What happens to your debt when you pass away – should I be scared about death and taxes?
In the event of your death, all your assets and liabilities are transferred to your estate, which is then responsible for collecting debts, paying creditors, turning assets into cash or distributing it in terms of the will.
Secured Debt
Secured debt is guaranteed against the proceeds of specific assets. Unsecured debt is not guaranteed and payment thereof depends on the availability of enough cash or assets to settle such debt.
Estate taxes are due to the state if the value of the estate exceeds the minimum threshold. Moreover, if the estate continues to earn income from certain assets, the estate may be liable to pay income tax thereon.
Student debt
One or more types of debts may be cancelled or forgiven upon death, such as student debt. This will however depend on the terms of the debt instrument.
Life assurance
Invest in life assurance when you are young and healthy. The premiums payable are based upon your remaining life expectancy and is usually low. The benefit falls to your estate unless you’ve provided otherwise in the policy document, ensuring that adequate cash is available to your estate to settle your unsecured debt. Avoid the headache of death and taxes.
Investments and Savings
Build up a healthy reserve in the form of investments and savings. This is firstly intended to cover unexpected financial hardships during your lifetime but will fall into your estate in the event of your death. Always wise to leave a healthy net asset value to your estate and loved ones remaining behind. You should maximise your wealth and financial well-being during your lifetime.
Update your will from time to time
Ensure that you have a valid will and last testament, and more importantly, make sure you update it from time to time to ensure that your earthly assets and estate are dealt with according to your wishes. Make sure it is validly drawn and keep it in safe custody.
Twists and turns after your death
Too often we read about family members arguing about the division of the assets, or court cases involving experts to determine if it is your signature on the will, or if you were of sound mind when you signed. Sad but a hard reality. The larger the value of your estate, the more likely that your death may result in feuds and bad blood.