Denver, CO asked in Tax Law for Colorado

Q: IRS debt after death, are life insurance beneficiaries responsible if there is no other property/savings?

No property or savings except a vehicle. Can we donate that vehicle to offset the tax debt?

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1 Lawyer Answer
D. Mathew Blackburn
D. Mathew Blackburn
  • Tax Law Lawyer
  • Englewood, CO
  • Licensed in Colorado

A: The IRS can't go after life insurance paid directly to heirs for taxes due by the deceased or the estate. This is why it's very important to never name your estate as a beneficiary of a policy.

You can donate the vehicle to reduce the estate income tax on Form 1041. This is required where the estate created $600 or more in income. You can't take the donation on the deceased's final 1040.

Be prepared to show the vehicle had no value. If it has value it should be sold and the proceeds sent to the IRS. The expenses of sale, including the personal representatives fee, should be itemized and submitted as well.

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