The last thing you want your loved ones to face after your death is dealing with your debt.

You may think that when you’re gone, debt is miraculously scrapped off, but it isn’t – it follows you to the grave.

National Debt Advisors (NDA) founder and debt counsellor Sebastien Alexanderson says to assume that debt will be scrapped upon one’s passing would be detrimental to the financial wellbeing of those left behind.

As we mark National Wills Week, which started on Monday and ends on Friday, Alexanderson answers some questions on this subject:

Q: How is debt dealt with after death?

A: Debts owed by a deceased person’s estate are generally paid by the estate of the deceased person. Estates inherit assets when a person dies, and these are used essentially to pay off any outstanding debts prior to distributing these to the estate heirs.

Q: What does that mean for those left behind?

A: With the estate reduced or at times even depleted by debt, those left behind will inherit less or nothing at all from the deceased’s estate. Furthermore, in instances of secured debt, such as a mortgage, the co-signer (if there is one) will be responsible for the entire debt, or the property attached might be repossessed if the debt cannot be serviced.

Q: What is the role and importance of a will in relation to debt?

A: With a will, you are able to lay out how you want your belongings distributed, whether they are bank balances, property, prized possessions, or even debts. It is the only way to personally decide and specify exactly who will receive your assets after you have passed on. If you pass away with outstanding debt, you can make provision for it by taking out a life or credit life insurance and specifying the details of these in your will.

Q: What happens when there is a will or there isn’t one?

A: South African law states that if a person dies without a valid will, his/her estate will be administered according to the Intestate Succession Act, 81 of 1987. What this means is that the closest living blood relative will inherit the estate of someone who passes away intestate. First in line, it is the deceased’s spouse (estranged or not), followed by their children, and in the event the deceased does not leave a spouse or children, the estate will be inherited by his/her parents and then by his/her closest blood relative(s). Having a will ensures that your assets and personal belongings are divided up according to your wishes.

Q: What happens to the debt when someone dies?

A: In the event of someone's death, his assets and liabilities are transferred to their estate, and the estate is then responsible for paying off debts and distributing assets as per will specifications. If the assets are distributed to them before the debts are settled, heirs may have to pay the debts from their share of the estate.

Q: Explain the difference between secured and unsecure debts?

A: Secured debts are those that are guaranteed against specific assets. These are tangible items taken as security for loan repayments so that if payments cease, the bank can sell or use certain property to recover the amount owed.

Unsecured debts are the opposite of this. There is nothing attached to the debt and if payments were to stop, the bank will not have anything to repossess. In these instances, to pay off debt, the bank must go to court and get an order charging for the sale of valuables to recover the funds.

When it comes to secured debt and the person owing passes away, it is the responsibility of the person who inherits the house to pay off the balance of the mortgage on the deceased’s behalf. In the case of a joint mortgage, the survivor is still responsible for the balance.

Keep in mind that the house serves as collateral for the debt. So, if the debt is not repaid, the bank can repossess the house and sell it to pay off the debt.

The repayment of unsecured debt is solely dependent on whether there is enough money or assets to service the debt in the deceased’s estate. While collection agencies may try to convince the heirs that they are legally required to pay the debts with their own money, the fact of the matter is, unless they were a co-signer to the debt, no one else has to pay anything towards the unsecured debt of the deceased.

Inheriting someone’s unsecured debt is only possible if the estate is dissolved and distributed before the debts are settled.

Q: What are the tax implications?

A: Another important financial aspect to consider is tax. Not only does tax not disappear upon death, but it may even go up. If an estate earns income after death, it must pay taxes. The heirs of the estate may also have to pay taxes on inherited income. Furthermore, an estate tax may apply to the estate’s assets, which is separate from the income tax.

Q: Are there any debts that relatives don’t have to worry about following the death of their loved one?

A: One type of debt that can be forgiven after death is student loan debt. This can be upon the death of the borrower, or sometimes, the borrower’s parents. In these instances, proof of death has to be provided to either the school or the lender.

mashabas@sowetan.co.za