Richard died on 12 December 2017. Although Miranda had separated from Richard 11 years ago she was appointed the executor of his estate.
At the time Richard passed away he was the guarantor of his daughter’s loan. The loan was for $2000 and began about 5 years ago and the current outstanding balance was at least $3000. The lender also held security over Richard’s car.
On the day Richard died Miranda told the lender that she would pay funeral costs before she would pay off the loan. Miranda asked the lender to remove the security over the vehicle so she could sell it and pay the lender the car’s value (which was only $500). Miranda paid the lender $500 and the lender released the security over the car.
Subsequent to this, the lender contacted Miranda and considered that Richard’s estate should pay the remaining debt before the funeral costs. The lender also issued a repossession warning notice and reinstated the security over the car. The lender believed the car was worth $3,700.
Miranda thought that the payment of $500 had fulfilled the estate’s obligation to the lender. The lender threatened Miranda with court action for misappropriation of the estate’s funds.
Richard’s estate was less than $15,000. He only had $1,500 in his bank account, owed debts of around $10,000, and basic funeral costs were at least $4,000. Miranda was concerned that the lender would continue to pursue her (as executor) for the payment of her daughter’s debt that Richard had guaranteed.
Miranda told the lender it was not the only creditor. Miranda sought advice and was told that funeral and expenses took priority over creditors. However, the lender continued to threaten action.
Miranda did not know what to do and complained to FSCL.
The lender believed that Richard’s car was worth $3,700 rather than the $500 that Miranda paid for the security to be released. It was also adamant that payment of its secured debt had priority ahead of the funeral costs. Because Miranda had underpaid the lender to initially release the security, the lender believed it was within its rights to reinstate its security.
Miranda wanted the lender to refund her $500 she had paid to it. Because the estate was insolvent Miranda believed that Richard’s estate owed no further obligation to the lender. Richard was, after all, the guarantor rather than the holder of the debt.
The guarantee stated that it “will continue until all the money and obligations owed to the lender are paid and satisfied in full.”
The vehicle which secured the debt was not part of Richard’s estate at the time of his death because it had been transferred to Miranda’s name while Richard was still alive. Although this was technically a breach of the credit contract because the lender had to release the security before the vehicle’s ownership could be transferred, the lender had accepted $500 from Miranda to release the security and was bound by that representation.
The valuation which the lender provided (for $3700) was not sufficient evidence of the car’s actual value. It was a generalised computer-generated valuation which referred to an estimate in relation to the car’s make, year, and kilometres without taking into account the actual condition of the car.
We reviewed the statement of the estate’s assets and liabilities and confirmed that the estate’s liabilities were $9,154.13 (excluding the lender’s debt and funeral costs) while the only asset was $1,519 in Richard’s bank account.
The lender had no claim over the money in Richard’s bank account because, when there is an insolvent estate, Miranda had to make payments from the estate’s assets according to the priorities set out in s 393 of the Insolvency Act. The first priority was the expenses Miranda had incurred as executor and the next priority was payment of the funeral costs.
Although the lender argued that s 393 only applied after the payment of secured debts, this was not supported by the Insolvency Act. The funeral costs were entitled to be paid before any payments to creditors of the estate. There were no available estate funds to pay the lender. We suggested the lender pursue Richard and Miranda’s daughter for the debt, rather than Miranda as executor of Richard’s estate.
Insight for consumers
It is not uncommon for people to die insolvent. This presents difficulties for the estate’s executor, when even a basic funeral can cost in excess of $4,000. When the deceased has unpaid debts, this makes the executor’s role even more difficult.