If you are an Executor to someone’s estate, or an Administrator to an intestate estate, then you are responsible for dealing with the deceased’s affairs after they die. This includes dealing with their assets and liabilities (i.e. debts). When someone dies their debts do not die with them, but rather must be paid using the assets from their estate before any inheritance is distributed.
What debts might a deceased have?
A person may have many outstanding debts when they die. These can include:
- mortgages,
- loans,
- personal loans/debts,
- tax bills,
- utility bills,
- rent,
- internet/phone bills,
- car payments,
- credit card debt.
The extent of a person’s liabilities can vary greatly. Your job as an Executor (or Administrator) is to locate and settle these debts.
How do I locate these debts?
So, the question arises of how to locate these debts. An important first step is to talk with someone about what debts they have or may have by the time they die. You can ask them to keep a record of their debts and let you know where this is to help streamline the process.
However, if you could not have this conversation with the deceased, you still need to make your best efforts to find anyone owed money by the deceased. One way to do so is to check any documents they may have in their home, such as utility bills or credit card bills, and contact the organisations they are from to find out if there is an outstanding balance.
It is also prudent to place a deceased estate's notice in The Gazette and local newspapers to alert potential creditors of the death so they can claim what they are owed.
Who is responsible for paying the debts?
As mentioned, the Executor or Administrator is responsible for paying debts owed by the deceased. However, the Executor bears no personal responsibility for these debts if there is not enough to pay them.
However, if you do not provide creditors with at least two months' notice of the death and distribute the estate before this, then you may be held responsible for the debt. This is why it is prudent to take out newspaper adverts to prevent any personal liability.
In which order are these debts paid?
If the assets of the deceased’s estate are not enough to satisfy the deceased's debts, then the entire estate must be used to pay the creditors. However, this is not to be done in any order the Executor sees fit but rather in the following order:
- secured creditors,
- funeral expenses,
- priority credit,
- unsecured creditors.
Secured creditors
Secured creditors have a certain right (a security) over an asset owned by the deceased, which is associated with the debt owed to the creditor. A common example is a mortgage over a house. These creditors will be paid first using the assets related to their debt.
Priority creditors
These are specific people and are much rarer than the other types of creditors. HMRC or employees of the deceased could qualify.
Unsecured creditors
These are creditors who do not have a security over an asset associated with their debt. These types of creditors can be fairly common and include utility providers and credit card providers.
Again, good record keeping and discussion with anyone you agree to act as Executor for can help identify which debts have been secured by the creditor and which have not.
A couple of final points
If you do not already know, then as an Executor or Administrator, you should check if the deceased had any relevant insurance in place which might be used to cover the debts of the deceased. Some life policies may be free to be used for such purposes.
It is also important to know, or later check, if any of the deceased’s debts were shared with another person. For example, a joint loan may be in place, or certain bills may be attributable to more than just the deceased. This could alter the amounts owed to each organisation from the estate, potentially freeing up more of the estate for paying off other debts or distributing to beneficiaries.
Another person may also co-sign a debt. If the deceased's estate cannot cover the amount due to the creditor, then the person who co-signed the debt will bear responsibility for settling this.
Contact our Probate Solicitors in Central London today
Dealing with debts of an estate can be a difficult task and potentially costly if done incorrectly. Our Probate Team at Lewis Nedas law are experienced in these areas and can guide you through this process. Contact us on 020 7387 2032 or fill in our online enquiry form to get help from our team.
