After a parent dies, letters start to arrive: a credit card statement, a phone bill, a reminder from the aged care home, perhaps a loan from a bank in Malaysia or Hong Kong. Many adult children worry that they now have to pay all of it themselves. In many families there is also a strong sense that a parent’s debts are a family obligation.
Under Australian law, the general rule is reassuring. Children are not personally responsible for a parent’s debts simply because they are the children. Debts are paid from the deceased’s estate. But there are important exceptions, and an executor who gets the order of payment wrong can become personally liable. This article explains how it works.
The general rule: the estate pays, not the family
When a person dies, their assets and liabilities become their estate. The executor (or administrator, if there is no will) must collect the assets, pay the debts and only then distribute what is left to the beneficiaries. Legal Aid NSW states it simply: the deceased’s debts must be paid before anything is distributed.
If the estate does not have enough to pay everything, the shortfall is generally lost to the creditors. A child who inherits nothing does not have to make it up from their own pocket.
When a child can be personally liable
Children can be liable in their own right where they:
- signed a guarantee for the parent’s loan, lease or business borrowings;
- are a joint borrower on a loan or mortgage with the parent;
- are a joint holder of a credit account, rather than just an additional cardholder; or
- received estate assets they were not entitled to, or took them before creditors were paid.
Before paying any creditor from your own funds, check what you actually signed. A creditor’s letter is not proof that you owe the debt.
Joint accounts and joint credit cards
A joint bank account usually passes to the surviving holder by survivorship. If the account is overdrawn, or there is a joint loan, the surviving borrower generally remains liable for the whole debt, because joint borrowers are usually liable together and individually.
With credit cards, the distinction matters. An additional cardholder on a parent’s account is generally not responsible for the balance. The primary account holder is. Where the debt was the parent’s alone, it is paid from the estate.
What if the estate is insolvent?
An estate is insolvent when its assets are not enough to pay its debts in full. In that case special rules decide who gets paid and in what order.
- Victoria: section 39 of the Administration and Probate Act 1958 requires an insolvent estate to be administered under Part I of the Second Schedule, which applies the bankruptcy rules on creditors’ rights and priorities. Funeral, testamentary and administration expenses are paid first.
- NSW: section 46C of the Probate and Administration Act 1898 and the Third Schedule set out similar rules for insolvent estates, again giving priority to funeral, testamentary and administration expenses.
- Bankruptcy Act: as an alternative, Part XI of the Bankruptcy Act 1966 allows an insolvent deceased estate to be administered in bankruptcy, on a petition by a creditor or by the person administering the estate.
An executor who suspects the estate is insolvent should stop distributing and get advice. Paying one creditor in full, or a beneficiary, ahead of others can leave the executor personally exposed.
Centrelink and aged care debts
- Centrelink: Services Australia treats outstanding debts on a deceased customer’s record as the estate’s liability, and recovers them only from the estate. Where there is no estate, or it is insufficient, the debt is generally written off. Another person may be pursued only in limited cases, such as where an executor negligently distributed the estate or someone received payments meant for the deceased.
- Aged care: if the parent paid a refundable accommodation deposit, the balance is returned to the estate after allowable deductions. The provider must refund within 14 days of receiving probate or letters of administration, though it may refund earlier if satisfied it has the right person. Unpaid fees are a debt of the estate, not of the children, unless a child signed as a guarantor or agreed to pay.
Tax returns for the deceased
Tax is a debt of the estate. The executor usually lodges a date of death tax return covering the period from 1 July to the date of death, plus any outstanding earlier returns. Income the estate earns after death is reported separately in trust tax returns for the estate. The ATO states that tax owing must be provided for before assets are distributed, and that the executor may otherwise be personally liable.
Overseas debts
For families with assets and debts in more than one country, foreign creditors can generally claim against the Australian estate, just as local creditors can. Debts tied to overseas assets, such as a mortgage in Kuala Lumpur, are often dealt with under the law where the asset is located. Whether a family member overseas is personally liable depends on that country’s law and what they signed. Coordinating with lawyers in the other country helps avoid paying a debt twice or distributing too early.
Protecting the executor: notices to creditors
An executor who distributes too early and then learns of a debt can be personally liable for it. Both Victoria and NSW have a statutory notice process that offers protection.
- Victoria: under section 33 of the Trustee Act 1958, the executor can publish a notice requiring creditors and other claimants to send in their claims by a stated date. These notices commonly appear in the Victoria Government Gazette. After that date, the executor can distribute having regard only to the claims they know about.
- NSW: a notice of intended distribution is published on the NSW Online Registry. It gives creditors 30 days to make a claim. Legal Aid NSW notes that it is not mandatory, but it may give the executor some protection from personal liability.
Notices to creditors do not remove every risk. Executors must still pay debts they already know about, and should keep in mind the separate time limits for family provision claims before distributing.
Checklist for families
- Do not pay the parent’s debts from your own money until you have checked whether you are liable.
- Gather every statement and letter, and list each debt with the creditor’s details.
- Check for any guarantee, joint loan or joint account you signed.
- Work out whether the estate can pay all debts. If not, pause distributions and get advice.
- Deal with the date of death tax return and any earlier returns.
- Publish the statutory notice to creditors before distributing.
- Identify overseas debts and assets, and coordinate with local lawyers.
Frequently asked questions
Am I responsible for my parents’ debt after death in Australia?
Generally no. Debts are paid from the estate, and if it runs out, creditors usually bear the loss. You may be personally liable only if you guaranteed the debt, borrowed jointly, held the account jointly, or received estate assets you should not have.
Do I have to pay my mother’s credit card after she dies?
Not if the card was in her name alone and you were at most an additional cardholder. The balance is a debt of her estate. If you held a joint account, check the terms, as you may be liable.
What happens if there is not enough money in the estate to pay debts?
The estate is insolvent, and statutory priority rules apply. Funeral, testamentary and administration expenses come first, and creditors share what remains. The estate can also be administered under Part XI of the Bankruptcy Act.
Can Centrelink recover debts from my parent’s estate?
Yes, from the estate, but generally not from family members personally. If the estate is insufficient, the debt is usually written off.
How Chua Tan Associates can help
Chua Tan Associates advises executors and families on dealing with a parent’s debts: identifying who is actually liable, communicating with creditors, managing insolvent estates, publishing statutory notices, and timing distributions so the executor is protected. Where debts or assets are overseas, we work with local lawyers in that country, and our notary public can assist with documents that need to be signed or certified for use abroad. We assist clients across Australia and overseas, and advise in English, Mandarin and Cantonese.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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