Can you inherit debt?
When someone dies in the UK, their debt isn't passed on to their spouse, children or any other relatives. Any outstanding debt is paid out of the deceased's estate, which is made up of property, savings, investments and any other assets. If there are insufficient funds in savings, it is often the case that other assets will have to be sold to pay off the debt. This can affect the inheritance that family members or friends receive from the estate.
The person responsible for dealing with the process of paying off existing debts is the executor of the will, which is usually a spouse, family member and/or solicitor. It is their responsibility to make the arrangements for paying off debt and dealing with the estate. As part of this, he or she will need to:
- Take stock of all the assets and all outstanding debts
- Check if there are any insurance policies in place to cover the debt, for example, life insurance or payment protection insurance
- Contact any creditors to inform them of the death, seek out any undisclosed debt
- Pay off the debts in order of importance
- Oversee the division of the remaining assets among the beneficiaries named in the will
It is important to note the executor role comes with a great deal of responsibility. If there is any outstanding debt after the estate has been distributed among the beneficiaries, the executor may be expected to pay for it out of their own money. This is why it's a good idea to place a Deceased Estates Notice in a local newspaper and wait a couple of months for creditors to come forward before taking further action.
Other than the executor, nobody else has responsibility for dealing with the deceased's debt, unless they have a joint debt with that person.
How to pay off debt after someone has died
There are a number of steps to take when organising paying off someone's debts after they die, including, in the first instance, contacting all known creditors and informing them of the person's death. This ensures that no further repayments will be taken from the person's account and, instead, the executor can get a final statement of everything that is owed.
Another important task is checking if there are any insurance policies in place that will help cover the debt. If not, the debts should be paid off in order of priority:
- Secured debts, including mortgages and any secured loans
- Priority debt, such as income tax and council tax
- Unsecured debt, such as credit cards or personal loans
If there isn't enough money in the estate to pay off all of the debts, any remaining money owed will be written off.
What happens to your mortgage when you die?
What happens to mortgage debt when you die is determined by a number of factors:
- Whether there is a life insurance policy in place to cover the debt
- Whether there are other debts that need to be paid off
- The type of mortgage you have - joint or sole
- If the property is left to a beneficiary in a will
In short, assuming there is no life insurance policy to cover the debt, the mortgage will either pass to the other borrower in the case of a joint mortgage, or become part of the deceased's estate. The property may have to be sold to pay off other outstanding debts or if the joint mortgage or beneficiary who inherits the property can't afford to keep up with the mortgage repayments.
If there are other debts that need to be paid off, the person who is set to inherit the property can come to an arrangement with the other creditors to pay off the debts in order to avoid having to sell the property. If this can't be arranged, the property will have to be sold to meet the other debt obligations, with the beneficiary inheriting any remaining proceeds from the sale after the debts have been cleared.
Joint mortgage
If you have a joint mortgage and are "joint tenants", the surviving partner will automatically inherit the other share in the property, including the remaining mortgage debt. They will be responsible for making the monthly repayments on their own, except if there is an insurance policy in place that covers the outstanding mortgage debt.
If you have a joint mortgage but are "tenants in common", the share belonging to the deceased will be passed on to a named beneficiary in their will. That person will take on the burden of that person's share of the mortgage debt. There can be potential issues with the tenants-in-common arrangement if the parties have different ideas on what they want to do with the property, including if the person who inherits a share in the property wants to sell or can't afford the repayments. This means it is vital to have good communication when setting up this arrangement in the first place, taking into consideration what would happen if one of the parties dies.
Sole mortgage
If the mortgage is solely in the deceased's name, the debt will be treated in much the same way as other outstanding debt. The executor will use any existing assets to repay the debt, which could mean having to sell the property and using the proceeds to make this payment. As a secured debt, a mortgage takes precedence over most other forms of debt when settling someone's affairs after death.
Assuming there is no insurance in place to pay off the mortgage, a beneficiary would take on responsibility for the mortgage payments if they inherit a property.
What happens to credit card debt when you die?
There are two possibilities for what happens to outstanding credit card debt when someone dies, depending on whether it was a joint credit card or belonged solely to the deceased. If it was a joint credit card, the remaining cardholder will take on responsibility for paying off the debt. If, however, the credit card was only in the deceased's name, it isn't the responsibility of the family to pay off the debt with their own money. Instead, it will be settled from the estate of the deceased, or by payment protection insurance, if that was in place.
If there isn’t sufficient money in the estate to cover the debt - including the proceeds of the sale of property belonging to the deceased - the debt will be written off.
If you are an additional cardholder on a credit card account, you must stop using the card immediately after the main cardholder has died.
What happens to a personal loan when you die?
If you have a joint unsecured personal loan, the remaining debt is passed on to the surviving party or parties when a borrower dies. They are responsible for making the repayments until the debt is paid off in full. If, however, the loan is in the deceased's name only, the debt will be repaid from the assets in the estate. If there is insufficient money in the estate, the debt will be written off.
What happens to an overdraft when you die?
In much the same way as with credit card and personal loan debt, the question of who takes on the overdraft when someone dies depends on whether it was on a joint or sole account. If it was an overdraft on a joint bank account, the surviving person will assume responsibility for the debt. If, however, it was an overdraft on an account belonging only to the deceased, the debt will be repaid from their estate. Whether it is an individual or joint account, it is a good idea to contact the bank to let them know the person has died so they can either freeze the account or create a new account for the surviving account holder.
What happens to a student loan when you die?
A student loan is the only form of debt that automatically gets cancelled when you die. Once the Student Loan Company has been informed and provided with evidence that the individual has died, for example, a death certificate, the debt will be written off in full.
What happens if a loan guarantor dies?
When you agree to be a guarantor for a loan or mortgage, you make a legally binding agreement to take responsibility for that debt for the whole loan term. If the borrower fails to keep up with repayments, you are obligated to repay the debt and that obligation continues even after death. If you die and the borrower defaults on the loan, the creditor is entitled to take the money owed from the guarantor’s estate. Depending on the exact wording of the agreement, the responsibility may pass on to the spouse of the guarantor or, alternatively, money from the estate serves as collateral for the outstanding debt.
Similarly, if you are a guarantor and the borrower dies, you will automatically take on responsibility for making the monthly repayments. The obligation for the debt falls to you, rather than being taken from the deceased borrower’s estate.
For more information on guarantor loans, read our article 'What is a guarantor loan - should you take one out?'.
Taking out life insurance to cover debt
If you want to avoid your assets having to be sold after your death in order to pay off any outstanding debt, it's a good idea to take out a life insurance policy. This can be used to cover the debt, protecting your assets, which can then be passed on to your spouse, children or other parties. For guidance on how to choose the right policy for you, read our article 'Best & cheapest life insurance in the UK'.
