What happens to your debt and taxes when you die in South Africa?

Debt is one of the scariest things to deal with, but what happens when we die? Sebastien Alexanderson, Founder and Debt Advisor at National Debt Advisors (NDA), says assuming our debt will be wiped out is detrimental to the financial well-being of our loved ones left behind.

“In the event of a person’s death, their assets and liabilities are transferred to their estate, and the estate is then responsible for repaying debts and distributing assets according to the specifications of the will. If the assets are distributed to them before the debts are settled, the heirs may have to pay the debts out of their share of the estate.

How debt is handled after death largely depends on whether the debt is secured or unsecured.

“Secured debts are those secured by specific assets. These are tangible items taken as collateral for loan repayments so that if payments stop, the bank can sell or use certain assets to collect the amount owed,” Alexanderson said.

“Unsecured debt is the opposite of that. There is nothing attached to the debt, and if the payments were to stop, the bank will have nothing to take back. In these cases, to repay the debt, the bank must go to court and obtain a sale of valuables order to recover the funds.

He said that when it is a secured debt and the debtor dies, it is the responsibility of the person who inherits the house to pay off the balance of the mortgage on behalf of the deceased. In the case of a joint mortgage, the survivor is still responsible for the balance.

“Keep in mind that the house serves as collateral for the debt. So if the debt is not repaid, the bank can repossess the house and sell it to pay off the debt,” he added.

On the other hand, Alexanderson said the repayment of an unsecured debt depends solely on the availability of sufficient money or assets to repay the debt in the deceased’s estate.

“While collection agencies may try to convince heirs that they are legally obligated to pay debts with their own money, the fact is that unless they are co-signers of the debt, no one else can. have to pay anything for the deceased’s unsecured debt.

Inheriting someone’s unsecured debt is only possible if the estate is dissolved and distributed before the debts are settled.

National debt advisors highlighted an additional financial aspect to consider, namely taxation.

“Not only does the tax not disappear on death, but it can even increase,” he says. If an estate earns income after death, it must pay taxes. The heirs to the estate may also have to pay taxes on inherited income. In addition, an estate tax may apply to estate assets, which is separate from income tax.

One type of debt that can be forgiven after death is student loan debt, Alexanderson said. This may be upon the death of the borrower, or sometimes, of the borrower’s parents. In these cases, proof of death must be provided to the school or lender.

Alexanderson provides key advice:

  • Credit life insurance. Designed to serve as a layer of protection against any eventuality that could possibly prevent you from paying your debt bill, credit life insurance can ease a huge burden on those left behind if you die while continuing to pay down debt. . It covers the cost of your debt if, for one reason or another, you are no longer able to repay it.
  • An in-service death insurance policy. In some cases, employers pay death benefits to their employees if they die in service. In the event of the employee’s death while still on payroll, a designated beneficiary will receive a lump sum. Therefore, the remaining family will be less likely to face financial hardship.
  • Life cover. Life insurance policies work in such a way that when the policyholder dies, the beneficiary receives a cash sum. There are also other circumstances where coverage pays off, such as critical illness. Sometimes your life insurance can also be used to pay off your debts when you die so that you don’t leave your family to deal with your debt problem after you die.
  • Investments and savings accounts. There are many investments and savings accounts you can use to ensure you leave a healthy financial legacy for your family. Dead or alive, savings and investments are an essential part of any sound money management plan.

Alexanderson said there are ways to minimize and mitigate family members’ debts, but the best way to ensure only positive things remain after death is to maximize your wealth and well-being. finance now.

“The most important thing is to leave a positive legacy for those we love – both emotionally and financially. Although many things are beyond our control, from a financial perspective, we can take the necessary steps. to ensure that our estate will be healthy. Be sure to create or update your will to ensure that your estate is bequeathed according to your wishes,” he said.

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John A. Bogar