Several liabilities need to be addressed during the estate administration process. These include individual, joint and unsecured debts.
In Scotland, executors are responsible for paying these debts in a particular order. Our bereavement solicitors are highly skilled in navigating probate procedures and are happy to assist during this difficult time.
Table of Contents
- What types of debts are involved in estate administration in Scotland?
- What happens to debts and liabilities when someone dies?
- In what order are debts paid?
- How can probate solicitors help?
- The benefits of using Jones Whyte’s probate solicitors
- Key takeaways
- Frequently asked questions
What Types Of Debts Are Involved In Estate Administration In Scotland?
In Scotland, there are several types of debts to consider in estate administration:
Individual debt
These are debts and liabilities in the deceased person’s name, which can only be paid out of the estate. If there is no money to cover these debts, they are usually written off. This should be confirmed in writing
An example of this debt is a personal credit card.
Joint debts
This refers to any shared debt between two or more people, like a loan or a joint current account with an overdraft. The deceased would generally only be responsible for his or her share of the debt, but this should be confirmed with the creditor.
Secured debt
The most commonly encountered secured debt will be a mortgage or an equity release that is secured against the property. Ordinarily, the property is sold and the mortgage paid from the proceeds of the sale. However, if there are enough liquid assets in the estate, the mortgage can generally be paid off sooner using these assets. This has the benefit of stopping interest accruing and allows the property to remain in the family if that is the wish of the beneficiary.
The terms of the Will should be considered because it may state that the asset is to pass to the beneficiary free from any debts or expenses of transfer. This means that the cost of the mortgage is to be paid from the residue of the estate, even if the property is sold.
The process of repaying secured debt depends on how the asset was owned. If shared between other parties (joint ownership), it might automatically pass on to the surviving owner/s. The terms of the mortgage, equity release or loan agreement will have to be considered.
It’s best to seek legal advice in these instances.
Unsecured debt
This refers to debts, like car repayments, not attached to your home or other assets. Creditors generally cannot reclaim them when estates are insolvent. If there are sufficient funds to repay the debt, lenders must wait until secured debts have been paid.
Undisclosed debts
This refers to any liabilities not identified during the probate process and estate administration. A few examples include unpaid utility bills, overdrafts, and medical costs.
To avoid risk, the executor of the Will can publish a deceased estate notice in the local newspaper of the area where the deceased’s last lived. This notice allows creditors to reclaim outstanding amounts on the estate.
It also be helpful in light of the above for an executor to use an external search company to undertake an asset and liability search to check for potential creditors in an estate.
What Happens To Debts And Liabilities When Someone Dies?
While there’s a common misconception that debts and liabilities die with you or that family members are liable for these costs when you pass away, this isn’t always the case.
What is true is that debts and liabilities are payable from your estate when you pass away and are managed by the executor appointed in a will.
However, the outcome of these outstanding amounts depends on several factors at the time of death:
- If there is enough money in the estate, the debts you owe will be paid in priority order until the money or assets run out (more on this further down).
- If the estate is insolvent, the executor must legally sequestrate the estate (file for bankruptcy). The debts you owe are usually written off by lenders/creditors if they have been notified of your death. In some cases, these debts are written off by law as they’ve become “statute barred” (no longer recoverable after a period of time).
It’s worth noting that beneficiaries are not responsible for any payments while the executor is handling estate administration.
Who is responsible for paying my debts when I die?
The person/s responsible for paying your debts when you die is the executor. This is usually a surviving spouse, civil partner, family member, close friend, or a professional like an accountant or lawyer.
In Scotland, an executor can only administer the estate (such as paying debts and distributing the deceased’s assets) after receiving confirmation from the local Sheriff’s Court. This is an important part of the probate process.
To clarify, there are two types of executors in Scotland:
- Executor nominate: A person nominated by you in your will (testate).
- Executor dative: A person nominated by the court when there is no will in place (intestate).
The executor must settle your debts before your estate (money, property, shares, possessions) is distributed to the appointed beneficiaries.
If executors don’t follow the correct procedures, they can be held personally responsible for the estate’s debts.
Additionally, executors can only pay outstanding liabilities with what is available in the estate. For instance, if debts amount to £15,000 and there is only £3,000 in the estate, they are legally obligated to file for bankruptcy and use the remaining money to pay debts in priority order.
Is anyone else responsible for debts and liabilities when someone dies?
Generally, no one other than the executor is responsible for handling debts when someone dies. However, there are a few instances in Scots Law where debt liability can be transferred from one person to another upon death:
- In joint debts (owned by you and another person/s). This is commonly seen in council tax and personal loan instances.
- Where there is a Survivorship Clause (also known as Special Destination Clause) in the title deeds of your home. This means the “survivor” takes full responsibility for any outstanding amounts, like a mortgage, when you pass away. However, Scotland’s Supreme Court (Court of Session) has stated that the survivor can only take liability for the deceased’s debts up to the value of the property transferred to them in the clause.
