Your heirs and beneficiaries are going to get your assets. Your estate plan dictates how this is done and what money and other assets go to specific individuals.
But what about your debts? Do these also get passed on to the next generation? Could an adult child be surprised by what they suddenly have to pay?
The heirs don’t get the debt directly
First and foremost, since this is a concern for a lot of people, debt does not directly go to their heirs. This would be unfair and potentially unaffordable. For instance, someone may make $50,000 per year but have a parent who makes $1 million per year and has well over $50,000 in debt. Telling the child to pay would be impossible. If a parent passes away without paying off all of their debts, the collections company can’t just call the children and demand payment.
That being said, debts do need to be paid. This is done through the parents’ estate. In this way, heirs may feel that they are basically covering the debt. It is being deducted from what they expected to inherit. So, while they don’t have to pay out of pocket, they may get far less money than they expected if there were high amounts of debt that had to get paid off first.
Creating a complex estate plan
Those with high levels of debt or high levels of income — or both — can wind up with very complex estate plans. Determining how everything will be resolved takes time and effort. It’s very important to start early and consider all potential legal options to make things go smoothly for the heirs.