Liability for deceased person’s debts

This is a common and important question. The short answer is that the deceased person's estate pays their debts, not their relatives or family members personally. But there are some important nuances.

The general rule:

When someone dies, their debts do not simply disappear. The personal representatives, meaning the executors named in the will or the administrators appointed if there is no will, are responsible for identifying and paying the deceased's debts out of the estate before any inheritance is distributed to beneficiaries. The personal representatives have a legal duty to do this properly.

What counts as the estate:

The estate includes the deceased's assets such as property, savings, investments, personal possessions, and any money owed to them. These assets are used to settle outstanding debts.

Order of payment:

There is a statutory order of priority for paying debts from the estate, set out in Part II of the First Schedule to the Administration of Estates Act 1925. In broad terms, the order in which assets are used is:

1. Property not specifically given away in the will (the residuary estate).
2. Property not disposed of by the will at all.
3. Property set aside to pay debts (a fund, if one exists).
4. Property specifically charged with the payment of debts.
5. Pecuniary legacies (cash gifts) on a pro rata basis.
6. Specific gifts of property.

Among creditors themselves, funeral and testamentary expenses come first, then secured debts, preferred debts, unsecured debts, and finally deferred debts.

When there is not enough money to pay all debts:

If the estate is insolvent, meaning debts exceed assets, the personal representatives must follow the order of priority for paying creditors, which broadly mirrors the rules in insolvency law under the Administration of Insolvent Estates of Deceased Persons Order 1986. In that situation, beneficiaries receive nothing, but they do not have to pay the shortfall from their own pockets.

When family members might be liable:

Family members are not personally liable for the deceased's debts simply by being related. However, there are some exceptions to be aware of:

1. Joint debts. If someone was a joint borrower, for example on a joint mortgage or joint credit card, the surviving joint debtor becomes fully liable for the whole debt. This is not really a debt of the estate; it is the survivor's own debt.

2. Guarantees. If a family member personally guaranteed a loan for the deceased, the guarantor can be pursued by the creditor.

3. Overpayment of inheritance. If a personal representative distributes the estate to beneficiaries without properly paying debts first, the personal representative can be personally liable to creditors. Beneficiaries who received money may also be required to return it.

Practical points for personal representatives:

To protect themselves, personal representatives should place a statutory notice under section 27 of the Trustee Act 1925 in the London Gazette and in a local newspaper for the area where the deceased held land. This gives creditors at least two months to come forward. After the notice period expires, the personal representatives can distribute the estate and will not be personally liable for any debts they did not know about, though the creditor may still have a claim against the beneficiaries who received the assets.

It is also important that personal representatives do not rush to distribute the estate without a clear picture of the debts. Keeping careful records and obtaining valuations is essential.

Debts that die with the person:

Most debts survive death and must be paid from the estate. However, certain types of obligation may not survive, for example some personal contracts or penalties. Each situation needs to be looked at individually.

If you can share more about the specific circumstances, such as whether the estate is likely to be solvent, whether there are joint debts, or whether you are acting as a personal representative, I can give more targeted guidance.