What happens to the debt when you die?

[simonjulie]

Hi Folks
(I asked this question on another forum but so far no answers)

Something that someone may be able to clear up for me.
What would happen to the debt on a property portfolio if for instance both husband and wife died at the same time? No trusts or other restrictions with all the properties being held in both names.
What would the process be?
Thanks
Simon

 

[Twentyseven]

Depends on what you put in your wills.

If there is a provision in your will that says you pass on your property portfolio free of all debts, then the trustees and/or executors will sell down your portfolio to pay off all debts and pass on the unemcumbered properties to your beneficiaries.

If there is no such a provision then the executors/trustees do as they see fit (which is something similar to the above).

If you are passing on the portfolio to minors (people under 18 years of age) then your trustees have the power to keep the portfolio running until your beneficiaries are over 18, then consult with them as to what they want done.

What you can do, if you wish for your portfolio to continue (along with the debt) is to pass the debt associated with each property on to your beneficiaries (but this might be a bit tricky because your beneficiaries may not be able to pay the interest).

 

[redwing]

Term Life Insurance pays out my IP's (ala Peter SPANN'S book)..The rest is covered in the will.

 

[Pushka]

But basically your estate inherits the debts and must make good through some kind of asset sell off or rearrangement. Unfortunately it doesnt die with you!

 

[simonjulie]

What you can do, if you wish for your portfolio to continue (along with the debt) is to pass the debt associated with each property on to your beneficiaries (but this might be a bit tricky because your beneficiaries may not be able to pay the interest).

Thanks Twentyseven, the above is closer to what I want to know.
Exactly what is the lenders stance in this type of situation? given that there are probably a number of different lenders depending on the size of the property portfolio.
Simon

 

[simonjulie]

But basically your estate inherits the debts and must make good through some kind of asset sell off or rearrangement. Unfortunately it doesnt die with you!

Thanks Pushka
The reason I am asking this question is with a hope to set up an effective strategy for our executors to proceed with in the case of us both dying at the same time (falling out of the sky or something like that) At present, for me,there are two many grey areas in this regard.
Simon

 

[simonjulie]

Term Life Insurance pays out my IP's (ala Peter SPANN'S book)..The rest is covered in the will.

I should read that book.
Thanks redwing

 

[redwing]

I should read that book.
Thanks redwing

Just dont tell the kids..you don't want to go too early

 

[The Y-man]

Just dont tell the kids..you don't want to go too early

Problem is, there are situations where you may not be covered... beware the exclusions in your Term Life policies....

Cheers,

The Y-man

 

[Bricks & Mortar]

Simon

Thanks Pushka
The reason I am asking this question is with a hope to set up an effective strategy for our executors to proceed with in the case of us both dying at the same time (falling out of the sky or something like that) At present, for me,there are two many grey areas in this regard.
Simon

Given that the executors probably wouldn't be investors,
Most families would encounter an immediate "sell off" as the exectors answer.
I wonder if It would be possible to have an instruction form or some sort of draft made up that could be utilised by any member of the forum, if something did happen. This could be utilized even if you had insuarnce cover.

 

[Bargain Hunter]

Given that the executors probably wouldn't be investors,
Most families would encounter an immediate "sell off" as the exectors answer.

This is exactly what they had on Today Tonight the other day. Three woman had been the beneficiaries however a friend of the desceased was the executor.

Apparently the woman agreed how the property would be shared between them yet the executor was going ahead and selling the house to ensure each received an equal inheritance.

It was causing alot of pain.

Andrew

 

[grossreal]

hi simon
have alook at company/trusts.
when you die the property is not yours and the company/trust doesn't die so there is no change.
very handy also if you do this for your kids
as it gives protection from divorsee wanting part of the property
as the property is owned by the company/trust and if you make the trust a blood trust it gets rid of alot of these problems.
your insurance can still payout the value of the property you make the company/trust benefactors of your insurance and note it on the policy.

 

[Aceyducey]

So you can't take it all (the debt) with you?

Investors should do some estate planning for this contingency - particularly if they prefer things to occur a particular way.

