Debt does not easily go away when you die. In fact, part of the probate process will involve settling your debts. This could spell trouble for your heirs if they expect to inherit significant assets from you, and you failed to protect those assets.
According to CNBC, when you owe debts upon your death, the estate must pay for them. Money that you have will go to pay off lenders, and if there is not enough cash available, then the court will liquidate your assets.
Debts come first
Your executor must first pay any debts you have remaining before ever giving anything to your heirs. If the executor gives your heirs an asset before settling all debts, the lender could go after them to pay the debt. If you do not have enough assets in your estate to repay all debt, then your heirs will get nothing. They will not be liable for your debt, but all your assets will go to pay all debts possible. The court will dismiss those left unpaid.
Some assets have protection
You can safeguard some assets from debt collectors and it is perfectly legal to do so. Your creditors cannot collect from a life insurance policy or a retirement account because these types of assets have beneficiaries to whom the money goes automatically, which means they do not go through probate.
Do note, though, the IRS can seize any asset whether or not it is part of your estate and goes through probate for taxes due. So, you should set money aside to pay tax debts specifically.