As you create your estate plan, you start by deciding which children will inherit your assets. You may divide assets equally or unequally, as you wish. You’ll also need to account for tangible assets and family heirlooms, and it may be wise to talk to your beneficiaries since these items can’t be split between multiple people.
But along the way, you may also start thinking about your debts. If you pass away, what happens to any outstanding medical debt? What about property taxes and insurance? You may also consider things like credit card debt, business loans or student loans. Regardless of the type of debt you have, will your children inherit it along with your assets?
How it may affect their inheritance
First off, no, your children do not inherit your debts. Unless they are jointly named, such as a cosigner on a loan, they don’t have any financial obligation simply because you took out certain debts.
However, this outstanding balance does need to be addressed. Typically, the estate executor accesses your financial accounts and pays off the debts in your name.
In this way, debt can impact how much your children ultimately inherit. If you haven’t set money aside to cover your debts and have allocated all of your financial assets to your children in your will, the executor will likely need to pay off the debts first. This could reduce the amount that your children actually inherit. They won’t take on your debt, but they may inherit less than they otherwise would have.
This is just one reason why advance planning is so important. Take the time to carefully consider all of your legal options.