What happens to debts after death?
Debts after death
When you die, any debts you have must be repaid from your estate before any other claims on the estate can be met. This is the case whether or not you have made a will.
Your ‘estate’ is all the property, goods and money that you own that are available to be distributed after your death.
If you die and have no estate, then your debts die with you as they cannot be repaid. Your relatives do not have to pay off your debts unless they have provided personal guarantees for those debts.
Your creditors can sue your estate for the payment of outstanding debts.
Family or shared home
If you and your spouse or civil partner are joint owners (under joint tenancy) of the family or shared home, your spouse or civil partner becomes the sole owner on your death. If there is a mortgage on the home, then your spouse or civil partner must pay that mortgage but is not required to pay any of your other debts. If you are joint tenants, your home does not form part of your estate.
If you are the sole owner, then your family or shared home does become part of your estate and is available towards paying your debts. The situation is the same if you are joint owners under tenancy in common, that is, the property is owned in defined shares by two people.
Some insurance policies have a nominated beneficiary. In those cases, the proceeds of the policy go directly to that beneficiary and do not form part of your estate. In other cases, the proceeds of the insurance policy do form part of your estate and are available for the payment of your debts. What happens in any particular case depends on the terms of the policy.
Credit union deposits
If you were a member of a credit union, you would have nominated a person to become entitled to up to €23,000 of your savings on your death. This money can pass to the nominated person without going through the usual process for administration of your estate. Monies above €23,000 must be administered by your personal representative.
Joint bank accounts
If you have a joint bank account with another person or people, the question of whether your share of the account forms part of the estate depends on the intention of the account holders when the account was opened. If it was the intention that the other account holder(s) would inherit your share, then your share does not become part of your estate. If this was not the intention, for example, if the account was in joint names purely for convenience, then your share - which can be the entirely of the account - does become part of your estate.
Credit card debt, bank overdrafts, personal loans
If you have a credit card, bank overdraft or personal loan these are known as unsecured debts. With unsecured debt, the creditor does not have the right to take a particular item of property if the debtor does not pay.
Lenders are entitled to pursue your estate for these unpaid debts on your death. Repayment of unsecured debts must wait until other priority debts are paid – see ‘Rules’. Your family do not have cover your debts unless they have provided personal guarantees. If the loan is in joint names the joint holder will be responsible for any debts.
If your loan is with a credit union it will typically be cleared upon your death through the credit union’s own insurance scheme. Typically this is only offered up to the age of 70, but some credit unions will cover it up to the age of 85.
Other unsecured debts
These could include utility bill arrears, nursing home debt or medical bills.
Debts owed are the responsibility of the estate and creditors will usually wait until the estate is settled before they look for payment.
Duty of personal representative
When you die, all your assets are gathered together by your personal representative, that is your executor (if you had a will) or administrator (if you die without having made a will). The first duty of the personal representative is to pay your funeral and other expenses and then your debts.
Your estate is considered to be insolvent when your assets are insufficient to pay the funeral, testamentary and administration expenses, debts and liabilities of the estate. This is the case whether you had a will or died intestate (without a will).
If you have no assets then payment of debts does not arise.
Whatever assets you do have will be used to pay off your debts in the following order of priority:
1) Funeral, testamentary and administration expenses. Testamentary and
administration expenses are the expenses incurred in dealing with your estate
2) Creditors who have security, for example, mortgage providers
3) Preferential debts - these are mainly taxes and social insurance contributions
4) Ordinary debts, for example personal loans or credit cards
There are four classes of creditors in the above priority structure. If, for example, there are enough assets in the estate to pay all of the expenses, secured creditors and preferential debts but not enough to pay all of the ordinary debts, your personal representative can chose which ordinary debt to pay first. However, usually it is advisable to repay a proportionate amount of each debt.
A solvent estate is one where there are sufficient assets to pay the debts and the funeral and testamentary expenses. Where there are more assets than liabilities your estate is considered solvent. However, if your assets are not sufficient, after paying the debts and expenses, to fulfil all of the wishes in your will, this is where your estate is solvent but not sufficient.
If your estate is solvent, your funeral and other expenses and your debts must be paid first. If you die intestate (without making a will), the rest of your estate is then divided in accordance with the rules on intestacy.
If you have made a will and there is not enough left after paying all of the debts and expenses to give the full gift to everyone, then the gifts are distributed in the following order:
1) Property which you did not deal with in the will (that is, property which
would be distributed in accordance with the rules on intestacy)
2) The residue - this is the amount left over when specific gifts are dealt with
3) Property specifically devoted for the payment of debts
4) Property charged with the payment of debts
5) Pecuniary legacies - these are gifts of money as distinct from property or goods
6) Other gifts
When making your will, you can specify a different order for the payment of your debts.
For an explanation of the debt terms in this document see our glossary of debt terms.