In What Order Are Debts Paid?
In Scotland, the ranking order for paying debts from a deceased person’s estate is specifically structured to ensure certain obligations are settled before others.
The role of the executor is to ingather the estate and settle these liabilities on the deceased’s behalf.
Here is the order of debt payments:
1. Trustee remunerations
If you have a Protected Trust Deed (PTD) in place when you die, your remaining estate and assets are managed under its terms by an insolvency practitioner, known as a trustee. A PTD is a voluntary legal agreement between you and the people you owe money to, and the trustee manages these repayments on your behalf.
During estate administration, the trustee might need to sell or liquidate your assets to repay certain creditors outlined in the agreement. However, trustees are responsible for covering your funeral and death-bed costs before doing so.
For context: A PTD is a legal agreement for individuals struggling with debts like credit cards or loans, protecting them from legal action and ensuring debts are written off if the estate is insolvent.
2. Privileged debts
This encompasses funeral and death-bed expenses and other costs incurred while administering the estate, including probate fees.
3. Preferred debts
Next, preferred debts are paid from the estate, such as:
- Contributions to pension schemes
- Wages owed to the deceased’s employees
- Income and Council Tax
4. Secured debts
Secured debts like mortgage repayments or collateral loans are settled next.
5. Ordinary debts
Finally, any remaining unsecured debts like credit cards and utility bills are paid off.
How Can Bereavement/Executry Solicitors Help?
Jones Whyte’s trust and estate practitioners can help you with various aspects of the probate process, including addressing debts and liabilities. Our expertise covers:
- Will review: Jones Whyte reviews the deceased’s will and identifies beneficiaries to ensure assets are allocated correctly. We also provide assistance in intestate estates (when there is no will) and assist with obtaining a Grant of Probate through the courts.
- Obtaining confirmation: We’ll help the executor/s obtain this legal document from the local Sheriff’s Court to manage the estate accounts and affairs.
- Ingathering the estate: This involves calculating the value of the entire estate’s assets, like money, property, investments, and personal belongings. Debts are deducted from this total sum.
- Manage insolvent estates: If debts are greater than the estate’s value, we’ll assist in the legal sequestration of the estate.
- Identify debts and liabilities: As mentioned, our probate solicitors help you identify all payable amounts owed by the deceased, including secure and unsecured liabilities and tax obligations. From here, we’ll help you prioritise these payments.
- Inheritance tax (IHT): We’ll help calculate any IHT due on the estate and prepare inheritance tax returns (IHT400 forms) where applicable, ensuring timely payments (within six months) to avoid penalties.
- Negotiations with creditors: Jones Whyte will negotiate outstanding payments with creditors and lenders on your behalf. This can be particularly beneficial for larger estates with multiple liabilities.
- Handle disputes: Should disputes arise, our probate solicitors will represent the estate in litigation and court proceedings to resolve issues efficiently.
- Asset distribution: Once the probate process is complete and debts have been settled, our legal team helps you distribute the remaining estate to the rightful beneficiaries.
- Final stages: Our team manages all the necessary documentation required for debt settlement and the winding up of the estate.
Looking for the best probate solicitors to handle the whole estate administration process on your behalf? Get in touch with Jones Whyte’s Glasgow-based team today.
The Benefits Of Using Jones Whyte’s Executor/Bereavement Solicitors
There are several advantages of opting for Jones Whyte’s legal services in Scotland:
- Legal expertise: Accredited by the Law Society of Scotland and with decades of combined experience in estate administration, our probate lawyers are adept at handling both simple and complex estates.
- Reputation: Backed by a fantastic 4.8/5 Trustpilot rating, Jones Whyte is the law firm you can trust. This is a testament to the quality service our experienced probate solicitors offer our clients.
- Tailored advice: We understand no two estates are the same and personalise our approach to suit the needs of every client.
Key Takeaways
- Several types of debts are involved in probate: individual, joint, secured, unsecured, and undisclosed.
- A deceased person’s estate must pay outstanding debts in Scotland, ranked in a particular priority order.
- In Scots Law, there are a few instances where debt liability can be transferred from one person to another upon death, such as joint debts and Survivorship Clauses in title deeds.
- The executor of a Will is responsible for settling debts on the estate’s behalf once they obtain confirmation from the Sheriff’s Court.
- Jones Whyte’s probate experts bring decades of experience to estate administration, guiding you through managing debts, obtaining Confirmation, and distributing assets. As above.
Jones Whyte Is Here To Help
As you can see, addressing debts and liabilities isn’t easy. Fortunately, Jones Whyte’s estate administration services offer valuable support in navigating the complexities of the probate process.
Whether dealing with small or large estates, our professional team is readily available and eager to assist. Contact our offices today.
Please note: This article is for general information purposes only and does not constitute legal advice. It should not be relied upon as a substitute for professional legal advice tailored to your specific circumstances. If you need advice on a legal matter, get in touch with our team.
