Your credit card wants you, dead or alive
Over the past few weeks I have had a number of telephone calls and forum enquiries about what happens to your debts when you pop your clogs, peg it, roll over or as most people generally say, pass on.
What has amazed me is the extent of consumers’ ignorance about death and debt, with the majority thinking that debts die with you.
Well let’s get the record straight. While this may be the case if the person who died has no assets, savings, investments or insurance policies. If they did have any of these, then they are likely to be sold to clear any outstanding debts.
Some of you may have noticed the details of a deceased’s estate are often published in the paper. How much someone is worth at their time of death is established simply. You add up the value of their assets, money or savings including any payouts from insurance policies and investments and the value of any property and possessions.
If a will has been made then someone will often have been named as executor, usually a relative, friend or solicitor, who will take charge of the deceased person's affairs.
If no will has been made then the person is deemed to have died intestate. This means that an administrator will need to be appointed to carry out the same duties as the executor. But in either scenario, the first undertaking is to get the estate valued and for any outstanding debts to be repaid.
Unless any of your debts are in joint names you will not be responsible for your spouse’s or civil partner's debts on their death.
However, in the case of a debt in the name of more than one person, typically a mortgage that is often held jointly, each named person is liable for the whole debt.
If the home was jointly owned and you don’t have enough money to clear the deceased's debts and any claims on the estate, then there is a possibility that your home would have to be sold. However, your options to avoid a sale will depend on whether you owned the home as 'tenants in common' or as 'joint tenants'.
Tenants in common is where each of you own a stated share of the property. The share that belonged to the person who has died will then become part of their estate and will pass on to whoever is mentioned in their will. However, any outstanding debts will need to be cleared from this share.
If you wish to avoid the home being sold, then you will need to negotiate a settlement with the deceased's creditors.
Meanwhile, joint tenants is where you both own the whole property and upon the death of one partner their share will automatically pass on to the surviving partner.
In effect the asset has passed from the deceased's estate to yours, but this does not give you total protection and you may still have to address any debts and claims.
Within five years of the death, creditors can apply for an insolvency administration order. Once granted, this can divide the property in two and subsequently lead to a forced sale. In this event you will need to negotiate a settlement if there are any outstanding debts or claims on the deceased's estate.
To avoid this problem from arising, it is worth checking if the deceased person's debts are covered by payment protection insurance for personal loans or credit cards; life insurance; or death-in-service from an employer if the person dies before retirement age.
So, you are born free, taxed to death and not necessarily debt free when you pop off either.
Further information on debt and bereavement can be found at direct.gov.uk.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
If you die without making a will, your estate will be divided up and distributed according to a set of complicated procedures laid down by the law as set out in the Administration of Estates Act 1925. The more complicated your life, the more complicated the intestacy laws after your death. Given that 60% of registered deaths last year were intestate, according to Title Research, the only way to ensure your estate is divided according to your wishes is to make a will.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.