What happens to your debt and taxes when you die?
Have you ever wondered what will happen to your debt and taxes when you die? Lennox Wasara explains…
JOHANNESBURG – Debt and assets we own generally pass to a person’s estate in the event of an untimely death, which means the estate is responsible for allocating a person’s wealth according to the specifications written in the will.
On the other hand, your liabilities and debts will be settled by the estate in the event that the beneficiaries inherit assets from the estate before the debt is discharged. In such a case, the heirs may have to pay the debts from the share of their inherited assets.
It is important to note that there are different types of debt. The first is secured debt, which is bounded by tangible assets such as a house, car, or machinery. If you use your house as collateral, the bank can sell the house to recover the lost capital if you don’t pay. Interestingly, it could become the responsibility of the person who inherits the asset to pay off the balance of the deceased debt.
The second type of debt is unsecured debt, which has no security acting as protection for the lender. This type can range from credit cards to an expense report for a service such as a medical bill. As such, the bank has nothing to complain about, so to speak. For this reason, the lender should obtain a court order authorizing the sale of valuables to recover the funds.
If an estate earns income, tax must be paid to the South African Revenue Authority (Sars) and an heir will have to pay tax on the inherited income.
In some cases, parents can take out a student loan to further their child’s education – student loan debt can be forgiven provided a death certificate is presented as proof.
Finally, not everything is catastrophic, there is a solution to ensure you leave your loved ones in good financial health if you die by having positive-yielding investments, life coverage, writing a will and an insurance policy. in-service death insurance.