When a debtor dies owing taxes, it is the responsibility of the personal representative to pay the taxes and file any missing returns. Assets are transferred to the deceased person’s heirs or beneficiaries to pay outstanding debt.
The personal representative's ability to pay taxes is limited by the amount of assets available. If assets are inappropriately distributed without paying the taxes of the deceased, the personal representative, heirs, and trustees can be held liable. If other officers or a spouse are also liable for the debt, they can be pursued.
Upon confirming the debtor is deceased, the Minnesota Department of Revenue returns other agency debts
to the referring agency. The department will research to determine if any assets should be probated.
When There Is Probate
Probate is a county court process that is filed within three years after the date of death. In order for the department to obtain payment from probate, a claim must be filed.
Once a notice of probate is published in the newspaper, creditors other than the department have 120 days from the publication date to file a probate claim against the deceased debtor’s estate.
Probate is closed after a final account is issued detailing the assets of the estate and how they were distributed. A copy is filed with the probate court, and the personal representative must provide a copy upon request. Not all probates require a final account.
Types of Probate
Informal — The most common form of probate. All decisions are made by the personal representative. A closing statement is often issued, but it is not required by the court. The personal representative is required to follow probate law in disbursing the assets of the estate, but it is up to the creditors to object if the distribution is incorrect.
Formal — The court determines the distribution of the assets of the estate. A final report is issued. The court maintains a record of the status of the probate.
Supervised — Court hearings determine the liquidation and distribution of assets. The personal representative carries out the orders of the court. The status of the probate is maintained by the court.
When There Is No Probate
A deceased person with no assets, or with only jointly owned assets, may not need a probate.
Assets which are payable upon death to a named beneficiary are known as non-probate assets. Non-probate assets are inherited by the named survivor without applying to the claims of creditors.
Even if there is no probate, the final income tax return must still be filed and signed by the personal representative or the transferee (heir). If no known assets are located and no probate is opened, the debt is uncollectible
- Property with the right of survivorship
- Insurance proceeds, such as life insurance
- Annuities payable upon death to an individual
- Pensions and retirement accounts with the immediate withdrawal rights for the named beneficiary
- Accounts with rights of survivorship and payable upon death
There may be non-probate assets of a deceased person that the department can use for collection purposes. A trustee who is appointed to administer the trust is responsible to make sure that the debtor’s tax debt is paid before distributing the assets. The trustee may be held personally liable for any unpaid individual income taxes of the deceased if the assets are intentionally distributed without the taxes being paid.
The personal representative is liable only in an official fiduciary
capacity, and becomes liable only if the representative “voluntarily” distributes the assets without reserving sufficient funds to pay the tax. The department can pursue the personal representative for any monies up to the amount that was incorrectly distributed.
Request for an Early Audit
Since audits can be assessed after the death of a debtor, it is possible that a personal representative would have to collect the amount of the audit from the heirs. If the personal representative does not request an early audit, the department has 3½ years after the return is filed to audit. Court action to collect the debt cannot be brought later than four years after the return is filed.
Officers of Corporations
If an officer of a corporation was not assessed prior to death, and the three-and-one-half year’s period for personal assessment has not yet expired, the department will verify if there is a probate. If there is no probate, the deceased officer will not be assessed. If there is a probate, the personal liability letter assessing the officer will be sent in care of the personal representative.