Debt after life

Zombie bills live on after you shuffle off

Arecent Tenancy Tribunal case in which a Ngaruawahia woman’s estate was pursued for three weeks’ rent after she died highlighted the fact that there are many financial obligations that remain even after death.

The Residential Tenancy Act states that a tenancy ends 21 days after a landlord is given notice of a tenant’s death. Within that time, more rent will become due.

So, are there any debts that death will cancel out? And what can you do if someone you love has died in debt?

The first thing to understand is the concept of a dead person’s estate. This will consist of such assets as their house, if they owned one (although this may pass directly to a co-owning partner if it’s owned jointly and thus not become part of the estate), a car, KiwiSaver and other investments.

From that estate, most debts have to be paid before any remaining assets can be distributed to beneficiaries.

Power bills

If the electricity account holder dies, the account can be transferred into someone else’s name – and they will then take on the responsibility for any outstanding amount due.

If that is not possible, the account will be cancelled and the final bill sent to the estate. A similar process would apply for broadband and mobile bills.

Credit card

If the person who has died has a credit card in their own name, the balance owing will have to be paid out of the estate. But if they had a joint credit card with a spouse, the spouse would usually become liable for the full amount owing.

Mortgage

The executor of the estate will need to either use money from within the estate – perhaps from a life insurance payout – to pay off what is left on a home loan or sell the property to clear what is owing. If the property is jointly owned the obligation for the mortgage shifts on to the surviving borrower.

Tax

Tax is a personal debt and becomes due from the estate. The same would usually apply to business debts which are in a person’s own name and fines.

Student loans

If someone dies with a student loan still in place, the balance ‘‘may be’’ written off by Inland Revenue. Other payments the person is getting have to be stopped or there can be overpayment that has to be repaid.

If there isn’t enough in the estate

If there are not enough assets in the estate to sell to cover all the debts owing, the debt does not pass to any other family members, unless it’s something they were jointly liable for anyway.

The Law Society warns that sometimes people are pursued by unscrupulous lenders who hope family members won’t realise they are not on the hook for a loved one’s bills.

But if someone else has provided a guarantee, perhaps for a mortgage, they could still be liable.

Authorised users on credit cards are not usually responsible for paying the cardholder’s outstanding debts. But lawyer Thomas Biss, of Henderson Reeves, warns they may still be liable to reimburse the estate if they have run up costs.

Funeral costs and legal costs from dealing with the assets are costs of the estate.