First of all, how are debts paid when someone passes away?

A deceased person’s debts will typically be repaid through their estate before anything can be distributed to their nominated beneficiaries.

This process is handled by either an executor appointed by the deceased or (if there is no valid Will) an administrator appointed by the courts.

Debts are usually paid off in order of priority, with tax debt usually at the top of the list. Unsecured debts are considered less important and are generally handled last.

If there is enough cash in the estate, the executor or administrator should be able to settle all debts using the money available. But if the funds fall short, they might resort to selling assets left behind by the deceased, such as property and shares. If all available assets have been exhausted and there is still money owing, then insolvency rules might kick in and these debts will be written off.

Which debts can be ‘inherited’?

While a deceased person’s relatives and loved ones typically cannot directly inherit their debts, there are a few circumstances where creditors can seek payment from them. The three main examples are:

• Guaranteed debts
• Debts that were taken out jointly
• Debts that were secured against assets you own

Example #1: You have guaranteed someone else’s loan

If you go guarantor on someone else’s loan, you agree to repay the amount they borrowed (or part of it) in the event they become unable to do so themselves. This arrangement is common between property-owning parents and children who would otherwise struggle to get their home loan application over the line.

Often, guarantors will be required to put up the equity they have in their own home as security. If the borrower passes away and neither the guarantor nor the money or assets from the deceased’s estate can cover the mortgage repayments, the lender might take possession of the guarantor’s home.

Example #2: You have debt that was taken out jointly

If you were a co-signatory on a loan with someone who subsequently passes away, you may be liable to repay the remaining balance yourself (that is, unless the estate is able to pay the full amount).

For example, if a married couple takes out a mortgage together and one partner dies, the surviving partner will still be on the hook for the remaining debt. Some people might have no issue assuming full responsibility for the loan, but others might struggle, especially if they weren’t the primary income earner.

If the deceased had a life insurance policy, any payout received might be able to cover the ongoing repayments or even pay off the mortgage in full. But if there was no life insurance policy in place and there’s no way for the surviving spouse to afford the repayments, they might be forced to sell the property.

Example #3: You secured someone else’s loan against an asset you own

Another scenario where you might be obliged to cover part of a deceased person’s debt is if you agreed to secure their loan against one of your assets. If the estate doesn’t have enough funds to pay the amount owed, the asset you offered up as collateral might have to be sold.

If the above three circumstances don’t apply to you, it’s unlikely that a lender will chase you up for payment following a family member’s death. But if you’ve entered into one of these arrangements, or you’re thinking about doing so, it’s important to be clear on what your obligations are.

Consider speaking to a financial adviser or lawyer. An adviser can help you determine whether you’re in a position to attach your name or assets to someone else’s loan, while a lawyer can help you draft up an appropriate agreement that ensures your interests are considered.

Roughly 2.6 million Australians receive it, and that number is expected to increase as the average life expectancy goes up.

If you’re approaching retirement, you might be wondering if you’re eligible for the Age Pension and, if so, how much you can receive. Below are some of the things Centrelink will consider when you apply.

Who can receive the Age pension?

The age at which you become eligible to receive the Age Pension has been gradually increasing from 65 to 67, as shown by the table below.¹

Whether or not you’re eligible for the Age Pension will also depend on your residency status. Generally, it’s only available to Australian residents who have lived in Australia for at least 10 years (at least five of those years must be continuous) and were in the country on the day the claim is lodged.

There are a small number of exceptions to these requirements — for example, if you have a qualifying residence exemption or are a resident in a country with which Australia has an International Social Security Agreement.

How much can you receive?

The amount of Age Pension you can receive will depend on your income and assets, as well as whether you’re single or part of a couple. The normal rates from 20 September 2023 are shown below.²

To maintain their value against increases in the cost of living, the Department of Social Services indexes these rates twice a year using the higher of the Consumer Price Index or the Pensioner and Beneficiary Living Cost Index. They may also be increased further to meet a wages benchmark.

Income and assets test

The Age Pension is means tested, so Centrelink will consider any income and assets you might have when determining how much Age Pension you’re entitled to receive. The hope is that older Australians will rely on the safety nets they’ve built up over the years before turning to the one provided by the social security system.

Two tests will be applied — the income test and the assets test — and you will be paid under the one that produces the lower rate of payment.³

The income test lets you receive income up to a certain limit before your Pension is reduced. For singles, the Pension is reduced by 50 cents for every dollar earned above $204. Meanwhile, couples’ combined pensions are reduced by 50 cents for every dollar earned above $360. This applies to all income sources, including superannuation and investments.

Meanwhile, the assets test considers any property (excluding your main residence) and possessions you own, regardless of whether they are held in Australia or another country. Depending on your relationship status and whether you own your home, the amount of Age Pension you can receive is reduced if the total value of your assets exceeds a certain amount. The limits are shown below.

Your payment might also be affected if you choose to give money away above a certain value. Under current rules, singles and couples can gift up to $10,000 in a financial year and up to $30,000 over five financial years without their Age Pension payments being affected. Excess amounts, however, will be subject to the income and assets test.

Work Bonus

For those who have an opportunity to re-enter the workforce, the Government has policies in place that allow you to earn income up to a certain point without it affecting the Age Pension you receive.

Under the Work Bonus, the first $300 of fortnightly income you receive from work won’t be counted as part of the income test.⁴ If you earn less than $300 per fortnight, unused amounts will accrue in a Work Bonus income bank up to $11,800. This can be used to offset future income.

Just keep in mind that the $11,800 limit represents a temporary increase that will only apply until 31 December 2023. After that, it will revert to $7,800.

If you or your partner start any paid work while receiving the Age Pension, you won’t have to apply for the Work Bonus, but you will have to start reporting how much you receive from work to Services Australia. This can be done over the phone or using the Service Australia website, or in person at a Centrelink office.

Sources

1 https://www.servicesaustralia.gov.au/who-can-get-age-pension?context=22526

2 https://www.servicesaustralia.gov.au/how-much-age-pension-you-can-get?context=22526

3 https://www.dss.gov.au/seniors/benefits-payments/age-pension

4 https://www.dss.gov.au/seniors/programmes-services/working-after-pension-age