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Can you inherit debt? What happens to the debt in a deceased estate?  

Many people are concerned that they may be liable for their spouse’s debts if the spouse dies and the liabilities of their estate exceed the assets. The short answer is no: heirs do not inherit the debt. If the estate is insolvent all the assets of the estate become liquidated and divided among the creditors. It sounds relatively straight forward but there are certain exemptions and practicalities that one should be aware of. An estate includes all the assets and liabilities, including the debts, property, vehicles, furniture, and the money in your bank account. The assets are used to pay off your outstanding debt before heirs receive their share of the inheritance. In brief, debt is handled as follows:

  • The executor of the estate’s main task is to trace the assets and pay off all debts and liabilities before distributing the remainder to the beneficiaries as stated in the will.
  • If an individual has debt on their assets when they die (e.g. a student loan, vehicle, or house), the loan or financing agreement must still be honoured. Their heirs are not directly liable for the debt, but creditors can prosecute the estate for the full payment (unless the loans were assured). Assets can be used to pay the outstanding amount, but persons who have signed surety for the deceased can become responsible for the debt.
  • When a taxpayer dies, the executor of the estate is required to submit the outstanding tax returns up to the date of death of the deceased person. The executor needs to ensure that the necessary documents are furnished to SARS to be updated.
  • Secured debts are debts that are secured against certain assets, for example when money is borrowed and the property is used as security.  If a debt was not insured (eg credit cards and personal loans), there is no specific asset that can be taken back and sold and the bank has to get a court order that valuables from the estate may be repossessed and sold to pay off the debt.
  • If spouses or business partners have co-signed for debt, it is the responsibility of all parties whose names are listed on the account to settle the debt. If one of the partners dies, their estate can be used to pay off part or all of the debt. If the deceased’s estate has insufficient assets, it will be liquidated and the other account holder(s) will be liable for all outstanding debt.
  • If you are a guarantor on a loan, it will become your responsibility to make the repayments.
  • If you were married within community of property and your deceased partner’s estate is insolvent (i.e. your joint estate), all assets of the estate will be liquidated so that the proceeds can be divided between the creditors. You shall therefore also lose everything from the joint estate, but at least you won’t inherit the debt or have to pay anything toward the deficit.
  • Once the executor has finalised all the administration in the deceased estate, the remaining assets, after paying all the debts, will be distributed to the beneficiaries.

AED Attorneys shall ensure that there are no ambiguities in your will and that your estate is distributed exactly as you have planned.

AED Attorneys understands that every situation is unique, and although they strive to ensure that the information contained herein is accurate at the time of publishing, it cannot be guaranteed to be without errors or omissions. As a result, AED Attorneys, its employees, independent contractors, associates or third parties will under no circumstances accept liability or be held liable for any innocent or negligent actions or omissions in this article, which may result in any harm or liability flowing from the use of or the inability to use the information provided.