What Happens To Your Debt When You Die In Vancouver 

What happens to your debt when you die in Vancouver
What happens to your debt when you die in Vancouver
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What Happens To Your Debt When You Die In Vancouver?

Death is an inevitable aspect of life, and it is critical to plan for it, including what will happen to your possessions and liabilities. In this post, we will go through the actions to follow when you die, such as who is in charge of your estate, who the beneficiaries are, and what happens if your debts outweigh your assets.

When you die, who will manage your finances?

Death often comes unannounced, but life must go on. Your assets and finances must be sorted out after you pass away. Depending on whether you have a Will or not at the time of your demise, the power to make decisions regarding your finances is bestowed on a person known as the Executor.

If you have a Will, then you must have chosen your desired executor to administer your assets and finances after you die. Part of the executor’s responsibility is to create an inventory of all your assets and an inventory of all your debts and liabilities. The first thing is to repay all debts to your creditors and taxes to the government before the remaining assets are distributed to your beneficiaries as you have stated in your Will.

If you passed away without a Will, someone has to apply to a court to be the administrator of your estate. An administrator has the same duty as an executor. However, such a person cannot begin to act until the court permits him/her to do so. The administrator will also make an inventory of your assets and debts/liabilities in order to settle your debts first and then distribute the remaining assets to your family members, with preference to your immediate family. Where nobody applies to be the administrator of your estate, the court will appoint a public trustee as the executor of your estate. Essentially, your finances are handled by the executor/administrator/public trustee when you pass away, depending on the circumstances. This can be expensive as an executor can charge up to 5% of the estate total as a fee, on top of an existing, unavoidable probate fee of 1.4%. In an expensive city like Vancouver, simply owning a home when you pass can means tens of thousands of dollars that need to be paid. 

Terms You Will Want to Know When This Happens in Vancouver

What is your estate?​

Your estate is a legal entity separate from you to which all of your liabilities and assets are transferred after your death. Your estate keeps your assets and liabilities alive until they are distributed and serviced, accordingly. However, you must appoint someone to manage your estate. This person is known as the executor, and his or her job is to administer your estate after all of your liabilities have been satisfied. This is important, especially when distributing your assets among the beneficiaries you have named in your Will. So do not forget to name one or two executors in your Will, depending on how big your estate is.

In the event that you pass on without leaving a Will or instructions on how your estate should be administered, it will be said that you died intestate, and the government of British Columbia may set their own terms of administering your estate. In this case, priority is usually given to your immediate family members. If there are no immediate family members, the government will assume responsibility for your estate, including its income and liabilities.

Who is an executor?​`

An executor is a critical component of your Will and its execution. He or she is the person named in your Will to evaluate and carry out the terms of your Will. An executor’s principal responsibility is to inventory your assets and obligations and to guarantee that your assets are allocated to your beneficiaries in accordance with your Will. Below are the duties of an executor:

  • Contacting the custodian of your Will – It is the responsibility of your executor to contact your legal representative or the company that you have assigned to keep your Will.
  • Appraisal of your assets – After making inventories of your assets and liabilities, it is the job of the executor to get all these assets and appraise them against your liabilities before distributing the rest to your beneficiaries.
  • Take charge of funeral arrangements – The executor will also be in charge of ensuring that there is enough fund for your funeral arrangements.
  • The executor will also open a bank account for your estate in order to centralize all your income from your assets.
  • Cancel or redirect any membership, license or recurring emails in your name.
  • Apply for probate where required.
  • Sort out all expenses in the administration of your estate in terms of debts and taxes.

Who is a beneficiary?​

Beneficiaries are the persons to whom you leave your possessions. It is commonly assumed that they will inherit your assets. In other words, your assets are passed down to them. Even if it takes the executor months or even years to complete every aspect of your Will, your beneficiaries are legally entitled to your assets.

Your beneficiaries are always entitled to know of the processes involved in your Will, even when it goes to probate. Probate is the legal court process where your Will is validated and the executor is officially chosen. During this process, beneficiaries usually have the right to challenge the terms of your Will and also object to any executor or beneficiary contained in the Will.

What If My Debts Outweigh My Assets?​

Making an inventory of your assets and obligations is one of the first tasks of your executor. This is done so that you have a clear picture of the value of your assets and debts. There are a few things that must be addressed before your debt profile is examined and repayment begins. These are important considerations, and they involve funeral fees as well as the cost of administering your estate. After things are taken care of, your debt is the next item on the agenda. If your debt exceeds your assets, it is your executor’s responsibility to contact your creditors and negotiate a payment plan.

When your debts are more than the value of your estate, it is akin to declaring bankruptcy when you are alive. It only means that your creditors will not be able to receive full payment. When it comes to paying the debts of an estate, it is usually done in order of priority. Some creditors have the legal right of first payment over others. Partial payments will also be paid to some other creditors. Overall, where your debts outweigh the value of your estate, the process known as abatement takes place. This is the process of using the inheritance of your beneficiaries to satisfy the debts until they are fully paid.

Can You Inherit Debt From Your Parents, Spouse Or Common Law Partner?​

The answer to this is NO. Just like when your spouse or loved one owes a debt, the creditors cannot come to you for repayment. The same thing applies when you pass on. Your debt obligation cannot be inherited by your spouse or loved ones. The whole sum will be taken out of your estate until it is fully paid. Where the debt outweighs the value of your estate, your beneficiaries will be the ones to suffer for it because they will receive no inheritance. Although one may argue that your beneficiaries are also paying the debt if they are denied of your assets because of your debts.

However, there are instances where your debt can be inherited by your spouse or loved ones. These peculiar circumstances include:

  • Joint credit card accounts
  • Consigned loans
  • Supplementary credit cards
  • Joint mortgage payments

How Can I Prevent My Family From Inheriting My Debt?​

In most jurisdictions, including Vancouver, British Columbia, have laws that restrict creditors from transferring the debts of a deceased person to their loved ones. Keep in mind that they can still go after the estate. In a city like Vancouver, where there is a lot of money, there will always be shady people including some creditors that may try to collect your debts from your loved ones. To prevent this, you can put any of the following in place in order to protect your loved ones.

1. Have a will

This will prevent the government from taking charge of your estate and distributing your assets according to the law. Having a Will puts you in control of how you want your debts to be paid. It is important to also appoint a trustworthy executor.

2. Get a lawyer

A lawyer that specializes in Trusts and Estates will go a long way in protecting your loved ones from the harassment of creditors.

3. Get a life insurance policy

A life insurance policy will cover your loved ones and a portion of the payout can be used to service any outstanding debt also.

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Written by:

Jim Pan, CFP, MFA-P

Jim is a dedicated, fee and advice only independent Certified Financial Planner with a focus on supporting healthcare business owners during their crucial growth phase. His expertise lies in offering comprehensive solutions to minimize taxes while embracing a holistic approach. With a career spanning back to 2010, Jim has established a strong presence in the financial industry. He proudly holds a range of designations, including Certified Financial Planner (CFP), and Master Financial Advisor - Philanthropy (MFA-P). He is currently pursuing additional designations and qualifications to better serve his clients and community. Beyond his qualifications, Jim is a member and an esteemed participant in the Million Dollar Round Table (MDRT), an exclusive global association comprising the top 1% of financial advisors. Jim's commitment extends to the community, where he spearheads numerous charitable fundraising events and plays an active role in enhancing the well-being of others. Additionally, he has contributed significantly by serving on the board of the Canadian Mental Health Association in Vancouver. Currently, he volunteers with Junior Achievement of British Columbia (JABC) to present personal finance topics to youths.

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