What happens to your tax debt when you die?

Planning the logistics of your departure from this world may not be a comfortable activity, but a little time and energy on your part can save those you leave behind from an arduous task. You want to be certain that your money, property and assets are divided and distributed according to your wishes. As you navigate this essential activity, it’s critical to determine how your taxes – and any existing problems – can upset your postmortem financial blueprint.

The Life of a Tax Debt

Any delinquent federal tax balance has a lifespan of ten years. This liability clock begins on the date of assessment and ends ten years later. For example, a tax debt assessed on June 1, 2017 will not be excused until June 1 2027. There are factors that can extend this time frame, but if you did nothing to resolve your debt, you can expect that it will be collectible for a full decade.

During Your Debt’s Life Cycle

Any unresolved IRS balance is subject to collection activity. This means that you are vulnerable to efforts such as a levy against your bank accounts, a wage garnishment or even a property seizure. The longer you wait to make resolution efforts, the more likely you are to experience aggressive collection measures.

When You Die

Unfortunately, even your death does not necessarily excuse your tax debt. If your delinquent balance has five years left before it reaches expiration, then collection activity may continue to be taken for this time. And while you obviously won’t be liable for payment, your family may be.

Your Spouse     

In the event that you filed a joint tax return with your spouse and that ultimately yielded a tax debt, both you and your spouse are initially responsible for the balance. Should you pass away before this sum is paid, your spouse will still be subject to IRS collection efforts. Your partner can make an innocent spouse request if he or she had no knowledge of (and no reason to know about) filing errors which led to the tax debt; if approved, the IRS will not pursue collection activity against your surviving spouse.

Your Heirs

While your family and friends won’t be vulnerable to IRS collections for your tax debt, the money and/or property you intend to leave them can be. Following your demise, any outstanding tax liability must be paid before your assets are allocated to your heirs. Failing to plan properly can make a mess of your affairs; one that those you leave behind will be forced to clean up before receiving what’s left of your estate.

How to Be Ready

You can never be completely prepared to shuffle of this mortal coil, but with some careful planning, you can be reasonably sure that a tax debt won’t complicate matters for your spouse and family. You may wish to consult with a fiduciary when arranging your affairs and, if a tax debt exists, consider speaking with a licensed tax professional. As long as a resolution is in place for any IRS issue, you can rest easier knowing that you’re working towards outliving your tax debt – a proposition that both you and your family can appreciate.