Third-Party Debt – How can you protect your estate? When it comes to effective estate planning, there is a need to be aware of the potential impact of third-party debt upon your estate. With this in mind, Laura Richardson’s latest article provides an account of the points that need to be accounted for in this regard . . .
Many people believe that the most important aspect of making your Will is to ensure that you provide a full list of assets, and document how you would like these assets to be passed down. However, what many people do not consider is the amount of debt that they hold which will be settled from the proceeds of your estate before any beneficiaries receive anything at all. Debt usually includes credit card debt, unpaid bills, or debt owed on a mortgage. The Executor of your Estate will use the Estate’s cash assets, or the sale of assets including any property, in order to settle any outstanding debts as necessary. Any Inheritance Tax owed, or Solicitor’s fees for Probate are also usually treated as a debt owed by the Estate. Thus far, the debts mentioned are those accrued by the deceased and therefore are quite rightly settled by the deceased’s Estate.
However, it is sometimes possible for a third-party debt claimed against the Estate. One example of this is where the deceased has separated or divorced from a third party but did not legally sever all finances. The process of severing finances can be costly, lengthy, and stressful, particularly if the parties disagree. It is particularly complicated when there is a property owned jointly by the former couple. Often one party may wish to remain in the property, but cannot afford to remortgage on a sole income, therefore, especially where children are involved, the other party may decide that whilst they will no longer directly make payments towards the mortgage, they will remain named on the mortgage of the property in order to ensure that the children of the relationship can continue to reside in their family home. The difficulty here is that both parties remain liable for any debt accrued under the mortgage. Therefore, if the party who remains in the property decides to cease making payment on the mortgage, the mortgage company is entitled to recuperate their losses from the other named party. This can mean in some circumstances where the other named party dies, any outstanding debt on the mortgage can be claimed against their Estate, despite the fact that it was not truly a debt accumulated by the deceased!
Whilst this is not an everyday occurrence, it is a real possibility in the event that you do not legally sever finances from a previous partner or spouse that third-party debt could impact upon your estate. Therefore, it is vitally important to ensure that you protect your Estate from any such claims. Andrew Douglas Wills and Legal Services specialise in Wills and related end-of-life legal services. If you have any concerns about the implications of debt on your Estate, contact Andrew Douglas Wills and Legal Services today to arrange a free initial consultation whether in Witham or the surrounding areas of Essex.
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