Can the IRS come after money that is payed out by a life insurance policy for a family member that has passed?

Ernest must have either misunderstood the situation or is misinformed.

your first question doesn't match the question in the description...

If a person passes away and they owe money: If a beneficiary is named the IRS can't go after the benefit amount to collect for the deseased (the insurance benefit doesn't pass through the estate, so it can't be subject to creditors in most cases). If no beneficiary is named and the insurance money is paid to the estate, the IRS or any other creditor can go after it.

If a person passes away and you are the beneficiary and you owe the IRS money: Yes, the IRS can take it once it's in your hands.

After a person passes away the policyholder becomes nobody. The only important person is the beneficiary. Are you the beneficiary? If not they do not have to give you any money. If you are the beneficiary there is no way for them to take the money away from you. If you know which company the life insurance is with call them ASAP and put in a claim. Your grandma left you the house? Did grandma have a will or a trust? These are things you have to ask. Did grandma put your name on the deed of the house? Call the funeral home and ask the person working there if they know who the beneficiary of the life insurance policy is. They usually get paid out of the proceeds. If your the beneficiary they would be working with you to get their money. You may need an attorney to help you figure these things out. If you can not afford an attorney you might try to get some "free legal aid". Please post your state and city for some referrals. And, you might want to repost your question again under the "personal finance" category. Good Luck. Sorry for your loss. Money makes a loss much more painful.

The IRS can come after any money that is in your bank account, while it is in your bank account. If this is going to be a problem, then do not be the beneficiary and/or do not have the money deposited in your bank account. Have the insurance company divvy up the money.

Life insurance proceeds are paid out free of income tax, but once it's in your hands, it's like any other money you have. If you owe money to the IRS, you still owe them money.

Talk to your siblings and an accountant about splitting the money up. You may create an even bigger tax problem by doing so.

Yep. Once you cash that check, it's not life insurance money any more, it's YOUR money, and attachable to the IRS.

Whoever the policyowner is, should probably reconsider the way the beneficiary clause is written - and list each sib and the % that each of them gets, and that will totally avoid the problem.

I think the IRS can take your money. If you owe a large sum of money to the IRS, you should get an attorney to negotiate a settlement with the IRS. This sounds like something that would be best handled by an attorney who specializes in dealing with the IRS.

Yep.

You might talk to an tax attorney to see how to work this out, so that the IRS doesn't come after your back taxes until AFTER the funds have been divvied up.

they can't take it as you get it. but if the IRS has a lien against your bank account, and you put the money into said account, then can then take it. once the funds are in any of your accounts they are theoretically seizable. your best bet would be to let one of your siblings negotiate the payout.

Why would you be dividing the money? If you're the beneficiary then it's your money. They can't claim the life insurance but once the money is in your hands it's no longer safe from your debtors.

Just cash the check and take the cash. Do not deposit the money into a bank account.