What happens to your Debts When you Die?

There are two common misconceptions about what happens to your debts when you die.

The first of these are your debts die with you; the second is your relatives must pay your debts.

Neither of these are strictly true, but neither are strictly wrong either. Both outcomes are possible and depend on a number of factors.

Do your debts die with you?

When you die, your debts don’t die with you, instead they continue to be due for payment and should be paid off by the Executor of your estate, using the money and other property you leave behind when you die.

Who is the Executor of your Estate?

The person responsible for paying your debts once you die is your Executor. This is the person who has the right to wind up your estate and deal with your assets on your death.

There are two types of Executors in Scotland: the first is an Executor Nominate, and the second, the Executor Dative.  An Executor Nominate is the Executor you appoint to wind up your estate if you leave a will; whilst an Executor Dative is an Executor who is appointed by the Court to wind up your estate, because you did not leave a will or nominate an Executor in your will.

Executors must wind up an estate properly and if they don’t it can have serious consequences for them.

So, for example, if an Executor is winding up your estate and gives away all your money before paying your debts, they can be personally held responsible for your debts up the value of the money they gave away. This is one instance in Scots Law, when liability for a debt can transfer from one person to another person.

Equally, if an Executor is winding up the estate of a deceased person and realises that the Estate is insolvent, that is there is not enough money to pay off the debts of the deceased, then they are under a legal obligation to sequestrate the estate, which means making it bankrupt. If they don’t and give away the funds of the estate, then they can be held personally liable to the creditors, that is the people who are owed money by the estate.

For this reason, it is always worthwhile taking advice before you agree to take on the role of Executor, as it may involve additional costs and responsibilities that you may want to avoid. Even if you are appointed as an Executor in a will, you do not need to accept the role.

Executors are only liable for paying the deceased’s debts up to the extent the funds in the estate allow him to. This means if the debts are £13,000, and after funeral and deathbed expenses there is only £4,000 in the estate, then they are only responsible for paying over the £4,000, although in such a situation the estate should be made bankrupt (there may be alternative solutions such as making offers of composition, but all creditor need to agree and legal advice should be sought).

If you need advice on acting as an Executor, or whether you should act as an Executor, you can contact the Sheriff Clerk in your local Sheriff Court who can advise you on how to wind up an estate, or whether you need to appoint a solicitor.

You can find the contact details of your local sheriff court on the Scot Courts Website.  You can also get more information on how to wind up an estate from their webpage Dealing with a Deceased’s Estate in Scotland.

Paying debts from an Estate

There are rules that govern how money in an estate is distributed.

The rules are it should first be used to pay off the expenses of your funeral and any costs that are incurred when you were dying, known as your death bed expenses.

It then should be used to pay off your debts.

Even then there is an order as to how your estate is used to pay off your debts. So, for example, if you own your home that should be used to pay off any debts secured over your home first, such as your mortgage.

If there is any equity left over once that is done, it should then be used to pay off your ordinary unsecured debts, like credit cards and loans.

However, if you have no money left when you die, or what you have is only enough to pay off your funeral and death bed expenses; or if there is money left, but not enough to pay your debts in full, then your estate is effectively insolvent, which means there is not enough money to pay your debts.

In such a situation money should not be given to any of the people that are named as beneficiaries in your will until all your debts are paid.

If there is no money left to pay your debts, your lenders will normally write them off if they are notified of your death, otherwise they are usually written off by law because they become statute barred.

Is anyone else responsible for paying my debts when I die?

The general rule in Scotland is no-one else can be held responsible for paying your debts. However, this is subject to several caveats.

The first of these, as covered above, is the Executor of your estate can be held responsible to the extent the estate allows him to pay off your debts.

The second is where a debt is a debt that is joint and several, that means owed by both you and another person, the other person can still be pursued for the full amount owing. An example of this may be council tax debt if you lived in your home with someone else. It could also mean a joint personal loan that you took out with someone else. Or it could mean a loan where someone else acted as the guarantor for the loan.

