Tackling Debts and Liabilities for Probate

When sorting out an estate, it’s not just about valuing what the person owned; you also need a clear picture of what they owed. Identifying and confirming all outstanding debts and liabilities is a crucial part of the probate process. It might feel like detective work, but getting this right is vital for settling the estate correctly. Let's get this list nailed down.

Why You Must List All Debts

Every penny owed by the deceased at the time of their death needs to be accounted for. Here’s why:

• Net Estate Value: Debts are deducted from the total value of the assets to calculate the estate's net worth.
• Probate Forms: You need to declare these debts accurately on the probate application forms.
• Inheritance Tax (IHT): Correctly identified debts reduce the estate value subject to IHT. Missing legitimate debts could mean paying more tax than necessary. Listing ineligible debts could cause issues with HMRC.
• Paying Creditors: As executor, you have a legal duty to pay off the deceased's legitimate debts from the estate before distributing assets to beneficiaries.

How to Uncover the Debts

Your starting point is the deceased's paperwork. You need to be thorough; leave no stone unturned.

1. Scour the Paperwork: Look through bank statements, credit card bills, loan agreements, mortgage documents, utility bills, council tax statements, and any correspondence related to money owed.
2. Check Bank Statements: Regular payments going out can be clues to loans, hire purchase agreements, subscriptions, or insurance policies.
3. Contact Known Creditors: If you know about specific debts like a mortgage or loan, contact the lender directly. You'll need the death certificate and proof of your authority. Ask for the exact amount outstanding on the date of death.
4. Review Emails and Digital Accounts: Check online accounts and emails for digital subscriptions, online loans, or store credit agreements.
5. Consider Statutory Notices: You might consider placing notices in The Gazette and a local newspaper, asking anyone owed money by the deceased to come forward. This can protect you, the executor, from personal liability if unknown creditors appear later. Ask us if this is appropriate for your situation.

Common Debts and Liabilities to Look For

Be systematic in your search. Here’s a checklist of common debts:

• Mortgage: Obtain the redemption figure or outstanding balance from the mortgage lender as at the date of death.
• Secured Loans: Any loans secured against property. Get the balance from the lender.
• Personal Loans: Unsecured loans from banks or other lenders.
• Credit Cards & Store Cards: Contact each card provider for the outstanding balance, including any interest accrued up to the date of death.
• Overdrafts: Check bank accounts for any overdrawn balances.
• Utility Bills: Gas, electricity, water. You'll need meter readings close to the date of death to get accurate final bills. Apportion bills that cover periods before and after death.
• Council Tax: The amount owed up to the date of death. Inform the council to stop charges or apply any exemptions.
• Telephone and Broadband: Outstanding line rental or call charges.
• Care Home Fees: Any unpaid fees.
• Hire Purchase or Finance Agreements: For cars or other items.
• Taxes Owed: Outstanding income tax, capital gains tax, or any other tax liability. HMRC can confirm this.
• Overpaid Benefits or Pensions: Sometimes state benefits or pensions are paid after death and need repaying. Contact the relevant government departments (like DWP).
• Business Debts: If the deceased owned a business, check for trade creditors, VAT, or other business liabilities.

Don't Forget Funeral Expenses

The reasonable costs of the funeral are treated as a debt of the estate. This includes:

• The funeral director's invoice.
• Cremation or burial fees.
• Headstone or memorial costs (within reasonable limits).
• Flowers and catering for the wake (again, within reason).

Keep all invoices. These costs are deductible for IHT purposes, so accurate records are important.

Getting the Figures Right

For every debt, you need the precise amount outstanding on the date the person died. Ensure creditors provide written confirmation of this balance.

Wrapping Up

Identifying and valuing debts is a meticulous but essential task. It ensures the estate is administered correctly, IHT is calculated accurately, and you fulfil your duties as executor. We know this list looks long, but tackling it methodically gets the job done.

You are doing vital work here. Keep these records organised, and you are well on your way. We are ready to help with the next step.