It is a common misconception that, when you die, your debts die with you. The reality is that it isn’t quite so simple, so it can be important to plan ahead to make things easier for your loved ones after you’re gone.
What happens to my debts when I die?
When you die, your estate will be dealt with by executors, who will have responsibility for paying out any bequests you make in your will. Before they can do this, the executors must make sure that any debts are paid. If there isn’t enough money to pay the debts, the creditors will take what they can and the rest will be written off. This means that while your loved ones won’t technically inherit your debts, but if you leave debts behind it could eat into any bequests they were due to receive. If the executors pay out all your bequests before trying to pay off your debts, and then tell creditors that there isn’t any money, they could become personally liable for the debt and will have not fulfilled their duty as an executor.
Will my partner have to deal with my debts?
If you should die with debts, a spouse or civil partner is not automatically responsible for paying them unless they were taken out jointly, or your partner provided a loan guarantee. If the debts were taken out solely in your name, they will be paid out of the value of your estate.
What about my home?
If you own a home jointly when you die, and there isn’t enough elsewhere in your estate to pay off any debts, it is possible that your home may have to be sold. What happens to the property will depend on whether you own it as “joint tenants” or “tenants in common”:
- Joint tenants: you own the whole property together, so when you die your share passes automatically to your partner. However, any debts you leave will need to be paid which could mean that the house has to be sold.
- Tenants in common: you each own a stated share of the property. When you die, your share becomes part of your estate, and goes to whoever you leave it to - this can be your partner if you wish. Your partner, or whoever inherits your share, will have to find the money to pay any creditors in order to prevent the house from being sold.
What can I do to protect my loved ones after I’m gone?
The most important thing you can do to prevent debt from eating up your family’s inheritance is try to clear your debts as much as you can. You may also want to consider making a will, as this will ensure that your assets are distributed according to your wishes. If you have a mortgage, you may want to think about how your partner would keep up the repayments if anything should happen to you - life insurance may be something you want to consider.