Debt after death: what South Africans need to know

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Debt after death: what South Africans need to know

Unfortunately, debt can outlive a person after their death. This means it is critical for estate planning purposes to understand what happens to liabilities such as a home loan or vehicle financing facility after death.


How debt is dealt with after death all depends on the solvency of the individual’s estate, the type of debt still outstanding, and the terms of their will.


What happens when a person dies?

In the event of death, that person’s assets and liabilities are transferred to a deceased estate. The estate and the appointed executor are then responsible for paying off debts and distributing assets according to the will’s specifications. Probate is the legal process of managing the estate of a person who has died, and it includes collecting the deceased person’s assets, paying debts, and distributing assets to heirs.


Probate in South Africa, is carried out in terms of the Administration of Estates Act 66 of 1965. It involves:

  1. Appointing an Executor: An executor manages the estate. They can be named in the will or appointed by the court if there’s no will.
  2. Opening the Estate: The appointed executor opens the estate with the local High Court Master. They submit documents including the death certificate, will (if present), and asset list.
  3. Debt Payment: The executor pays debts like funeral costs, credit card debt, and medical bills from the estate. They try to collect owed money from creditors, possibly selling assets if necessary.
  4. Asset Distribution: After debts are cleared, the executor allocates remaining assets to heirs. This follows the will’s terms or intestacy laws if no will exists.


Types of debt: secured and unsecured


What happens to debt after death? This depends on the nature of the debt itself.

  • Secured debts are those guaranteed against specific assets. These are tangible items that were taken as security for loan repayments, so if payments cease, a financial institution can sell these assets to recover the amount owed. A good example of this is vehicle financing. The debt is secured against the vehicle, and can be repossessed by the bank and sold to recover outstanding debt.
  • Unsecured debts have nothing attached to the amount owing. As such, if repayments ceased, a creditor would have nothing to repossess. If the creditor claims against the estate, the executor of the estate may have nothing to liquidate towards paying off this debt.


Who inherits unsecured debt?

Repayment of unsecured debt depends on the available money or assets in the deceased person’s estate. If the estate lacks funds to cover the debt through asset sales, the debt is dissolved; heirs don’t inherit it. Collection agencies usually pressure heirs to use their own money for debt repayment but unless they co-signed the debt, heirs aren’t obligated to pay. Inheriting unsecured debt is feasible only if the estate is distributed before settling the debts.


Key estate planning points:

Creating a thorough estate plan is essential, which means making proper use of a will, trusts, and power of attorney to manage assets and debts effectively.

  • All assets and liabilities are recorded in a liquidation account. The executor advertises the deceased’s estate in official publications, so that potential creditors can claim outstanding debts. The executor settles eligible debts against the estate.
  • Debt settlement follows a priority order. South African Revenue Service (SARS) is prioritised, followed by bond-holding banks. Inheritors aren’t responsible for the debt.
  • Death benefits from employers, pension funds, or life insurance go directly to beneficiaries. These aren’t factored into estate debts or fees but beneficiaries can choose to pay estate debts to avoid insolvency.
  • Risk coverage, such as life insurance or credit life policies, are critical components of estate planning. particularly when combined with disability or credit life coverage for unsecured debt emergencies.


You can ease the burden of debt on your loved ones after your death

  1. Create a will. A will is a legal document that dictates how your assets will be distributed after you die. It’s important to have a will in place, even if you don’t have a lot of assets.
  2. Get life insurance. Life insurance is one of the best ways to financially protect your loved ones after you die. It can provide them with money to pay for expenses such as funeral costs, debt, and living expenses.
  3. Update your beneficiaries. Make sure your beneficiaries are up-to-date on all of your insurance policies and financial accounts. This will ensure that your assets go to the people you want them to after you die.
  4. Make funeral arrangements. This isn’t morbid, it’s practical and will take the burden off your loved ones after you die.


Overwhelmed? Ask for assistance

In order to safeguard your family from potential debt burdens upon your passing, seeking guidance from an estate planning professional is highly recommended. By utilising the available financial and legal strategies, you can ensure the well-being of your loved ones after your passing. Likewise, if you find yourself grappling with a situation where a family member has left considerable debt after their death, seeking legal counsel is essential to help you grasp your rights and responsibilities relating to the debt left behind. This will help you navigate the situation more effectively to avoid being overwhelmed by stress and burdened with debt.


For more information contact Hammond Pole attorneys


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