You want the inheritance that you’re leaving to your children to be beneficial for them. You may be passing them tangible assets that they can use, like a family home. You may also just be handing down significant financial assets that you’ve saved up over the course of your life. These assets can help your heirs in multiple ways.
However, you may be concerned that you are also going to pass some liabilities on to the children. For instance, maybe you still have outstanding debt. Are your children going to inherit that debt the same way that they inherit your assets?
Your estate takes over
What usually happens is that the debt becomes part of your estate after you pass away. It doesn’t go directly to your children. Your estate executor has to handle it before distributing assets.
For example, say that you have $100,000 and two children. Both of them assume that they will inherit $50,000, which is what you want. Your estate plan just says to split it evenly.
But you also have $20,000 of outstanding debt. In this situation, your state executor would likely have to pay off the $20,000 first, leaving them with $80,000 remaining in your estate. They could then split that up, giving each of your beneficiaries $40,000.
So, while it is true that your children are not inheriting your debt, it can still impact their inheritance in this way.
Creating your estate plan
The best thing you can do to avoid complications is to plan in advance. Be sure you know what steps to take when drafting an estate plan.