The Washington Post reported recently the Internal Revenue Service has “intercepted” hundreds of tax refunds to repay decades-old debts. What is disturbing is that these are not debts owed by the taxpayers, but by their long-deceased parents. The IRS claims that in the past, families of deceased Social Security beneficiaries received overpayments from the government.
Even more shocking, the government now claims the right to collect those “overpayments” without having to prove the validity of the debt. According to the Post, the IRS makes no effort to determine who actually benefited from the alleged overpayment; instead “the policy is to seek compensation from the oldest sibling and work down through the family until the debt is paid.” After public outcry over the Post report, the IRS subsequently announced it would suspend its collection program.
Not the Normal Way to Satisfy Debts
A story like this may leave you asking, “Can other creditors force me to pay my parents’ debts?” The answer is no. Non-government creditors generally have no recourse against the heirs of a debtor. Obviously, the government tends to exempt itself from its own rules in this regard, and the IRS is no typical creditor.
In an estate proceeding, creditors must present a claim to the executor or administrator of the estate. Unlike the IRS, a private creditor cannot simply take what it wants. Nor can it refuse the estate’s request for documentation verifying the debt. The executor or administrator ultimately decides whether or not to pay a debt. If the creditor disagrees with the estate’s decision, both sides may seek a judicial resolution before a probate judge.
There is also a strict time limit for private creditors to present their claims. In California, a creditor must notify the executor or administrator within four months of his or her appointment. After that, the claim is barred by law. By contrast, Congress lifted the statute of limitations for collection of debts against the federal government, which is why the IRS is now pursuing claims that would be long barred under state law.
Who Is Responsible for What Debts?
If the estate will not or cannot pay a debt, the creditor generally cannot seek payment from heirs or family members of the deceased. Under federal law, a creditor may only contact the spouse or executor of a deceased debtor’s estate (or the parent of a deceased minor). But the creditor may not discuss the debts with any other third party, including the debtor’s children or siblings, in an attempt to force payment.
This does not mean there are never cases where a family member may be liable for an unpaid estate debt. If you co-signed the obligation, you are just as responsible as if the deceased was still alive and simply defaulted on the debt. And if you live in a community property state like California, a surviving spouse may be held responsible for some of the deceased spouse’s debts.
Understanding your debts is a key part of estate planning. You should always work with an experienced California estate planning attorney who can advise you on the best way to ensure all of your creditors are paid after your death. Contact the Law Office of Scott C. Soady in San Diego if you have any questions.