What happens to your debts when you die?

What happens to your debts when you die? Does your family inherit your debts? Does your spouse have to pay the mortgage if the house is in both of your names? What happens to your loans and credit card debt? What happens with your mobile phone contract? Who can access your current account? How are utility bills transferred if they are in your sole name?

Many people mistakenly believe that their debts will die with them.  However, this is not the case.  Following your death, your debts must be paid from your estate and interest will continue to accrue until they are paid off.

Loans

If you also hold a current account with the lender, then the lender is within their rights to “dip-in” to your current account to pay off the loan.  If the debt is in joint names the survivor will have to pay the total amount due.

Loans with credit unions are usually cleared on death, this may only be to age 70 but in some credit unions this facility will be granted to 85 years.  Terms and conditions apply!

Car loans can be problematic and often depend on the type of the loan and how much of the purchase price has been repaid.  If over half the price has been paid then the estate may be able to  purchase the car or return it to the finance house with no further liability.  However in circumstances where less than half has been discharged the estate may be liable to complete the contract.

Mortgages

Usually a lender will allow a period where the loan does not need to be repaid (interest will still accrue) to allow the life policy to be paid.  This is called a moratorium.  It is therefore very important to ensure that even where you fall into arrears with your mortgage repayments that life policy payments are kept up to date.  It is a breach of your mortgage conditions not to pay the life policy.  Usually a life policy is assigned to the lender and the payment of the loan on death is very straightforward.

Utilities

Where utility bills are in your sole name and the bank account is frozen on death the bills which are paid by direct debit will not be paid.  The utility provider will have to be contacted in order to sort this out although when billing is paperless there may be difficulties in identifying the provider.

In relation to mobile phones these contracts will usually cease on death – however it is important to notify the mobile phone provider of the death to prevent further bills issuing.

The benefit of planning

Death can be stressful for the loved ones we leave behind so a little bit of planning can make the financial aspect of the experience a little more manageable.

You should keep a record of your outstanding loans and where they are held.  It is your estate that is liable for any outstanding debts, not your family.

If you have made a will you may have addressed some of these issues but maybe you made that will some time ago and it needs to be revised if your circumstances have changed.

As an experienced probate solicitor, I deal with these issues for Executors and surviving family members on a daily basis.  Our approach at Douglas Law is to encourage our clients to be proactive by considering these issues when preparing their wills as part of their estate planning. 

If you would like to make your will or get advice on whether you should update an existing will please contact me, Teresa O’Sullivan, on 021 4897256 or on email at teresa@douglaslawsolicitors.ie