What happens to your house/debt if you die?

Dannydee333

I'll keep this simple (I'm not sure if this is the correct forum, so plz re-place it if needed).

I'm taking out a mortgage and obviously, I will have life insurance, but something my broker said yesterday has really annoyed me.

They said that if you didn't have life insurance and you died halfway through your mortgage, your debt goes to your parents or nearest family member... and I find that difficult to grasp or accept to be true or even legal.

Can someone explain this plz?

From my perspective, I might be completely estranged from my entire family, and then if I die, you're telling me my debt would just land at someone else's door? Someone who has literally nothing to do with my affairs, signed nothing, and agreed to nothing?

For instance, if someone landed at my door telling me I was responsible for a family member's debt, they would be told in no uncertain terms where to go.

Someone tell me this nonsense idea is not true?

theoretica

If you die, anything you own goes to pay off the debt before other people inherit money/stuff.  Which can lead to anxious and difficult times if other people live in the house with you.  But if you live alone, selling the house to pay the mortgage may not be an issue.

Keep_pedalling

If you are single with no dependants then you don’t really need the insurance, the house gets sold the mortgage gets paid off and and what’s left goes to your beneficiaries. If for some reason the value of your house plummets and it’s value does not cover the debt then your estate is insolvent and your beneficiaries get nothing and the mortgage company will right off the unpaid part of the debt. You can’t inherit debt so you parents are not responsible for it.

Dannydee333

You can’t inherit debt so you parents are not responsible for it.

Well in that case my broker not only worded it horribly, but appears to have lied to me as they said my family could and would inherit debt, and there would be nothing I could do about it. So, it's no wonder I was peeved at what they said to me. I just knew it didn't sound right. For that reason, the broker can probably say goodbye to any commission they would have been getting, for I don't see myself taking out any insurance through them, in light of this.

I do have one kid. So I will be taking life insurance.

GrumpyDil

I suspect this is a poor choice of words.  If you died with no cover then your benefiaries would inherit your estate less any outstanding debt so in that sense they would inherit the debt. What would not happen would be that the debt could mean them owing money. 

la531983

I suspect you have horribly misunderstood what the broker meant.

DullGreyGuy

Dannydee333 said:

You can’t inherit debt so you parents are not responsible for it.

Well in that case my broker not only worded it horribly, but appears to have lied to me as they said my family could and would inherit debt, and there would be nothing I could do about it. So, it's no wonder I was peeved at what they said to me. I just knew it didn't sound right. For that reason, the broker can probably say goodbye to any commission they would have been getting, for I don't see myself taking out any insurance through them, in light of this.

I do have one kid. So I will be taking life insurance.

I'd stick with poorly worded... they inherit any positive net value of your estate (assets less debts) and so by some peoples thinking they get the £300,000 house but also the £200,000 mortgage, in reality they get the £100,000 equity in the house. Naturally if there is insurance that pays off the mortgage on your death then they get the full £300,000 of house. 

If your estate is insolvent, you owe more than what your assets are worth, then absolutely the debts are written off but your family get nothing*, the house goes to the bank and other creditors. 

* its possible to have certain things, such as life insurance, setup such that it doesn't form part of your estate and as such those elements normally can pass to your beneficiaries even if the estate is involvement. 

Gavin83

la531983 said:

I suspect you have horribly misunderstood what the broker meant.

I also suspect this.

OP your family won't inherit debt. However your debt could reduce any potential inheritance they receive, potentially wiping out any inheritance entirely. So while they technically don't inherit your debt in an indirect way they do or at the very least the net effect is the same. Life insurance would help to mitigate this.

Olinda99

I have heard stories where families inherts (or is responsible for) debt when the person who dies owns a time share property but not sure how true this is

castle96

I 'suspect' it was for the commission on the life policy !!

doodling

Hi,

Olinda99 said:

I have heard stories where families inherts (or is responsible for) debt when the person who dies owns a time share property but not sure how true this is

That is not possible but:

It is possible for the value of a time share property to be negative (e.g. due to high ongoing charges) - i.e. no-one wants to buy it, there is an ongoing cost to keeping it and no easy way to get rid of it.

What happens when the owner dies in that circumstance depends on what other assets they have:

- If they have few other assets (less than the cost of getting rid of the timeshare) then any sensible executor walks away from the whole thing and in theory the person benefitting from the ongoing fees charged for the timeshare could come along and administer the estate (I doubt they ever do though).

- If they have significant other assets then someone will come along and administer the estate.  At that point either the executor does a good job and gets rid of the timeshare or they fudge it (maybe one of the beneficiaries wants it or the executor finds getting rid of the timeshare impossible) and the timeshare is kept and transferred to one of the beneficiaries.  Sometimes this happens because the beneficiaries don't want to sell assets in the UK (e.g. the deceased's house) in order to get the money necessary to dispose of the timeshare (sometimes paying the resort to take it back is the only answer).  Sometimes it is only when a beneficiary actually has the timeshare that they realise just what a millstone around their neck it actually is but by then it is too late and they have already agreed to take it on.

In summary, if someone bequeaths you a timeshare, think very carefully about whether it is actually an asset or a liability you are getting - you may want to turn down the bequest.  If the timeshare comes as part of a bigger bequest then you need to find out the costs of getting rid of the timeshare to make sure that you will be up on the deal overall.  It is no good getting a timeshare and a half of a £150k house if it you are stuck paying £2k a year for the rest of your life on the timeshare!