At the moment, the Catholic position is that an unbaptised baby goes to a place called limbo, where there is neither punishment nor reward. However, the Church may be moving towards abolishing limbo, in which case unbaptised babies will probably go straight to heaven.
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The Church teaches that we live in the hope of God's mercy and love that they will be with God in heaven.
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AnswerThis is a fascinating theological question, I remember writing a paper on it during my time in the seminary. First of all, the Church has always taught that, in addition to water baptism, there is baptism of desire and baptism of blood. The first would cover, for instance, the death of a person who was attending R.C.I.A. class intending to be baptized at the Easter Vigil, he is killed in a car crash on the way to the Easter Vigil. The Church has always maintained that the graces of his baptism would be present to a degree before the actual water baptism happened, and that he would be saved, he would be entitled to a full Catholic funeral and burial in a Catholic cemetery. Baptism of blood would be someone who was a martyr for the faith and was killed before being baptized by water. He is considered baptized in his own blood, many of the early martyrs who were killed before being baptized would fall into this category. I don't think I've ever heard, but I would suppose that the Good Thief on the cross who died with Jesus would be considered both baptism by desire and by blood. We still make every effort to baptize anyone at the point of death, and even immediately after someone has been killed and is no longer breathing as we don't know when the soul leaves the body; but we certainly trust in the mercy of God, as mentioned above, when all else fails. Once a child reaches the age of reason, though, his parents' faith would not be sufficient and he would actively have to be attempting baptism.The Catholic Church believes that baptism is necessary for all people to be saved. Please note that this is a teaching of Our Blessed Lord, Jesus Christ, and we are bound to it, thus we are under a grave obligation to make sure that all are baptized as soon as humanly possible. Now, although we are bound by it, God is not: thus, even though He makes this a solemn obligation for us in which we must not fail, that does not mean that infants who die without baptism are condemned to hell, or even limbo. The latter is a possible theological explanation for what might happened to unbaptized babies, but, in truth, God has not revealed this to us, and we are not qualified to rule on it, so we entrust all unbaptized babies to His infinite mercy, and given the alarming number of such, especially since the plague of abortion has been legalized, we must pray very hard for them.
I think babies will go to heaven, because really do you think God is so mean as to make baby go to hell. Maybe they go to a special place for them.
The same thing that happens to baptized infants. They cease all life functions, end of story.