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Debts After Death

When thinking about calculating the value of an Estate after a person’s death, we naturally assume that there will be enough left to distribute between the Executors and loved ones or charities, after all bills have been paid.

Unfortunately, this is not always the case, and in many instances, the person’s debts far exceed the value of their Estate, making them in effect, insolvent.  This scenario is perhaps more common than you may think and can result from poor financial decision making or simply be a reflection  of the weak economy at that time.

If the debts belonging to the deceased are in their sole name, then these cannot be inherited.  However, if they are in joint names with a surviving partner for example, the remaining partner will then become solely responsible, and must seek probate advice immediately.

It is likely also, that the Executor of an insolvent Estate will, in the eyes of the creditor, become responsible for their outstanding debt, unless steps are taken to prevent this and so again, it is important that expert advice is sought immediately.

Outstanding debts should always be paid in the correct order, when administering an Estate.  Top of the list are the funeral expenses.  If the Estate is found to be insolvent, this will cost the cover of the funeral itself, but not items such as an ornate headstone.  If the family chooses optional extras, this cost is likely to be met by the family itself and is not recoverable from the Estate.

Secondly, testamentary expenses must be met.  Those administering the Estate should keep a record of all relevant expenses, including petrol, train journeys and postal charges.

Debts to government will include any outstanding Inheritance Tax, Income Tax, benefit overpayments and Council Tax.

Secured debts include any outstanding mortgage and car finance.  Often, the assets are sold in order to pay off the creditor, which can take some time.

Finally, utility companies, bank loans and store cards must all be paid off too.  Obviously, if an Estate is insolvent, those further down the list will be pressing hard to make sure their debts are recovered.  As there will be insufficient funds to do so, it is vital that you seek the services of a probate professional, who will be aware of the legalities surrounding the situation, and can put your mind at ease by working through the payments process and communicating with the creditors for you.

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