What Happens to Your Debts When You Die?
Upon death, debts may not just cease to exist. Here are some of the questions you might have in your mind pertaining to debt liabilities after death.
Will Your Family Members Inherit Debts?
In Singapore, family members are generally not legally responsible for the debts left behind by the deceased. It is however, crucial to identify the type of debts that we are dealing with, as there may be exceptions. Some of the more commonly known debts may include:
- Credit card debts
- Debts incurred illegally
As mentioned earlier on, family members generally do not have to shoulder the liabilities left behind by the deceased. However, in the event that the deceased holds a joint account, such as a joint personal loan or a mortgage that is co-signed, with a family member that family member will then have to assume the deceased’s responsibilities. He or she will have to pay off the debt as the sole debtor.
How Will the Debts be Paid Off?
Since your family members will not inherit your debts (unless you held joint accounts with them), you might be wondering how they will then be paid off.
Depending on whether the deceased had written a will, the executor first applies for a Grant of Probate or a Grant of Letter of Administration respectively. After obtaining approval from the courts, the executor can then administer the deceased’s estate. You can find more information regarding wills, probates and executors here.
As a general rule of thumb, debts will be payable out of the deceased’s estate, and one of the roles performed by the executor is to settle these debts by administering the estate. He may thus proceed to, for instance, sell off investments and withdraw the money left in the deceased’s bank accounts to pay off his debts.
It is only after settling these debts will the executor then be able to distribute the remaining assets according to the instructions of the deceased’s will (or according to the Intestate Succession Act rules if the deceased did not have a will).
According to section 57 of the Probate and Administration Act, there are 2 possible scenarios for consideration pertaining to the administration of assets:
- If the deceased’s estate is solvent, which means that his assets are more than his liabilities, the executor may use his estate to settle his debts. A specific example is income tax. According to section 58 of the Income Tax Act, the executor will ensure that the deceased’s estate is used to pay off his income tax liabilities.
- On the other hand, if his estate is found to be insolvent, his funeral, testamentary and administration expenses shall have priority. Thereafter, the order of repayment of debts will be done according to the Insolvency, Restructuring and Dissolution Act 2018. The beneficiaries of his insolvent estate will not be held legally responsible for the repayment of his debts, and it is likely that his debts will have to be written off.
In short, one could say that the estate of the deceased is responsible for the deceased’s debts after his death.
What are the Possible Complications?
Even though it can be said that family members do not inherit the debts of a deceased, it is worth noting that the executor will have to pay off his debts out of his estate and assets before the remaining assets are distributed to the family. Therefore, in this sense, it is likely that family members will still feel the pinch. It may be even harder for the family members if some debts and liabilities of the deceased were unknown to them previously.
Furthermore, as previously mentioned, things may get complicated if there were joint accounts of loans or mortgages. The surviving family members may find themselves saddled with the burden of paying off debts as sole holders.
Illegally incurred debts, such as loans obtained from unlicensed moneylenders, also become a problem as family members may face threats and continuous harassment, especially after the death of the debtor. However, family members should not attempt to pay these debts and should instead seek the appropriate help to resolve the situation.
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