When A Person Passes Away, Their Debt Must Be Paid From The Estate — The Assets They Owned At The Time Of Death, Which Are No Longer Their Property Due To Death. In Other Words, The Deceased’s Estate Is Transferred To Their Legal Heirs Upon Death, And The Creditors’ Rights Are Fulfilled From This Remaining Property.
When someone passes away, they may leave behind assets or debts for their surviving family members. If the deceased's assets exceed their debts, there is generally no problem—debts are paid off first, and the remaining assets are divided among the heirs.
In today's turbulent world, one of the keys to protecting societies from personal and collective disputes is understanding “mutual rights between individuals and the law.” This awareness plays a vital role in preventing legal issues. Therefore, we aim to explore the topic of “settling the debts of the deceased.”
Upon a person’s death, they leave behind both property and debts—collectively known as the "estate" or "inheritance." While heirs are often eager to divide the estate quickly, they act as the deceased's legal successors regarding financial matters and initially do not have the right to immediately distribute the assets. Instead, their first responsibility is to manage the estate, pay the deceased's debts, and fulfill any legal obligations. Only after these steps are completed can the remaining assets be divided.
According to Article 868 of Iran's Civil Code:
“The heirs’ ownership of the deceased’s estate is not established until after the payment of rights and debts that pertain to the estate.”
After someone dies, several obligations must be paid from their estate:
Funeral Expenses:
The first priority is the cost of the deceased’s burial. It is considered that the deceased has a share in their estate equivalent to these expenses. However, these should be within reasonable and customary limits. Extravagant spending on memorials is not included unless the deceased had significant wealth, the heirs consent to such costs, and no debts exist. Otherwise, using the estate for nonessential expenses is not permissible.
Secured Creditors (Preferred Creditors):
Creditors who hold collateral or mortgages on the deceased’s property (known as “creditors with preferential rights”) are next in line. They can recover their debts from the pledged or mortgaged assets, and they take precedence over other creditors.
Wages and Salaries:
Debts owed to domestic workers for the final year before death, business employees for the last six months, and daily/weekly wage laborers for the last three months must be paid from the estate. These are considered urgent debts.
Debts Related to Guardianship or Trusteeship:
If the deceased managed someone else's assets under guardianship or trusteeship, any debts resulting from this responsibility must be paid—provided death occurred during or within one year of that period.
Medical Expenses:
Any unpaid amounts owed to doctors or pharmacists for the deceased’s treatment or for their family’s medical needs during the year preceding death must be paid next.
Spousal Rights:
If the deceased was male, payment of spousal support (alimony) and dower (mahr) follows. Only up to 100,000 rials of the mahr has priority status; the remainder is treated like regular debts.
General Creditors:
Finally, all other ordinary debts are paid. Once this is completed, the deceased is considered to have no remaining financial obligations.
After paying debts and obligations, the deceased’s will is reviewed. Only one-third of the estate can be allocated by will unless the heirs agree to a larger share. For binding instructions, such as missed religious obligations (e.g., prayers, fasting, vows), these must be fulfilled exactly by the executor.
Once debts and valid bequests are handled, whatever remains is distributed among the heirs based on their legal shares. Before distribution, estate tax must also be paid according to Iran’s Direct Tax Law.
If the deceased’s debts surpass their assets, the heirs have the right to reject the estate within one month of death. If they do, they receive nothing—but also bear no responsibility for unpaid debts. If they accept the estate or fail to reject it within one month, they may be responsible for the debts—unless they can prove that the estate was insufficient. If they fail to prove this, they must pay the remaining debts proportionally from their own property according to their inheritance share.
Under Article 260 of the Law on Probate Matters, estate settlement involves identifying debts, paying them, and executing valid bequests. Any heir may request the court to initiate settlement. If the deceased was a merchant, commercial bankruptcy laws apply.
In conclusion, managing the debts and estate of the deceased is a structured legal process designed to ensure fairness to both creditors and heirs, rooted in Islamic and civil legal principles.
