Claims against the Estate of a deceased Guarantor

What is the position if a guarantor dies whilst his or her guarantee is still in place?

Are their personal representatives obliged to include the guarantee as a debt of the estate when applying for a grant of representation? 

Much depends upon whether the guarantor’s liability has arisen at the time of death or whether it is merely a contingent liability. If the guarantor’s estate is insolvent (debts exceed assets) contingent liabilities are provided for in accordance with the rules relating to insolvency but if the estate is solvent then the general rule is that personal representatives are not generally obliged to set a sum aside to meet a potential future claim under the guarantee.

However, although the personal representatives are not ordinarily obliged to set money aside to meet a contingent guarantee claim, they should not distribute assets amongst beneficiaries of the estate without first obtaining permission of the court because they may become personally liable to the creditor if the guarantee is called upon.

If, on the other hand, a demand for payment has been made at the time of the guarantor’s death, or if the guarantee provides that his or her liability crystallises immediately upon death, then sufficient money must be set aside by the personal representatives to satisfy the guarantee before funds are distributed to beneficiaries. That is the case even if there is a real prospect of the principal debtor being able to pay the debt instead.

For further information please contact Steve Maskell

17 November By Steve Maskell

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