Money Owed to the Deceased: Chasing In a Family Loan

If you lent your son money and never wrote anything down, the honest answer is that your executor will probably have to ask him for it back when you die. Money you lent is an asset of your estate in exactly the way a savings account is. The person administering the estate has a legal duty to collect in what you were owed, and that duty is owed to all of your beneficiaries, not only to the one holding the money.

That is almost never what a parent intends. The money was help. It went out at a moment when it was needed — a deposit, a divorce, a business that was struggling — and nobody wanted a receipt, because asking for one would have changed what it was. Years later the sum has quietly become a question that your children will have to answer without you in the room.

The fix takes an afternoon and it is the same fix whichever way you decide. Write down what the money was. A loan you intend to be repaid, a loan you intend to forgive, or a gift that was never a loan at all — any of the three is fine, and any of them is better than leaving it to memory.

The short answer: a loan is an asset, and your executor must pursue it

A personal representative's core statutory duty is to collect and get in the estate and administer it according to law. A debt owed to you is part of that estate. It does not matter that the borrower is your child, that you had stopped expecting repayment, or that you would have been mortified to see them chased. Once you have died, your executor is acting for the beneficiaries as a body, and writing off a recoverable asset out of sentiment is a breach of duty they can be made to answer for personally.

That is the mechanical reason a well-meant family loan turns into a fight. The executor is not being harsh. They are being careful, because an executor who gives away a recoverable asset can be made to make good the loss out of their own money, and the sibling who did not borrow anything is entitled to ask why the estate is smaller than it should be. That pressure explains a great deal of behaviour which families read as coldness.

It gets worse where the borrower is also the executor, which in a small family is entirely likely. That person is then on both sides of the same transaction: obliged to collect a debt from themselves, and obliged to account to their siblings for the decision. The related problem of a personal representative whose own money is entangled with the estate is covered in what happens when an executor has funded the estate out of their own pocket. Neither situation is unmanageable, but both are far easier when the paperwork already says what the money was.

Loan or gift: how the question gets decided without you

There is no register of family loans. Nothing appears on a credit file, nothing shows in a bank's records beyond a transfer out, and the executor's usual search will not surface it at all — which is worth knowing if you are on the other side of this and trying to work out how to find every debt someone left behind. What the executor will find is a payment, and then they will have to decide what it was.

In practice the answer is built from whatever evidence survives:

• Anything written at the time. A signed agreement settles it. So, very often, does a text message, an email, a reference on a bank transfer that reads "loan", or a note in a diary.
• Whether any repayments were made. Even a handful of payments over a few months is powerful evidence that both of you understood it as a debt.
• What was said to other people. Solicitors' files, mortgage applications and letters to other family members are all fair game, and a declaration made to a lender that the money was a gift can be uncomfortable later.
• How the rest of the family were treated. If two other children received similar sums described as gifts, the odd one out needs explaining.

The version of this argument that reaches solicitors most often involves a house deposit, because the amounts are large and because mortgage lenders insist on a signed declaration that the money is a gift. We have set that particular collision out separately in was it a gift or a loan, and the question the executor will ask. If you gave a deposit and privately regarded it as a loan, that declaration is the first document your executor will be shown.

Does it just go away after six years?

This is the reassurance people reach for, and it is only partly true.

Under the Limitation Act 1980, an ordinary contract debt in England and Wales generally becomes unenforceable through the courts six years after the cause of action accrued. But three qualifications hollow that out in family cases.

First, the clock restarts. If the borrower acknowledges the debt in writing, or makes any payment towards it, the six years begins again from that date. A single transfer at Christmas with "towards the loan" in the reference is enough.

Second, the clock may never have started. Where a loan has no repayment date at all — which describes most family arrangements — the legislation can mean that time runs only from a written demand for repayment. On that footing the debt is not ageing quietly in the background; it is simply waiting.

Third, and least understood, limitation stops a claim being enforced in court. It does not necessarily stop the executor setting the debt against that child's inheritance. Where a beneficiary owes money to the estate, the long-standing principle is that they cannot take their share out of the fund without accounting for what they owe into it, and that principle is generally held to apply even to a debt that has become too old to sue on. So "it was more than six years ago" is rarely the end of the conversation. It just moves the argument from the courtroom to the estate accounts.

Source: Limitation Act 1980, sections 5, 6, 29 and 30, as published on legislation.gov.uk.

The three ways to settle it now

Every version of this problem is solved by a document. Choose the one that matches what you actually want.

Record it as a loan. A short written agreement, signed and dated, saying how much was advanced, whether interest applies, and when it is repayable. This is the right choice if you genuinely expect repayment, and it protects your son too: it stops a sibling later claiming the sum was far larger than it was.

Release it now. If you have decided the money is his, you can write the debt off during your lifetime. Because you are giving up something for nothing in return, a release of this kind is normally done by deed to be effective, which is a job for a solicitor and a short one. The debt then stops being an asset of your estate at all.

Deal with it in your will. Two standard clauses do most of the work. One forgives any sum outstanding at your death, so the executor has clear authority not to chase it. The other directs that the outstanding amount be treated as an advance against that child's share, so the estate is divided as if the money had come out of their portion. Say explicitly which one you mean, and say what happens if the sum has been partly repaid.

Whichever you choose, tell everyone concerned while you are alive. The document prevents a legal argument. The conversation prevents a family one, and it is the conversation that people regret skipping.

What it does to your other children

The reason this matters so much more than the sums involved is that it lands during the worst month of your children's lives, and it looks like a verdict on who you loved most.

