Paying debts and liabilities after someone dies
Who is responsible?
When somebody dies there is a misconception that their debts and liabilities die with them. Unfortunately, that is not the reality and their estate then becomes liable for paying their outstanding debts. The people responsible for making sure this happens are known as the Personal Representatives (PRs) and they can also be referred to as an ‘Executor’ or ‘Administrator’. Settling a deceased’s debts is a crucial part of the estate administration process and should always be handled with great care and attention to detail.
What steps should be taken to ascertain whether there are any debts or liabilities?
The first step that the PRs should take when trying to establish whether the deceased had any debts or liabilities is to thoroughly go through all of the deceased’s paperwork. Sometimes there are debts and liabilities which were unbeknown to the family of the deceased and so it is very important that the PRs take all reasonable steps to find out who is owned money.
Once the PRs have the relevant paperwork to hand, they should begin to contact all of the potential creditors and notify them of the death. This will allow the creditors to confirm whether they are still owed any money or whether the debt or liability has been previously settled in the lifetime of the deceased.
To ensure that the PRs have taken all reasonable steps to find any potential creditors, as well as the above, it is also advisable for them to place a Section 27 notice. A Section 27 notice is an advertisement that the PRs of an Estate places in the Gazette and a newspaper local to the deceased's property to inform any potential creditors that the estate is soon going to be distributed. This gives the deceased's creditors an opportunity to claim back money that they are owed before the estate is distributed to the beneficiaries. The creditors must make their claim within 2 months of the notice being issued.
There is no requirement that the PRs place such notices when dealing with the estate administration. However, it is deemed ‘good practice’ to ensure that they are protected from any future personal liability, should any creditors come forward after the estate has already been distributed.
Order of priority; who is paid first...
Once the debts and liabilities have been established, the PRs will need to consider who should be paid first, to make sure they are acting in accordance with the law.
The order of which debts are to be paid first are as follows:
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Secured debts: Such as a mortgage on a property or a car loan.
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Funeral expenses: These take priority over other claims against the estate.
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Testamentary expenses: Expenses related to estate administration.
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Preferential debts: Bills for tax and Council Tax.
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Unsecured debts: Including credit card debts.
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Interest due on unsecured loans.
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Deferred debts: These are usually written off if there's no estate left.
It is important to note that although funeral expenses are listed second, they do tent to be paid for first when dealing with someone’s estate, assuming the estate is not insolvent. Note: the funeral can be paid directly from the deceased’s bank account if the death certificate and invoice are handed to the bank directly.
When to pay...
It is crucial that all debts and liabilities are paid before the estate is distributed to the beneficiaries. The PRs may face huge consequences if they distribute the estate before all of the deceased’s debts and liabilities are settled, which is why it is always advisable to seek the advice of an experienced lawyer when dealing with a loved one’s estate.
If you would like to discuss Probate and/or your role as a Personal Representative in more detail, please do not hesitate to contact us on telephone 0116 212 1000 or 01858 445 480, alternatively fill in the free Contact Us form and we will get in touch as soon as possible.
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