Can the IRS go after family if taxes are unpaid after someone dies?

IRS Issues
1

If someone sells their assets, transfers the money to their family, and then passes away, can the IRS hold the family responsible for unpaid taxes? Or would it only come out of the person’s estate, even if there’s nothing left in it?

Disclaimer: This is just out of curiosity. I’m not planning to do this.

2

If someone were trying this to avoid taxes, it’s unnecessary and doesn’t work. The better option would be to pass away owning the stocks so the heirs get a step-up in basis. That way, they’d pay little to no tax if they sell the stocks later. If someone transfers the money before dying, the IRS can go after the family members under the concept of fraudulent conveyance if the estate is insolvent. Whether they actually would depends on many factors.

3

@Bali
Setting up a TOD (transfer on death) account would solve this problem.

4

@Bali
In this case, the stocks were already sold before the person died.

5

Sloane said:
@Bali
In this case, the stocks were already sold before the person died.

Got it. In that case, the second part of what I said applies. If someone was trying this as a plan to avoid taxes, it’s unnecessary and wouldn’t work anyway.

6

@Bali
If liquidity is needed, the person could just take a margin loan against the shares tax-free, and the interest would be deductible.

7

Alby said:
@Bali
If liquidity is needed, the person could just take a margin loan against the shares tax-free, and the interest would be deductible.

If you wanted to avoid taxes on borrowed money, you could:

  • Take a margin loan.
  • Sell naked calls or puts.
  • Use the credit and withdraw funds.
  • Then… well, you know.
8

@Rowe
TikTok lingo doesn’t apply here. You can use regular words in this forum. Just say it straight.

9

Lilnim said:
@Rowe
TikTok lingo doesn’t apply here. You can use regular words in this forum. Just say it straight.

Noted.

10

Sloane said:
@Bali
In this case, the stocks were already sold before the person died.

The question is, how did they plan to pay the tax if they sold everything?

11

This is why people hire CPAs. If the person dies owning the stocks, the heirs get a step-up in basis, wiping out unrealized gains. They can then sell with minimal taxes or just hold onto them.

12

Yes, this would be considered a fraudulent conveyance. Here’s more info: https://www.law.cornell.edu/wex/fraudulent_conveyance

13

Ren said:
Yes, this would be considered a fraudulent conveyance. Here’s more info: https://www.law.cornell.edu/wex/fraudulent_conveyance

Sure, it might be against the law, but can they legally make the family pay if the person is gone?

14

@Sloane
Yes, the IRS can take action against whoever received the money as a gift. They have procedures to recover unpaid liabilities from third parties if assets were transferred before the liability was settled.

15

@Sloane
The IRS would first go after the deceased’s estate for the taxes.

16

Blai said:
@Sloane
The IRS would first go after the deceased’s estate for the taxes.

That’s true, but if the estate is insolvent—meaning there are no assets left—the IRS can collect from the family members who received the transferred assets.

17

@Sloane
Yes.

18

@Sloane
Did the family have anything to do with the death?

19

Qi said:
Look into the step-up in basis rule. Just make a family member the beneficiary and don’t try to time things like this.

I think the OP is talking about transferring cash after selling the asset, not transferring the asset itself.

20

@Mica
Exactly.