Does Your Debt Die With You?

Many people assume, and understandably so, that your debts automatically die with you, unfortunately this is... Wrong!

A primary role of the executor of your will is to make a call of debts, this involves having an understanding of all the debts owed by the deceased (home loans, credit card, tax returns).

The most common types of debts are either ‘secured’ or ‘unsecured’. Secured debts are debts that are tied to an asset, such as a house, and can be (depending on the type of ownership) passed via the rule of survivorship. This is where the debt is joined to another, such as a home loan in the name of two persons, where the surviving person will likely become responsible for the debt. Unsecured debts are debts not secured to an asset, such as a personal loan or a credit card, these debts are required to be paid out prior to an executor distributing assets to the beneficiaries.

Prior to an executor distributing assets in accordance with the will the executor needs to ensure all debts are paid (or passed) by the estate. This can occur by using funds left by the deceased (or even super left to the estate as previously discussed). After debts are paid the remaining estate can be distributed by the executor.

If there are insufficient funds then assets need to be sold to ensure the debts are paid for.

In circumstances where there are insufficient funds, assets, superannuation or other items available to cover all the debt there is hierarchy order of the debts which are given priority over others.

However, the debt will not be passed on to beneficiaries to pay from their own funds unless they are a guarantor for an unsecured debt or own an asset which was being used as security for a loan.

Please note, this article is general in nature and does not take into account your personal situation or circumstances. For further information please contact Kenney Legal at info@kenneylegal.com.au or contact us via our social media networks.