Debts don’t die with you!

The common myth that debts die with you can have a catastrophic impact on grieving relatives. 

When someone dies, with or without a will, any debts they have are required to be paid from the deceased’s estate. 

Where there are insufficient funds or assets to pay debts and funeral costs, administrative expenses etc - known as an insolvent estate - estate assets must be used to pay the liabilities.

The nature of the debt and how it was incurred is essentially irrelevant, and it takes precedence over a will which can mean family assets and heirlooms are sold rather than passed to the intended beneficiaries.

Executors and Personal Representatives must be mindful that they have a duty to creditors first and foremost, and could be held personally liable if money is incorrectly distributed.

If an individual is personally responsible then these debts fall to be paid from his or her deceased estate.

Debt takes precedence over a will.

Business and trading debts can be particularly complex. In summary: 

  • Sole trader – you are responsible for the liabilities of your business.
  • Company director – you have the benefit of limited liability status, but if you have given personal guarantees you are liable to the extent of that guarantee.
  • Overdrawn directors’ loan accounts – are the debts of the individual directors.

It is far better for you, and those you leave behind, to understand your position now and plan for the future in terms of your assets/liabilities.  Forward planning is far better for all concerned!

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