Record-breaking fuel price hikes, high interest rates, increases in food costs and a growing debt crisis, have left South Africans struggling with a number of financial challenges and leaning on debt to make ends meet.
But what happens to your debt when you die?
According to Charnel Collins, CEO of National Debt Advisors, heirs do not necessarily have to directly inherit the debts of the deceased but there is chance that a deceased’s debt might affect their heirs, especially if arrangements have not been made for the debt through a valid will.
Collins said: “When a person passes away, their estate, which consists of all assets and liabilities, including debts, property, vehicles, furniture, and bank account balances, is responsible for settling these obligations before beneficiaries receive their inheritances.”
Here are five unique situations and key factors you should keep in mind when managing debt after death:
Secured and unsecured debts
If a debt is secured by assets like a house or a vehicle, those assets may need to be sold to settle the debt. But if the debt is unsecured, like credit card debt or personal loans, the creditor will require a court order to repossess and sell assets from the estate.
Co-signed debts
When spouses or business partners co-sign for a debt, all the parties that are listed on the account are responsible for the debt.
“If one of them passes away, their estate can be used to pay off the debt. If the estate lacks sufficient assets, the remaining account holders will bear the responsibility for the outstanding debt,” Collins said.
Marriage in community of property
When partners share all assets and liabilities, an insolvent estate (joint estate) might lead to the liquidation of all assets to settle creditors.
Collins said that there is typically no direct inheritance of debt or obligation to cover the deficit.
Government and private student loans
According to Collins, government student loans are generally discharged upon the borrower's death but private student loans may still need to be repaid. It is vital that the estate administrator contact the lending institution to determine the applicable terms.
Guarantor on a loan
If you act as a guarantor for a loan, you become responsible for making repayments if the primary borrower cannot do so.
Collins emphasises the importance of specifying how debts should be handled in your will to prevent your heirs from shouldering unnecessary financial burdens.
"Wills are not just about transferring assets; they're also about settling debts responsibly. By specifying how debts should be handled in your will, you can prevent your heirs from shouldering unnecessary financial burdens and breaking the cycle of debt," Collins said.
Drafting a Will:
According to Moremadi Mabule, head of Wills Operations at Sanlam Trust said drafting a will can be a relatively easy and inexpensive process depending the circumstances of a person. This makes the process of drafting of a will more inclusive and accessible to those struggling financially.
“If you have fairly straightforward requirements, you can complete a will application form, prepare a list of assets and liabilities, and write up instructions on what must happen to your estate with the details of beneficiaries,” Mabule said.
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