Social Security, Treasury target taxpayers for their parents’ old debts

[Valmy]

How can you be liable for the debt of your dead parent? Is it because of sharing the same SS number when she was young? Looks fucked up to me.

Like this apparently.  Though generally I think you are liable for the debts of your parents if they die with debts right?  Of course this is a bit different, as this was not a debt but rather collection on an overpayment.

[Admiral Yi]

Though generally I think you are liable for the debts of your parents if they die with debts right?

Pretty sure this is not true.

[mongers]

Though generally I think you are liable for the debts of your parents if they die with debts right?

Pretty sure this is not true.

Yes, otherwise bits of America would be feudal or look like modern India.

[Valmy]

Pretty sure this is not true.

Then why do we get life insurance to help with final expenses if all of our debts get cancelled?  Why not just get credit cards under your parents names and run them up prior to their death knowing you get to keep it all for free?  That cannot be true or it would be the most easily abusable thing in the world.

[grumbler]

Though generally I think you are liable for the debts of your parents if they die with debts right?

Pretty sure this is not true.

I am quite sure that this is not true.  The estate can owe debts, but the children do not.  They simply inherit less and , if the estate is insolvent, they will get nothing.

[grumbler]

Then why do we get life insurance to help with final expenses if all of our debts get cancelled? 

  No one is arguing that "all of our debts get cancelled."  Jesus, dude!  Talk about strawman arguments!

Why not just get credit cards under your parents names and run them up prior to their death knowing you get to keep it all for free?  That cannot be true or it would be the most easily abusable thing in the world.

If you use your parents' credit cards without permission, this is fraud.  If you use them with permission, this would be gift-giving and subject to taxes, beyond certain limits.  The estate would owe the credit card companies or banks for the balance owed.  Not sure what you mean about something being "the most easily abused thing in the world."

[Valmy]

I am quite sure that this is not true.  The estate can owe debts, but the children do not.  They simply inherit less and , if the estate is insolvent, they will get nothing.

Yeah ok this was more what I was thinking of.  So in the event you inherit something you are liable for any debts later discovered then yes?  That would be the only way this IRS thing would even remotely reasonable.

[mongers]

I am quite sure that this is not true.  The estate can owe debts, but the children do not.  They simply inherit less and , if the estate is insolvent, they will get nothing.

Yeah ok this was more what I was thinking of.  So in the event you inherit something you are liable for any debts later discovered then yes?  That would be the only way this IRS thing would even remotely reasonable.

But the estate of the dead person will in all probability have been wound up years ago.

The state didn't present the debt to the executor of estate at the time, so it went 'unpaid' so to speak.

[OttoVonBismarck]

Generally you can't directly inherit until the estate closes, and the estate isn't supposed to close until all debts are settled. Obviously if the estate owes more than it owns, it's similar to bankruptcy in that creditors get pennies on the dollar in a standardized form of prioritization.

There is actually a window of time during which creditors have to be allowed to come forward and say that the deceased owed them money. I actually believe if you guide the estate properly through the process and by the book, once it is closed the creditors have "missed their window" and it's basically tough luck if they discover five years later they should have gone after that estate for unpaid debts.

Some assets sort of bypass the estate process though, which is where things start to get complicated.

The primary reason for life insurance is basically to guarantee your heirs have money. Usually the policy will be for enough that it will pay off all your estate's expected debts and then leave a healthy remainder. If you're an older person with grown children you probably only want enough life insurance to cover your debts + pay for a funeral. If you have dependents you want enough to cover your debts + basically replace your earnings for the rest of the dependent's minority. If you have a spouse things are different, as a lot of assets will be marital assets and immediately devolve to the spouse anyway, separate from any estate process. There also usually own't be any need to immediately settle debts, your spouse will have probably been a joint debtor and will just continue making those payments. Life insurance is one of those assets that would often not be part of an estate, because it has a specific named beneficiary. So your named beneficiary receives the payment immediately upon verification of death, so it is not part of probate. But depending on how you set the beneficiaries up, the life insurance payment could in fact go to your estate instead.

[KRonn]

Also with the IRS and very old tax issues, I assume it can go both ways and that they're just as likely to give money owed or overpaid from thirty years ago. And the assumption can't be made that either oweing or being owed money is correct, as the IRS makes plenty of mistakes too.

[Admiral Yi]

I don't understand the debt elimination rationale for life insurance Biscuit.  Since debt is not heritable, you're paying to eliminate nonexistant downside risk.

[Capetan Mihali]

Isn't this part of the issue where, if you accept an inheritance, you accept the according outstanding debts of the estate?  (With the exception that you can take a decent amount of household goods, heirlooms, sentimental things, etc. without being on the hook for the debts.)  I know virtually nothing about this, of course, but recall some basic principle to this effect.

[OttoVonBismarck]

I don't understand the debt elimination rationale for life insurance Biscuit.  Since debt is not heritable, you're paying to eliminate nonexistant downside risk.

Ex, an employee of mine is a first generation Vietnamese immigrant who (in that quaint Asian way) bought a house for her parents when she graduated college that is in her name. She later got married and doesn't live in the house, but still owns it and makes payments. Her parents are unable to read/speak English and are living off of small social security checks at this point (after working as part timers in minimum wage jobs.) So basically she has enough life insurance to guarantee that the house can be paid off when she dies as her parents would otherwise have to move. Lacking any English ability they'd have a difficult time even working that out with their only English speaking relative deceased, and they also are elderly and wouldn't want to be relocated. The house will be part of the estate as real property, and if the estate can't cover the mortgage the parents would be evicted at some point.

[OttoVonBismarck]

Also most people that have big life insurance policies are married with dependents. Most households are dual income, if you die you will want your spouse to have enough money to either eliminate or at least pay down debts that were incurred with the understanding you would be able to use both of your incomes to make payments on them.

[grumbler]

Generally you can't directly inherit until the estate closes, and the estate isn't supposed to close until all debts are settled. Obviously if the estate owes more than it owns, it's similar to bankruptcy in that creditors get pennies on the dollar in a standardized form of prioritization.

There is actually a window of time during which creditors have to be allowed to come forward and say that the deceased owed them money. I actually believe if you guide the estate properly through the process and by the book, once it is closed the creditors have "missed their window" and it's basically tough luck if they discover five years later they should have gone after that estate for unpaid debts.

This is correct.  The executor of the estate has to announce in the papers that the deceased is gone and that anyone who wants to pursue a claim against the estate needs to file such a claim with the executor.  How long they have to file, and what and how many papers have to have the public notice, are determined by state laws (like all things to do with estates).

Federal law trumps state law, though, so i don't think the IRS is bound by the limits imposed by state law.

By the same token, though, federal law is bound by constitutional limits, and the IRS cannot deprive anyone of property without due process of law.  How simply seizing tax refunds in the absence of due process escapes being unconstitutional, I don't know.  I suspect one of out law-talkers can explain it.

In any case, it is an excellent argument for making sure you receive little or nothing in the way of tax returns.  So long as you make sure you deduct in a given year an amount equal to what you owed in taxes the previous year, you will avoid penalties, and generally have a very small payment owed.  The IRS cannot seize a refund that does not exist.