What happens to mortgages when I die?

 

Q: What happens if, when we die, there is still a mortgage attached to the properties? If we were to die soon, each house would have a $400k mortgage. Most of this ($300k) could be cancelled out using the equity from our primary residence, but what happens if there is some debt left over? Should we try to make sure there is enough cash/ insurance to wipe it out? Given there would be a lot of equity (the investment property plus half the primary residence) for a small residual debt ($100k), would the banks allow the girls to borrow to cover that debt, paying off the borrowings over time?

A: You should address this question to your beneficiaries – your children. They, themselves, make the decision as to what they do with ‘their’ new assets and debts. Usually, the executor pays out all debts first. And then transfers the properties (or whatever is left) to the beneficiaries.  The net value goes to the children. The children can keep on selling assets, perhaps one of the properties to, keep reducing debt. Or a child can seek to take out a loan. I don’t know. Ask your children and they will answer this question.

Death is a default under the loan

Death is a default on the loan and the bank can demand payment within (usually) 7 days. This is unless you can rectify the default. But it is hard to come back from the dead!

The children are entitled to seek to borrow money, secured against their new assets if they wish.

I think it is a very good idea to speak to your financial planner and accountant about taking out insurance. You may also be able to do this in your superannuation fund. This often makes insurance premiums more tax-effective.

Your question suggests that you have a house for each child. That is all rather nice. But it is often the case the child no longer lives in Australia. Or does not want that particular house. In any event, you will be happy to know that because you have 3-Generation Testamentary Trust Wills your children can move the assets around. Each can have their own property. This is without triggering Capital Gains Tax or transfer (stamp) duty. You also have a Divorce Protection Trust in your Will so your assets are protected when your children, grandchildren and great-grandchildren divorce.

Protects from death duties, divorcing and bankrupt children and a 32% tax on super.
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