DMP, IVA or Consolidation Loan?

Many Britons are becoming increasingly worried that their wills could pass on their debts from one generation to the next. 

With the cost of residential care rising and the expected lifespan of adults increasing, many young Britons fear that they will inherit their parents string of debts.

The costs of care homes has risen and this has caused concerns for many families who may end up stuck with the expense of paying for the care of their parents or other family members.

With people struggling to keep up with mortgage repayments and debts of their own, many young families shy away from being mentioned in their parents’ will. 

A recent report from Key Retirement Solutions showed that one in four British people that are either retired or nearing retirement could be taking with them a mortgage of £31,000, that debt hardly has a chance of being paid off in the remainder of the lenders life meaning it will be passed on to another family member.

Mortgage debts among retirees are worth £98 billion collectively and with the average age of retirement now between 60 and 64.

The amount increases to over £37,000 each in the over 70s group with the average mortgage debt currently 27.5 per cent higher than in any other age group.

As young families take on bigger and bigger debts of their own there are very few who end up banking on a future inheritance to help them clear their financial future and pay off credit card and loan debt. Because of the increase in debt among the elderly many young people now view the concept of inheritance differently.

Figures show that more than one parent in four over the age of 55 has not told their children about their will.  More alarmingly so, many of these people have no intention of sharing the information of the contents of their will with their family before they die. 

This leaves families unsure whether they will need to consolidate debts of their own with those of their parents at some later stage. Whether you are young or old, rich or poor, a will is a useful and often helpful document in dealing with the deceased's finances.

If the spouse is still alive, he or she is still on the hook, otherwise, the estate must pay off the creditors.

The credit card company will first try to collect from the estate, if the account was a joint account, any survivors will be left holding the bag. If the debt belonged solely to the deceased, then the credit card company will end up wiping the debt if there aren't enough assets to cover it.

Debt after death of a loved one is more common than people think. The average cost of a funeral can be well over £1000 and many people can get into debt because they have insufficient funds to pay for funeral expenses.

While there are many schemes that people can now pay into in order to finance a funeral, most won’t take up the opportunity as it is seen as a morbid way of saving. Also, most funerals have to be paid for prior to getting paid inheritance from a will.

The UK Insolvency Helpline can offer the support of counselors through the difficult times surrounding debt after death. The debt after death unit is able to offer debt advice to people suffering from debt after death in ways including benefits available to surviving parent, or guardian, claims, compensation awards, compensation claims for damages, criminal trials, death of a child, funeral payments, pensions, tax and benefits.

The author is Melinda Varley who an experienced journalist currently specializing in articles for the financial field. Melinda has held several positions for magazines and newspapers both hard copy and online and both in the UK and Australia which is where she originates from.

This article was written on the 29th June 2007.

This article does not represent ‘financial advice’ as each persons individual requirements will be unique to their needs. If there is something in the article which you which to rely on then please check those details with any person from whom you purchase a term life policy at the time of purchase.

The views in this article represent those of the author and not those of Netbasic Limited.