How do I list a debt owed to me?
Things to note:
1) A Will cannot override the terms of any existing loan agreement that specifies what happens upon the death of the creditor.
2) If you intend for the debt to be forgiven (i.e. for the outstanding balance of the debt to be cancelled upon their death) please refer to this article — How do I include a debt forgiveness clause in my Will.
Unless otherwise stated in the terms of the loan (for example, provisions specifying what happens upon the death of the creditor or debtor), any outstanding loans payable are considered part of your estate and can be allocated in your Will. Additionally, the enforceability and recovery of the loan remain subject to the terms and conditions set out in the loan agreement.
If the loan is has already paid off or no longer exists at the time of death, (for getArrange Wills) the gift by default will be considered to have lapsed and is no longer valid. As with all other assets, it is the recommended practise to update the Will when circumstances changed.
To list a debt, go to “Allocate Assets” and add it under the “Other Assets” category.
Item Name
Money owed to me by my {Relationship}, {Name}, {Identification Number/details}, under a loan agreement dated {Date}
Identifying Details (e.g. description, location)
Principal amount of {Currency and Amount}, with interest at {interest rate}% per annum, lent on {Date of Loan}. The outstanding amount as at {Date} is {Currency and Amount}.
Estimated Market Value
{Outstanding amount owed including any interest rates if applicable}
Additional Instructions
A copy of the loan agreement can be found together with my Will for reference. I direct my Executor(s) to take reasonable steps to recover any outstanding principal and interest due under this loan, and to include any recovered sum as part of my estate for distribution.
What if there isn't any formal loan agreement?
Even if there is no formal loan agreement, the loan may still be valid and recognised as a debt owed to you. However, the absence of documentation may make it more difficult for your Executor(s) to verify, prove, or accurately determine the amount outstanding. To assist, you may wish to include directions in your Will on how such debts can be identified or substantiated, for example by referring to relevant messages, records, or correspondence stored on your mobile phone or other devices.
What if my debtor is my beneficiary?
If the debtor is one of your beneficiaries and you wish for the amount owed to be offset against his/her share of your estate, you may include one of the following under Additional Instructions depending on what to do IF there is a shortfall (i.e. his/her share of your estate is insufficient to fully satisfy the debt).
Recover Shortfall
A copy of the loan agreement is kept together with my Will for reference. I direct my Executor(s) to deduct and set off any loan owed to me by my {Relationship}, {Name}, {Identification Number/details}, from the share of my estate to which he/she would otherwise be entitled to receive under this Will.
If such share is insufficient to fully satisfy the debt, I further direct my Executor(s) to take reasonable steps to recover any remaining amount due, and to include any sum so recovered as part of my estate for distribution.
OR
Forgive Shortfall
A copy of the loan agreement is kept together with my Will for reference. I direct my Executor(s) to deduct and set off any loan owed to me by my {Relationship}, {Name}, {Identification Number/details}, from the share of my estate to which he/she would otherwise be entitled to receive under this Will.
If such share is insufficient to fully satisfy the debt, I direct that the remaining amount due shall be deemed forgiven and no further steps shall be taken to recover it.
Important: While you can include such a clause in the Will to forgive the remaining amount, it alone may not be effective if the estate is insolvent or if creditors or other beneficiaries dispute the recovery of debts owed to the estate. A clearer and less disputable approach is to have a separate loan agreement between the parties that expressly provides for the debt to be forgiven on your death. This way, the debt is cancelled by contract upon your death and never forms part of your estate.
The person whose debt is forgiven via the Will is considered a beneficiary of the Will. This person, or their spouse, should NOT act as a witness to the Will, as doing so could void the forgiveness.