My Dad owes MEGA taxes to the IRS. He wants to get life insurance. Will the IRS be able to take the money?

Question

About 20 years ago my dad ended up owing back taxes. He's still not paid in full and currently has no assets of any kind. He wanted to get a life insurance policy. My sister and I would be the beneficiaries. This would only be to help with any funeral costs. Will the IRS be able to take the money from the policy?

Answer 1

Hmmm.  Probably not, provided YOU, not his estate, are the beneficiaries.  I can't prove it, though.

If it's "whole life", and he has the ability to borrow against the policy, that loan is an asset the IRS might be able to touch.

Answer 2

All IRS can collect from is the taxpayer's property or rights to property. He won't have any rights to the benefits of the insurance policy because they will not exist until he is dead.

Funeral costs appropriate to the person's station in life would have priority over a tax lien in any case.

If your father owes federal taxes from 20 years ago, the statute of limitations for collection will have long expired unless some very unusual things have happened so you may really have a non-issue.

Answer 3

No.

Answer 4

I do not think so. However, instead of guessing answers here at Ya, it is best to consult a CPA. Your dad will pay if he wins a lotto. The government will take their share first before they pay him. I strongly believe that the insurance company will pay you first directly as beneficiaries.