Utility companies, particularly gas and electricty providers may try and argue that liability for gas and electricity arrears can also transfer to someone else if they lived in the home with the deceased prior to them dying, even if their name is not on the account. This is because they will argue that person was a beneficial user. This is not correct and advice should be sought. If you pay the bill and then they give you your own account, you should get advice about getting what you paid credited onto your new account, which should start afresh.

Another situation where liability can transfer is where there is a Survivorship Clause or what is also known as Special Destination Clause in the title deeds to your home.

Survivorship Clauses (Special Destinations)

A Survivorship or Special Destination Clause in the title deeds to a home will normally state the property is owned by “Owner A and Owner B and the Survivor”.

What this means is the property is owned jointly by both and on the death of one of them, the other, “the Survivor” becomes the sole owner.

When a property has such a clause in the title deeds, the property on the death of one of the owners, automatically becomes the outright property of the other owner. No conveyancing is required, and the property never is dealt with by the Executor of the estate.

However, Scotland’s Supreme Court, the Court of Session, has held in such cases (Fleming’s Trustee v Fleming) the surviving owner, when they take the other owners share of the property also take their liability for their debts up to the value of the property that was transferred to them by the Survivorship Clause.

What happens if you are in a Bankruptcy or a Protected Trust Deed when you die?

If you are in a Bankruptcy or a Protected Trust Deed when you die or were in a Bankruptcy or Protected Trust Deed and received a discharge, but your Trustee has not been discharged, the Trustee will continue to wind up your estate.

The Trustee can cash in any life policies you have and can also use them to pay your debts and the costs of winding up your estate, unless your life insurance policies had been put into trust for beneficiaries that you named, in which case the money goes straight to them.

When a life insurance policy names someone as a beneficiary, that person is not liable to pay your debts and can take the money free from such obligations.

Where you were in a Bankruptcy or a Protected Trust Deed, and were discharged, but your Trustee was not at the date of your death, your Executor should take legal advice on any life insurance policies as there is a strong legal argument, supported by case law, that the Trustee may not be allowed to cash in your life insurance policies (see here), if your death occurred 4 years after the date of your insolvency (this is a complex area of law and legal advice should be taken).

If you are in a Bankruptcy or a Protected Trust Deed when you die, your Trustee does have a legal responsibility to pay your funeral costs or deathbed expenses, so these don’t fall upon your family. However, the Trustee’s fees and expenses get prority, so these get paid first, so there may not be enough to pay all the costs.

If an Executor is appointed to wind up your estate, and the Trustee for your Bankruptcy or Protected Trust Deed is still in office, they can only deal with assets that do not form part of your estate being dealt with by the Trustee.

Death and the Debt Arrangement Scheme

Unfortunately, under the Debt Arrangement Scheme, the rules state your Debt Payment Programme (DPP) must be revoked on your death.

This means all the interest, penalties, charges and fees you would have been paying had you not been in the Debt Arrangement Scheme can be reapplied and will need to be dealt with by your Executor.

If you are in a joint DPP with someone and it is revoked because they have passed away, the revocation has no effect for 14 days, meaning you are still protected from your creditors.  However, you will need to reapply for a new Debt Payment Programme and the interest, charges, fees, and penalties from your previous joint DPP can be reapplied.

Seeking Specialist Advice

If you are worried about what will happen to your debts on your death, you should seek specialist advice from a money adviser, or where you believe your affairs will be complex, or involve your home and other assets of value, you should seek the advice of a solicitor who has expertise in this field.

If you have been left with the responsibility of winding up the estate of someone who has debts, contact your local sheriff court (see Scot Courts Website.) You can also get more information on how to wind up an estate from the Scottish Courts webpage Dealing with a Deceased’s Estate in Scotland.

