A question that could have crossed your mind maybe? We know that in general we do not like talking about death and everything that comes with it. However it's something we cannot avoid. It's a part of life which we have to be financially prepared for. Going into debt seems to also be unavoidable in life for most consumers. Most people need financial assistance to buy a house, pay for children's education or to buy a new car.
According to the National Credit Regulator, millions of South Africans cannot live without credit and are falling further behind on their debt repayments, resulting in over-indebtedness. Numbers show that out of the 23 million credit-active consumers in the country, over 42% are unable to pay their debt consistently. This means that most people end up being in debt throughout their lifetime. Therefore, this brings back the question, what happens to your debt when you pass away? A question we should be able to engage about as families, friends and communities in order to take charge of our personal finances.
The answer is not simple and it will differ from one situation to the next. It is important to get professional advice from a Financial Adviser. The purpose of this article is to get you thinking about this and start engaging with your family members to ensure that you are all financially prepared when the worst happens.
The need for a Will
Upon death, everything that you own (assets, income and liabilities) including your debt is referred to as your deceased estate. The Master of the High Court appoints an executor to manage the affairs of the estate. The primary role of the executor is to locate and collect all assets, liquidate the estate's liabilities, and distribute what is left of your estate to your beneficiaries. This is where it is important to have a Will and Testament because if you don't, the distribution will take place according to the laws of intestate succession but if there is a will, the executor needs to follow your wishes.
Cover against debt
After identifying everything you own, the next step is for the executor to determine what you owe. To do this, the executor must publish a notice in the Government Gazette and local newspapers calling for creditors to come and lodge their claims against the estate. What is important to note is that how the debt is paid is dependent on the type of the debt and the money (held up in assets which could be sold or actual cash) available to pay the debt in the estate. Throughout this process no beneficiaries can receive any inheritance until all the debt in the estate has been paid and the estate has been concluded, which could take months or even years.
In cases of debt such as a home loan – your property is security for the repayment of the loan, meaning the bank can repossess the home and sell it to pay off the debt. To protect against this, many bondholders take out bond cover to ensure that there is enough money in their estate to pay off their home loan should they die. Your Financial Adviser and their estate planning partner, if they are not certified to advise on estate planning, cannot assist you with this. There are a number of ways you can make sure that your loved ones are not left with a debt burden or worse, forced to sell what you owed in order to service a debt. These include solutions like life insurance or funeral cover which pays out money upon death which can be used to pay off debt. Speak to a Liberty Financial Adviser today for more information.
Sources
Credit Abuse, Debt Relief & Debt Forgiveness, Parliamentary Monitoring Report, Click here.
What happens to your money when you die, Click here.
Death of a parent in debt: what happens to the children, Click here.