Q: Due to the coronavirus pandemic my father’s business has suffered greatly and he has borrowed money as the government aid did not meet his needs. The stress has taken a toll on his health and we don’t really know even now if the business will survive. This, together with the fact that COVID-19 is still a potential death threat hanging over us, has made me wonder what would happen to the debt if he should die before clearing it, as mum doesn’t really understand it all. Could my mother inherit the debt?
A: More information is needed about the loan in order to give a definitive answer to your question.
Generally speaking, outstanding debts in a deceased’s sole name are usually paid out of the deceased’s estate provided there are sufficient funds to do so. If there are insufficient funds to pay all debts in the estate, the estate will be insolvent and certain creditor’s may not be paid in full. However, if another individual has co-signed the loan agreement or agreed to act as a guarantor, they may become responsible for paying the debt.
If the debt has been secured against an asset (such as a mortgage against a house or a joint bank account) it will be necessary to determine how that asset is owned. If it is owned as joint tenant’s, the surviving owner will automatically inherit the deceased’s share and as such, the full amount outstanding on the loan will become the survivor’s responsibility. If the asset is owned as tenant’s in common, and the loan is in the sole name of the deceased, the debt will be paid from the estate.
Historic debts can have serious consequences when someone dies so it is worth seeking legal advice from a Probate, Wills, Tax & Trusts Solicitor, both before taking such a loan and before settling an estate.
Article March 2021
This question has been answered by Jessica Wright, a Solicitor with GHP Legal. If you would like to speak to someone about this or any other legal matter it is still possible, and we are doing everything we can to ensure that we continue to offer our high levels of service to our clients. Where possible, we ask that you communicate with us by phone or email.