Paying off debts

Dealing with debt after a death can feel daunting, but there are steps you can take if there isn't enough money in your child's estate to cover all of their debts, outstanding bills and bequests.

An estate is everything that your child owned at the time of their death, including property, shares, possessions and money.

What needs paying off first?

You may find that when you add up the money in your child's current and savings account, and possibly the value of their home, there simply isn't enough to pay for everything. If so, the expenses and debts must be paid in a specific order:

  1. Funeral expenses and 'testamentary' expenses (the costs of dealing with their will)
  2. Any debt secured by a mortgage on your child's home
  3. Any money (tax) due to HM Revenue and Customs (HMRC). The registrar's office usually notifies HMRC of a death
  4. Any money due to the Department for Work and Pensions (DWP), which deals with social security (so you may have to refund any over-payment of benefits)
  5. Any unpaid pension contributions or wages.

Legacies and residue

If all the debts can be paid, but there isn't enough money left to pay everything set out in your child's will, the legacies (those where a specific amount is mentioned) will be paid first, and the other people mentioned will get what is left over (the 'residue).

If there is not enough to pay all the legacies, the people entitled to the legacies will get a proportion of what they have been left, depending on how much money is available. The other people mentioned in the will, who are supposed to get the residue, will not receive anything.

There is no inheritance tax to pay if your child's estate is valued at less than £325,000 (figure for 2015 to 2016).

Reviewed: December 2015
Next planned review: December 2016

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