You’re making an estate plan when you realize that you’re not going to be able to pay all of your bills before you pass away. For instance, maybe you pay your property taxes twice a year. But if you pass away before that payment is due, the government is still going to want their tax payment.
But who is responsible for doing that? You may worry that you are just going to pass the tax liability on to your heirs. After all, they are going to inherit your property, whether it’s a family home or a vacation home. Once they are the owners, they are responsible for paying the taxes. But if you have an outstanding balance that is still due, does that mean they also have to pay what you owed?
Your estate has to pay
The first thing to remember is that it is your estate that has to pay those taxes, not your heirs. You will choose an estate administrator and they will be able to access your financial accounts. When you pass away, they can take money from your bank accounts or investment portfolios to pay off the taxes. The obligation does not go to your children but stays with your estate.
It is possible to plan for this in advance. People will sometimes figure out how much taxes are going to cost and set up an account or even a trust fund to cover those costs. Perhaps you’re worried that your heirs won’t be able to afford the taxes even after they take over ownership. You could certainly set up a fund years in advance that will hold money for them to cover those taxes and other costs.
It all depends on what your goals are, but planning in advance can be very beneficial. Just be sure you know exactly what legal steps to take as you create that estate plan for your family.