When drafting an estate plan, a major part of the process involves deciding which beneficiaries will receive specific assets. With family heirlooms and other items with sentimental value, this may mean assigning individual items. With bank accounts or other financial assets, it may involve splitting assets among beneficiaries and determining appropriate percentages.
However, assets are not the only consideration. You may also have debt, such as a home mortgage, a car loan, credit card balances or final tax obligations owed by your estate. Do you need to use your estate plan to decide which beneficiary will receive these debts?
Debt is not inherited
There are limited situations in which another individual may be responsible for your debt. One example could be if you and a child are co-signers on a loan that you took out jointly, so they still need to pay it even if you pass away.
If the debt is solely in your name, however, it is not inherited by your adult children. You do not need to designate a beneficiary to take responsibility for credit card balances or a mortgage.
This does not mean the debt disappears when you pass away. Instead, the estate executor uses funds from the estate to pay outstanding balances. After debts are settled, the executor inventories the remaining assets and distributes them to beneficiaries in accordance with the estate plan.
Drafting your plan
There are many factors to carefully consider when creating an estate plan. Take the time to think about what will work best for your family and to understand all of the legal options available to you.
