Dying with debt is something that concerns many, especially in the wake of coronavirus. Not everyone has their estate in order when they die, especially since death can occur at any time. Whether it is being diagnosed with a terminal disease, being hit by a bus crossing the road or simply passing away in your sleep in your old age, there is a lot that we can do to get our affairs in order before we die.
Writing a Will is only one thing that we can do to get things in order, but writing a Will is only the beginning of organising your estate. Unsecured debt is something that people often don’t think about when it comes to estate planning, but it is something that you should plan for, even if you don’t intend on being in debt when you die.
What is Unsecured Debt?
Unsecured debt is any debt or loan that you take out that does not require any security. This can include things like credit cards, payday loans or overdrafts. These kinds of Unsecured Debt tend to be smaller amounts, but someone could have eight or nine different credit cards with £5,000 or more owing on them. You could easily end up dying with a substantial amount of Unsecured Debt.
What happens to Unsecured Debt when you die?
When you die with Unsecured Debt, this is paid out of your estate before your beneficiaries receive anything from your Will. The first thing that is paid out of your estate is inheritance tax, then your secured debt is paid. Once the secured debt has been paid in full, Unsecured Debt can then be paid.
If your estate doesn’t have enough money in it to clear the secured debt you have when you die, then the Unsecured Debt is written off. Debts are not something that your beneficiaries can inherit. The only time that beneficiaries will have to pay any debt is when they are already a cosignatory on any loan, mortgage or credit card. If you die and leave behind a debt with a guarantor which your estate cannot cover, then your guarantor will be liable to pay the outstanding debt.
How can I plan for dealing with my Unsecured Debt?
Even if you cannot pay off your Unsecured Debt before you die, there are ways that you can ensure that your debts can be paid and your beneficiaries still have something to inherit. The first and most popular, way of providing for your beneficiaries is a life insurance policy that pays out a substantial sum to your beneficiaries upon your death.
Another way is to create a trust within your Will that provides a certain amount to your beneficiaries when you die. This means that the assets named within the trust automatically become the property of your beneficiaries when you die rather than being assets that remain as part of your estate. This can not only help your beneficiaries receive something when you die but help to reduce the inheritance tax bill that your beneficiaries will receive.
Need help writing your Will to deal with your Unsecured Debts? Want to know more about creating a trust or taking out life insurance? Then please get in touch with our partner company IWC Probate Services.