Before an estate can be distributed, do all debts need to be settled even if the debt is to the heirs?

I am so sorry for your loss.  Generally speaking, yes, all debts of the estate must be settled prior to distribution by the Personal Representative.  That includes debts to state and Federal authorities (I.e., Tax Returns for the estate and personally for the decedent if they were to file in the year that they passed).  Now, there are methods for formally making a claim as a debtor in the estate and it is advised that you do so even if you are an heir (beneficiary) as you state.  Otherwise the claim can be lost. Good luck.