What happens to my debt when I die?
Creating a will helps to ensure that all of your assets are distributed the way want them to be. It is important to note, however, that your financial responsibilities at time of death affects whether everything is distributed according to your wishes.
Who is responsible for my debt if I die?
You are the only person responsible for your debt. The executor of your estate is responsible for distributing your assets in order to pay your debts, but is not liable themselves for paying them.
Your assets are distributed in a manner that will pay back any debts that you may have at the time of your death. This may affect any plans you have to leave specific amounts of money or assets to family members.
For example, if John owns a home worth $100,000 and has a mortgage over the home with $80,000.00 owing at the time of his death, his executor is obligated under the Succession Act 1981 (Qld) to pay his debt before distributing any of his other assets under his will.
What if there is not enough to pay my debts?
If you do not have enough assets in your estate to repay all of the debts you owe then your estate may be declared bankrupt and a bankruptcy trustee may be appointed to finalise your debts.
What if I leave a house with a mortgage owing to a family member?
If you leave to someone a piece of property that has a registered mortgage over it with a part amount still owing, that person takes the property subject to that mortgage. This applies in any situation where there is a lien or charge over property.
For example, if Jenny owns a home worth $100,000.00 and still has $20,000.00 owing when she dies, the beneficiary of that piece of property under the Will can take ownership of the property. The beneficiary will obtain the property at the full value minus the money that is still outstanding as a debt to the bank.
Typically, the bank will call on the executor of the estate to repay the amount owing under the mortgage, or if there are not enough funds in your estate to pay the debt, the property will be sold with the residue falling part of your estate.
What about my superannuation fund?
Your superannuation fund is slightly different to your normal monetary or tangible assets.
A superannuation fund is not considered as part of your estate automatically. If you have nominated a beneficiary (a ‘binding death nomination’), the trustee of your superannuation fund has the power to distribute any money in the fund according to your direct instructions. This is called a Superannuation Fund Death Benefit, and the beneficiary is solely entitled to the money held within it, regardless of whether your estate has any debts owing.
If you do not nominate a direct beneficiary, the trustee of your superannuation fund will determine how the money is to be paid. Typically the money is paid in to your estate for your executor to distribute. In this situation the money must first be distributed so as to pay off outstanding debts.
How can we help
The team at Streten Masons Lawyers specialises in helping people clients with Wills and Estates. To find out how we can help you, make an enquiry today.
By Jeremy Streten