, these must first be paid out. In order to avoid the sale of your jointly owned home, you would have to negotiate with those who are owed money by the deceased and find a way to pay the money that is owed to the creditors.
Jointly with a destination to the survivor
Where this is the case, the person’s share of the jointly owned property will automatically pass to you under what is known as a ‘survivorship’ clause.
However, even though the property passes into your possession, the debts still cannot be ignored.
It is possible for creditors to apply for sequestration of the deceased’s estate within 5 years of the debt occurring.
If sequestration is granted, the person appointed as trustee in sequestration can raise an action and ask the court to divide the property and force the sale of the property.
How are other debts paid off?
Mortgages: The mortgage lender may have required life insurance – this could pay off the outstanding mortgage. However, if there is no insurance, or any second mortgages that are not covered by insurance, the property may have to be sold to pay off the outstanding mortgage.
Rent arrears: If you had a joint tenancy with the deceased, you will be responsible for paying off any rent arrears.
Council Tax and Rates: If anyone still lives in the former home of the deceased, they will be responsible for any ongoing charges. However, if the property becomes unoccupied, there may be certain discounts and exemptions availiable. You can check with your local authority to see if any of them apply to the property.
Fuel bills: If you have been living in a property jointly with the deceased, you may be personally liable for any outstanding fuel bills.
Hire purchase agreements: With a hire purchase agreement, the buyer does not own the property until the last payment has been made. On the other hand, if over a third of the payment has been made, the seller will require a court order to get the property back.
Before you return the goods or making any payments, you should check to see if there was a payment protection plan in place.
Personal loans, credit cards and credit debt: If cards are held jointly, any debts will be the joint holder’s responsibility – but check to see if you’re covered by a payment protection plan.
Tax debts and overpaid benefits: Any tax that is owed by the deceased, or any benefits or pension payment that have been made in error, will be paid out of the estae of the deceased.
To avoid overpayment happening, and also to check if any tax is owed, you should contact the relevant office as soon as possible. It is important to keep in mind that the Department of Work and Pensions often makes claims against estates so this is something you cannot simply ignore.
They will check the form lodges with the Sheriff Clerk for Confirmation and will compare this with their own records to assess the means tested benefits received by the deceased.
If they find a discrepancy, they are likely to lodge a claim against the deceased’s estate to recover this. It is a good idea to check whether any benefits or tax is owed before distributing the remainder of an estate if you are appointed as the executor.