What happens to your personal debt when you die?
Discussion
Welshbeef said:
What about gifting? Ie say you'd given it to your child 5 years ago so x tax tp pay seven years and it's gone but if this is done with the objective to pass on the cash and thus save paying the debt how does it work? I guess terminally ill people could do this
It is either a good medium or crystal ball that can predict death five years down the line!Most people, up until their passing, have some form of estate.
fergywales said:
It is either a good medium or crystal ball that can predict death five years down the line!
Most people, up until their passing, have some form of estate.
Well if you have terminal cancer or MS etc then it is soon so gifting as much as you can away is the best approach.Most people, up until their passing, have some form of estate.
In my limited experience it passes to 'the estate', a bit like in the case of bankruptcy or liquidation (companies) IFAIK you can appoint an executor to your estate in your will to sort it all. The assets of the deceased have to be used to pay off the debt, but creditors have a deadline in which to lodge a claim with the estate.
In usual cases where the deceased dies at an appropriate age they have little or no borrowing, mortgages are paid off, no credit cards etc which might have more to do with the attitudes of people of that generation towards credit rather than anything else, plus most creditors have upper age limits on unsecured borrowing.
When people die suddenly younger there's generally some sort of insurance payout, 'death in service' payment from a pension etc to clear what's left.
If there's a shortfall the creditor have to swallow the loss, but it's something that included in their risk to reward strategy in the same way as non-payers / bankrupts etc.
Some people think that debts 'die' with the creditors completely, I.E. the benefactors of the will take all the assets and forget the debts, you can’t do that, however many companies with small exposures like utility companies etc wont chase the debt.
In usual cases where the deceased dies at an appropriate age they have little or no borrowing, mortgages are paid off, no credit cards etc which might have more to do with the attitudes of people of that generation towards credit rather than anything else, plus most creditors have upper age limits on unsecured borrowing.
When people die suddenly younger there's generally some sort of insurance payout, 'death in service' payment from a pension etc to clear what's left.
If there's a shortfall the creditor have to swallow the loss, but it's something that included in their risk to reward strategy in the same way as non-payers / bankrupts etc.
Some people think that debts 'die' with the creditors completely, I.E. the benefactors of the will take all the assets and forget the debts, you can’t do that, however many companies with small exposures like utility companies etc wont chase the debt.
Welshbeef said:
Well if you have terminal cancer or MS etc then it is soon so gifting as much as you can away is the best approach.
1. MS is very variable in its severity - the Merck Manual says "Unless the disorder is very severe, life span is usually unaffected."2. Giving it away has to be done well in advance to avoid tax on the estate (assuming the estate is larger than the £325k threshold). For someone ill enough to be felt to be likely to die soon (like, ahem, the Lockerbie bomber) it is too late for HMRC. Potentially exempt transfers only start to achieve inheritance tax relief after two full years have elapsed and take 7 full years to be fully exempt. From the HMRC website:
Time between the date the gift was made and the date of death
Taper relief percentage applied to the tax due
3 to 4 years
20%
4 to 5 years
40%
5 to 6 years
60%
6 to 7 years
80%
I'm sure that HMRC can claw back the unpaid inheritance tax from the beneficiaries of the gifts but, to get back to the OP question, don't know what the position would be for non-HMRC creditors if someone deliberately transferred all their assets shortly prior to death. Unsecured loans are usually small and may be written off, and the lenders would have to consent to transfer of secured loans such as mortgages or, I presume, car loans.
What happens if the deceased only part owns the house?
When my father in law died he left his half of the house to my wife and her siblings, not my mother in law.
If the mother in law dies in debt how would this affect our share of the house? Would we become partly liable or forced to sell our share?
When my father in law died he left his half of the house to my wife and her siblings, not my mother in law.
If the mother in law dies in debt how would this affect our share of the house? Would we become partly liable or forced to sell our share?
Uncle Fester said:
What happens if the deceased only part owns the house?
When my father in law died he left his half of the house to my wife and her siblings, not my mother in law.
If the mother in law dies in debt how would this affect our share of the house? Would we become partly liable or forced to sell our share?
Getting a bit muddled here, I think.When my father in law died he left his half of the house to my wife and her siblings, not my mother in law.
If the mother in law dies in debt how would this affect our share of the house? Would we become partly liable or forced to sell our share?
Your father in law kindly left your wife half of the EQUITY in the house, not half of the house. If the house is valued at, say £200K and there was an outstanding debt at the time of death of say, £100K then your wife has been left £50K in this example, plus the possibility of future growth. Her share will remain constant at 50% as the property grows in value hopefuly and the debt decreases.
As for the £100K debt, as a joint and several liability with your former father in law, your mother in law now has full responsibility for this debt - your wife has never signed up to any mortgage for the property.
