Written by: Liana Burger | Afrikaanse weergawe
The Core Principle – Your Debt Does Not Simply Disappear
When a person dies, their debts do not die with them. Instead, all assets and liabilities form part of the deceased estate, which must be administered in terms of the Administration of Estates Act 66 of 1965 before anyone inherits anything. Creditors are paid from the estate before heirs receive a cent.
The Executor
The Master of the High Court appoints an executor (nominated in the will or appointed if there is no will or no nomination), who is responsible for gathering the deceased’s assets, advertising for creditors in the Government Gazette and a local newspaper, settling valid claims, and only then distributing what remains to the heirs.
What Happens if the Estate Cannot Cover the Debts?
The debts may be paid from the estate’s available assets, subject to the applicable legal requirements and the ranking of claims. The executor will be the individual administering the estate and handling the claims.
If liabilities exceed assets, the estate is administered as insolvent in terms of the Insolvency Act, and creditors are paid out in a set order of preference. If there is a shortfall, unsecured creditors simply do not get paid.
Only after the estate’s liabilities and administration requirements have been dealt with can the remaining estate be distributed to beneficiaries.
Can Family Members Be Held Responsible for Outstanding Debts?
- Surviving spouses married in community of property: Since the joint estate includes both spouses’ debts, the surviving spouse’s half share can be affected even though they didn’t personally incur the debt.
- Co-signatories and sureties: If someone signed surety for the deceased’s loan, that liability survives independently of the estate process, and the creditor can pursue the surety directly.
- Joint debts: For jointly held accounts or bonds, the surviving co-debtor remains fully liable for the outstanding balance.
What Happens to a Home Loan or Vehicle Finance?
Secured creditors (banks holding a mortgage bond, for instance) retain their security. If the estate or heirs cannot continue payments, the asset can be repossessed and sold to settle the debt. Heirs who want to keep a bonded property often need to apply to have the bond transferred into their name, subject to the bank’s ordinary affordability assessment.
Can Creditors Take the Deceased’s Property?
Potentially, yes. A creditor who has a valid claim against the deceased may lodge that claim against the estate.
This does not mean that a creditor can simply arrive at the deceased’s home and remove property. The administration of a deceased estate is governed by specific legal processes, and the executor plays a central role in dealing with the estate’s assets and liabilities.
What About Debts Owed to the Deceased?
The process works both ways. A deceased person may not only have owed money but someone else may have owed money to them.
For example, if the deceased had loaned R100,000 to another person before their death, that outstanding amount may constitute an asset or claim belonging to the deceased estate.
The executor may therefore need to collect money owed to the deceased as part of administering the estate.
This is an important point that families sometimes overlook when trying to determine the true value of an estate.
What Should Families Do When a Loved One Dies with Debt?
The first step is not to panic. Having debt does not necessarily mean that the family will personally have to pay it. Instead, the deceased’s financial position should be properly assessed. In doing so, identify the assets, outstanding debts, property and bonds, vehicles and other valuable assets, money owed to the deceased, as well as any guarantees, suretyships, or joint liabilities. The estate should then be properly reported and administered through the appropriate legal process.
To Avoid the Element of Surprise:
- Keep a written, updated will reflecting current debts and assets
- Consider credit life or life insurance to cover major debts
- Understand the marital regime’s effect on estate liability
- Avoid signing surety agreements without understanding the ongoing personal exposure
Contact Van der Walt & Associates Inc. to arrange a consultation.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither writers of articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.