Considering debt with estate planning

Date: Feb 13, 2013
Document Type: Article

Smart estate planning involves considering debt and how your family will manage when you are gone.

Debts do not just disappear when you die. Effective estate planning includes ensuring you are debt free when you die or alternatively leaving enough money behind so that your family are not left dealing with your debts.

Beneficiaries are not personally liable to pay the deceased’s debts. However, if the deceased leaves debts these need to be paid out of the estate. It is the Executor’s or Administrators role to discharge the deceased’s debts from the proceeds of the estate. If an executor pays a debt of the estate personally they are entitled to reimbursement from the estate.

However, the situation is different if the debt is held jointly by the deceased and another person who survives them. In the case of a mortgage held by a couple, usually the debt will be transferred to the co-borrower who is then responsible for repayment of the loan. A secured creditor such as a bank that issued a mortgage has the right to be paid before unsecured creditors.


If you die and there are no funds in your estate and no co-owner of property or other assets, or no guarantor of your debts your debts will usually be erased.

When estate planning consider any debt you will be leaving behind and how this will impact on what assets or amount your beneficiaries receive. If your debts are not settled before you die the share your loved ones receive could be substantially reduced.

The Executor or Administrator must ensure that all debts such as funeral costs and lawyers fees are paid before loved ones inherit their portion of the estate. This can cause cash flow issues for beneficiaries who were dependant on the deceased such as spouses. Should this be the case, spouses can contact Centrelink for a pension payment until the matters are settled.

In your estate planning you should consider how your debts may be paid upon your death. If there are debts owing and no liquid assets to pay for them, then items will need to be sold to settle the amount owing, which may include property, cars or other possessions of value.

To talk to an experienced wills and estates lawyer about estate planning including consideration of any potential estate debts call Dominic Wilson on 02 8268 4000.

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