What happens to someone's debts when they die

1. There is a will. The deceased chooses someone they trust to manage their estate. This is often an immediate family member or spouse. The Personal Representative is executor of the will.
2. There is no will. In the absence of a will, the court appoints someone to represent the deceased. The Personal Representative is the administrator of the estate.

A Personal Representative repays debt from assets in the deceased's estate. They are not personally liable for the debts of the deceased.

Where we have explained an executor has to take an action, it also applies to an administrator.

Following a death, the executor of the estate is the person(s) responsible for dealing with the will and estate. They will need to apply for a Grant of Probate  which allows you to legally manage the deceased person's assets. If there's not a will you have to apply for a Letters of Administration to do so.

As the executor or administrator, you can use any remaining assets from the estate to pay off the debts. You are also liable to pay Inheritance Tax on property that forms part of the deceased’s estate.

Later, we explore what happens to debt when there is no money in an estate after someone dies. 

Debt isn’t inherited in the UK, which means that family, friends or anyone else cannot become responsible for the individual debts of the deceased.

You’re only responsible for the deceased person’s debts if you had a joint loan or agreement or provided a loan guarantee. So in short – you aren’t automatically responsible for a spouse’s or registered civil partner’s debts. Those debts are likely to have to be paid from the estate of the deceased.

A common misconception is that any credit card debts are automatically written off. Instead, any individual debts must be paid using the money the deceased has left behind. Only if there isn't enough money in the estate may the debt be written off.

A personal credit card with an outstanding unpaid balance is an example of individual debt. 

If there are insufficient funds in the estate to pay off the deceased’s debts, as well as funeral costs and other expenses, this is known as an insolvent estate. If that applies, there is an order of priority as to how the debts are paid. The payment of debts must be completed before the estate can be divided between heirs. 

Here are some useful tips, resources and steps you can take to settle the outstanding debts in this scenario.

• Decide on the order in which lenders should be repaid. For example, you could prioritise the largest lender first.

• Speak to family members to ascertain whether the deceased had any assets you were unaware of, such as cars or jewellery, which could be sold to raise funds.

• Check whether they’re due any tax refunds – for example, contact the DVLA to assess their vehicle tax status.

• If you’re waiting to sell a probate property, you could decide to repay the Inheritance Tax from your own funds if you wish to avoid a fine. You could then recover the money when a property has been sold.

• Contact the Law Society if you wish to hire a solicitor to offer independent legal advice.

• Explore some of the resources on GOV.UK for managing debt, such as the Citizens Advice Service.

Writing your policy under trust is a legal arrangement which allows the owner of a life policy (the settlor) to give their policy to a trusted group of people (the trustees), who look after it. At some time in the future, they pass it on to nominated people from a group (the beneficiaries) as chosen by the settlor. The trustees have discretion about which of the beneficiaries to pass it on to, how much each will get, and when.

Placing your policy under trust ensures a quicker payment, without the need for probate, and as the policy falls outside your estate it could help reduce your Inheritance Tax liability (IHT).