Are my tax obligations nullified after I die?
You may have avoided filing a tax return for the last few years. No one’s come to haul you off to jail yet, so maybe you’re thinking you can just ride this out until the end. If you pass away without having paid off your tax debt, does it really hurt anybody?
The answer is yes. After you die, your tax debt lives on—and it will continue to follow whoever’s next in line until it gets settled. Here’s how it works:
Automatic tax lien
When you die, all of your assets become part of an estate. After your passing, the IRS puts a lien against those assets. This means that if you have any heirs who stand to inherit from you, they don’t receive anything until the IRS first gets what’s theirs.
What if this protocol isn’t followed?
If your administrator—the person in charge of your estate—distributes assets to your heirs before paying off the IRS, this creates real trouble for the administrator. The IRS can come after the administrator directly to collect.
What if my estate doesn’t have enough assets?
If, at the time of your death, there aren’t enough assets left to pay off your tax lien, then your administrator has some scope to negotiate a reduction in money owed with the IRS.
What if I set up a trust?
By setting up a trust for your beneficiaries’ inheritance, they can effectively avoid probate. So doing, however, will not erase your tax obligations after you die.
In short, leaving your taxes unpaid can leave behind an enormous financial burden for your loved ones after you’re gone. An experienced tax attorney can help you develop a plan to pay off the taxes you owe.