What happens to your debt when you die?


Providing for your estate debt is an important part of estate planning, and failure to do so can put your surviving spouse and / or heirs at financial risk. The assets that you intended to bequeath to your loved ones may have to be sold to pay off the debt of your estate which, in addition to leaving your heirs in a precarious financial situation, could have tax and CGT consequences that your estate does not. is not equipped to cope with. Let’s take a closer look at what happens to your estate debt when you die.

Upon death, all of your assets, income and liabilities form what is known as your deceased estate. This deceased estate devolves on the Master of the High Court who then appoints an executor to manage the affairs of the estate. The main function of the executor is to locate and collect all assets, liquidate estate debts, and distribute the balance of your estate to your heirs.

If you die intestate, the distribution will be done according to the laws of intestate succession, whereas if you die leaving a valid will, your executor will distribute according to your wishes. Your executor is the legal guardian and legal representative of the assets and liabilities of your deceased estate, and is responsible for ensuring that the estate’s debts are paid correctly and in order of preference, keeping in mind that Sars receives his money first.

After locating and assembling the assets of the estate, the next step is for the executor to determine the liabilities of your estate. To do this, the executor must publish a notice in the Official Gazette and in local newspapers calling on creditors to come forward and file their claims against the estate. The manner and order in which the executor pays the debt of the estate depends in large part on the nature of the debt and the cash available in the estate. It is important to note that no beneficiary can receive an inheritance until all debts in the estate have been paid and the estate has been liquidated, which can take months or even years. .

If there is enough cash or cash in the estate to settle the debt, the executor will pay your creditors accordingly without having to realize the assets of your estate. Once settled, the executor can proceed to distribute the balance of the estate accordingly. On the flip side, if there isn’t enough cash in your estate to meet its debts, the executor might have to sell some assets and use the proceeds to pay off creditors. In doing so, the executor may seek equity in the form of life insurance policies, property, vehicles, or other assets to pay the estate’s creditors. If after selling all the assets of the estate, the executor is still unable to settle all the debts, the estate may be declared insolvent and insolvency laws will then apply to the estate.

When you have secured debt, which is debt secured by particular assets, such as a home loan, your property secures the repayment of the loan, which means the bank can repossess the house and sell it. to pay off the debt. To protect against this, many bondholders purchase bond coverage to ensure that there is enough cash in their estate to pay off their home loan in the event of death. In doing so, they would designate their estate as the beneficiary of the policy to ensure that the proceeds of the sale go directly to the estate in the event of death, which would allow the executor to pay off the mortgage. When a beneficiary is named on the policy, keep in mind that the proceeds will go directly to that beneficiary and, as such, cannot be used to settle the debt of the estate. It is therefore important to ensure that your policies are properly structured so that the executor can settle your mortgage without having to realize assets intended for your loved ones.

If you own property jointly with your spouse and your surviving spouse is unable to make the monthly bond repayments, the property can be repossessed by the bank. Above all, if you are married in community of property, remember that all the assets and liabilities before and during the marriage are shared jointly. This means that in the event of death, all debts in the joint estate must be settled and only then will your surviving spouse be entitled to their 50% of the net estate.

If you leave secured real estate to your children without providing cash for the mortgage settlement, they may have to post a deposit on the property on their own and take care of the monthly mortgage repayments. If they do not qualify for a surety bond, they may have no choice but to sell the property, which is against your intentions. When paying off estate debt, keep in mind that secured debt takes priority over unsecured debt. In the case of unsecured debt, such as credit card debt that is not linked to any assets, the lender has no assets that they can seize and they will need to take legal action to recover. his money under normal procedure.

If you have a joint debt, such as a joint credit card with your spouse, you and your spouse remain responsible for that debt. If you die, the executor can use the money in your estate to pay off part of the joint debt. However, if there is no money available to do so, your spouse may be held responsible for the full amount, placing additional financial burden on them. When the debt is held in your name but you have appointed someone else to stand surety for that debt, they may be held liable for the debt in the event of death and, if the debt is secured, the creditor will have the right to repossess and liquidate the asset to get their money back.

One thing that is often overlooked in the estate planning process is that minor children and surviving spouses have a legal right to claim alimony from a deceased estate, and these claims take precedence over all other claims, including those of heirs and legatees. In the absence of an express provision in a will, minor children may exercise their common law right to claim alimony from the estate of the deceased. Likewise, a surviving spouse who has not been financially supported by the deceased may bring an action against the estate of the deceased under the Surviving Spouses Maintenance Act for reasonable support, and such request is classified in the same order of preference as a minor child. Other senior claims include the owner’s legal mortgage and funeral and deathbed costs.

As can be seen from the above, estate planning is as much about managing your estate assets as it is about forecasting your estate debts, and it’s best to navigate it with the help of an estate planning expert. .


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