Guarantees and deceased estates

It is not uncommon for parents to guarantee loans for children. Unfortunately doing so can have very serious consequences where a person dies and the liability under the guarantee has not been discharged.

If a husband and wife both have given the guarantee, then the survivor will remain liable. However the estate of the deceased guarantor will also be liable under the guarantee.
A liability of this nature is known as a “contingent liability”. In other words, the guarantor does not have to pay what is guaranteed unless and until there is a breach of the loan by the borrower. If that happens then the liability under the guarantee is crystallised and the liability must be paid by the guarantor.

The estate of the deceased person remains potentially liable under the guarantee until such time as the estate is released from that potential liability, or the loan is repaid. It is often not easy to obtain a release of a guarantee and this means that there can be extensive delays in finalising a deceased person’s estate.

When making Wills decisions have to be made in relation to any guarantees that are in place. Sometimes these can be difficult decisions, e.g., how does the person want the guarantee dealt with in their Will, bearing in mind that the actual liability and will only arise at some time in the future if and when there is a default under the loan.
The existence of guarantees are yet another reason why it is important, when making a Will, to obtain sound legal advice.