Debts due to the deceased as assets of an estate

19 October 2023


Sometimes it is not appreciated that monies due to a deceased before they die continue to remain assets after death. We come across this from time to time in estates. Oftentimes it arises as parents have entered into deferred payment arrangements on property sales. In those cases a parent will have sold a property to a child and it is agreed that the purchase consideration is paid by the child over the years. The parent has taken the place of a lending institution and at times there is entered into a facility agreement and security is put in place.

Solicitors tend to be wary of these type of arrangements and generally advise parents to avoid these types of situations, as, title will have been transferred and a parent is left with a promise or obligation to pay. Even if that obligation is backed up by security, if the child defaults, the parent has the unenviable task of bringing proceedings against a child for enforcement of the obligation.

A debt has certain features for an estate. A debt due is an asset in the normal course as any other asset. It has the difficult feature in that repayment of the asset is being made over time. The payments that were being made to the deceased prior to death, should continue after death. Death shouldn’t necessarily interfere with the payments arrangements.

From a tax point of view, the full value of the debt must be recognised. So for a beneficiary under an estate, there is a difficulty, as tax is paid on the debt even though the actual value of the debt may be paid over an elongated period of time. So the beneficiary must suffer the pain long before the gain.

Sometimes in these debt arrangements the parent lender has agreed that there would be no further debt repayments after death. In those cases then the waiving of the debt becomes a gift to the borrower, and CAT will have to be paid on this gift in the normal course.

Ultimately the debt must be transferred then to the beneficiary. This is normally conducted by writing to the borrower and informing the borrower that the debt has passed to the new beneficiary and setting out where the payments should be made and informing the borrower of the new beneficiary bank details. This is particularly assisted if there is an underlying facility agreement/lending agreement, which makes it clear that the document is for the benefit of the lending and his/her successors and assigns.

Hope this helps and if you have any probate, will drafting, tax or capacity issues, please do not hesitate to contact me. Colm Kelly