Alas, if your wife's mum was to pass away (defo NOT going to happen for years), the lender protects its interest by securing a charge over the property. In the above example the lender would simply take over 50% of the property. You and your wife would then decide if you wanted to buy out the lender or all of you could sell the house and divide the proceeds according to your % share.
Most people have life insurance to avoid this scenario - it kicks in and the lender goes away.
Your father in law has done the correct thing by using his nil rate band, even though it isn't always necessary in today's climate as these bands are transferrable between spouses so your mother in law with be allowed to use up any of the unused £325,000 from your father in law
Thanks, but there is no debt secured on the property, which is worth about £500k. I’m concerned about unsecured debt.
The property was bought as tenants in common with each spouse owning 50%. Under the terms of the will, my father in law left his 50% to be divided equally between his children. All other assets passed to his wife.
Currently the mother in law has a mirror will to her late husband, but with the residue of the estate to be divided equally between the children except for a few specified heirlooms.
My late father in law left her financially set up, but she took his death very badly and had a nervous breakdown.
There was some bizarre behaviour. She threw things away that she shouldn’t, and then she replaced them, only to throw away the replacement stuff.
She got through 3 plasma TV’s in two months. I retrieved one Russian watercolour painted by a former artist to the Royal Court from the dustbin. Most of the stuff my father in law collected is missing. My sister in law found £1500 cash and some silver in the bin. Judging by the bank statements far more went, presumably the same way.
She even accused me of having an affair with her and of being the real father of her children. I’m only two years older than my wife, so I must have been quite an early developer. We had to get medical help for her.
The replacement stuff was mostly bought online using credit cards. We’ve sorted it this time, but she’s almost wiped out what her husband left.
From time to time she seems to slip back into her illness. We worry what will happen if she runs up another big credit card bill. Unfortunately due to differences of opinion between the siblings, we haven’t been able to secure the situation with a power of attorney.
My concern is if she dies owing a lot on unsecured debt like credit cards. Can unsecured creditors come after her share of the equity in the house? In the current market the house would probably be rented out rather than sold. When we own 50%, could they force a sale against our wishes when the market is low?
In her will it specifies her interest in the house goes to the children. A few heirlooms are specified to named individuals.
I have often wondered how this works. If specified heirlooms are to pass as per the terms of the will then they cannot be liquidated to settle debts. Can a property be the same?
The property was bought as tenants in common with each spouse owning 50%. Under the terms of the will, my father in law left his 50% to be divided equally between his children. All other assets passed to his wife.
Currently the mother in law has a mirror will to her late husband, but with the residue of the estate to be divided equally between the children except for a few specified heirlooms.
My late father in law left her financially set up, but she took his death very badly and had a nervous breakdown.
There was some bizarre behaviour. She threw things away that she shouldn’t, and then she replaced them, only to throw away the replacement stuff.
She got through 3 plasma TV’s in two months. I retrieved one Russian watercolour painted by a former artist to the Royal Court from the dustbin. Most of the stuff my father in law collected is missing. My sister in law found £1500 cash and some silver in the bin. Judging by the bank statements far more went, presumably the same way.
She even accused me of having an affair with her and of being the real father of her children. I’m only two years older than my wife, so I must have been quite an early developer. We had to get medical help for her.
The replacement stuff was mostly bought online using credit cards. We’ve sorted it this time, but she’s almost wiped out what her husband left.
From time to time she seems to slip back into her illness. We worry what will happen if she runs up another big credit card bill. Unfortunately due to differences of opinion between the siblings, we haven’t been able to secure the situation with a power of attorney.
My concern is if she dies owing a lot on unsecured debt like credit cards. Can unsecured creditors come after her share of the equity in the house? In the current market the house would probably be rented out rather than sold. When we own 50%, could they force a sale against our wishes when the market is low?
In her will it specifies her interest in the house goes to the children. A few heirlooms are specified to named individuals.
I have often wondered how this works. If specified heirlooms are to pass as per the terms of the will then they cannot be liquidated to settle debts. Can a property be the same?
If there is a mental incapacity with a borrower, you can write to the lender informing them. The credit can be withdrawn on this basis and historic data of unusual use of credit.
(I will go and find the relevant specifics, but it is not a breach of DPA for the lender to act on this information and you do not need power of attorney in order to contact as a third party).
(I will go and find the relevant specifics, but it is not a breach of DPA for the lender to act on this information and you do not need power of attorney in order to contact as a third party).
Unsecured debt has NOTHING to do with her house.
As far as I am aware, credit card facilities are awarded based on her creditworthiness, and are not secured against her house.
As to whether the unsecured creditors could have a claim over her estate when the time comes, I honestly do not know.
