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Tax question for deceased parent..
Old 02-05-2017, 07:55 AM   #1
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Tax question for deceased parent..

My FIL passed away in October this year. He was widowed. In doing his taxes, it appears since he was widowed (first year that he was), he files Single, and his taxes went up and has an amount owed of $794. Here are the details for him:

Home has been in irrevocable trust since 2002 (so he does not have real estate)

Did not own a vehicle (he was 91 and therefore not driving)

Had minimal funds in bank ($3k to $5k) and his VA Insurance had a beneficiary, so was not to his estate.

Funeral expenses were more than his bank accounts, so we foot the extra costs.

Basically, his only items of value are his household belongs, not worth much.

Anyone have suggestions on what needs to be done?
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Old 02-05-2017, 01:49 PM   #2
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The administrator of the estate should talk with an estate attorney. If they used the funds in the bank to pay for the funeral and then some, the administrator MAY be on the hook for the taxes. I think normally the taxman is first in line for funds in an estate if there isn't enough to cover everything owed.

And since state laws vary so widely the administrator should talk with the attorney.
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Old 02-05-2017, 02:54 PM   #3
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Ok. I guess we should have left him on the porch so we could pay Uncle Sam.
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Old 02-05-2017, 03:20 PM   #4
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Ok. I guess we should have left him on the porch so we could pay Uncle Sam.
That would be quite a stretch and I rather doubt the IRS is that harsh about it, but they might be if that's what the law requires. Under Medicaid rules a prepaid funeral is not an "asset" that they consider when qualifying someone, so there may be a parallel with the IRS. But I really have no idea, hence the recommendation to see an estate attorney.
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Old 02-05-2017, 03:25 PM   #5
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Note that in most states funeral expenses lie before taxes in priority. The first priority just like in regular bankruptcy are estate administration expenses.
But one needs to check with an instate attorney as the priorities vary state by state. Likley in the case of an insolvent estate the probate court will have to be involved
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Old 02-05-2017, 04:44 PM   #6
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In south Carolina he has never owed State taxes, only Federal.
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Old 02-05-2017, 06:20 PM   #7
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In south Carolina he has never owed State taxes, only Federal.
But an insolvent estate is effectively a bankruptcy but covered by the state probate rules not the federal bankruptcy law. The matter is handled by a probate judge who is a state officer. Note that in every state I have looked at it is similar to the bankruptcy code that the expenses of the administration take priority over everything, just like in bankruptcy (after all the lawyers involved need to be paid...) Most states I have looked at seem to imply that potentially up to some limit funeral expenses stand ahead of taxes. Google insolvent estates funds distribution for the state in question to get an idea of how the state handles things.
I have found an irs manual https://www.irs.gov/irm/part5/irm_05-017-013.html see 5.17.13.5 on the page, it says specifically under section 1 "Although the Federal Priority Statute, 31 USC 3713, does not provide for any exceptions to the Government's priority, courts have held that certain classes of claim can be paid before the tax debt. These excepted classes include administrative expenses, funeral expenses, and homestead or family allowances. "
Thus with this exception the income tax due appears to just be a bad debt to the federal government which will never be paid.
Note that if there were any medical bills they don't get paid.
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Old 02-05-2017, 06:34 PM   #8
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Should probably file a final 1040 through the date of death stating he is deceased. No estate tax return (form 706) required based on the size of the estate being below $5.4m.

Good luck.
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Old 02-06-2017, 05:42 AM   #9
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Just to clarify, was he widowed in a prior tax year? You said first year he was widowed.
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