An estate divided equally between three children, one of whom has already had a substantial sum, is not in fact an equal outcome, and the two who did not borrow will notice. Equally, a child who was helped through a genuine crisis and has spent fifteen years being quietly grateful will experience a demand from their own sibling as a betrayal. Both readings are reasonable. That is exactly why an instruction from you, in writing, is worth more than any amount of goodwill afterwards.

Think about the arithmetic before you decide. Forgiving a large loan and dividing the rest equally may leave the other children with far less than you imagine, particularly where most of your wealth is in the house. Treating it as an advance can leave one child with nothing at all if the loan approaches the size of their share, which some parents intend and others discover only when the figures are run. And if you have no will at all, none of this is your decision — the intestacy rules will apply and, as our piece on what happens with no spouse, no children and no will shows, the outcome can be a long way from what anyone expected.

There is a third route that some families use, and it is the reason cover of this kind exists at all. Rather than choosing between forgiving the loan and dividing the estate unequally, you can leave the loan forgiven and provide separately for the other children through a life policy written in trust. Because a policy in trust pays outside the estate, it usually reaches them quickly and without waiting on probate, and it lets the executor act on a clear instruction rather than adjudicate between siblings. Whole of life cover is the type normally used for this, because the point is that it pays whenever you die rather than within a fixed term. Whether cover can be arranged, and on what terms, always depends on underwriting and on your age and health — you can get life insurance quotes and have an FCA-authorised broker price it against the actual sum you want to equalise.

Tax, care fees and the timing of a write-off

Three practical consequences are worth knowing before you sign anything.

A loan outstanding at your death forms part of your estate for inheritance tax at its recoverable value. If it genuinely cannot be recovered, that can be reflected in the valuation, but "we did not want to ask" is not the same as irrecoverable, and HMRC distinguishes between the two.

Forgiving a loan in your will does not take it out of your taxable estate. The debt existed at the moment of death, so it is counted, and the release then operates as a gift out of the estate afterwards. Releasing it during your lifetime is a different thing entirely: it is a lifetime transfer of value, and the usual seven-year rule applies to it as it would to any other gift. If your estate is anywhere near the threshold at which inheritance tax bites, take advice on which route costs less, because they are not equivalent. The current thresholds and the treatment of lifetime gifts are set out on the government's inheritance tax pages.

Then there is care. If you write off a substantial loan and later need help with care costs, a local authority carrying out a financial assessment may consider whether assets were deliberately disposed of in order to reduce what you would have to pay. The rules differ across the four nations of the UK. The point is not that you should never forgive a family loan — it is that the timing and the reason should be recorded honestly at the time rather than reconstructed under questioning years later. MoneyHelper and Citizens Advice both cover this ground free of charge.

One further warning. Forgiving a debt is only safe if your own affairs are sound. Where someone dies owing more than they own, gifts and releases made in the run-up are not automatically beyond challenge, as our piece on whether a gifted deposit can be clawed back from an insolvent estate explains.

If you guaranteed the borrowing instead of lending it

Some parents never lent anything. They signed as guarantor so a child could borrow from someone else, which feels like the same act of help but produces the opposite result at death. A loan makes your estate a creditor. A guarantee makes your estate a debtor.

Guarantee obligations generally survive the guarantor's death and bind the estate, which can hold up the administration for years while the underlying loan runs its course. What that looks like in practice is set out in what happens when a guarantor dies and the lender wants the loan repaid, and the mirror-image situation — when it is the borrower who dies and the guarantor is left paying — is worth reading if you have signed for a child's rent or car finance. If you have done both, lent money and guaranteed borrowing, your executor is going to need to know about each of them, and only you can tell them.

Scotland and Northern Ireland

The principle holds throughout the UK: a debt owed to the deceased is an asset the executor must try to recover. The mechanics differ.

In Scotland, the relevant time limit is the five-year negative prescription rather than the six-year limitation period, and it can be interrupted by acknowledgement or part payment in a broadly similar way. Executors obtain confirmation, and Scottish succession law gives a surviving spouse and children legal rights in the moveable estate that cannot simply be written out of a will — so an unrecorded loan interacts with those entitlements in a way it does not south of the border. Scots law also has its own approach to gratuitous transfers, so take Scottish advice on how to release a family loan rather than copying an English precedent.

Northern Ireland has its own succession and limitation legislation and its own probate office. The practical advice is identical everywhere: record what the money was, in writing, while you are here to say so.

The wider picture of what does and does not survive a death is collected in our guide to debt, credit and finance after a death.

Frequently asked questions

Is money I lent my son an asset of my estate?

If it was a loan rather than a gift, yes. The outstanding amount is a debt owed to you, and your executor has a duty to collect it in for the estate and account for it to the other beneficiaries. That remains true even where you never expected repayment, unless you formally wrote the loan off.

How do I stop a family loan causing an argument after I die?

Put it in writing now. A short signed loan agreement, or a letter recording that the money was a gift, tells your executor exactly what to do. You can also state in your will that any outstanding loan is forgiven, or that it is to be set against that child's share, and then tell the family which you have chosen.

Can a family loan become too old to recover?

Under the Limitation Act 1980 an ordinary contract debt generally becomes unenforceable six years after it fell due, unless the borrower has acknowledged it in writing or made a payment towards it. Loans repayable on demand and purely informal arrangements are frequently argued about, and an old debt can still be set against that child's share of the estate, so record the terms.