IRS Takes Money From Dead Mom to Pay For Son’s Tax Debt

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Most people have some strong feelings about how they want their assets to be distributed upon their death.  Some want to give their money to their kids, others are charitably inclined.  However, I would guess that very few would like to see their money go to the IRS to pay the debts of their children.

Imagine working a lifetime, being a careful saver and then when you die it all goes to the IRS.

The famous saying is “you give your children enough money to do something but not enough to do nothing.”

In a recent case out of Kentucky (In RE: The Estate of Audrey Deinlein v. US) the IRS has insured that an heir will not be allowed to “do nothing.”

The basic facts of the case are:

Mom died and left her assets to her three sons in equal shares.  At her death one of the sons owed the IRS close to $500,000.  Mom’s estate was not large, but his share was going to be seized by the IRS.  He tried several different arguments to release his claim to his share.  One argument was that he had already received an “advancement” and the other was to “disclaim” the share.

He probably thought that it would be better for the money to go his other family members.  But the argument failed.

Two comments:

  1. An IRS tax lien attached to all “property” or ”rights to property” that a taxpayer has.  The first step is to determine if there is a property right.  Courts will look initially at what state-delineated rights the person has, but the determination is ultimately a question of Federal law.  The advancement and disclaimer arguments failed in this case.
  2. This problem could have been avoided if mom would have had a more thoughtful estate plan.  Her estate could have provided that her assets would have gone into trust for her heirs, although this is not a cure-all.

The bottom line is a thoughtful estate plan is necessary for big and small estates so that a seizure like this does not happen.

Topics:  Beneficiaries, IRS, Tax Liens

Published In: Tax Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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