Inheritence and IRS debt

[InfiniteMonkeys]

I need some advice for two sisters. They are inheriting a small amount of money from their mother. One sister has IRS debts, while the other has a history of IRS troubles (from 10 years back stemming from her ex-husband) which have all been cleared up.

Nothing has been done yet, but it was suggested that the daughter with IRS debts could refuse any inheritence and the other sister could accept the entire inheritence and help her out on occasion as needs arose. I became concerned that the IRS might find out about this and consider this some form of collusion or conspiracy to defraud and get both of them in trouble.

Another notion that seems reasonable to me is that the indebted sister could negotiate with the IRS. The amount inherited should be about 1/3 to 1/2 of the total debt.

My questions are:
1) Is there potential for legal trouble if the indebted sister refused the inheritence and later accepted help from the other sister?
2) Does the indebted sister have any leverage to negotiate with the inheritence or will the IRS, upon finding out about the inheritence, just take it all and still want the remainder?

I desperately need help with these questions since I fear that the one sister is about to get both in trouble.

Thanks 1,000,000

 

[loku]

IS THERE POTENTIAL FOR LEGAL TROUBLE IF THE INDEBTED SISTER REFUSED THE INHERITENCE AND LATER ACCEPTED HELP FROM THE OTHER SISTER?

That depends on how much help is given. If a substantial portion of the inheritance is given in “help,” then the IRS could say that this was simply a tax avoidance scheme, and they could assess tax, interest, and possibly penalties. Another point to keep in mind is that the sister, who does get the estate would not be legally bound to help the other sister.

DOES THE INDEBTED SISTER HAVE ANY LEVERAGE TO NEGOTIATE WITH THE INHERITENCE OR WILL THE IRS, UPON FINDING OUT ABOUT THE INHERITENCE, JUST TAKE IT ALL AND STILL WANT THE REMAINDER?

I think that depends on sophisticated understanding of the collection division. I suggest you hire a tax professional to do that for you if the professional, believes it is reasonable to do so in the circumstances.

 

[bbauer]

Why not use a trust?

I'm not much of an expert on these kinds of matters at all, so I'm only making a suggestion that comes to mind which might or might not hold possibilities for the both of them. You would need the advice of professionals to see if my idea would be of any benefit or would be workable or what.

But why not think about each donating their share of the inheritance to a trust fund set up between them in order to preserve it's value whatever that might be.

If the idea would work at all, it would have to be set up by an attorney or a tax professional who is also an attorney, otherwise I would not even think about doing that.

You can get kits to set up trusts just like you can get kits to set up corporations and many other things, but I would not trust them to do the job at all.

Like I said, I don't know anything about trusts at all and not a lot about taxes either so it's just an idea you might want to look into

 

[loku]

Do not set up a trust to try and avoid a debt to the IRS -- that would be a fraud on the creditor and it would therefore not work to protect the money.

 

[bbauer]

A fraud upon the creditor?

Do not set up a trust to try and avoid a debt to the IRS -- that would be a fraud on the creditor

Now that's interesting indeed! IRS is a creditor? How so? By definition a creditor loans something of value such as Federal Reserve Notes or an item or consideration of value. What does IRS loan? I never heard of any loan department they might have. I always thought they were a 3rd party debt collector and if they are not a 3rd party debt collector why did Congress make them liable under FDCPA which specifically exempts original creditors but rather only acts upon 3rd party collectors? One would not think that Congress would make such a gross error in judgment as to call a creditor a 3rd party debt collector?

Please explain. Inquiring minds would like to know.