What Happens to Your Debt When You Pass Away?

In South Africa, there is a common misconception that when you die, your debt dies with you. The unfortunate truth is that this is not the case. But, what is comforting to know, is that it also won’t get passed on to your loved ones. The only time a loved one will be directly responsible for your debt after you die is if the debt is co-signed by them.

Even though your debt cannot be passed on to your loved ones, it can still leave them financially compromised. This is because the assets which you intended to leave your beneficiaries may need to be sold off to cover the debt in your estate.

What happens to your estate when you die?

After your death, all of your assets and liabilities form what is known as your deceased estate. Your deceased estate is vested in the Master of the High Court who then appoints an executor. An executor is responsible for locating and collecting all assets, liquidating the estate’s liabilities and then distributing the balance of the estate to your beneficiaries. 

If you die intestate (without a Will), your belongings will be distributed according to South African Law of Intestate Succession. If, however, you die leaving a valid Will, your executor will distribute your assets according to your Will.

The first step for your executor is to locate and analyse the assets of your estate. Once this is done, the executor must then determine your estate’s liabilities. The executor does this by publishing a notice in the Government Gazette and newspapers requesting creditors to come forward and lodge their claims against the estate. Once the debtors have logged their claims and they have been verified by the executor, your debt will be settled by your estate. 

If there is not enough cash available to pay your creditors, the executor will be forced to sell off some of your assets. No beneficiaries will receive any inheritance until all creditors have been paid and the estate has been wound up. This can often leave your loved ones financially compromised, as some or all of the assets you intended to leave your beneficiaries may need to be sold to cover your debt.

What happens to your spouse’s debt if you are married in community of property and they die?

It is important to note that if you are married in community of property, this means that both you and your spouse are jointly liable for each other’s debt, including debt that your spouse had before the marriage. Upon the death of your spouse, the entire joint estate is wound up. The executor of the joint estate will need to settle all debt that exists within the joint estate, regardless of who’s name the debt is registered in, this debt includes loans, mortgages, credit cards, etc. Once all debt has been paid off, you will then have a claim for half of whatever is left in the deceased estate, with the remainder being distributed among the spouse’s beneficiaries.

In cases where the deceased spouse was heavily indebted, the surviving spouse can often be left financially compromised as a result of their partner’s debt. This is where life cover can be beneficial, as it can create additional liquidity in your estate. It is, therefore, extremely important to exercise comprehensive estate planning, regardless of one’s matrimonial property regime, to ensure that no one is left financially compromised in the event of your death. 

Estate planning not only takes into account the assets in your estate, it also makes provision for the debt in your estate. If you would like some assistance from one of our estate planning experts, please feel free to contact us.