Updated 23 October 2026
Wills - Potential Problem #35: Ignoring Loan Repayments
Outstanding loans can reduce an inheritance, delay a property transfer and force an executor to sell assets. In New South Wales, a valid debt does not disappear because it was omitted from a will. Equally, an executor should not pay a suspicious demand simply because someone describes it as a loan owed by the deceased.
Good estate planning records genuine liabilities, explains how gifts should bear those liabilities and preserves the documents needed to check them. When fraud is suspected, the task may also involve challenging an alleged debt or recovering money taken from the deceased. These are different legal problems and require different evidence.
1. Identify the loans and who actually owes them
Prepare a separate, regularly updated schedule of mortgages, personal loans, credit cards, business borrowing and guarantees. Record the lender, borrower, outstanding balance, repayment dates and any security. Keep agreements and statements with your estate records, and tell your executor where to find them.
Check the legal borrower carefully. A company is a separate legal entity: its borrowing is not automatically the personal debt of its director or shareholder. However, a personal guarantee or security over the director’s home can expose personal assets. The executor should obtain the company records and guarantee documents rather than rely on a family description of the business.
Compare the available cash with repayments falling due during administration. An estate may have substantial property value but little money available to service loans while probate or a sale is arranged. Discuss funding and realistic timing with the lender early. Planning for this cash shortage helps prevent beneficiaries being promised an inheritance that cannot yet be delivered. It also lets your executor consider whether an asset can be retained without exposing the estate to continuing arrears.
2. Understand whether family members must repay the debt
Being a spouse, child or beneficiary does not, by itself, make someone personally liable for the deceased’s loans. Genuine liabilities are generally dealt with from estate assets before beneficiaries receive their entitlements. A person who is also a joint borrower or guarantor may have a separate obligation under the agreement.
Notify lenders of the death promptly and obtain written confirmation of balances and repayment arrangements. Do not assume interest stops or that repayments can be suspended without agreement. Executors should keep estate money separate and obtain advice before paying disputed debts or distributing funds that may be needed to meet liabilities.
3. Check the mortgage before promising someone the house
A gift of a property is not necessarily a gift free of its mortgage. Section 145 of the Conveyancing Act generally makes mortgaged property bear its own secured debt as between the people claiming through the deceased, unless a contrary intention is expressed. A general instruction to pay debts does not necessarily shift that mortgage burden to the rest of the estate.
If you want another part of your estate to discharge the mortgage, have that intention drafted clearly and check whether sufficient funds will be available. The will cannot remove the lender’s security. A beneficiary hoping to retain the property may need refinancing, and a sale may be necessary if the debt cannot otherwise be dealt with.
The ABS 2021 Census figures for NSW recorded 32.5% of occupied private dwellings as owned with a mortgage, including shared-equity purchases. This is housing data, not a measure of indebted estates, but it illustrates why mortgage planning matters to many families.
4. Record family loans in both directions
Money lent by the deceased can be an estate asset. Money genuinely borrowed by the deceased can be a liability. Record which applies, rather than leaving an executor to reconstruct years of transfers from bank statements and family recollections.
Where you have lent money to a child, coordinate the loan agreement and will. Decide whether the balance should be recovered, forgiven or taken into account when calculating that child’s inheritance. These choices require careful drafting. An informal promise that everything will be sorted out later can produce very different expectations among siblings.
If the executor personally claims to be a creditor, that creates a potential conflict of interest. The claim needs independent scrutiny and supporting evidence; appointment as executor is not permission to reimburse oneself from estate funds without proper justification.
5. Christine on investigating a fraudulent loan
I have dealt with a matter involving a fraudulent loan arranged in the deceased’s name. We had to take steps to claw the money back. That experience is a reminder that estate administration sometimes involves investigating how a transaction happened before anyone can work out what should be paid or distributed.
My starting questions are straightforward: who signed, what authority did they have, where did the money go and what do the original records show? A document headed “loan agreement” is not the end of the enquiry. I want the transaction explained and supported, especially where the person whose name appears on it can no longer answer those questions.
For families, I stress the importance of raising concerns early and keeping the paperwork. Clawing money back is not automatic. The appropriate claim, available evidence and the other party’s ability to repay all affect what can be recovered.
6. A real NSW case involving estate recovery
In Grant v Grant (2021), the NSW Court of Appeal considered a daughter’s use of her father’s power of attorney to transfer his Killcare property to her daughter and withdraw money from his accounts. The father died during the proceedings, which continued through a representative of his estate.
The power of attorney did not authorise the property gift. A purported direction letter was found to have been fabricated using a copied signature. The Court upheld orders requiring the property’s return and repayment of $100,000 and $34,700, with interest. The latter amount concerned stamp duty paid from the father’s account.
This case concerned unauthorised transfers, rather than Christine’s fraudulent-loan example. Its practical lesson is that an estate representative can investigate transactions and pursue recovery. A court order for repayment also needs to be distinguished from successfully collecting the money.
7. Take practical steps when a loan looks suspicious
Preserve loan documents, correspondence, bank statements and evidence of identity checks. Ask the lender to investigate and provide the application, authority relied upon, payment history and destination of the advance. Suspicious features may include an unfamiliar lender, unexplained transfers, inconsistent signatures or documents dated after death.
Notify the relevant financial institution promptly and seek advice about protecting accounts and disputing the claim. Report suspected criminal fraud to police where appropriate. A police report does not itself cancel a debt or recover money, so a separate complaint, negotiation or civil claim may still be necessary.
An enduring power of attorney ordinarily ends at death; it does not make the former attorney the executor. Where somebody claims to have borrowed on the deceased’s behalf, investigate the timing and scope of their authority. If a mortgage has been registered, obtain specialist advice rather than assuming an allegation of forgery automatically removes it.
8. Resolve liabilities before distributing the estate
If the estate cannot meet its debts, obtain insolvency advice before choosing which creditors to pay. Insolvent deceased estates have rules governing creditor priorities and administration. Paying a relative first or distributing assets prematurely can expose the executor to personal liability.
Maintain a record of accepted debts, disputed claims, repayments and recoveries. Before distribution, review outstanding tax obligations, creditor notices and any unresolved proceedings. A notice of intended distribution may provide protection in particular circumstances, but it does not permit an executor to ignore a known claim.
Review your estate plan whenever you refinance, guarantee a business loan or lend substantial money within the family. CM Lawyers’ wills and estates team can help align your will with your borrowing arrangements. Our estate administration service can assist executors to identify liabilities, investigate concerns and work out what can safely be distributed.
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