Handling debt in probate

You are handling probate and you discover there is debt – what should you do?

It is a myth that debt is written off when someone passes away.

But let’s explore that in more detail.

When you are handling the death of a loved one, one of the first things you tend to tackle is the funeral. You won’t necessarily have access to any of the deceased’s bank accounts or money whilst arranging it, so you may need to cover those costs. You can then claim them back from the estate.

As soon as you have the death certificate it is important to advise all organisations of the death and start to pull together a list of what money is available, as well as what money is owed.

There may be some smaller amounts owed, such as utilities and pension, if this is paid in advance. You may choose to pay these yourself, and again, claim them back from the estate.

For larger debts such as income tax, mortgages or loans, you will need to advise the organisations as soon as possible. Many companies will be prepared to “freeze” the debt while you are pulling together everything for probate, but you will need to discuss this with each creditor. Be up front with them about the situation, and you will usually find them to be very understanding. They appreciate it is a difficult time, and there is usually flexibility in these situations.

In order to apply for probate, you will need to provide a list of the value of all assets and any debt owed. Once you have been granted probate and have the official document you will be able to start releasing monies, selling assets and settling debts.

Any tax owed will be expected to be paid – but HMRC will recalculate this to take into account the timing of the death to ensure you only pay the correct amount.

If there are loans outstanding assets need to be sold to pay off the debt.

As the executor it is your responsibility to ensure all debts are cleared, even if that means there is very little left in the estate.

When all of the money and assets in the estate have been used to pay the debt, if it is still not cleared then the debt is usually written off.

As an executor, you are not personally liable or legally required to clear the debt from your own finances. You are, however, expected to forfeit any inheritance if there is still debt – debt comes before any money you may be entitled to.

If you need help with managing probate, please contact us on 01344 875 310.

debt in probate