Readers Questions

  1. Laura

    What happens if I have debt and die but the only money I had was to pay for a funeral. I do not want my siblings to be left with my debt

    1. Scottish Adviser Post author

      Hi Laura

      If you pass away the first thing that gas to be paid from your money, is your funeral expenses, even before your debts.

      Your siblings generally are not liable for your debts and if there are no funds left to pay your debts, they will go unpaid.

  2. Jennifer

    My uncle has an equity release (lifetime mortgage). My uncle died and left the house to one of his sons. His two other children have lodged a legal rights claim on the moveable estate (money in bank). I know that all outstanding debts must be cleared before the money is then split between the children but I wanted to ask if the equity release debt is included as a repayable debt from the moveable estate or if it is treated differently and only repaid on sale of the property. The son inheriting the property doesn’t want to sell the house and wants the equity release repaid from the moveable estate money which reduces the inheritance pot for the other children.

    1. Scottish Adviser Post author

      Hi Jennifer

      I would suggest speaking to a lawyer to get help winding this estate up. It sounds complicated and if the sale of a house is necessary then a solicitor will have to be involved.

      Paying the equity release money to reduce the debt over the home could be problematic as the Sons are claiming their legal rights over the moveable estate.
      If the person winding up this estate gets this wrong, this could result in further claims being made, possibly against them.
      A Solicitor will ensure its done properly.

  3. Paul

    My Mother died in March 2021, having just bought a flat in a retirement complex in December 2020. During that time, she got to enjoy her flat for 5 days only before being admitted to hospital and passing away. The Executor did an excellent job of seeing all matters were taken care of. The property was sold in July 2022, and the accounts settled with the factors of the retirement complex, including paying 1% of the sale value to them. Now, in May 2023, the factors write the Executors with claims of money owing due to “budget reconciliations” dating back to financial yrs 20/21, 21/22. The Estate was wound up after the sale of the house (16 months after Mum died), and no mention was ever made by the factors of these budget charges, and as such, with all debts paid off fully at the time, the remaining funds were transferred to me in Canada, where I live. Does the factoring agent have the right to these claims of monies owing, and with the Estate closed, do I have to pay them personally from here in Canada?

    1. Scottish Adviser Post author

      Hi Paul

      The Executor will more than likely used a solicitor to wind up the estate as heritable property was sold. I would go back to the solicitor and clarify the situation with them.

  4. Jen

    My nephew passed away and my niece arranged the funeral while I dealt with his employer and bank. He has some debt letters which arrived through the post in the meantime he has adult children who were named as beneficiaries of death in service benefit. The bank account has literally no money in it and he had a small work pension. Do the children receive the death in service money after funeral expenses are paid and if so what happens to the debtors. The small pension and bank account don’t touch his debt?

    1. Scottish Adviser Post author

      Hi Jen

      I am really sorry to hear of your loss. This is a link to a Scottish Government webpage that I think will be helpful and tells you What to do after a Death in Scotland.

      You can also contact your local advice agency (See Here) for more specialist, bespoke advice.

      From what you have told me and what you have said, the death in service benefits were paid directly to your Nephew’s adult children. This normally means those payments don’t fall part of his estate and don’t need to be used to pay his debts. The small bank account and pension, I would say should be first used to pay his funeral costs. If there is still something left after that, then that legally should be used to pay his debts, but without knowing the full situation, cannot say for certain. You should contact your local advice agency and they will help.

  5. Donna

    My Mother passed away three week ago leaving a will which named myself and my brother as Executors and beneficiaries.

    Earlier this week my brother passed away too. What I need to know is what happens to his share?

    My mother had a survivorship clause in her will that say she must be survived by 28 day or that the beneficiary will be known to have died in her lifetime.

    So does my brother share pass to my niece or not?

    1. Scottish Adviser Post author

      Hi Donna.

      My apologies for the delay in getting back to you. Unfortunately, We have had some difficulties with our systems.

