Are Debts Forgiven When You Die?
One common myth is that all debts are forgiven upon death. Unfortunately, that’s not the case. Your debts don’t just disappear; they must be settled during the probate process. Here are some key points about debts after death:
Secured Debts
Secured debt is a loan that is guaranteed by an asset. For example, in a mortgage, the house is used as secure for the loan. If these debts aren’t settled, the assets can be repossessed or foreclosed.
Unsecured Debts
Unsecured debt, such as credit card balances, personal loans, and medical bills, must also be paid. These debts are usually settled using the assets from your estate.
Joint Debts
If you have a co-signer on any loans, the responsibility for the debt usually passes to the surviving co-signer.
What Happens With My Debts After I Die?
Your estate includes all the property, goods, and money you own that can be distributed after your death. When you die, any debts you have must be paid from your estate before anything else is shared out, regardless of whether you have a will.
Creditors can claim your estate to settle these debts. Sometimes, property or money can be shared out without being part of the estate, so it won’t be used to pay debts. Examples include certain credit union savings, joint bank accounts, and some insurance policies.
If you die without an estate, your debts cannot be repaid and they die with you. Your relatives don’t have to pay your debts unless they guaranteed them or are jointly responsible.
What Happens With My Family or Shared Home After I Die?
The way your shared home is handled after your death depends on how you own it. Here are the main types of ownership:
Joint Tenancy
If you and your spouse or partner own the family home together as joint tenants, your spouse or partner will automatically become the sole owner when you die.
The home won’t be included in your estate in this case.
Tenancy in Common
If you and your co-owners each own a specific share of the property, this is called tenancy in common. In this situation, your share of the property will become part of your estate when you die.
Sole Ownership
If you are the only owner, your property will be part of your estate when you die. However, your spouse, partner, or cohabitant might be able to claim a share of it.
What Are the Inheritance Tax Rules for Family Homes in Ireland?
Inheritance tax, called Capital Acquisitions Tax (CAT), applies to the transfer of assets, including family homes.
The tax rules vary based on the relationship between the deceased and the person inheriting.
A surviving spouse or civil partner does not have to pay CAT on the family home. Children and other relatives may have to pay CAT, but the amount they can inherit tax-free depends on their relationship to the deceased.
Children (Group A) have a higher tax-free limit than siblings, nieces, nephews, or other relatives (Groups B and C). Click here to see the tax group thresholds.
There are ways to protect your children from inheritance tax on assets. Read our article to learn more.
Dwelling House Exemption
The Dwelling House Exemption allows someone to inherit a home without paying CAT if they lived in it for three years before inheriting and continue to live in it for six years after, with other conditions depending on their relationship to the deceased. This exemption is to help those who genuinely live in the home.
Explore our article, Dwelling House Relief: Avoiding Inheritance Tax on the Family Home.
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