Can You Inherit Debt In Australia?

Losing a loved one is never easy, but it can also bring about an entire world of financial questions you’ve never thought to ask. One of the most common questions after losing a loved one is whether or not you can inherit debt in Australia. 

In most cases, the answer is no. Only the deceased is responsible for most debts at their time of passing. Of course, there are some exceptions to this rule. Like all things having to do with financial planning, the answer is complex. It all depends on the types of debts your loved one had, the size of the estate, and whether you cosigned on any loans. In this guide, we’ll answer the question of whether you can inherit debt in Australia so you can be prepared. 

Does the Next of Kin Inherit Debt?

First, let’s answer the biggest questions. Does the individual’s next of kin automatically become financially responsible for the debt at someone’s time of death? The clear answer here is no. You can’t inherit someone’s bad credit or loan repayments, assuming you aren’t a cosigner on the account. 

All the outstanding balances will be drawn from your loved one’s estate. The estate includes their money, superannuation death benefits, and other assets like life insurance. If they had secured debt (like a mortgage or auto loan), the property might be sold to repay the creditor what’s owed. 

Though it might seem intimidating to find yourself face-to-face with a loved one’s debt, know that this doesn’t fall on your shoulders automatically. There are only a few instances where any surviving loved ones might be obligated to repay outstanding debt. When in doubt, talk to an estate attorney about what you’re responsible for. 

What Debt Is Inherited in Australia?

As we explained above, most debt cannot be inherited. That means it dies with your loved one’s estate. If there aren’t enough funds in the estate to cover the full cost of the debt, then that expense is typically written off by the lender as a loss. However, if any of these situations below apply to you, then you might be on the hook for the debt yourself:

  • Guarantor loans: If you cosigned a loan as a guarantor for your loved one, you might face repayment. While you might be able to sell the property (estate, assets, etc.) to make up the difference, this could impact your credit if it’s not fully repaid. 
  • Joint accounts: If you share a joint account with a loved one, like joint names on a mortgage or loan, you’re still responsible. Again, the estate can cover as much as possible, but you might need to repay any remaining balance yourself. 

Because you’re responsible for these debts above, it’s important to always fully understand your obligations before involving yourself with someone else’s debt. There are many instances where it makes sense to be a guarantor or joint account holder, but it could leave you on the hook for repayments. 

What Happens to Remaining Assets?

Finally, what happens to the remaining assets in an estate after someone dies? Anything that remains after all debts have been paid is left behind to family members and friends. These are known as beneficiaries, and they’re typically nominated in a legal will. The executor of the will is in charge of deciding what needs to be repaid, notifying creditors, and any next steps.

If there aren’t enough funds in the estate to cover all outstanding debt, the family still does not have to pay. Priority is given to certain types of debts (like tax debts), and property is sold to create extra funds for repayments. Creditors are not allowed to pressure other family members or next of kin for repayment. 

When in doubt, consult with an attorney. Estate attorneys help with the difficult transitions that come from settling a loved one’s estate after a passing. This is also an important reminder to be mindful of your own end-of-life plan and estate. Knowing how you want your debts handled when you pass can greatly reduce this burden for your loved ones when the time comes. 

Planning for the Inevitable

It’s challenging to talk about what happens after a loved one dies, especially if this is your first time thinking of this. Dealing with the grief of a loss is hard enough as is. The last thing you want to worry about is taking on additional financial debts. Estate law is tricky, and it’s not always super clear what happens to your debt at the time of death. 

Like most financial challenges, debts don’t disappear after you die. Instead, they’re taken from your estate before your beneficiaries get any inheritance. Any value remaining in the estate falls to the loved ones listed in the legal will. 

Are you worried about your debts? Whether you’re helping parents age or planning for retirement, there’s never a wrong time to look into your debts and what they mean for the future. Contact our team today for a free consultation. 

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