Dealing with your child’s finances and debt after they die
Everything that belonged to your child is now known as their 'estate'. Any money left in their bank account becomes part of that estate. This article explores what happens to your child's estate and what you might need to do.
How to close a bank or building society account
No more money can be withdrawn from your child’s account unless it was a joint account with someone else. However, money can still be paid into the account (which is why it’s important to tell benefits agencies asap so the payments don’t continue and cause problems when you have to pay them back later).
If there is very little money in the account, the bank may be able to release it into the estate immediately. Otherwise, they will need to see a letter of administration or probate (or letters of confirmation if the account is held in Scotland).
Closing the bank account
To close the account, you will need to make an appointment to go into the branch (you can request a private room for this) and take in the relevant documents. In some cases, you may be able to do it over the phone and emailing scanned copies of any requested documentation.
Most high street or online banks will have a process in place for when a family member dies. You will usually find useful information on their website about this and steps to take when closing an account.
You will normally have to provide the following information, but there may be more documentation required depending on the circumstances.
- Original/certified copy of the death certificate
- Proof of your identity, for example, a UK passport or a full or provisional UK photo driving licence
- Confirmation that the estate is not the subject of a dispute.
Interest-earning accounts
If your child opened an interest-earning account (for example, a building society savings account), it will continue to earn interest until the account is closed.
Overdrafts
If the account is overdrawn, the overdraft and any interest will have a claim on the estate. The account will be frozen so that no direct debits or standing orders are paid.
Joint accounts
In England, Wales and Northern Ireland, if a joint account holder dies the balance is automatically transferred to the other account holder/s, who will then be able to withdraw it from the account. In order to make this change your bank will ask to see the death certificate.
In Scotland the money does not automatically pass to the other account holder, it will depend on the terms of the mandate.
Credit cards
If your child had any credit cards, the companies will continue to send statements and charge interest on any outstanding balances. If there is a joint cardholder, they will still be responsible for the money owing.
Any money in the estate should be used to pay off the card balance otherwise the credit card companies may seek payment through the courts. However, if there is not enough money in the estate to cover the outstanding balances, the companies will write them off.
If there is an additional cardholder on the credit card account (this is not the same as a joint cardholder), they are not liable for the debt. The credit card company will freeze the account and ask for the card to be returned.
Outstanding credit or hire purchase payments
If your child had an outstanding credit or hire purchase agreement, you are not responsible for the repayments. No one else is liable unless the agreement was taken out in joint names.
However, if your child left any money or any possessions with value (which are now counted as part of their estate), these will be used to pay off the outstanding credit or debt. If there is not enough money in the estate to cover these loan repayments or bills, the companies will write them off.
Student Loans
The Student Loans Company will automatically write off any outstanding student loan, as long as you provide the original death certificate or a coroner’s interim certificate.
Student loan cancellation – if a customer dies (guidance from Gov.uk)
Other debts and credit agreements
If your child left any debts or outstanding credit agreements, no one else should be liable for them unless the debt was taken on jointly or someone acted as a guarantor. If the estate does not cover the debt it will be written off.
The only exceptions to this are certain household debts such as council tax or water charges, for which someone else may be liable if they were your child’s partner or shared accommodation with them.
How do I pay off my child’s debt?
If there isn’t enough money in your child’s estate (their current and savings account, and property) to cover all of their debts, outstanding bills and bequests, there are steps you can take. Firstly, the expenses and debts must be paid in a specific order:
- Funeral expenses and ‘testamentary’ expenses (the costs of dealing with their will)
- Any debt secured by a mortgage on your child’s home
- Any money (tax) due to HMRC (the registrar’s office usually notifies HMRC of a death)
- Any money due to the Department for Work and Pensions (DWP), which deals with social security (so you may have to refund any over-payment of benefits)
- Any unpaid pension contributions or wages.
If all the debts can be paid but there isn’t enough money left to pay everything set out in your child’s will, the legacies (those where a specific amount is mentioned) will be paid first, and the other people mentioned will get what is leftover (the ‘residue).
If there is not enough to pay all the legacies, the people entitled to the legacies will get a proportion of what they have been left, depending on how much money is available. The other people mentioned in the will, who are supposed to get the residue, will not receive anything.
There is no inheritance tax to pay if your child’s estate is valued at less than £325,000.
