Although initially it may not be at the forefront of your mind when a loved one dies, making sure their financial life is in good order when their biological life ends is an important thing to remember. Unfortunately, debts are not written off when someone dies.
The first thing you must do if you desire to take control of the estate of an individual is go through the process of probation. Put simply, when applying for a grant of probate, you are asking for permission to distribute the assets of the person who has died the way their Will dictates. When you fill in the probate forms, you must list the details of all the deceased person’s assets and all their debts. Any Inheritance Tax due will have to be paid before probate is granted. All other debts can wait until after probate.
If granted, the person who is managing the affairs must use the deceased’s estate to take care of the debt. The priority order for this is as follows;
Secured debts – I.e Mortgages
Funeral costs and administrative fees of managing the estate
Unsecured debts – i.e credit cards, telephone bills
Of course, it is possible that there will not be enough money in the estate to cover all the fees. If this is the case then take advice from a probate specialist. They are likely to inform you where priority lies and inform creditors that the estate is insolvent.
Be aware that if you are the personal representative of the estate, it becomes your legal responsibility to distribute all funds as necessary. This can be slightly daunting and again, bringing in a probate specialist should take some of the weight off your shoulders.
There will be some who leave instructions in their will upon their death for the person they trust to conclude their mortal affairs. This is not always the case and the first thing you should do if you are left with outstanding financial dealings is organise. The deceased may have known exactly where their money was supposed to go and to whom, but without that knowledge it may present itself to you like headphones may after a prolonged session in the pockets of your running trousers.
Begin to go through the papers of the deceased and make a list of everything that is owed. A good place to start with this is, finding out whether a particular debt is an independent or joint debt. These are reasonably self-explanatory. A joint debt is a debt that two or more people are accountable for. An independent debt is a debt owned solely by the deceased. This is important because of the impact it may have on those still living. For example, in some mortgage agreements it is stipulated that the partner of the deceased will remain liable for the unpaid amount.
Once you feel you have full understanding of the scope of the outstanding debt of the deceased you must now pay it off.
The first thing to do with a joint debt is to check whether there is any insurance that can pay off the debt. With a mortgage, it is not uncommon to take out life insurance to pay off the remainder should one of the debt holders die. Make sure to check the small print of said insurance before any final decision is made. If there are joint debts the deceased took out without insurance, then your next port of call is to contact the lender. Go through the terms of the loan with them, if necessary, transfer all future bills to the name of the living member of the agreement. You should explain your situation to the lender should any of the repayments committals now be a problem. You may be able to re-negotiate terms for an easier conclusion. Finally, make sure no regular repayments are coming from the deceased’s bank account, as this will now be frozen.
With an individual debt, steps must first be taken to understand the scale of repayment necessary and also inform the lender that their customer is now deceased. Ask for a letter to be sent with the outstanding balance.
Although PPI may be the bane of your life in terms of cold calls, it is possible that it could be used to pay off an individual debt. Often PPI only protects against illness, but it is not unheard of for it to cover in the event of death also. It is worth checking.
Overall, the best course of action to rid yourself of this necessary evil as quickly as possible is to find out as much as you can about the situation the deceased was in upon their demise and let any lender know about the situation as swiftly as possible. Debts aren’t written off when someone dies, but follow this advice, and you are a step closer to laying the affairs of the deceased to rest with them.