Will your Family Inherit your Debt when you Pass Away

Talking about death is never pleasant unless you’re the Adams Family. Have you ever thought about what happens to your debt when you die? Debt doesn’t simply disappear once you pass away. In some cases your remaining assets would be sold off to cover your debt, leaving your family or hairs in a compromised position. How can you prepare for such an unfortunate event? 

Two financial situations can take place in the event of a death of a family member with debt. The outcome depends on whether the family member has an estate or not. 

The deceased does not have an estate 

If a family member has no estate or assets that can be used to pay off the remaining debt, the deceased family members can not be held responsible for the debt. However, if a family member (over the age of 18) has signed as guarantor or co-signed for any assets or debt accounts, they will be held responsible for that account. 

The deceased does have an estate 

If the deceased has assets like a car, house, paintings, a life policy etc. the assets will be used to pay off the remaining debt. It is important to recognize that creditors of the deceased will be paid first before beneficiaries. Only once the remaining debt has been settled, will the balance of the estate be distributed accordingly to all beneficiaries, according to the will. 

The deceased has a life policy 

The life policy will not automatically pay off outstanding debt, because it will pay beneficiaries instead. However, if the life cover stipulates the estate as a beneficiary, the life cover would be used to cover any outstanding debt. If the beneficiaries of the life policy are natural persons the policy would be transferred to these beneficiaries or could be used to pay off any outstanding debt. 

How can you prepare? 

To avoid any confusion and financial complication, you must have a will in place that outlines exactly how your assets and debt should be handled. If you have any assets with outstanding debt attached to them, like a home loan, ensure that you have the correct cover in place. This is to ensure that any outstanding debt would be paid off through the cover in the event of you passing away. 

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2 responses to “Will your Family Inherit your Debt when you Pass Away”

  1. My mother is 77 and has incurred a lot of debt. I am the older of two daughters. She doesn’t have a will yet. Am I liable to pay her substantial debt after her death? South African citizens.

  2. Good day Abigail, kindly note that you will not be held liable for your mothers debt regardless whether your mother has a will or not her debt will form part of her estate once she has passed.

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