Have you ever wonder what will happen to your loan when you die? Will it be die off or will your loved ones end up paying for it on your behalf? It may seem not very important to you now but the lack of knowledge or understanding can cause your loved ones at the risk of being harassed by creditors.

First of all, you need to know that all your possessions left behind when you die will be put under your estate. An executor will be administering the estate during the interim, in which this person can be either nominated in your will or court appointed if you do not have a will. The responsibility of an executor is quite heavy. One of the responsibilities includes approaching the Probate Office in getting the grant of probate, which is a letter, as soon as possible. This letter is very important as it allows and authorizes the executor to carry out the responsibility in administering the estate immediately. Bear in mind that there are certain parties who have a right to make a claim against your estate before the inheritance can be delegated legally.

Funeral expenses

Here is a general overview on how and where your estate goes to. First and foremost, it will goes to your funeral expenses followed by paying the fees and expenses for the executor. Other than that, it will also go to pay all the applicable taxes regardless of government, federal or foreign taxes. Your estate will also be used to pay off your loans like hire purchase loans, housing loans or any business loans to the secured creditors. In addition, if you have any unsecured loans like personal loans and credit cards, part of your estate will be used to settle off these debts. Finally, the remainder of your estate will be distributed accordingly either by will, Distribution Act or Sijil Faraid for the Muslims.      

Secured vs unsecured loans

Have you wonder what if there is not enough to pay off your secured loans, either car or home loans? Initial option is that banks would give the beneficiaries and next of kin the chance to have the asset by taking over the loan at the same time. If agree, the assets will be transferred to their names. If not agreeable, the creditor will be given the right to foreclose the underlying asset that was pledged. You need to be aware that the proceeds of the sale by the bank shall be used to pay off the outstanding amount of the loan. Any remaining amount will be release back to the estate.   

Now, have you ever wonder what if there is not enough to pay off your unsecured loans like personal loan or credit card? For these types of loans, the solutions are pretty straight forward. If guarantors are available for the loan, the guarantors will assume as the responsible person for the remaining amount of the loan. If otherwise where guarantors are not available, there will be two possibilities for such case. If you did not leave behind any possessions of value in your estate when you die, creditors will have to write off your debt given there are no other choices. In this case, the creditors have no rights to go after your loved ones for the debt. On the other hand, the creditors can choose to sue your estate if you have possessions in your estate. This is to claim back what you still owed them and it can definitely delay the distribution of the inheritance. It is practical for your next of kin to continue to pay the installments on behalf of yourself and to make claims against the estate later. This can prevent accrual of late payment charges and any delays in the inheritance distribution.  

It is advisable to make sure your loved ones are well educated about their rights as heirs in order to be well prepared in the event of your passing away. It is also very important to engage the services, a good lawyer or will writer to be an executor for your estate for an amount of fee. No doubt, they are the right and best people to advise you on the best practices and guides on what to do next.