How to deal with debt after a loved one's death

Independent

14 hours ago

After losing a loved one, the last thing on anyone's mind is financial admin.
Yet for those who are in the midst of grief, the financial consequences of debt can be both immediate and emotionally charged.
From understanding your liabilities to navigating a will and knowing when not to pay, two financial experts break down how to deal with debt after losing a loved one.
First steps: Pause, notify and organise
Handling financial matters after a loved one's death can feel both overwhelming and daunting.
'In England and Wales, obtaining grant of probate or letters of administration should be the priority, as banks and lenders will normally only take instruction from an executor or administrator,' explains head of private clients at St. James's Place, Iain McLeod.
Securing this legal documentation allows the estate to be managed properly – and prevents delays when dealing with financial institutions.
External relations manager at Money Wellness Daniel Woodhouse echoes the need for clarity and swift communication. 'The first thing we'd suggest is letting any creditors know that the person has passed away,' he says, 'they'll usually pause the account while things are sorted, which gives you some breathing space.'
He advises obtaining several official copies of the death certificate early on, as creditors may request one.
Once notifications have been made, it's time to assess the full scope of the deceased's financial obligations. 'Start pulling together any paperwork that shows what debts or accounts were in their name,' says Woodhouse.
Accessing a credit report is also helpful for building a complete picture of what's owed.
Who pays: The state or the family?
Who owes what when it comes to a deceased person's debt is possibly the most common question.
'Debts are not inherited in the UK,' says McLeod. 'Family members can only be responsible for a deceased person's debts if it was a joint loan or agreement, or provided a loan guarantee, for example.'
However, the rules are strict. 'If someone dies, their debt becomes a liability of their estate,' he explains.
'The Personal Representative of the estate will use the assets of the estate to help settle the debt. If the estate does not have sufficient funds, it becomes an insolvent estate. In that situation, there is a prescribed order for how the debts are to be repaid.'
What happens to joint debts?
Responsibilities are different for shared debts however.
'If you had a joint loan or shared overdraft with the person who passed away, you'll usually become responsible for the remaining balance,' says Woodhouse.
'It's really important to speak to the lender and let them know what's happened. Most will be understanding and may be able to offer more manageable repayment options.'
Credit card debt, however, is more nuanced. 'With credit cards, these are only ever in one name – however, the credit provider may allow a second card for a partner or spouse to use,' says McLeod.
'The debt is the responsibility of the estate of the deceased primary cardholder. Additional card holders may consider applying for a new credit card in their own name if eligible.'
But being an additional cardholder on someone's credit card isn't the same as a joint debt. 'You wouldn't normally be liable for the balance in that case,' says Woodhouse.
Can inheritance be claimed by creditors?
The short answer is yes, but only indirectly.
'Creditors can't go after beneficiaries directly,' says Woodhouse. 'But debts must be paid from the estate before any inheritance is passed on.
'If money is handed out too soon, there's a risk it could be claimed back to pay off outstanding debts. That's why it's so important to follow the right process.'
McLeod underscores the legal implications: 'Great care should be taken in the administration of an estate which may be insolvent, and seeking legal guidance where appropriate is advised.
'Executors are strongly advised to receive written confirmation that any debts are repaid or written off before any distributions can be made to beneficiaries.'
If assets have been distributed without settling all the estate's debts, McLeod warns that the executor could be personally liable.
Mistakes to avoid
There are common mistakes that are important to avoid when it comes to managing posthumous debt.
' One of the most common mistakes is paying debts out of your own pocket straight away, thinking you have to – when in many cases, you don't,' says Woodhouse.
'Another is putting it off completely because it all feels too overwhelming. The best thing you can do is take it one step at a time, keep a record of who you've spoken to, and get the right support early on. You don't have to go through it alone.'
If you're struggling with debt after the loss of a loved one, there are support systems available.
' Charities like Cruse or Marie Curie can provide emotional support when you're grieving,' says Woodhouse.
'It's also worth checking if you're eligible for the Bereavement Support Payment, especially if you were the partner of the person who died. It's a tax-free payment that could make a real difference. You can find more information on GOV.UK.'