Debts generally can’t be inherited, but they can reduce the potential assets received by the deceased person’s heirs. If an estate owes more than the fair market value of its assets, the heirs could end up with nothing.
When someone passes away with tax debt, the IRS has the chance to make a claim during the probate process.
Tax Debts in Probate
The executor in charge of administering the estate has a duty to notify all creditors of their rights to make claims against the estate. They may also publish a public notice to give any unknown creditors a chance to make their claims.
The executor is in charge of vetting and prioritizing these claims, similar to how a bankruptcy is handled. The assets of the estate must also be located and appraised. Some assets may be exempt from probate under state law, but most types of property are included.
Before any heirs get their inheritance, the debts must be paid. So while you won’t inherit federal tax debt, it could take a portion—or even all—of your inheritance.
If there are insufficient assets to pay off all of the amounts owed, the creditors will have to write off the remaining balances as a loss. However, there may be nothing left for the heirs to inherit when this occurs, regardless of what the will or other estate planning documents say.
Probate debts may also be ranked based on their priority level, so some debts could be paid before others. This could cause some lower priority debts to go unpaid or to receive a small percentage of the amount owed.
Resolving Tax Debt
Both tax resolution and estate planning strategies may be used to avoid having the IRS take a portion of your estate. However, be sure to consult with a tax attorney to make sure you are actually protecting your assets. The IRS is a powerful creditor and can still collect assets placed in certain trusts.
You may also prefer to settle your tax debt or make monthly payments using an installment agreement. This way, you can feel more secure that your assets will actually end up in the hands of your loved ones, rather than the IRS.
Get help settling your tax debt by calling The Gartzman Law Firm at (770) 939-7710. We can help you protect your assets and find a creative solution to your tax problems.