We have carefully structured wills that move assets across into a testimonial trust with a set of trustees selected from the most financially knowledgeable of our rellies. This should help ensure that the assets are retained and properly managed after a selldown to match outstandings.

Cheers,

Aceyducey

 

[RichardC]

I'm wondering if these replies addresed Simon's question.

I would suspect that you can't pass your private debts onto the next generation. The Government thinks it can, but that's another story.

Should a person die insolvent, ie debts outweigh assetts, then the estate would be, in effect, bankrupt. In this case I imagine the mortgagors, lessors, HP providers would repossess any goods and chattels they have a lien on. Receivers would apportion the rest.

Should he die solvent but the executors refuse to meet obligations, the aggrieved creditor could then force the estate into bankrupcy and the courts would then force sale of assetts to cover the estate's debts. The plaintiff would get a full 100cents in the $ plus costs and the remainder (less costs) would go to the heirs. All that fine print ain't there for nuttin!

Hey! I'm a tradesman with no special knowledge of these things. This is just my "logical" answer to what I think Simon may have asked.

Bill

 

[alexlee]

Seems that the key issue is to designate a good executor. Someone who understands investments, and more importantly understands the deceased's financial affairs.

At the very least, I think we should prepare a file with all recent bank statements, property statements, term deposits, share accounts, super accounts, etc and update every 3-6 months. That way, if anything happens, your family knows where all your bank accounts are, etc.

Other ideas include writing undated cheques to your next of kin to be used in the case that you die and they can't access the money immediately. Or give an undated cheque to a trusted friend, say, and ask them to deposit the cheque and give the funds to your dependents in the event.
Alex

 

[simonjulie]

Thankyou everyone
There are some real good ideas.
Transfering assets to some form of trust in the event of death sounds like a simple solution if that is possible. Signed blank cheques sounds good too.
I also like the idea of a forum based "in the event of death checklist" for all to benefit from.
I know that there are probably a number of folk who frequent this forum who like me have not thought too much about the question. "What happens if we suddenly die and who will look after the empire we have built?"
I am not big on complexities but just simple solutions to prblems that may occur.
Thanks again
Simon

 

[Ruby]

I also like the idea of a forum based "in the event of death checklist" for all to benefit from.

We look forward to your seeing your 'checklist' when you post it simon.

It's an important subject, and something we all tend to neglect. Thanks for bring the issue up. Its certainly got me thinking.

 

[simonjulie]

Hi Ruby
I fear it may have to be a joint effort from all who wish to contribute.
One idea I have is to maybe start a posts similar to the current one on reno tips and tricks. That way it can be added to over time and available as a tool for forumites in the future.
How would you start a post like that? any ideas?
Simon

 

[Ruby]

One idea I have is to maybe start a posts similar to the current one on reno tips and tricks. That way it can be added to over time and available as a tool for forumites in the future.
How would you start a post like that? any ideas?

Great idea Simon.......just start one, explaining what its for and asking for ideas.

I know everyone's circumstances are different, but I'm sure it will give people a general idea of what to include in their own checklist.

This thread of Olly's is a valuable lesson for everyone as well. http://www.somersoft.com/forums/showthread.php?t=20548
and maybe at a minimum we all should have Dale's Personal Register filled out......just in case.
http://www.somersoft.com/forums/attachment.php?attachmentid=736&d=1113533007

Ruby

 

[DaleGG]

Hi

Another thought, in addition to your will, is to write a letter explaining your wishes in a little more detail.

I ahve two such letters.

One for Sue, which everyone at the office knows of and where it lives in case I die or am incapacitated through a stroke or heart attack. It tells her who to contact and what to do and reaffirms many of the things we have spoken about along with a final message of my love for her.

The 2nd is to James, which is in case both Sue and I pass on. This letter again explains our wishes including our thoughts about quality of life and not quantity and how we would like him to approach the issues of managing our estate. Again, this letter also reaffirms our love for him and our confidence in him as a person.

Worth considering?

Dale

ps You will need a bottle of your favourite "medicine" available when you write such letters as it is quite emotionally draining. But, you will be doing your family a favour.