How will debts affect the provisions in a loved one's Will?

Published 16 Oct 2018

It's likely the furthest thing from your mind when a loved one dies - but any debts accrued by them can affect how the estate is divided. Here's a quick guide to navigating the tricky waters of debt and family law after your loved one passes away.

How are debts settled when someone dies?

Once a loved one passes, any outstanding debts still need to be covered, usually from assets left in the estate. There are certain rules about which assets are used, depending on the kind of debt owed.

Secured debts

These are debts that are secured against an asset, such as a home or car. If your loved one had outstanding debt on this belonging, the lender can can take that asset back if repayments on the loan stop. This means, even if a family member or partner leaves a home to someone in their Will, if the loan remains unpaid than the asset can be repossessed.

Debts in joint names

If you had a joint account with the deceased - such as a shared credit card - than everyone whose name is linked to the loan is responsible for the debt. In this case, the remaining account holders will be asked to help with the missing repayments, or the debt may be covered against the value of the deceased's estate. If their estate isn't worth enough, others involved in the debt will have to pay all outstanding fees.

Guaranteed debts

A loan guarantor is responsible for making repayments if the loanee is unable to continue. This same agreement continues if you guarantee a loan made to your loved one and they pass away - you will become fully responsible for covering the outstanding balance.

Debt collectors cannot force beneficiaries of the estate to make good on the loan if these conditions are inapplicable. The estate executor is in charge of communicating with any lenders - family members shouldn't need to get involved. If you or other beneficiaries of a Will are being pressured into paying of the debt of a loved one, it's important to seek the advice of a family law solicitor.

Can I negotiate an alternative repayment plan?

If you are responsible for covering the debts of your loved one but lack the assets or capital to make the repayments, it's even more important to speak with an expert lawyer. They can help you make contact with the lenders and negotiate an alternative plan that suits all parties. This might mean switching a debt for assets from the deceased's estate, or smaller, more spaced out debt repayments - a solicitor can help you fight for an outcome that best suits.

For help with resolving a debt from the estate of you loved one, contact Malouf Solicitors today.

Please call us on 02 8833 2000 to speak with a lawyer

I would just like to say thank you to Anthony who assisted my son in his matter. He is a first home buyer and was pressured into signing a contract prior to obtaining legal advice. The contract was certainly was not the normal straight forward type. To be able to obtain the help and assistance he did from Anthony and rescind the offer the next day, was wonderful. We were able to have a stress free Christmas. I am unable to thank him enough for this. My son and our family will be contacting Anthony when we find the next property.
Kim of Sydney

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Parramatta NSW 2124

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