Wills, Estates & Succession Planning 12 April 2019

What happens to my mortgage after my death?

Leaving a gift of property is something those who are able to may wish to include in their Will.  But what happens if that property is subject to a mortgage?

It is a common misconception that a mortgage is an estate debt that is paid from your estate prior to the distribution of the remaining assets.  However, if you leave a specific gift of property to a beneficiary subject to a mortgage or charge, the liability attaches to the property and therefore passes to that beneficiary.

Unless your Will provides a contrary intention, your beneficiary may be receiving a lot more than they bargained for when receiving the property from your estate.  The mortgage may place them in a difficult financial position, rather than giving them the opportunity to freely enjoy the property left to them.  An even more troublesome scenario is when the mortgage registered on the property does not relate to the property being gifted.  This can occur, for example, where parents have offered their property as security for their children which means the beneficiary receives the property subject to that ongoing mortgage.

How do I avoid this happening to my loved ones?

Careful consideration as to how you wish the mortgage to be dealt with after your death is essential.  Coulter Legal can assist you to ensure your wishes are reflected in your Will and some of the options to facilitate your wishes include:

1. Setting aside a specific sum to pay the debt.

If your estate has sufficient assets, a direction can be included in your Will for a specific sum to be applied towards the mortgage.

Even where a life insurance policy is in place to ensure that sufficient funds are available to pay out any mortgages or debts, without the appropriate direction in your Will, this too may not play out as you hope.

It is important to seek professional advice to ensure that appropriate directions are included in your Will, to enable your beneficiaries to reap the rewards of your property without being financially burdened.

2. Inclusion of express direction that your mortgage be repaid.

Ordinarily, the amount you owe on your mortgage will decrease over time.  As such, it may be more practical to provide your Executors with the flexibility to continue to pay whatever is outstanding on your mortgage after your death, as opposed to setting aside an amount to be used for this purpose. This is particularly relevant where a property is held by an individual that holds a mortgage jointly with another person who has been provided with the right to continue reside in property after their death in the Will.

It may not cross the mind of the Will maker in these circumstances that whilst providing another with a roof over their head, that person may not be in a position to meet the ongoing financial obligations of a jointly held mortgage over the property.

In this instance, the Will maker can include direction in their Will that the mortgage be repaid, which can ensure that the person they are allowing to live in the property can continue to do so without having to worry about the mortgage.  It would be unfortunate to see the property have to be sold to pay out the mortgage and beneficiaries left disappointed.

This option will not be available to everyone and demonstrates the importance of giving detailed consideration and obtaining comprehensive advice if considering a property-related distribution in your Will.

3. It’s simply not possible, my property is my only asset.

Where your mortgaged property is your only asset, there may be no other option but for the property and the mortgage to pass to your beneficiaries.  In this case, we can work with you to ensure your Will provides for your family in a way that is appropriate to your circumstances.  After your death, we can assist your Executors and beneficiaries to make arrangements to refinance the mortgage so that, if possible, the property can be retained in accordance with your wishes.

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