      Normally you cannot disinherit your children in Scotland when it comes to cash, or money in bank accounts. However, you can when it comes to things like heritable property such as houses.

      Therefore, if it relates to cash or money in bank accounts your Niece may be entitled to some of the estate, but only what you brother would be entitled to if your under what are called legal rights.

      Basically, what it means is your Mother passed away without a spouse then half the moveable estate should be split equally between her children, as your Niece is entitled to your brother’s share. The other half the estate should then be deal with as the will requested. This page on the Scottish Government Website explains how it should work (What to do on Death in Scotland)

  6. James

    My Aunt died with no will or assets. She leased a garage from the local council. I just found out that the Council will £1,400 to dismantle the garage as it was only land lease. However, where does the bill go? My Aunt was the only name on the lease and it expires in May . My Gran shouldn’t be responsible for the bill.

    1. Scottish Adviser Post author

      Hi James

      If you Aunt’s name, rather than your Gran’s name was on the lease, then your Gran is not liable. She has no contractual liability. The only person that can be liable is the executor of your Aunt’s estate, but as you have said your Aunt has no assets, nor a will. However, if she did have any insurance policies or money in the bank, then once the funeral expenses are paid, the person who deals with any money she had in her accounts might be liable as debts can have to be paid from someone’s estate. If there is no estate, just advise the council that and provide them with a copy of your Aunt’s death certificate. Your Gran can get advice and help from her local advice agency (see here).

  7. Gigi

    My sister recently passed, leaving no will. While going through her things, I have found that she was in a substantial amount of debt, which had been passed on to various collections agencies. I am currently trying to establish what is in her estate – she had little money, but did own a house which she had been planning to sell. My question is, would the debt collection agencies be allowed to continue requesting payments etc while I am in the process of sorting out the estate, or do they have to wait until it is sorted and an executor is appointed and any funds are released and the house is sold?

    1. Scottish Adviser Post author

      Hi Gigi

      I an sorry to hear about your loss.

      As your Sister did own a house you will need to get a solicitor involved to sell the house, so it’s easier to get them involved to wind up the estate and also sell the house.

      There will also be legal steps that need to be completed as part of the winding up of the estate, so the solicitor will deal with that.

      They will also contact all the Creditors and ultimately pay them from the estate once the property is sold, and after the costs of winding up the estate and paying the funeral costs are dealt with.

      They will make it easier and smoother at this time and will avoid any unnecessary complications for you.

  8. Siobhan

    My brother passed at the start of this year, he had no money, assets etc. The only money coming is a small amount from a pension from an old job. The amount isn’t enough to cover the funeral cost my parents had to pay at the time.
    Does the executer (mum) still have to go through the sequestration for his debts or is notifying the companies enough?


    1. Scottish Adviser

      Hi Siobhan

      I am sorry for your loss. I would contact the creditors and let them know your brother has passed away. They may want a copy of the death certificate. I would also write to them and explain his financial situation, possibly even providing a copy of his most recent bank statement to show he did not have savings etc and request they write the debt off, as there is no funds in his estate to repay any of the debts.
      There would seem no point sequestrating the estate, as there are no funds in the estate. However, if you need some help with contacting the creditors, contact your local advice agency.
      I think you will find his creditors will be happy to assist.

  9. Margot

    My father in law has debts and has taken out equity release on his property. The executor of his will is his grandchild. What happens to his debts when he dies? The father in law has a son.

    1. Scottish Adviser

      Hi Margot

      I am assuming he has used the equity release to pay his other debts off?

      What normally should happen is a solicitor should be instructed to wind up the estate for the Executor, as there is a house involved.

      If the house is sold, the proceeds from the sale of the home are used to pay off the equity release, in the same way they would be used to pay off a mortgage.

      The Executor has no liability for the debts as long as the estate is wound up correctly, which is why a solicitor has to be used when a house is involved.

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