How executors and beneficiaries can recover money owed to an estate

When someone dies, most people’s attention goes to what the estate owns: any property, savings, investments, and assets.

However, estates are also owed money: the deceased may have lent money to a friend or family member or others; they may have had an outstanding invoice or money owed from a business they ran or were involved in; a former business partner may owe them a share of profits; a tenant may have left rent unpaid; or an employer may owe salary, holiday, pensions, or other amounts.

That money belongs to the estate, which means it ultimately belongs to the beneficiaries.

Your probate solicitor’s job is to administer the estate, which includes obtaining the grant of probate, dealing with property, handling tax and the final tax return, and eventually distributing the estate to beneficiaries. However, recovering unpaid debts owed to the estate requires a debt recovery specialist.

The executor’s duty to collect what’s owed

An executor has a legal duty to take reasonable steps to recover assets belonging to the estate; and a debt owed to the estate is an asset, just as much as a savings account or a share portfolio.

An executor who simply writes off a recoverable debt or fails to pursue it because it feels awkward or difficult is potentially in breach of their duties to the beneficiaries.

If the debt was material and recovery was reasonably possible, beneficiaries who lose out can challenge that decision.

In practice, most executors are not debt recovery lawyers. They know they should pursue the debt but they do not necessarily know how, and that is exactly the gap we can fill.

Common situations

• Personal loans made by the deceased: The deceased lent money to a friend, a family member, or a former colleague. Sometimes this can be formally documented, sometimes not. The borrower has not repaid and is not rushing to do so now the lender has died. These claims can be sensitive, particularly where the borrower is also a beneficiary. Sensitivity, however, does not make them unenforceable.
• Business debts: The deceased ran a business either as a sole trader or through a company and customers or clients owe outstanding invoices. Those debts pass to the estate (for a sole trader) or remain with the company (if a company is involved, but the deceased’s shares are an estate asset). Either way, getting that money in affects what the estate is ultimately worth.
• Unpaid rent: The deceased was a landlord, and a tenant owes rent arrears. The tenancy does not end automatically on the landlord’s death, and neither does the obligation to pay rent. Arrears are a debt owed to the estate.
• Loans to family-owned companies: It is common for business owners to have directors’ loan account balances, which is money the company owes them rather than the other way around. These are estate assets, and if the company is reluctant to repay, or disputes the amount, that requires proper legal pressure.
• Disputed or denied debts: The debtor acknowledges the relationship but denies owing the money, disputes the amount, or claims it was a gift rather than a loan. These require evidence, analysis, and in some cases, litigation or other action.
• Judgment debts never enforced: The deceased obtained a court judgment against someone but never pursued enforcement. That judgment belongs to the estate and can still be enforced but subject to limitation considerations.
• Employment: If the deceased was an employee or director, then they may be owed holiday, salary, or pension entitlements. These are estate assets which can be pursued.

The practical challenges executors face

Pursuing debts as an executor is not the same as pursuing them as the original creditor. There are complications that do not arise in ordinary debt recovery:

• You may not have all the documentation: The deceased kept records only they understood or kept none at all. Reconstructing the basis of a debt from bank statements, emails, and memory is then necessary.
• The debtor knows the creditor has died: Some debtors take the view (consciously or not) that a debt becomes less pressing when the person they owed it to is no longer alive. They may be slower to respond, more likely to dispute, or more inclined to hope the estate will not pursue. That calculation changes quickly once a solicitor is involved.
• Family and relationship dynamics: A significant proportion of debts owed to estates involve people who are also beneficiaries, or who are close to beneficiaries. The executor may feel uncomfortable pursuing them. That discomfort is understandable, but the duty to recover the asset remains, and having a solicitor conduct the correspondence removes much of the personal awkwardness.
• The debtor may themselves be in financial difficulty: If recovery is going to be possible, acting quickly matters as assets and money can disappear. For example, you may need a freezing order or charging order over property, where the risk of dissipation is real.
• Limitation periods are running: The clock does not stop when someone dies. If the debt is approaching the six-year limitation period for contract claims, delay in instructing a solicitor may mean losing the right to recover entirely.

A note on timing

Debts close to the limitation period require urgent action. Debtors who are themselves in financial difficulty need to be pursued before their position deteriorates further. Evidence, documents, emails, bank records are easier to gather now than in twelve months’ time.

If you have questions or concerns about the recovery of a debt, please contact Ben Crowley.