Q&A Does an outstanding loan have to be repaid if the lender dies?

Q:        My Mum made a substantial loan to my brother last year when he lost his job. He was supposed to pay her back every month when he got a new job, but so far he has paid nothing, always coming up with some excuse why he cannot start paying ‘just yet’. When I tackled him about it, he said Mum didn’t need the money and if it upset me that much, I could just deduct it from his inheritance when the time came. I am so angry about this. Can you please clarify what the situation is with a debt owed to a family member that has not been repaid when the lender dies?

A:        Firstly, it is worth mentioning that debts are not just written off when someone dies, and that goes for both the lender and the borrower. If your mother should die before your brother has paid back the money she loaned him, the debt will become part of her estate along with all her assets, possessions, property and money. Similarly, any debts your mother owed, for example to a utilities company etc, will be payable from her estate.

When someone dies, the executors or administrators of her estate will be responsible for collecting any debts she is owed into her estate funds. Even if your brother was the sole beneficiary of your mother’s estate, he would still need to repay the loan into the estate. The executors or administrators would then pay any debts or tax liabilities the estate may have, before distributing the remaining assets in accordance with the deceased’s wishes.

Clear accounts must be kept by the executors or administrators in order to keep the estate accounts accurate. Whilst this may seem a little pedantic, it is necessary so that they can fully and legally comply with their duties. Further, if the condition of your brother’s loan was to include interest, that should be paid into the estate also.

This question has been answered by Ulia Choudhry, a Partner with GHP Legal.  If you would like to speak to someone about this or any other legal matter, please visit our website www.ghplegal.com and use the contact us form, or call us on: Wrexham 01978 291456, Llangollen 01978 860313, Oswestry 01691 659194 

Ulia Choudhry

Ulia Choudhry

Partner

Ulia is a Partner who specialises in Probate, Wills, Trusts and Tax and is based in Wrexham