Parent's Tax Debt at Death

Tax debts can haunt a family even after the death of a taxpayer.

Tax debts can haunt a family even after the death of a taxpayer.

The death of a parent is a tough time for anyone, but the IRS isn't required to express sympathy for bereaved families who are also dealing with tax issues. A tax liability remains valid even with the death of the taxpayer, and the agency will pursue any and all legal avenues to collect. In these circumstances a qualified, experienced financial adviser can be an important ally. Whether or not you choose to get help from an adviser, however, it's vital to get familiar with the law.

Wills and Executors

If your parent left a will, the document names an executor to handle the distribution of assets and the payment of debts. If there is an outstanding tax liability, the executor must pay that debt, and all others, out of any assets from the estate. This is true whether or not the deceased set up a trust to hold the assets. IRS debts and all others must be paid before the executor or trustee distributes any assets to the heirs or beneficiaries.

Spouses and Back Taxes

If one parent dies, a surviving spouse inherits responsibility for any back taxes owed. The spouse must also file a final joint tax return for the year in which the death occurred, and pay any taxes owed for that year. The IRS will make exceptions under the "innocent spouse" rules for those who were unaware of large outstanding tax debts of a spouse. In any case, the IRS requires notice of the death; the agency will not hold any non-spouse relatives responsible for the payment of an individual's tax debt.

Beneficiaries and Unknown Tax Debts

A situation might arise where the beneficiary of a will was simply unaware of a tax debt owed by the deceased. IRS liabilities are not something easy or pleasant to talk about, but if the estate owed taxes, and the executor failed to pay them, then the IRS can pursue beneficiaries as well as the executor for repayment. This is true whether or not the beneficiaries have spent inherited money.

Estate Taxes

The property of the deceased is known in law as the estate; the IRS levies taxes on larger estates, as do several states. The estate tax is separate from income taxes owed by the deceased. A separate return must be prepared and filed by the executor, and any tax owing comes out of the estate assets. The IRS exempts estate assets that pass to a surviving spouse. In addition, the IRS will not hold a spouse nor any family member responsible for payment of estate taxes, unless the tax goes unpaid and the executor passes assets to a beneficiary.


About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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