Kith & Kin

What happens to my debts after I die?

brick wall with black inscription until debt tear us apart

Photo by Ehud Neuhaus on Unsplash

When we die, we can only hope that our loved ones look to the best memories they have of us. For sure we would want to be remembered because of the good times, and not because we have left them a debt inheritance.

Can debt be inherited?

In Singapore, surviving family members are not legally responsible for the debts left behind by the deceased. However, in cases of joint loans, wherein two or more people are named on the credit agreement, the surviving parties will still be responsible for paying for the total amount of debt.

And if you will be bestowing a property with a joint mortgage on it, the person who inherits it will be responsible for that debt. They would have to pay off the debt to maintain control over the property or get a new home loan. In this case, there will be debt inheritance.

It is worth noting, especially in estate planning for parents, that the Home Protection Scheme (HPS) for HDB homeowners using CPF to service your mortgage offers protection for family members from losing their HDB flat in the event of death, terminal illness, or total permanent disability. This scheme, which should also be considered in estate planning in Singapore, provides insurance for members up to age 65 or until the housing loans are paid up, whichever comes first.

What happens to my estate after I die?

A person’s assets will be frozen after they pass away, and it is then up to the executor to apply for probate. If in case there is no legitimate will from the deceased, and his estate does not exceed SGD50,000, the surviving family members can go to the Public Trustee for them to divide the assets according to the Intestate Succession Act.

With this court order, the executor will have the authority to administer the estate based on the will and in accordance with the law.

But even then, the executor has to follow an order when settling debts before the assets could be distributed to beneficiaries. Funeral costs will be settled first, followed by outstanding debts (unpaid taxes, loans, mortgages, credit cards, and utility bills). If needed, the executor will use the estate and take actions such as liquidating investments to pay off any outstanding debt.

Once the court is satisfied that all debts are paid, the remaining assets can be distributed to the beneficiaries of your will.

What happens if my debts are more than my assets?

After funeral costs are paid for, the order of debt repayment will follow the Bankruptcy Act. If selling the property assets still leaves the estate without enough money to pay all of its debts, any remaining creditors must take the loss. Except for joint debts, family members are not subject to debt inheritance.

What is estate planning and why it is important?

Although surviving family members are protected from debt inheritance in general, it is essential that you have a plan when it comes to taking care of your finances after you die. In most cases, the help of an estate planning lawyer will be most beneficial.

Estate planning allows you to avoid situations of debt inheritance for your family members. By making clear instructions on your will, you can protect properties from being liquidated rather than leaving all the decisions to your executor.

Estate planning also ensures you are aware of everything that comprises your estate and not just your assets. For estate planning tips, we recommend listing tangible and digital assets along with joint loans and mortgages, so the testator will see the overall impact on surviving family members.

Understanding what is estate planning and why it is important allows you to prepare for your family’s future. Clearly, estate planning and wealth preservation strategies and solutions can be interchangeable.

Estate planning allows you to assess beforehand whether in your situation and arrangements, can debt be inherited? From there you will see what impact will your debts incur on your estate, and to those who will potentially inherit it.

Here at Kith & Kin Law Corporation, we pride ourselves with combining our up-to-date knowledge on Estate Planning Singapore with our corporate conviction to provide the best legal advice based on our client’s personal circumstances.

If you would like to know more about how you can plan your estate, get in touch with us today.