Assets are typically passed to the next generation through an estate plan. This can be done in many ways. Some people will simply put the assets into their will and let the estate executor divide them. Others will transfer assets into trusts with a set beneficiary who gets to use the money. These are some of the most common options, but estate planning is fairly flexible and can accomplish many different goals.
That being said, it’s not all about the assets. Most estates are also going to have some amount of debt. This could be very little, especially if planning has been done to take care of it in advance. But there will still be things like credit card bills, property taxes, income taxes, medical bills and more. These may not be addressed, so do the children then inherit the debt and have to pay it back?
The estate pays off the debt that remains
The children will not inherit that debt. But it is debt that is owed by the estate. As such, the estate executor often has to pay the debt back first, and then they distribute the remaining assets to the heirs.
This means the heirs don’t have to worry about coming up with the money on their own and paying the debt back. But it also means that they may inherit less than expected if some of the money that was originally in the estate has to go to these debts first.
As you can see, the estate planning process is often more complicated than people realize. It’s important to understand all of the potential legal options.