When someone passes away, their debts don’t just disappear. In most cases, these debts become part of their estate and will need to be paid off before beneficiaries can receive their inheritance. 

If you’re currently in the process of managing a loved one’s estate, the idea of outstanding debts might feel overwhelming. But it doesn’t have to be.

At Provira, we pride ourselves on helping people manage the debts on their estate so they can move forward with ease. Here’s everything you need to know.

Understanding debts after someone passes away

Unfortunately, debts don’t disappear when someone dies. Instead, they stay attached to the estate, which means they are settled using the money or property that the person left behind.

Importantly, the debt, in most cases, isn’t passed on to family members. So if you are worried about that, you can breathe a sigh of relief!

If there isn’t enough value in the estate to pay everything off, then creditors have to be repaid in a specific order, starting with secured debts and funeral costs. Once the estate funds run out, any unpaid debts are normally written off.

And whilst it is the estate and not the family members that take on the outstanding debts, there are two examples where family members may be asked to repay:

1. If the loan was taken out as a joint loan between the deceased and someone else.
2. If the family member acted as a guarantor on the loan, promising to cover missed payments.

So, if you didn’t co-sign or guarantee the debt, the good news is that you won’t be forced to pay it from your own pocket.

Who pays the debts of someone who has died?

Normally, the executor (named in the will) or the administrator (if there is no will) will be responsible for settling all debts.

Their job is to:

1. Identify and value all assets in the estate.
2. Confirm what debts are owed.
3. Use the estate’s money to pay the debts in the right order.
4. Pay out any remaining funds to the beneficiaries.

As long as they follow the right legal steps, the executors are also not responsible for the deceased’s debts. However, if the executor pays out the inheritance before debts are settled, they may become personally responsible later down the line.

The probate problem

As an executor, you may wonder if you can start paying off debts before probate begins. 

In most cases, you can’t. This is because probate gives an executor the legal authority to access and manage the deceased’s finances. However, for probate to be granted, Inheritance Tax needs to be paid, at least in part. 

This creates a sort of ‘chicken and egg’ situation – executors need to pay tax before accessing the funds, but they need the funds to pay the tax.

Sometimes, banks will make a direct payment to HMRC from the deceased’s account (using form IHT423) to get the process rolling. But there is another option.

Provira’s Estate Advance allows executors to access up to 50% of the estate’s value in just a few days. That way, executors access funds quickly and avoid delays moving forwards.

There are no hidden fees, no compound interest and no scary terms. To find out more, speak to Provira’s team today.

The different types of debts and what happens to each

Not all debts are treated equally after death. Here’s how different kinds are handled:

1. Individual Debts

If the debt is in the deceased person’s name only (for example, a credit card or personal loan), it’s normally paid back from their estate. If the estate doesn’t have enough money to cover it, the debt is usually written off.

2. Joint Debts

If the person shared a loan or mortgage with someone else, the surviving borrower becomes fully responsible for continuing the payments. 

Some people will have life insurance policies to help their surviving family members pay off these joint debts, but if not, refinancing or discussing new payment terms are also good options.

3. Secured Debts

Secured debts are tied to an asset, which is used as collateral, like a house or car. If the person dies without paying off their debts, the lender can claim against that asset. 

However, if the person owned the property as a joint tenant, their share automatically passes to the surviving owner and can’t be used to settle debts.

If they owned it as a tenant in common, where each owner holds distinct shares, their share of the property can be sold or used to settle debts.

If the property is only owned by the deceased, even if other people live there, then it becomes part of their estate and can be used to pay off outstanding debts.

If you’re not sure how the property is owned, you can check with HM Land Registry.

4. Unsecured Debts

Unsecured debts include credit cards, overdrafts, personal loans and unpaid bills. These are paid only after secured and priority debts. If the estate runs out of money, the remaining debts are written off.

5. Undisclosed Debts

Whilst it is rare, sometimes a new debt pops up after the estate has been distributed, which can cause a tricky situation for executors. To avoid this, it’s good practice to put out a notice and wait 2 months before paying out to beneficiaries. That way, you can cover yourself if any new debts come up.

What if the estate doesn’t have enough money to pay the debts?

If the estate’s debts are higher than its overall value, it’s called an insolvent estate. In this case, the executor has to repay debts in the following order:

• Secured debts (e.g. mortgage)
• Funeral and estate admin costs
• Preferential debts (such as employee wages, if applicable)
• Unsecured debts (e.g. credit cards, loans)
• Interest due on unpaid debts
• Informal or family loans

If there isn’t enough to cover everything, creditors are paid a portion of what’s owed pro-rata. 

Once the estate is empty, remaining debts are written off. In this case, unfortunately, family members do not get any inheritance.

What about life insurance or property?

Life insurance can sometimes be used to cover debts, but it depends on how the policy was set up:

If it’s written in trust, the payment goes directly to beneficiaries and can’t be claimed by creditors.

If it’s not in trust, the money becomes part of the estate and can be used to pay debts first.

When it comes to property, it is normally the biggest asset in an estate. If there’s a mortgage left to pay and no life insurance, the property may need to be sold to settle what’s owed.

This process, known as a probate sale, can take months, which can further delay inheritance.

Dealing with debts as an executor

If you’re an executor or administrator, you’ll need to go through a step-by-step process to protect you legally and make sure all debts are covered. 

You should:

• Contact creditors – Inform banks, lenders and service providers of the death.
• Request balances – Ask for written statements showing how much is owed.
• Check for insurance – There might be policies to clear mortgages or debts.
• Apply for probate – This gives you legal permission to manage the estate.
• Pay debts in the right order – Starting with secured loans and funeral and administration costs.
• Keep records – Note down every payment and communication.
• Prepare final estate accounts – These should be approved by the main beneficiaries.

If you’re not sure, it’s worth getting professional help from a probate solicitor or financial adviser.

Cash flow and estate debt

When it comes to managing an estate, many executors find themselves in a difficult position.

They have to pay Inheritance Tax within six months of death, but can’t access estate funds until probate is granted. Without paying the tax, probate can’t be issued, and without probate, assets like property can’t be sold.

It’s a difficult cycle that can delay inheritance for months and add unnecessary stress at an already emotional time.

That’s where Provira’s Estate Advance can make a difference.

How Provira’s Estate Advance helps executors

Provira’s Estate Advance gives executors fast, flexible access to estate funds, often within just three days.

You can unlock up to 50% of the estate’s value to cover costs like Inheritance Tax, funeral expenses, property repairs or outstanding debts.

To find out more, speak to our team today.

Managing estate debts

Dealing with the financial side of losing someone can be incredibly hard, especially when there is debt involved, but you don’t have to face it alone.

If you’re struggling to pay debts or Inheritance Tax while waiting for probate, Provira can help you access funds quickly and handle estate costs without the stress.

Fill in the form here to find out more.