As you make your estate plan, you carefully consider what assets you want to leave to your adult children. You may have family heirlooms or items with sentimental value that you want to divide deliberately to avoid conflicts. You may also need to determine how to divide financial assets, such as splitting savings among your children when you pass away.
As you review your estate, you may start wondering about your debts. Will these also be inherited by your children? Who pays utility bills, credit card bills, income taxes or property taxes? Even if you are proactive about paying off major debts like a mortgage, will your children inherit these smaller obligations?
Your estate is still responsible
As a general rule, your estate is responsible for your debts. Your children do not inherit them directly. Instead, funds from the estate are used to settle outstanding debts before any remaining assets are distributed to beneficiaries.
This may mean that your adult children inherit less money if a significant amount must be used to satisfy debts, but that is different from your children taking on the debt themselves. They are not personally responsible for it.
It is wise to plan for debt when drafting your estate plan. This may involve paying obligations off in advance or setting aside funds that the estate executor can use. It is generally the executor’s responsibility to pay these debts on behalf of the estate.
Drafting your plan
Addressing debt is just one factor to consider as you put your estate plan in place. Be sure you understand all of your legal options and obligations.