As far as I am aware, credit card facilities are awarded based on her creditworthiness, and are not secured against her house.
As to whether the unsecured creditors could have a claim over her estate when the time comes, I honestly do not know.
Jockman said:
Unsecured debt has NOTHING to do with her house.
As far as I am aware, credit card facilities are awarded based on her creditworthiness, and are not secured against her house.
As to whether the unsecured creditors could have a claim over her estate when the time comes, I honestly do not know.
As far as I am aware, credit card facilities are awarded based on her creditworthiness, and are not secured against her house.
As to whether the unsecured creditors could have a claim over her estate when the time comes, I honestly do not know.
The element of whether it is secured or unsecured is irrelevant if a deceased person leaves an estate that can clear any amounts owed to creditors.
Where it becomes an issue is if there is a shortfall in the estate against how much is owed. If a shortfall exists, secured creditors have first claim from the estate.
The estate is everything that remains to exist once a person dies. Outstanding personal credit extended whilst a person is alive does not die with them, the creditor has a claim and can look to recover the debt by ordinary means.
So, it’s as I feared.
My wife is writing to her mother’s credit card company, as Fergy suggests.
The trouble is that the historic data was with a different card company. My mother in law later alleged someone in the family had purloined her cards, repaid the debts on her behalf and forged her signature to close her account whilst she was too medicated to deal with her own affairs. I’m saying nothing. Perhaps in hindsight if the debt had been defaulted at that time it would have helped by preventing her getting future credit.
Since she had a successful career, she also has a good pension. The downside is this provides a level of income that allowed her to reopen new credit card accounts with other companies. What we really need is to stop her opening new lines of credit.
We don’t want to restrict her when she’s fine and can enjoy her retirement. She was always one of the most level headed people I’ve ever known. She and my father in law were childhood sweethearts who lasted a lifetime. It’s sad that his death has affected her like this. She’s just lost her best friend to cancer and she’s headed downhill at the moment and we’re worried.
My wife is writing to her mother’s credit card company, as Fergy suggests.
The trouble is that the historic data was with a different card company. My mother in law later alleged someone in the family had purloined her cards, repaid the debts on her behalf and forged her signature to close her account whilst she was too medicated to deal with her own affairs. I’m saying nothing. Perhaps in hindsight if the debt had been defaulted at that time it would have helped by preventing her getting future credit.
Since she had a successful career, she also has a good pension. The downside is this provides a level of income that allowed her to reopen new credit card accounts with other companies. What we really need is to stop her opening new lines of credit.
We don’t want to restrict her when she’s fine and can enjoy her retirement. She was always one of the most level headed people I’ve ever known. She and my father in law were childhood sweethearts who lasted a lifetime. It’s sad that his death has affected her like this. She’s just lost her best friend to cancer and she’s headed downhill at the moment and we’re worried.
Uncle Fester said:
So, it’s as I feared.
My wife is writing to her mother’s credit card company, as Fergy suggests.
The trouble is that the historic data was with a different card company. My mother in law later alleged someone in the family had purloined her cards, repaid the debts on her behalf and forged her signature to close her account whilst she was too medicated to deal with her own affairs. I’m saying nothing. Perhaps in hindsight if the debt had been defaulted at that time it would have helped by preventing her getting future credit.
Since she had a successful career, she also has a good pension. The downside is this provides a level of income that allowed her to reopen new credit card accounts with other companies. What we really need is to stop her opening new lines of credit.
We don’t want to restrict her when she’s fine and can enjoy her retirement. She was always one of the most level headed people I’ve ever known. She and my father in law were childhood sweethearts who lasted a lifetime. It’s sad that his death has affected her like this. She’s just lost her best friend to cancer and she’s headed downhill at the moment and we’re worried.
How old was the MiL when she was granted credit using the pension as income? I would possibly have a chat with the FSA regarding the company concerned and their willingness to extend credit beyond what a fixed income can pay back within a reasonable period.My wife is writing to her mother’s credit card company, as Fergy suggests.
The trouble is that the historic data was with a different card company. My mother in law later alleged someone in the family had purloined her cards, repaid the debts on her behalf and forged her signature to close her account whilst she was too medicated to deal with her own affairs. I’m saying nothing. Perhaps in hindsight if the debt had been defaulted at that time it would have helped by preventing her getting future credit.
Since she had a successful career, she also has a good pension. The downside is this provides a level of income that allowed her to reopen new credit card accounts with other companies. What we really need is to stop her opening new lines of credit.
We don’t want to restrict her when she’s fine and can enjoy her retirement. She was always one of the most level headed people I’ve ever known. She and my father in law were childhood sweethearts who lasted a lifetime. It’s sad that his death has affected her like this. She’s just lost her best friend to cancer and she’s headed downhill at the moment and we’re worried.
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